Don’t Feed the Alligators

A Personal Finance Blog from a Small-Scale Landlord’s Perspective

A young reader writes:

“My husband and I got got into an argument after I paid a bill that he says he was going to pay. Since we keep our finances separate, what’s a good way to manage our combined bills?”

Firstly, let me tell you how my wife and I handle our finances, and then I’ll give you some ideas about what you can do in your present situation.

Mrs. MITBeta and I have combined accounts for all of our banking and credit accounts. Both of our paychecks get deposited into our Money Market account along with rent that we collect from our investment property. Our budget is set up such that all of our fixed bills are paid out of our Checking account. Periodically I make transfers from Money Market to Checking to be sure that all the bills are covered (remind me to automate this…). Our discretionary expenses — things that we don’t have to spend money on but choose to — all go onto our rewards credit card. This balance gets paid monthly out of Checking. Additionally, the following accounts are all held jointly:

  • Mortgages
  • Car Loan
  • Some other credit cards
  • ING Direct Savings Account

The only accounts that we own individually are my remaining student loan, our 401(k) accounts, and obviously our Individual Retirement Accounts (IRAs).

We never discussed how we would structure our finances when we got married, we just simply combined them. Clearly we must both have been of this inclination or we probably would have talked more about it. We both believe in our and not mine. We have two cars, but neither of them is hers or mine. They both get used by each of us in whatever way makes the most sense at the time.

We have discussed the idea of having small, separate accounts for “play” money, which cannot be scrutinized by either partner since the money is mine, but we have not yet done so for two reasons: 1. we don’t really have any “play” money to use for funding these imaginary accounts and 2. we don’t have any serious disagreements with the discretionary purchases that the other makes. She doesn’t buy expensive shoes or handbags, and I don’t buy video games or expensive stereo equipment.

With all that said, I recognize that not all couples can or want to structure their finances in this way. It may even be detrimental for unmarried couples to do so, especially if they don’t have wills to make sure that the other partner gets what is intended in the event of an untimely demise.

So for those of you who choose to separate finances from their partners, I offer the following advice:

  1. Gather all of your joint bills together and sit down with your partner. Decide who will pay what bill. You may even elect to have one person pay all of the joint bills.
  2. For each bill, decide what portion each of you will pay.
    • Does one partner make more money than the other? Then consider dividing the bills proportionally to income. In my opinion, it is not fair for partners to pay equally when they have different incomes. Doing so will leave one partner with significantly more disposable income than the other, and likely result in resentment.
    • Does one person own an asset separately that both partners pay for, such as a house? Consider having the owner pay the whole bill while the other partner pays the entirety of some other bills. This may help reduce resentment if she feels like she’s paying for his house.
    • Does one partner receive a much greater benefit from something that you jointly pay? For example, if all you ever do is watch the Food Channel, but your partner is constantly watching HBO and Pay Per View, then clearly the bill should be divided proportionally.
  3. Decide how each partner will pay the other partner for the share of the bills paid by that partner. When is your payment to your partner due? Do you need to pay the full balance or will it be offset by the amount that your partner owes you?
  4. Establish what priority your joint bills will have relative to your separate bills. Maybe joint bills can be a priority over separate bills, or some joint bills can take priority over some separates. Draw up a list of the priority in which all of your bills will be paid. I would suggest that joint bills be paid before separate discretionary accounts are funded.

The most important thing to remember in all of this is that good communication is key. By determining up front what the expectations of each partner are, and then communicating openly and clearly as you lay out your financial plans, both partners will develop ownership of the plan and the couple should avoid any misunderstandings about who was to pay what bill and why.

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