Til debt do us part
You’re about to incorporate in a big way. But can your finances handle the merger?
When Matthew and Lisa Spears got married five months ago, they did what their parents’ generation did: threw their money together into one big happily-ever-after pot.
“I think one of the best things is you get to blend everything together,” says Lisa, sitting beside her husband in a Reno coffee shop.
The Spears are both in their 20s, but fewer couples of their generation are taking the money-merging route. The National Marriage Project reports that an increasing number of couples in their 20s and 30s are taking a “yours, mine and ours” approach, with both joint and separate accounts. Baby Boomers, however, tend to throw all their money together. According to a USA Today/CNN/Gallup poll conducted in March, 89 percent of married adults have at least one joint bank account, while a third have at least one partner with a separate account.
John Spears, Matthew’s father and a financial advisor with Edward Jones in Reno, attributes it to a cultural shift. People are waiting longer to get married, so by the time they hit the altar, many have established careers, 401(k)s and are used to looking after their own money. Money often is intertwined with independence and identity, while marriage—43 percent of which ends in divorce within 15 years—is a leap of faith.
Money is a key source of arguments among couples, and, consequently, of divorce. However you decide to manage your finances, be up-front with your partner from the beginning about spending habits, any debts you owe and financial expectations.
“Talk about finances before the wedding because there are often surprises,” says John.
Have a three-way
Few couples have completely separate accounts. It makes little sense when you’re living in the same home, sucking up the same utilities and raising the same kids.
“If it’s a first marriage, and you keep everything separate, it shows a glaring lack of commitment to me,” says John.
More common is the “yours, mine and ours” method. Together, you decide how much you each put into an account for common expenses, and then maintain separate accounts for personal use.
Reasons to do it:
• Children from a previous marriage are involved.
• You want certain assets kept separate.
• You fear divorce. Barring a prenuptial agreement, there is little to stop your spouse from walking into the bank, clearing out your joint account and hitting the road. “I don’t know why I’d marry someone, personally, if I had that kind of concern,” says John.
• Bad credit. Your partner’s bad credit could hurt your credit score. However, a joint credit account could better your partner’s credit rating. John recommends waiting until your partner improves his or her score before joining.
But separate accounts won’t provide complete protection. Nevada is a community-property state, meaning property you buy once you’re married is considered joint property, and you’re jointly liable for it, even if you have separate accounts.
• You may not want to answer to your spouse about every purchase you make.
• Gift-giving discretion. Lisa bought all of Matthew’s Christmas presents in cash this year so they wouldn’t show up on the bank statement.
Some couples try the three-way approach, and combine later as their lives—financial and otherwise—become more intertwined.
John Spears says couples with vastly different investment philosophies may choose to have separate investment accounts. So might couples with one partner inheriting an estate, especially when children from previous marriages are involved. Couples can also draw up a document instructing their broker to get permission from one spouse before the other takes out a significant amount of money.
Keeping separate accounts is “safer.” But skepticism and outstanding circumstances aside, joint bank accounts facilitate communication and trust between the couple and is the most convenient, says John.
If one partner dies, the account is immediately accessible to the spouse. There’s no need to wait for the sometimes lengthy and costly process of probate, which is when assets are divided according to the will.
Joint accounts also leave couples with little to hide from each other, providing a less fertile ground for mistrust and resentment. If the unfortunate break-up occurs, hopefully you’re reasonable people. If not, call a lawyer.
“It’d be a shame for people not to join accounts just because of a foot-out-the-door mentality,” says Matthew. “There’re reasons to do it, but I hope that’s not one of them.”