The Thorny Issue of Combining Finances

 

Newlyweds by INDelight Photography

Life is full of sticky issues and none stickier than the issue of if, when, and how to combine finances with a romantic partner.

In the early days of a relationship, when everything is shiny and new, it might seem like the most logical thing in the world to combine finances with the girl or guy of your dreams. But keep in mind that the odds of the relationship panning out may not be in your favor. Divorce statistics are always hotly debated, but the CDC puts the marriage rate at 6.8 per 1,000 of total population, with the divorce rate at 3.4, based on 2009 data. You don’t have to be Zsa Zsa Gabor to realize that these are not terrific odds.

Considerations

There are many factors to weigh when deciding to combine finances, including the incomes, assets, debts, credit ratings, obligations, ages and general reliability of both parties. For example, an older couple with two stable incomes and established credit histories might benefit less from combining finances than a younger couple with one stay-at-home spouse. Likewise, couples with one spouse whose income varies greatly from month to month (such as real estate agents, freelancers, or contractors) might find that putting everything in one pot helps smooth out the financial peaks and valleys.

The decision to combine finances should never be taken lightly because the effects of such an arrangement can have long-lasting repercussions. Credit card bills racked up by a profligate spender can harpoon the financial health of a more prudent partner, sometimes long after the relationship has evaporated.

Life Stages

Recently, young friends of mine who both have stable jobs decided to purchase a house together. They were not married or engaged, and so my gut gave a little lurch when I heard the news. I was worried that if something derailed their relationship, they would be encumbered with a property they could not afford individually and the legal entanglement of a shared mortgage. Fast-forward a few months and they are now engaged and moving forward with their life plans. Was it hasty of them to commit to a house purchase before the relationship was on terra firma? Or was this simply a case of outmoded thinking on my part? Several older, non-married friends of mine share mortgages and I don’t bat an eyelash. So perhaps it was only the relative youth of this couple that caused my twinge of fear.

Another couple of my acquaintance married later in life when both had established careers and substantial assets. They worked out a pre-nuptial agreement and decided to opt for the yours-mine-and-ours financial model for expenses. Both retain their existing accounts but contribute on a monthly basis to a shared account used for joint expenses such as utilities, food bills, housing costs, vacations and the like. This arrangement is practical for many households with dual incomes. The contributions to the joint account don’t have to match dollar for dollar; each couple can arrive at a ratio that is workable depending on income and other obligations such as child support. In theory, the amount not contributed to the joint account would be used for each partner’s retirement fund, short-term savings and spending money.

Taking the Plunge

The process of combining finances can be a vexing issue and a very personal one. The most important factors are trust and openness. A frank discussion about financial goals and practices, accountability, and responsibility will help you determine the right time and manner to combine finances. If both partners share the same goals and outlook and are responsible enough to adhere to the program, then combining finances can be completely painless. If there are stark differences of opinion or bad habits to be overcome, a staged approach might be more prudent. For example, start small with a joint account that covers only the items that are truly shared such as housing, food, property taxes and insurance, and utilities. Over time, other assets can be combined once a pattern of compliance and trust is established.

For me, the process of combining finances happened organically over several years. In the beginning, I retained by own accounts and transferred chunks of money to my husband’s brokerage account periodically for our investment portfolio. I continued to max out my SEP-IRA annually. After our children were born and we moved to Costa Rica (where it was not legal for me to work due to our residency status), we simply combined all of our assets into one pot without fanfare. Luckily, my husband is a tight-wad and we share similar long-term financial goals, so I did so without hesitation.

When preparing to combine finances, start with a realistic look at your income and expenditures using an online budgeting tool like Kiplinger’s worksheet or a budget-planning app like Mint. This will help you discover areas where your actual expenditures are outpacing your projected expenditures and let you trim accordingly. Crunching the numbers will give you and your partner cold, hard facts to work with rather than vague suspicions like “he spends too much on eating out” or “she spends too much on shoes.” When you are armed with data, combining finances will be less a leap of faith and more an orderly process designed to help you achieve your financial goals as a team.

Combining finances with a loved one is an issue with no “right” answer, so if you have any insights gained from personal experience, please share them here.

Comments

  1. If you can’t trust your partner enough to combine finances, you shouldn’t get married!

    Also, the stats on divorces are way less for people with college degrees (i.e., the persons who have more finances to combine anyway).

  2. My wife and I have always maintained separate finances, except for shared things like house expenses, food, etc. This both helps each of us have our independence, plus it ensures that the bills are paid and things like that.

