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Figuring out how to combine finances in your new marriage is a tricky business. People are sensitive about money, and finance has been the cause of some serious marital hiccups.
And it’s getting more and more complicated:
- We’re getting married older, so we’re coming into a marriage with our own accounts, our own assets, and our own way of handling our finances.
- We’re not following the traditional breadwinner formula. Of course we’re all for progressive career balances in modern families, but the multiple incomes sometimes changes the money mindset from “ours” to “yours and mine”. Or worse, to “yours vs mine”.
- We’re splitting and re-coupling. Divorce can be a financial disaster! And with the increasing divorce rate, more people are considering prenups, paying alimony, and needing child support. Then carrying all those complications into the next relationship.
No wonder so many couples want to avoid the how-are-we-going-to-combine-finances chat. Sorry, friend, your finances aren’t going to combine themselves.
But it’ll be ok. We have a few tips for navigating this minefield to combine finances as smoothly as possible.
Have the Talk Before the “I Do’s”
You both deserve to know what financial baggage the other person is bringing to the relationship. Here are some of the questions you should ask well-before the wedding. Like, maybe even as soon as you know an engagement is a real possibility.
PS: These questions aren’t necessarily to disqualify someone from marrying you. You just want to know what to expect financially so you can properly prepare to combine finances. But, yeah, you also need to make sure these are things you can live with!
- How much debt do you have, and what kind of debt is it? $30K in student loan debt is very different from $30K in credit card debt. Maybe your partner has all smart debt. Or maybe they have a bunch of bad debt to be paid off asap. Remember to include any money you owe to friends or family in your debt totals.
- What does your credit history look like? Including “have you ever declared bankruptcy?” If either partner has an iffy credit score, it can really affect your ability to borrow money for things like cars and a home. And even if you qualify for a loan, the interest will be higher if there are dings on your credit. Make sure you’re building good credit from the beginning.
- How much do you have saved? This includes retirement accounts and general investments.
- What are your spending priorities? Like what things do you scrimp on and what do you splurge on?
- What dreams would you like to save for? Traveling, kids’ college, starting a business? Find out about these big picture life goals.
- What do you consider a “big purchase”? Like should you consult with each other before you buy a $75 pair of shoes? Or do you only need to check in for purchases over $500?
- Do your parents pay any of your bills? This is more and more common, especially with family plan things like cell phones and insurance. You should probably plan for that financial help to stop after the wedding. This is probably a good time to find out how your SO feels about accepting financial help from family in general.
- How do you feel about charitable giving? This should also cover thoughts about offering financial help to friends and family if they need it.
- How hands-on are you with finances? Someone’s got to pay the bills every month, and someone’s got to handle the saving and investing (with input from the other person of course). Who should do what?
Make a Plan to Combine Finances
Once you both know where you each currently stand financially, and where you want to be, you can start coming up with a plan to combine finances.
Most people are torn between wanting to demonstrate their commitment to the relationship and wanting to protect themselves just in case things don’t work out. Your situation is unique to your relationship, Snowflake, so find what works for you.
If you’re both young and don’t have any assets to protect, it’s probably easier to go all-in and completely combine finances.
But if you’re coming into the marriage with your own savings, investments, and other assets, you need to consider Community Property Law. Community property means that both partners equally own the property. In many states, the assets you have before the marriage stay yours, and only assets acquired during the marriage become community property. But if you take any action to combine your pre-marriage assets, it becomes community property. Like if you had an inheritance sitting in an investment account, it’s yours alone unless you add your partner to the account or transfer money to a joint account, then it becomes community property. But that’s not the case everywhere. Check your state law to see how they treat community property.
Having said all that, you can choose one of four basic options to combine finances:
- All in
- Mostly in except for separate stashes
- Mostly independent except for joint expenses
- Totally Independent
All In
Just like the name implies, both partners throw all their money in the same pot.
You have joint checking, savings, and investment accounts. Both partners are named on all accounts, and all debts, and are jointly responsible for all credit cards, loans, and leases. Retirement accounts legally have to remain separate, but you both list each other as the beneficiary to your account just in case anything happens to you.
Neither partner has any account, credit card, or other financial bit without the other.
Transparency:
This plan offers total transparency. Both parties can clearly see where all money is coming from and where it’s going. Of course total transparency means you might need to explain and justify your spending to each other. I have to defend my decision to spend $75 on books, and my husband has to defend his decision to buy his Mass Effect Collector’s Item Whatevers. This is actually a pretty effective way to keep each other accountable. If I know I’m going to have a hard time justifying a purchase, I might just skip it and end up saving money without even trying!
Accessibility:
Both partners can easily access all accounts. Heaven forbid anything happen to your spouse, but if it does, it’s nice to know that you would still have full access to your funds. The flip side is that your partner can access your money at any time for purposes you might not agree with.
Commitment:
Combining finances shows a complete commitment to the relationship and total trust in your partner. Sadly, that trust leaves you exposed if something goes sideways. Your spouse could completely drain the accounts and skip town, and you’d be SOL. They could also rack up credit card debt on your joint cards, and you’d be jointly on the hook for the full amount. Like you can’t just pay half of the debt and call it good. The credit card company will come after you both until the amount is paid in full.
