My wife and I have joked that we must have been friends in a past life. Many times throughout our married lives we have agreed on some issue without ever really talking about it. One of us brings something up, the other says “yeah that’s how I feel too” and it’s settled. Joint checking was such a decision. In fact, we never really considered any other option. While that decision is right for us, you may want to investigate your options more closely.
Level of commitment
Before I get too deep into the advantages or disadvantages of joint vs individual accounts, take a moment to consider the level of commitment between you and your partner. When my wife and I were dating we kept individual accounts, even though we lived together for over a year before we were married. In fact, we had joint custody of our two cats before we had a joint account. Marriage was the point at which we started combining our financial lives.
But that was a time when more people chose to get married compared with today. You may have the same level of feeling between you and your partner as a married couple; more even more. The key is to make sure you both are on the same page so you don’t end up rushing into a mistake.
Joint Accounts
When your relationship reaches the point where you are living together (and getting pets together), it’s a natural extension for many to want to combine their finances. You’ve probably had discussions about paying bills or which apartment or home to settle into. Joint checking may seem the next logical step.
While I mentioned the level of commitment, a joint account can be opened by any two (or more) people who want to have the same checking account. Everyone on the account may make deposits or withdrawals when they so desire.
Advantages
Common access. As I mentioned, each account holder may access all functions of the account, whether by writing a check or visiting the ATM, or using online bill pay or transfers. Similarly, each person can direct funds into the account through automatic payroll or other types of deposits.
The more the merrier. The FDIC provides $250,000 of insurance per depositor. So if you have three people on a checking account, your joint account is insured up to $750,000.
Right of survivorship. If you open a joint account as a right of survivorship account, should one account holder pass away the others can still use the account without having to go through probate. If the account is opened in other ways, the deceased’s percentage of the account would need to be probated.
One money trail. This is probably the best reason I’ve found for having a joint account. It’s simple to see what’s coming in and what’s going out. We’ve recently opened other accounts and – while it’s not a headache to manage them – it’s one more password and debit card to keep up with.
Disadvantages
Common access. Having a joint account is great when you fully trust the others on the account. It’s not the right solution if you’re worried about one person draining the account and disappearing. With common access, one person’s bad decision could lead to financial headaches for everyone.
Loss of independence. With people getting married later in life (or not at all), they’ve had more time to call the shots as a single person. Suddenly merging their finances may seem jarring. You may feel your partner is checking up on you or you can’t do what you want with your money.
Inequity. I made significantly more than my wife for years. She makes significantly more than I do now. In either instance, joining our money could have caused issues. We’ve solved this by providing a budget line for discretionary spending. Each of us has the same amount that we can spend for whatever reason. The rest we treat as our money.
Debt collection. A joint account can open up all parties to debt collection. If your partner has outstanding debts that go to collection, they can attempt to claim money from your joint account.
Break up. If you and your partner break up, a joint account can turn into a huge argument. Both of you may be entitled to the money you brought into the partnership. However, achieving an amicable split, especially if you’ve been together for years, can be almost impossible. Did you deposit your money to pay bills while they put money into a savings account for a trip the two of you were to go on? Not to sound like Debbie Downer, but if you think there’s a chance of a split, a joint account might not be your solution.
Separate Accounts
Maintaining separate accounts brings another set of issues to the table.
Advantages
My money. If you keep your account separate, you don’t have to worry about anyone deciding to withdraw every penny to go to Barbados. Or at least not legally (scammers still exist unfortunately).
Complex situations. There are a lot of situations where you may be coming into a relationship at a different point in your life. Maybe you have credit card debt and need to pay it off. Maybe your partner has kids who require support. Maybe you received an inheritance and want to keep it separate. I could go on and on. It might make more sense to keep a separate account to help manage the complexities you bring into a relationship.
Break up. Obviously if your money is in your accounts there should be no argument about what’s mine and what’s yours during a break up. That’s not to say there won’t be a discussion…
Disadvantages
Lack of commitment. While this may seem old-fashioned in today’s world, some people see a joint account as a statement of their commitment. It’s as natural as sharing a bathroom or purchasing a house together. And without it, people can feel that there’s a lack of trust from their partner. Make sure you fully understand your partner’s feelings on this.
Trust issues. Keeping everything in one account can help smooth over trust issues. Of course, any person who wants to betray a relationship could easily open a separate account without telling their partner. Absent that, people who might need some reassurance can find comfort in a joint account.
Hybrid approach
I know people who have totally separate accounts, others with one big joint account, and some who take the hybrid approach: they open joint accounts for common goals. For instance, you could have a joint account for bills, another for saving for a trip or new house, and perhaps a third for an emergency fund. Then you may choose separate accounts for the rest of your money.
Talk it out
Like any other potential point of stress, take some time to talk with your partner. When my wife and I were married, my only long-term debt was my college loan. We talked about it and decided to simply pay it off together. Would that decision have been different if it had been $1,000 per month instead of $100? I don’t know.
Over time we’ve realized we have similar thoughts and goals regarding money. We both wanted a house soon after marriage. We both were happy to spend untold thousands on ballet and soccer and music lessons for our kids. And we both decided a trip to Europe after my daughter graduated high school would be a blast. Whether my wife was making more or I was making more, we just added it to the pot and didn’t worry about who was the breadwinner.
It’s okay to try a system to see if it works for you. If you start with completely separate accounts and are having issues, add a joint account. Similarly if you start with everything in a big pot and feel lost, consider directing a portion of your pay to a separate account. Discover what works best for your relationship.
Photo by Edward Cisneros