combine finances with your partner
By Chelsea Traver
At the start of a relationship, it’s all rainbows and dinner dates. But as things progress you perhaps want to share not just your time but also your finances with your partner. My partner and I recently got engaged and amidst our wedding planning, we have begun discussing how to officially mingle our finances. Exciting times! I’ve also fielded questions from a number of clients who come to us wondering how to join finances and save for the future together. Even for people who have fully combined finances, there are things to consider that can set you up for success. I am no relationship expert but a significant part of my job as a financial adviser involves helping people to see a clear path forward. This article is meant to give you options to consider to help you find that path with your partner.
Everyone is different - compromise is key
Everyone is unique and that is especially true when it comes to finances. In many cases, the old adage of opposites atttract holds true and while these differences might add spice to your life it can also cause tension when discussing finances. Many of the couples who come to us have differing views on how to manage their money, what level of investment risk is acceptable, and what goal is the most important.
A lot of our thought process around money comes from our own experiences and backgrounds so it’s understandable that you and your partner might be on different pages or even different books when it comes to the best way to manage your money together. For these couples, it can be helpful to recognize at the outset that you might not want to manage your money in the exact same way, and that’s okay.
Why do you want to join finances?
When thinking about combining finances the first thing to consider is why do you want to do it. There are many different reasons why you might want to join finances with your partner so it can help to sit down together and discuss why this is important to both of you. Some reasons might be:
- You want your finances to be combined as you grow your life together.
- You are now living together with joint expenses, so it makes sense that you have pooled money.
- You want to combine your money to promote a sense of unity, as “mine” becomes “ours.”
- You want to pool resources to buffer both partners from ups and downs that they may experience with their respective finances.
- You have a joint goal that you want to save for, perhaps a house or trip.
What method do you use?
The reason you want to join finances can help you decide how much you want to merge your finances. There are many ways but at a broad level your options are:
- Fully joint: all income and outgoings come from a joint account.
- Fully separate: separate bank accounts and agreement on who pays what or one partner pays the other.
- A mix of the two: joint bank account for joint expenses while still retaining some accounts in your own name. There are differing ways to do this. It could be having your pay cheques deposited into the joint account and then transferring some into a “fun money” account in your own name. Alternatively, have your pay cheque paid into your individual accounts and then transfer a set amount into a joint account for your mutual expenses.
How to make it fair
If decide to have fully or partially separated finances then you need to agree on a fair way to share expenses, particularly if you and your partner earn different amounts. This article discusses several options so you can decide what is a fair contribution level but at a high level, the options are:
- Proportional Method: each person contributes to the household bills at a rate that’s proportional to their income.
- The Raw Contribution Method: each person contributes the same amount.
Get into the details
Once you know why you want to join finances and how much want to combine things you can get into the mechanics. This can be complicated because often one partner likes to plan with the detail of a military operation (guilty) and the other might have a more laid-back attitude. Don't let this hold you back. Gather the information in whatever manner you choose to get started.
1. Collect all of your financial details
Before you can decide how to combine your finances you’ll need to know where you stand. Here is a starting point:
- Cash accounts
- KiwiSaver accounts, and local or overseas pensions
- Other investment accounts
- Mortgage
- Student loans
- Other debts including credit cards, personal loans or car loans
- Total annual income (your regular pay cheque or estimated earnings if self-employed, any side projects, rental income etc.)
2. Consider expenses
By having a firm understanding of what your costs are you can decide how best to mingle your finances and save for the future. To get an idea of what areas to consider the budget guide on Sorted is a useful resource. Some expense categories might include:
- Rent or mortgage
- Additional housing costs (utilities, internet, general upkeep)
- Insurance
- Gifting/Charity
- Cell phone and TV bills
- Food bills
- Transportation costs
- Estimated fun such as travel, shopping or entertainment costs (eating out, movies, etc.)
- Debt payments (credit cards, student loans)
- Any costs related to children or pets
- Regular investments/savings
Talk about your finances
Put aside some time to go over these items together. Set yourself up for success by having it when you are both relaxed and have plenty of time for the discussion i.e., not when you are hungry or right after you get home from a busy day. Perhaps have a money date and go to a quiet restaurant where you feel comfortable. This can also be beneficial because if there is any tension that comes up you can leave that space at the end of the discussion and reset to go about your day. These discussions aren’t always fun but keep an open mind and feel free to follow up later so you both have a chance to think about things.
For an advanced level make it a monthly date, you can use this time to not just talk about and review your finances but also to get things done such as open a new account or cancel that reoccurring subscription. Plus, you get a nice meal out of it. Win-win!
If you don't know how to start the money conversation, here are some money questions to ask your partner either from Sorted or YNAB. YNAB has split there questions by relationship stage (newly dating, seriously dating, engaged, or married) which is great because talking about money is beneficial at any stage.
The legal stuff
There are three legal aspects to consider when merging finances: Wills, relationship property, and contracting out agreements. I’m not going to sugarcoat it, these are not the sexy, fun parts of a relationship but they can provide a solid foundation that can be instrumental if anything were to happen. You do not want your worst day to be compounded by wishing you’d thought about these things sooner.
Note: We do not provide legal advice so please get in touch with a lawyer to discuss your specific circumstances. We can provide a recommendation if needed.
1. Wills
When merging your finances, you should consider updating your Will. If you are married or in a de facto relationship your partner might automatically be your primary beneficiary but perhaps you want to set up specific bequests. If you don’t have something in place it can cause a headache for your partner down the line so it’s worth sorting out.
This excellent tool from LawHawk indicates who your assets might be distributed to if you were to pass away right now without leaving a Will. I found it interesting that even though I’m in a de facto relationship if I were to pass away without a Will my parents would receive about 15% of my estate.
2. Relationship property
The general rule in New Zealand is that once a couple has lived together (whether married or not) for three years or more, the relationship property law comes into effect under the Property (Relationships) Act 1976. This means in the event of a separation all ‘relationship property’ is to be divided equally. There are of course many more details so check out this article if you are curious about how relationship property works.
The one main exception to the relationship property rules is if you receive the funds through an inheritance or gift. But these will become relationship property as well if they are intermingled or if the assets are placed in joint names. That’s why if you want to keep an inheritance as separate assets, make sure to have these funds in your own name and don’t put them into a joint asset (for example a house). Once you do, they are considered relationship property.
3. Contracting out agreements (aka a prenup)
If you don’t want the general relationship property law to apply you can get a contracting out agreement. These can be established at any stage of the relationship to clarify how a couple’s property will be divided in the event of separation.
They are particularly helpful there are children from previous relationships or if there are specific assets you want set aside. Even if this doesn’t apply to you a relationship agreement can help provide clarity so that if you are ever going through a rough period in your relationship, you know how your finances will be treated if you were to separate. This can help take some of the stress out of a hard time.
Key Message
There’s no single best practice for combining your finances. You and your partner are a team so see what suits you and leave the rest. Also, what works for you now might not work for you in the future so check in with each other periodically and adjust as needed. Starting to build a life together is an exciting time and it can feel daunting to talk about these issues, but it will bring you and your partner closer together to set you on a strong path for the future.
Note: Good Sheperd also has this excellent Healthy Financial Relationships Toolkit which has a ton of great information on this topic including quizzes and exercises.
