Smart Money: When to Merge Finances — or Not
Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.
This week’s episode starts with a discussion on the risks of merging finances with your partner.
Then we pivot to this week’s money question from Danny, who left this voicemail. “Hi, Nerds. My name’s Danny. I live in Boston, and I’m a big fan of the show. Ever since my wife and I got married, we’ve kind of combined our credit cards. In other words, I’m an authorized user on hers, and she’s an authorized user on mine. And we realized that once we did that, we have too many credit cards, and so we were looking at consolidating them a bit by closing some credit cards. One of the cards that I’d like to close is my oldest credit card, and I’m a little bit hesitant because I heard that’s not good for my credit score. But I wanted to ask the question of you all. When would it be appropriate to close one of your oldest lines of credit? For me, it’s a card that I don’t have as much particular benefit from regarding its rewards programs relative to some of the other cards I have. So, I’m interested in closing it since I don’t really use it. I really appreciate hearing your thoughts. Thank you. Bye.”
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Our take on merging finances with a partner
Combining finances with someone else is a significant step with implications beyond the financial realm. Before you intertwine financial lives with a partner, consider the potential pitfalls as well as some alternatives that will preserve both parties’ financial independence.
One financial concern is debt. Laws vary by state and by type of debt, so you may need to do some research to determine whether you’ll be legally responsible for debt your partner owes.
A drastic difference in money management philosophies between you and your partner may be another reason to maintain some distance in your finances. When a total financial merger could result in constant disagreements, setting up separate bank accounts to supplement a joint checking account can help keep the peace in the home.
If you prefer to be financially independent — you want to spend and save your money the way you want, for example — not merging finances is probably the right choice. Plus, that separation will make it easier to leave the relationship in the event of a breakup, divorce or domestic abuse.
Our take on managing credit cards in a relationship
Over 175 million Americans hold at least one credit card, according to the Consumer Financial Protection Bureau. So chances are good you and your partner will bring credit cards into a relationship. While you don’t need to worry about having too many credit cards as long as you are not missing payments, you may still want to trim your credit card portfolio after merging finances. If you do, proceed carefully because closing accounts can damage your credit score.
Canceling a credit card reduces the amount of available credit and can increase your utilization ratio, which may ding your credit score. Experts recommend keeping your utilization ratio below 30%. Length of credit history also affects your credit score. If you cancel a card you maintained responsibly for years by paying off balances in full, your score could lower.
Instead of canceling a card, you could request a product change from the issuer. You could get another card that better aligns with your spending or doesn’t have an annual fee, for example, all while preserving your credit history. If your wallet still feels overstuffed, take out the ones you don’t use, pay off any outstanding balances and then store them in a safe place. You might keep one recurring charge on the credit card such as a gym membership. Even minimal activity keeps the card active with little effort on your part, which prevents the issuer from closing the account for you.
If you’re set on closing some of your or your partner’s credit card accounts, try to avoid doing so before applying for a major loan like a mortgage. You want your credit score to be as high as possible to qualify for the best possible rates.
Close with caution. Shuttering a credit card account can hurt your scores, so consider asking for a product change instead.
Understand what you’re authorizing. Adding someone as an authorized user can be convenient and may help their credit scores, but you’re responsible for paying the bill.
Merge what makes sense. Couples can handle their money separately, jointly or a bit of both. Do what works for you.
More about canceling credit cards on NerdWallet:
Sean Pyles: Happy Valentine’s Day to our nerdy listeners and to you, Sara.
Sara Rathner: Thank you, Sean. And Happy Valentine’s Day to you as well. I have to ask. Where do you stand on this holiday? Because it’s sort of controversial. Are you more of a romantic dinner person or are you just more the kind of person who buys chocolate on sale on the 15th?
Sean Pyles: I will always buy chocolate when it’s on sale, but I tend to not reserve my romantic inclinations toward one single day. I like to have every day romance in my relationship. My partner and I like to make nice meals for each other regularly, and we often have chocolate in the house. So, we just do it whenever and however we want. What about you, Sara?
