Many couples combine their finances when they marry, including merging their respective checking accounts into a single joint account. This combination works well for many couples. Or it can be a recipe for disaster.
You can combine all kinds of financial accounts into joint status, but for at least five reasons, separate checking accounts could be a superior arrangement.
Provides a measure of financial independence to each partner
You can merge many aspects of your lives when you marry, including financial accounts, but some parts of your life might be better left separate. A separate checking account could be one of them. Even though you’re married, you still need some measure of independence, including financial independence.
Since checking accounts involve a large number of relatively small transactions, having separate accounts can give each partner a sense of control over their finances. You can have joint savings, money markets, loan accounts and investment accounts, but each of you may need to a separate financial space of your own.
Related: Pros and Cons of Joint Accounts
Eliminates two people withdrawing from the same account
The most fundamental problem with a joint checking account is that it enables both spouses to withdraw funds from one account. Each can write checks, use a debit card and withdraw cash from the account. It’s not hard to imagine where this can lead.
Each partner can be spending out of the account with only a vague idea of what the other is doing. The end result could be overdraft fees. With enough overdrafts, the couple can have their account closed.
Even if the account avoids overdrafts, there’s real potential for the couple to spend more money than they need to.
It works better in a two income household
If both partners work it will be easier if each also have their own checking account. This is true if for no other reason than that both spouses will be out of the home so much of the time, and there will be less opportunity to discuss spending choices.
Spending is often tied to – and necessary for – employment. This is especially true if one or both spouses are either self-employed or incur job related expenses. Not only will separate checking make cash flow easier, but it will also simplify tax preparation by segregating expenses.
Provides checking account diversification in case of an emergency
If one spouse loses access to their checking account, he or she can temporarily use the others checking account, at least until they can open a new account.
This can happen for a number of reasons, including identity theft and repeatedly overdrawing the account. If the couple were to lose a joint account for either reason, there would be no back up checking account to fall back on. This can be especially true in the event of identity theft, since there would be issues to work out before a new account could be opened.
In marriages where one partner handles the finances – which almost always means control of the joint checking account – the non-financial spouse may eventually become incapable of (or unwilling to) handle the household finances. But a divorce or the death of the financial spouse will leave the non-financial partner in a bad place. He or she may find financial responsibility thrust on them for the first time, and be completely unprepared.
In most marriages one partner is more financially sophisticated than the other, but if the non-financial spouse at least maintains their own checking account they will have at least a basic understanding of how to manage the household budget as a foundation that can be built upon.
Do you agree that separate checking accounts are better than a single joint account?
(Image courtesy of Grant Cochrane / freedigitalphotos.net)