The Smart Girls’ Guide to planning finances before marriage

There’s more to marriage than just compatibility and common interests—it’s also important to be on the same page financially

Talking about money is almost always hard, but it’s important to be on the same financial page as your partner before you decide to get married. Early discussions about money can throw up some interesting insights about each other. Are you a penny pincher or an extravagant spender? Do you want children? Does your partner want to take a sabbatical to fund their own business? It’s important to address the elephant in the room before you say “I do”.

Discuss your childhood influences

It’s no secret that the social values, influences and experiences we encounter as children play a great part in shaping who we are and how we associate with others, as adults. What is lesser known, perhaps, is that these same childhood influences also shape our relationship with money. So understanding your partner’s financial triggers is very important for financial compatibility. If they grew up in a financially tough environment, chances are that they are cautious and stringent in their spending choices as adults, and live within their means. Others who may have never encountered such experiences might be more open to taking financial risks.  

“They should have a healthy discussion about whether they have any liabilities, what their expectations are and how they are going to use their finances. They should talk about savings and whether they are going to live on credit or not. When one partner is spending endlessly on the credit card, it could make the other partner anxious. They could have had bad memories about their own parents going into bankruptcy, not having money when they needed it, or not being able to afford school fees; these are conversations that should be had very clearly,” says Dr. Anjali Chhabria, psychiatrist and founder of Mindtemple. “Financial compatibility or incompatibility can be a huge concern,” she adds.

Joint or separate accounts?

This is perhaps one of the most important and practical hurdles a couple will face. Do they get joint bank accounts? Or separate accounts? Or a combination of the two that best suit their needs? “There is no one-answer-fits-all in this situation,” says Vishal Dhawan, CEO and founder of Mumbai-based Plan Ahead Wealth Advisors. “It really depends on the individuals involved and how comfortable they are. Sometimes, family history or past experiences when it comes to joint bank accounts can lead people to tread with caution. In that case, they could keep their bank accounts separate initially and then consider integrating them over time. If couples decide to get a joint account, it is critical that they are on the same page about spending habits and savings. Otherwise, it can quickly escalate into a situation where people feel the need to fence off ‘their money’,” he says. The main benefits of getting a joint account are largely operational and practical. “In case of an emergency, you can access the money immediately if you are a joint-account holder,” adds Dhawan. . 

Come clean on your finances

When you’re about to take your relationship to the next level, it’s important that both partners start with as much honesty and transparency as possible. This also holds true for your finances. It’s critical that you are aware of the amount of debt that you or your spouse are bringing to the table. It could be credit-card debt, student loans, poor financial judgement, personal commitments, business loans or an medical emergency that has set you back but it’s important to lay these cards out on the table. What were the circumstances that created a particular situation? How can you get out of debt? How do you feel about being in debt? “There is no shame in having this conversation. When the other person discovers these possible situations, it can lead to huge trust issues, incompatibility issues, and the marriage may break because one has not been clear, or has been vague about their earlier financial situation,” says Chhabria. 

Conversations about money can be emotionally charged ones, and hence it is important to be respectful and remember that you are a team. However, if you have concerns, now is the time to bring them up honestly and chalk out a plan that is sustainable. If you still don’t see eye-to-eye on debt and spending habits, you should consider having separate accounts.  

What are your goals as a couple?

This is as good a time as any to start a conversation about what you want your life together to look like five years down the line or two decades later. Do you want to buy a house or are you okay renting it? Do you want children and if so, can you afford a sabbatical from work? Do you want to work towards an early retirement? How important is it for you to have a nest egg?

Dissect the numbers

Start by drawing up simple income and expenditure patterns. Are you regimented about how you spend your income and save for a rainy day? Or are you an impulsive spender who likes to take each day as it comes? Do you have a regular income? Or does your income fluctuate? Who will take care of the daily expenses such as groceries, staff salaries, rent and a retirement fund? Who will keep a tab of the expenses? Discussing these in advance and dividing the financial roles can help you plan your finances better together.

Also, it’s important to be honest about your financial expectations from the very beginning. “In today’s world, couples are presumed to be financially independent, but yet they may have expectations of the other person,” says Chhabria.   

