For Richer or Poorer: Joint vs. Separate Finances

Newlyweds make a litany of decisions that will affect the trajectory of their lives together: where to live, how to divide chores, whether to have children, toilet seat up or down.

But one of the most fundamental financial decisions a couple faces is whether to merge accounts or treat money as something to be managed separately. Continuing research highlights that the separate or joint account quandary is much more than simply a legal ownership distinction.

The relationship dynamics that couples establish during the ‘honeymoon years’ often foreshadow how their relationship will progress in the later years.

The first few years of a marriage are critical to its success. Research has shown that the quality of a relationship peaks around the wedding day and then begins a long, and sometimes steep decline in the early years.

It’s not news to anyone that money is a major cause of arguments for couples. Fidelity found that nearly one in four couples identify money as their greatest relationship challenge. And while nearly 9 in 10 couples said they communicate well, more than 25% of partners resent being left out of financial decisions.

But is this a foregone conclusion or can couples, especially those just starting out, be more proactive in minimizing money disagreements and lessen or reverse that decline?

A recent study set out to determine if something as simple as bank account structure impacted how satisfied couples are in their relationship. After following engaged and newlywed couples for two years, the study found that financially interdependent couples had stronger relationship quality.

Why would combining accounts matter?

In addition to showing a correlation between shared accounts and relationship strength, the study found three potential reasons why couples with shared accounts may be better off.

1. Relative to separate accounts, joint accounts can improve each spouse’s feelings about how they handle money and prompt people to consider how they might justify their spending to their partner.

2. Couples can speak more openly about money and better align their financial goals.

3. Couples are more likely to adhere to communal norms. (e.g., responding to each other’s needs without expecting something in return.)

There is a wealth of common sense in these findings. Transparency and simplicity lead the way.

Are there drawbacks?

A joint account, however, is not a magical relationship elixir. There are potential reasons not to commingle money.

1. Lack of privacy. I am not suggesting you hide anything of significance from your partner but it’s worth noting that it is much harder to surprise your spouse with birthday gifts or Christmas presents if you only have joint accounts.

2. Life stages. If you and your spouse have multiple financial accounts and built a more significant net worth before you met, it might make sense to keep some of those accounts separate.

3. Retirement accounts. Not all accounts can be combined. For example, IRA and 401k’s are individual accounts and by law cannot be commingled.

Start the conversation

While merged finances aren’t necessarily ideal for all couples, some degree of joint accounts does seem to be a meaningful contributor to a long-lasting relationship. The correct mix is up to you, as a couple, to decide.

Not sure how to begin a conversation with your spouse? Check out this guide from Fidelity, Couples & Money: A Starter Guide.

I think ‘yours,’ ‘mine,’ and ‘ours’ can be a workable solution, but it doesn’t eliminate the need for open communication about your joint financial goals. In fact, working with a mix of accounts is best served by having an overarching and cohesive financial plan with a shared vision and a shared path to your financial future.

When it comes to planning out your financial path, here is how I summed it up in Life is Expensive: How Do People Do It?

The wealthy focus on the positive over the negative and keep the complaining to a minimum. They think long-term, have well-defined and realistic goals, work hard, eat healthy, exercise regularly, maintain a trusted social network, get a good night’s sleep, save and invest monthly, and oh yes, enjoy their spending.

Intelligent people know what to do. Intellectually curious people learn how to do it. But successful people are the ones who actually do it—repeatedly without fail. PCR: Plan, Course-correct, Repeat.

It is hard enough to meet financial goals while rowing in the boat together, but it’s exponentially tougher if the two of you are rowing in opposite directions. Get on the path to financial freedom…together.

As always, invest often and wisely. Thank you for reading.

The content is for informational purposes only. It is not intended to be nor should it be construed as legal, tax, investment, financial, or other advice. It is merely my own random thoughts.

The best way to spread the word about a book you enjoyed is to leave an honest review. Thank you for taking the time to click here and posting your review of Wealth Your Way. Your review will help other readers explore their own path to wealth!