The Finances of Becoming a Partner (To Your Significant Other)
Executive Summary
Combining finances is a significant step in a relationship. It can strengthen or weaken your relationship. To strengthen your relationship, focus on communication. Talk about your finances to find common goals and also share your frustrations. Couples who are comfortable talking about finances can better navigate future financial decisions. Then decide how to make financial decisions as a couple when there is a disagreement. Finally, employ these communication skills and decision-making framework to make financial decisions about sharing accounts, setting joint spending goals, and setting joint savings goals.
When you become a partner, your finances change. I am not talking about the partner of a law firm. I am talking about a partner to your significant other. It is a part of nearly every financial life for young lawyers, and it has a drastic impact on your finances. Before combining finances, you earned money to take care of yourself. If you wanted to save, invest, or spend your money, you could do it without considering someone else.
When you find a serious romantic partner, you may decide together to combine your finances. A Harris poll found that over 77% of couples will merge a part of their finances. It is not a requirement to share financial lives, and it is not always the right decision. For couples considering this, there are both pros and cons to consider.
Pros and Cons of Combining Incomes
You can begin combining expenses to save money on various spending categories like rent and utilities. Paying for a single rent or mortgage payment instead of each partner paying for their separate housing can increase the standard of living of each person and save money in total.
It also combines your income. Meaning you can save up for large purchases quicker than by yourself. With two sources of income, you are not reliant on just yourself to save money. It can take a long time to save up for a downpayment on a home by yourself. A second income boosts your savings, so you and a partner can reach your savings goals quicker.
Historically, couples would wait to combine their finances until after marriage, but more people have decided to combine finances before then. When you merge your financial lives, it can bring you closer together or break you apart.
Financial issues are one of the leading factors in divorces in the United States. We are emotional about our money because money represents our hard work, financial security, and ability to achieve future goals and dreams. When a partner does not handle their finances similarly to us, it can be upsetting. When significant others argue about finances, the disagreements tend to be more emotional than disagreements about other topics.
When you combine your income with the income of your significant other, you are also taking on their expenses. If one partner spends their money frivolously and the other significant other is frugal, it can lead to difficult discussions about money.
Another issue is that money is a taboo topic in so many social settings. Many of us have not had a lot of opportunities to talk about money. Often, each significant other has not individually thought about how they view money and make financial decisions. When these partners then combine their income, there is additional uncertainty on how to make financial decisions. Couples who do not feel comfortable talking about money often struggle to get past money issues.
The Key to Combining Financial Lives: Communication
Finances do not break up relationships when things are going well. For a lot of time in a relationship, finances can make the relationship even better. Yet the times when finances cause stress can drive a wedge between partners.
The first step to proactively addressing financial issues is to be comfortable talking about finances with your significant other. Here are some topics you may want to consider discussing:
What do we spend money on that brings us joy?
How much of our paychecks do we feel comfortable saving and investing?
What are our financial goals?
Do we want to have joint accounts for everything, a combination of separate and joint accounts, or keep our finances separate?
How often should we talk about our finances?
How do we want to make decisions about our finances?
Do we want children?
How do we feel about owing debt? Is paying off student loans, mortgages, and credit card debt a priority?
What are our career plans?
These are only a few topics you and your partner can discuss. More important than talking about specific talking points is establishing a comfortability with bringing up financial concerns before they become issues.
When two people align their goals and priorities, it provides stability in a relationship because each partner knows why they are making certain financial decisions. Even with a good relationship, there are still going to be disagreements. Finances are no exception. You can be sure you and your significant other will have financial differences in your relationship. The difference is how you respond to these disagreements.
These disagreements can arise from:
Different preferences for risk-taking when investing
How to pay off debts
What financial goals are most important to you
How to spend and save a joint income
These are only a few categories of financial decisions that may cause issues.
How to Navigate Disagreements
When disagreements arise, it is okay to comfortably communicate your thoughts about a financial issue and still disagree on what to do. So couples should decide how to handle disagreements.
In a two-person relationship, disagreements do not have a natural tiebreaker. Instead, couples need to come up with a framework for decision-making. Possible ways to solve financial disputes include:
Compromise
Maintain separate accounts that are for specific spending
Base decisions on which option benefits both spouses more
Talk with a financial professional
Agree to common principles and see how different options align with those principles
A healthy relationship will distribute decision-making and power equally between both couples. When one partner makes all the financial decisions, it creates an imbalance between partners that can lead to resentment and anger. When partners make different incomes, this can create a natural imbalance if not addressed early in combining finances. If one spouse does not work to take care of the family, it does not mean the non-earning spouse does not have an equal say in financial decisions. Some partners may also have more financial knowledge than the other spouse, but this should not lead to more power in the decision-making process. Admit that finances are not equal, but financial decision-making is.
