Should Couples Combine Their Personal Finances?
Find out the pros and cons of different ways to manage coupled finances.
Whether you should merge your personal finances with another person is an important decision. Mingling money in joint accounts affects both of your credit scores and also has far-reaching legal consequences. When it comes to blending personal finances, there are three basic approaches that couples can take:
You can jump into a complete financial union
You can maintain complete financial independence
You can settle somewhere in between.
In this post we’ll consider some of the pros and cons of each of those options.
Should Couples Combine Their Money?
If you’re married or are in an equally serious relationship that you’re confident will stand the test of time, I recommend that you merge your finances 100%. That’s probably because I’m married and the merger setup has worked really well for us. I believe that uniting money and having joint bank and credit accounts is the best way to work as a team to overcome challenges and to accomplish your shared long-term financial goals.
When you’re in a committed relationship, all financial decisions should be discussed and shared equally. It doesn’t matter if only one person works, or if one person earns much more than the other. You should decide as a couple how to budget, how much to save, whether to buy a home, and so on. Uniting everything also makes managing money easier because you have fewer accounts and administrative tasks to handle.
Those are wonderful pros, but what about the cons? The downside to tying a financial knot with someone is that untwisting it can be a real nightmare if the relationship ends. Joint mortgages, credit cards, and bank accounts can be very difficult to separate even with a formal court-ordered divorce decree. Another problem is that some couples may never agree on certain issues, like creating a spending plan or on how much debt they should carry. Maybe one person is a die-hard saver and the other is a wild-eyed spender—you see where I’m going.
How a Couple Can Split Up Their Finances
Differences in your financial personalities should ideally be rectified by agreeing on a budget, so priorities—such as housing, food, savings, and debt payments—always come first. But if you know your partner well enough to know that your financial philosophies will never jive, it may be wise to split up your finances—or at least a portion of them. One option is to have joint checking and savings accounts but to also have individual accounts. It’s a “yours, mine, and ours” approach where one or both people contribute to the family pool, but each maintains a separate account to manage themselves, without the other person looking over their shoulder.
As I mentioned, this isn’t the tactic that I take, but it certainly could help keep the peace if one person dominates the finances and doesn’t give the partner any leeway. This setup tends to be common with people who come together after being on their own for a while. If you’ve managed your finances for years, you may feel more comfortable hanging on to some amount of financial autonomy. The downside to this approach is that there’s more bookkeeping to do. You need to establish what flat amount or percentage is equitable for each person to contribute to the joint kitty and which expenses should be shared.
Should a Couple Keep Their Money Separate?
At the other end of the spectrum are couples who are unwilling to merge any of their money and choose to keep completely separate accounts. Each person is responsible for paying certain household bills from their own accounts and doing their own money math. Some reasons that I’ve heard people give for their refusal to blend finances is the fear that combined accounts will make either party more likely to overspend or that one’s investment risk tolerance is much higher or lower than the other’s. Another reason may be that one person brought a lot of debt to the relationship that they don’t want to burden the partner with. Debt that you bring into a marriage isn’t your spouse’s legal responsibility; however, I still recommend tackling all debt as a couple.
[[AdMiddle]Being remarried might be a situation where it makes sense to keep separate finances. If there’s alimony and child support to pay, for instance, a spouse with those responsibilities may feel that it’s too complicated to share equally with a new spouse. And if your relationship isn’t rock solid, I certainly recommend playing it safe and keeping your personal finances, well personal.
The problem with managing completely separate finances is that both people have to be good bookkeepers and budgeters to make sure nothing falls through the cracks—and that’s usually not the case. Also, some expenses aren’t easy to divvy up. How do you decide who pays for groceries, an appliance repair, or a bundled phone and cable bill? Splitting everything up by usage and as a percentage of income makes my head hurt, and I like accounting!
Should a Couple Have a Pre-Nuptial Agreement?
A controversial issue is whether a married couple should have a pre-nuptial agreement. A pre-nup simply spells out what will happen to assets during a marriage and afterwards if there’s a divorce. If there are large or potentially large assets at stake—like an existing business, a trust fund, or a future inheritance—a pre-nup may make sense. It may also be wise to create one if you remarry and have children from a prior relationship that you want to make sure will get an inheritance.
How to Communicate About Personal Finances
Before you merge any aspect of your finances, have a candid conversation about your concerns, how you believe money should be managed, and your financial goals. If that seems too difficult, you may need to speak with a counselor to help you sort it out. If you defer all financial decisions and tasks to your partner, remember that you still need to stay involved so you know what’s going on. My advice is to arrange your coupled finances in a manner that works best for you, but to be open-minded about changing tactics if you find that your setup for handling money isn’t working.
Sign Up for the Money Girl Newsletter!
I hope you know that there are other ways to get more money tips, news, resources, and advice from me. Of course, there’s the Money Girl Facebook page and my Twitter feed, but now you can get the weekly Money Girl Newsletter. It’s got tips and extra content that you won’t find on the podcast or blog. Simply click here and sign up today!
The podcast edition of this tip was sponsored by Go To Meeting. Save time and money by hosting your meetings online. Visit GoToMeeting.com/podcast and sign up for a free 45 day trial of their web conferencing solution.