Chapter 16: Shared Money
Charlie: ”I'm leaving the country, Mitch. I need a fake passport and I need money, lots of it.”
Mitch Henessey: “Well why didn't you say so? Hold on a minute while I pull that outta my ass.”
– The Long Kiss Goodnight (1996)
Whether you have a roommate, are taking in a family member, moving in with a partner, or are just out with some friends, a time will come when you want to share money in some way, e.g., split expenses, investments, or even debts. This can be good, because sharing costs can make things possible that otherwise might not be, such as paying rent in an expensive city, splitting a vacation, starting a business.
Shared financial benefits come in other ways as well, for example when one partner stays home to avoid the cost of outside childcare, when an employer offers health insurance that covers both partners, or when two incomes are needed to get a mortgage.
But money can also cause problems in relationships. You may not have the same attitudes about spending, goals and priorities, or the value of monetary versus non-monetary contributions. Different opinions about what each person is contributing and what is “fair” can lead to tensions that build up gradually and erupt if there is a financial crunch.
The first step when beginning a shared financial life should be to have a conversation about how the sharing will occur. Which expenses will be shared? How much is each person responsible for? How will you deal with unexpected costs? What if one person loses their income? Don’t assume agreement without having the conversation. Don’t assume your view of what is “fair” is the same as others’.
Especially when you don’t know the other person(s) well, recognize that they may be uncomfortable about disclosing their finances. They may not want to talk about debts or other financial obligations, spending habits, or even addictions. If they are wealthy, they may be self-conscious about that too; don’t assume everyone who has money wants to brag or broadcast it. Avoid being judgmental and focus on the parts of your financial lives that are shared. But also make sure you get enough info to know they will be good for their share of expenses.
For partners and spouses, the necessary questions extend beyond spending. How will existing and future assets be shared? Will you own things jointly or separately? What about debt? Who will be responsible for paying existing and future debts?
A good second step when sharing money is to create a budget of shared expenses that lays out each person’s contribution. For example, if you have roommates, will you split rent evenly or do some pay more because they have a nicer room? Will you share expenses for food regardless of relative appetites? Some expenses probably won’t be shared, like haircuts, gym memberships, and student loan payments.
One approach is to open a separate checking account from which common expenses are paid. Each person contributes their monthly budgeted amount to the account. Or check out Splitwise, an app specifically designed to make splitting expenses easy.
Couples might choose to comingle their finances more or less. Will you keep separate checking accounts, a joint account, or both? What about investment accounts? Separate or joint? (Some accounts have to be separate, such as retirement accounts and HSAs.) Consider a budget app designed specifically for couples such as Zeta or Honeyfi.
When it comes to credit cards, consider having each partner as a primary account owner on at least one card to build and maintain independent credit scores. Recognize, however, if you have joint responsibility for certain payments, such as a mortgage or rent, both scores will be affected by missed payments.
Often shared financial relationships start when there is good will all around. You’re dealing with friends or family; you want things to be good; you don’t want to think about money fights. Unfortunately, sometimes relationships sour. Be aware of some of the legal implications:
- If you co-sign or guarantee a lease or a loan, you are responsible for full payment no matter what happens.
- If you own an asset jointly—a home, a car—it may not be easy to “take your half” in the event of a split.
- If you own a bank account jointly, either owner can empty it at any time.
- In community property states , any debt that either of you incurs while married is your joint responsibility. Likewise, any property either of you acquires while married belongs to both of you equally. Debts and assets from before you were married aren’t usually considered community property. If you divorce, each of you gets and owes half. In other states, an even split is not a given—a judge might determine a different split is equitable.