Partners who are more concerned about finances than their significant other should not make more financial decisions. Instead, they should find a way to have a conversation with the other partner to discuss the issues at hand and how to resolve them.
Financial Decisions for Couples
Each couple will have a different set of financial decisions. These can depend on your age, net worth, income levels, career, and life stage. While these following decisions are not all-inclusive, they represent a few common financial areas that couples may discuss.
Sharing Accounts
When combining financial lives, it is common to talk about whether to merge financial accounts or not. Banks and credit unions allow couples to open joint accounts, in which each person can deposit and withdraw money without the consent of the other person. Typically, this is a convenient benefit of joint accounts, but it can also be a negative. Partners have withdrawn the entire amount as a preemptive strike before a divorce. It also means the other partner may be liable for financial mistakes from one spouse. These are rare, but they are a negative possibility when spouses share accounts.
When spouses are deciding whether to share accounts, they generally have three options:
Share all accounts jointly
Create some joint accounts and maintain other separate accounts
Keep all accounts separate
Share all accounts jointly
Joint accounts financially represent the union of a relationship. A joint account combines the income and expenses of each partner. Everything that each spouse contributes and spends is open for the other spouse to see. This transparency makes conversations about spending and saving easier because both spouses have access to the same information.
It also makes it easier for couples to see progress towards financial goals. If partners have a common objective like funding an emergency fund or saving for a down payment, each spouse can see their progress towards those goals. It also allows couples to hold each other accountable for meeting monthly savings/spending goals.
Making every account a joint account may influence spending and saving decisions. It also reinforces the equal power that each significant other has in a relationship, strengthening the trust between partners.
Create some joint accounts and maintain other separate accounts
Another option for couples is recognizing that you can jointly work towards some goals while separately working towards individual goals. This option includes a combination of joint and separate accounts between partners. By having both account types, the partners can work towards common goals and share responsibility for their financial life while also giving each significant other the freedom to make some financial decisions individually.
There are two ways to set this up. First, couples can set up a joint account for shared expenses and savings, the primary account. All paychecks will go into this account and then split the money accordingly. The shared accounts will pay for shared spending categories like living expenses. Couples can also save money in these accounts for common goals such as buying a home together or going on vacation together. Then they will also maintain separate accounts for their own financial needs and wants. Couples can decide how much to transfer to these accounts. Options include moving a certain percentage (10% of each paycheck to each partner), a specific dollar amount ($1,000 to each separate account each month), or splitting the remaining balance after paying all taxes, financial needs, and savings out of the primary account.
The second way to set this up is to have the income of each partner deposited into their separate account. Then together, the couple will decide how much to transfer to the joint accounts. The shared accounts are for shared expenses and financial goals. Similar to the first option, partners can agree to transfer amounts based on a certain percentage of their paychecks, a specific dollar amount, or any remaining balance at the end of the month or pay period.
There is not a wrong or right way to do this. It is solely dependent on what each couple feels comfortable with after considering how each option affects trust, transparency, and financial freedom.
Maintain separate accounts
Some couples are independent of each other financially. Both can financially support themselves and do not need the other partner to share in the finances. Doing so allows partners to help each other when necessary while still retaining the financial autonomy they enjoyed before becoming a couple.
Maintaining entirely separate financial lives is a typical setup with newer couples. Over time as relationships become more financially intertwined, it becomes easier to have at least some joint accounts. All separate accounts make it harder to save and invest towards shared financial goals because couples cannot easily see the progress made. To use this strategy over the long-term, open communication is critical.
Set up spending goals as a couple
Before combining financial lives, financially, each partner lived their life without being accountable to another person. Spending was not complicated because you knew if you could or could not spend money on something. It was also easier to prioritize certain items and services. When you combine financial lives, your joint spending priorities may differ from your personal priorities.
Couples need to talk about what they like to spend on. Combining finances does not mean you have to give up the things you individually enjoy. If one spouse enjoys working out at a gym and the other does not work out at all, the spouse who likes to work out should not have to give up their gym membership because now half of the membership is from the other spouse and their financial contributions.
