When we are working with clients who are in the process of joining households, we are often asked: how should we handle our finances. The answer of course is: it depends! Many households have dual income earners and fewer people are financially dependent on their significant other. This means separate financial arrangements have become a part of modern-day coupling. Independence is now a concept instilled in people from childhood through to adulthood, and so unsurprisingly there is a greater urge to keep finances separate.
Many people marrying or committing later in life may have good reason to keep assets or finances separate. It may be as simple as wanting a level of privacy over your spending, for example when buying presents for the other person or you just want to have your hobbies or social life without having to consult about that spending. Or there is a desire for asset protection; “I came into this relationship with a certain number of assets, and I want to ensure I get to take that away if anything happens”. Perhaps there are children from a prior relationship whose inheritance needs to be protected. Keeping finances or assets separate doesn’t necessarily protect them if the relationship breaks down, that is what a prenuptial agreement addresses.
Financial equity
Difficulties can occur when financial equity in the relationship is not achieved. Whatever the reason, there are a number of non-confrontational solutions. If one person has a huge salary and the other person doesn’t, and they go 50/50 on common expenses and the other person isn’t left with very much — that is an issue of equity and fairness. The solution: they can split the expenses according to income levels. Or the higher income earner could contribute to the other’s retirement plan or savings. Should one of the couple take unpaid time off work to care for a child while the partner continues working, the working partner could contribute to the other partner’s retirement account to ensure the stay-at-home parent doesn’t fall behind.
Some people hold the belief that not sharing everything, including money, is a threat to intimacy. People who feel reactive to separate finances could feel afraid there is something underhanded happening, or maybe the other person is not really, fully in the relationship, or that there is a lack of generosity. That won’t be the case for everyone, but to avoid it, couples need to be clear on their money values, goals and priorities and ensure an ongoing conversation.
Successful
The thing that successful couples have put in place to make this work is absolute transparency. Even though they run independent finances, they know what they earn. They each know where the money goes. At least one joint bank account is the best solution. It could be a designated account for certain bills and expenses to avoid tension and the need for constant discussions and reconciliations.
If you and your partner are butting heads over finances, seeing a couple’s counselor and financial coach can help.
