Monday, February 20, 2012

Monday Marriage Matters: Joint Finances

I know we've talked about this some, but Mouse talked about it lately and we talked about it on Twitter and I wanted to offer my lawyerly perspective and explain what we did and why. There are basically four schools of thought that I have found when it comes to combining money.

1. Everybody dumps all of their money into a single account, neither retain personal accounts.  All spending and saving is joint.  Each partner deposits their paycheck into the joint account.
2. Each partner keeps their own checking (and possibly savings account), and have a joint account.  Each partner gets paid into their own account.  Both partners transfer an equal or proportionate amount of money into the joint account to pay joint bills.
3. Each partner keeps their own checking (and possibly savings) account, and have a joint account.  All earnings go into the joint account and all bills are paid out of the joint account, but partners still maintain "separate" money.
4. Each partner keeps their own separate accounts.  They divide all expenses equally or proportionately and each pay a share of them.

I think it is important for partners to maintain separate money, and for legal reasons, I think it is important to keep money you had coming into the marriage separate.  (This is NOT legal advice.  You should talk to a lawyer in your state about how to protect your money just in case you get divorced.)  In Maryland, as I understand it, money you had before marriage or inherit, it's yours as long as you keep it separate.  Once you comingle it, it becomes joint.  Marital earnings are inherently joint.  Knowing this, we went for option 3, which protects any separate assets we had, and made life much easier when we were living on a single income.

Many of my friends who worked before getting married went for option 2.  I think that both partners working prior to marriage creates a different mindset about money and people who have experienced autonomy and been self-supporting like to maintain that feeling.  I think between options 2 & 3, there isn't that much difference (but would love to hear if you think otherwise), it's a matter of personal preference.

Options 1 & 4 both concern me.  I know that there are people who it works for, but, especially if there is a big difference in earnings, keeping everything or nothing separate has definite drawbacks.  The biggest drawback of having no separate accounts is that if something happens to you and your account gets frozen (suspected fraud, actual fraud, bank malfunction, bank changeover, your student loan company makes a mistake and destroys your credit and the bank freezes your account - true story), you don't have any access to any money.  The biggest advantage is that if you die, it's non-probate and your spouse automatically gets it without having to open an estate.  This can be solved with beneficiary designations.  We'll talk more about this soon.

Option 4, in my opinion, sometimes leads to keeping score and an obsession with keeping things equal.  I think it is fine to keep some things separate, but when you do not share anything, it can be a problem.  If you do not want any joint accounts, consider a joint credit card for shared expenses that you each pay half the bill on (although you do not want to do this if one partner is irresponsible or likely to abuse the credit card).  We did this while we were living together but not married, because we did not want to share finances but we also didn't want to be constantly keeping score over who bought groceries, and it worked really well. Option 4 also leads to a potential mess in the event of a divorce, because you have potentially comingled marital earnings with non-marital earnings, which matters in some states.  If you truly want to keep your finances separate and not joint, you should really see a lawyer about a pre-nup or a post-nup, because you will not actually be protected in the event of a divorce unless you have something in writing.

Which option did you go with?  Is there an option that I missed?



13 comments:

  1. For me, the difference is between "easier" if we get divorced and "being protected" if we get divorced. If something is just going to make the process easier, I would rather chose the option that makes life easier assuming we stay together. If something comes down to protecting each of our interests if we get divorced, I think that's something worthwhile to consider.

    We decided to do option 2 when we lived together (and not accumulate anything in the joint account - it was for monthly bills only) and switched to option 3 after we got married. Personally, I felt like it was going to be difficult for us to maximize our savings with most of our money in separate accounts. We do everything into the joint except for a monthly allowance that goes directly into our personal accounts. I like that we make most of our financial decisions together.

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  2. We chose option 3. All of our money goes into the joint account and then we take a little money out each month and put it into our personal accounts. We don't keep a lot of money in our celebrate accounts, just enough for fun money throughout the month. For us, this was easier to help us track our individual spending (my shoe and handbag purchases, his fishing equipment) rather than having those things come out of the joint account. We share everything else though, but it works for us.

    We had a situation a few months ago where someone took money from our joint account---they had pretended they were my husband and the bank gave them the money (long story). This was a Saturday afternoon and Monday was a bank holiday. All of the accounts with my husbands name on them were locked---debit card, savings account, and credit card. Luckily, I had a separate checking account and credit card so we were able to access some money during that time. Even though I only had like $100 in my account it was better than nothing---we could buy gas and food.