Sara Rathner: Yeah. I’m really big on being good to your partner every day of the year.
Sean Pyles: Mm-hmm.
Sara Rathner: Don’t save it all up for one day.
Sean Pyles: Yeah.
Sara Rathner: And then not treat them well 364 other days of the year. It’s not going to end well for either of you.
Sean Pyles: Yeah.
Sara Rathner: My tradition … I hate having to do the whole restaurant reservation crowded thing.
Sean Pyles: Mm-hmm.
Sara Rathner: So, every year, we pick a recipe that we’ve never made before and we cook dinner at home and watch a movie. So, that’s our style.
Sean Pyles: That sounds great. That seems economical and stress-free, hopefully.
Sara Rathner: Yes. Well, I mean, stress-free but with the added stress of making food you’ve never made before. So, there’s a little bit of uncertainty there. But that’s just … That’s what keeps things interesting in a relationship.
Sean Pyles: Yeah.
Sara Rathner: Is surprising each other. Anyway, welcome to the NerdWallet Smart Money podcast, where you send us your money questions and we answer them with the help of our genius Nerds. I’m Sara Rathner.
Sean Pyles: And I’m Sean Pyles. Don’t forget to send us your money questions by calling or texting us on the Nerd hotline at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected] This episode, Smart Money host Liz Weston and I answer a listener’s question about how to join finances — specifically credit cards — with their partner. But first, Sara and I are going to cover some reasons why you might not want to merge your finances and some options you can consider instead.
And, actually before we get into that, I want to share a little update with our listeners. Regular listeners may remember that a few weeks back, Liz mentioned she was about to head out to Europe for a couple of months. Well, Liz is now off on her fabulous international adventure, so Sara will be joining me as my regular co-host on the pod. Liz will still be in some of the money question segments that we recorded before she left, though.
So, Sara, you’ve been on the podcast many times before, but for those who may not know you as well, can you tell us a little bit about yourself?
Sara Rathner: Sure. Well, I asked Liz if I could sneak into her luggage and go to Europe with her, but apparently there was already a line of people who made the same request, so the answer was no.
Sean Pyles: Mm-hmm.
Sara Rathner: So, here I am. So, thank you for having me on the podcast more regularly.
Sean Pyles: Of course.
Sara Rathner: I’m based in Richmond, Virginia, and I’ve been a credit cards writer at NerdWallet since 2018. So, I’ve written about credit cards, debt, travel and one of my favorite topics because it’s so juicy — couples and money — which brings us to today’s episode.
Sean Pyles: I was just going to say thank you for that perfect transition. So, let’s get into it. You know, Sara, the Nerds did a survey with the Harris Poll back in 2020 that showed that three-quarters of couples have merged their finances at least partly. So, let’s start with some reasons why couples might not want to do that. What do you think?
Sara Rathner: As a millennial and somebody who’s friends with lots of other millennial people who are a part of a couple, really a lot of us have not totally joined finances with our partners or spouses in ways that previous generations might have done a little bit more automatically. Oftentimes, we marry at later ages, and we go into our relationships with our own financial histories that are somewhat complicated, whether we’re talking about assets or debts.
And so, the longer you’ve been managing your money on your own, the harder it can be to feel comfortable completely combining your assets and debts with another person. So, a lot of people just really don’t want to combine it completely, and that’s OK. You can absolutely come up with systems that work for you and not totally combine your finances.
Sean Pyles: Yeah. Well, you mentioned debt. A lot of people may not want to merge finances with their partner because they think they might be on the hook for what their partner owes, and in fact that is a bit of a misconception. If you get married, realize that you do not assume responsibility for debt that your partner incurred before you were married. Repaying that debt is on them, which means that consequences for not paying that debt are also on them and not you.
Sara Rathner: Right. And if you are married and you live in what’s called a community property state — that includes Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin — any debt you take on after you’re married is considered joint property. But if you live in any other state, that’s not the case. Your debt is yours, and your partner’s debt is theirs. And if you live in California, the state has different rules specifically for student loan debt. They are not considered community property.
