The Case Against a Joint Bank Account
For many, marriage means getting a joint bank account. But is that strictly necessary? Sometimes it can be a bigger hassle than it's worth.
When you are deeply in love, certain facts don’t seem to matter, such as how at least 40 percent of marriages in America end in divorce. So what happens when the love has gone and there’s a looming threat that you may join that statistic?
Do shared finances and a joint bank account still make sense?
Many people have asked me when it’s a good idea to merge finances. It seems it would be incredibly messy if you split up and had to deal with a joint bank account. Is there a situation that justifies the risk of postbreakup hassle?
From moving in with roommates to getting married, money is a huge issue. Arguments about finances are among the top reasons for couples breaking up or getting divorced. Therefore, it’s important to talk about money before it becomes a problem.
That said, determining whether to join accounts is about the last financial discussion you should be having. You need to figure out if you’re financially compatible first! Once you’ve talked to your potential partner and decided that you’re compatible enough (financially speaking) to combine households, then you can move on to the mechanics of your financial union.
Financial “Coupling” (Before or Without Marriage)
Combining households can be financially beneficial — one rent, one set of utility bills, one coffee maker. But before moving in together, make sure you understand the legal distinction between becoming co-tenants and one party being a sublessee. You may also consider a “roommate” rental agreement. Discussing this with your partner will help you begin your cohabitation with such seemingly small details ironed out.
I strongly believe that you should not have a joint bank account or joint investment accounts or joint credit cards at the outset. Given banking technology today — with 24/7 online banking, online bill paying, and mobile access to accounts — joint accounts are not only less necessary, but also a potential nightmare.
How carefully do you track your debit card use? Think about how you’ll manage that when two of you are swiping a debit card throughout the day.
In my experience, this was a real challenge even before debit cards. This same technology makes a joint account unnecessary as most banks today allow you to transfer funds to anyone, as long as you have a computer and an email address.
You and your partner should work out a joint budget that includes maximizing your retirement, among other goals. You can each save half of your target in your own separate accounts. Then you can divide up the rest of your expenses to match your individual incomes.
If you do open a joint bank account, maintain a relatively small balance and consider it 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, savings, 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 can’t do it.
Does Marriage Change Anything?
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.
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 makes decoupling a cleaner undertaking. It also protects you from one party taking financial advantage of the other during a relationship by draining joint accounts or running up balances on joint credit cards.
The most complicated aspect to work out immediately will be who moves out and how you’ll manage the lease or mortgage. 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.