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When Couples Should (and Shouldn’t) Combine Their Finances

Published August 17, 2021

9 minute read

David Ning

By David Ning

Should you or shouldn’t you? When you find yourself married (or just in a serious romantic relationship), the question of how or when to combine your finances is a common one. You’ll have to decide how to best merge your respective finances together — of whether you do it at all. Will all your accounts be joint? Will you keep separate accounts for anything? What about your physical assets or retirement portfolios? As with all things personal finance, there isn’t a single right answer to this question. Indeed, what is right for someone else might not be right for you. Everyone’s induvial situation is slightly different. However, it’s important for you and your partner to make the best decisions you can for the two of you. After all, making smart decisions now can lead to being in a better financial situation down the road.

Are You Even Ready to Combine Finances?

Understand that a joint account is one that you both own. You will both have access to it. The same principles apply to joint loans or debts too. Are you ready to be on the hook if your partner suddenly can’t make their car payments? Likewise, how do you feel if you your partner has full access to a joint bank account, even if you’re the primary breadwinner? You have to look at your own readiness. Then decide whether you are truly ready to combine finances.

Look at the legal obligations that you each might have. If one (or both) of you came from a prior marriage, there may be support obligations that make completely combining finances unpalatable. Another consideration is debt. Do you really want to take on your partner’s debt in a consolidation move? Obviously, there is a huge measure of trust. When your accounts are joint, it’s totally feasible that your partner could spend (or borrow) without telling you, but leaving you legally (and equally) on the hook.

You Need To Be On The Same Page

Before you combine anything, you really need to be on the same page as your partner when it comes to money. Do you have the same philosophies or goals about spending and saving? When you combine finances, you have to communicate very clearly. It needs to be clear where all the money is coming from, and what it’s being used for. Where is the money going? Are there surprises? If you decide to make a large purchase without informing your partner and they do the same thing, you could easily overdraw your account.

Combined finances only work for couples who are comfortable communicating frequently about money. Expects actually recommend that couples schedule a monthly (or quarterly) “budget meeting.” Talk about your balances, debts, savings, and any upcoming expenses you need to prepare for. If you aren’t quite ready to do this, then combining your money might not be the right choice for you yet.

Are You Bringing In Prior Assets?

With the average marriage age on the rise, it’s fairly common for both members of a couple to enter the state with their own assets. That could mean vehicles, investment accounts, or even real estate. If you already have assets built up prior to tying the knot, then it can make sense to maintain separate accounts. Things can get tricky after that, though. For example, let’s say your partner owned a house when you first met. Years later, you get married and move into that house with them. It’s still 100% their asset, but some states may assume that any appreciated value is now a marital asset. It’s not an issue as long as you remain married, but a potential divorce would complicate things in a hurry.

You also need to consider the amount of control you are comfortable with. If you like to have a greater measure of control, it makes sense to keep things separate. In some cases, though, if you believe that you should share everything, you might be willing to put your assets at your partner’s disposal. Think about the consequences and discuss it with your partner. Remember that your partner has to be comfortable with the arrangement as well.

Separate Accounts Doesn’t You’re Hiding Things

It’s important to understand that keeping things separate doesn’t give you license to never talk about money. Even if you have separate accounts, you will still have some shared expenses. You’ll still need to talk about these shared obligations, your joint goals, and how to work towards meeting these things together. Do yourself a favor and talk with your partner. In some cases, the answer is a combination of approaches. You might each have separate accounts for your own discretionary spending, but also have a joint account designed for shared expenses.

Opening a joint banking account with your partner is undeniably practical. If you are setting up housekeeping together and paying bills together, it makes a great deal of sense to put all your money together in one account. However, before you head to the bank together, consider some of the downsides of being a joint-account holder.

Both Parties Have Access

Of course, both parties being able to deposit and withdraw money is exactly why you get a joint account in the first place. However, that equal access can cause some huge headaches. There have been plenty of stories of an estranged or separated spouse taking advantage of the joint nature of their banking accounts by draining an account without notifying the other party. It’s scummy, but perfectly legal.

Even if your relationship is rock solid, having a shared account can still get you into trouble. If neither party keeps track of the money going out of the account, it’s very easy to overdraw the account without even realizing it.

In order to best take advantage of a joint checking account, both parties must be committed to staying on top of the finances. Talk about big purchases ahead of time, so everyone stays on the same page. If you don’t know that you can trust your partner to do that, a joint account might not be a great idea.

Couple combining their money

Shutterstock

Your Assets Are Co-Mingled

While joining your assets together is expected in marriage, it can be somewhat more worrisome when your relationship is not that of a married couple. For example, if you hold a joint account with a live-in partner, having your assets together in one account could leave you vulnerable if the other party is sued. In that case, the joint assets could be seized for payment.

Similarly, if one of the joint account-holders uses the account as collateral for a mortgage and then defaults on it, the other account-holder will find their money disappearing to fix a problem they had nothing to do with. Always keep the potential downsides in mind when making the decision to combine your financial savings and other assets.

Trust Is Key

Banks assume that both account-holders know what they are doing. That means there are no safeguards available for making certain that neither party acts inappropriately. Banks don’t typically offer any policies that require both account-holders to be present in order to make a withdrawal greater than a certain dollar amount.

