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Joining hearts and bank accounts

Ah, the chime of wedding bells. The I dos, the honeymoon in Jamaica and that joint-checking account that may forever bind two souls together ... until the bills are due.

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Most couples merge their money into a joint checking or savings account when they get married. The reasons vary from being able to keep better tabs on the cash flow to reinforcing the feeling of two people becoming one. But some marriage counselors say the decision to take joint accounts shouldn't be so cut and dried because each person brings a different set of money habits to the table.

Becoming one means knowing the person -- really knowing -- before the wedding day, says Tahira K. Hira, a professor of personal finance and consumer economics at Iowa State University in Ames.

"You can use the courtship as a gauge to whether having one joint account vs. having two separate accounts will be the way to go," Hira says. "For instance, is your fiancee a spendthrift or does she account for every penny going out of the household?"

The bottom line is the rules are pliable and can be custom-fitted for any couple.

Thinking for two before buying
If you think you're ready to make the transition from using your checking account to buy a new wardrobe on a whim, remember everything now becomes a joint decision. Instead of "I deserve those stiletto heels" the story becomes "Can we afford them?" or, even worse, "May I buy them?"

The process of moving one's money from an individual account to a joint checking account is pretty standard. If both individuals hold accounts at the same bank or credit union, the first step is establishing a new account, or closing an account and merging the money into another existing account.

Say Joe Account Holder wants to close his checking account and move his money into his wife's checking account. Joe would fill out an application listing personal information such as his address, employer and how much he plans to bring to his wife's account. Then, Joe and Jane need to decide who the primary account holder will be.

Be aware, some banks aren't set up to allow two people with different last names to have separate checking accounts linked to a joint savings account. Other banks allow such arrangements, but require each partner to meet minimum deposit requirements.

Adjusting to changed status
Developing money habits as a team is one of the biggest adjustments newlyweds will make. The hard part may be deciding how the money for daily expenses and savings goals will be handled. The easier part is actually setting up the account to reflect the cash flow.

There are generally three different financial scenarios for couples:

  • One joint checking account
  • Two personal checking accounts
  • One joint account and two personal accounts

With one joint checking account, both paychecks can be deposited into it and all bills are paid from it. This way, both people know where they stand as a couple and it's often easier to be budget conscious, say some marriage counselors. In addition, bookkeeping and account costs may be kept to a minimum because of the higher, combined balance.

On the other hand, some couples may feel restricted by having just one joint account because neither has his or her own money. While it's easier to manage the joint account by using just one checkbook, bad feelings may be alleviated if the couple uses two checkbooks.

"Having a separate set of checks requires discipline and a financial magnifying glass," Hira says. "Keeping tabs on the money shouldn't lead to heated arguments, but a couple may want to carefully consider having two separate checkbooks."

A couple that chooses to have two separate checking accounts may decide to use one checkbook from either of the accounts if expenses are divided right down the middle.

"Using two personal checking accounts is often a good choice when one of you travels extensively or when you divide up your purchasing duties minutely," advises Kathleen Stepp, a certified financial planner in Overland Park, Kansas. "Then you both have more financial security when you are not together, and there's less chance of overdrawing."

Finally, a couple may opt to have one joint checking account and two separate checking accounts. The majority of money can go into the joint account to pay daily living expenses. The remainder is divided between two personal accounts. The positive side is that you have your own money to control, as well as joint cash.

"The downside is if you are not careful about saving, this system makes it easy to cut into your joint goals because you're feeding the two accounts," Stepp warns.

Before pooling those assets
Before you put all your money into your spouse's checking and savings account, there are some considerations that may help in deciding how to pool your assets.

For practical purposes, a joint checking account is an account that lists two or more people as the holders of the account. With a joint account, the co-owners generally have the same rights to access the funds in the accounts.

There are different kinds of joint accounts and the one you select will affect what happens to your share of the account when you die. A joint account may or may not provide the right of survivorship to the other account co-owner. If the account provides the right of survivorship, the money will pass to the surviving account holder upon your death. If the account does provide the right of survivorship (for example, a joint account established as tenants in common), your interest in the joint account would become part of your estate when you die. The requirements for these accounts vary depending upon the state law where you do your banking business.

Death is certainly a grim topic to bring up as the starry-eyed couple looks forward to spending the rest of their lives together, but preparation for the worst now may offer peace of mind later, says Brenda Wade, a family psychologist in San Francisco.

"It's not an area most couples want to talk about -- what would happen to me if my spouse dies," Wade says, "but you need to protect yourself, especially if you plan to have children, so that there won't be any surprises down the road."

Couples should consider setting up all their bank and brokerage accounts in both names, even if they privately agree to restrict use to one or the other, Stepp says.

"If an account is held in the husband's name only, for example, after his death it must go through probate before the wife can have access to the funds. That costs time and money," Stepp says.

Insurance issues
If you keep your joint account at a bank or savings association, another area that couples need to be aware of is how much of the money is insured by the Federal Deposit Insurance Corporation (FDIC).

Under the FDIC's rules for insurance coverage of joint accounts, all shares that a person owns in joint accounts at a bank or savings association are added together and insured up to $100,000 provided:

  • All of the co-owners have equal withdrawal rights to the account(s)
  • Each co-owner personally signs the account signature card (unless the account is a certificate of deposit, a negotiable instrument, or is established by an agent)

Joint accounts are insured separately from deposits that you hold in other ownership categories such a personal checking or saving account, IRAs and revocable trust accounts. Co-owners do not need to be related to qualify for joint account coverage.

Be careful not to confuse joint accounts with accounts styled "in trust for" or "payable on death" because although they may be owned jointly by two or more persons, they are insured as revocable trust accounts rather than joint accounts.

Kathleen Nagle, a senior deposit insurance specialist at the FDIC, suggests that you contact the FDIC for guidance if you want to name beneficiaries on your accounts because the rules for revocable trust accounts can be complicated. You may contact the FDIC at www.FDIC.gov or at 1-877-275-3342.

The right type of account
Finally, the type of joint account may also determine if the living spouse has automatic access to the money. One type of joint account, called a joint convenience account, doesn't entitle one person to inherit all the money in the account if the other person dies.

With another type, a joint account with the right of survivorship, the person with whom you share the account usually gets to inherit all the money in the account. But that doesn't guarantee your partner total protection. Parents and family members can protest the arrangement in court. Again, the solution is to establish a payable-on-death account.

Talking about money can stir up emotions and fear but the key is to keep talking. "Communication is the foundation for a solid marriage and the clearer the daily savings goals are, the less likelihood for arguments on who pays for what," Hira says.

Editor's note: In April 2006, FDIC deposit insurance coverage on retirement accounts held at banking institutions was raised from $100,000 to $250,000. Non-retirement account FDIC deposit insurance coverage remains at $100,000.

 
-- Posted: Feb. 9, 2005
   

 

 
 

 

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