When Benjamin Rippey got married three years ago, he kept some parental wisdom in mind. “My father told me a long time ago that the secret to a happy marriage is separate checking accounts,” he says.
So the public-relations professional from Hoboken, N.J., now 31 years old, sat down with his new wife and worked out a system for their finances that allowed each of them to maintain some independence. They have separate checking and savings accounts, but pay for joint expenses through a shared checking account and credit card and have some shared savings. The arrangement keeps conflicts over spending at bay.
“As long as our bills are getting paid and we’re saving, if she wants to buy another white shirt that looks like all the other white shirts she owns, that’s fine,” he says.
Wedding season is over, and now it’s time for newlyweds to decide if they want to marry their finances, too. With more couples marrying later in life, many are reluctant to say “I do” to a complete financial union: 31% of individuals who are married or living with a partner have a separate checking account, and 23% have their own savings account, a recent American Express survey found.
Before deciding what’s yours, mine and ours, here are some things to consider.
1How are you going to split shared expenses?
Some couples keep their own checking accounts for discretionary purchases, but have a shared account for joint expenses. “That way, you’re working together to create something, but you also have a chance to be yourself,” says John A. Fiske, a mediator and attorney in Cambridge, Mass.
Decide what the shared account will cover, typically household expenses like mortgage payments and electric bills, and any costs related to child care. Some shared costs aren’t set in stone, so you may need to set ground rules. “If one person’s a caviar person and another person’s a coupon clipper, they probably need to be coming to an agreement about the grocery budget,” says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial.
Similarly, if either of you has children from a previous marriage, you’ll need to decide which costs, if any, the stepparent is going to foot.
Some couples, such as Virgen and Jesus Olvera, both 27, have separate accounts and split the bills. Mr. Olvera earns more, so he takes care of the rent on their San Diego apartment and the car payment. She covers utilities, groceries and the cable bill.
2What do your portfolios look like together?
Most couples have separate investment accounts by necessity, as retirement accounts like IRAs and 401(k)s cannot be in both spouses’ names. But some have separate taxable brokerage accounts, too.
Either way, it’s important to look at how your separate investments fit together as you plan for mutual life goals like retirement.
Darren Magarro and Samantha Braen-Magarro, of Franklin Lakes, N.J., have both separate and shared brokerage accounts. But they work with an adviser who sends them a monthly overview of the accounts’ combined performance and asset allocation. The arrangement lets them keep common savings goals in mind, while picking stocks that pique their interest.
“You can still approach it jointly but have separate control,” says Ms. Braen-Magarro.
3What about assets such as property and businesses?
While many couples opt to own their home jointly, one spouse may want to keep sole ownership of a second home or a business he or she built alone, says Ken Weingarten, a financial adviser in Lawrenceville, N.J. This may be especially important when it comes to inherited assets that you want to keep in the family.
In many states, having a property or business in one spouse’s name isn’t enough to keep the other spouse from getting part of it in a divorce, says Margaret Klaw, a Philadelphia attorney. So consult with an attorney about how to ensure it stays with you in a divorce.
When Tracy Gamble, 38, started a consulting business in 2009, she and her husband agreed she should own it on her own. They had a lawyer near their Frisco, Texas, home draw up the firm’s founding documents to guarantee that the husband wouldn’t get an ownership stake in a divorce, though the value of the business could be considered in the division of their property.
“You have to ask, ‘What’s the worst-case scenario,'” says Ms. Gamble.
4What would happen if one of you died?
Separate assets can keep the marital peace, but they can be a headache if one spouse dies and the other needs access to them.
Jeff Potter, a senior vice president of a bank from Smithfield, R.I., and his wife of 13 years have separate accounts but own their home together. A few years ago they had an attorney place their home and brokerage accounts in a revocable trust and named the trust the beneficiary of their retirement accounts. The idea was to allow for the easy transfer of assets and to save on probate costs and estate taxes.
“Even though it’s good for us to keep them separate from a lifestyle perspective, legally they’re not separate,” he says.
5Do you need a postnup?
For some couples, keeping everything legally separate may be the best option. Postnuptial agreements, essentially prenuptial agreements made after you wed, can do this.
Some couples might use a postnup to outline how assets would be split in a divorce. Others might use it to guarantee that the spouse who gives up a career to raise kids gets a set amount of money each month from the working spouse.
Both spouses must sign a postnup to make it official. States laws regarding postnups vary, so use a local attorney.