Statistics show that disagreements over money are one of the leading causes of divorce in America. Even happily married couples that do everything together battle over finances to some degree - especially when money is tight or their investments aren't headed in the right direction. But this topic doesn't have to be a deal-breaker for those who are willing to examine their financial personalities and make the necessary adjustments. In some cases, a financial divorce can restore marital bliss.
The Way it Was
In the not-too-distant past, the majority of household financial decisions were made almost solely by men. Married women quite often accepted household allowances from their husbands to purchase groceries and other items. Of course, the financial and relational landscape in America today is very different; women depend on men for monetary support far less than they did a generation ago, and this trend is likely to continue. A large percentage of women now support both themselves and their dependents through their earnings and investments, and the climbing divorce rate and increased employment opportunities for women have in fact left many of them with no intention of ever having to anyone else for their financial security. Obviously, this attitude plays a major factor in where and how the financial boundaries are drawn in modern marriages and relationships. (For more, check out Top 6 Marriage-Killing Money Issues.)
Is a Financial Separation in Order?
Couples who fight constantly over money should look carefully at the underlying reasons why. Is the issue really about power, or is each of them simply trying to accomplish certain objectives in a different manner? The answer to these questions will usually provide an indicator of what action should be taken. Of course, anyone who is or has been married can attest that a large percentage of marital conflicts over finances revolve around how money is spent. But differing investment objectives, methods and risk tolerances can result in major disagreements as well.
Couples with tight budgets who struggle to make ends meet may fight about which bills to pay, but this conflict usually recedes when their income rises. Disagreements over styles of investing and the amount of risk to be taken can be more complex and difficult to resolve, as these factors stem more from personality and background. If one spouse is an obsessive risk-taker while the other is extremely conservative, then the latter party may worry about whether there will be any money for them (or for him or herself) in retirement. This type of rift may only be remedied by having separate accounts. (For more, see Personalizing Risk Tolerance.)
Advantages and Disadvantages of Separate Accounts
Having separate accounts can allow spouses who are strongly independent to function smoothly together, without having to justify every purchase and expenditure with each other. They can also foment a sense of security and fairness for boundary-conscious spouses as they control their own pile of assets. Separate accounts could also serve to create a healthy competition between spouses as they manage their portfolios, and help each to understand the value in their partners' investment methods.
However, while separate accounts may reduce marital friction in the short run, they can also backfire for couples in some instances. The secrecy provided by separate accounts can make it much easier for a spouse to have a financial affair, and they will also usually create a greater barrier for couples who are with poor communication habits or who are already in relational trouble. Competition in portfolio management may also be unhealthy for couples who are very competitive, as it may lead them to make poor investment decisions in an effort to outdo each other.
Having separate accounts can also result in higher costs and fees and reduced account privileges in some cases. Most investment firms charge maintenance fees on a per-account basis, so having separate accounts will automatically double those charges. Many brokerage and investment firms also reduce or eliminate many fees for larger accounts, and dividing the money may reduce both account balances below the asset threshold necessary to receive premium services. There is also the issue of statements, and whether one spouse can see the other's statement - and whether one spouse might do so without the other's knowledge or permission. (For more, read Financial Infidelity: Are YOU A Cheater?)
Other more practical issues may also play a role in determining account division. For example, if one spouse is bequeathed a complex investment portfolio inside a trust, and the grantor designated that the assets inside the trust should remain solely the beneficiary's as long as he or she lives, then the issue of honoring the grantor's wishes may dictate that this account remain separate from all other marital assets.
Finding the Balance
It is ultimately impossible to completely divorce money from a relationship, regardless of how money is spent and held. The right method of account ownership will vary from one couple to another according to various factors, such as the overall strength of their relationship and their individual strengths and weaknesses. Some couples may want separate accounts for some money and a joint or trust account for other funds. Of course, each spouse can always have their own IRA, which the other spouse cannot touch without the owner's permission.
Couples who fight constantly about money most likely have other emotional issues that need to be dealt with, and should probably seek counseling, preferably with someone who has a measure of financial knowledge in addition to psychological training. It may be beneficial or even necessary in some instances for a couple to bring their financial advisor or broker to a counseling session in order to verify facts or perceptions or provide further guidance. In many cases, couples can learn to make their financial differences work for them instead of against them, thus reducing their level of conflict and strengthening their relationship. (For more, see Do You Need A Financial Advisor?)
Having separate accounts can either help or hinder the relationship for many couples, and whether this is appropriate usually depends on various relational, emotional and psychological factors. Separate accounts can be a good idea for some couples while they will invite disaster for others. The issue of money is an emotionally charged subject in and of itself, and couples who cannot resolve their issues in this arena would be wise to seek professional help. (Learn more in Marriage, Divorce And The Dotted Line.)