Yours, Mine and Ours

Who controls the money and investments in your home? If you live alone, you are probably the one making all the financial decisions, perhaps guided by advice from bankers, investment advisors and possibly other family members. If you’ve done end-of-life planning, you have also signed a Durable Power of Attorney for financial matters, designating someone to take over your financial decision-making in the event you become unable to manage on your own. Ideally, you have also informed that person of the designation to be your agent and obtained their agreement to serve in that role. It would also be helpful if the person named in the Power of Attorney were informed of the nature of the assets and where records would be found.

There have been a lot of changes in the law and customs of how money is handled over the years. It was once assumed that the man was the head of the family and should control financial matters. In fact, it wasn’t until the 1974 passage of the Equal Credit Opportunity Act that American women had the legal right to obtain credit and open bank accounts on their own. I think my own parents reflected both the traditional attitude that men handled the money and also the attitude of frugality that seemed to affect many people who grew up during the depression and World War II – constant worry about having enough resources to pay the bills and support the family.

While my mother, for many years, was the family bill-payer and manager of monthly expenses, that job switched to my dad, probably when he retired. My dad also managed all the investments, even though a large share of them were gifts to my mother from her parents and, under Washington Law, came to her as separate property. My dad always wanted to save money, which sometimes created conflicts in the family. My mom begged him to buy a clothes dryer. When he refused, my aunt, a widow, bought it for her. When my mom wanted a new car because the old one broke down and left her stranded out on the highway, he insisted it was not a good time to buy a new one. When he eventually did sell some investments to buy a new car, he continued to remind her how much money he lost by selling the investments. When my mom went grocery shopping, my dad gave her what he considered a reasonable amount of cash, maybe $25 or $40. At times she had to turn back items at the checkout stand because she had calculated the cost of the items wrong as she was filling her cart. It upset me to know of the humiliation my mom experienced in these situations, especially since my parents were not actually short of assets and my mom had owned valuable securities gifted to her by her parents.

If you are married or live in a household with one or more other adults, have you discussed how you want to handle financial matters? Having a clear agreement about these matters could be one of the best things you can do for the future of your relationship. Here are some options for how money might be handled:

1. A Common Pot. All income is deposited into a common account. All investments are by mutual agreement. Each person can take money out of the common pot for personal and joint expenses. Each person has full access to the record of income and expenditures. Ideally, there would be an understanding that certain types of purchases or investments would not be made without prior discussion and agreement of the other person. For example, you might want to have prior agreement before incurring a gambling debt, engaging in expensive travel without the other person, or loaning money to a friend or family member. For purposes of paying monthly bills, one person should have that responsibility, but the parties might trade that job periodically so that both are equally aware of household expenses. Both parties need to have a clear understanding of assets, expenses and income, regardless of how the day-to-day tasks are split.

2. Separate Accounts Only. In many roommate situations, there are no common accounts or investments. Each person manages their own income and expenses. Common expenses might be split 50-50 with each person paying half or an agreement might be reached that one person pays the household expenses and the other person reimburses half the expenses each month. If the parties are married and living in a community property state, those separate accounts are likely still considered community property. Just because accounts and assets are held in just one person’s name doesn’t mean the other person might not have a legal right to assets in the other person’s account.

3. Yours, Mine, and Ours. In many couple situations each person maintains their own separate account but there is also a joint account. If a couple is married and living in a community property state, such as Washington and California, all earned income is likely to be community property and it makes sense for it to be deposited into a common account, with all joint expenses paid from that account. One person should be designated to pay the bills, with full disclosure to the other person of how the money is spent. The individual accounts of each person serve several purposes. Individual accounts provide a place to store assets owned prior to marriage or received as gifts. Each person should be free to use those funds as they wish, without obtaining agreement of a partner. For example, the separate funds might be used to fund a hobby that just one person enjoys, to pay for travel that only one person is participating in, to buy a special item of jewelry or to purchase gifts. The separate account is also an important safeguard in case something goes wrong in the relationship, a source of funds to use for independent financial or legal advice, emergency housing or travel. If other funds are not available, it can be funded through a monthly allowance of a designated amount that can be set up as an automatic transfer from the joint account.

A recent letter in the Ask Amy newspaper column, found in the Seattle Times on September 2, 2021, described an example of such an arrangement:

Dear Amy,

I have been married for more than 40 years. When we started our marriage, my wife and I made an agreement to have both separate as well as joint accounts. That way she, who had quit her job to support our children, had her own money, just in case something unexpected happened in our marriage. It gave both of us a sense of security.

It is not a question of “trust,” it is a question of “security” that all families should have.

By having separate finances (savings split three ways: individual as well as joint) it gave us peace of mind that we would never be “trapped” in a marriage.

It also has a major benefit of helping the family financially in the event that one of us should die unexpectedly and the other two accounts are temporarily frozen.

