My husband and I didn’t exchange traditional marriage vows. We didn’t promise to love each other “in sickness and in health”; I didn’t pledge to obey him till death do us part; and we certainly didn’t include that bit about “for richer or poorer.”
Why? Because we know that money (or the lack of it) can ruin relationships — especially when two people have opposite ideas on how much should be spent, saved, or borrowed.
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We’ve been there. In the four years that we’ve been married, having debt — particularly student loans — has caused us several difficult episodes during which we’ve done more blaming than planning. And we’re certainly not the only ones affected —12 percent of couples delay tying the knot because of their student debt, according to a Consumer Reports study.
There have been times when I’ve honestly wondered if we could pull through. Given that, one can’t help but wonder about the benefits of having joint vs. separate bank accounts. Is having a joint bank account ever a good idea?
The Benefits of Separate Bank Accounts
One of our fights led me to read a number of expert articles on how best to handle money in a committed relationship. Most of these financial professionals claimed that the only way to keep money quarrels from happening is to avoid having a joint bank account or otherwise sharing finances.
Many experts firmly believe that couples should keep money matters separate, whether they’re dating or married.
We’re talking about having separate bank accounts, splitting household needs and groceries evenly (or buying them independently), and taking care of debts based on who incurred them.
It’s a popular viewpoint, especially for anyone who is taught to be independent with their finances or has watched parents struggle through a divorce because of money.
Carrie Hartman, a divorced single mom, and her ex chose to keep their finances separate. “We did marriage counseling early through our church, and even the priest said to set up two different accounts for spending money. I couldn’t believe it.”
Indeed, the maintenance of individual accounts can help tremendously in preventing money fights between partners.
“With separate accounts, there’s a potential for less fighting over spending decisions,” says certified retirement planning counselor Eric Pucciarelli, vice president of wealth management firm oXYGen Financial. “Additionally, there’s more of a likelihood for overdrafting your account if communication is not great between its joint owners.”
The Downsides of Separate Accounts
Hartman explains that separate finances worked for a short period, but when kids came along and it was time to buy their first house, differences began to emerge.
“I made more money than he did, and I admit that I was kind of unreasonable about him putting up 50 percent of the down payment. When he said he didn’t have his share, I realized he hadn’t been managing his money properly. He was badly in debt and I hadn’t even known!”
Hartman says that her ex’s bills were all sent to his office. As such, she never knew exactly how bad his situation was. However, she guesses that near the end of their relationship, he had managed to rack up more than $40,000 in consumer debt.
Their dreams of buying a home were dashed, and the repo man was coming for their only joint purchases: their cars.
So Hartman, distraught over being deceived, decided to end their marriage.
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Hartman’s story is an extreme case of separate finances gone wrong. However, it shows how different money habits can affect a relationship’s well-being. And sadly, she’s not alone. In fact, 60 percent of millennials are victims of financial infidelity.
The Effects of Having Someone Else’s Name on Your Account
“When you put someone else’s name on your bank account, your money is exposed to their creditors,” says bankruptcy and estate planning attorney Clark Dray. “For example, if you were to put your spouse’s name on your account, and he were to be sued over a car accident, his creditor could clean out all the money in your account.”
“You could recover your share of the money, but that’s much easier said than done,” he adds.
Dray also relates one case in which he filed bankruptcy on behalf of a client who “didn’t know that his mother had added him to her account.” As a consequence of the client’s Chapter 7 bankruptcy filing, “the bank froze his mother’s funds until I was able to get the court to release it,” Dray states. His mom’s money had inadvertently been exposed due to the son’s financial duress.
There are plenty of other people out there who make such a financial arrangement work or find some middle ground. But there are also those who live the flip side of this — those who combine their incomes.
Is a Joint Bank Account a Good Idea?
My husband and I are one of those couples who have joint finances. Our debts are combined, our money is in a joint bank account, and our names are on both of our checking accounts.
We budget together, set aside money for our daughter’s school together, and even save pennies in a jar together. We do everything hand in hand.
Catherine Sebelius, a social worker and marriage counselor, agrees. “While I don’t ascribe to Ramsey’s views on money or marriage in general,” she says, “there’s something to be said about working together toward similar financial goals and buying into the relationship with your money.”
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The Benefits of a Joint Bank Account
Sebelius goes on to say that combining finances is particularly beneficial in marriages that involve children or jointly owned property because each partner will require the other to get ahead or even to manage day-to-day expenses.
She describes married clients of hers who could not agree whether to enroll their children in private or public schools because of the cost.
“I had them sit down and look at the numbers together,” Sibelius says. “It became clear that the husband earned just enough to make it work, but the wife couldn’t afford it with her smaller income. When they combined the two and reworked the budget, it was evident that private school was possible.”
Sibelius isn’t the only marriage professional who has seen how couples combining their accounts can actualize goals that are otherwise unattainable.
“It’s easier to track household finances if spending is done from one account,” Pucciarelli adds. “Additionally, joint accounts can contribute to a greater sense of joint money and of being a financial team between couples.”
