Does Your Relationship Status Dictate Your Financial Strategy?

Understanding the pros and cons of shared finances when shacking up

Photo by Life’s Unsexy Toolkit

Although most relationships have an implicit contract, I started mine with an explicit one. Sitting on his parents’ beige living room couch, I outlined the terms, conditions, and termination clauses for our potential relationship — each requiring a direct response.

While that doesn’t sound romantic, I never claimed to be one. In fact, I can be a crippling pragmatist.

But, eight years later, our relationship is still strong. It makes me think my contract wasn’t such a bad idea after all. It set clear expectations from the start.

When we moved into our first apartment together, it was time to hash out another contract. We sat on our blue couch and decided how our financial lives would (or would not) intersect and interact.

Initially, it was a bit like walking on a tightrope. Neither of us knew completely what we were doing, so we had to feel it out. Test and recalibrate our systems. Now, we have the hang of it and are as coordinated as a pair of trapeze artists.

That conversation can be uncomfortable, I get it, but you and your partner need to be on the same page about if and when to join your financial households.

For some, it is when you move in together. For others, it is upon marriage. And for others, it is never.

None of those are inherently wrong as there are pros and cons to having joint accounts.

Pros: Convenience, Costs, and Clarity

Convenience

Proponents of joint bank accounts claim that it is much easier to manage shared household expenses when you have one account. When someone goes to the grocery store or drops $100 at PetsMart on treats and toys for the fur baby, you can use a shared debit card, instead of shooting Venmo requests back and forth.

(However, ARK Invest’s research notes that the number of active annual Venmo users at the end of 2020 exceeded the number of J.P. Morgan Chase deposit account holders, suggesting that the ‘convenience’ argument may become obsolete as digital wallet use grows.)

Another ‘convenience’ argument for joint accounts is accessibility. If your partner becomes incapacitated and you need money to cover outstanding or upcoming household expenses, it is easier to meet those obligations through a shared account. Otherwise, you are on the hook alone.

Costs

While easy to forget about, you may incur fees for your bank accounts. Consolidating finances under a single bank or account could potentially reduce your fees.

Clarity

“Did you pay the Internet bill? What about gas — has that gone out yet?”

A shared financial account reduces confusion on financial household management.

Additionally, it requires full transparency and honesty on how you spend money. This can help keep the financial dialogue open and help build accountability toward reaching shared financial goals.

Cons: Codependence, Conflict, and Secrecy

Codependence

On the flip side, some view joint bank accounts as an antiquated patriarchal idea that breeds codependence. There are enough online tools to manage household finances smoothly without shackling accounts together.

Conflict

Furthermore, if one partner feels they have to justify every purchase on the account, they may become defensive, hindering the financial dialogue. Alternatively, someone could reference transactions as ‘ammo’ during arguments to cast shame or blame upon their partner.

Should the relationship end, splitting accounts can be painful and awkward, especially if you are unmarried and trying to navigate this with no intermediary (divorce lawyer).

Secrecy

You as a couple may initially agree on 100% joint assets and transparency. But, what if your partner didn’t feel wholly comfortable with that plan and decided to keep an individual account without telling you?

“Thirty-five percent of couples say that a secret bank account is the equivalent of cheating on a partner or spouse, while 20% say that it’s worse.”

While secrecy is possible with or without a joint strategy, make sure you are both on the same page before executing your plan.

My Five Year Financial Secret

How to Make Joint Bank Accounts Work

Personally, I am a proponent of joint bank accounts — as one (or two) of your accounts, but not your sole one. (Keeping a personal account is always healthy to use your money as you please.)

If you and your partner decide a joint account is the way to go, set clear guidelines (or a contract, if you will) on how the account will be managed.

Not sure how to approach that? Here is a step-by-step guide for establishing a joint account (and accountability).

1. Decide what is considered a shared expense. Common ones are groceries, utilities, rent, and toiletries.
2. Determine your equality vs. equity philosophy. How much is each person contributing? Are you sharing the costs 50/50 or as a ratio based on each person’s earnings?
3. Do your research. Where do you want to establish the joint account — at a bank that you patronize today or a new bank? Do you want to have both of your assets at the same institution for ease?
4. Create a joint account that lists both of you on the title. Do not close your individual accounts.
5. Review what expenses are covered by that account, calculate the amount of money required (plus a fixed dollar buffer in case you overspend so as not to incur any overdraft fees), and transfer your respective portions. Whatever isn’t a shared expense stays in your personal account. This is easier when your personal and joint assets are at the same bank, but it is not a pre-requisite for making joint accounts work.
6. Request a debit card connected to the joint account for each of you.
7. Each month, review the transactions together. This avoids animosity and keeps both partners engaged in managing household expenses.
8. Bonus step! For extra accountability, track the amounts you each transfer to the joint account, detailing how it was calculated, so there are no questions later on.

This is the strategy I took with my partner and it enables us to easily track our shared goals while maintaining a clear separation of our personal assets.

Tip: When setting up your joint bank account, make sure you understand the rights of survivorship — what happens to the money in the account in the event that one of you dies.

I mentioned at the top of this section that joint accounts could be one or two of your accounts. The second could be an investment account. If you have shared goals, you might choose to have shared assets. Again, that is entirely up to you.

But, keep in mind with both joint bank accounts and investments, the IRS may not agree with your relationship status. If you are unmarried, any joint assets are exposed with no protection. If your partner empties the account and splits, you have no claim to those assets. There is also a risk that they could remove you as a joint owner of the account.

As I said, I’m not a romantic.

But, with Valentine’s Day in the air, it’s an excuse to be. Take advantage of the mood-boosting serotonin from your chocolate-covered strawberries* and show your loved one your commitment by talking about your shared future. After all —

Roses are red / Violets are blue / Financial transparency / Is the new “I love you.”

*Chocolate is loaded with tryptophan, which releases the neurotransmitter serotonin, associated with happiness.

Have questions for Life’s Unsexy Toolkit? Send them to unsexytoolkit@gmail.com, and I’ll address them in future articles.

Disclaimer

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.