Whether it’s through marriage or cohabitation, there comes a point in most serious relationships when we start talking bank accounts and savings accounts, investment strategies, and retirement plans. And the big question: how should couples split finances?
Here’s the thing: Life is complicated and money is messy. You’re joining lives, but combining assets might be the most complicated part of that exercise. While your relationship might be a 50/50 commitment, your money most likely is not. But by maintaining honest, open communication about your expenses and income, creating a plan that works for both of you can help you both avoid the top reason relationships fail in the first place: fights about money.
In a study by Kansas State University, researchers found that arguing about money is the top predictor of whether a couple will get divorced (and it’s not even close). Those arguments tend to take longer to recover from and are more intense, researchers said. Regardless of where you are in your relationship, here’s how you can split finances when married or cohabitating.
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Should You Have Joint or Separate Accounts? Try Both
In dual-income couples, you don’t have to choose joint or separate accounts. The easiest setup is to have a joint account that both fund to pay shared expenses. Then each partner can have separate accounts to pay for individual assets. Both partners share the financial burden of day-to-day expenses while maintaining financial independence.
“Some of the most happily married couples I’ve seen are ones that kept their money separate for their entire marriage,” says Emily Sanders, managing director of United Capital Financial Advisers in Atlanta. “It takes away some of the power and control issues that tend to be associated with how we use our money.”
A joint account requires transparency, mutual trust and shows a shared commitment toward a common goal. Sanders also recommends adding each other’s names to the apartment lease or house deed. This increases the equity in the relationship and avoids the “his house” or “her apartment” language. It’s yours together now, both the pleasure and the responsibility.
What If One Partner Earns More Money?
Odds are that you and your partner will earn different salaries, and those amounts might vary. So is it fair in that case to split the mortgage 50/50? No. “Fair doesn’t necessarily mean equal,” says Kelley Long, member of the National CPA Financial Literacy Commission.
Instead, Long says, do some math. Make a list of all your combined expenses: housing, taxes, insurance, utilities. Then talk salary. If you make $60,000 and your partner makes $40,000, then you should pay 60 percent of that total toward the shared expenses and your partner 40 percent. For instance, if the rent is $1,000, you pay $600 and your partner contributes $400.
Splitting bills based on your income is more fair than splitting them down the middle. To do this, you both can set up a direct deposit from your individual accounts to the shared joint account for your agreed share of the expenses. Then review the bank statement each month for that account as well as the bills that are coming in. Change happens. For instance, the cable bill goes up or the gas bill is higher than expected. Be ready to adapt and keep some money in reserve in your personal accounts to cover any unexpected overages.
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How to Decide Who Pays for What
In the simplest terms, your budget discussion starts with the question: What are our shared expenses? The mortgage, electric and gas bill are given. But then how do you handle her student loan payments? The loan for the car you bought way before you knew your partner? The balance on your credit card bill?
These are individual decisions, but solutions happen by talking this out. If your partner has a lot of debt, you may offer to help them out with the payments. Or you might take on a larger percentage of the household expenses. allowing them to tackle their debt payments. If your partner insists on paying their bills by themself, you could be the one to pay for the discretionary, or “fun” stuff from your personal account.
Saving for the Future
You both can have different goals and interests, but there are some savings goals you’ll want to tackle together. Part of your savings plan should be the result of a joint decision based on your goals. For instance, a short-term goal could be to take a vacation next year. Your long-term goal might be to buy a house. Make sure your partner not only knows about these plans, but is on board with them. When you’re both saving toward the same goal, you’ll get there faster.
Commit to a savings level you are both comfortable with and then deposit that amount in a joint savings account each month.
When you figure out how much you are both saving, don’t forget to take into account your 401(k) contributions, if applicable. If you’re putting 5 percent in your 401(k) and your partner is putting 2 percent, have a discussion about goals. There’s a chance those contributions need to change.
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How to Invest Alongside a Spouse
You might want to be very aggressive in your investing while your partner is happy with a low-risk savings account. If that’s the case, sitting down with an investment adviser could be the best way to find middle ground, says Sanders.
“You need to view your investments simultaneously to ensure that you’re not duplicating efforts and that your overall investment strategy is consistent and makes sense,” she says.
You should both be aware of where your money goes, how those investments have performed, and have a shared plan for retirement. Do you dream of retiring at 55 but your spouse has been planning his retirement strategy on working long beyond that? Unless you communicate those issues, you’ll have a surprise waiting for you at your retirement party (and not a good one).
Divvying Up Duties
Managing money isn’t only about figuring out how to share the expenses. It’s also about making sure the duties of money management are equally distributed.
“I have, without exception, never met anyone where there wasn’t one partner being the money manager and the other just kind of knowing what’s happening,” says Long. “And it is easier to have one person do the tracking. But where it can be impractical is where one person maintains willful ignorance about how their habits are affecting the family finances.”
For that reason, Long recommends couples have regular money meetings. They can be weekly, monthly or quarterly. Regardless, the person who is in charge of managing the accounts shouldn’t be the only person who knows how much money there is.
READ MORE: How Couples Can Fight Fairly About Money