In many relationships, the process of merging assets starts long before marriage, especially considering that two-thirds of couples married in 2012 lived together for at least two years before marrying, an increase of more than 900% over the last 50 years. According to LearnVest (via Forbes), only 16% of women and 18% of men who live with their significant other before marriage keep their finances completely separate.
Bringing your partner into your financial life is an exciting time, but it must be done with honesty, trust and awareness. There should be no rush to merge your assets all at once; instead, it’s best to be methodical, to discuss each step carefully and to add building blocks to your shared finances one by one.
Here are six steps couples who live together and are committed to each other, who are engaged or who are newly married may not realize they should take when merging assets:
- Thoroughly understand what debt you are both bringing to the relationship.
Talking about debt does not require apologies, but it does require honesty. If you’re bringing $10,000 of credit card debt into a shared home, your partner needs to know. It’s not just about the monetary amount; it’s also about knowing the habits that brought on that amount. Debt comes with a story—whether it’s a law degree or the first car you bought—and each of you needs to know the other’s debt stories.
- Set a budget together, based on the income of both partners.
If you’re starting to merge your assets, it’s time you started a joint budget (if you haven’t already). You can keep your own budget, too, and continue contributing to your own savings or retirement accounts. In tandem, however, you should be keeping an “us” budget. At first, this can simply include all of your joint household expenses, but as things progress, you may want to start working toward savings goals together as well, particularly if one partner’s income is significantly higher than the other’s.
- Understand your partner’s money habits, not just his or her financial picture.
Building your relationship means learning about each other’s quirks, idiosyncrasies and asterisks. Beginning a financial relationship is no different. When you’re beginning to merge your assets with a significant other, you’ll start learning the ins and outs of his or her money behavior, which is crucial. You should know what your partner always splurges on impulsively, what his or her financial goals are and what money fears he or she tries to hide.
- When merging assets, start small, then build slowly.
You do not have to transition instantly from completely separate finances to using only shared accounts. This is especially important to remember if you are just starting to share your life together, because you will want to grow together financially in many small steps, not one gigantic leap. Opening a joint checking account is a good introduction to learning how to manage your money together. If you live together, doing so can also make it easier to pay bills from just one account. From there, you can build out a budget and save together for your joint goals, or you can advance to sharing ownership of a car or property together. As each of these steps starts to feel natural, you will both feel more secure in your joint financial relationship.
- Discuss how property factors into this whole process.
Just as you need to understand your partner’s debts, you also need to understand the assets he or she acquired before you were in the picture. For some couples, one party may have purchased a house before he or she even got into a relationship. On the other hand, if you were already a couple and contributed unequal shares to the down payment (or one person paid the down payment, but the other contributes to mortgage payments), property ownership gets trickier. You each need to define your expectations for shared property in the event of a split. For these scenarios, a prenuptial agreement can help. (And for partners committed to each other but not married, “no-nups” and cohabitation agreements are also increasing in popularity.)
- Decide together what you want your end goal to be.
Begin with the end in mind. When you and your partner begin merging assets, you need to decide mutually where you want this financial journey to take you. This does not necessarily mean combining everything. While fully merging assets is one possibility (just as keeping everything separate is another), many couples fall somewhere in between the two options. When approaching this discussion, be honest with your partner about your wants and your hesitations in order to find an outcome that makes you both feel secure.
Merging assets can get complicated, and it may also require the support of your financial advisor. (In fact, it could even include introducing your partner to your advisor.) For more information on the do’s and don’ts of merging assets in a relationship,
speak with your Atlantic Trust advisor or visit G2G Impact on atlantictrust.com for more
Halsey Schreier is a wealth strategist for Atlantic Trust’s New York office, with seven years of industry experience. In this role, he provides high net worth clients with integrated wealth management services, including comprehensive estate and financial planning solutions, multi-generational legacy planning and fiduciary administration for trusts and probate estates.