So, you've said "I do," and now it's time to tackle the next big question: "What do we do with our money?" Spouses may decide to manage their account separately or as a joint venture, even though assets acquired during a marriage are never truly separate and are usually considered “joint marital property” by the courts. In many states, assets acquired during a marriage are generally considered 'marital property' subject to division in a divorce, even if held in a separate account. However, there are important exceptions, such as inheritances and gifts received by one spouse.
This article will explore the options of joint vs. individual investing after marriage, providing information and points for discussion to help you navigate this financial terrain.
Joint Ventures or Separate Accounts? The Great Money Debate
The "joint vs. individual" question isn't about right or wrong, it's about finding the right fit for your unique partnership.
Joint Investing: A Shared Financial Mission
- Pros:
- Simplified budgeting
- Shared financial goals (like a down payment or vacation fund!); consider outlining these goals as a couple in a Financial Mission Statement, which is a shared set of values and principles that guide your financial decisions.
- A sense of partnership in building a future together
- Cons:
- Less financial autonomy
- Potential for conflict if one partner is a spender and the other a saver (or if the couple have very different risk appetites and investment styles)
- A bit less flexibility if you want to pursue individual investments that don't align with your partner’s goals
Individual Investing: Keeping Your Financial Gardens Separate
- Pros:
- Maintains personal financial independence
- Allows for different investment strategies based on individual risk tolerance and goals
- Can be a buffer in case of unexpected life changes (like separation)
- Cons:
- Requires more coordination and communication to track overall household finances
- Might make achieving shared goals more complicated
- Could feel less connected
A Caveat For Either Approach: Understanding Marital Property Laws
It's important to be aware of the legal aspects of marital finances. In many states, income earned and assets acquired during the marriage are considered jointly owned, regardless of whose name is on the bank account or property deed. This means that even if one spouse manages the finances primarily, both partners have legal rights to those assets. Understanding your state's specific laws regarding marital property is crucial for responsible financial management as a couple. Consult with a legal professional if you have any questions about your legal rights and responsibilities concerning joint finances.
Many couples find that a hybrid approach is a helpful compromise.
Finding Your Perfect Financial Blend: A Hybrid Approach
Many couples find that a hybrid approach—combining joint and individual accounts—provides a good balance. This allows for shared financial responsibility while maintaining individual financial autonomy. A hybrid model might look something like this:
- Joint Account for Shared Expenses: A joint account is used to pay all household bills (rent/mortgage, utilities, groceries, etc.). Contributions to this account are often proportional to each partner's income. For example, if one partner earns 60% of the household income, they contribute 60% of the joint account's budget. This approach can be structured to promote fairness and transparency in managing shared expenses. This model also requires ongoing communication, as contributions may need to be adjusted if one partner's income changes over time due to a new job, promotion, or any other factors.
- Individual Accounts for Personal Spending and Savings: Each partner maintains their own separate account for discretionary spending, personal savings goals (travel, hobbies, etc.), and any individual debt payments. This allows for individual financial freedom and prevents disagreements about personal spending habits.
- Regular Communication and Budgeting: Hybrid models are often most successful with open communication and regular budgeting sessions. Couples may find it helpful to discuss their financial goals, track expenses, and adjust their contributions to the joint account as needed. Transparency and teamwork are key to making this approach work.
By carefully structuring joint and individual accounts, couples can create a system that supports both shared financial goals and personal financial independence.
Things to Consider:
- Open Communication is Key: Honestly discussing financial values, habits, and goals before combining finances is widely considered vital and may help minimize future conflicts. This is especially vital if one partner has more debt or savings than the other. And if one partner has more experience with investing or budgeting, take the time to share your knowledge. Building financial literacy together strengthens your partnership
- Legal Protections: If you haven't already, discussing a prenuptial agreement before marriage can provide clarity and safeguard individual assets, especially if you're bringing significant savings or assets from a previous relationship into the marriage. These agreements require lawyers and careful consideration by both parties to be legally sound.
For those already married, creating a will and designating beneficiaries are important steps to help ensure your assets are distributed as you intend. This is something you and your spouse should discuss and establish together.
- Financial Autonomy: Couples should determine how much financial independence they wish to maintain. A joint account for shared expenses alongside separate accounts for personal savings and investments is one popular method for achieving a balanced approach.
- Future Plans: Consider long-term caregiving responsibilities. If one partner plans to reduce work hours for childcare or elder care, it's crucial to proactively discuss how this will impact financial goals and income.
Key Takeaways:
- There’s no one-size-fits-all solution; what works for one couple may not work for another.
- Open communication and financial transparency are crucial for a successful approach.
- A hybrid model—combining joint and individual accounts—often provides the best of both worlds.
Consider what step, if any, you might take to initiate that open conversation with your spouse.
Source Notes: This article provides general information. For tax, accounting, legal, financial, insurance or investment advice, consult a licensed professional. References to third-party books or resources are provided for informational purposes only.