Just because you are married doesn't mean all your money has to be joined by a matrimonial bond.
Most people combine their money, surveys show. Marriage therapist Beth Erickson says when couples pool their finances, "greater intimacy results." Her view is shared by many Americans, and Merrill Lynch's Affluent Insights Survey in February reported that 89 percent of married couples manage their money collaboratively.
But monetary union does not always translate to wedded bliss. The same Merrill Lynch survey reports that well over half of married couples (57 percent) have arguments over money. Too much sharing can cause problems, says Nick Scheumann, financial adviser at Hefty Wealth Partners in Auburn, Ind.
"It would be better if more people split it out," he says. "When it comes to commingled assets, a lot of married people can't handle it." Indeed, says the Merrill survey, money disputes are cited as a significant contributor to almost 1 in 3 divorces.
With two-career marriages becoming the norm, so too are cooperative, combined finances. Here are few key ways to manage that aspect of your relationship:
1. There's value in separate accounts. It's fundamental personal finance not to put all of your nest egg in one basket. If each person has a separate account, it adds flexibility and safety of diversified investments. For example, the Federal Deposit Insurance Corporation insures bank accounts up to $250,000 for each individual, married or not. So a married couple can insure far more--up to $500,000--if each person sets up a separate account. "It's very important when it comes to retirement assets to have separate accounts," says Scheumann. But watch out for extra fees if you do.
2. Your credit score stays single. There is no such thing as a joint or married credit rating. Scores are only tied to individuals, not couples, and having a credit score of your own is a critical step in your financial life. The ability to borrow money is important if you become widowed or divorced, but also if you want to start a business or wish to be self-employed. Opening a bank account with checking services in your own name is the first step. Paying bills in your name, on time, builds your score.
3. Shared money means shared responsibility. The risk faced by married couples who pool money is that neither person takes full responsibility of the bottom line. It becomes "other people's money," which means it is easier to spend and harder to save, Scheumann says. "In commingled accounts, people tend to be a bit less disciplined than they are with individual accounts."
4. Marriage isn't always a tax benefit. You may pay more in taxes as a married couple than as a married single filer. There are income caps and limits for some deductions and credits. Medical expenses are deductible if they amount to more than 7.5 percent of your own income. If you have big medical costs and your spouse does not, the deduction can be lost as your combined income lowers the percentage. On the other hand, some tax benefits only apply to those filing jointly, including the student loan interest deduction. "You really need an accountant to figure out your own situation," Scheumann says. "It's complicated."
5. Self-employed and small-business expenses can get lost in a joint filing. "It can be a real trap if you are running a business and not keeping your profits and losses separate," says Scheumann. His company is based in rural Indiana, where "farmers often have a really good cash flow but they don't make any money because they keep buying equipment and things." They tend to borrow to invest, and the ups and downs of the farm economy can be dangerous, as can many small businesses sectors. In such cases, the steady income of one spouse is offset by the tax deductions of the farm or small business. "All of those deductions might help cut tax bills, but they are real expenses," Scheumann says. "It's hard to get ahead that way."
Joints accounts or individual accounts? As with marriage, couples' money-management strategies come in countless variations that can somehow still work. Marriage therapist Erickson says, "commingling funds both requires and builds trust and therefore is more advantageous for the couple and their family. Rigid separation of funds does the opposite."
While Scheumann agrees that communication and collaboration on how to spend money are essential, he says some financial independence in a marriage "demonstrates trust -- and there is something very positive" about that arrangement. "I have successful clients who make it look easy," he says. "They split the money out and they have been married for many years. They trust each other and they seem to manage with less tension."
Wells Fargo Advisors, in a recent commentary to clients, said there are benefits to both individual and shared accounts. "One solution to consider: Keep separate accounts and have a joint account that both individuals contribute to for covering household expenses."
Either way, says Erickson, "Money is a topic fraught with risk for couples. There is only one inviolable rule that unfortunately too many couples violate. They must be willing to talk about money, preferably before they marry."
Then, when that first anniversary dinner arrives, chatting about the fees you are avoiding on that joint bank account or whether you'll split the check might actually be romantic.
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