    Throughout our relationship we’ve had differing incomes and things. We have always planned out what each of us are putting in to the joint “bills” account each month any time our financial situations changed. That helps ensure that there’s no resentment or anything like that. Every month I do an automatic bank transfer as soon as my paycheque comes in so I never even have to think about it – every month the rent is paid, the car insurance is paid, the food is purchased, etc with no further action on either of our parts, and without having to worry about whether or not those expenses will be covered any particular month.

    Personally I don’t really see why people would integrate things any more than that. The biggest negative is that we need to maintain a few more bank accounts than we would otherwise, but if the end result is a smoother ride for both of us PLUS we have an automatic budget for things then I’m all for it.

    Other nice positives include things like actually being able to buy your significant other a gift without spending “our” money, being able to treat each other to things from time to time, individual freedom to splurge on ourselves if we want, etc. It also means both of us culture our own money management skills in case anything should ever happen to one of us. I would never want to leave my wife without the tools to take care of herself.

    By far one of the most common things couples fight about is money – don’t be one of those couples! Integrate where it makes sense, keep things separate when it doesn’t.

    • Yes, being able to buy your spouse a gift is nice. For us, we have a joint account where our direct deposit goes. Then we both get a small transfer of money for personal spending each period. I think doing it the other way around can create financial infidelity situation. Like the first poster, if you can’t combine your money, you shouldn’t get married.

      Only time, I think it makes sense to keep separate finances would be when your spouse has to pay child support, bankruptcy, or large debtors going after your spouse.

  3. DH & I keep finances separate. I bought the house prior to marriage. We share household expenses, and now even the mortgage, but it’s still entirely my own debt. While he’s fine with accepting financial responsibility (if we refi the house), I feel bad since he never had a say in house choice. It was entirely my own decision.

    As a result, we keep our finances separate. We make sure to keep the other in-line & know what accounts the other has. Both of us, also hold joint accounts with retired parents & need to manage that as well. Adding another joint account to the mix was/is too much complication.

    I think it is harsh to say “if you can’t combine your money, you shouldn’t get married”. IMO, combined incomes is like wives changing their last name to match their husbands – a dated tradition with no real benefits.

    Obvi, marriage = openness about everything & sharing. Doesn’t mean DH needs to share my makeup.

  4. Mostly, I think you need to figure out what works best for you.
    See what other people are doing, ask for, and listen to advice, but in the end, you and your spouse have to deal with the decision (and consequences); not someone else. So, figure out what to do, make a plan to implement it, and go forward cautiously.

    My wife and I have been married for 11 years, and married a little older (upper 30s). We both had town homes, and little other debt, and good incomes.
    We combined some things right away, and other things took more time to combine. But, basically, everything we could we combined. We sold my town home, and lived in hers for a few years, then got a house, and sold her town home.
    The only stuff that is not combined is retirement funds, since those really can’t be combined.

  5. I personally think that if you are going to marry someone, you should be able to trust them. I agree that people can have different approaches to their finances, but my wife and i have joint finances and it works great for us.

    • Week after week after week I hear stories on blogs and the Suze Orman podcasts from people who have been in relationships for 5, 10, or (this past week) 30 years. Inevitably, one of those partners ends up doing the bulk of the finances. This past week, a woman called Suze who was terrified because she ran up $35,000 in credit card debt and her husband didn’t know.

      This is exactly the reason each person should maintain their own credit and keep their own finances in order. My partner and I have been together 28 years. We have a joint checking account where we put in the amount of money we need to pay the mortgage and the rest of the joint bills. After that, the rest of my paycheck goes into my account, and his is his. No fights, no arguments. No joint credit cards.

      Several years ago he wanted to buy a second home. I thought it was a poor financial decision and I refused to put my name on the house and I wouldn’t let him tie up our current house in that transaction.

      When I want to buy a new MacBook Air, or save every dime I earn — that’s my decision. If something should ever happen to my partner, I won’t end up like my mother — bewildered by finances.

      • It is not clear to me what your mother has to do with how you have your finances organized. If your mom ran up $35k in debt, perhaps she would have been helped and monitored by having joint finances. Its so weird to think that you are married with the understanding you share your lives, but somehow how you choose to spend money is not a shared activity. Sounds like there are other issues besides financial if a partner buys a house even though you think it is a poor decision.

        • When you live your life without experiencing managing money on your own, you sometimes won’t make the best decisions. Especially when you don’t have your partner around anymore to give input.

          The happy credit card / bank people are more than willing to hand out credit like candy, and unless you have the discipline to refuse and knowledge to know that what they’re offering you is more akin to heroin than a helping hand you can very easily make some very bad decisions very quickly.