Of course, this doesn’t mean that joint accounts are right for all couples. You may recognize the importance of working together toward your joint financial goals, but wish to retain your independence.
Working Together, Independently
It’s necessary to figure out if you and your partner are financially compatible before combining accounts. Once you’ve talked to your potential partner about both of your respective money habits and savings goals, and have decided that you’re compatible enough to combine households, then you can move on to the mechanics of your financial union.
Combining households can be financially beneficial. It means one rent payment, one set of utility bills, one coffee maker. But before moving in together, it’s important to understand the legal distinction between becoming co-tenants and one party being a sublessee. Discussing this with your partner will help you begin your cohabitation with such seemingly small details ironed out.
If you and your partner want to live together, but have determined it would be best to keep your bank accounts separate, you’re not without recourse or alternative strategies.
- Venmo: The ever-popular PayPal-owned app is one of the easiest ways to split bills. Connect either your bank account or credit card of choice and pay or request payment from your significant other. You can transfer your Venmo balance immediately to your debit card for a 3 percent fee, or initiate a bank transfer for free if you’re willing to wait a day.
- Tab: This app removes the confusion of calculating who owes what. Simply take a picture of your restaurant bill and select each item you want to pay for. Tab will then send the amount to the other person, tax, tips and all.
- Apple Pay: With this easy method for owners of Apple devices, you set up your card in your Wallet and simply pay or request money through text. Simply hit the “pay” button and add your amount, then hit send.
- Splitwise: This app is good for both Apple and Android users. It helps keep track of balances and shows how much you owe each other.
- Twine: Besides keeping up on how much you owe each other, you and your partner should also consider how to grow your wealth. Twine is a finance app built for two that lets you manage and set joint saving accounts and portfolios.
You and your partner should work out a joint budget strategy that includes maximizing your retirement accounts and saving for future purchases, among other goals. You can each save half your target amount in separate accounts. Then you can divide up the rest of your expenses to match your individual incomes.
What if We Open a Joint Account Anyway?
If you do open a joint bank account, maintain a relatively small balance and consider it to be an emergency account. You can use it temporarily if one of your individual accounts or debit cards is compromised. You might also use this account to save up for near-term expenditures, like a sofa or vacation.
This “separate, but more or less equal” approach to banking has two significant added benefits:
First, it’s better than simply throwing everything into a joint bank account. It will force you to talk about money regularly and seriously look at your spending, saving, and investing goals. This will make it easier to stay on a budget and to recognize when you’re going off track.
Second, this ensures that both partners are equipped to handle family finances in case one of you is unable to do it.
Does Marriage Change My Finances?
For most married couples, filing taxes jointly reduces their total tax bill. And once married, one joint bank account can be useful, even if just as a place to deposit wedding checks.
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However, I wouldn’t change the daily financial operating scheme outlined above. The joint account should not become your main account.
What About “Decoupling”?
Keeping finances and assets separate does make decoupling or divorce a cleaner undertaking. It also prevents one party taking financial advantage of the other during a relationship, either by draining joint accounts or running up balances on joint credit cards. Not to mention it protects both parties from any poorly thought out financial retaliation in the fallout of a messy break.
The most complicated aspect to work out immediately will be who moves out and how you’ll manage the lease or mortgage.
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There will still be financial issues to work out in a settlement with lawyers, but you’ll be able to start this negotiation process on a more equal, independent footing.
Joint vs. Separate Bank Accounts: What’s the Best Idea for You?
The takeaway is that combining finances may not work for everyone, especially when there isn’t a legal relationship. A careful consideration of your respective financial habits is necessary before taking the plunge.
“When deciding whether to open a joint financial account with another person, you need to consider how well you understand that person’s finances,” recommends Dray.
“People with debt are often ashamed and take active steps to hide that debt — especially from people they care about.”
“Before opening a joint account, you should have a thorough conversation with your partner about each of your liabilities. These could include credit cards, payday loans, taxes, student loans, or other debts,” Dray says.
Additionally, consider if you will invest together or separately. And how will you handle paying for large financial decisions, such as your mortgage? Will you split household purchases and divide your monthly bills in two?
“You could also opt for a compromise to keep your own account in which you retain the majority of your funds and open up a joint account into which you transfer a small amount of money to manage monthly expenses,” Dray advises. “This way you can mutually contribute toward the bills and get used to each other’s financial habits while minimizing risk.”
“I like a joint bank account that both paychecks go into, as well as a separate account for each,” Pucciarelli says. “A set amount each month goes from the joint account into the separate accounts as spending money for each individual to do with as he or she pleases, allowing couples to avoid fighting over who spent money on what.”
Final Thoughts on Joint vs. Separate Bank Accounts
Addressing all facets of your budget will ensure the two of you are on the same page. This can help determine what the best decision is for your money.
For my husband and me, it’s all about centering our money around the concept of family. In our opinion, when everyone’s an equal player — particularly with money — the whole family benefits. We have clear heads and clear hearts. We can say that, for richer or poorer, we are together on the financial front. But in the end, each couple will have to do their own research regarding the benefits of joint vs. separate bank accounts. Whether a joint bank account is a good idea for you will depend on your situation.