Sean Pyles: Mm-hmm. But, that said, even if you are with someone who has debt and you’re not technically liable for it, it’s still important to share the experience of paying off that debt with them and talk about it because paying off debt can be a fairly lonely experience. You want to be able to support your partner and sometimes simply talking them through it and making sure they’re paying off their debt in the most efficient way possible can go a long way.
Sara Rathner: Absolutely. And, I will say, if there are debts that you take on as co-owners of property, whether or not you’re married, those are debts that you are jointly responsible for. And, likewise, if you co-sign another person’s loan, if they are unable to make payments, it does become your responsibility. So, there are some instances where you would be responsible for another person’s debt, but there are also many instances where you’re not.
Sean Pyles: Well, let’s talk about another reason why folks may not want to merge their finances with their partner, and sometimes this can come down to simply having a very different way of spending and managing your money than your partner, to the point where you just can’t manage each other’s money because it leads to conflict.
Sara Rathner: Oh, yeah. You know, you’re marrying or partnering up with another person and you’re not the same person.
Sean Pyles: Mm-hmm.
Sara Rathner: You know? You were raised differently. You work in different fields. You earn different incomes. You have different lifestyles. And you come together because you have a lot of things in common, but you just … You’re not going to manage money the same way, even if you mostly agree. There are still going to be differences in how you want to spend or save. And so, that is something that every couple has to have conversations about and has to come to some sort of agreement about. But it’s also OK to agree to disagree in some instances, so long as it’s not hurting your partnership and your home life.
Sean Pyles: Yeah. I think that my partner, Garrett, and I fall into this category, and I think a lot of couples may as well, where my partner is not a spender. He doesn’t really like to buy clothing or other random things. He still has an iPhone 10, even though it’s on its last legs and looks like it’s about to fall apart any day now. But on the other hand, I love to buy things, and that’s OK because I am still doing it responsibly. It’s within my budget. But that’s just how I am with my finances.
Sara Rathner: Yeah. The longer my husband and I are together, the more we have joined our money in some way, and usually that takes the form of joint savings accounts for shared expenses, like we have to get a new car soon or anything related to maintaining our home, things like that. We have savings accounts that are earmarked for those goals.
Sean Pyles: Mm-hmm.
Sara Rathner: But we also maintain autonomy for our fun money. We keep separate checking accounts, and so he doesn’t know how much my highlights cost, and I don’t know the total value of his bourbon collection, and it works for us.
Sean Pyles: Yeah. You may not want to know how much that costs.
Sara Rathner: I don’t. I actually had to remove all the bottles from the cabinet recently because the cabinet’s an antique and it needed some repairs, and seeing all of them sitting out on the dining table made me a little bit nervous. But he does tell me what he spends on each individual bottle, but I have not actually written that down and calculated. But you know what? It’s OK because it’s something that …
Sean Pyles: And maybe that’s the important thing. You’re having an ongoing dialogue about it, and he feels like he can be honest and open with you about this.
Sara Rathner: I have had expensive hobbies over the years, and he has been fully supportive of my doing those things because it’s something that we budget for and we are not neglecting our obligations to pay for the fun stuff, and that’s the most important thing.
Sean Pyles: Yeah.
Sara Rathner: And he has some pretty good bourbon. I got to be honest.
So, Sean, we talked about some of the ways you might not want to totally combine your finances, and a lot of it is to maintain autonomy or deal with the fact that you and your partner have different spending styles. But there might be a more difficult reason, and that is that you might need to disentangle your finances in the future at some point if things in your relationship are going very badly.
Sean Pyles: Mm-hmm.
Sara Rathner: And, specifically, that can be difficult for anybody who is experiencing intimate partner violence or abuse.
