Doing the Math: Cohabitating vs. Getting Married
By Nancy Dunham
While we may marry for love, our bank accounts and financial histories are another key part of that union. Here, three experts discuss how couples who want to marry can understand how their finances will mesh with those of their partner.
Consider your credit scores
Many couples who want to marry become so involved in their emotional response they often don’t take the time to determine how their finances will mesh with those of their partner. Ken E. Goodgames, president and CEO of Transformance, formerly Consumer Credit Counseling Service of Greater Dallas, discuss how credit scores, for one, can make a difference.
“[T]he credit score of each individual is critical to consider as this factor will impact the purchasing power and interest rates for future joint purchases such as mortgage and car loans, major household items and even impacts in many cases career advancement and future earning potential, as many employers look at credit scores in their interviewing and promotion processes. According to the 2015 Assets and Opportunity Scorecard, 55.6 percent of the U.S. population has subprime credit scores.
“Suppose a couple would want to borrow $200,000 in the form of a fixed rate 30-year mortgage. If one has a credit score is in the highest category, 760-850, a lender might charge you 3.307% interest for the loan. This means a monthly payment of $877. If, however, your credit score is in a lower range, 620-639 for example, lenders might charge you 4.869 % that would result in a $1,061 monthly payment. Although quite respectable, the lower credit score would cost you $184 a month more for your mortgage. Over the life of the loan, you would be paying $66,343 more than if you had the best credit score. It goes without saying that an extra $184 per month could represent a nice next egg for saving.
“What is troubling is that most financial wellness approaches presuppose that people understand their finances, credit implications, and ramifications of combining assets and liabilities through marriage. In fact, what we find is that many people do not have solid foundations of financial learning and do not consistently practice fundamental financial wellness principles of spending less, saving more and reducing debt.”
First, understand your financial thumbprint
Leslie Tayne, an attorney specializing in debt resolution, reminds her clients that there are many financial reasons why it may be unwise to marry. She outlines the math that she uses to help couples of all ages understand if marriage is smart for their financial health.
“It’s important to look at all of the variables—income, net worth, benefits, children, health and debt—and consider various scenarios. If the math works out today, that doesn’t mean it will work out in a year.
“Say that one person is earning $40,000 a year and the other person is a medical student. The math—such as a student loan interest tax deduction and access to education credit—works out for them to marry. But when the student graduates, presumably he or she will earn a healthy income. And perhaps they’ll have exorbitant debt. So the math will change regarding benefits, debts, credits and repayment of financial obligations.
“That can and does happen in many situations.
“There is the presumption that spouses are responsible for each other’s debt and that is not so in cases of cohabitation, at least not in New York State. So it’s important to look at who has the debt, who doesn’t, and how income and debt will be impacted by marriage.
“When deciding whether or not to marry, there is no one formula that works. As an individual your debt and finances are just as unique as your thumbprint. When you marry and combine your finances with another, you develop a distinct financial DNA. That’s why it’s critical to look at how marriage will impact you in the long- and short-term.
“You have to know your finances, your partner’s finances, and what you want in life. Then you ask the right questions. That’s the formula.”
