When two people decide to become "one," be it living together as "domestic partners" or "marriage partners," a huge issue that needs to be addressed is "how are we going to manage money?"
While the 1950's image of the perfect couple suggests pooling all resources into one common account, in today's world, that image may not be the best infrastructure to support an evolving relationship, unless the two partners have clearly thought through what it means and if it will actually work.
Here are some key questions two people need to address as they build their money management infrastructure together:
1. Does each person have debt and/or assets they bring with them into the partnership?
If the answer is yes, how will pre-existing debt or assets be managed? Very often it is best to begin the relationship's financial tabs at the time of "joining," be it moving in together or getting married. Letting each person be responsible for pre-existing debt, so that their partner does not carry the weight of something they were not part of, creates a better context for goodwill, than letting old debt be heavy baggage for ones partner.
If one person brings in more assets than another, it may feel unfair for these to instantly become "collective property." This is especially true when people join together later in life, having had many years to build a personal foundation. Making a list of each person's resources at the point of joining will allow resources acquired or developed during the tenure of the relationship to be clear.
2. What belongs in a joint account and what might belong in individual accounts?
What if one partner loves to go on shopping sprees and the other considers this frivolous? Or, one partner might love to ski, while the other would rather go to musical events. A healthy relationship allows each partner to continue to pursue personal passions that they have enjoyed prior to the relationship, even if the other partner may not share these passions. The funds to pay for an individual's passions may best come from the money they have earned on their own, not from a collective pooled account.
On the other hand, paying for rent or a mortgage, food and other basic living expenses or even a jointly planned vacation may be a joint endeavor. These kinds of expenses could easily be drawn from a joint account. If there is a difference in income, both partners should closely explore what should be shared 50-50, and what might be shared in a way that takes into consideration the different resources each partner brings.
3. Are spending and saving habits similar or different?
If people have very different styles of spending and saving money, the differences can become points of conflict in a partnership. It is very important for two people to be able to articulate their own styles, and reach a mutual agreement on how saving and spending joint funds will be handled. If this is not defined explicitly, places of difference can become hotbeds for animosity, both in the short-term and long-term.
4. What does each partner need to feel safe, financially?
Feeling safe financially is important for a smooth financial relationship. Do one or both people want to be sure they have a nest egg set aside in case of emergency? If yes, can each person agree how much that is? If not, can the person who needs the nest egg set it aside with the blessing of the person who feels differently?
Do people want some assets in their own name, just to be sure they have something of their own? Or if assets are in both names, would it feel safer to have an agreement outlining how they would be divided in the event that were necessary?
While some of these questions may be hard, better to sort them out upfront than to have to address them in a crisis.
5. Does the couple have any funds that both people contribute to on a regular basis?
Does the couple want to set up a vacation fund? A down-payment on a house fund? A mutual retirement fund? A "children's expenses" (current or future) fund? If the answer is yes to any of these funds or other joint funds, how much money will each person contribute to the fund each month or quarter or year? And will the money come from individual or joint accounts?
Setting up "investment" funds with regular contributions helps work towards long-term goals. And a couple will need to discuss and define their long-term goals in order to know what funds they might want to establish and grow.
6. Does the couple need a "what if it doesn't work" money plan, so that both people feel safe and protected in the relationship?
Much as none of us want what are intended as long-term relationships to end, many relationships do in today's world. Is having a "what if it doesn't work" money plan a way to help increase the likelihood that things will work? Sometimes, that is so. If both people can articulate what they need to feel safe and protected in the event the relationship can't continue, they may feel more able to fully try to make things work.
Too, if the couple does decide to separate down the road, better to have thought about the financial issues before the difficult separate time.
Overall, the more we clarify for ourselves what we need to feel financially safe and the better able we are to communicate with a partner about our needs, the more likely money management will support rather than hinder a healthy relationship.