Many married American couples have separate finances and according to some surveys, they seem to be getting by just fine. However, couples who don’t combine budgeting, investing and other areas of their finances are incurring risks that are unnecessary and, in some cases, potentially quite harmful.
We review three major categories of wealth and why separate finances are not ideal and what can go wrong in these scenarios:
These days people are getting married later in life and by the time they walk down the aisle they have retirement accounts and investment accounts that have been in place for a decade or more. Inertia takes over and often couples do not review their investment accounts together. The problem with this is the family as a whole can be over invested in certain sectors or securities, for example together have too much exposure to energy stocks and when that sector is in a downcycle, everything is down. Another example is the performance or cost of certain funds may be lagging long term and dragging down the couple’s total rate of return. These are just a couple of the many problems when investing is siloed between the betrothed.
2. Budgeting and Cash Flow
Commonly, each partner in a relationship may take ownership of certain bills when they maintain different checkbooks. Sometimes a husband pays the cable and phone bills and the wife pays for utilities. While a divide and conquer approach to paying bills works, many problems can creep up. For example, overpaying for services becomes quite easy when there is only one set of eyes on a bill especially with auto-pay set up. Another example that can be significant over time is savings levels. When two are running their own books, its very easy to not save regular amounts and overspend on one’s own hobbies and passions. This is one of the biggest reasons the most financially successful couples have a financial planner review the overall family budget. The financial planner sometime becomes a de-facto marriage counselor and the independent voice of reason when it comes to money conflict.
3. Insurance and Risk
The most devastating problem with separate finances is in times of emergency when one partner becomes incapacitated or passes away suddenly. Very frequently the able bodied or surviving spouse is left with surprises and a mess to deal with. The issues are far ranging when two are not on the same page, ranging from under insured or not insured at all, to lack of disability insurance to unknown liabilities. In recent years, the “Sandwich Generation” are left to help an older parent at the same time as their own children due to the parent’s lack of coordination and planning.
It is very understandable the many reasons couples don’t merge finances. Conflict, shame, ignorance and day to day time constraints all make it hard to have that initial and ongoing discussion and review. However, the costs and risks of living two different money lives far outstrip the temporary emotional issues of working as a team.
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