Joint or Separate Finances: Scenarios, risks, and considerations

It seems my last blog post about sorting out the right time to combine finances – or not – has got people talking. And arguing.

That’s the challenge with a single blog post: it’s a quick overview, not a thesis.

Here are a few more scenarios, risks, and points to consider in the ongoing debate about whether or not to combine household finances.

The stay-at-home parent

If ever there was a situation in which one party is financially vulnerable, this is it. While there are some very good and compelling reasons why one parent chooses to stay at home to raise young children, the fact remains that this puts them at a financial disadvantage.

In her book Shortchanged: Why Women Have Less Wealth and What Can Be Done About It, author Mariko Lin Chang documents the extent of the financial disadvantage of staying at home, a situation which overwhelmingly affects women. Note that hers is not a judgment of women wishing to do so, merely a scholarly look at the financial impact of the decision. Bottom line: You’re much more vulnerable, both in the short and the long term.

So what makes sense regarding finances when one parent stays at home? Here’s a suggestion from an interview I did with personal finance expert Gail Vaz-Oxlade, which I shared in my book Protect Your Purse:

  • If you are a stay-at-home mom, you do not have zero income – you have a shared income. You and your spouse have decided the best use of your time is to stay at home, therefore his income becomes a shared income to which you have equal rights.
  • With that shared income, you pay for all of the essentials, including savings and debt repayment. Whatever is left is then divvied up 50/50.
  • You and your spouse then choose what you wish to spend your 50% of discretionary cash on.
  • You don’t get a say on how your spouse spends his fun money, nor does he get to tell you what to do with yours.

This can happen within a joint financial structure or with separate finances. Either way, you both end up with the same amount to save and spend. The stay-at-home parent must have her own accounts in which to put her share of the cash, though. This ensures that she has immediate cash as well as savings in the event that the couple divorces and the income-earning partner behaves badly (i.e. withholds all cash). If you don’t think the latter can happen, read my book. It happens with great frequency, even with people who swear they would never behave that way.

Disputes when finances are split

One of the perceived challenges of splitting finances revolves around the equitable distribution of expenses. Typically, there is a joint account in which both parties deposit money for the mortgage, utilities, and household costs. Both agree that they will contribute proportional amounts based on their income and that they will keep the remaining funds in their own accounts. Investing and savings are all tackled independently. So far so good.

Then John goes off and buys a snowblower, which makes Mary crazy. They don’t need a snowblower for heaven’s sake, they just have a single driveway and it doesn’t take that long to clear it! Never mind though, because Mary signed up the kids for expensive summer camps that John feels are not necessary. He definitely did not OK that. Now we have an argument, a stand-off or both: He’s not paying for those crazy camps and she’s not contributing to the luxury of a snow blower when she doesn’t even have some help inside the house.

Pick whatever example you want, you can see how this develops. This, I’m told, is one of the problems with split finances – it’s complicated and hard to implement.

There’s just one problem with this criticism: It misses the point. Arguing about expenses isn’t an administrative issue, it goes much deeper than that.

It’s about values and priorities.

Every couple needs to decide what matters to them and what they’re willing to spend on as a team. The source of the funds may be separate bank accounts, but the expenditures should reflect working agreements about what is worthy of their hard-earned money.

By the way, these arguments also happen with couples where finances are pooled. Again, the key to resolving these disputes is to sit down together and work through your shared values to determine what to spend on, as a team, and when to do it. If you feel that this will likely trigger an emotional reaction, consider reading Crucial Conversations: Tools for talking when stakes are high, by Kerry Patterson, Joseph Grenny, Ron McMillan, and Al Switzler. It will help you develop the communication tools to handle important conversations that are at the core of successful relationships.

In my experience, arguments about money are rarely only about money; they’re typically about beliefs, fears, mindset, and values.

How to keep track of expenses in split finances

One of the biggest issues people have with splitting finances is the challenge of tracking expenses and ensuring equal spending. There’s no arguing with the fact that it is more work to keep finances separate, however those who embrace this approach feel that the financial protection this system affords them outweighs the PITA factor.

So how do you keep track of who spends what without it becoming an administrative nightmare? A simple spreadsheet will do the trick. One couple I know uses Google Sheets for monthly expenditures. They have their own columns where they input what they’ve bought and how much they’ve spent. At the end of the month, they tally up the spending and balance it out. It’s a simple system that works for them and provides a visual record of what they’ve spent.

Here’s what it entails:

  • Keep receipts when you buy family stuff – not a big deal.
  • Update the spreadsheet either as you go or once a month – also not a big deal.
  • Tally up at the end of the month – spreadsheets have built-in formulas to make this a snap.
  • Whoever spent less reimburses the partner who spent more based on their agreed-upon proportion (i.e. spending according to the percentage of income you bring into the household or 50/50).
  • Done. Total time spent = less than an hour.

One last word about joint finances

My husband and I use the one pot approach simply because it’s easier, however there’s no arguing with the fact that it comes with more risk. If this is the way you choose to go, ensure that you have the following in place: your own income, a separate savings account, investments in your name, and a plan for all those unpleasant “what if” scenarios.

To minimize the likelihood of a rotten outcome, set up a monthly date night over wine, beer, or the beverage of your choice to talk about money. The more you understand about money and yourselves as a couple, the better your chances of a happy ending, regardless of the way you’ve chosen to set up your finances.



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6 Responses

  1. My partner and I use yours, mine, and our accounts.
    Our account is a joint account to which we each contribute. ALL necessary household expenses are paid from the joint account.
    Whatever money we don’t pay into the joint account stays in our personal accounts, where we can spend our money as we want.

    We started out with separate accounts. The joint account was opened for our gifts when we were planning our wedding 25 years ago. Over the first five years, we paid more money into the joint account and all of the bills were eventually paid directly from it.

  2. My wife and I had the discussion early on regarding whether one of us would stay at home when we had kids. We both grew up with a stay-at-home-parent, and both felt viscerally that it was appropriate for us to do the same.
    To be blunt, I was so extremely happy and pleased when she was willing to be that parent. She was willing to pause her career to take on the role, and not a day goes by where I don’t appreciate what she’s done… and she’s damn good at it.
    Financially, we’ve always had a primary joint account where all “paid” income goes to, with each of us having a personal account that gets a monthly fun-money allowance.
    This works really well. While I work for money, I honestly feel she has the more important/challenging job, but we each get “no guilt” cash that allows us a certain financial freedom without feeling beholden to the other.
    By the way, your line (in my humble opinion) sums it up just so perfectly: “In my experience, arguments about money are rarely only about money; they’re typically about beliefs, fears, mindset, and values.” <– this, 1000X this.

    1. Ben, thanks for your comments and your candour. It’s lovely that you’re so appreciative of your wife’s contributions at home. As someone who has juggled being the stay-at-home parent while working a home-based business, I concur that childcare is the hardest/most important job of all. It sounds like you have a great system in place. Research backs you up on the importance of each spouse having their own fun money which they alone control.

      Thanks again for adding your thoughts to the discussion. It’s great to hear a man’s perspective.

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