Getting married used to mean merging money as well. But with young adults living together – married or not - the inevitable question has become whether to share financial accounts or to keep money separate.
Today, marriage is no longer the trigger for opening a joint account. Among couples who have joint accounts, 26 percent of millennials opened a joint account when living with their partner, while 19 percent merged finances upon getting engaged, according to a recent TD Bank report.
Deciding whether to share financial accounts or to keep money separate used to be more of an issue of convenience than concern. However, the “separate” or “joint” account debate is a question deserving more than just cursory consideration.
The case for keeping it separate. With student loans, credit card debt and the lingering effects of a brutal recession, unmarried millennial couples might be bringing a bit of “history” to their relationships. In that case, it could be a good idea to maintain a wall between the wallets.
Keeping separate financial accounts provides some protection when it comes to individual debt. Should your partner default on a separate debt or declare bankruptcy, your individual assets and credit rating aren’t affected. Separate credit card accounts can also be a good idea, especially if one of the partners is a freewheeling spender.
However, holding separate accounts while in a serious relationship can become challenging in the long run. Neither partner will be eligible for spousal benefits under Social Security for example. But you can keep separate accounts and still benefit from some laws that protect the rights and responsibilities of married couples by tending to a few details such as beneficiary designations on retirement accounts, durable powers of attorney for financial and medical matters, properly executed wills and perhaps a domestic partner agreement.
A joint proposition. Sometimes, joining finances makes life easier. A joint account can be a way for a couple to track recurring – and often substantial – expenses.
“For the most part, for ease of asset management, and for other reasons such as taking advantage of certain states’ spousal protection rules, owning jointly, directly or in a trust often makes sense for my clients,” agrees Christopher Grande, a financial advisor in Medford, Mass.
It does require frequent communication, though. While one partner may have the responsibility for tracking transactions, the other will need to be diligent in reporting them. Younger couples especially can gain a real sense of “being a team” when they share a stake in financial decisions, with full disclosure. Transparency equals honesty, and in any relationship, that’s a good thing.
“From a personal experience, my husband and I combined our finances when we got married at age 22,” says Anna Sergunina, a financial planner from Odenton, Md. “It was easier to pay bills and track our expenses. I think this also speaks to the issue of how much we trusted each other.”
Plus, the fewer accounts, the lower the monthly fees. Higher balances may also make a couple eligible for elite banking services and rates for which partners could not individually qualify. A joint account can also help smooth out an otherwise bumpy ride by combining assets into a bigger pile during the lean, career-building years.
From an investment perspective, while retirement accounts must remain in an individual’s name, combining savings and brokerage accounts may make it easier for couples to see their overall asset allocation to insure that they’re properly diversified.
All in all, having joint accounts just makes managing finances as a couple less complicated.
Sometimes there is little choice. There are instances where the decision to go “separate” or “joint” is an obvious one:
- If one member of the couple has had credit problems and is slowly working their way out of it, separate accounts are usually a good idea.
- Even after a wedding, separate accounts can be maintained, but while spouses are generally not responsible for each other’s debts, there can be exceptions: If a debt incurred by one spouse is considered a family expense, in some states, both spouses may be held responsible.
- Community property states can hold each spouse responsible for the other’s debts so you might as well have a joint credit account.
Getting to know each other, financially. Of course, trust can only go so far. With a joint bank account, your significant other can reveal a hidden dark side, drain every penny – and even close the account - and there’s little, if anything, that can be done about it.
With a household account holding joint funds in an amount sufficient to cover monthly bills, that disaster might be avoided. In the meantime, personal savings, investments and the remainder of wages can be kept separate.
As time passes and the “honeymoon period” ends – after all debts and regrets have been revealed – then you might further merge your financial affairs, if you both desire.
More than 40 percent of those in relationships who have joint accounts also maintain individual accounts, according to TD Bank. So perhaps the matter is not an “either/or” situation, but a “both.”
Hal Bundrick is a Certified Financial Planner™ and former financial advisor and senior investment specialist for Wall Street firms. He writes about personal finance and investing for NerdWallet.
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