Friday, May 4, 2012

Joint Accounts: Relationship-Maker or Deal-Breaker?

Combining two households at the beginning of a marriage takes some work. But what about combining bank accounts and financial assets? Some would argue that keeping these separate shows a level of distance and perhaps distrust in the relationship. Others worry about the protection of assets and financial independence. 
Wedding's rings

Advantages to Joint Accounts

There are many advantages to couples holding accounts jointly. Banks usually allow multiple account holders access, so it’s possible for each spouse to have access to the joint funds. Finances become relatively simple: all the money goes into one place, and all the money comes out of one place. There’s no need to go back and forth about who pays for what. There’s one account to keep balanced, which cuts paperwork. Personal spending money for each partner may be part of the budget, but household spending is done with the couple or the family in mind.

Many people feel that joint accounts can promote feelings of teamwork, honesty, and trust. Both partners live with the same finances, and both have access to all financial activity. There won’t be any financial secrets between partners, because there is no place to hide them.

Joint accounts tend to work best when both parties hold a mutual view of how to handle finances. However, if one or both partners would prefer to retain control over their own finances, a joint account may not be the best method.
Disadvantages to Joint Accounts

If one of you has had credit problems in the past, you might want to think twice before opening a joint account. It’s true that it could help boost the credit of the partner with a bad history, but it can also negatively affect the credit of the partner with a squeaky-clean credit report.
Money equals love, love equals money

If you and your sweetie already has your own substantial finances and accounts established before becoming a couple, you may prefer to keep things as they are. Resentment and discord are possible if you both operate from a joint account, but don’t share the same financial responsibilities, spending styles or goals. Of course, if two people expect to maintain a home together, there needs to be some cooperation and joint planning. The bills still need to be paid, and a way to address this will have to be worked out one way or another.

If not monitored, the advantage that joint accounts offer by allowing both partners to access them can quickly become a liability. Either partner can withdraw money from the account without permission from the other. A little carelessness or lack of communication could result in both partners inadvertently overdrawing the account, or at least overspending the budget. A vindictive spouse could clean out the account without the knowledge or permission of the other. And if you decide to end the relationship altogether, joint accounts and assets can be a nightmare to separate.

Mixed Accounts

These days, with so many two-earner couples, the solution is to use a mixture of both joint and separate accounts. Each partner has an account to use as he or she sees fit, and contributes an agreed-upon amount to a joint account to cover joint expenses. Some couples also contribute to joint savings accounts and investments to use for future goals or expenses.

There is no single right or wrong approach to blending your finances as a couple. What matters most is that the two of you create a solution that will work for you both.

Neil Davis is a tax consultant and in his spare time blogs for a site which can help you stay up to date on the latest tax credit changes. Find out how changes to working tax credits might effect you by using their tax credit calculator!

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