2 Silver Rings

Should you and your partner have separate or joint finances? This is one of the most controversial subjects on financial forums and blogs. Every time this topic is broached there is a barrage of judgments. I’m not sure why angry opinions (often stated as facts) tend to dominate the conversation. However my suspicion is that people who aren’t 100% happy with how finances are handled in their relationship are the quickest to jump all over those with different approaches.

Even though this topic isn’t new it is certainly important. And I feel I have a different spin on this topic that will hopefully prove useful. Money and relationships is a big topic, so this will take up several posts.

The first topic I want to address is just a description of separate vs. joint money management styles. What do these terms actually mean in practical application?

First I need to state: Within the context of a reasonably serious relationship in Canada, I cannot see any situation where finances are completely joint or completely separate.

For completely joint, this could only happen if you had no pension plans, no registered accounts, no insurance policies, different inheritance laws, and probably a bunch of other legal and societal considerations that aren’t coming to mind right now. In Canada and most other places taxation and property laws force a certain degree of financial separation.

For completely separate, you could theoretically have two paycheques and all separate accounts, but what about joint purchases? If you eat out do you split every bill every time down to the penny? Do you keep completely separate groceries and other household items? I cannot imagine a couple in any type of committed or long-term relationship going this route. The immense hassle alone would probably ruin the relationship.

That being said, I want to categorize common financial decisions and analyze how these could be dealt with separately or jointly.

Incoming Money

  1. Employment pay (from an employer or self-employment)

Joint – All money goes into the same account.

Separate – Each person’s money goes into their own account.

Considerations:

  • Can your partner access your account in any way? Viewing only, or full access with right of survivorship?
  • Is it okay if your partner has an account that you don’t know about?
  • Do you disclose the total received amount?
  • What if one person’s income is higher than the other – how is this dealt with?
  1. Other money not from regular income (selling items online, side hustles, small gifts etc.)

Joint – All of these are immediately deposited into the joint account, or you give your partner 50% of the proceeds.

Separate – All monies obtained are strictly your own.

Considerations:

  • What about items or jobs that involve your partner in some way?
  • If you own an item prior to marriage, and your partner occasionally uses it, then you agree to sell it, who gets the money?
  • Are you required to disclose any small amounts that come into your hands or is this freebie money to spend at your discretion?
  • If your partner’s side-job interferes in a minimum or moderate way with your life or your time together, are you entitled to a portion of the proceeds?
  1. Large gifts/inheritances

Joint – This would be optional as generally these types of receivables are legally separate. But you may have an agreement with your partner to give them half of the money, or apply it to a joint debt. If you do something like this immediately I’d consider it joint money.

Separate – You do not use the gift or inheritance to benefit your partner in anyway. You either save it, use it for yourself, or put it aside for your children.

Considerations:

  • If one person receives a large gift or inheritance and does not share it will this cause resentment later on?
  • If you apply this money to a joint debt and then separate how will you deal with this afterwards?

Expenses

  1. Daily costs of life (not capital purchases such as houses and cars)

Joint – You both use the same pool of money for all your purchases, regardless of the dollar amount or who will actually be using the product.

Separate – Because your money goes into your own account, you make daily purchases from your own money only and your partner does the same.

Considerations:

  • What if one person has much more expensive tastes? They might also make more money or they might not.
  • What if the higher spender is the lower earner?
  • How do you deal with joint expenses – housing for example — versus individual purchases such as clothes.
  • Do you have a spending limit in either situation?
  • What if one person becomes sick and cannot earn an income?
  1. Larger or capital purchases (houses, cars, major vacations)

Joint – As you are using the same pool of money this pays for the entire outlay, regardless of who’s work resulted in that money.

Separate – You do not co-own any property.

Considerations:

  • If fully separate do you own two houses? Only rent?
  • What if someone wants a house/car or other expensive purchase and the other does not?
  • Do you adjust the contribution based on income? Then what happens if you separate?

Investing

  1. Individual registered accounts (RRSPs, TFSAs etc) Cannot be actually 100% joint but let’s use joint to mean managed as 1 unit.

Joint – 1 person makes all the investment decisions, picks asset allocations, moves money as appropriate for both parties. Or tells the other party exactly what to do with their money. Alternatively the couple makes all these decisions together and enacts them together and frequently discusses their financial picture.

Separate – Each person is completely responsible for their own investment decisions, asset allocations, amount contributed, without regard for what the other person is doing.

  1. Joint investment accounts (taxable, non-registered)

Joint – Same as above except both partners have full access to the account.

Separate – This would not be done. All accounts are in their own name only. Otherwise the same as above.

Considerations:

  • Are you planning as a couple or as an individual for the future regarding asset allocation, taxes, pre-mature death?
  • What if your investment styles are completely different? Does one person overrule the other?
  • What if one person wants to work less or retire earlier? How do you determine when they can do so?

In the above scenarios I’ve taken joint and separate money management to the extreme. I suspect most people agree that this is not what they want. There needs to be a balance between management decisions made as a couple and as an individual. The most important factor in any situation is complete disclosure about finances, unless you have made the unusual decision to be 100% financially independent of each other in all circumstances.

You can use the above list to decide where joint and separate work best for you, before you start a serious relationship if you aren’t in one, or with your partner if you are.

In future posts I’ll be discussing:

  • risks relevant to both methods
  • when each method isn’t appropriate
  • conversations to have with your potential or current partner

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