Combining finances with your spouse

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One of the greatest decisions made by couples is whether or not to combine finances. Trying to decide whether or not to put their resources together is a difficult choice to make. Once you combine your money with someone else, you are sharing responsibility for finances. That means you have become responsible for your partner’s finances, as well as your own.

Nowadays the issue of merging finance or money with your partner is complicated. It’s more likely that both people will work and have their own sources of income. If you get married when you are older, you will be more likely established financially and merging your finances might seem like too much trouble.

If you’re wondering whether you should merge your finances or leave things as they stand, the answer is that there’s no single answer.

Every couple has his or her own pattern that best work for them. It all depends on where you and your new spouse are financially, how much you trust each other, and how well your spending and saving habits merge.

Trust is a big issue when it comes to merging finances after marriage. While choosing not to merge your bank accounts doesn’t mean you don’t trust your partner, taking the step and opening joint accounts means that you do.

Personal financial experts advice that if you are unsure about how much you can trust your partner when it comes to money and access to your accounts, it might not be a good idea to combine accounts. Or, at the very least, limit your combined finances to a single account that you both contribute to in order to cover household expenses. If you are worried about the way your spouse spends money, or concerned about other issues, it is usually a good idea to keep your assets in your name, rather than to combine accounts.

Another consideration is how much legal protection you have. If you marry your partner, you are more likely to have recourse in the event of a financial dispute. If your spouse absconds with the contents of your joint bank account, the divorce judge can usually order legal actions that help you recover some of that money, or provide you with some benefit. If, however, you don’t have a legal arrangement, and you have simply added a live-in partner to your bank account, your options are more limited. If your partner is on the account, he or she is legally entitled to that money.

Also adviced is that, couples are to open joint savings and checking accounts, but also keep separate bank accounts. You can pay common bills and save money for goals for the two of you, such as a down payment on a house, from the joint accounts.

Use the separate accounts for your individual wants, without commentary from the other person. For example, if one of you enjoys spending money on clothing, you can use the money from your personal account for that.

Always remember that you might still be responsible for a spouse’s debt, even if your name isn’t on the account. Make sure you understand the laws before you begin to make decisions about marriage and finances.

Also understand the rules related to debt and divorce. If you aren’t careful, you might be partially responsible for the debt your partner racks up during a marriage.

Source: http://businessdayonline.com/2013/10/combining-finances-with-your-spouse/

6 Ways to Combine Finances With Your Partner

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Long gone are the days when combining your finances with your partner involved:

1. Getting married

2. Assuming that your husband would control your joint financial fate

Good riddance! With more women bringing home the bacon nowadays, that wouldn’t make sense, anyway. But there’s no one-stop 2012 solution for handling money with your partner, either.

This becomes especially apparent when you move in together or get married.

Today, LearnVest Certified Financial Planner® Sophia Bera weighs in on six different methods for sharing your finances, based on the real lives of six different couples.

Already living together or married? Keep reading to find out if you want to stick with your current system—or if another might work better for you.

1. The “We’re All Equals Here” Approach
What it is: Keeping most of your finances separate, except for one joint account. Both people contribute to that account equally.

Who it’s good for: Couples who are on equal footing when it comes to income and debts, especially ones who are not yet married and haven’t seriously discussed getting married.

The couple: Agatha and Matt are in their late 20s and have been dating for a couple years. Neither has student loans or other debt to pay off, and their salaries are about the same, plus or minus $10,000. They have decided to start looking for a place together to rent, though marriage hasn’t come up yet.

How to do it: Set up a joint checking account for the rent, bills, groceries and other shared expenses–then contribute equal amounts each month. “They should understand that having a joint account gives them both access to the funds,” our financial planner Sophia cautions. “Each has to trust that the other person is going to use the money the way it was intended.”

In the case of Agatha and Matt, they should consider having a separate lease, so one isn’t on the hook if they break up. They should also think about setting up a formalized cohabitation agreement, and share how much each has in emergency savings, in case someone loses their job. Here are more resources if you’re thinking of cohabiting.

2. The “To Each According to His/Her Earnings” Approach
What is is: Similar to the “We’re All Equals Here” Approach, except each member contributes a percentage of income to the shared account, rather than a dollar value.

