Steps to take before you combine finances

merge-finances

Finances are the No. 1 cause of stress in relationships and one of the leading causes of divorce, so it's no wonder couples might be a little hesitant to merge their economic lives.

One aspect that is often overlooked in the money talk is combining of credit. This is especially true if you marry later in life and each party has a lengthy credit history.

"There's no one strategy for combining financial lives that's going to meet everybody's needs and work for everyone," says Brian Denysuik, president and CEO of Creditaid, a credit counseling company based in Winnipeg, Manitoba. "I think you have to do what's right for you as a couple."

Here's how to start the important conversation about combining your fiscal and credit lives.

1. Lay your financial cards out.
"The money conversation is absolutely critical," says Denysuik. "What you need to do first of all, before you even talk about putting bank accounts together, is sit down and have a very open and honest conversation about your total financial picture."

This includes questions such as, "What is your income?" and "What kind of debt are you bringing into the relationship?"

"Keep things open and honest," says Josh Miszk, vice-president of investments at Invisor, an investment firm based in Oakville, Ontario. "It's important for couples to be on the same page. You don't want to get any surprises of unknown debt popping up.

"Having everything in front of you at once makes it a lot easier to digest and a lot easier to project down the road," says Miszk.

2. Make it an even split.
Once you know what you are dealing with, decide how you are going to split up financial responsibility.

"On a percentage basis, if one person is making more than the other, then they should pay a little bit more of the total overhead costs related to the household," says Denysuik. "Some couples will each have an individual account, and then a joint account for household expenses."

With some couples, one person may not be very good with the finances. He or she may struggle to make ends meet between paycheques and to save money. This needs to be disclosed, so the more money-wise person can take more control of the finances.

"I have clients where wives have to put husbands on a weekly budget, give them an allowance for the week, and it works," says Denysuik.

"This doesn't mean one person should shoulder all financial responsibility," Denysuik adds. "You need to make sure you're continually having the money conversation and the stress around the money is shared by both parties."

3. Decide how to share credit.
There are two ways to share a credit card: you can add an authorized user to an account, or you can be co-applicants on a card.

  • Authorized users: You can add your partner or spouse to your existing credit card account as an authorized user, or open a new account in one of your names and then add the other person. Only the person whose name is on the account will be affected by account activity, and only that person is liable for any charges on the account.

    "Credit comes down to the person applying for the credit, and that's it," says Miszk. "It's like if you let your kids use your Visa card - [the responsibility] still falls on your shoulders, not your kids' shoulders."
  • Co-applicants: Some banks allow you to apply for a credit card together. This is called "co-applicants" or "co-borrowers," the card will have both your names on the contract and will impact both your credit ratings.

In either scenario, Denysuik says, you're playing with fire in different ways.

"If something goes south with your relationship, and the card is only in your name, then you're on the hook for any debts racked up," he says. "Your partner has no legal obligation to pay it, even if ethically, it's another matter entirely."

Denysuik recommends each half of the couple has a credit card of their own, and he says a joint credit card isn't really necessary, because if you own a home, you will likely have a line of credit in both your names that is secured with your mortgage.

"I think it's important that you're both building good credit and that happens with the conversations, making sure you're paying off your credit cards on time and making at least minimum payments," he says.

See related: Debt, income disparities take toll on marriage, Money and relationships: 3 options when finances unequal, When and how to use joint credit successfully
Published April 14, 2017

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