Why, When and How to Separate Finances in Marriage

by Neal Frankle, CFP ®

If you and your spouse argue about money, consider having separate finances. It might be the best way to keep your relationship intact.

Normally, I recommend that couples keep their finances together. It’s easier to track spending and savings. It’s also easier to plot a course for the future. But sometimes this is terrible advice. My experience tells me that one in 10 couples should keep their finances separate.

separate finances

You’ll know if you are that one in 10 if you and your spouse fight about money and/or just don’t seem to make any headway toward your ultimate financial goals. Believe it or not, keeping the money separate can sometimes do wonders to help you increase savings, maintain a high credit score, track your budget and advance toward your financial dreams. It can also significantly reduce the conflict at home.

The trick to separating finances is to set up strict monthly goals without micromanaging your partner’s spending. The reason I focus on spending is because it’s typically budgeting and spending tracking that causes couples to fight. They argue over what’s necessary and what isn’t.

By separating your money, you don’t have to worry about that anymore. Even if you make most of the money and your husband does most of the spending, you can still find a way to split the finances rather than the marriage.

1. Allowances

Each of you gets an allowance. But you also get an area of responsibility. Let’s say you bring home $7,000 a month and your husband brings home $2,000. That’s a total of $9,000. Let’s say he’s responsible to pay the mortgage and to buy food. You are responsible (in this example) for everything else – including saving for the future.

Let’s assume that it will cost $3,000 a month to cover his responsibilities and it will cost you $3,000 to cover yours. (You know this because you’ve been tracking your expenses using a software program like “You Need A Budget”). You have $3,000 extra.

You might decide, as a couple, to bump up the savings another $2,000 each month and split the spare $1,000. So each of you would get an additional $500 a month for extras. You each make your own decisions about that money. You can either save it for unexpected emergencies or future goodies. On the other hand, you can spend that money too. It’s up to each of you. The rule is nobody is allowed to scrutinize what the other decides to do with that extra $500 a month.

(On the other hand, if one spouse wants more money than is budgeted, he can always look for a second job.)

2. Accountability

This works great if everyone sticks to the agreement. But how do you make sure your husband is actually paying the bills? This may seem like a dumb question but I ran into a case last year where a couple encountered this exact issue. He was in charge of paying the bills but didn’t do it.

He thought it would be better to play the ponies instead. By the time my friend found out about her husband’s irresponsibility, they were facing bankruptcy and foreclosure. She was angry and started talking about divorce, and I couldn’t really blame her. But thankfully, this couple worked it out by separating their finances, making allowances and (most important) having accountability.

In their case, the wife took over paying the bills, and she showed her husband the receipts each month.

In my opinion, if you’re going to separate your finances and assign different areas of responsibility, it makes sense that each partner show the other that they have fulfilled their responsibilities each month. Set up a time and stick to it. Have your monthly meeting and be accountable to each other.

3. Be Flexible

Over time, your needs, goals and financial resources will change. You have to make allowances for these changes too. The problem of course is that some people use this as an excuse. They point to some “special circumstance” and try to leverage that into the reason they spent too much or otherwise didn’t live up to their responsibilities. In my opinion, the only way around this issue is to have a third-party accountability judge. This person is going to have the hard job of deciding just how “special” the “special circumstance” is. Does the situation require or justify a new spending pattern, or not?

If you are a couple which has decided to split the finances, chances are high that you won’t be able to make this determination yourselves. If you can’t find a friend who is willing to be your accountability judge, hire a financial advisor for an hour and get his opinion as these items come up. You likely won’t have to see the advisor more than once or twice a year and, believe me, it’s going to be a lot cheaper than a divorce.

Related Posts:

Cold hard facts about money and marriage.

How to stop arguing about money.

Outside Resources:

US News Accountability: His and Hers

 

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{ 8 comments… read them below or add one }

Amy New December 24, 2010 at 7:38 PM

Thank you for the article. I am glad most people think a woman can contribute to the family so much.

Reply

Robert @ The College Investor December 13, 2010 at 9:24 PM

My wife and I put everything into one pot, pay the bills, and trust each other not to spend. We have one card that we use, and we have everything in Quicken, so we can always see what was spent.

I keep with trust!

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Wiseguy December 13, 2010 at 3:19 PM

True, this depends on the people. If you agree with paying “equally” based on ability to pay, this works perfectly. But if you believe that “equal” means 50/50, this isn’t going to work.

The problem I have with a 50/50 split is that a large difference in income could cause one spouse to never make money, or even lose money. Taking the example from my last post, a 50/50 split of $5000 in expenses would be $2500/person, leaving the husband $500 short of paying his share after contributing every cent he makes. He just can’t do it.

I assume the wife wouldn’t force him to go into debt for this (haha), so she only requires him to pay as much as he can and covers the difference herself. He still will never have any savings. Ever. If she shares her savings with him jointly, what’s the point of having separate finances?

If this is the case, perhaps a way to make it as “fair” as possible would be to let him save a set amount each month (say, $200) then pay the rest. That way he would still pay as much as he could toward his 50% share but also retain some savings.

Reply

Neal@Wealth Pilgrim December 13, 2010 at 3:03 PM

I like it. Again…..I think it depends on the couple. Interesting idea….

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Wiseguy December 13, 2010 at 3:00 PM

What about equal share proportional to earning amount? Rather than splitting the list of responsibilities between people, share all responsibilities in a “pot” of sorts and contribute in proportion to your individual income. That way all responsibility is shared, yet you keep your individual finances separate.

Rather than approximating with “you pay these bills, and I’ll pay those,” you can guarantee that it’s perfectly even.

Let’s say the wife makes $6000/mo and the husband makes $2000/mo, totaling $8000/mo. She makes 75% (6/8) of the household income, while he makes 25% (2/8). Therefore, she should pay 75% of the monthly expenses and he should pay 25% of the expenses.

Now, let’s say that all monthly bills add up to $5000. She would pay 75% of $5000 (=$3750), and he would pay 25% of $5000 (=$1250). Here’s how we know that’s fair:
$3750 paid / $6000 income = 63% of her income
$1250 paid / $2000 income = 63% of his income

You might also want to have joint savings, in which case you would just add total savings (say, $1000) to the “pot” before you split it ($750 from her, $250 from him).

Sorry if you don’t like numbers, but this really is pretty easy.


Disclaimer: I am not yet married, so don’t take this to be the voice of experience. It’s just a thought.

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Briana @ GBR December 13, 2010 at 2:00 PM

This is something that’s working for me and my fiancee. We’re keeping each other accountable, making sure we ask questions. “Did you pay for this?” since we both have our own things to pay for. Our allowance is essentially what’s left of our paycheck after household expenses

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Neal@Wealth Pilgrim December 13, 2010 at 6:42 AM

Sounds like you have it worked out well. I believe that most any plan can work as long as you stick to it. Nicely done!

Reply

LifeAndMyFinances December 13, 2010 at 5:12 AM

Interesting plan. It sounds a bit complex though. My wife and I combine all of our earnings and from the total we allow ourselves $100 each in “play money”. Everything else goes toward the bills and debt.

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