Marriage and Money: What's the Best Way to Join Finances with Your Fiance?

Marriage money
Marriage money

As my wedding day approaches, I am beginning to understand that marriage is not just a union of love; it's also a joint venture that includes, at least to some extent, the combining of financial assets. Cue the discussion of ... The Shared Bank Account.

It's at moments like these when watching a chick flick becomes extremely appealing to me, and football games become enthralling to my fiancée. Far be it from us to underplay the value of distraction when such emotionally charged, grown-up topics are at hand.

For us, the conversation started when we established a joint account for wedding expenses. Our families had generously agreed to help us pay for the nuptials, so we deposited those funds in the account and tracked our budget together.

But after dipping a toe into the waters of joint finances, my fiancée recoiled from wading in any further. "I don't want to lose my independence," said my rugged Midwestern individualist.

Is there any one method that works best for newlyweds? Perhaps not: But before walking down the aisle together, you ought to make a trip arm-in-arm through the marble bank foyer to address your financial future.

To Join or Not to Join?

When two people agree to link their lives together, they take vows of trust and partnership. When one refuses to open a joint bank account, it can undermine that feeling of trust.

"There can be questions of why doesn't he or she want to have a joint bank account," said Deborah Wilburn, author of For Richer Not Poorer: The Newlywed's Financial Survival Guide (Perigee Trade, 2005). "What's being hidden? It reflects on trust and how you feel about this partnership. And if the accounts are separate, they're wondering, 'Well, don't you trust me?' Then it's up to each person to be completely clean about what they have and what's going on."

On the other hand, to leave someone a chunk of their financial independence can reflect an even greater level of trust.

Either way, whether you officially pool your financial resources or not, fiscal transparency in marriage is important. Experts agree you need to come clean about your financial status and history before you tie the knot.

"You don't want to be hashing this out after you get married," Wilburn said. " You want to exchange your spreadsheet of your assets and your debts. You don't want any big surprises -- like finding out on the honeymoon that he has $17,000 of credit card debt."

The Importance of Full Disclosure

Stewart Welch III, author of The 10 Minute Guide to Personal Finances for Newlyweds (Macmillan/Spectrum, 1996) and founder of wealth management firm The Welch Group, said the time to start talking seriously about finances begins when the couple gets engaged. Couples should list all their assets and liabilities, as well as major anticipated expenses like graduate school or a new car.

"At the stage you get engaged, you have to have full financial disclosure and make a list of everything you own and everything you owe," Welch said. "The couples that don't do that -- it comes to light too late, and in way too many cases where it is very unpleasant."

Putting all assets, debts and income on the table will give you a clearer picture of where you stand, and what you'll have left after you cover your basic expenses. It also gives you a starting point for setting larger priorities on spending: What will you earmark for saving to buy a house, going to grad school, taking vacations or just having a nice dinner out on occasion? How well do your ideas on these subjects match with those of your spouse-to-be? It's important to find out.

Welch notes that couples may bring different budgeting tactics to a marriage, but he suggests that setting up a good old-fashioned spreadsheet can do the trick in most situations.

Once you've done all this, it's time to take the plunge. To offset cold feet, you may want to take baby steps into the joint pool.

Little by Little: The Three-Pot System

When people get married these days, they've usually been managing their own money for awhile. It can be a psychological hurdle to give up that control. For this reason, many new spouses acclimate themselves to the joining of finances through what's called the "three-pot" system.

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"Some couples like to ease into it, so they'll open a joint account and keep individual accounts," Wilburn said. "They may have separate savings accounts and agree on how much they're putting into the joint account until they get a better sense of their partner's money style." Collective expenses like rent and utilities should come out of the collective pot; discretionary expenses like highlights or video games, the individual pots.

More accounts mean more paperwork, and there's no inherent financial advantage unless someone is coming into the marriage with excessive debt or bad credit. But if it provides a psychological advantage, having multiple pots of cash can pay.

The three-pot system can also allow couples to get used to tracking each other's expenses and give them time to find a financial rhythm.

Three-pot System, Turned Upside-Down

Not everyone agrees with the yours-mine-and-ours framework.

Welch, for one, advocates against it: He views the scenario as ripe with potential for disagreements. If one partner has the checkbook and the other has the ATM card, there could be overdrafts, for example.

"It's a formula for a conflict and for a system that's going to break down," Welch said.

Instead, he recommends a single joint "control account," from which three sub-accounts emerge: a "get rich" account for 401(k)-type retirement savings and the like; a "live rich" account that includes a discretionary spending budget for each spouse; and a programmed savings account for long-term aspirations that are not monthly, like a down-payment on a home or car.

Avoiding the Power Struggle, Emphasizing the Partnership

For newlyweds, the most important thing is to avoid a power struggle over money. "In almost 100% of the cases, one spouse is going to be earning more than the other, but the personal money they get to spend should be the same," Welch said.

If a couple keeps separate accounts and both spouses contribute equally to the joint "household expenses" account, you could end up with three pots and a Pandora's box.

If the higher earner is left with more discretionary income, "it can set up a psychological dominance," Welch said. To avoid this scenario, Welch said, each spouse would have to contribute proportionally to the joint account in a way that would leave both with equal amounts of discretionary income.

But in Welch's view, for a marriage to achieve both wedded and fiscal bliss, the partners need to remember that they can only succeed as a team: The partnership is strengthened psychologically when the joint "control" account is the initial pathway for all the money. It emphasizes the partnership and alliance of the marital bond. The three-pot system, by contrast, financially presents each spouse as a fully separate entity first, part of a team second.

Moving Forward

As my fiancée and I wrestle with the logistics of wedding planning, we are taking the financial merger slowly. Over time, no doubt, we'll devise a system that best fits our lifestyle, but for now, a more important money question looms: What kind of wedding cake should we get, and how much will we spend on the grand, multi-tiered dessert?

It's a good first big decision to have to make -- a win-win with a super-sweet value proposition.