One of the biggest decisions made by couples is whether or not to combine finances. Trying to decide whether or not to pull from a shared pool of money is a big choice to make. When you combine your accounts with someone else, you are sharing responsibility for finances. That means that you become responsible for your partner’s finances, as well as your own.
This is a big decision that can have legal repercussions, as well as a financial impact. And, of course, emotions are involved — as they always are when it comes to money and romantic partnership.
Before you get into the ins and outs of your financial combination of accounts, you need to ask yourself whether or not you trust your partner. Basically, do you trust your partner to work with you toward shared financial goals? Do you trust your partner not to sabotage your finances by making foolish decisions? Do you trust your partner to be up front with you about what he or she is spending money on?
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.
In some cases, it makes sense to have a prenuptial agreement in place before deciding to marry someone and combine accounts. Consider how you can protect your assets before you start combining accounts. You don’t want to start taking on your partner’s financial baggage, or providing access to your own assets, unless you’ve taken steps to protect your assets as much as you can.
Before you combine accounts, consider the debt level of your partner. Happily, you don’t usually become responsible for your spouse’s debt unless you actually have your name put on the account. Before you have your name added to your spouse’s credit card account, consider the amount of debt he or she has. Once you add your name to the account, you become responsible for that debt as well. The same is true if you use your name to help your partner refinance Taking on someone else’s debt is a big commitment, and you may not be ready to combine accounts with some who has such debt problems.
Realize, too, that in some community property states, you might still be responsible for a spouse’s debt — even if your name isn’t on the account. Make sure you understand the law before you begin making 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.
Even if you decide to combine accounts, you might still want to keep some assets in your name only. Each partner should have his or her own retirement account, such as an IRA, and access to money that his or her own. My husband and I share almost all of our assets, but we each have retirement accounts, and I have a savings account in my name only (he doesn’t want to be bothered with setting up an account, even though I’ve suggested it), and he has a couple of credit cards in his name only. That we each have access to some form of money, independently of each other, provides a measure of peace of mind. Even though we share just about everything, we do have independent access to money.
What do you think? When should you combine accounts?