Potluck: Should Couples Invest Together Or Separately?

There used to be an assumption that tying the knot also meant tying funds into one family pot. During a time when people married at younger ages, sometimes even before graduation from college or a first job, joint finances grew organically alongside their march into adulthood.

Today, various social, demographic, cultural, and even economic factors are shifting marriage to later in life—if at all. It’s more common for couples to enter a union with personal assets such as Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs), investment accounts, and perhaps, significant inheritances.

As Dr. Eliza Filby says in her book, Inheritocracy: It’s Time to Talk About the Bank of Mum and Dad: “Monied, educated, high-earning millennials are coupling up with other monied, educated, high-earning millennials, reinforcing this privilege and merging two ‘Banks of Mom and Dad.’”

Blending two sets of potentially significant assets is no longer a given, nor is it as simple as it used to be. High rates of divorce have also added a note of caution to pooling everything lock, stock, and barrel.

“I always tell my clients, ‘Let’s have the conversation,’” says Elke Rubach, founder of Toronto-based Rubach Wealth, Holistic Family Advisors, which provides a wide range of financial services, including estate planning and wealth strategy, portfolio management, risk management, and philanthropic planning.  “You can’t cover everyone with the same blanket because either one person may choke, or someone’s toes will be uncovered.”

For Rubach, it all starts with creating a plan, ideally before cutting the wedding cake. “Everything can be negotiated,” she says. “Similar to a shareholder’s agreement, you draw it up when you are friends and have the vision and passion to work together. You can always amend it later. The important thing is to go in with equal information and transparency on who’s going to contribute to what and what happens in the event of divorce or death. When you are friends, you can talk about these things.”

A big advantage of having a financial plan is that it takes some of the emotions out of a very emotional conversation. It also allows both parties to make informed decisions about the numbers. “Every arrangement is possible, as long as it’s explained, properly advised, and understood by both parties,” she adds.

Blending finances by holding accounts jointly greatly increases transparency, but this cuts both ways. Since each partner will have equal access to the funds, there is less opportunity for secret spending or investing. However, there is the risk that one person will make ill-advised or unsuitable investment choices that will directly impact the innocent bystander—the joint account holder.

On the plus side, pooling resources in one or two accounts makes it easier for a couple to track progress toward saving and investing goals, and it can enhance communication around shared goals and finances because both parties have the same information. Seeing the investment pot grow larger and faster can motivate a couple to stick with the plan and resist temptations to overspend.

The flip side of greater transparency is a loss of privacy and a sense of independence. This can be as benign as not being able to buy a surprise gift for a loved one to feeling that each financial action is under scrutiny. Not everyone is comfortable living in a financial fishbowl, even one shared with a partner. This can lead to friction and resentment, particularly when spending and investing styles diverge. People come into relationships with their unique narratives about money and other assets. “I’ve seen things go sideways based on different financial philosophies from childhood and experiences later in life,” says Rubach. “In a blended marriage, if one person got hosed and the other got extras, that’s going to affect their approach to joint ownership.”

Pooling financial resources comes with tangible benefits in the form of lower management and administration fees. Reaching a certain financial threshold could mean having access to a wider range of asset managers who offer diverse investment strategies. Saving on investment fees may be a false economy, however, if one partner is dominating the financial decision-making or the advisor is only reporting to one person. “Having one investment account may save you one per cent in fees, but if you don’t know what’s going on, you could lose 50 per cent on your original investment,” says Rubach.

Holding accounts jointly can also be more tax efficient. Depending on the type of account, upon one co-owner’s death, the account is not part of the deceased's estate, thus avoiding probate, and deferring taxes. It also protects the assets from claims by creditors of the estate. Also, should one owner be unable to make investment decisions due to illness or travel, the co-owner can easily step in.

A family inheritance can further complicate matters. According to an Inheritocracy/YouGov survey, one-third of women said they would never open a joint savings account with their husbands. They are also more likely than men (24 per cent versus 16 per cent) to see their inheritance as theirs alone, prizing their newfound financial independence from their husband or partner.

“Sometimes I’ll hear the husband tell me, ‘I want her to understand that my family inheritance is our money’. Then the woman will say, ‘No, no, that’s your money!’” says Rubach. “Unfortunately, there is still a lack of financial literacy where people don’t always understand the implications of their actions. For example, if one partner receives an inheritance and puts the money towards a house renovation, that is now joint money.”

Instead of an all-or-none approach to joint finances, a hybrid strategy is often a good compromise where some accounts are held jointly and others separately. “Let’s say one person comes to the marriage with 10 apples and the other one has 7 apples. I’ll say, ‘Okay, let’s start with one apple each in the joint account. Next year, I’ll ask if they want to add more. There’s no reason to rush into a solution. You don’t need to throw everything into the blender,” adds Rubach.

The key to a successful outcome is honesty. “If you go to the doctor and don’t tell them everything, they can’t help you,” she says. Because divulging information about personal finances makes people feel emotionally exposed, Rubach goes the extra mile and signs a Non-Disclosure Agreement as an assurance of complete privacy. “I listen to everything. I’m not here to judge. But I don’t recommend keeping financial secrets from one another because that’s a symptom of something much worse.”

According to Rubach, the most important thing is for couples to understand the investments they have. “Sometimes people take crazy risks to be tax-efficient, and the risk is not worth the after-tax return, or they overcomplicate with family trusts without fully understanding the implications. Couples have to remember that wealth is constructed over time.”

Rita Silvan, CIM is a finance journalist specializing in women and investing. She is the former editor-in-chief of ELLE Canada and Golden Girl Finance. Rita produces content for leading financial institutions and wealth advisors and has appeared on BNN Bloomberg, CBC Newsworld, and other media outlets.