Who it’s good for: Couples–married and not–who earn unequal incomes, especially where the one earning more would like to have a shared lifestyle (dinners out and vacations) that is more than the lower earner could afford on his or her own.

The couple: Leesa has a thriving architectural business and is earning significantly more than Steve, a graphic designer. They’re about to get married and move in together, and Leesa has her eye on a house on the pricier end of their range. Steve wants to contribute, but half the mortgage is more than his budget can handle. (Find out why we don’t recommend spending more than 50% on essentials like housing expenses and groceries.) They also have very different tastes in food. Leesa prefers organic and gourmet foods. Steve, on the other hand, is happy with burgers from the grill.

How to do it: Our trusty financial planner suggests opening a joint account where each person contributes a percentage of his or her income to pay for essentials–ideally under 50% of each person’s take-home pay. For example, Leesa and Steve might agree to contribute 45% of their take-home income to this shared fund. If Leesa takes home $6,000 a month, that’s $2,700 a month; for Steve, 45% is $1,800. They can use this pot to decide how much they can afford for a mortgage and other shared expenses.

3. The “I’ve Got It” Approach
What it is: One person pays for all expenses.

Who it’s good for: A couple–married or not–in which one makes many times more than the other. Or a couple in which one is going to school, staying home with the kids or otherwise not earning an income.

The couple: Sara and Leslie met two years ago. Sara has been accepted to graduate school and starts next fall, at which point she’ll leave her current job. Leslie has a fairly well-paying job she sees herself keeping for some time. Sara is a little worried that, even with her grants and stipend, she’s going to struggle with a reduced budget, and wants to make it out with as little debt as possible. The two of them have discussed the possibility of marriage or a more formalized partnership, but they’re not quite ready to take that step.

How to do it: If the higher-earning partner can afford it, he or she can take on all the household expenses. But before doing so, talk about all eventualities: If you broke up, would the breadwinner want to be paid back, or would you part ways guilt-free? If and when the other partner returns to the workforce, will she take on more of the household expenses to make up for the years she didn’t contribute? ”It’s important to have open communication about these arrangements because otherwise this can lead to conflict around money,” Sophia says. Once you’ve had that conversation, formalize what you decide in a cohabitation agreement.

In this particular case, Sara should consider a part-time job, freelance work or assistantship position at the university so she can contribute to groceries and some utilities while she’s not working.

4. The “Pick Your Bill” Approach
What it is: Each person picks certain bills and expenses to pay for. These may not necessarily be equal.

Who it’s good for: Couples earning different amounts, especially when they aren’t married, or one is paying for a mortgage. Perfect for couples who don’t want to combine finances at all.

The couple: Mike has asked Ruth to move in with him in the condo he bought last year. He’s paying down his 30-year mortgage, in addition to several hundred dollars a month in housing association fees, cable, and utilities. Ruth has a lower salary than Mike, but she loves to cook, and is always happy to whip up dinner for the two of them. She’s not too psyched about paying for cable, however, since she never watches TV.

How to do it: Pick a bill. Maybe Ruth pays for the association fees, gas bill (because she’ll contribute to a higher bill using the oven a lot) and electricity, while Mike pays for cable and homeowner’s insurance. Mike should also take care of the mortgage, as we never recommend that you help pay down a mortgage for a home that someone else owns. (Ruth might consider paying him rent, however.) Ruth might take on more of the grocery expenses and Mike might pay for dinner more when they eat out. “The most important thing is that they talk about it and figure out a plan that works well for both of them, then put it in a cohabitation agreement,” says our intrepid financial planner.


5. The “What’s Mine Is Yours” Approach
What it is: Combining finances completely.

Who it’s good for: Married couples who don’t enter the marriage with significant separate assets.

The couple: Mary Beth and John are just out of college and are getting married in a few months. Mary Beth has student loans to pay off, but neither of them has much in the way of assets at all. John’s not worried by M.B.’s loans (though some people may consider that a nonstarter) and he’s told her he’s committed to helping her pay them off so they can start saving up for a house together, then eventually a family.

How to do it: Option 1 is to have a joint account where you deposit all your income and from which you pay all your bills and set aside savings. Option 2 is to have one joint account for shared expenses and savings goals, plus a separate checking account for each of you, with ’fun money’ that you can spend however you want. Either way works.

