If you’re married or cohabitating, at some point you must decide how to manage you and your partner’s joint finances. There are multiple ways to successfully manage joint finances, so you both must decide which money management style works best for both parties.
Using one of these three methods of jointly managing finances is easy to set up with your financial institution. However, if you are married and living in a community property state (both Texas and Louisiana are among the community property states), your assets earned during the marriage are usually considered community property, which is especially important in the event of death or divorce. Consult a tax attorney if you would like to make sure your assets are legally separated.
Everything Joint
One option is to deposit all income and pay all expenses from a joint account. This method requires both to ignore potential disparities between individual incomes and expenses. This method works best when the disparity between incomes is so large that one partner is essentially supporting the other financially. The Everything Joint method may also work well when most expenses are joint or when one partner prefers to do all the money management.
Everything Separate
Another option is to maintain separate checking accounts. This method requires both to individually pay for their various joint expenses. This method works well when the partners have similar individual incomes or few joint expenses. As an alternative to dividing up payments, one partner could pay all the joint expenses and the other could reimburse the paying partner for his or her part of the joint expenses owed. The Everything Separate method requires both partners to be active in the money management and accounting of expenses.
Joint and Separate
A third option is to combine the joint and separate methods by maintaining both types of accounts. You and your partner could deposit all income into the joint account and transfer money to your separate accounts for individual expenses. Both of you could also deposit all income into your separate accounts and transfer money to the joint account for shared expenses. This method works well when couples have different spending preferences. Couples use their joint accounts only for expenditures that are agreed upon by both partners, and they use their separate accounts for expenditures about which they do not need to consult with their partner. The Joint and Separate method limits financial stress for many couples.
Once you and your partner decide how to manage your joint finances, you should also decide which financial responsibilities will be managed by each partner. Even though the responsibilities may be delegated, each partner should know how to manage all the financial responsibilities in case he or she needs to perform the other partner’s responsibilities at some point. Almost any money management style can work successfully for a couple if both partners communicate, understand, and agree to a common practice.
*FMP Wealth Advisers does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.
**To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
***These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
