How spouses handle their money, together or separately, has changed dramatically in just a couple of generations.
When I spoke to a group of women 20 years ago, most of the older women in the room claimed they knew very little about managing money, and their husbands handled the finances. Most wives received an allowance to pay for groceries and small household bills, but their husbands made all of the “big” decisions.
If a wife needed anything, she had to ask (or plead with) her husband. Many women sometimes created comically deceptive workarounds in response to this demeaning arrangement that became the basis for many mid-century sitcoms.
When my Aunt Francine “needed” a new dress, she would ask Uncle Louis a couple of extra times a month for cash to pay the utility bill.
If there was a sale on household goods, my mom would hide the bags in her car’s trunk or basement and bring out the items later, thinking my dad wouldn’t notice. One year, during a storm, the basement flooded. We sprinted to drag a wet wool rug and antiques she had purchased to move them from the basement and hide elsewhere before my dad returned from work.
The somber downside to this traditional arrangement was that if the husband died or there was a divorce, the wife was surprised to find herself unable to support her family or obtain credit.
The sexual revolution, greater opportunities, and the “me generation” made some not want to share their finances with anyone.
For example, my cousin married the grandson of a famous comedian, and he took separate finances to the extreme. While her husband drove a new Mercedes, she frequently broke down, with their kids, in an old clunker with no air conditioning. At lunch at their house, I noticed post-it notes labeling ownership of the food in their refrigerator. They lived more like roommates than a married couple and eventually divorced.
Thankfully, many couples (perhaps on their second or third marriage) realized they could live better as true partners with shared finances. This year, a study at Cornell University found that couples with pooled financial accounts tended to exhibit a better connection, and their interactions were more positive, stable and safe. About one-half of couples have joint bank accounts. For some, everything, including the decision-making and financial chores, is shared. But should you merge everything?
If you share a checking account and financial chores with your spouse, you know that disagreements about how to spend your hard-earned money can be intense. Fights about who did what can also result when tasks like renewing auto registrations or paying the gardener are duplicated or forgotten. Too much of your focus and conversations can be about money, especially if funds are tight or if you are trying to keep up the same standard of living as your neighbors or friends.
In some cases, there are good reasons to keep assets separate or to put one person in charge.
For instance, I’ve noticed that when spouses attempt to work together on their taxes, it’s challenging. Misplaced documents, conflicting information and being a witness to their (sometimes very personal) fights can be the result.
A solution is to look at partnership tax returns. In a partnership, one partner is generally the “tax matters” partner. You can create some segregation of duties by naming one of you as the tax matters spouse. One spouse gathers information, interacts with your tax professional, provides them with the documentation and reviews the returns. The other spouse only assists as necessary. Ideally, the tax matter spouse should have more aptitude for organizing paperwork and some tax knowledge.
While you are at it, a good idea is to segregate some of the other financial chores, such as who pays the bills, updates the insurance policies or manages the rentals, based on your interests and strengths. One spouse might be diligent about paying bills and likes to balance the checkbook. My husband is much better at saving, so he puts aside part of our income and manages our investments. You get the idea.
Tax laws have changed, and there are some instances when you can save taxes (or your sanity) by filing your tax returns separately. If filing together causes too much fighting and stress, nothing prevents you from filing your return with your own preparer, married filing separately.
Sometimes, filing separately can keep you in a lower tax bracket if you and your spouse earn close to the same amount. Also, in some cases, you can maximize itemized deductions, including medical expenses, by filing separately.
Most tax programs allow you or your accountant to prepare a report comparing your taxes using different filing statuses.
There can also be tax, financial and psychological benefits to separating ownership of your business. Suppose one spouse excels at handling the administrative and financial details of the company while the other is in charge of sales or production. In that case, the administrative spouse can operate a management firm separate from the other spouse’s (production or sales) company.
Besides giving you both pride in calling yourself CEO and more freedom to make independent decisions within your respective expertise, there are also tax and succession planning advantages to utilizing more than one type of tax entity. For example, one business can be an S-Corp, and another can be a C-Corp with different tax benefits.
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Be sure to talk with your CPA or tax attorney about succession and tax planning for your jointly owned businesses.
Thankfully, there is no requirement that we manage our finances like other couples. Being mindful and keeping a little separation when it makes sense, whether with segregation of duties or even your own side bank account for little luxuries, can go a long way towards a happy marriage.
Michelle C. Herting, CPA, ABV, AEP, specializes in tax planning, trust administration and business valuations. She has three offices in Southern California.