When a couple joins financial forces, it’s typically so they can accomplish a joint savings goal or contribute to shared expenses, such as those that come from living together.
This is a typical step for married couples, but more unmarried couples are taking the plunge to combine households: The number of unmarried partners that live together nearly tripled between 1996 and 2017 from 6 million to 17 million, according to the most recent figures available from the U.S. Census. From living together to sharing other financial goals, unmarried couples may have questions about how they can manage their money together.
One way to streamline shared expenses is to open a joint bank account, which can simplify the way you pay for things together. If you’re considering opening a joint bank account with your partner, you’ll want to think about the pros and cons of that option.
BENEFITS OF USING A JOINT ACCOUNT
Joint accounts can be useful for managing regular expenses as well as longer-term financial goals. Perhaps you and your partner want to make it easier to pay your rent and utility bills from one pot, or maybe you want to save for a vacation, wedding or house together. A joint account can be a useful place to start, as long as you lay ground rules together for how much you each plan to contribute, how you’re going to use the funds in the account and what you’ll do if your relationship ends.
Taylor Kovar, a certified financial planner and CEO of TheMoneyCouple.com, says unmarried couples should be very careful about opening a joint account. There aren’t as many legal protections as there are for married couples, who have inherent legal co-ownership of assets that the couple acquired after they got married. He says that there’s safety in keeping your own accounts and then opening a separate joint account that you and your partner both contribute to.
“There needs to be very transparent tracking for the account,” Kovar says. “Both people should be able to access the account at all times. You should both agree on what the account can and can’t be used for, so that way if an argument occurs, then you’ll both be clear on what went wrong.”
DRAWBACKS OF USING A JOINT ACCOUNT
The primary drawback of a joint account is dealing with the dreaded question: What are we going to do with this account if we break up?
Parting ways is hard enough, but when there are shared assets involved, it can be even harder. The simplest way to handle a joint account post-breakup, Kovar says, is simply to split the funds in half. But if one partner contributed more than the other — perhaps because that partner has a higher salary — then it may be a good idea to split it equitably based on the percentage that each partner contributed to the account.
April Lee, the financial blogger behind HassleFreeSavings.com, is grateful that she and her former long-term partner never commingled their finances, especially when it came to the house that she purchased but that they both lived in. He consulted a lawyer to try to sue for ownership after they broke up, but in the end, he couldn’t prove that he had contributed financially toward the house.
“He couldn’t show that one penny had gone toward joint assets,” Lee says. “Not having any joint finances saved my bacon.”
SETTING UP A JOINT ACCOUNT
If you decide to open a joint account with your partner, you’ll need to research accounts that can be co-owned. Once you’ve decided, check with the bank to see what documents and identification both of you will need to become joint owners of the new account.
You also might want to ask your bank if there’s a way to set a withdrawal limit on the account, where if one person wants to withdraw beyond the set limit, the other partner has to approve it too.
Once the joint account is set up, it can be used for whatever you and your partner have agreed on. Perhaps you’ll use the account for online bill pay to cover your shared costs, such as internet, streaming services or rent. Or maybe you’ve outlined how much you’ll each contribute toward a beach trip in Hawaii, and you’ll deposit funds into the account until you’re ready to book flights and a hotel.
The decision of whether to open a joint account with your partner is deeply personal. If you choose not to, you have other options, such as giving money to each other to pay for joint expenses. This setup takes some extra steps but can help you keep your funds separate and protected. But if you’re ready for a joint bank account, the most important task is to make sure you and your partner are on the same page.