The pros and cons of merging assets with your spouse
I sometimes find it a bit awkward when I go out to dinner with other couples and when the bill comes both members on another couple pull out their respective credit cards because they are going “Dutch”. This is a totally foreign concept to me because ever since my husband of 16 years and I have been living under the same roof, we have shared our cash. However, clearly this isn’t the case for everyone.
While I have enough sense not to mention this at the dinner table, I always reflect later on why people who share homes and children, don’t share financial resources fully. Is it a weird lack of trust? Or is it entirely sensible?
Some people think that whoever holds the purse strings has the upper hand in the relationship. Again, not true for me, but I can see that traditionally 1950s household values are still prevalent in some relationships today. I do worry (mainly for women) that by handing over financial control to your partner you could be abdicating your personal independence. To me though, the key is that no matter what you decide to do financially, both parties must be completely aware and engaged in the financial matters of the household.
After some research, I’ve come to the conclusion that there are many pros and cons to merging your money and there’s quite a bit to consider. What’s vitally important though is for new couples to have a transparent and thorough conversation to articulate how you will handle financial matters and assign responsibilities.
Here are a few different scenarios to consider:
- The “Equal Earnings” method
What it is: Keeping most of your finances separate, except for one joint account. Both people contribute to that account equally.
Who it’s good for: Couples who are on equal footing when it comes to income and debts, especially those who are not yet married and haven’t seriously discussed getting married.
How to do it: Set up a joint bank account for the rent, bills, groceries and other shared expenses, then contribute equal amounts each month. You should understand that having a joint account gives you both access to the funds. Each has to trust that the other person is going to use the money the way it was intended.
- The “Each According to His/Her Earnings” method
What is is: Similar to the “Equal Earnings” method, except each member contributes a percentage of income to the shared account, rather than a dollar value.
Who it’s good for: Couples – married and not– who earn unequal incomes, especially where the one earning more would like to have a shared lifestyle (more expensive home, dinners out and holidays) that is more than the lower earner could afford on his or her own.
How to do it: Open a joint account where each person contributes a percentage of his or her income to pay for essentials – ideally less than 50% of each person’s take-home pay. Use this pot to decide how much they can afford for a mortgage and other shared expenses.
- The “My Shout” method
What it is: One person pays for all expenses.
Who it’s good for: A couple – married or not – in which one makes many times more than the other. Or a couple in which one is studying, staying home with the kids or otherwise not earning an income.
How to do it: If the higher-earning partner can afford it, he or she can take on all the household expenses. But before doing so, talk about all eventualities. If you broke up, would the breadwinner want to be paid back, or would you part ways guilt-free? If and when the other partner returns to the workforce, will they take on more of the household expenses? It’s important to have open communication about these arrangements, otherwise this can lead to conflict around money.
- The “Pick Your Bill” method
What it is: Each person picks certain bills and expenses to pay for. These may not necessarily be equal.
Who it’s good for: Couples earning different amounts, especially when they aren’t married, or one is paying for a mortgage. Perfect for couples who don’t want to combine finances at all.
How to do it: Maybe one person pays for the utilities, while the other pays for subscription TV and the home and contents insurance. Be careful about helping pay down a mortgage for a home that someone else owns. (You might consider paying rent, however.) One might take on more of the grocery expenses and the other might pay for dinner more when they eat out. The most important thing is that you talk about it and figure out a plan that works well for both of you.
- The “What’s Mine Is Yours” method
What it is: Combining finances completely.
Who it’s good for: Married couples who don’t enter the marriage with significant separate assets.
How to do it: Option 1 is to have a joint account where you deposit all your income and from which you pay all your bills and set aside savings. Option 2 is to have one joint account for shared expenses and savings goals, plus a separate bank account for each of you, with “play money” that you can spend however you want. Either way works.
If you have debts to pay down, decide together how much you will dedicate to paying off loans, and how much you will put aside and save for a down payment or other financial goals each month. Have monthly meetings to talk about your spending and your progress on savings goals.
- The “Use One Salary” method
What it is: Even though both partners are working, they live on one income and save the rest.
Who it’s good for: Couples in which one has an inconsistent income, or couples planning to live on a single income in the future.
How to do it: Set up your shared budget according to just one partner’s income, which means limiting essential expenses such as rent, utilities and groceries to less than 50% of that person’s income. Use that one income for everything, from lifestyle choices like dining out and shopping to financial priorities like paying off debt and saving for retirement. Then, send all income from the other partner straight to another savings account. This is one of the best things that a couple can do for their finances because it forces them to keep their essential expenses low and ramp up savings for emergencies and retirement.
Which method would suit you?
Whatever you decide and however unromantic it may seem, when all you really care about is the size of your cake, this is something every couple should be brave enough to talk about.