Evaluate your insurance cover

This is a good time to evaluate if you have adequate insurance cover and port to an insurance company that offers better coverage. For instance, some newer insurance plans offer maternity covers, says Dhawan. You, along with your spouse, can also opt for a floater cover where both people are covered under the same plan. With this, there is a single limit that can be used for both, and is cheaper. If one partner is likely to take a sabbatical from work or become a homemaker, it may be a good idea to shore up life insurance, so that the family is protected.

Sujata Kabraji, a Mumbai-based financial coach, says that it is critical for a woman to protect herself financially. In an earlier article on insurance, she said “If you are a married woman, it is prudent for your husband to take out a life insurance policy under the Married Women’s Property Act (MWPA).” This is a welfare act which ensures absolute ownership of earnings, property, investments and savings of a married woman. In the event of the husband’s death, a provision under this act gives complete and undisputed control over the life insurance policy to the wife and children of the deceased. No other person or entity, including a future spouse (in the case of divorce), relatives or creditors can lay claim to it. 

Set up an emergency fund

This is one area that every couple should discuss and have in place. When life throws a curveball, you don't want to be caught off-guard. Emergencies could range from job loss or sudden home repairs to unexpected medical expenses or death. An emergency fund could give you that financial buffer to get back on your feet. "We recommend that you start working towards an emergency fund immediately," says Dhawan. "If both partners are working, then their emergency fund should ideally cover three months of expenses and six months of EMIs. If it is a single earning member, then that emergency fund should cover six months of expenses and 12 months of EMIs."

Tax implications

The Indian tax system acknowledges marriage and provides specific provisions for married couples. These provisions include tax-free gifts, income clubbing and tax deductions,” says Naveen Wadhwa, a chartered accountant and deputy general manager at Taxmann, a research and advisory firm. To be sure, gifts received from a spouse are completely tax-free, regardless of the amount. However, this exemption is applicable only if the gift is given after the marriage has taken place. “It's important to remember that if couples want to exchange gifts before marriage, it is recommended to give personal assets like mobile phones, watches or cars., rather than jewellery, gold, shares, cryptocurrency or cash, to avoid tax liability,” he says. Moreover, any gifts received by the bride or groom from friends or relatives during their wedding are tax-free, with no limit.  

When calculating taxable income, individuals are eligible for certain deductions based on investments or expenditures. These deductions can also be claimed if the investment or expenditure is made in the name of the spouse, says Wadhwa. For instance:

* Section 80C: Deductions for payments made towards life insurance, education, provident fund contribution, housing loan repayment, certain small saving schemes, pension funds or fixed deposits.

* Section 80CCD: Deductions for contributions made to the National Pension Scheme.

* Section 80D: Deductions for medical health insurance premiums.

* Section 80DD: Deductions for medical treatment expenses for a person with a disability.

*Section 80E: Deductions for interest paid on an education loan.

Be clear about financial commitments

If either of you have financial commitments such as taking care of your parents or siblings, a child from an earlier marriage, or specific career plans, it’s important to discuss the financial implications and timelines with your partner. It is important to discuss these in advance so there are no surprises or resentment later when an elderly parent moves in, or a partner takes a sabbatical from work to pursue a dream project.

Protect your future

If you have financial dependents or are likely to have assets in common, it is important to have a will in place. Not only does this protect your family financially but can lay out a clear roadmap to safeguard your loved ones and your property. 

At the other end of the spectrum are prenuptial agreements. While it is a touchy subject and can rub a lot of people the wrong way, this may be an important tool to protect yourself in the worst of situations. If either partner has substantial pre-marital assets, family wealth or inheritance or a business, it may be prudent to protect your assets and address the matter as honestly and openly as possible.

What about your investments?

Joint holdings will depend not only on an individual’s comfort level but also what a financial product will actually allow, says Dhawan. For instance, investments such as mutual funds do not allow change in ownership, in which case, the name of the spouse can be added as a nominee. As far as documentation is concerned, a marriage certificate is enough to be used in most cases. If you change your name, you need to apply for a new PAN card, and change and update your bank accounts.

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