One of the most important conversations a couple can have is also one of the least romantic. But in any committed relationship, there’s no getting around talking spending and finances.
Given that half of all relationships in the U.S. end in a split, or divorce, financial advisors suggest that romantic partners keep their assets separate, particularly when a couple isn’t yet married. “If you are not going to get married, it becomes stickier if you have joint assets and you separate, obviously,” said Jessica Goldsmith, a managing partner of Kurzman Eisenberg Corbin & Lever law firm.
It’s no secret that entangled incomes and assets complicate any separation, and can leave parties vulnerable to theft, or complete withdrawal of shared assets in a joint account out of spite. However, there is a practical argument to be made for unmarried couples both having access to the same pot of money to draw from for shared expenses, including rent, and other household costs.
There’s no right or wrong way for a couple to manage their finances; a lot of it comes down to personal preference. Here are five ways to maintain (relatively) stress-free premarital relationships:
1. One way to avoid financial spats is for partners to manage their finances separately from one another. Financial planner and virtual financial advisor Katie Brewer is a proponent of “the roommates method,” in which couples either split bills evenly, or take ownership of certain expenses. For example, one partner might cover groceries monthly, while the other partner covers utilities, or rent. “If groceries are around $1,000 and rent is around $1,000, they put groceries on one’s credit card and it comes out about the same,” Brewer said. This way, couples avoid having to reimburse each other. “Instead, they figure out beforehand what their approximate expenses are and claim those expenses as the ones they are going to pay,” Brewer said.
Adam Frank, a financial analyst at Ladder Capital also advocates keeping finances separate. For years he and his wife maintained a joint account from which they each withdrew money as needed. “All of a sudden neither knows what the other is doing and I was worrying about, ‘is this enough money, can I get this for myself without screwing us on rent or maintenance for the rest of the month,’” Frank said. Now, Frank and his wife each keep entirely separate accounts. Frank pays their home’s maintenance and phone bill and his wife pays the mortgage and cable bill. “It’s easier to maintain one person’s stuff versus two persons’ stuff,” he said.
2. Another way to pay bills is based off of the income each party earns. If one partner earns substantially more than the other, something other than a 50/50 split makes sense. “If one person makes $100,000 and other makes $50,000 the one who makes $100,000 might cover two thirds of the bills and the other might cover one third,” Brewer said.
3. For couples that want to commingle finances, there are options. One way to jointly manage finances is to open a joint savings account, to which each party contributes a fixed amount monthly. Frank suggests limiting the amount of money contained in the account to cover monthly expenses, so that in case one partner does decide to leave the other and empty the account, they’d only take off with a few thousand dollars. “Put in a reasonable amount so you don’t really care if someone runs off with it,” Frank said.
4. Creating a joint credit card account is another option. In the event of dissolution, neither party has access to funds, and credit card charges are easier to dispute than debit card charges, if a user becomes unauthorized. In addition, monthly spending limits can be imposed. Frank advises opening up a joint credit card account with caution. “You are betting that the other person is not going to put a huge charge on the account,” he said.
5. No matter how a couple decides to combine their finances, financial planner Brian Walls suggests that each partner maintain their own savings account. “It’s never a bad idea for both parties, for spending, for whatever frivolous expense they don’t want to deal with justifying. I think that is sometimes stressful,” Walls said. Brewer agrees, and actually employs this method herself in her relationship with her husband. “We have a joint account and also both have separate checking accounts so that we have the freedom to not have to double check when you buy a pair of socks,” Brewer said. “I don’t have to explain to him that I like to go meet my friends for margaritas,” she said.
Goldsmith recommends a similar approach; she’s a staunch advocate for each partner alone having sole access to their own savings account. “Usually the thing to do would be to open a small joint account to which you contribute monthly,” she said. “It’s used for expenses but not to commingle the bulk of your assets. You don’t have your salary go into a joint account.”
Tony Peyser of P&A Capital Advisors has noted a shift toward couples maintaining their finances independent from one another. “We have a lot of clients that keep their accounts separate but have a particular account that they put money into together to pay common bills,” he said.
Particularly in the case of partners who’ve previously been married, it’s common to silo finances. “Usually people who have gone through a divorce, the second time around, they are much more focused on taking ownership of assets and contributions than they were the first time.”