Financial Advisor Insights

Should Married Couples Combine their Finances?

What's the best way for married couples to manage their financial life? This is a true "iceberg" question - seems innocuous enough but there's a lot going on under the surface. There can be a wide range of motivations behind one's preference to merge their financial life with their partner or keep them separate.

Depending on your goals, combining your finances with your spouse, or choosing not to, may assist your efforts - but not always. For many couples, maintaining different accounts and investment strategies is the default choice, as it requires no additional time or effort. With so many competing priorities during the day, many couples wonder whether it is really worth it to combine their finances.

Is it still "one pot" if you both have your own bank accounts?

Assuming there are no known financial issues in your relationship (which we'll discuss later), you may not see the point in opening a new joint account, especially if you've already developed a system for paying bills and other expenses that works for your family. Although there are pros and cons to either merging finances or keeping separate accounts, in many cases it makes sense to do both.

Two little-known reasons to have a joint bank account:

  • Planning for the unexpected: If you or your spouse were to become incapacitated, would your husband or wife have the ability to continue paying the bills? Even when both spouses are relative equals in terms of financial means and income, it may be difficult for one person to keep the family afloat solo. (Although a standard estate planning package generally includes a power of attorney which can be used in these situations, the unfortunate reality is that many families neglect to do basic wills).
  • Estate planning: Although you may specify how certain assets are distributed in your will, funds in a bank account will be subject to the probate process unless the account is a joint account or you have completed a transfer on death (TOD) form. Probate is a long and expensive process which could make it difficult for your spouse to meet your family's needs.

Keep in mind, just because you have a joint bank account doesn't mean you can't still maintain your own checking and savings account. Each couple is different and will have their own preferences for who pays for what and how family versus personal spending is handled.

Are you investing for only your future?

If you're married, you most likely aren't saving and investing for your future alone. Saving for retirement, college, a home, or other major financial goals often involves both spouses. When couples don't integrate their investment decisions or create one cohesive financial plan, it's very hard to know where you stand financially or how to reach your goals.

Tips for integrating your investments and financial goals:

  • Talk about money! Discuss your financial situation, goals, time horizon, risk tolerance, and so on. Working with a fee-only financial advisor is a great way for couples to prioritize financial goals, understand savings requirements and what may be possible given your income and expenses.
  • Keep your accounts organized. Each new job usually means another old 401(k) or 403(b) retirement plan to manage. Instead of leaving the old accounts with a series of different former employers (which makes it cumbersome to manage and easy to forget about entirely), consider the pros and cons of rolling an old 401(k) into an IRA or converting to a Roth IRA and consolidating your accounts at one financial institution when possible. If you're working with a financial advisor, they should be able to help with this.
  • What's left at the end of the month? Even more so than income, your spending habits will usually make or break your ability to reach your financial goals. For many families, lifestyle inflation is a byproduct of an increasing and/or high income. Building wealth requires a dedication to saving and investing over the long term. To combat excessive spending, sit down together and review your income and expenses. If you suspect you're not saving enough, you probably aren't.
  • Be realistic about your wants and needs. Over the years, we've seen numerous clients wind up derailing their financial plan because they could not separate wants from needs when faced with a major financial decision. Before buying that expensive home or sending your kids to private school, try to think objectively about how the decision could impact your cash flows and other goals, especially if you and your spouse disagree.

Keep in mind, having separate accounts doesn’t necessarily mean your finances are also independent of each other. Many couples make financial decisions based on joint earnings and savings, so whether kept in multiple accounts or one may not be important.

There are different levels of financial integration also. It is quite possible to integrate your decisions about money without actually combining any funds. No matter how you decide who-pays-what, if you're married and living together your financial lives are already intertwined. Doing any measure of financial planning without incorporating the assets, income, expenses, and lifestyle goals of both spouses is sure to yield inaccurate and flawed results.

Keeping your money separate: what are you trying to accomplish?

Assuming there are other factors at play in your relationship, there may be good reason to maintain separate bank accounts from your spouse. However, depending on your concerns and what you're trying to accomplish, keeping your finances separate may not matter in the end, so it's important to understand the limitations.

Although there are many possible factors in a marriage that could lead a couple to prefer having separate accounts, for the purposes of this article we'll discuss a few common ones.

  • Spending concerns. If your husband or wife is a chronic over-spender, maintaining control of your family's purse-strings is probably a good idea. It may be very difficult or impossible to get cash back once it's gone, so the risks of having a joint account in this type of situation may outweigh the benefits. Depending on the situation, having your own account may not be enough and this could be an indication of bigger problems to come.
  • Lots of debt. Debt is a complex subject as it involves a number of factors such as the type of debt, when it was acquired, whose name it's in, and the state you live in, just to name a few. Although it's possible that only one spouse would need to file for bankruptcy if things got really bad, that's really a question for a bankruptcy attorney. Maintaining separate accounts may not protect one spouse against the debts of another, so if this is a concern, seriously consider consulting an attorney for guidance.
  • Pre-marital planning, separation, or divorce. Although having a prenuptial agreement can be a highly effective way to ensure both spouses' financial interests are protected during marriage, in practice, it may be difficult to determine whose-is-whose in an account with commingled funds. Depending on the situation, having separate accounts may provide some benefit during a separation or divorce, but that would ultimately be subject to the laws in your state and any legal proceedings. Consult an attorney to discuss your options, especially if you're expecting an inheritance or other financial windfall on the horizon.

Final considerations

Money is a taboo subject in many households. While it is important to think about the pros and cons of merging your finances or keeping them separate, this question may lead to much larger ones about family, money, and building wealth.

Instead of avoiding the topic, have a candid conversation with your partner about your income, debts, spending habits, and future goals such as when you want to retire. Money is one of the biggest stressors in a marriage, and for the financial security of each partner it is important that there are no money secrets or financial infidelities. You probably won’t agree on everything, but it is important to try and understand where the other person is coming from as you work towards compromise.

Financial disagreements often stem from a lack of communication and sometimes, fundamental differences in how each person thinks about saving, spending, and investing. Depending on your relationship, how you ultimately decide to title your accounts may not really play a role in the financial synergy of your household.

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