Why Couples Should Maintain Separate Bank Accounts

NEW YORK (MainStreet) — Couples should maintain additional separate accounts even if they have joint bank accounts, financial experts said.

A recent survey conducted by TD Bank found that out of 1,000 Americans who are either married or living with a significant other, 42% of individuals in relationships that have joint bank accounts also maintain separate accounts. Many couples maintain separate accounts because they want to keep their independence with 38% of respondents who cited this as their top reason.

While both Gen-Xers (35-54) and Millennials (18-34) in relationships ranked independence as their top reason for maintaining individual accounts, each generation had different subsequent reasons. Gen-Xers said their number two reason was personal spending/emergencies, while the number two reason for Millennials was maintaining convenience.

Many couples use their account structure as a budgeting tool, said Lindsay Sacknoff, senior vice president and head of retail deposit products at TD Bank.

"According to the TD Bank survey, expenses like mortgage/rent, utility bills or groceries typically come out of a joint account, but each individual can have their own account for things like a night out, a shopping trip or impulse purchases," she said. "Besides budgeting, there are other benefits as some banks give account holders perks like higher interest rates if they maintain and link up multiple products."

The survey also found that Millennials are less likely to wait until marriage to join finances relative to their older counterparts. Only 70% of Millennial couples waited until marriage to start a joint account compared to 88% of couples 55 and older.

Merging finances can benefit couples in several ways. Combining incomes in a joint account could mean the ability to meet a minimum balance requirement that would offer access to benefits like a higher interest rate or reimbursement for out of network ATM costs, Sacknoff said.

Couples who consolidate accounts should maintain them at a single financial institution since it gives them the ability to review balances and transfer money from a mobile phone or computer, she said.

"Technology has made keeping track of separate and joint accounts easier as banks have begun offering person-to-person payment and external transfer features that can support customers who need to receive/send money to an account or individual outside of their bank," Sacknoff said.

Many couples maintain separate accounts for emotional and psychological reasons, said Kimberly Clouse, advisory board chair of Covestor, an online marketplace for investing based in Boston and London.

For couples who marry later in life, keeping separate checking accounts can help each spouse maintain some sense of autonomy in their economic partnership, she said. The responsibility of who is paying the bills varies, but couples often contribute to expenses in proportion to their income, she said.

"If one spouse earns more income than the other, the higher-earning spouse would pay a higher percentage of the family's bills," Clouse said.

Couples who come to the marriage with very different spending styles and levels of financial discipline also benefit from keeping accounts separate, she said. Separate accounts can reduce the tension surrounding different spending styles.

"Imagine that one spouse makes a number of small purchases throughout the year while the other makes a few large purchases," Clouse said. "The financial cost may be the same in both cases, but the frequency of spending might be an issue for one spouse or the magnitude of the large ticket items might be an issue for the other."

Most couples are likely to also have different styles when it comes to investing their money - perhaps one spouse is a conservative investor while the other likes to invest in high-flying stocks that they heard about at a cocktail party, she said.

"Reconciling these two approaches in one portfolio strategy would be tough, to say the least," Clouse said. "In these cases, couples may benefit from allocating their investment assets into three buckets: 'his, hers and ours.'"

Couples may want to consider maintaining separate accounts if they find they have vastly different "money personalities," said Kurt Rossi, president of Independent Wealth Management in Wall, N.J. "A 'live for today' approach to money management can create conflict when the other spouse employs a 'plan for tomorrow' philosophy," he said. "In this case, maintaining some autonomy for each spouse can allow for their individual financial needs to be met."

Couples should definitely avoid commingling inherited or gifted funds, Rossi said.

"By keeping them separate, they may be protected in the event of divorce," he said.

Since 401(k)s, IRAs and other qualified retirement accounts must be held separately, a decision will have to be made whether to combine non-retirement investment accounts and cash reserve accounts like checking and savings, Rossi said.

Maintaining open and constant communication about how you spend your money could be the key to avoiding problems in the future.

"It is well documented that money can cause significant tension in a marriage," he said. "It is critical for spouses to communicate openly and often about their financial goals."

If a marriage does not work out, having separate accounts leads to "significantly less financial untangling," Rossi said.

"It is also important for spouses to build and maintain their own credit history so that each can stand independently once their separation is complete," he said.

Manilla, a New York-based bill sharing service, found in a 2013 survey that 54% of respondents ages 18 to 23 always or sometimes lie about their account balances.

"This group is also most likely to have accounts their partners are unaware of and to argue about money daily," said Jim Schinella, CEO of Manilla. "The findings from this survey not only showed that it's normal for couples to argue about money, but also that an automatic financial life organization and reminder service like Manilla is a concrete solution for people in relationships who are looking to reduce unnecessary financial arguments."

Keeping separate accounts is important even when one person in the relationship or marriage is not employed since it allows each person to maintain their independence without sacrificing their spending habits, said K. Mitchell Kelling, a family law attorney with Horack Talley in Charlotte, N.C.

"Some couples may think it's unromantic and anti-marriage to have separate accounts," she said. "It's your money to do with as you want and there are no questions asked."

Individual accounts help couples where one person has better credit than the other one, said Leslie Tayne, a New York attorney with Tayne Law Group.

"There is no real reason to keep accounts together," she said. "If one spouse has bad credit or can't control spending, linking or merging accounts could result with both spouses' credit being damaged or limiting opportunities for loan borrowing in the future. Since you never know what the future may bring, keeping at least some accounts separate is often a good idea."

--Written by Ellen Chang for MainStreet

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