If you have debts to pay down, decide together how much you will dedicate to paying off loans, and how much you will put aside and save for a down payment or other financial goals each month. Have monthly meetings to talk about your spending and your progress on savings goals.

6. The “Act as If” Approach
What it is: Even though both partners are working, they live on one income and save the rest.

Who it’s good for: Couples in which one has an inconsistent income, or couples planning to live on a single income in the future.

The couple: Irene and Anthony have been married for about a year. They don’t have any children yet, but they have discussed the possibility of one of them staying home with the kids when they do. Right now, Irene has a steady salary and Anthony has a variable income from his freelance work. They don’t have any large debts, but their emergency fund isn’t where they want it to be and they want to save up for a house.

How to do it: Set up your shared budget according to just one partner’s income, which means limiting essential expenses like rent, utilities and groceries to less than 50% of that person’s income. Use that one income for everything, from lifestyle choices like dining out and shopping to financial priorities like paying off debt and saving for retirement. Then, send all income from the other partner straight to another savings account.

“This is one of the best things that a couple can do for their finances because it forces them to keep their essential expenses low and ramp up savings for emergencies and retirement,” says our financial planner. “Sometimes, this isn’t possible at first, but it’s a great motivator to see what it would take to get you there.”

For Irene and Anthony, this would mean living off Irene’s salary and setting aside Anthony’s income for their emergency fund and the down payment on a home. That’ll help them hit their goals sooner, and it’s like a dry run to see how feasible it would be for one of them to stay home with future children.

One Last Note:
If you’re at all nervous about combining finances with your partner, it might help to look out for these eight financial red flags. But who knows? Moving in together could inspire you to revamp your finances completely. Moving in with her boyfriend changed this writer’s whole approach to money.

Source: http://www.learnvest.com/2012/09/6-ways-to-combine-finances-with-your-partner/

Three Methods for Co-Mingling a Couple's Finances

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Some couples co-mingle every bank account, retirement fund and credit card. But that's not the only way you and your partner can combine household bills.

Merging your finances isn't an all-or-nothing idea. Couples can choose from many methods. Let's take a look at some examples.

#1: The Proportional Method

Couples who use the "proportional method" to co-mingle their finances each chip into the household bills at a rate that's proportional to their income.

Example: John and Sally.

John earns $2,000 per month, which is 33 percent of their household's total income. Sally earns $4,000 per month, which is 66 percent of the household's total income.

The couple spends $3,000 per month on their household bills, such as their mortgage, utilities, groceries, and one-twelfth of their annual expenses such as their property taxes. (Learn more about how to budget for unexpected bills.)

John earns 33 percent of the couple's combined income, so he pays 33 percent of their $3,000 monthly bill, which equals $1,000.

Sally earns 66 percent of the couple's combined income, so she pays 66 percent of their monthly bill, which equals $2,000.

Pro's - The main advantage is their neither partner feels the pressure to "keep up with" or "budget down to" the earnings of the other partner. In other words, their income disparity doesn't cause a lifestyle clash.

The couple also enjoys a "middle-ground" stage of co-mingled finances. They share household bills, but they also keep separate money for themselves as individuals.

Con's - The main disadvantage is that the higher-earning partner might start to feel resentful or might start to feel like she's being "penalized" for earning more.

#2: The Raw Contribution Method

Couples who use the "raw contribution method" each chip in the same raw number, regardless of how much they make.

Example: Danny and Kate.

Danny earns $3,500 a month. Kate earns $5,000 a month.

Their household bills come to $4,000 per month. They each chip in $2,000 and keep the remainder of their money in separate accounts.

Pro's - The higher-earning partner doesn't feel "penalized" for her success, and the lower-earning partner doesn't feel "subsidized."

Con's - They need an agreement about what to do if one partner's income drops to zero (for example, if one partner loses their job.) Their relationship could become strained if Kate lives a more glamorous lifestyle than Danny because she has more "fun" money leftover after paying the bills. (Use this worksheet to track your fun money.) Some couples also criticize this method as feeling too "roommate-like."

#3: Complete Co-Mingling

Couples who completely co-mingle their finances combine their bank accounts, carry only joint credit or debit cards, and list each other on their investment funds.

Example: Devon and Hilary.

Devon earns $3,700 a month; Hilary earns $2,600. Both paychecks get direct-deposited into a joint checking account, which the couple uses to pay all their bills.

