You merged your lives--Should you merge your finances?

Deciding whether to share accounts.

Rachel Haig 23 April, 2010 | 6:00PM
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Newly joined couples have a lot of decisions to make: whether to register at Holt Renfrew or Zellers, whether to hire a sedate string quartet or a rockin' Rockabilly band to play at the reception, and whether to honeymoon somewhere exotic or stay closer to home.

Alongside those pressing decisions, it might be tempting to backburner the choice about whether to merge your financial accounts, keep them separate or do a combination of both. But this decision will have a far bigger impact on your financial life, so it pays to give it due attention before you actually tie the knot.

Ultimately, your determination depends in large part on your individual financial views and habits, so an initial, candid discussion is essential before you delve into the specifics of how you will handle accounts.

Deciding the appropriate degree of account sharing also depends on a number of factors, including your spending habits and your living arrangement. If both of you work and have similar incomes, the decision is much different than if one of you brings in most of the money.

The primary decision is how to handle your bank accounts, including chequing and savings accounts. (I haven't addressed how to handle situations when one or both of you has your own business or children from a prior union. In those cases, you're best off seeking legal advice to help you assess your options.)

You have three basic options.

Share everything

This is the "traditional" approach. You can either add each other as co-owners to your existing accounts, or you can open a new account together. Joint accounts are typically set up so that spouses are "joint tenants with rights of survivorship" (JTWROS). You each have full access to the account, and assets automatically pass to the surviving spouse if one partner dies. There are also other legal arrangements for joint accounts that do not include survivorship rights, such as "tenants in common."

Sharing all of your accounts can be the most convenient approach, but it works best for people who share similar financial habits and generally agree on spending. Sharing everything also makes sense when one person is the primary earner.

This option doesn't allow for spending without the other person's knowledge, which, from my perspective, reinforces financial openness that should exist already. You should be communicating about spending regularly, especially for big purchases, so starting to share accounts shouldn't be too much of a shock. If one person is very uneasy about the idea of shared accounts, it's important to make sure he or she has aired any underlying anxieties. (Sharing accounts also creates challenges for surprising each other with gifts!)

Share some

Many couples find sharing a portion of their finances to be the most comfortable option, either for the long term or as a way to transition. There are several variations, but a common approach is to create "Yours, Mine and Ours" accounts. Create one combined bank account for shared expenses like rent and utility bills, and keep separate individual accounts for discretionary spending.

This approach enables each of you to have money to spend on your own purchases, without as much anxiety over whether the purchase is something you both want (you could also accomplish this with a simple budget, however).

Not surprisingly, keeping some accounts separate while combining other finances can make things more complicated. You would need to figure out how much each of you would contribute to the shared account each month and which expenses it would cover. Many couples base the amount each contributes on a proportionate percentage of their incomes.

Share none

There are some situations when it makes sense to keep your accounts completely separate. If you've already been living together without sharing accounts and haven't hit any rough patches, you have the option of simply continuing your current arrangement. Keeping accounts separate is also the way to go if you and your spouse want to keep a clear delineation between assets you each brought into the union (more on this below).

If you and your spouse keep your accounts separate, you will need to decide who will pay for which expenses. Some couples divide up bills so that each person is responsible for a certain set of payments each month.

Other assets

In addition to chequing and savings accounts, you will also need to determine whether to add both your names to other assets, such as real estate, vehicles and investment accounts. Adding your spouse to the deed of your house or condo is more complicated than setting up a joint bank account. Check with your mortgage lender, because changing the name on a mortgaged asset can lead to unintended consequences, and your lender may also require additional documents and fees. If you're already considering refinancing, though, it's an opportune time to consider adding your spouse to the mortgage and deed. Similarly, check with your lender before adding your spouse to your vehicle title.

For your taxable investment accounts, discuss your investment philosophies and determine if it makes sense to share an account. If one of you has a higher risk tolerance, for instance, it may make sense to keep things separate. Although your retirement accounts remain separate, you should develop a retirement plan together. How much is each of you contributing to your company retirement plan and/or RRSP, and what does your combined retirement portfolio's asset allocation look like? (Use Morningstar's Portfolio X-Ray tool to help you sort this out.) While you're at it, remember to update your beneficiary designations.

Legal considerations and divorce

Few couples go into marriage expecting that they may eventually split up. But given high divorce rates in this country, it's worthwhile to give at least passing consideration to how your assets would be divvied up in the event of a divorce. That, in turn, could affect how you title your financial assets.

Laws governing asset ownership are intricate and vary by province, but it's worth considering general principles when deciding how you will handle your accounts. Family law recognizes a distinction between assets held individually before marriage and those acquired during the union, and classifies assets as either matrimonial or non matrimonial property. Determining exactly what falls into each category can be tricky and can come down to whose name is on each account and when the account was opened.

Couples who want to hammer out exactly how assets would be divided in a divorce should meet with an attorney. Prenuptial agreements before marriage are well known, but postnuptial agreements are also an option.

Of course, these considerations can hit an emotional nerve, and there is heated debate over whether couples should plan for possible divorce.

Stay flexible and communicate

There isn't one solution that works best for everyone--it's a matter of figuring out what works for you. Regardless of your choice, make sure each person's responsibilities are clearly defined and both parties know where money is coming from and where it's going. Make a list of your monthly financial obligations, including your rent or mortgage, cell phone, cable and utility bills, and determine who is responsible for making sure payments are made. Remember to include savings--both for retirement and other goals--as something the two of you must contribute to monthly. It will probably take some experimenting to find a system that suits you, and what works now might not be the best approach later. Remaining flexible and checking in with each other regularly is more important than nailing down a system right away.

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Rachel Haig

Rachel Haig  Rachel Haig is assistant site editor for Morningstar.com.

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