Sean Pyles: Mm-hmm. Yeah. And just thinking about it from a logistical standpoint, it’s a lot easier to join your finances than it is to separate them. Say you and your partner have been putting all of your paychecks into one joint checking account. If you would decide to separate that out, think about the pain it would be to go through and realize, “OK, this was the amount of my paycheck, this was the amount of your paycheck, and now you’re going to transfer it over to your different accounts.” It seems like a big logistical headache that I would rather not get into at all. So, I think this is a good word of caution. Before you end up merging finances, think about what it would take to undo all of this, too.
Sara Rathner: And something to keep in mind with joint checking and savings accounts is that when two people are on the account, they don’t have access to 50% of the account. Each person has access to 100% of the account.
Sean Pyles: Mm-hmm.
Sara Rathner: So, let’s say you and your partner get into some pretty bad fights and they retaliate and drain the account. That’s their right. You actually can’t get that money back.
Sean Pyles: Well, one final reason that I think it’s important to think about not merging your finances is simply independence for independence’s sake. Some people just like having their money separate from their partner’s, maybe because they’ve been burned by a partner in the past and they’re just not as open to mingling their money with future partners. And that’s totally fine. It’s kind of the if it ain’t broke, don’t fix it approach. Like Garrett and I, we manage our finances almost entirely independently, and it’s worked just great for us over the past seven and a half years. There isn’t really a pressing practical reason to merge finances, especially when we can just Venmo each other every day if we want to.
Sara Rathner: I basically only Venmo my husband at this point.
Sean Pyles: Yeah.
Sara Rathner: Yeah. And I would also say that as your relationship evolves over time with your partner, you can also change the way you manage money together. You’re not locked into a system that you developed when you had only been together for a short while. Maybe you buy a home together or other property. Maybe you have children together. And those are all these big life things that might make you want to rethink how you manage your household finances because your life is so different and you have joint things that you’re paying for.
Sean Pyles: Yeah.
Sara Rathner: So, over time, if these things happen for you, you might want to make some changes.
Sean Pyles: OK. Well, I think that about covers it for not merging your finances with your partner. And in a moment, we will be talking with Liz about how to merge your finances if you want to do it that way. And before we get into that, I want to do a quick check-in on our no-spend month. For those who are maybe new to the podcast, throughout February we are doing a no-spend month challenge where you challenge yourself to not spend money on stuff that you simply do not need. So, for this check-in, we’re going to talk about the most expensive thing that we have not spent money on so far and maybe some challenges that we’ve dealt with along the way.
For me, the big thing that I didn’t spend money on was a kind of honestly affordable easel for my watercolor painting. It was $60, and I thought that it might be a good purchase because I’ve been getting all of these crazy knots in my shoulders from hunching over the paintings I’ve been working on, and I found a really simple workaround. I have this laptop stand that I use for work, and I just put my paintings on that. I rest it on that, and suddenly it has filled the need of my $60 easel that I wanted, and it was completely free. So, that’s kind of nice.
And another thing is that now that I’m on my second month of doing a no-spend month challenge, I find that I simply want less stuff overall. I feel like I’ve kind of broken the habit of just reflexively buying whatever I want in the moment, and as a result, I just don’t want as many random things, which has been a nice kind of side effect of this.
Sara Rathner: One thing that has struck me is I’ve been faced with a couple of unexpected expenses this month, and you can go into a no-spend month with this mindset that’s like, “I’m not going to … I’m not going to do it. I’m not going to spend money. I’m going to be fine.” And then things break and you have to replace them, and for me that was my oven and my cell phone.
Sean Pyles: Hmm.
Sara Rathner: Two very expensive things to replace. So, it hasn’t been a no-spend month. It’s been a no-frivolous-spend month.
Sean Pyles: Uh huh.
Sara Rathner: But, I’ve … I definitely needed to just give into the fact that sometimes you make plans and they don’t work out.
Sean Pyles: I had the same exact thing happen to me last month, except it wasn’t a phone or an oven. It was my own teeth. I had to have some unexpected dental work, and pretty much all of the money that I had saved by not buying these wants of mine went toward the dental bills that I had, and I honestly was pretty relieved to have that, quote unquote, extra cash laying around to put toward this unexpected expense. But that’s just life sometimes. You know, you do what you can to try to save money, but there’s always going to be some other expense that pops up.
