- Date : 09/12/2020
- Read: 4 mins
Money matters can often be tricky for married couples. While there is no sure-shot answer to what they should do, transparency is key.
Once a couple has tied the knot, they have to figure out each and every aspect of their lives, since their personal and professional lives are deeply intertwined. Right at the onset, one important topic that couples need to address is that of investment strategies and financial goals.
In most cases, merging finances is beneficial as it allows you to budget, allocate responsibilities, and save in a structured manner towards shared future goals. It also lets you present a stronger financial front, especially when applying for a loan to purchase an asset like a house or a car. But at other times it may be more beneficial to do it individually.
In the spirit of ‘togetherness’, women often don’t think twice about having a joint account with their spouse or merging their investment portfolios. However, there may be some instances where it makes sense to hold separate asset bases.
- Loan application: Credit score is the primary consideration for any loan approval. While we tend to assume that two incomes are better than one, it may hamper the prospects of a joint application if either partner has a poor credit score. Credit card defaults, existing liabilities like an education loan, small credit history, etc. are some variables that can work against you. If you have a better credit score than your spouse, applying separately increases your chances of getting a loan - and at a lower interest rate.
- Aiming for a strategic balance: A great piece of investment advice is to not put all your eggs in one basket. Diversifying your investments is imperative to sound financial planning. It also bodes well to invest separately if both partners have different risk appetites. If one is cautious and the other is a risk-taker, having different investment strategies can ensure a robust balance.
- Tax optimisation: There are various benefits available for different investments such as mutual funds, health and life insurance, stocks, real estate, etc. These benefits may be tax-deductible (like an ELSS investment) or offer capital gains relief (as with real estate). However, when made jointly, only the first holder can claim these deductions or benefits even if the payment has been made from a joint account. It is recommended to make at least your tax-deductible investments under Section 80C (ELSS, life insurance premiums, etc.) and health insurance (under Section 80D) from your own account to maximise the tax benefits available to you.
- Resolving differences of opinion: You and your partner may not always see eye to eye on certain investment decisions. These differences can create a rift in your relationship. If you are solely responsible for your personal finance, you can make buying and selling decisions in your portfolio as you deem fit. Therefore, investing separately can often bring peace of mind to married couples.
On the other hand, investing together can offer multiple benefits. If you are looking to invest together, here are some tips that can help you create a robust plan to safeguard both your interests.
- Develop a unified investment strategy: Sit down together and determine your common goals. This will help develop a clear financial strategy that you can work towards. Goals could include buying a house/car, saving for your child’s education, creating an emergency fund, saving for a comfortable retirement, etc. Married couples should share a common vision for their financial planning if they wish to be successful.
- Clearly demarcate ‘my money’ and ‘our money’: Even if you are investing together, there should be a clear understanding of my money, their money, and our money. This essentially means that while you both invest together to meet long-term investment goals of the family, there should be a demarcation of which investments are yours and his, and which ones you own together. This helps ensure clarity and avoids any disagreements in the future.
- Establish a dispute resolution mechanism: Even though you may have the healthiest of relationships, you should make provisions to address a dispute if one arises. You can list down all your investments, stating who owns what, what the money should be used for, etc. This document can be referred to when there is a clash. Alternatively, you can seek help from a trusted relative or a legal professional to resolve a dispute.