It’s wedding season and if, like me, you’re dusting off a fancy hat to watch a happy couple swore their allegiance, I’m sure you wish them all the luck in the world.
also wish them financial happiness, which is not so romantic but a practical pursuit. Juggling shared finances can be difficult, especially as couples these days are older and more independent when married.
According to the CSO, the median age for same-sex and opposite-sex couples to walk up the aisle is 38.2. As a result, many are marrying with separate homes, bank accounts, credit, and savings, and may be wondering how best to secure their financial future together for years to come. Here’s what you need to know.
Marriage brings more flexibility to tax rules, says MoneyDoctor John Lowe.
“The options open to you include: filing jointly, where you are taxed as one and some tax benefits can be transferred to the other; Separate assessment, where your available allowances are split evenly; and individual assessment, where you choose to be treated as two single people for tax purposes.”
Which one you choose depends on your income level and the tax rate at which you pay taxes.
If you are self-employed, employing your spouse can save you up to €5,000 in taxes per year.
“To achieve these savings, the combined income that you and your spouse earn per year must be at least €70,800, since the two-income family can take advantage of the extended standard rate,” says Mr. Lowe.
In addition, you will be treated as single persons for the first year of your marriage. If the tax that you would have paid if you had filed jointly is higher, you can have the additional taxes deducted in the months after marriage reimbursed in the following year.
If you have separate houses, if you combine your financial lives, you have options. You can live in one and sell the other or rent it out for income. It’s worth checking the numbers because if you move out and become a landlord, your mortgage interest will go up along with other fees like registering with the RTB, income tax on the rent, and the cost of maintaining and renting out the property. It’s difficult to make a profit as an amateur landlord, so be careful when making your decision.
Should you decide to sell, there will be no capital gains tax (CGT) if you do so within 12 months of leaving your primary residence. After that, you are considered an investor and CGT is applied to the 33 percent increase between the buy and sell price.
Getting married is the best way to avoid an inheritance tax bill when the worst comes to the worst. The transfer of wealth between spouses is unlimited and no capital acquisitions tax (inheritance tax) is payable. Compare that to an unmarried couple. Both are considered “strangers” for tax purposes, so the maximum tax-free legacy that one can receive from the other is only 16,250 euros. Anything above that is taxed at 33 percent.
So let’s say a couple together own a home worth €500,000. If he dies, it can be assumed that she will receive the “gift” of his share of €250,000. That gives a tax bill of €77,137 before all other assets. Get hitched and the bill drops to zero.
If you’re not married, you can get a special type of insurance policy called a Section 72 plan. This is a life insurance policy where the proceeds equal to the tax bill go to the tax office to satisfy them without being considered a gift itself. It can get expensive depending on your age and health, but at least you don’t have to sell any assets to pay the fee.
Spouses can also give each other tax-free money. There is also no stamp duty normally paid on property transfers.
Joint finances can be extremely difficult. Do you pool your salaries and draw them from the same checking account, or do you keep them separate? It could be tense if one of you is a better money manager or saver than the other. One solution is to have a joint “household account” into which you each pay a percentage based on your income.
This pays for regular bills like the mortgage, insurance, utilities and groceries. You keep the rest separate, but it also makes sense to have a joint savings account for things like vacation, school fees, and spending on children.
This column isn’t designed to advise on spousal infidelity, but financial infidelity is all too common and can, on the side, undermine a marriage a bit. It happens when couples start lying to each other about money. Examples include concealing debt, excessive spending, and improper use of funds.
It can lead to massive tension in relationships. The best way forward is to be completely open with each other about your goals, ambitions, and financial expectations. It is important that you share each other’s access passwords for bank accounts and only ever make joint investments.
It is also important if something happens to one of you and the other needs access to your funds in an emergency.
Become financially compatible
There are ways you can adjust financially to married life by applying a few simple rules, according to Money Doctor, John Lowe.
Keep your independence. Have a joint household account for joint expenses, but if you both work, then you have the right to keep the rest of your “own” money. After all, having a gift purchase pop up in your joint account can ruin a birthday or anniversary surprise! It’s a good idea to keep a “fun” account that you both deposit into for evenings or weekends. You can plan together without the hassle of “who pays”.
Don’t let one of you be responsible for all the money. Access to bank accounts and investments should be shared. It also means sharing the burden of paying insurance bills, bank fees or loan repayments.
Be honest and share your financial goals and ambitions. When one of you wants to save for a new car and the other wants to take out a loan to do so, it can create tension.
Communication is key. A marriage is like a business. Money flows in and out and you wouldn’t dream of allowing passive disinterest from any of the ‘directors’.
Don’t avoid the boring things like pensions and investments.
If you are not both involved in the decisions, it can lead to big rows in later years.
Hire professionals to help you and join meetings with brokers, advisors and banks together.
https://www.independent.ie/business/personal-finance/wedded-bliss-how-can-a-married-couple-best-sort-out-their-finances-41672385.html Married happiness – how can a married couple best regulate their finances?