Sara Rathner: Well, it’s through saving money on the things you want but then you realize you can live without that you actually have the money on hand to put toward other things that are more important to you.
Sean Pyles: Yeah.
Sara Rathner: And I think that’s the real lesson here. That it’s not about never spending money. It’s about spending money intentionally.
Sean Pyles: Yes.
Sara Rathner: And having money set aside if you can so that when you do face an unexpected expense, you can limit how much debt you might have to get into to cover it.
Sean Pyles: Well, listeners, let us know how this no-spend month challenge is going for you. What have you been not spending money on? What challenges have you faced? And we’ll keep the conversation going. OK. And before we move on to the money question segment, one last callout for our listeners. As we approach the three-year anniversary of the COVID pandemic, we want to hear how your life has changed financially over the past few years. For me, I was one of the lucky folks who saved a good amount of money during the early part of the pandemic and that enabled me to buy a house, for example.
Sara Rathner: For me, being at home all the time turned me into quite the home chef, and I’ve become this person I don’t recognize. I meal plan and batch cook, and I carefully stock the pantry so I could whip up a dinner with minimal shopping. I don’t even know what happened to me. I guess we all become our parents eventually. I even clip coupons because groceries get so expensive.
Sean Pyles: Yeah.
Sara Rathner: And the grocery store chain that is in my neighborhood sends me targeted coupons in the mail, and last time I used them I saved $8 on my total bill, which I’m pretty impressed about.
Sean Pyles: That’s pretty nice. Yeah.
Sara Rathner: So, yeah. And we even … We even bought an extra freezer for our basement, and I batch cook chili and soup and freeze quarts of soup in my basement.
Sean Pyles: Well, the pandemic was also really financially challenging for folks, especially those who were out of work. Some folks started entirely new careers, even. However the pandemic changed your finances, we want to hear about it.
Sara Rathner: So, leave us a voicemail or text us on the Nerd hotline by calling 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected]
Sean Pyles: Now, let’s get on to this episode’s money question segment where I’m joined by Smart Money co-host Liz Weston. This episode’s money question comes from Danny, who left us a voicemail. Here it is:
Danny: Hi, Nerds. My name’s Danny. I live in Boston, and I’m a big fan of the show. Ever since my wife and I got married, we’ve kind of combined our credit cards. In other words, I’m an authorized user on hers, and she’s an authorized user on mine. And we realized that once we did that, we have too many credit cards, and so we were looking at consolidating them a bit by closing some credit cards. One of the cards that I’d like to close is my oldest credit card, and I’m a little bit hesitant because I heard that’s not good for my credit score. But I wanted to ask the question of you all. When would it be appropriate to close one of your oldest lines of credit? For me, it’s a card that I don’t have as much particular benefit from regarding its rewards programs relative to some of the other cards I have. So, I’m interested in closing it since I don’t really use it. I really appreciate hearing your thoughts. Thank you. Bye.
Liz Weston: To help us answer Danny’s question on this episode of the podcast, we’re joined by personal finance Nerd and host of the Smart Money Book Club series, Kim Palmer. Welcome back to Smart Money, Kim.
Kim Palmer: Thank you so much for having me. I am so excited to get into this topic, and I was thinking that first Liz, who is of course the author of a definitive book about how credit scores work, should explain exactly how closing accounts can impact credit scores.
Liz Weston: OK. Yeah. There’s a lot of confusion about how this works, and part of the problem is that there are two main credit scoring formulas. There’s FICO, and there’s VantageScore, and they treat this a little bit different. So, in general, you should know that closing an account is not going to help your scores, and it may hurt them, and most of the damage comes from reducing your available credit. In other words, you have your credit limits, and then you have the amount of credit you’re using. Credit scoring formulas like to see a very wide gap between those two. If you close down accounts, you’re going to narrow that gap.