Fairness:
The score-keeper mentality can be an issue with all-in finances. If one person makes way more money than the other, it’s tempting for that person to want to control all the financial decisions.
All In is Best for:
- Young couples coming to the relationship with very few assets.
- Couples who trust each other completely on financial matters.
- Couples who have similar ideas on money and personal finance.
Mostly In Except for Separate Stashes
Your second option is to each keep your own private stash in a totally separate account, and throw all the rest of your income in your joint accounts. Your stashes could be a certain dollar amount, like you each keep $200 per paycheck in your private accounts. But that can be a point of contention when one person makes way more than the other. Like, if I make $1,000 more than you each month, why would we both keep the same $200 amount? You can get around that argument by making the amount a percentage of your income. Maybe instead of a flat dollar amount, you each keep 5% of your income in your private accounts instead.
Transparency:
This is mostly transparent since most of your money is getting combined into the accounts both partners can see. Private stashes can be nice because you won’t necessarily have to defend your purchases from your separate account. But that can lead to hiding spending from your spouse. The amount of money isn’t the issue here; it’s what the money is being spent on. Money can buy some shady stuff, and this system leaves the door open for either partner to buy or do something shady.
Accessibility:
Since most of the money is combined into accounts accessible to both parties, you shouldn’t have any trouble getting enough money when you need it. You would not be able to access the money in your spouse’s account, and they wouldn’t be able to access the money in yours, so there’s some limited protection for both parties.
Commitment:
Combining most of your money shows strong commitment to the relationship. Keeping a stash for yourselves doesn’t mean you’re not committed. It more likely means you both want to be able to spend some money on things your spouse thinks are silly or unnecessary.
Fairness:
With so much of your money combined, the finances can still seem a little unfair to a spouse making way more than the other because they’re paying for so much more of the expenses.
Mostly In Except for Separate Stashes is Best for:
- Those who want a little discretionary spending without judgement.
- Couples who trust their spouses (and themselves) not to do anything shady with the private money
Mostly Independent Except for Joint Expenses
If you decide to go mostly independent except for joint expenses, you’ll both contribute a dollar amount or percentage of your income to the joint account to cover all household expenses and keep all the rest in separate accounts. Using a percentage instead of a dollar amount makes the burden of household expenses fairer when one person earns way more than the other.
Transparency:
There’s not a whole lot of transparency here because so much of the money is kept separate. That decreases the accountability and can lead to less responsible spending in terms of dollars wasted and spending on shady stuff. If you choose this option, you might want to make a deal with your partner to keep each other posted on spending from these accounts for accountability’s sake.
Accessibility:
Accessibility can be a problem. Say your partner forgets to transfer money to your joint account, and then goes off grid. Like what if he goes into a coma? Ugh, that’s dark. Ok, what if he’s an astronaut and goes off to space for months? You’d have to find a way to survive without that money. Of course, this also means you’re fairly well protected from your partner if anything goes sideways since your account can only be accessed by you.
Commitment:
This can feel a little one-foot-out-the-door. Like you’re not completely committed, so you’re leaving yourself the option to bail without the hassle of splitting all the joint assets. Or you can’t trust your partner with finances, so you have to protect your money from your spouse. Now, your decision to choose this option might not have anything to do with your level of commitment. But if you’re the one recommending this arrangement, you might want to be prepared to explain your other reasons to your spouse so they know this isn’t a commitment-based decision.
Fairness:
Even for couples with big wage discrepancies, this is a pretty fair option. Each person contributes their fair share to the household finances. And each partner has more control over his or her money.
Mostly Independent Except for Joint Expenses is Best for:
- Couples who are a little older when they get married. They already have their own accounts and have been managing their money independently for years.
- Those who can’t trust their spouse with finances.
Totally Independent
This is like a roommate agreement. You each pay your share of all household expenses from your own accounts, but that’s the extent of your financial entanglement.
Transparency:
There is all kinds of room to hide questionable spending here. With everything separate, your partner only knows what you tell him. For the sake of accountability, you should probably do lots of sharing about your spending.
Accessibility:
You have no access to your spouse’s accounts, and they have no access to yours. That will be a problem if one person travels to space for any length of time. But it’s nice to know your accounts are totally protected from your spouse if there’s an issue.
Commitment:
You can financially walk away at any time. Again, that doesn’t necessarily mean you’re not committed. It just means your partner might question your commitment if you suggest this arrangement.
Fairness:
This is as fair as it gets. You each pay your fair share of everything and for all your own stuff.
Totally Independent is Best for:
- Couples who are older when they get married. They already have their own accounts. Maybe they have kids from previous relationships and want to keep the inheritances separate.
Summing it up:
So you’ve got some things to think about if you’re planning to combine finances. As with most marriage stuff in general, trust and communication go a long way! Have an honest conversation (or several honest conversations) with your SO early on to set some clear expectations. And choose a financial arrangement you both can work with.
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Any words of wisdom for soon-to-be newlyweds on how to best combine finances?!
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