education | protecting your wealth
Separate vs. Joint Bank Accounts: Which Is Best for Couples?
By Kali Roberge
Relationships and finances are not as simple as they used to be and more couples may be benefiting from dual incomes. There is not always one clear "breadwinner" in the relationship anymore.
Though our parents or grandparents may have never wondered about separate vs. joint bank accounts, today's couples do need to decide whether or not to combine their finances after they have decided to spend their lives together. If you're currently debating the choice between separate vs. joint bank accounts, here's what to consider.
The Case for Keeping Things Separate
In general, couples are dating for longer and getting married later in life. According to the U.S. Census Bureau, the median age for men marrying for the first time is 30; for women, it's 28. Compare that to the mid-90s, when men and women got married around 26 and 24, respectively. The difference is even starker if you go further back.
When you consider what your life looks like at different ages, it makes sense why more couples today are interested in keeping their finances separate. After managing your own money for the entirety of your independent adult life, merging finances after marriage might not feel like the natural thing to do. And that's perfectly fine — because there are plenty of benefits that come with maintaining separate accounts even after you've committed to a serious, long-term relationship.
1. Continued autonomy: Maintaining separate financial accounts can help you and your partner both retain a sense of independence. Separate accounts can cut down on potential squabbles over small disagreements, like discretionary spending on something one partner values but the other doesn't. A recent study found that 20% of couples have some regrets about combining finances. If you feel hesitant, it might be smart to trust your gut and hold off on combining your financial accounts for now.
2. Clear delineation of debts: Holding off on merging money might also make sense if one of you has a significant amount of debt and the other does not. Depending on your state, you're not necessarily liable for your partner's existing debt if their debt is not in your name — but you may be responsible for debt you incur after you get married.
3. Legal benefits and protections: Finally, while no one wants to go into a relationship planning for the worst, the reality is that breakups happen. Maintaining separate accounts can minimize financial disputes and make a split easier. Keeping individual accounts may also protect you both if you're not married; there may be little recourse if you leave the relationship and there is a dispute about who gets what from combined accounts.
The Potential Downsides of Separate Accounts
Despite all the advantages of maintaining separate finances, it can sometimes make life much more complicated than it needs to be. For committed couples, maintaining separate financial lives means adding complexity that could be easily resolved by simply combining assets and holding joint accounts together.
Keeping your finances separate can also increase the amount of time and energy you both spend managing financial accounts, as there are more moving parts to consider. Additionally, this could potentially heighten the chances that something slips through the cracks.
Though some people may value privacy and independence, remember that you've made the choice to commit to your partner. You've chosen to build a life together, and finances are part of that. Combining your finances and teaming up on your money management can be another way of expressing the commitment you've made to each other.
3 Benefits of Merging Finances with Your Partner
Combining your finances can offer a number of intangible benefits, like a sense of being on the same team and working together to achieve mutual goals. But there are plenty of tangible benefits, too.
Here are three reasons to consider merging your finances:
1. Earn more interest: If you combine your savings, you may have the ability to earn more in interest because you'll have a higher balance in one account (rather than spreading your household cash savings across multiple accounts).
2. Added protections: You can also enjoy added FDIC coverage; joint bank accounts may be protected by the FDIC up to $500,000 whereas individual accounts may receive protection up to $250,000.
3. Remove ambiguity about ownership: Accounts and assets that are jointly held can also protect the other person if something happens to one of you. There will be less confusion about how assets will transfer if you had joint ownership of them.
And don't forget that "combining finances" doesn't have to mean you merge everything, all at once. Some couples find that a middle ground between completely separate and totally together is the best solution.
One way to make this work is to hold property, assets and accounts jointly for the most part — but then to set up a personal, individual checking account for each of you. You can funnel money into a main joint bank account and pay your shared bills from there, but you can also set up a monthly "allowance" for each of you that goes to your individual accounts and is free for you to spend however you'd like.
Good communication is critical for any couple, regardless of where you stand on the separate vs. joint bank accounts debate. Combining finances may make it easier to have open and honest conversations about money and goals because there's no separation.
How to Combine Financial Accounts
When it comes to actually combining accounts, there are a number of practical steps you can take:
- Assign your partner as your beneficiary on retirement accounts.
- Transfer individual accounts into joint accounts for brokerages or savings accounts.
- Speak with a lawyer about creating an estate plan together to create wills, healthcare proxies, powers of attorney and trusts.
- Schedule a monthly money date with your partner to review your finances, statements, bills, budget, goals and long-term plans.
- Consider developing a prenuptial agreement with your partner if you plan to get married and want to merge your financial lives after marriage; this can sound serious and scary, but it's simply a legal safeguard designed to protect you both.
Ultimately, the right decision for you as a couple will come down to what works and makes sense for the two of you. This is a deeply personal decision without an objectively correct answer. There are many ways combining finances — or not — can work, and the key to success will come down to discussing options based on both of your preferences, feelings, goals and desires.