Maybe on Valentine’s Day you made a loving commitment to take your relationship to the next level. Could be engagement, buying a house together, or sharing an abode. The more you commit to a person, the more you commit to their finances, so now is the time to start off on the right foot.
Herewith, three methods and quick pros and cons for combining finances with a partner.
What’s Mine is Mine and What’s Yours is Yours
There is a division of who pays what bills, but no combined accounts are established.
Pros: Total freedom to spend as you like and no accountability to anyone for your skiing/shopping/gambling/supporting-your-adult-kids habits.
Cons: Total freedom to spend as you like and no accountability to anyone for your skiing/shopping/gambling/supporting-your-adult-kids habits.
No, really, if you aren’t combining at least some sort of financial support for each other and moving toward shared long term goals, are you in a committed relationship or just friends with benefits?
Yours, Mine, and Ours
This is increasingly common, especially among couples who come together later in life. You might have largely different assets, debts, incomes, and money habits. You realize to build a day-to-day life together, you need to share at least a bank account in which to contribute each person’s share of the regular bills.
After the bills are paid, it’s every person for themselves! Jeff wants to use “his” money, to buy $10,000 watch? Frieda is taking a long weekend with the girlfriends to Napa and staying in a luxury spa? No permission is asked or expected.
Pros:
- Some accountability is in place to keep the house running. Financial communication is happening, even on a limited basis.
- Each partner retains freedom over discretionary spending.
- No need to fight about how you each use your money.
Cons:
- Varied lifestyles based on higher earnings or lower savings of each party could lead to resentment. The lawyer may want to stay in 5-star hotels, while the pre-school teacher can only afford hostels.
- Is everyone saving the same amount for longer goals, such as emergency fund, retirement, future kid expenses, or home maintenance? Does anyone carry revolving credit card debt or have dangerous obligations to loan sharks? Does one of you have a fabulous credit score while the other’s is in the low 600s? How would you even know?
- Less commitment to the long-term wellbeing of the other partner if the only responsibility you have is to share current bills.
What’s Yours is Mine and What’s Mine is Yours
Like your grandparents did it. In this method, all accounts that can be combined are combined. Checking, savings, vacation fund, non-retirement investments would all be joint. IRAs, 401(k)s, and other accounts that are required to be held as individuals are understood to be for the equal support of both partners.
Income from each partner is assumed to belong equally to the other, so disparities in earnings or one partner staying home to raise kids shouldn’t be (not always the case) held against the lower earning partner.
Pros:
- A strong sense of connection and commitment to the long term positive outcome of each other.
- Easier to handle joint accounts if one person were to suddenly die.
- Requirement to talk about large purchases with the other partner.
- Hard to financially support an affair when your partner sees all of your expenses.
Cons:
- More difficult to separate finances in the case of breakup or divorce.
- Could lead to more arguments for couples who have vastly different money personalities.
- Hard to surprise your sweetie with gifts when your partner sees all of your expenses.
Are these the only three ways to deal with money? No, but the other ways are all just variations on these three themes. While there is no “right” way, I’d say that couples with the stronger relationships are those who have the most combined finances.