Partners should communicate with each other to identify spending that aligns with the priorities of each spouse individually and collectively. When each spouse believes where they live is valuable, it can strengthen the relationship to collectively increase the total spending on housing to pay for a better home. Same with travel. If it is meaningful to both spouses, it is easy to prioritize it.
Couples also need to discuss the differences in spending. If one spouse spends more than the other spouse, it can lead to jealousy and resentment. It is important to share how you feel about “excessive” spending and frugality. A spender does not want their life to feel restricted by being too frugal, and a spending-conscious spouse may be annoyed by what they believe is unnecessary spending. Finding compromised spending goals between what each partner is comfortable with can go a long way in a relationship.
Set up saving/investing goals as a couple
Spending is only one area of the financial life of a couple. The other part is saving and investing. Couples may be compatible with how to spend their money but may be completely different when it comes to saving and investing their money and vice versa. Saving goals represent the amount of financial security that a couple enjoys. A risk-seeking partner may want to minimize their cash savings to put that money towards investments or other financial goals. A risk-averse partner may like more savings than needed as an additional safety net. Couples need to discuss how comfortable they are with risk-taking and financial security when combining their financial lives.
Once couples have decided how much to save as a financial safety net, they may also have other savings goals they want to achieve. These can include saving for a down payment on a home, paying for a college education for their kids, and saving up to start a business. Each of these goals can require substantial savings, so couples need to communicate their goals, so both parties can work towards achieving the same savings goals.
When saving for longer-term goals like retirement or college education, investing can play a critical role in the compounding growth of your savings. Benefitting from compounding growth requires couples to be aligned or compromise on how to invest their money. For risk-seeking couples, they may pursue riskier investments to achieve their goals. Other partners who want to take as little risk as possible may want to invest more conservatively and instead build their savings by saving more each month.
Couples need to talk about risk and how they feel about taking risks when investing. It is ideal when partners have similar risk tolerances, but it is not always the case. Similarly, some partners may be interested in investing while others are scared or uninterested. These feelings should not be the reason to hand over the investing responsibilities to just one spouse. The partner who is intimidated or uninterested in investing should still have a say in how to invest their money. Shared responsibility goes a long way if an investment plan does not go according to plan. A partner who handed off the accountability of investing will blame the significant other who did make investment decisions, which can lead to negative feelings towards one another. Instead, couples should agree on a specific investment approach to have equal accountability regardless if things go well or poorly.
By setting saving and investing goals that align with the couple’s life objectives, couples will benefit from a shared acceptance of financial growth and decreases.
Final Takeaways
Combining financial lives is not a simple step in a relationship. It is a complex set of decisions and discussions that strengthen or weaken relationships. When done correctly, couples can flourish when they are aligned financially. When financial issues are avoided or given to only one spouse, these problems can worsen and potentially lead to the end of a relationship.
Lawyers considering combining financial lives or who have combined their lives in the past would be wise to talk about their finances consistently. Couples can succeed in incorporating their finances by:
Acknowledging the importance of finances in a relationship
Being comfortable talking about finances with each other
Deciding how to handle disagreements about finances
Aligning financial goals with the wants and needs of the couple individually and collectively
Deciding whether to merge everything or partially merge their financial lives
Using money as a tool to better the partnership
By employing the points listed above, couples will have healthier relationships financially and personally.
Navigating the financial life of a couple can be twice as difficult, but it doesn’t have to be. If you feel uncomfortable talking about money with your significant other or if you would like to have an objective 3rd party to navigate financial decisions with you and your partner, consider financial planning. Working with a financial planner means you have a teammate who wants the best for both of you. Having worked with lawyer couples, I understand the complexities and challenges you may face. By going through the Developing Financial Process, I am able to understand both of your financial concerns and provide advice and recommendations that are in the best interest of both of you. I also facilitate conversations to give each of you an opportunity to explain how you feel about managing your personal finances. If you are interested in learning more about the benefits of financial planning for couples, schedule a free Meet & Confer. This 30-minute meeting allows me to listen to both of you share your financial concerns and goals. Then together we decide if working together would be beneficial. Schedule your no commitment Meet & Confer right now!
Disclaimer: Nothing in this blog should be considered financial advice or recommendations. Your questions are unique to you and your own personal financial circumstances. You should consult with a financial professional before making a financial decision. See full blog disclaimer.