As exciting as it is to come together with your life partner in marriage or otherwise, there can be complications, including the decision whether or not to combine incomes and accounts. What's mine is yours—even in debt, right?
First, it's important to note that everyone's situation is different and there's no one right answer for what route to take. Your life experiences tell you how to best safeguard yourself and family. As someone who has seen practically every situation, here's some insight on what has worked for others over the years:
COMBINING ACCOUNTS AND INCOME
Some people have been through situations where they have trouble trusting others, while others have complete faith in their significant others and prefer the ease of combining finances. Take time to ponder what you feel is best for your situation and have those conversations with your partner. Having these sometimes-difficult conversations can also help squash potential distrust and financial infidelity.
MARRIED AND DOMESTIC PARTNERS
We have many clients who have been domestic partners for over 20 years. One thing that differs for domestic partnerships and married couples is taxes and how they protect each other (more on protection in a bit). Typical account options for those who are married or are in domestic partnerships include:
Option 1: Combine all accounts and pay off bills.
This means paying everything out of one account. The positives are that you're in it together, but some negatives include that one spouse or domestic partner can spend funds in the account, unbeknownst to the other.
Option 2: Have one joint account to pay the bills, but have separate accounts for personal items.
The positives here are that you share in the bill paying and have more control over the money, in addition to having the ability to better track how your money is being spent.
Option 3: Have two completely separate accounts.
Split bills or take more or less, depending on income. In our experience, splitting bills 50/50 only works if income levels are similar. The positives here are that you know what each partner is paying and each partner has sole control over their own account. Potential negatives include financial infidelity, where a partner hides what they're buying, the debt they're creating, or even how much they make.
One of the financial benefits of marriage is tied to social security. If you're married and don't work, but your partner does, you're eligible to receive half of their social security (which is based on the highest 35 years of earnings). If your partner passes, you would receive the higher of the two social security amounts. If you choose not to marry, you're ineligible to receive a spousal benefit and would only receive what you'd qualify for personally.
When it comes to retirement savings, combining accounts means you're able to save higher amounts of dollars (leading to more appreciation and account growth). For retirement accounts, you can choose anyone to be your beneficiary. They don't even have to be a relative! So, if you decide against tying the knot, this won't affect how your assets are left behind.
HOW DO YOU KNOW IF YOU'RE PROTECTED?
The big thing to discuss with your spouse/significant other is protection. If what is mine is yours and yours is mine, you want to be sure both of your assets land where you desire. Having a trust can help accomplish this. Homes do not get passed to domestic partners, nor do bank accounts or brokerage accounts. Retirement accounts have beneficiaries and are easy to make sure they're doing what they're supposed to do. A trust will outline what the trustee wants to happen, regardless.
Working with a financial professional is your best bet for ensuring all your bases are covered and both you and your partner's financial wishes are met.
Chris Gervat is a Financial Advisor at Lifeworks Advisors, a multigenerational team that provides wealth management services and strategic advising to successful families, businesses, and entrepreneurs. Learn more at lifeworksadvisors.com.
This article originally appeared in the Feb/Mar '22 issue of West Michigan Woman.