How to Manage “Coupled” Finances

How to Manage Coupled Finances Header ImageYou’re getting hitched, but does that mean your bank accounts have to, too?

There are as many different ways of managing joint finances as there are couples, but figuring out what to do can be a challenge – especially if you’re not sure whether you’ll agree.

In this quick guide, we’ll walk you through some of the key methods that couples choose in handling their new financial life together, as well as some pitfalls to watch out for and important issues to keep in mind.

Before we get started

Whatever you end up choosing to do when it comes to your money, it’s important to keep two things in mind:

First and foremost: it is absolutely critical that you communicate. A lot. Talk to each other about your spending habits, your fears, your hopes, and your concerns. Open and honest dialogue is one of the best habits you can get into with your spouse.

And if you’re having trouble broaching financial planning subjects without discord, it might be a good idea to seek premarital counseling now to learn a few tools for building effective communication – before it becomes an issue.

Secondly: remember that you can always change your financial strategy! Nothing is set in stone here. If you integrate your finances and decide later that you’d like separate discretionary accounts, you can do that. If you want to keep your own accounts now and decide to open a joint account later, it’s completely possible.

The key is to start out with an idea as to what might work best for your situation, and to assess and build from there. If something isn’t working, you can and should make a change.

Let’s get stated with some of the options.

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Full integration

The “fully integrated” approach means just that: take whatever separate accounts you currently have and combine them into joint accounts (this obviously won’t include retirement accounts or separate assets held in trust). The idea is to simplify and unify your individual pots of money to the extent possible.

The benefits of integrating include:

  • Simpler budgeting – fewer accounts to keep track of
  • The opportunity to coordinate and communicate about expenses
  • The knowledge that both parties are contributing to the best of their ability – not calculating each person’s expected contribution

Of course, that doesn’t mean it always works. For some couples, especially those with divergent spending habits, keeping a single pot of money can actually be a source of stress.

Here’s where things might get tough:

  • Less flexibility to spend what you want when you want it
  • The need to coordinate on large purchases and any major outlays
  • Potential for discord if one person makes significantly more and wishes to allocate some of that money differently

You might want to consider integrating if you’re very much on the same page about spending and are happy to have a high degree of coordination. It can also make sense to get started with this approach if you’re planning on making major income changes later, like relying on one partner’s income for a few years.

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Separate accounts

On the other end of the spectrum is the “fully separate” approach to managing your assets. In this situation, you would each maintain your separate pots of money and simply coordinate on whatever expenses you choose to split.

The benefits of a separate approach include:

  • Eliminates conflict over how to allocate money, as all expenses are essentially separated unless otherwise discussed
  • The opportunity to have more detailed discussions about who pays for what and when
  • The knowledge that you are fully in control of your income and whatever money isn’t going to joint undertakings

On the other hand, this approach can also sometimes create problems.

The drawbacks, however, are real:

  • A lower-earning partner feeling “poorer” than the other – even though they’re married and living in the same house
  • The potential need to coordinate repeatedly on household budgeting issues
  • Potential lack of insight into your partner’s spending activities and potential risk areas, like accumulation of credit card debt

Separate accounts can be simpler and more comfortable for couples who maintain a high level of independence in their activities or incomes, or who prefer to utilize their own money management systems. It can also be easier if you prefer, as a couple, to coordinate on expenses than on each other’s hobbies and spending habits, and if there’s a high level of trust in each other’s financial abilities.

Before you start, watch out for this pitfall: If you maintain separate accounts and wish to leave your assets to your spouse in the event of death, make sure to add a “transfer on death” designation to your financial accounts. Otherwise, your assets could end up in extended probate in the event of an untimely death.

The joint/separate combo

Many couples take a middle road and coordinate some pots of money while maintaining others separately. A common approach is to maintain a shared account for household/joint expenses and separate accounts for discretionary use.

The benefits of this flexible setup include:

  • Simplification of joint expenses – you know where it’s coming from!
  • Control and discretion over your own individual expenses
  • The chance to integrate finances to the extent that it makes sense for you – whether it’s putting most of your money in a joint account and keeping separate discretionary accounts, or contributing a set amount to joint expenses and keeping the rest separate

But here are some of the downsides:

  • The need to coordinate on everyday budgeting and large expenditures
  • The possibility of feelings of inequity if one spouse earns significantly more, or if one spouse leaves the workforce
  • Lack of insight into your partner’s spending habits outside of your joint account

As noted, this is a setup that could take many different forms, which can make it attractive to those who want to strike a balance between fully combined finances and separate accounts. However, it’s important to talk through what you want to do and why, so that you’re sure that you’re on the same page with your partner – and your lifestyle.

Don’t forget to talk about savings!  

However you choose to organize your joint finances, don’t forget to have a discussion about savings – both “regular” and retirement.

Emergency savings are a cornerstone of financial planning, and for good reason: you just never know when something might happen. Even if you keep separate accounts, consider opening a joint savings account or finding some other means of ensuring that each partner has access to mutual reserves should something happen.

Similarly, for many couples, retirement planning isn’t exactly top of mind – but it really should be. Talk about how much each of you can contribute to both workplace and individual retirement plans to help plan for your future, and see how you can adjust your joint and individual budgets to help build your savings.

And remember, again, to talk about what you want to do with your assets in the event of an untimely death or incapacitation. Whether you’d want to leave everything to your spouse or allocate your assets among several loved ones, it’s a good idea to communicate and memorialize your decisions in an estate plan or (at least) through account designations and beneficiaries.

What about kids?

Whether you have kids already or are just thinking about it, it’s critical to make sure that your estate and finances are ready. Making (Financial) Space for Baby: A Guide for New Parents will walk you through some of the key financial planning preparations around parenthood, including a checklist of key action items you won’t want to forget. Download it for free today!

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Let Us Help!

We can discuss this topic and more at a complimentary appointment. As a bay area retirement planning coaches, we can give you a review and make suggestions based on your retirement objectives.

Important Disclosures

The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by UNITED PLANNERS.

To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk.

Neither diversification nor asset allocation can ensure a profit or prevention of loss in times of declining values.