Consider the Advantages and Disadvantages of Combining Your Bank Accounts with That of Your Partner.
When two people are in a committed relationship, they typically share many aspects of their lives together, such as their home, potentially a pet, and, the majority of the time, their financial situation.
How the home finances will be managed when there are two people rather than one at the helm, rather than just one, is one of the most significant things that you and your partner should discuss.
Taking up shared responsibility for the payment of bills or establishing shared savings objectives is only one illustration of what this may entail. It may also involve placing all of one's wages and any other regular sources of income, such as cash gifts and tax returns, into a single bank account.
Managing your joint finances should be one of your top priorities, regardless of whether you are newlyweds or in a committed relationship with someone else. This article will tell you what to think about when deciding whether or not to open a joint bank account, as well as the pros and cons of each choice.
The Advantages of Having Multiple Bank Accounts
Many married couples think that opening a joint bank account is the best way to show that they are financially in it together.
TD Bank's 2019 Love and Money poll, which focuses particularly on married couples, found that the majority of married couples share bank accounts (57 percent), and that two-thirds of married couples use at least one credit card between them.
In recent years, members of the younger generations have shown a growing reluctance to divulge their financial information. According to the findings of a recent poll conducted by Bank of America, 28 percent of millennial couples report maintaining their own independent financial lives.
Having a single bank account can be advantageous in many different ways. For instance, having a joint account gives each spouse access to financial resources whenever they are required.
When you have a joint bank account, each account holder will typically receive a debit card, a checkbook, and the option to either deposit money or withdraw funds from the account. Both of you would have online access to your account information and tools if your bank provides it. This would make it much easier for you to pay bills together and handle any other joint financial responsibilities.
The management of certain legal matters can also be simplified with joint bank accounts. In the event that your partner passes away, the other joint account holder will typically continue to have access to the funds in the account. This means that the surviving joint account holder will not need to refer to a will or go through the legal system in order to get the money.
This occurs if the account has what is known as a "right of survivorship," and it is dependent on the account in question as well as the laws of the relevant state. In the event that the joint account does not contain this designation, the portion of the account that belonged to the owner who has since passed away will be divided through their estate.
Prior to creating individual or joint bank accounts, if you are concerned about what would happen to your money in the event that one of you were to pass away, you should speak with the bank about how survivorship is handled in your state.
Last but not least, one of the primary benefits of having a joint bank account is that it reduces the likelihood of being caught off guard by "financial surprises." This is because all of the money that enters and leaves the account will be visible to both of you.
All of the couple's costs come out of a single account, it may be simpler for married couples who have joint accounts to keep track of their finances. This makes it harder to forget about things like withdrawals and payments, and it also makes balancing the checkbook at the end of each month easier.
Consequences to Consider When Using a Joint Bank Account
\Sharing a bank account can make your system for managing money easier, but it also comes with certain possible drawbacks that you should be aware of. For instance, some married couples could experience a sense of diminished financial autonomy after opening a joint bank account.
By keeping their money in separate accounts, each partner can maintain a certain level of independence over their own financial situation. Because the transactions are not revealed, there is no "checking up" from the other party. To put it another way, the transactions are kept secret.
If the people in a relationship don't talk to each other about what's going on with their accounts or, even worse, keep financial secrets from each other, having a joint bank account can sometimes cause problems in the relationship.
According to the findings of a recent poll conducted by the financial services company Varo Money, Inc., many married couples choose to keep their bank accounts separate from those of their partner, and in some cases, they even have both a joint account and separate accounts.
Although nearly three-quarters (77%) of respondents maintained joint financial responsibilities with their spouses, nearly half (45%) of respondents kept their bank accounts distinct from those of their partners. Twenty-three percent of those with joint bank accounts also have a personal bank account under a different name.
When it comes to keeping secrets about their finances from their relationships, one in five respondents admitted to having a bank account or credit card that their partners are not aware of.