          Everyone needs to know how to manage their finances. Accidents happen, relationships change, illnesses, job changes, situation changes – there are endless reasons why one person in a relationship can end up not being able to manage finances anymore. The thought of my wife ending up completely screwed without me sounds terrible.

  6. Our finances have always been combined. It works for us. My sister and her husband are separate. Works for them. After 30 years of marriage (she has been married 35 years) we both have decided that it is about open communication and commitment.
    I can hide mistakes as easily as she can :>)

  7. My husband and I have been married for 7 years and have separate accounts. Actually, we have two joint checking accounts, but one is “his” and one is “hers.” They are at the same bank and we can log on and see both of them, but it allows each of us to balance our checkbooks the way we want (I just check the online balance frequently while he actually reconciles it with a calculator). We each have assigned bills that we take care of, but we both know what those bills are. I keep an Excel spreadsheet budget that all the expenses and accounts are listed on.

    I don’t think the issue is whether or not the money is physically separated in different accounts. What really matters is that a couple communicates freely about finances and has access to the whole financial picture.

  8. I always find this topic so interesting. Managing money is such a big part of marriage. It’s hard for me to envision a really fair way to do it separately. I have a friend who is an attorney and moved to another country for her husband to advance his career. By the time they moved back, she was far behind her colleagues because she hadn’t been able to invest her own career. She makes less than he does and they have separate finances so the net is that she has considerably less money to work with. Her sacrifice for him is what has led to that but she doesn’t get to reap the benefits of his increased pay because they have separate finances.

    Another friend is a stay at home mom. How do you quantify the value that she is bringing to their family?

    I’ve always worked and my husband and I have very similar salaries so it would be a more fair situation but we’ve found that setting goals together, working toward those goals as a couple and family and achieving those is a pretty amazing part of being married.

    • We’ve always had differing financial situations over the years. There have been times where my wife’s contribution has been equal to mine, while there have been times where hers has been negative (I have paid everything, plus given her money to spend).

      As our situations change, we reevaluate things. For the most part we’ve always agreed on something that left both of us with about equal spending money, after whatever other expenses. These days my wife has her own business, so the amount she contributes is set more to what her business can afford to spend without breaking the bank rather than any other “metric” or whatever.

      It isn’t always completely “fair” but the important thing is that we are both satisfied with the arrangement. Yeah, over the years I’ve contributed quite a bit more than she has, but I’ve earned quite a bit more too. That’s the “shared” part of the marriage!

  9. Lots of people assume that if your finances are not merged that some how you are not communicating,planning or doing anything else together-jointly etc.It is a mistake! Just like assuming everyone who merges finances is doing full disclosure,in total agrrement,on the same page etc.Don’t assume we all know what happens! Instead figure out what works for the two people involved, and quite possibly what works as newlyweds may not work by retirement.I have been married 35yrs, same guy in love still and we have always kept finances seperate from day one.Works for us.

  10. The wife and I have had a joint account since day one. It makes life so much easier having everything going into, and coming out of one account. We also have a rule that any purchase $50 or under requires no ‘permission’ from the other partner.

    Seems to work, but different strokes for different folks :)

  11. We kept our finances separate for awhile, but then we came to the realization that it just wasn’t working out well for us. I make twice what he does, yet he always had more leftover after bills. And with our finances separated, it gave us the option to not discuss them. Now that we’ve combined our checking accounts, we both have equal access to all money that comes in the house. We have to talk about finances at least once a week, and the conversation has changed from “my xyz” to “our xyz,” which I think is the goal in any marriage. For us, it just works better.

    I’ve always believed that how you handle your money is a personal thing; there’s no one-size-fits-all approach regardless of marital status or income. Whatever approach makes the most sense and is the most comfortable for a new couple is probably the best one they should take.

  12. This is a difficult subject for many couples. It was easier for me and my husband when we got married because we both barely brought anything to the table. We had very little money, and fortunately, very little debt, so it made a lot of sense for us to put everything together. We continue to do so now as well and it has been working really well. The key for us, though, is that we both handle money the same way. Neither of us are big spenders. I think it would be a lot more difficult to have everything joint if one person brought a lot of debt onto the table, or if one person was a big spender and the other a big saver.

  13. I think it’s intersting that nobody here has mentioned the expenses associated with raising children together. My husband & I have kept our finances mostly separate up to this point, but with a little one on the way it makes sense for us to flip the ratio from 80% separate / 20% shared to the opposite (approximately).

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