Should couples combine finances?

Love and money don’t necessarily co-exist, at least not peacefully. Mingling money in joint accounts is a big decision, and not one to be undertaken lightly. For the most part, when considering blending finances, couples consider three different basic approaches;

1. Jump into a complete financial union - wonderful for those of a rather romantic nature, but is doing so financially sound?
2. Maintain financial independence - which sounds excellent in theory, but can put a damper on the romance.
3. Settle somewhere in between - aiming to retain their financial independence, whilst still cooperating financially.

To fully understand these options the pros and cons of each need to be considered.

Is combining money for love a fool’s errand?

In an age of high divorce rates, low attention spans and ostentatious lifestyles, it can be quite scary to consider merging one’s finances completely. Yet let’s not disregard those of us who are lucky enough to be in secure, long-lasting relationships which remain obstinately unfazed by the current trend toward social nihilism. For those who are sure their relationship will ‘last the distance’ mingle away. Uniting money and the having of joint bank and credit accounts is your surest way to achieve your joint financial long term goals, whilst also allowing you as a couple to overcome the various challenges which will no doubt crop up over the years.

Being in a committed relationship is by and large predicated upon the equal contribution and discussion of not only financial decisions, but socio-emotional ones as well. Financial decisions which plot your life course - buying a house, budgeting for the kids, saving for that move to France – should be done together. Blending accounts also makes more sense from an administrative point of view – fewer accounts and a distribution of financial tasks.

I think we can all agree those are wonderful pros, but to consider something fully one cannot ignore the cons.

While it seemed the easiest and most logical decision in the world to entangle your finances, should the relationship end, disentangling them can be a painful and drawn out experience. Even with a formal court-ordered decree it can prove to be quite difficult to separate joint mortgages, credit cards and the like. Also, many couples have differing ideas of financial security and necessity. Saving plans, debt, financial investments, these are all issues which make the day to day of the relationship a challenge, and make the joint financial union nigh on impossible.

Going dutch on your finances:

Romance doesn’t have to preclude differences in financial personalities. While some differences can be overcome by agreeing on the ‘important’ things – such as food, savings, housing etc – some partners are destined to be financially incompatible. This doesn’t have to spell the end of your union, rather you may consider splitting your finances, or at least a portion of them. To this end you may choose to have joint checking and savings accounts whilst still retaining your individual accounts. This “yours, mine and ours’ approach means that while you will still be communicating and cooperating where decisions will affect you both, individuals are able to manage themselves and their accounts without interference from a partner. This approach is particularly attractive to those of us who have spent the greater part of our adult lives financially independent, and don’t relish the thought of losing all financial autonomy. Financial independence does of course connote bookkeeping – determining what percentages or flat amount each person will contribute to your joint pool and deciding which expenses should be shared, an unfortunate corollary of managing one’s own accounts rather than managing accounts jointly.

Is separating one’s money the way to go?

Far removed from ideas of financial cooperation and unity you have couples who refuse to ‘mingle’ their money and who keep entirely separate accounts. Individuals are responsible for addressing certain household bills from their personal accounts, and of calculating their own expenses. Reasons for such separate finances can range from a fear that joint accounts will prompt certain individuals to overspend, or even to over-invest, depending on each person’s idea of what constitutes an ‘investment risk’.

Alternatively, some couples are concerned about the debt brought into a relationship, debt they perhaps don’t wish to share with their partner. Debt that is brought into a long-term relationship, be it a marriage or otherwise, isn’t your partner’s legal responsibility, but as life partners it may be prudent to tackle debt as a couple.

Those who remarry, and perhaps have child support or alimony, may also be loath to share these responsibilities with a new spouse – in such a situation many will keep their finances separate to avoid unnecessary complications. Likewise if your relationship perhaps isn’t as solid as it could be, keeping your finances separate may well be the way to go.

The main problem with managing entirely separate finances is that both individuals must be good bookkeepers and budgeters, otherwise things tend to fall apart. Realistically, it’s quite rare to find two individuals in a committed relationship who both happen to be excellent with their finances 100% of the time. Disregarding the bookkeeping problem, expenses aren’t as easy to divvy up as one would think. Who will pay for the groceries, house maintenance, phone bills, water bills – especially when many of these bills will fluctuate and you’ll end up paying different amounts at different times. A sure way to build resentment, and nobody wants that.

To pre-nup or not to pre-nup

It’s a pretty controversial issue, but sometimes having a pre-nup does make sound financial sense. Basically, the pre-nup sets out exactly what will happen to your assets during, and should there be a divorce, after the marriage. If there are large or potentially large assets at stake, perhaps an existing business, a trust fund or future inheritance, it may very well be worth your while to secure both your assets before boarding the marriage train. It may also be prudent to organise a pre-nup should you remarry, purely to ensure that children from a prior relationship will get their inheritance no matter what should happen.

Speaking the same language; communicating about personal finances

Communication is integral to a relationship. If you can’t communicate, especially about your finances, your relationship, like your savings, is destined for a painful downwards slope. Before you merge any of your finances, couples need to sit down and discuss their personal needs and financial goals. Should this prove dangerous territory, don’t be afraid to seek outside help; we as your accountants can often help where your friends and family can’t.

Say you decide to defer all your financial decisions to your partner, whose delightful head for numbers made you fall in love with them in the first place, please remember to stay involved. If not for your sake, at least for theirs – no one wants to be solely responsible for the couple’s financial future if things go badly, and two heads are definitely better than one, even if one of the heads has more pull than the other.

My advice as far as coupling your finances goes, would be to experiment, go with what works best for you as individuals and as a couple, but remember to be open-minded - no one likes a stick in the mud.

Where to get advice

One of the reasons we like to meet with both partners in a relationship when doing annual tax returns, is that we can address the issues raised above. We often act as a sounding board for the financial decisions in a relationship, and because of emotional detachment, can often come up with solutions to financial stalemates.

So next time you have concerns about personal finances, please remember we are here to help and guide you along the path to financial health.

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