When one partner in a relationship has outstanding debt, such as school loan debt, credit card debt, or even child support debt, this can be another source of conflict in the relationship. A creditor has the legal right to attempt to collect a debt from a shared bank account if one of the account holders in the account owes money to the creditor.
Before deciding how to divide their joint and individual financial responsibilities, couples should have an in-depth conversation about their individual debts. This will help them avoid feeling resentful toward one another.
When a relationship ends, having shared financial accounts can be problematic for both parties. In the event that the couple decides to go their separate ways, it can be a hassle to get the money out of a joint account.
Each partner has the legal right to take money out of the account and close it without the approval of the other, and it is not difficult for one party to render the other bankrupt as a result of their actions. You can avoid this situation by keeping your money in separate bank accounts. This can also make a breakup easier since you won't have to fight over the money for as long.
Utilizing Several Independent Bank Accounts
You and your spouse may build a solid financial foundation for your future together by having frequent conversations about money and settling on a strategy. It's possible that a couple will have more success if they evaluate their decisions at regular intervals and make sure that their method is still beneficial to them.
If you and your long-term partner want to maintain separate bank accounts, you should have a conversation about it as soon as possible in the relationship so that you can create a financial strategy for the future that caters to both of your preferences.
Even if you and your partner decide to keep your finances apart by maintaining separate bank accounts, this does not absolve either of you of any financial responsibility. In order to balance your accounts and finances, you will still need to work out how the bills will be paid, who will be liable for which payments, and have frequent conversations about the matter.
You may also decide to keep one or two joint accounts open so that you can save money together to reach certain financial goals, like buying a house.
Committed partners have the option of keeping their finances separate while still opening a joint bank account into which they can each contribute an amount of money that is predetermined by the two of them.
Together, you can reap the benefits of having a joint account while still retaining the autonomy that comes with having separate financial arrangements. Couples can also keep their checking accounts separate while opening joint savings account for shared goals like retirement, buying a home, sending their kids to college, or going on a trip.
Establishing Common Financial Objectives as a Couple
You and your spouse will come to the conclusion that it is prudent to set financial objectives together regardless of whether you want to open a joint bank account or maintain separate bank accounts while making this decision. When it comes to discussing finances, some questions to ask include the following:
- Which is a better strategy: paying off the debt that we racked up together or going our separate ways?
- How should we go about it if we decide to make investments?
- How can we keep track of the money we spend each day on items for the house?
- How will the monthly expenses of the household be split up, such as the mortgage and the bills for the utilities?
- How do we manage emergencies?
It is essential to have frequent, in-depth conversations about money matters with your partner in order to identify what choices are rational. When your relationship first becomes serious, you may decide to start with a financial plan.
However, it is imperative that you return to that blueprint and revise it at regular intervals. Together, you and your partner will be able to talk often about spending and budgeting, which will lead to long-term financial stability.
Questions That Are Typically Asked (FAQs)
When someone dies, do joint bank accounts become inaccessible?
The phrase "right of survivorship" is usually used in the terms associated with joint bank accounts. This indicates that the surviving party (or parties) will inherit the deceased party's portion of the account in the event that one of the parties passes away.
The surviving spouse is entitled to the right of survivorship, and the joint bank account of a couple will not be closed in the event that one of them passes away.
Who is responsible for the payment of taxes on pooled bank accounts?
If a married couple files their taxes jointly, then shared accounts do not in any way complicate tax preparation because the couple will combine all of their finances regardless of whether they file jointly or separately.
If the owners of a joint account do not file their taxes jointly, the tax documentation will be given to the primary account holder. The main account holder will then set up a way for the other account holders to pay their taxes based on how much money they have in the account.
When couples get divorced, what happens to their shared bank accounts?
During the divorce proceedings, both parties have an equal claim to the joint bank accounts, regardless of who contributed more money to the account or withdrew more money before the divorce proceedings began.