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    1. We are currently doing the exact same thing--though funnily enough, I didn't recognize our situation in any of the options listed, maybe because we also don't have much in our separate accounts, and I read #3 as having piles of separate money/a giant personal savings account. Whoops. So, yeah, we're doing #3, too.

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  3. We went for option 2 before living together, then option 3 when we moved in together and finally, at the end of last year just after getting married, we moved to option 1. At first it was just to try something new but we really like it so far! I've earned more than my husband for a while now and will continue to do so for a couple more years probably and felt that giving ourselves an 'allowance' worked really well as the situation could easily change and it wouldn't be fair to ask one person to give more/have more just because of their job.

    Having the one account that we both use for our own expenses has made me more aware of pointless spending and I feel that it shows how much we trust each other. It works for us!

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  4. We are practically doing #3, though technically #1 - we still have old separate accounts but they have very little in them and go totally unused. We keep them because they allow us to maintain student benefits on all our accounts (including the newer joint ones). For us, it's really important to share finances because of the symbolic and emotional and practical aspects of being a family unit. I can see how this approach could feel oppressive or smothering, though, so I appreciate the desire for some freedom and protection. We are good about allowing each other to make fun purchases without permission out of the joint account (which obviously only works when both people are trustworthy when it comes to finances) and that helps a lot.

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  5. Huh. I guess we never even thought about it, we just hopped right into option #1 when we moved in together pre-wedding. I did keep my investments separate, but J doesn't really have anything like that to keep separate. For us, it is simple and straightforward, although maybe we should have "protected" ourselves more? Am I just being naive?

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  6. I would be really happy to go with option 3 to have "my" own spending money that I could do with as I pleased but F finds that to be silly. He'd rather we talk about things and would perceive option 3 as "hiding."

    Instead, we're total option 1ers and just have to hash out bigger/more frequent luxury purchases. It occasionally ruffles my "but I'm independent and make money and don't wanna justify myself" feathers but the discussions spending brings up are really good for us--even if I'm a petulant child who doesn't want to have them sometimes.

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  7. I can add a #5, the somewhat antifeminist "What's yours is mine and what's mine is mine" accounting system. Everything I earn goes into my account, which he doesn't have access to (for now). Everything he makes goes into the joint account, which pays our mortgage and utilities. I pay for groceries and some incidentals plus vacations and "fun" stuff like movies and restaurant/bar tabs, etc., and the rest goes into my savings account, which only I have access to (not because I'm hiding anything, but he just doesn't need to access it).

    It happened this way because he earns more than twice my income and it was an easy transition from our long years of being single. One nice thing is I feel like I have a lot more freedom with my own separate account. It's just easier to not have to explain every purchase, regressive though our system may seem. Of course, this system doesn't have to have a gender preference; it mainly has to do with who makes (or who spends) more money.

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  8. This was a really nicely laid out presentation of the different options. We did #2 when we moved in together and then switched to #3 after the wedding, mostly I think because with me not changing my name and already living together and not moving anywhere else, I wanted to make some kind of change that felt like a big deal (other than wearing the wedding rings). It's working out pretty well so far, I think, except when I feel like I have to nag him a little to keep track of things neatly in Mint. I hadn't thought before about the situation where one person's accounts might be frozen, so thanks for bringing that up as further confirmation that what we're doing covers everything for us.

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  9. I don't know if I'm qualified anymore to speak on such matters, but we did option #4. The biggest downfall of this was that it wasn't convenient, logistically, to pay for everything. There was a lot of constant money transfer between the two of us. We paid for things on a scale based on our incomes at the time. (so like a 60/40 split or whatever it would be) To reconcile constantly paying bills with two checks, he was responsible for some houshold bills, I was responsible for others. We each paid for our own expenses (car, cell phone, credit card) by ourselves. We had separate savings and in the event of a rainy day, we would split the cost.

    The upside to this was that we felt like we were conquering equality in marriage. We remained independence financially and were only responsible for ourselves, which I think was to our personal benefit.

    Also, it made our separation easy peasy. We didn't have to split anything, close anything or pay out anything. My money was still mine and his was still his. And realistically, I didn't have to draw from joint accounts to pay for my move or my attorney (which is why option #1 is so scary to me).

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  10. We are still to choose. I fear I need to be earning my own wage before Bean will let me.

    The US seems more preoccupied with thoughts of divorce or perhaps is it through experience.

    Perhaps I do need to think more about an escape plan.

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  11. We're doing Option 3. I'm a big fan of it. Freedom and commitment all at once.

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  12. We hopped right into option 1. It's been a really hard first year dealing with each other's financial decisions.

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