A 3-Part Series about Conversations Couples Should Have About Money
You have the framework for the three money conversations – now what?
It’s worth working through some of the background questions to give you and your partner more context when you start to have these conversations. Let’s start with the most pressing question most couples have – should we merge our finances? Later in the piece, I’ll share what my spouse and I chose and how it’s been for us.
To Merge or Not To Merge?
When couples begin to think that their relationship is likely to be long-term, especially if they are young or middle-aged, they often wonder if they should merge their financial lives. The merging of their lives can happen in a lot of ways.
Sometimes this happens before a legal marriage and sometimes after or perhaps people see themselves as long-term partners but don’t intend to marry legally at all. Sometimes people who don’t plan to marry legally might have a wedding. Sometimes a couple, previously married, kept finances separate, but wants to come together more in this sphere of their life this time. Regardless of the moment in the relationship, there are a variety of family financial solutions available.
Many people think the question is “Should we completely merge our money or keep it entirely separate?” That’s a false dichotomy. There are infinitely many gradations between those options. It’s really a continuum.
At one end of the spectrum is a fully separate approach. Each partner has their own checking, saving, emergency, and retirement accounts. Their wages go into their own accounts. They may split bills (proportionally or 50% each, or some other way) or couples may divide up expenses (one pays the rent the other pays the car bill and groceries). It’s not really all that different from how non-romantic, short-term housemates usually approach it. I suppose it’s a bit different since you probably don’t keep your own milk and labeled leftovers in the fridge, but if you do, that’s cool too. The fully separate approach can be nice if one (or both) partners really wants a sense of control or independence and hate/s the idea of someone else having a say in their decisions. Some people like the opaqueness of it.
At the other end, some couples’ finances are fully merged. These couples have one checking account, share credit cards, pay bills out of their shared resources, and think of the whole financial system as being together–they are one team. If they inherit money, they put it in their joint bank or investment account. What belongs to one belongs to the other, with two major exceptions: retirement accounts and student loans.
Retirement accounts, in the U.S., are always legally separate because they have to be in one person’s name, but generally speaking, for married couples, in most states, they are effectively shared because of how the contribution, family law, and estate planning rules are set up. If you want to know how the rules work in your state, it might be good to discuss with a family law attorney.
Student loans in one person’s name can have a bearing on both members in a partnership.
In a fully merged system, there is usually a sense of team. Some people like this approach because of the sense of mutuality and sometimes the simplicity (fewer accounts and such) but because one person’s decisions more directly the other, there is typically more need for communication and coordination. You might think of this approach as having a higher upside but lower downside.
Fully merged and fully separate are the end-points, but there is a broad swath in the middle. In my experience, few couples are actually fully separate or fully merged.
A Personal Example
Becca and I met when she moved into the group house I lived in in Mount Pleasant, DC. We were already in a relationship by the time we moved out into a new apartment nearby, but we hadn’t decided on a life partnership yet. We knew we wanted to split household costs (food, supplies, furnishings, etc) in a fair way, but we had dramatically different incomes, with me making about 50 percent more than Becca at the time.
What would be fair? We both thought that splitting costs 50-50 was unfair to Becca, and decided instead to split costs 40-60—in line with our income split. Equality and feminism are important values to us. We knew that at a population level, there is a significant pay gap and our differences in salary might be in part, related to this phenomenon. We didn’t want to import the unfairness of the patriarchy and sexism of the working world into our relationship’s financial system as would happen with a 50 percent expense split despite unequal incomes. It’s very hard to know how much of our wage gap was attributable to gender. That may be instructive, since it is rarely totally clear.
Once we decided to split proportionate to our incomes (what might now be called “equitably”) the trouble then became how to share expenses without an annoying amount of hassle. Obviously, the math isn’t very hard since 60/40 is easy to calculate. The bothersome part was tracking each cost and then splitting them. Neither of us wanted to do the work of hanging onto receipts and then having to remember who owed whom what amount of money. I especially hated keeping receipts, though Becca didn’t like it either, and most people don’t. We came up with a much easier solution: We opened a joint bank account, to which we contributed proportionally to our income. (For example, if I put in $600, Becca put in $400.) We each had a debit card that drew from that account, and we used those cards when we paid for any shared cost. Before, whoever ran an errand also paid the costs of the errand, and then had the hassle of record-keeping to get reimbursed or deciding it wasn’t worth the bother and losing a bit of money. With this new approach, a person could do the errand without all those extra hassles, removing some friction from doing a pro-household chore—a nice bonus. I liked doing those errands much more as a result and so did Becca.
Having systems that involve people needing to do things they don’t like to do is usually a bad plan. The friction tends to result in non-compliance or, at the very least, annoyance. This can become toxic and bad for everyone. That’s why we took the effort to work out a system that was values-aligned and also one that worked logistically without much friction.
Technology has come a long way since then (which wasn’t that long ago!), and perhaps if we’d been designing the system today, we’d just use an app instead of the tech we used (a bank account and debit card).
Eventually, we decided to merge our finances. We started depositing our paychecks into our joint checking account. We added each other to our credit cards and started paying them out of our joint account. Each month we set up an automation to sweep some money (maybe $150, I don’t quite remember) from our joint account to our personal accounts.
We could then use that smaller pot of money for personal things, like gifts, etc. The other person would not have a say about how we used those funds.
Over time, we dropped the extra complexity of a couple of additional accounts and automatic sweeps and adopted a fully shared financial system, without any personal or separate accounts. Turns out, we could just decide not to be judgy with each other and solve the problem that way.
That had other benefits too. We are about 13 years into that system now, and it works well for us. Of course every couple will have different concerns, unique quirks, and make different decisions. You’ll build around them artfully, and you’ll tweak them over time, as we have. The point is that with a bit of creativity, strong communication, and a commitment to your shared values, you can find smart and efficient systems for your financial relationship. Everyone’s system will be slightly different because everyone is their own person, and each relationship is different too. That’s what makes the whole process interesting!
I hope the above conversation suggestions, background, and personal examples are helpful. Feel free to share this and especially what you tried and how it worked!
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You should always consult a financial, tax, or legal professional familiar about your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns. Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost.