July.21.16Family Finance
Money Matters with Nimi

When two people become a couple they confront a myriad of financial choices and decisions. Navigating this somewhat sensitive issue is important because financial problems can strain relationships to breaking point and are often cited as one of the most common sources of tension in relationships and a major cause of divorce. Yet many couples go through life without bringing this important area of their lives subject into the fore in a constructive, proactive way.

Most people have already established their own financial personality and preferences long before they become part of a couple. Childhood experiences, circumstances, and parent’s attitude towards money can have a lasting impact. Indeed attitudes to money and finances are formed very early on in life and usually develop over many years.

Nowadays, most households require more than one income in order to sustain a comfortable standard of living and to build towards a secure financial future. There has been extensive debate over single and joint accounts. Would you have separate or joint accounts or a combination of the two?

Joint accounts

Naturally joint accounts are ideal where both parties have established a solid level of trust between them usually in the institution of marriage. Whilst this offers convenience and transparency, it does mean that each partner becomes financially liable for the other, and of course either party can withdraw at will.

In any partnership there will be shared and routine expenses where, regardless of who actually pays for them, the benefit is shared. These include food, utility bills, and larger expenses such as rent or mortgage payments, school fees, and family vacations, which may be too large for one partner to handle alone. It is important that there is complete clarity and communication regarding such expenses. If one person earns significantly more or less than the other, it would be only fair to contribute amounts in proportion to the respective incomes into the joint account to reflect this imbalance. Some couples even opt to pay both their salaries into the joint account and then pay themselves an agreed monthly allowance.

Whilst they are most common amongst married couples, there are other instances and relationships where it may be prudent to operate a joint account. For example, elderly parents may consider opening a joint account with their adult children in order to pay household bills or to avoid the probate court process in the event of their death. Parents may also opt to maintain a joint account with their children to give them access to emergency funds should the need arise.

Be cautious as you consider joint accounts or tenancy, as this can produce results that you never intended. Consider this scenario; An elderly lady added her son’s name as a joint tenant to her bank account for her convenience and benefit, and not his. Several withdrawals were made to the account almost emptying it of its entire balance and there was little that the lady could do as her son was fully authorized to make withdrawals on the account as the rightful co-owner of the account.

In another case, a brother and sister each inherited a significant sum of money from their mother.  Being particularly close and with plans to establish a joint business venture, they opened a joint account and deposited their inheritance into it. Sadly their relationship did not endure and they became estranged and positively hostile to one another. The brother later became seriously ill and in his will bequeathed all his property including his balance in the joint account to his adopted daughter, and his church. The joint account could not be part of his estate as his sister had right of survivorship to that account; it thus passed outside of probate to her in it’s entirety.

There is often confusion about the difference between a joint account holder and an authorized signatory. Creditors view a joint account as the full owner of the account just as they would an individual account, this means that each account holder is financially liable.

The signature mandate is key as it documents the instruction given by the customer to his or her banker; it defines who signs, how and for what. Whilst an authorized signatory is able to operate the account, the main account holder can choose to remove or change their access at any stage. If the main account holder dies, the other signatory to the account would cease to have access to any money because the account would form part of the deceased estate.

Joint and Separate Accounts

Having a joint account for certain large and recurring expenses combined with separate individual accounts for personal expenses is a good compromise as each partner takes some responsibility for the household budget and family finances, yet each is still able to retain some autonomy. Particular expenses may be assigned where one party pays for certain bills whilst the other partner pays for others. This system is very common.

Separate Accounts

If you had enjoyed a fairly independent existence before your relationship, managed your own finances and made your own investment decisions, it may be more difficult to give up that control to another person. If one partner spends money in a way that the other considers frivolous, or if one partner finds a joint account restrictive, as it affords less privacy and independence, separate accounts are the right option. Being able to spend some money without having your partner scrutinize the minutest detail is certainly important. Of course the amount will vary depending upon the couples resources and lifestyle. Some couples set spending limits on how much either can spend without consulting each other. Even though there may be no need to question each other’s personal expenses such as clothing, personal luxuries, and hobbies, it is appropriate that there is consultation where significant financial decisions are concerned to keep the family’s long-term goals in view.

There is no one size fits all; some couples merge their finances with joint accounts, whilst others prefer to keep their finances separate. Even the best system is not always appropriate for every circumstance, so plan to modify your system as your relationship and financial situation evolves.

For new couples, it pays to start off on the right footing by establishing a fair and open method for dealing with financial matters with opinions expressed early. With careful planning, clear communication and compromise, financial friction, as well as many frustrating and awkward conversations can be avoided and conflicts resolved. Try to find the right balance that works for your situation; if one option doesn’t work, try another. Regardless of which option you choose, it is important that both parties discuss money matters.

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