What it comes down to is that any joint-account holder must trust their partner. That’s why joint accounts are traditionally the province of married couples. Presumably, if you trust someone enough to marry them then you can trust them with your money too. If, however, you’re looking into the possibility of opening a joint account with someone who doesn’t have that specific legal tie to you, you might want to tread carefully. Having a joint account with them might be practical, but is it really the smart thing to do?

Why Not Do Both?

There’s quite a bit to think about when it comes to whether you should combine or leave your finances separate. If you can’t quite commit to either choice just yet, then consider a middle of the road approach. Yes, it’s possible to have the best of both worlds.

In other words, have both separate and joint accounts. Fund the joint account together, in order to pay all of the necessary shared bills. However, keep separate banks accounts too. As long as the regular obligations are paid on time, you don’t have to wonder how or why your partner is spending the extra money. They will have their own account to do as they please, and you’ll have the same. This is a great stepping stone for newer couples. Remember you can always change or improve your plan as you go.

Joint Expenses? Get a Joint Account

Once the two of you are living together, then there will be a bunch of shared expenses. Think things like the rent (or mortgage), plus utilities like power, water, or even internet. Why not setup an account to use for everything that’s shared? Sure, just dividing the bills down the middle may seem like an easier approach. However, you could run into issues down the road as costs change.

By having a shared account that the bills are paid out of, everyone will get a sense of how things cost over time. All you need to discuss is how much each person needs to contribute to the shared account. If you have similar incomes, you may simply decide to fund it equally. On the other hand, if one person makes significantly more than the other, maybe you want to consider a 70/30 ratio (or what ever you determine is fair).

You can also get a separate, shared credit card to pay for joint expenses. You can still keep your individual cards, but why not bolster your credit score with a new card (that you will both use responsibly, of course). Might as well earn some cashback or airmiles when you pay those joint expenses!

If Possible, Combine Investment Accounts

If you’re comfortable doing so, should combine your investment accounts. Not only will you increase your potential compound interest returns, it will allow you both to make better strategic decisions about how to save and invest for the future.

That’s not to say that saving for retirement separately won’t work. However, only knowing half of the picture won’t help anyone. You might end up over saving, thinking that you need to cover your partner too. While having extra money in retirement isn’t exactly a bad thing, you don’t want to put too much strain on your current budget either. Overall though, combining your retirement assets means higher balances. And higher balances get better deals and improved services from the financial industry.

Keep Separate Accounts Too

I really like having separate accounts for personal expenses. They really work, even in my own situation where I am the sole income earner for the family. My wife still has her own bank account and credit card, where I don’t really need to see the transaction history. Many couples find that this system works best.

It really cuts down on arguments. Let’s face it; everyone views money a bit differently. What seems like a needed purchase to you might seem like a waste of money to your partner — and vice versa. If the big shared financial obligations and goals are being met, when why get hung up and where every penny is going. No one wants to get into an argument because your partner “spent too much” as the hair salon or the golf course (or whatever). Just allow each of you to have a reasonable amount of discretionary spending money. Then don’t worry how your partner spends their share.

Couple planning their financial future

Shutterstock

Combine Insurances

From homeowner’s insurance to health insurance to car insurance, make it a point to immediately combine everything. Almost always, a family plan is going to be much cheaper than having two individual plans. Most insurance companies offer discounts for bundled services or multiple cars.

After you combine everything, just have it paid out of the joint accounts. For health insurance, make sure you look into all the options from both spouses’ work plans. Then pick the one that’s most beneficial your family. You can always figure out how to compensate the partner that’s paying for the insurance by having him or her pay less into the combined account.

You Should Combine Your Taxes Filings

One of the biggest financial consequences of getting married (that people rarely consider) is that you’ll have to pay more in taxes than two separate individuals. The reason is that the government thinks couples who can live together have plenty of financial benefits, so it’s unreasonable for family tax brackets to be double of two individuals just because two adults combined their wealth and income.

That’s just too bad for us who are married. Still, the way for the vast majority of us to pay the least amount of taxes is still to file jointly. You should definitely talk to a CPA about this. You may want to opt for filing two tax returns under “Married but filing separately.” However, don’t do so blindly, thinking it’s the best decision. If there’s one thing you can count on, it’s the IRS making sure they get their fair share.

The Bottom Line

Money is consistently one of the top reasons that couples argue. Unfortunately, many couples just don’t take the time to properly discuss how they want to handle money. From simple topics like how to share the monthly bills, to more complicated ones likes retirement planning or insurance needs, you need to be able to have these discussions with your partner.

The good news is that you’re already here, reading this article. That means you’re ready to think about the future, plan ahead, and (hopefully) make smart choices with your partner. You don’t want financial issues to haunt (or ruin) your relationship. So, I suggest you schedule a time to sit down with your partner and come up with a plan. Whether you combine everything, or only some things, figure out a method that works towards your shared goals of building a life — and some wealth — together. Just talking about money won’t solve every financial issue you’re going to face, but open communication can smooth out a great deal of those bumps.

David Ning

Experienced Finance Writer

David is a published author, entrepreneur and a proud dad. He firmly believes that anyone can build a solid financial foundation as long as they are willing to learn. He runs MoneyNing.com, where he discusses every day money issues to encourage the masses to think about their finances more often.

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