I highly recommend that BOTH members of a marriage have a separate account and those that are working contribute to both.

---- Happy and Successful

As the letter to Ask Amy illustrates, having both separate and joint accounts can provide extra security and peace of mind. Many things can go wrong in relationships and good financial practices and routine review by both parties can help to prevent serious problems. Such as these situations I am familiar with:

Grandmother’s stash of funds disappeared: My dad’s father was not a good money manager. He would make “investments” that seemed to always go bad. My grandmother carefully managed the grocery money and was able to save a little money toward a needed household improvement that was important to her, but just when she was getting close to having sufficient funds, she discovered that the hiding place had been found and her husband had wasted the money on a purchase she had nothing to say about.

Addictions: While this problem did not occur in my family, we are all aware that some individuals develop addictions to alcohol, drugs, gambling, pornography, or something else. If both adults in the family regularly review family finances, it will help to ensure that family funds do not disappear due to one person’s problems. If each person has their own separate account, it will also ensure that emergency funds are available to use to escape a bad relationship or to pay for counseling to help save the relationship.

Risky investments: Some individuals have an entrepreneurial spirit and have many ideas for new business ventures or perhaps are easily talked into investing in someone else’s business. Becoming a business owner, signing business contracts, and taking out bank loans for business purposes can put family finances at risk. These are matters to be fully discussed and evaluated by both family partners. In this situation, keeping certain funds separate, for the benefit of the person not involved in the business, could be very important for the security of the family in case the business fails.

Political and charitable donations: If a couple does not see eye-to-eye on the need to support political candidates and organizations or charities, this is a good reason to ensure that each person has separate funds that they alone control, with freedom to support whatever causes they wish, and no impact on the other or on funds needed to pay joint expenses.

Social activities: One person might want to go deep sea fishing and the other to a yoga retreat. Separate funds enable each person to pursue their personal interests without having to negotiate or justify the expense to a spouse or partner. Also, the amount of funds in the separate account will set a cap for what can be spent.

Dementia: Friends have shared with me how dementia has created financial hardships in their families. In its early stages dementia can affect judgment. In one situation a spouse began planning expensive international trips that were totally unreasonable for people of their age and ability. Fortunately, the plans were interrupted before there was a significant cash outlay. In another case, a spouse opened numerous bank accounts at various institutions, for what appeared to be good reasons, but then forgot what they had done, leaving the family account depleted and the other spouse on a frantic hunt to find the missing funds. Separate accounts wouldn’t prevent these problems from occurring, but they would ensure that the other spouse had funds to fall back on until the dementia problem was managed.

Having control of my own money was important to me, even as a child. I had a piggy bank and collected small amounts of money from the Tooth Fairy, for good behavior at the dentist, for getting good grades, from a very small allowance, from babysitting, from picking and selling berries, and occasionally from birthday or Christmas gifts. I never had much cash and seldom spent it, but when I did it was important to me, something I had carefully planned for and decided to purchase on my own. My parents continued to support me during college and grad school, but I was very careful not to ask for anything that was not essential and my parents expected me to justify the expense. I almost never bought clothes, rarely paid for entertainment, and often saved money by not going home for school breaks. Once I graduated, I never asked my parents for any financial support. When I got married, there wasn’t a lot of discussion about bank accounts. I think we both knew that “His, Hers, and Ours” was the best system for us. It has served us well for 47 years!

Every couple needs to figure out what money management system works best for their family, keeping in mind that needs can change over the years. A separate stash of money or assets may seem unimportant early in a relationship, but if it is not set up when everything is going well, it may be difficult or impossible to do so once conflicts arise. Along with a money management system, good communication about financial matters, full disclosure of income and expenses, and working together to create a workable budget will contribute to a successful relationship and also serve as valuable preparation in case one party becomes disabled or dies.

Why is it that financial matters are so difficult to discuss? We all need to overcome that hesitancy to talk through, think through and learn about finances. Being informed and engaging in clear communications is the best way to have money and assets support our relationships, instead of being the source of future misunderstandings and problems.

If you would like to learn more about the laws affecting bank accounts and credit cards, you can find an interesting summary on the website of the Federal Trade Commission. An interesting article in The Guardian tells the history of women and money from an international perspective. The last paragraph even mentions Seattle.

Please consider reading the following blog posts on related topics:

Ready for a health emergency? Are your ducks in a row?

COVID19—Planning for Disability and End of Life

A Valuable Gift for Your Family

Tips and Traps regarding Senior Living and Finances

You might also enjoy reading this article from the New York Times, published August 27, 2021: How to Make Your Marriage More Financially Equal. Author Ron Lieber has been the Your Money columnist since 2008 and has written five books, most recently “The Price You Pay for College.”

You can subscribe to my blog here.

Carolyn Hayek