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The perils of joint finances

It all comes down to how much you can really trust your partner with money, writes Nicole Pedersen-McKinnon.

While marriage and opening a joint bank account often happen together – as indeed they did in my case – how do know if opening a joint account is the right thing for your relationship?

My husband and I signed on the two dotted lines after a ‘whirlwind’ seven-year romance – and we’ve never looked back. Joint bills, joint savings and joint goals, resulting in more money working for us collectively over the longer term.

My parents, however, still prefer the ‘his, hers and ours’ approach; they maintain separate savings and in a lot of respects, goals. In fact, they pool their money only for household expenses – into a specific ‘bills’ account. It works fine for them.

The thing is, what’s good for you and your relationship may not be right for another couple. But there is research to indicate the average experience and some vital steps to keep you and your money safe.

All in, or toe in?

Supposedly, the more you are prepared to pool your cash with your partner, the happier your life together will be. If you keep 5 per cent or less of your income to yourself, for your own discretionary spending, you’ll be more contented than had you kept your money separate. And if you pool 80 per cent of your money, you’ll be more loved up than had you only submitted 70 per cent.

Or so says a US study by Elizabeth Dunn and Michael Norton, published in their book Happy Money. The conclusion was that sharing reinforces trust.

In reality, these results may represent selection bias more than anything else: you may be more willing to get financially hitched if you’re happier in your relationship in the first place.

But there’s no denying two separate accounts and one shared one represents a half-way house between all in and all out-of-bounds (the latter of which, incidentally, makes for an easy exit).

Just bear in mind it can accentuate any income disparity. If one person earns significantly more than the other, they’ll feel none too good if the other enjoys excessive treats, for example.

In any case…

Get on the same financial page

A big part of cosy coupledom – and one that is seldom considered at the outset – is having a similar money mode. And this goes doubly if you’re going to share it.

Before making the decision to merge financial lives, you need to determine whether together you are a meeting of the money minds. But you also need to determine if the matching modes are going to set you up for shared success, because Relationships Australia reports that money worries are a “major cause” of partnership breakdown and divorce.

“Unresolved financial issues can lead to blame, anger, stress and intimacy problems in relationships,” it warns on its website.

From the get-go you should know the following about your partner:

  • Are they a sensible spender?
  • Can they stick to a budget?
  • Can they prioritise precious shared goals over fleeting consumer temptations?
  • Even more seriously, does your loved one come with financial baggage such as defaults on their credit history, which could stop you getting loans in the future? 
  • Or do they already have debts, about which you know nothing? So-called STDs – or sexually transmitted debts – could equally prevent you getting approved for credit in the future. They could also quickly become a ‘joint responsibility’ to repay, which could create resentment.

You should also maintain access to an emergency fund of at least three months’ salary, whether separate or joint.

And don’t forget the other party to a joint savings account is totally within their rights to empty it. And your co-signatory on a joint credit account is totally at will to run it up. You need to trust your partner implicitly – even their likely actions if you were to break up.

Keep safe and secure

There is a way to jump financially into a relationship, but still retain a bit of control – a joint savings account with a “both to operate” proviso.

That quite literally means you need a signature from both partners to withdraw money. This may give you a level of comfort at the outset, before you’re prepared to jump in boots and all and authorise access for either party. Just be aware it can be a bit of rigmarole if you need to get at savings fast and your partner can’t get there or arrange it.

Another product you might consider is a credit card that allows additional cardholders. But it’s vital to be aware this is not strictly a joint account and that the original cardholder is the one liable for any debt. As such, this is a big step.

A further safety point about joint bank accounts: should you tragically lose your loved one, you will still retain access to all the shared money, and so may not have to deal with financial trauma on top of the emotional one.

Finally, a secret or side account is an effective way to surreptitiously hedge your relationship bets. It doesn’t demonstrate great trust, though.

Nicole Pedersen-McKinnon is an independent commentator and educator who presents her Smart Money Start presentation in high schools around Australia.