Any additional damage depends on the type of credit scores that you’re looking at. With FICO scores, the closed account information continues to contribute to the age of your credit accounts. It only stops contributing when the issuer stops reporting the account, which can be 10 years from now. With VantageScore, on the other hand — that’s the type of score that NerdWallet provides — the closed account may no longer be factored into the average age of your accounts, so there can be additional points deducted with VantageScore.
Sean Pyles: A lot to tease through there, so.
Liz Weston: Right off the bat.
Sean Pyles: Yeah.
Liz Weston: Yeah. Let’s just dump this on you.
Sean Pyles: Right. But that’s all very useful information, so thank you for giving us that, Liz. The question then becomes, when would it be worth risking damage to your credit scores to close your oldest account and when should you hold off and just keep an old account active? Kim, how do you think about those trade-offs?
Kim Palmer: Well, I think there’s some pretty definite do’s and don’ts. So, one big one is that you don’t want to close accounts if you are about to apply for a major loan. So, if you’re in the market to buy a new home or take out an auto loan, something like that where it’s really important to you to make sure you’re protecting your credit score as much as possible, you don’t want to risk damaging your credit score by closing an account. So, don’t do it during a time in your life when you’re going through something like that.
Also, don’t close accounts if you don’t have very many to start with. So, if you have fewer than four credit accounts, you want to think really hard before you close one because that’s a more significant overall proportion of your credit available. You don’t want to worry too much about lenders thinking you have too many accounts. That’s not really something that we worry about.
And then you do want to try to hold on to your oldest account, if possible. And if you aren’t getting enough value and you’re paying an annual fee, you might even be able to ask for a product change to a different card offered by the same issuer, and that way you get to preserve your account history but you can avoid paying that annual fee.
And then you also want to think about if you do have a credit card that’s older but you don’t use it very much. You want to avoid it being closed without you intending for it to be closed by just making sure you keep using it occasionally, and one easy way to do that is to set it up to pay for a recurring charge like a subscription, for example, something that automatically gets charged to it every month, and that way you will keep it in use and not be surprised by it getting closed.
Sean Pyles: Yeah. And it might also be helpful to add autopay for that account so that you don’t forget to pay it on time because if you’re not actually using this old account, you might just not remember to do that.
Kim Palmer: Great idea.
Sean Pyles: Sometimes it can come down to being a personal preference, too. I have my first-ever credit card line still open. I opened this in college, and I believe my credit limit is around $200, and I use it once … I know. It’s crazy. I opened it to buy an iPhone way back when they cost $200, and I charge something on it … It’s honestly once every two years at this point, once they start mailing me letters about how they want to close the account. I’ll pull it out and charge something cheap on it and pay it off.
But, anyway, some people do feel like they have more accounts than they can handle. And what do you think they should think about if they really do want to close one of these accounts?
Kim Palmer: Well, if your concern is that you might miss a payment and then get hit with late fees and potential interest, you can set up to have your cards paid by automatic payment. You want to make sure you have enough money in your bank account to cover that. But, having said that, I think it’s a really useful tool to set up automatic payments, especially if you’re juggling multiple accounts and it just feels a little bit overwhelming to remember which date each one is due.
Sean Pyles: Mm-hmm.
Kim Palmer: So, that’s a great tool. If you’re worried about keeping track of your transactions, then I think a money management app like Mint or NerdWallet’s app can be really helpful. And if you’re just trying to simplify your financial life and you’re willing to risk a hit to your credit score, then you could consider closing your lowest limit card instead.
Liz Weston: Yeah. A lot of times, financial planners will advise their older clients to start simplifying so that there are fewer accounts to keep track of and closing those newer accounts, the lower limit accounts, is a great way to do that without really damaging your scores too much.
So, let’s talk about Daniel’s situation, where they’ve added each other as authorized users to their credit cards. We talk about that a lot in the context of helping somebody else build credit because your history with the card is generally imported into their credit report and used in calculating their credit scores. But people also do this as a convenience so that their partners or their kids can use their card. What should people consider before they add someone as an authorized user?
