Slate is doing a series on how couples manage their finances: separate, together, or a combination. Its author, Jessica Grose, is interviewing couples who do things all three ways, and in the end, is supposed to come up with a plan for herself and her new husband.
Before Peter and I were married, we were on the combination plan: we had a joint bank account for basic household expenses (and later, for wedding savings), but kept our other money separate. These days, we still have some technically separate bank accounts, because we haven't gotten around to adding each other to the old bank accounts, and because I, an inveterate fiddler with data, am reluctant to close them; doing so would mean losing several years worth of account data that I've loaded into Mint. But we are definitely an Ours couple.
Like most couples, we have one person who oversees the money (me), though unlike most couples, a different person keeps track of the physical paper, and we each have a set of bills in our names--I take care of mortgage and cell phones, while Peter manages the other utilities. I watch all of our bank accounts in Mint, transfer money between them when one gets low, and carefully categorize all of our transactions--necessary because for journalists, many ordinary expenses are tax deductible. All of the money is part of a common pot; it just lives in different places.
I am a great advocate of money pooling for married people--single people, and gays who are emotionally married but are denied the right to legally married in their state, should indeed keep finances separate, because there's no good legal way to disentangle them. (Of course I hope for gay couples that the law catches up to their situation soon) I understand that there are a few special situations: people with children from a previous marriage, or great personal fortunes of their own. But in general, I think that the benefits of splitting off money are greatly overstated, while the drawbacks are real.
I've heard the argument in favor of separate accounts from women who were left with nothing in a divorce. By all means, if you think you are married to the sort of person who would clean out all your joint accounts when the chips were down, squirrel some away to keep the mortgage paid. But I'd think hard about being married to that person. And in the event of a divorce, having separate bank accounts is not going to mean that you get to keep the money in your accounts, unless you've signed a prenuptual agreement to that effect--a judge is going to divide the assets as they see fit. Putting the money in separate pots gives you the illusion of control and safety, but not the fact of it. That in itself is dangerous.
If you're separating, the first thing you should do is split the money into separate accounts, of course--but I'm talking about couples who are planning to stay married.
Nor do separate accounts mean that you won't fight about money. Instead, they mean you'll fight about what is a "joint" expense, and what is the responsibility of individuals. Like our national political parties, you're going to have to refight the New Deal over and over: is furniture that one party wants but the other one thinks is too expensive, a joint expense? What about a new computer that one person uses more, or a video game system for the living room? A vacation to visit one person's relatives, or attend their college roommate's wedding? Should people contribute based on their income, or split 50-50? And when kids enter the picture, it gets even more complicated.
The way I see it, there are no individual expenses; that ended when 130 of our nearest and dearest watched us swear to love, honor and cherish. If Peter had no income at all, he would still need clothes, haircuts, and the occasional night out with friends; likewise with me. That's one of the things we both signed on to provide the other person. So who cares whose income it comes out of?
Separate accounts don't even provide you with protection from a profligate spouse--not as long as that person has credit cards. If his income is garnished, or her creditors put a lien on your joint house or checking account, you both have a problem. Too often, spouses with separate accounts don't know about these problems until it's way too late to do anything except jointly declare bankruptcy. This can't happen if both of you are paying attention to all the accounts, as I do weekly and Peter does monthly--I mean, you're in trouble if your spouse opens a secret credit card, but that's a whole different level of deliberate betrayal, not irrational insouciance.
Separate accounts may let you avoid dealing with a problem like a partner you can't trust not to spend too much, or value differences about the appropriate price of a new couch. But those problems don't actually go away, and they can blow up in your face in a nasty way. If you are married to someone who is otherwise wonderful, but a compulsive shopper, lazy bill payer, terrible expense tracker, or inveterate impulse buyer, then you need to set up ground rules that let you control the behavior, not ignore it. To build a financially stable marriage, you need to agree on the family's financial goals, plan to meet them, take responsibility for acting on those plans, and hold each other accountable--that is how adults handle money. If your beloved impulse buyer simply can't remember his purchases well enough to match spending to budget, then what's wrong with cash? It provides a handy visual record of how much money you have left, and when you run out, you don't incur overdraft fees. Tell them to leave the cards at home and pay with greenbacks.
This is not to judge impulse buyers--I have the habit myself, and I can't remember to pay bills to save my life. Which is why I have all my recurring bills on autopay, and I try to pay my rare paper bills the minute they enter the house, allowing me to maintain sterling credit despite my natural proclivities. The point is not to judge the financially frivolous; it's to structure their environment so that the family can still meet its goals despite their all-too-human habits.
Separate accounts have other drawbacks. They can be a power play by the spouse with more income, which is toxic to any relationship. They raise the transaction costs on setting and meeting joint financial goals. And they may be a red flag telling you that you fundamentally can't trust the person you're married to--something you need to work out, sooner rather than later.
That's not to say that spouses shouldn't have money that they, and they alone, control. But you don't need separate accounts to achieve that. You need a budget, which contains a line item for what Dave Ramsey calls "blow money". Each spouse should get an equal amount--if there's some special expense that requires one spouse spend more on, say, recreation, then budget for that specially, and spend the money on that only. Allocate the spree money in cash, or as an accounting entry in an excel spreadsheet, and let both parties agree that they won't go over that. You should also set a limit on "big expenses"--things that cost more than $50, $100, or $500 (depending on your income); unless they can fund it out of their accumulated mad money, both spouses should agree that they will not spend more than that amount on a single item without checking with the other person.
Ultimately, the secret to making common accounts work is respect for the other person. You both need to act like adults, and you both need to treat the other person like an adult. You need to admit that while you, personally, might not think it's worthwhile to spend $400 on a video game console or a pair of shoes, the other person should be the judge of that as long as the family finances are sound. And when it's you staring longingly at that pair of Manolo Blahniks, you need to think hard about whether you really love them enough to compromise larger family goals, like a downpayment for a house, retirement savings, or the college fund. It's not always much fun, trading off your pleasures for the family's welfare. But that's what you signed up for. And if you do it right, the reward is that you have another person in the same boat, rowing as hard as they can towards your common goals.