Financial Planning for Geeks

Should We Combine Finances With Partners?

- Potpourri

I recently came across an article in The Wall Street Journal about combining finances and it got me thinking.

A color drawing of a priest, two celebrants, and a couple getting married.
What do you think about joint accounts, darling?

What does the research say, and what are some of the pros and cons of combining finances with partners? Let’s find out.

Across several studies, researchers have found that people who merged finances were more satisfied with their relationships. That is, people who combined ALL of their money into joint accounts had higher satisfaction than people who kept some or all of their funds separated. The reason for this finding was that joint accounts helped people feel like their purchases and financial goals were shared, and this feeling of togetherness drove higher relationship satisfaction. Each partner felt like part of the team, rather than keeping track of what’s mine or yours.

But this research doesn’t necessarily mean we should all just run out and do it. Every relationship is different, and we each have our own needs around money. What should we consider when weighing whether to combine finances or not?

The Pros

1.       We might be happier in our relationship: we just went through that above. On average, people who pool finances are happier, but we are not necessarily those people.

2.       Simplicity: it’s more convenient to pay expenses from one account rather than each person keeping their own accounts and paying bills or reimbursing each other.

3.       Emergency support: when we share resources, we might be better prepared to handle emergencies and changes, and support each other better.

4.       Equal resources: if one person makes significantly more money, sharing resources might avoid that person being more financially comfortable than the other.

5.       Clarity and conversations: when we combine accounts, we’re forced to set some parameters around spending, who pays what and how much, how we feel about debt, and how much to save for shared goals, among other topics. This can increase that sense of togetherness I mentioned above.  

6.       Shared goals: combining finances can facilitate shared financial goals like running a business, supporting children, saving for a house or other large purchase, and so forth.

7.       Accountability: when accounts are shared, each party has access to the available financial information. This visibility can lead to greater feelings of accountability and help us stay on the same page.

8.       Legal access: with joint accounts, one partner has access if another partner dies or becomes incapacitated. Tip: for those who want to keep bank accounts separate and still protect a partner in case of death, the bank can register those accounts as Transfer on Death (TOD) to that partner. We don’t have to go through probate or settle a will before we have access to TOD accounts; it happens automatically. This doesn’t solve the issue of what happens if someone is incapacitated, though. That’s why we all need to create a Legal Power of Attorney.

The Cons

1.       Complicated breakups: if the relationship doesn’t last, separating the finances again can be a real headache and lead to conflict…to say the least.

2.       Fairness: if one of us comes into the relationship with more money, expects a large inheritance, or just earns a lot more money, we might not feel as though sharing everything is fair.

3.       Risk: if one of us racks up debt or makes poor financial decisions, it affects the other person, too. There is a risk of lower credit scores, stress, losing our money, and even bankruptcy. Note: if you’re married, even if you have separate accounts, you’re still liable for the other person’s debt, so keep that in mind.

And a note about abuse: I recommend that EVERYONE maintain a “getaway” fund which is separate from any shared accounts. In the unlikely event that we end up in an abusive situation, we will always have a source of funds to enable leaving that situation. I do see those of you who can’t do that or haven’t been able to do that in the past. There are some great nonprofit organizations who might help; in my area, we have Eastside Legal Assistance Program.

4.       Incompatible financial philosophies: if we don’t fully trust the other person or they have completely different financial values from us, it might not be wise to combine our finances. Heck, if we’re on completely different financial pages, one might question why we want to be in a relationship at all. Money tends to be one of those deal-breaker issues for relationships.

There is a multitude of ways to set up household finances, because there are so many types of accounts to be shared or not shared: bank accounts, investment accounts, credit accounts, and so forth. Here are a few common models; see below for methods of splitting expenses:

1.       Merge all our money into shared accounts without any individual accounts (except for the getaway money, of course).

2.       Create a joint account for paying shared expenses, and then maintain individual accounts in our own names for other expenses.

3.       Maintain individual accounts only and go straight to the methods for splitting expenses.

4.       Then there are investment accounts to be held jointly (or not), as we prefer. Just note that retirement accounts like IRAs and 401(k)s can’t be held jointly.

5.       And then there are credit accounts to be held jointly (or not), as we like. These include credit cards, loans, and other debt-related accounts.

There are also several ways we might split up shared expenses. But the first step is to figure out what counts as a shared expense in our relationship. Maybe rent and groceries are shared expenses, but what about your Ducati payment? I don’t ride it. What about my probiotic, green superfood shakes? You can’t stand the sight of that nearly black slurry.

Whether we decide to combine accounts or keep them completely separate, we might decide to share expenses in any of the following ways:

1.       Evenly: each person contributes an equal amount toward shared expenses. This can be done with a shared checking account, or just by splitting up the expenses 50/50 and paying them from your individual accounts, or some combination of the two.

2.       Proportionally: each person pays shared expenses based on the percentage of household income they earn. So, if I earned 40% of the household income and you earned 60%, I would contribute 40% to our shared expenses and you would contribute 60%. Again, this can be done with joint accounts or without.

3.       Or add your own, custom method here: the point is that it’s your life; you can set it up however it makes sense and seems fair to you. One partner might pay all the expenses while the other partner’s earnings are saved. One person might pay the necessary expenses and the other might pay the discretionary expenses. What works for you?

This is all going to take some talking, negotiating, listening, and loving, right? Give each other some grace, and set up a relaxed, comfortable time to work through it. Probably more than one time. Then keep checking in to see how you’re feeling and whether it’s working for you. Listen some more, change things, and see how it goes.

It’s a process, and I wish you clarity and patience as you go.

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Penny Farthing

I, Penny Farthing (non-wizarding name Kerry Read ), actually have a day job in the world of finance. This blog came into being because of my deep and abiding love for geeks and Personal Finance.