The question of joint versus separate bank accounts in a relationship has long been a source of debate. In the early glow of a new relationship, the topic of personal finances rarely arises. You and your true love are too busy whispering sweet nothings to talk about potentially not-so-sweet somethings — like savings, debt, retirement funds and credit scores. But as your partnership moves along, finances become an increasingly important component of your shared time. When you decide to move in together, all of sudden anything with a dollar sign attached to it becomes an issue: utility payments, grocery bills, the tip at a restaurant —who’s paying for what and how is that all going to work fairly?
Traditionally, a couple would immediately get joint bank accounts upon marrying; ditto credit cards. For modern couples, though, maintaining separate accounts is a popular choice (partially affected by the growth in women’s earning power, and increases in cohabitation without marriage). A 2010 poll by Royal Bank of Canada showed that one third of couples between 18 and 35 keep separate bank accounts.
When deciding which way you’re going to go — that’s the plural “you” — there are important issues to consider.
Joint bank accounts can be an excellent way to show trust in your partner. Now that you are a couple, you should be ready to face all challenges together — and that includes monetary challenges. Resentment can fester if one person is banking mountains of cash while the other is struggling. Especially when you own a home together or kids come into the equation, having a joint bank account can make things much simpler and more organized. When it comes to household expenses, having a joint account can also avoid any arguments like, “I paid for diapers last week!” or “How come I always pay the cable bill?” When it’s all coming out of one account, there’s never a question of who’s footing the bill for what.
On the other hand, joint accounts can create arguments, like, “You spent $300 for a pair of shoes?” or “Did you really need that iPad?” Especially when your spending/saving styles differ, you may each start criticizing the other’s purchases. Partners in younger couples may also feel like they are losing the freedom they were so thrilled to achieve when they finally started making their own money and stopped relying on their parents to take care of them.
Some relationship experts will argue that a true partnership requires you to share finances. (Some therapists, too: Discussing money may not be romantic, but neither is screaming at each other about that credit card bill five years down the road.) That said, there is another way to do it. You and your partner can each have your own separate accounts, as well as a joint account for household expenses. This requires a bit more communication and account monitoring, but you can make it work. Here’s how:
Create a monthly budget by listing everything that needs to come out of your bank accounts on a regular basis — mortgage, bills, food, etc. On the basis of those expenses, figure out how much each person needs to contribute to the joint account. As well, you can also decide on how much will be saved for RRSPs, or RESPs, or your rainy-day fund. Pro-rate the amount contributed based on how much money each partner brings in each month.
Once you’ve figured out how much each of you needs to contribute, set up your bank accounts so that this amount automatically goes into the joint account with each paycheque. All bills and household expenses come out of your joint account (it might be a good idea to put one person in charge of actually making the payments, to make sure nothing slips through the cracks). Anything left over in your personal accounts can be “mad money” — money that you are free to spend however you choose.
To ensure enough money is going into your joint account to cover the bills at the same time as maintaining your savings goals, you’ll need to have monthly meetings to discuss your finances. This is particularly important at the beginning, and you will need to adjust things as your lives and expenses change. Also, getting into the habit of regularly discussing finances will avoid angry blow-ups later.
Another important note: Though no one likes to consider the possibility of a break-up just when you’re starting to get cozy with one another, take a moment to consider how having a joint account could impact your finances should the two of you split later on. If you get a joint bank account, credit card, loan or line of credit, bear in mind that both parties will have full access to the account, not to mention that each of you will be liable for any debt incurred, even if you (singular) didn’t do the incurring.
You read that right: If your partner racks up $50,000 in credit card debt and the creditors come calling, it doesn’t matter if it wasn’t you who created the debt. Even if you are no longer together, creditors can still come after you for the money simply because you are a joint account-holder. This can have devastating consequences on your finances, present and future.
Lastly, before you consider a joint account (or even moving in together), be sure you are fully aware of all aspects of your partner’s finances — all investments, debts, bank accounts or life insurance they may have in their name. It’s essential that you are each completely in the loop in terms of any financial skeletons that might be in the other’s closet (notably, debt, in case you are purchasing assets together). If your partner is leery of sharing any of that information, you should be just as leery about getting a joint account with them.
Shelley White is a Canadian freelance writer, editor and TV producer who contributes regularly to The Globe and Mail, The Huffington Post, The Grid and Spinner.com. Shelley is also a mother of two who aspires to never again carry a credit card balance.