Joining hearts and
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.
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
"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
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 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
"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,"
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
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,"
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.