The couple also carries joint credit or debit cards, which they use to pay for all of their purchases, regardless of whether it's a household purchase (like a microwave) or an individual purchase (Hilary spends $100 a month at the hair salon, while Devon likes to collect baseball cards.)

Pros: They unite as a single unit - "we" rather than "you" and "me." Neither partner keeps "score." If one person's income rises or the other person's income falls, they'll balance each other out. Record-keeping also becomes easier.

Cons: The higher-earning partner can resent the lower-earning partner for spending his/her earnings, especially if one person tends to be a spender while the other tends to frugality.

See a complete list of pro's and con's about completely co-mingling couple money.

Conclusion:

There's no single best practice for co-mingling a couple's money. The most important thing is to realize that there are many methods you can use.

You and your partner should weigh the pro's and con's of each strategy to decide which method feels best for you.

Once you choose a method, don't be afraid to tweak it or change it. You and your partner may need to experiment with different strategies before you find the "perfect balance" between your individual money and your couple money.

Source: http://budgeting.about.com/od/budgeting_for_couples/a/Three-Ways-That-Couples-Can-Merge-Their-Money.htm

Combining Finances With Your Significant Other

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Whether you’re married, engaged or simply living together in a long-term committed relationship, merging assets is a decision that all couples eventually face. Combining finances with your partner can be a tricky undertaking – mixing money is a big decision, and no one wants to put unnecessary stress on a good relationship.

If your money is important to you, you should proceed with caution. However, there are certain steps couples can take to achieve a successful integration of finances. Here’s how you can make the process as smooth as possible:

1. Decide if combining finances is right for you. Every couple is different, so before you pool your hard-earned money in a joint account, you should discuss the benefits and potential drawbacks of joining your finances with your significant other. In some instances, the benefits will outweigh the issues that could arise following the commingling of bank accounts – and in some instances, they won’t.

Some of the most common benefits of joining financial accounts include easier bill paying, more streamlined record keeping, building a status that yields better opportunities to grow as a family and minimizing money-based inequality. Additionally, taking joint responsibility of each other’s finances can further strengthen companionship and in many cases, improve credit scores to get better deals on loans and other accounts.

However, if you have different attitudes toward spending versus saving, combining finances could put serious strain on your relationship, and if things don’t work out, uncombining your finances can be really messy and unpleasant. In a Rent.com survey of 1,000 U.S. renters, 19 percent of those who had broken up while living together said dividing assets was the hardest logistic to deal with during the breakup. In a worst-case scenario, your ex could drain your joint bank account, rack up debt on a joint credit card or even destroy your credit score.

2. Talk strategy, expectations and goals. If you and your partner decide that combining finances is right for you, have an honest conversation about your current financial situation, priorities and goals to make sure you’re on the same page. For example, if growing your savings account is important to you, but your significant other prefers to shop with extra cash, you could be in trouble.

It’s always a good idea to create and utilize a budget, but when you combine finances with your partner, the importance doubles. Both you and your significant other should start by determining your individual net income – what you end up with after taxes, health insurance, social security, 401(k) deductions and anything else that comes out of your check. Next, take a look at your online bank account and get an idea of how much you’re spending. When you’re figuring out a budget, you need to take into account everything that you spend money on every month, and it’s really important to be honest and realistic with your partner (and yourself, for that matter). Once you’ve created your budget, determine what expenses you’ll share and which you’ll keep separate, if any.

3. Test the waters. Before you take the plunge of completely combining your finances, you can test the waters with the “yours, mine and ours” approach. Open a joint account that you both contribute to for shared expenses such as rent, utilities and groceries, while maintaining your personal accounts for discretionary spending, such as personal debt, clothing or hobbies. If you choose this route, you’ll need to decide how much each person will contribute: It can be an equal amount or a percentage of income. This approach is a great stepping stone to completely combining your finances, but some couples choose to keep their personal accounts for good.

Lastly, remember, what works for some couples may not be best for you. Only you and your significant other can decide if combining finances is the right decision.

Written by: Niccole Schreck; the rental experience expert for Rent.com, a free rental site that helps you find an affordable apartment and gives tips on how to move.

Source: http://money.usnews.com/money/blogs/my-money/2013/08/28/combining-finances-with-your-significant-other