Kim Palmer: Well, I do think that adding a spouse as an authorized user can be really helpful and a great way to manage your finances. But it is really important to talk through what that means with your partner. Make sure you’re communicating who is responsible for making the payment, how you’re going to coordinate your spending so you don’t put too much on the card and exceed your credit limit or even get close to that. So, it’s worth having those conversations before you add each other as an authorized user.
Some basic facts to be aware of is that, first of all, authorized users are actually not responsible for the charges. So, that falls on the account holder, whichever one of you that is. If you miss a payment or you use up too much of the available credit, it can hurt both your credit scores. So, I think that’s worth noting as well. You can pretty easily, in general, add or remove someone from being an authorized user by just contacting the issuer. And then it’s also worth noting — because I was actually surprised by this once — that you can get hit with an additional annual fee when you add an authorized user to your account.
Liz Weston: Yeah. I got surprised by that one once, and it was a very unpleasant surprise. I’d added both my husband and my daughter to a card with a very high annual fee and got smacked with several hundred dollars.
Sean Pyles: Ooh.
Liz Weston: Worth of additional annual fee charges. That was not fun.
Sean Pyles: It might be worth calling up your card issuer before you add someone as an authorized user and make sure that that is or is not the case before you do it.
Kim Palmer: Definitely.
Liz Weston: Oh, yeah.
Sean Pyles: So, this couple opted to merge their finances when it came to their credit cards, but that’s not exactly required when you get married or partner up. Right?
Kim Palmer: It is definitely not required. You can keep your credit completely separate, if you want. I think whether or not to share credit cards, and really finances in general, it’s a very personal decision, and I know that people have strong feelings either way. I do think it is worth mentioning. If you live in a community property state, and I’ll just quickly run through which those are — that’s Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Any debt that you incur once you’re married is generally considered community debt. So that means you are responsible for each other’s debts even if your name isn’t on the card.
Liz Weston: And married people who want to keep their finances strictly separate in a community property state really should talk to an attorney because they need some kind of document, a prenuptial agreement if they’re not married yet or a postnuptial agreement if they are. Those documents are going to be very important if it’s a priority for you to keep your finances separate.
Sean Pyles: Mm-hmm. I do find the topic of merging or not merging finances with your partner to be so interesting because it is really individual, and I would say no two couples do it exactly the same way. I’d love to hear both of your thoughts on what couples should consider when they’re thinking about merging other aspects of their financial lives.
Kim Palmer: It is really so personal, and I think the first thing to think through is how each of you manage money. And you don’t have to be matched up exactly, and I actually think in a lot of cases couples can benefit from being a little bit different and learning from each other’s patterns. But you still have to make sure you’re communicating really clearly about who is responsible for which accounts, how you’re thinking about sharing certain joint costs. I think one really helpful way to sync with each other is thinking about your goals because often couples have overlapping and shared goals — maybe buying a house, going on vacation — and you want to coordinate that. So, it can help at least to have a shared account for those kinds of joint goals. But, basically, I think it’s all about talking through your money habits and what you’re looking to do by either keeping things separate or combining them.
Liz Weston: And I live in a community property state, and by mutual agreement we’ve decided to have most of our accounts be joint, but we also have little slush funds of our own. We call it “no questions asked money” so that I can go get massages, he can buy yet another dozen Tombow pencils or whatever art supply he wants, and we don’t have to talk about every little purchase. So, that works pretty well for us. Sean, how do you and Garrett generally handle this?
Sean Pyles: For my partner, Garrett, and I, our accounts are completely separate, but I would say our finances are what I like to call emotionally merged.
And by that I mean that we individually manage the nuts and bolts of our finances, but we have an ongoing dialogue about our money and how we’re positioning our individual finances to build the life that we want together. This is partially a practical move because he has his house, I have my own house, and there are a lot of individual expenses that go into that, like gas, internet, taxes, mortgage payments, et cetera.
