The following is presented for informational purposes only.
You may have heard or experienced how money can be the source of arguments and stress in a relationship. It can happen due to a difference in opinions about money, spending and savings habits, or financial infidelity. And in a worst-case scenario, it could also be a root cause for divorce. However, being on the same page when it comes to finances can strengthen a marriage and help you achieve shared goals.
There’s no one-size-fits-all solution when it comes to merging finances. “The best solution is case specific,” says Debbie Todd, a certified public accountant (CPA) who offers money and debt coaching for individuals and groups. Todd says couples may need to consider what debts they bring to the mix, whether they have prior obligations (such as child support or alimony), if one person makes considerably more money than the other, and whether it’s both parties’ first marriage.
“One of the simplest ways to make this work is sitting down and talking about what your circumstances mean and, more importantly, what fears one or both parties may have,” says Todd. As with many facets of a relationship, having open, honest and non-blaming conversations can be the key to success.
Deciding where you’re going to keep the money you earn and save is an important part of those discussions. Here are three popular methods couples use:
1. Keep Your Money in Separate Accounts
While marriage may be a commitment to share your life together, some couples find that keeping their money completely separate works best for them. You may both be accustomed to managing finances on your own and wish to continue doing so, or you could have some alternative motivation for keeping your accounts separate.
Todd says, “Open communication about why (you want to use) separate accounts is a good idea from a trust perspective.” If there isn’t any discussion, you or your spouse may feel that the other person want a separate account because there’s something to hide.
With such an arrangement, you could still split up mutual bills, such as the mortgage or rent, groceries, and utilities so you each have your own responsibilities. You may want to decide early on if you split the bills so that you both pay about the same amount each month, or if the expenses will be proportional to your income.
2. Combine All Your Money with Joint Accounts
Adding your new spouse to your accounts and opening new joint accounts together is another option that could work well in some cases. Couples may feel that sharing all aspects of their life, including the financial, is a significant gesture and demonstration of transparency and trust.
On a practical note, having joint accounts can make managing the household’s money easier since everything goes into, and comes out of, shared accounts. Plus, with two sets of eyes watching the statements, you may be able to spot mistakes or savings opportunities more often.
3. Use Personal Accounts and Joint Accounts
Having one or more joint accounts for shared bills and individual accounts for individual expenses is another option. The joints accounts could make it easier to manage household bills or savings goals, while each spouse gets to keep part of his or her financial life separate.
Ryan Inman, a fee-only financial planner for physicians, says he and his wife set this type of system up by creating a joint account when they were first married. All the money they earn goes into the joint account, and then each month a certain amount gets transferred into individual accounts for him and his wife.
“We are free to spend the money as we wish,” says Inman. “We can buy gifts for each other, donate it to charity, go out for drinks with friends, or anything else. No questions asked.” The rest of the money in the joint account gets budgeting to cover their household expense.
The Legal Implication of Joint Accounts
A conversation about joint and individual accounts isn’t complete without acknowledging the potential legal ramifications of the decision. Whether it’s opened with a family member, friend, or spouse, every member of a joint account could have full legal rights to the money. This also means that if one person gets sued or falls behind on debt payments, the money in a joint account could at risk. That may be a reason to keep some of your money separate.
However, if you live in a community property state (Ariz., Calif., Idaho, La., N.M., Nev., Texas, Wash., and Wis.), you may share full legal ownership over your spouse’s savings and debts that are accrued after the marriage — so-called marital property — no matter what. In Alaska, S.D., or Tenn., you can also opt-in to using a community-property system.
Although there may be some exceptions for inheritance, gifts, and premarital assets, if you live in a community property state, the money that either of you earns, things that either of you buy, and debts that either of you accrue may be considered both spouses’ assets or liabilities. This can be the case even if you keep the money in a personal account or you didn’t cosign the loan or credit card.
Generally, whether something is martial or personal property is most important during a divorce or after someone dies. You may not want to start your marriage planning for the worst, but it is important to consider these factors and the potential ramifications of your decisions early on.
The Benefit of Discussing Financial Matters
No matter where you decide to keep your monies, resentment could start to build in both spouses if one person is responsible for managing all the household’s finances.
The person who doesn’t manage the money may feel limited in his or her actions or contributions and could have trouble catching up on the family’s finances if the other spouse dies first. On the other hand, the person who’s responsible for handling all the money decisions may begin to resent the responsibility and accompanying pressure to get everything “right.” In the end, even if one person shows more interest or skill in managing money, involving both partners in decisions could lead to a less stressful and stronger relationship.