Ryan McVay
When Sarah Yu got engaged last summer, the touchy topic of joining finances came up again.
Although the 26-year-old public relations manager and her fiancé have lived together for three years, they maintain separate bank accounts. He pays for the mortgage on their Vancouver Yaletown condo, while she covers utilities, groceries, and other household expenses.
Ms. Yu's fiancé has wanted the couple to set up a joint account for some time now, but she is reluctant to lose her financial independence. "I see it as giving away half of my money, I guess I shouldn't see it that way but I do. I feel like I am losing a part of me."
She also worries about how a joint account would work and whether it would trigger fights. "If our money is combined and I see him spending on something I don't agree with - or vice versa - then we could get into a big tiff."
The question of whether to pool finances in a joint bank account, keep them separate, or set up some combination of the two options, is a financial dilemma for many couples. Varying income levels, different spending and saving habits as well as the ability to communicate openly about finances will all impact the to-merge-or-not-to-merge decision.
Christine Van Cauwenberghe, director of tax and estate planning with Investors Group in Winnipeg, says that as couples buy homes and start families, many find it easier to open a joint account where most of their income gets funnelled and most of their expenses are paid. That account covers their shared day-to-day expenses, big-ticket purchases and common goals.
In order to maintain their independence, some couples also set a specific amount of money, say $500 a month, that each spouse can spend on their own, without consulting the other person.
"Some people don't want to have to justify every single small purchase they make. It can quickly lead to tension," Ms. Van Cauwenberghe said.
The decision as to whether to keep two separate bank accounts, in addition to a joint one, will rest partly on fees, she added.
In some cases, it makes more sense to have one joint bank account and two separate credit cards, which are key for building and maintaining a credit history.
What triggers money fights in your house?
Choosing to keep separate accounts is also not necessarily a bad option, Ms. Van Cauwenberghe said, as long as you have agreed on common financial goals, like how to save for that European holiday or put money away for retirement.
"As a couple, you are basically going to be sharing whatever you have saved or spent. So you need to have communication."
Angela Self, a personal finance author and a co-founder of the Smart Cookies money group, say a joint account ensures that each person is paying their fair share. "You've got a built-in accountability system and the ability to track how money is being spent."
However, she believes couples should maintain a level of independence by retaining their own accounts. "It can avoid a great deal of conflict and resentment," Ms. Self said, who also writes columns for the Globe Investor website.
This is particularly true in the situation where one partner works full time while the other chooses to be a stay-at-home parent, says Norm MacDonald, a financial adviser with Edward Jones in Nepean, Ont.
"In the case of a couple where one person stays at home to raise the family, there could be feelings of inequality and arguments over money. Here it makes sense for each person to have their own a pot of money to buy their own things," he said.
As couples grow older and their children move out, merging finances make things like income splitting and transferring wealth much easier, Mr. MacDonald added.
"At the stage of your life, it makes sense to manage you finances from one central source."
Tips from Christine Van Cauwenberghe, director of tax and estate planning with Investors Group in Winnipeg, on how couples should work together to figure out their finances:
1. Communicate regularly
Share complete information on each other's credit history, assets, loans and other financial commitments. You don't want to find out that your spouse has accumulated huge amounts of credit card or other debt after it has become too large to manage.
2. Set common goals and spending limits
Set a budget and decide who will be responsible for paying the bills, how to divide payments, and how much you should each set aside to save and invest. Set out common objectives regarding what you want to save for, and how much you are willing to save each month. Depending upon your personalities, you may also want to agree on an amount that you may each spend monthly without the other's approval.
3. Decide how to structure bank, credit card accounts
Some couples like to have separate bank accounts; others prefer joint. Talk to your financial planner about the fees involved with separate accounts, and whether it would be better to consolidate. You may prefer to have separate credit cards so that each of you has their own credit history and can spend without your spouse examining every purchase.
4. Use TFSA's to save for bigger purchases
If you are saving to buy a home, car or take a vacation, Consider using a Tax-Free Savings Account to save for these larger purchases since all the income and growth is tax-free. Any withdrawals from a TFSA are added back to your contribution room, which allows you to re-contribute those amounts to your plan.