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Are you better off with joint or separate finances?

Posted 21 February 2016 by Christine Walsh

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Want to know whether it’s better to keep your finances joint or separate if you’re in a relationship? Here’s what you need to keep in mind to make the right decision.

There comes a point in most relationships when you start thinking about whether you should start managing your money together rather than separately. Lots of couples choose to merge their finances by opening a joint account, and in some cases this can be seen as the norm. But before you take the plunge and decide to share finances, there are some important questions you need to ask.

We’ve put together some key points you need to consider. Once you’ve looked into all the details below you should have a much better idea of which way forward will be better for you. 

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Attitudes to money

Sometimes the real question you need to ask yourself is not whether you should manage your money together, but whether you can manage your money together? According to The Guardian money is in the top ten reasons why couples argue. Clearly, money management is a top priority for lots of us and if this fact is anything to go by we can have pretty strong feelings on the subject. In the rest of the blog we’re going to go into detail about the practical things to consider when it comes to shared finances, but in all honesty if you find that your partner’s attitude to money is drastically different to your own this could throw a roadblock in the process. 

The place where money and emotions meet can be tricky relationship terrain to navigate. In the end, only you will know the particular dynamics in your relationship and the things that could end up causing a problem. If you know that you’d both be more comfortable in the relationship if you managed your finances separately, it may be sensible to keep it that way. 

Also some people are simply more comfortable managing their finances separately, not because of potential arguments, but because they value independence. If so, it’s perfectly fine to carry on this way. It’s important that any decisions you make to merge your finances are because you really want to and there’s a clear benefit, not because you feel under pressure to do so. 

Does it make financial sense to have a joint bank account? 

There’s no yes or no answer to the above question. You simply have to look at your finances as a couple, as well your financial goals, and make your decision based on what you find. 

If it’s simplicity that you’re after, a joint account makes sense. Both your earnings go into the one account, and all your outgoings come out of the one place. If you have similar saving goals you could open a separate joint savings account and put a certain percentage of what you both earn into it. This way, you’d always be sure that you’re both contributing to both your bills and your savings. 

However, if you’re going to go for a joint account then you need to make sure you’re both on the same page when it comes to how you use your overdraft and how you feel about incurring charges on the account. Make sure that you have a conversation about this before you open the account or look for an account without an overdraft facility if it’s a worry.

If one of you has to pay child support then you may prefer to keep separate accounts to keep track of these payments. The same goes if one of you has debts that you’re still paying off, or a poor credit rating. We’ll look into how your credit rating may affect your partner in more detail later on. 

Would a mixture of joint and separate accounts be better? 

When it comes to joint finances it doesn’t have to be all or nothing – having one joint account and two separate ones could be the right compromise. For example, maybe you both want the bills to come out of the same account, but you want to save up for a holiday with friends whereas your partner wants to save up for an expensive gadget, car or motorbike. Having both joint and separate accounts would solve the problem in this case and allow you to maintain a certain amount of independence. 

If we take out joint finances will my poor credit score affect my partner?

If you have more debt than your partner you may be wary of starting any joint financial ventures because you’re afraid that your debts will have a negative effect on your other half’s credit rating. 

First of all it’s important to say that any debt that was taken out solely in your name will stay in your name. The lenders will only chase you for the payment and this holds true even if you decide to get married. 

If you have a poor credit history however, you do need to give it some thought before you decide to create a financial association between yourself and your partner. Financial associations are created when you take out any kind of joint financial product, including joint bank accounts, loans and mortgages. When you create a financial association it is possible that your credit histories will affect each other. If you have an association with a former partner that you want to break, have a look at our blog What is a notice of disassociation?  

Let’s look at an example to bring that to life. Say you have a poor credit history due to missed payments but your partner has a good credit score. If you applied for a loan together the lender would look into both your credit histories – as well as their own criteria – and then decide whether to lend to you or not.  

Conversely, if you keep your finances separate and your partner makes the application in just their name then the decision will be based on their credit history alone.  If your credit histories are linked because you already have joint financial products then the lender’s decision could be influenced by both your credit histories even if you only made the application in your partner's name.  

The good news is that it is possible to improve your credit history. For information on how to do this have a look at our blog How to improve your credit rating. It’s always best to be honest if you think that your credit rating will affect you being approved for joint finances. If discussing your financial past is a conversation that you’ve yet to have with your partner and you’re unsure how to approach the issue, our blogs Secret debts and If I get married will my debts follow me? should help. Waiting until you’ve had the chance to improve your credit history before joining your finances may be the best approach in this case. 

All in all, these are the key points to consider if you’re thinking about merging your finances:

• There’s no right or wrong way to manage your money as a couple – find what you’re both comfortable with.

• If you have a poor credit history and your partner’s is fine, it makes sense to wait and improve your score before you create a financial association.

• Have a look at both your finances and see whether a joint account would work – if you have similar incomes, but one of you has more financial responsibilities it may not be fair.

• Before you open a joint account have a conversation about what it’ll be used for and whether or not you need an overdraft.

 

If you feel that your debts have reached an unmanageable level, we’re here to help. Use one of the options to the left of the page to speak or livechat to an experienced debt advisor. 

 

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.