By Jaclyn Lim
To merge or not to merge… that is the question on the minds of most newlyweds.
In fact, whether or not to have a joint account is the most fundamental financial decision that a couple will have to make in the beginning of their married life.
Broadly speaking, there are three ways you can do it – merge your money into one bank account, maintain separate bank accounts or do a combination of both (have a joint account but only to pay for common expenses like mortgage and baby-related expenditure)
Anne Tay, Senior Manager of Financial Services from Anne Tay & Associates, Prestige Raffles Branch representing Manulife (Singapore), explains: “There is no right or wrong way, as it depends on the couple’s needs and preferences. Things should work as long as both husband and wife are comfortable with the arrangement.”
Before you decide, ask yourself these questions:
Do I want to reveal my salary to my spouse?
Believe it or not, there are couples who don’t know how much their partner is earning – even though they’ve been married for years. That’s because not everyone is comfortable sharing such an intimate financial detail. “So ask yourself if you’re willing to let your spouse know exactly how much you earn”, says Anne. If you’re okay to share this financial detail, merging all your money into one account might work for you. But if not, you might want to keep things separate so you retain this privacy.
Is financial independence important to me?
In a way, having a joint account may cause you to lose your financial independence. And that’s because you end up having to account to your spouse for every purchase that you make. So if you like having (and spending!) your own money, you probably shouldn’t merge all your money into a single account. One way to work around this is to have separate bank accounts, but also open one joint account for common expenses. Anne explains: “In this arrangement, both parties will contribute ‘x’ percentage of their monthly salaries to the joint account. But they still control their own, separate bank accounts.”
Are we going to have a baby?
If you’re planning to have a baby, you will need to plan how to pay for baby-related expenses like milk powder, nappies and vaccinations. The most convenient way to do this is to open a joint account for all your baby-related expenses. But it is not the only way to do it. Anne shares: “There are couples who prefer to divide expenses this way – one pays for the mortgage and car loans, while the other takes responsibility for all baby-related expenses. If so, it’s okay not to have a joint account.”
Is there a spendthrift in our marriage?
If one party in the marriage has a spending problem, it might not be wise to merge finances. This is because if the spendthrift party falls into debt, creditors can easily seize the joint assets, leaving you with nothing. So in cases like these, it might make sense for the couple to keep things strictly separate – so you don’t get into trouble!
Do my partner and I have similar spending and saving styles?
If you’re both savers, it’s no problem going for the joint approach. But if you’re both spenders, it might be wiser to keep things separate. Alternatively, go for separate bank accounts with a joint account if you have very different spending and saving styles.
Do I trust my partner absolutely?
If the answer is a “yes”, then you will do all right to merge your finances. In fact, only couples who fully trust each other should combine their finances. That said, having separate accounts does not necessarily mean a mistrust of each other. Anne explains: “Maintaining separate accounts can allow each party to maintain his or her financial autonomy (read: there won’t be any power struggle over money!). Separate accounts can also allow for liquidity in the case of sudden death of one party. The deceased’s banking account will be frozen upon death and the other surviving spouse’s banking account can help to provide the necessary liquidity while finances are being sorted out.
Note: When there is a sudden death, joint accounts will be frozen by the bank. The release of the funds can be limited – i.e. amounts under $5,000. Excess is only available upon presentation of proper documentation which can take some time. So for those with huge balances in the joint account, and there is a need to draw more than $5,000, liquidity is not there.
Then, the next question becomes, what is the best way to have liquidity? One option is to have an insurance policy with proper nomination – this will ensure liquidity for the family especially with sudden death. The amount can be much more and you also don't have to keep huge balances in the bank account to ensure liquidity for the family.
While most of us marry out of love, bread and butter issues still matter and it is important to manage your dollars and cents well. Deciding how to manage your bank accounts is an important aspect of financial management. Anne adds: “Every couple is different when it comes to financial arrangements – you will have to decide what works best for you.”
I Love Children would like to thank Ms Anne Tay, Senior Manager of Financial Services from Anne Tay & Associates (Prestige Raffles Branch) representing Manulife (Singapore), for her professional input.