As younger generations of Americans marry later in life, they are more likely to stay married than their parents Your spouse finances separate. That’s not necessarily a bad thing. Finances are a big issue for every couple, especially newlyweds, and there is no clear answer as to when and if they should combine the two because every couple’s situation is different, says Jesica Ray, certified divorce financial analyst at Brighton Jones.
While many advisors say combining assets builds trust and makes it easier for each spouse to participate in paying bills and setting a family budget, Ray takes a different approach. She says couples should take a closer look at how they structure their finances and decide whether, as is often the case, the arrangement is based on cultural or societal assumptions that don’t reflect the values of one or both people.
“If you value ease, then shared finances could be the right path for you. If you’re okay with some complexity, the benefits of holding assets in your own name will help you in the event of hedging,” says Ray. “Start separately. Have a joint account for shared expenses and then your own account. Transfer some money to the joint account and the rest to your personal account.”
By protection, Ray means in the event of a divorce, but also in the event of creditors seeking assets or seeking to qualify for government programs later in life.
She also finds that separating finances can help both spouses feel more independent, especially women. For people who marry later in life, when they have had time to build their own careers and savings, keeping their finances separate can be an important part of their identity.
“We’re moving toward a world where it’s more common and comfortable not to go into finance, and that’s okay,” she says. “Divorce is one of these reasons, but self-empowerment is another as women create their own wealth.”
Jody D’Agostini, a certified financial planner at Equitable Advisors, generally advises clients to have mostly joint finances – at least to the extent described by Ray above, where there is a joint account but each partner also has their own account Strategy called “yours, mine and ours” in the financial world. But there are cases where the equation changes.
She urges her clients not to mix family inheritances or financial gifts with marital assets. This means not investing the inheritance in a joint account and not using the money to pay joint bills or a joint debt. Instead, deposit it into an account that only has your name on it.
“The intent of the person granting it to you is to pass it on to you for your benefit, not to your spouse,” says D’Agostini. This is also for protection in the event of a divorce or even escaping financial abuse. “An inheritance is never considered a marital inheritance unless one begins to commingle it or generate income from it.”
Until then, in most states, an inheritance will not be considered part of marital property, but rather as separate property (distinct from money earned or other property acquired during the marriage). But if you start commingling it with your marital assets and then divorce later, problems can arise.
D’Agostini also says each partner should keep their premarital assets separate, if only to make things easier in the event of a divorce. This can be done through a prenuptial agreement.
“Premarital marriage can help working couples with a certain level of wealth,” says D’Agostini, noting that there is no specific threshold of wealth at which it makes sense to acquire one. “This is your comfort level.”
In another case, it makes sense to keep finances separate: in the case of a second marriage, when one or both spouses already have children. In this case, separating funds can help ensure that the assets each spouse acquired before the marriage pass to their children upon death (if that is their wish).
“You don’t want to make a mistake where your estate could go to your spouse and then their children,” she says. “Set up your estate plan before you get married.”