Liz Weston: Mm-hmm.
Sean Pyles: And so, it just makes sense for us to have it in our own accounts, and that’s how we’ve done it thus far. Although I am considering starting a joint savings account for our wedding fund where like … How many years away? Two and a half years away from our wedding. We’re planning on getting married on our 10-year anniversary.
Liz Weston: Oh. Congratulations!
Sean Pyles: Yeah. And so, we’re slowly saving up. Thank you. We’ve been engaged for like three years now, so we’re just like doing whatever. We have our wills. We figure we’re fine. So, it’s about time to start saving so I can do it gradually, not have to throw a bunch of money at this thing in a rushed manner. But I do feel like a joint savings account could be very useful for that purpose because it’s one thing we’re going in on together.
Kim Palmer: I love that. That’s the perfect example of a joint goal that you can save for together.
Sean Pyles: Mm-hmm.
Kim Palmer: I also love the term emotionally merged, and I think you should coin that because that’s a perfect way of thinking about these things. In my case, we decided to combine everything. We got married just over 17 years ago, and it just kind of made sense at the time. Usually, I’m in charge of our credit cards, and my husband is an authorized user, and we’re trying to accrue rewards points to go on a family vacation, so it just helps us coordinate, I think. So, that’s how we do it.
Sean Pyles: And there is no right or wrong way. I think it’s important for couples to sit down, maybe even early on in the relationship once you realize you’re past just the casual dating phase, and figure out how you guys value money and what you want to do with your finances, both together and separately. That can help you figure out if you have a compatible partner, and then if that’s the case, how you can begin to establish the goals that you want together.
Well, Kim, you said something earlier that really stood out to me and made me think about when I was early on in dating Garrett about how you can learn so much from someone and how they manage their money. And when Garrett and I first started dating, I was not a saver at all. When we were living in San Francisco, things were so expensive. I would be going out all the time, and I didn’t really think that saving money was possible for me. But he had pretty much the same salary, pretty much the same expenses, and he was a diligent saver.
Liz Weston: Oh.
Sean Pyles: So, he actually inspired me to look through my finances and cut back some of my expenses and begin to seriously save money. So, that helped me learn how to rework my money.
Kim Palmer: I love that.
Sean Pyles: I can think of one circumstance where it might be a good idea to keep some of your finances separate, and that’s if you are in a potentially precarious or not super emotionally supportive relationship and you want to find a way out. Being able to build up an “F you fund” is what some people call it, can be an actual lifeline where you need to have your own money to be able to skip town and not be entirely financially dependent on someone because a lot of times when people are emotionally abusive in a relationship, money is a tool to control someone else. So, I think it’s important to find a way to maintain your independence in some fashion financially.
Liz Weston: That’s a really good point, Sean.
Sean Pyles: Well, Kim, thank you so much for talking with us today.
Kim Palmer: Yes. Thanks for having me.
Sean Pyles: And, with that, let’s get on to our takeaway tips. Liz, will you please start us off?
Liz Weston: Of course. First, close with caution. Shuttering a credit card account can hurt your score, so consider asking for a product change instead.
Sean Pyles: Next, understand what you’re authorizing. Adding someone as an authorized user can be convenient and may help their credit scores, but they’re generally not responsible for paying the bill.
Liz Weston: Finally, merge what makes sense. Couples can handle their money separately, jointly or a bit of both. Do what works for you.
Sean Pyles: And that is all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373. That’s 901-730-NERD. You can also email us your questions at [email protected]
Visit nerdwallet.com/podcast for more info on this episode, and remember to follow, rate and review us wherever you’re getting this podcast. This episode was produced by me, Sean Pyles, with help from Rosalie Murphy, Sara Rathner and Tess Vigeland. Rosalie and audio wizard Kaely Monahan mixed our audio. Jae Bratton wrote our show notes, and a big thank-you to the folks on NerdWallet copy desk for all their help.
Liz Weston: And here’s our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sean Pyles: And, with that said, until next time, turn to the Nerds.
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