The course of true love never did run smooth, and neither does merging finances.
This major relationship milestone involves combining financial resources, sharing responsibilities, and making joint decisions about income, expenses, and savings. While it's a practical aspect of partnership, merging finances goes beyond simply pooling monetary resources – it symbolizes trust, commitment, and a shared vision for the future.
What to consider before merging finances
One of the most important things to consider before merging finances is to ask yourself if you (and your significant other) are ready for the transition. There’s no hard and fast rule when it comes to how long you should be dating before combining your resources.
For most couples, the transition naturally occurs around the time they decide to live together, notes certified financial planner Teresa Black Hughes, a financial advisor, and director of Vancouver-based RGF Integrated Wealth Management.
“You have to start with an open and honest relationship,” she says. “If you can't talk about money together or you can't find common ground in that, it may be a question about whether or not your relationship has a future.”
Even before couples begin cohabitating together, they should have some deep conversations about their respective attitudes on money to see how they both approach things like debt, major purchases, and goal setting, she says.
“If we've learned anything over the years, it’s that a better relationship is one where information is fully disclosed and transparent.”
Couples may want to begin with a joint bank account that they each feed money into to cover the household expenses.
“It's important that both people be participants,” she says.
Couples might each contribute the same dollar value each month toward shared costs, or they may choose to contribute a certain percentage of their income. You could also decide to split bills based on some other factor.
How to tackle uneven finances together
Sometimes one person in a relationship will significantly outearn the other, or one may bring more debt or savings into the partnership. Tackling these inequalities once again comes back to communicating about them.
“It may well be that one partner has more financial wherewithal and will say, ‘I will help you’,” says Black Hughes. “The question I would ask is, ‘Are you expecting to have that recovered or are you making a gift to this person?’”
Black Hughes notes that the higher earner may feel the desire to offer financial assistance to help their partner get out of debt.
“It's not right or wrong, it's just important to have that conversation,” she adds.
Couples may also decide to agree that any debt they bring into a relationship is their own to pay off.
“At least if it's out there, you have a chance to deal with it,” she says. “You have a chance to understand why the other person does not have more surplus dollars to put towards entertainment or hobbies or something like that.”
Related: Is debt consolidation right for you?
Large purchase considerations
When it comes to making a significant purchase with your partner, such as a vehicle or property, Black Hughes says the biggest consideration is making sure you know your partner well – and what expectations are in terms of shared responsibility – before co-signing.
“We're not talking about a $10,000 purchase on a vehicle today,” she says. “You're talking about anywhere from $50,000 to $100,000. That's a lot of money!”
Even if one person has a poor credit score, she says, they may still be able to move forward with the purchase together.
In the case of buying property together, Black Hughes notes that even contributing to a down payment can be a significant investment — to say nothing of the mortgage that could take decades to pay off. She suggests couples consider a cohabitation agreement or a prenuptial agreement to address such a major purchase.
“One of the biggest things is what happens if somebody doesn't carry their weight and we see escalating interest rates and then the relationship falls apart,” she adds. “You can have one person scrambling to try to keep the place all by themselves. So, you need to put your sight lines on that longer term view.”
Read more: How much down payment do you need?
How to separate finances after a breakup
No one wants to think about the possibility their relationship won’t last, but the fact is that not every couple goes the distance. In this case, you’ll need to have a plan for untangling your finances in the event of a relationship breakdown.
Just like merging your finances, separating them requires clear communication, organization, and shared priorities. .
Start by taking stock of all joint financial accounts, assets, and liabilities. This includes bank accounts, credit cards, loans, shared property, and any other financial commitments you both may have. You may also want to review and update beneficiary information on insurance policies, retirement accounts, and other financial instruments.
Open separate bank accounts if you currently share one. Redirect your income streams and update any direct deposits or automatic bill payments. Then, work together to close your joint accounts.
Determine how you will handle any shared debts, such as loans or credit card balances. If you have any shared assets, such as property or investments, discuss how to fairly divide them. This may include outlining responsibilities if you both agree to sell the property, or figuring out the terms of a buy-out if one person decides to keep it.
Finally, it never hurts to seek legal and financial advice, especially if your breakup involves complex financial matters.
Pros and cons of merging finances
Before co-signing on that lease, or opening a credit card together, you’ll want to consider the drawbacks and advantages of merging finances.
One con? If one person in the relationship has bad credit and isn’t able to improve their finances, notes Black Hughes, the partner with a good credit score is likely going to be the one bearing most of the responsibility in the event of a relationship breakdown – for potentially having to pay off the debt incurred, while their own credit score in harm’s way.
However, along with streamlining finances, there are some benefits when it comes to merging your accounts.
The first is that you each get an accountability partner out of the deal, and that can be more supportive to the relationship overall, says Black Hughes.
Additionally, there are tax implications to consider when building your life and your wealth with another person. One is the opportunity to make spousal RRSP contributions, which can provide lower tax rates in your retirement years through income-splitting.
Final considerations
Couples should keep the lines of communication open even after merging finances. Black Hughes recommends checking in on an annual basis –tax season is a great time! – to give each partner a sense of accountability and the opportunity to evaluate and shift their goals.
“It takes time to build trust, and it all comes down to trust.”
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