Ask an advisor: We just got married. Should we combine our finances?

February 2, 2023 8:00 AM

Many married couples choose to combine their finances.

Welcome back to "Ask an Advisor," the advice column where real wealth managers answer questions from real people. The topic can be anything in the world of finance, from retirement to taxes to wealth management — or even advice on advising.

Many American couples decide to combine their finances. A study by the financial services firm Bankrate found that 77% of married couples have at least some joint financial accounts, and 43% only have joint accounts, keeping nothing separate.

For many, this seems to have good results. According to research by the American Psychological Association, "couples who pool all of their money … experience greater relationship satisfaction and are less likely to break up."

But what does that mean in practice? Which finances should be combined?

Filing taxes jointly often saves money — for example, married couples get a much higher standard deduction. But in some cases, such as when a person has a large amount of out-of-pocket medical expenses, filing jointly can actually be more expensive.

As for retirement, there is no way to jointly own a 401(k) or an individual retirement account, so how does one combine those finances? Bank accounts, of course, can be shared, but is there any advantage to this besides the (potential) psychological ones?

Dear advisors,

My wife and I are a same-sex couple who have been together for 15 years, but we only just got married in July. Is it time for us to combine our finances?

In most ways, our finances are almost exactly equal. We're both 50 years old, and we each make about $125,000 — I'm a speech therapist, she's a renovation project manager. Together we own an apartment in Harlem and a house in the Catskills, and we split the mortgages evenly. We have no debt and no car payments. The only thing that's unequal is our retirement savings: I have a tax-deferred annuity that currently has $140,000 in it, and my wife has a 401(k) containing $35,000.

When it comes to our savings and checking accounts, we've always kept everything separate. When we met in our mid-30s, each of us had been in a previous relationship where money was a source of tension. We didn't want that for us. And in general, our approach has worked! We don't argue about money, so should we avoid "fixing" something that's not broken?

On the other hand, we've heard there are financial benefits to joining our finances. Should we combine our bank accounts, taxes and — if possible — our retirement savings? We understand there's no such thing as a joint retirement account, but is there any workaround for that? And would it be worth it?

We're already married. Should our bank accounts finally tie the knot?

Sincerely,

Newlyweds in New York

A happy medium

Charles Adi, certified financial planner and founder of

Blueprint 360

in Houston, Texas:

As the old adage goes, "If it ain't broke, don't fix it." In this situation, it might be better to work towards shared goals instead of combining accounts. This approach will honor their past experiences while allowing them to plan for their future together.

Now that they're married, they should consider filing their taxes jointly. Due to the increased standard deductions and modified tax brackets for married couples, some savings should be involved.

They should also do some retirement planning. After having a detailed discussion of their goals for retirement, they should determine their income needs and savings targets. This will guide their future savings.

And while there is no such thing as a joint retirement account, they can open a joint investment account to continue saving for retirement.

Keep it simple

Sean Pearson, certified financial planner at

Ameriprise Financial Services

in Conshohocken, Pennsylvania:

Couples cannot combine retirement accounts, but you can plan jointly. Ideally, couples discuss their goals and dreams, financial and otherwise. Once there is a goal in place, and you can start to create a retirement income plan, you can use both existing accounts and determine if you need to save more and whether you have all of the types of investments that you need.

At first glance, while this couple is not on pace to replace their current annual salary with their current assets, it would appear that they have sufficient cash flow to take advantage of catch-up contributions. It's entirely feasible to invest jointly in non-qualified investments. Almost anything you can own inside an IRA, you can own in a joint investment account.

As far as short-term family finances are concerned, keep this mantra in mind: Keep it simple. The best number of accounts to manage your family finances is the fewest that you need to run your household. If two accounts for separate bills makes life easier, two accounts is fine.

Some couples find that they would need to communicate more to merge their finances. Like any other chore, if one partner has a talent and interest in this, there are efficiencies to having fewer accounts.

Combine your plans, not your accounts

Ron Guay, certified financial planner and founder of

Rivermark Wealth Management

in Sunnyvale, California:

Hi, newlyweds! This is a great question and contains lots of different topics. I'll try to give brief remarks on each question.

Should you combine your bank accounts? I don't have any compelling reasons to do this. I've been married for 14 years and my wife and I have separate accounts. The only thing I would suggest is that you add "pay on death" designations, which simply mean that your account automatically becomes your spouse's in the event of your passing. For any brokerage accounts, the designation is "transfer on death."

Should you file taxes jointly? Any tax preparer can quickly review your situation and/or run your actual income and other details through their software to determine the optimal filing strategy. In most cases, filing jointly will provide the better outcome (i.e. lower taxes).

Should you combine retirement savings? I'm not aware of any workaround for combining retirement accounts, and I'm not sure there's any need to search for one.

What I think you should do, whether by yourselves or with the help of a financial planner, is to combine your plans on how to build a retirement income. Age 50 is an ideal time for this, before you need to start drawing a paycheck from your nest egg.

You both have done a great job accumulating assets and saving. The challenge is figuring out how to convert your various assets into a tax-efficient income stream that provides for a comfortable retirement. This is where a competent and trusted professional can really add value for clients.

Hope this helps, and all the best!

Find a middle way

Kiersten Peshek, lead wealth advisor at

Citrine Capital

in San Francisco:

It is not necessary to fully combine finances if you have a system that is currently working for you both — especially for 15 years! That is no small feat. That said, there are many ways to approach your finances between "all separate" and "all combined."

You may want to consider one joint checking and one joint savings account for joint bills, goals and emergencies, with the remaining accounts separate. This can simplify the joint aspects of your life and reduce the need to transfer funds back and forth. If you test this out and decide you like the new system, keep it! If you don't like it, you can adjust.

You also asked about filing taxes. There are some drawbacks to filing as "married filing separately." Typically the income limits, tax credit qualifications, etc., are more restrictive if you file this way. It would be a good idea to connect with a certified public accountant and have them run an analysis.

Finally, no, there is not a workaround to contribute jointly to a retirement account. However, let's say one of you decides to quit their job and take some time off for a year. If you file as married filing jointly, and the other spouse has at least $13,000 in earned income, then you both can contribute to your respective IRAs even if one spouse has no earned income. Essentially, the IRS allows the non-working spouse to make a contribution because jointly you have enough earned income to do so.

Whether or not you combine finances, you should each be communicating about your budgets (if you aren't already). Consider a monthly money date where you review your monthly income, savings and spending. Make it special! Grab a bottle of wine or your favorite bubbly water along with your favorite snacks so it feels like a treat to do this together. You don't have to disclose every single purchase, but understanding each others' budgets will help when thinking about how much to save for those joint goals.