Combining Finances

If you are in a committed long-term relationship you may be considering combining your finances, especially if you have regular joint expenses, such as living together.

There are a wide variety of ways couples handle their finances together. There is no single ‘right’ solution. The important thing is that you are both happy that the setup is fair and will work for your circumstances.

Talking about money

It’s important that you’re able to talk openly and honestly with each other about money. Below we have some topics for you and your partner to discuss and some practical suggestions to help you and your partner successfully combine your finances.

Your current financial situation

• Do you have any debt, such as overdrafts, credit cards, personal loans, or payday loans?
• Do you have any savings? Do you own any substantial assets (e.g. a car, house)?
• How much do you earn? How much do you expect to earn in the future? Do you have any planned changes to your circumstances (e.g. parental leave or reducing your hours)?
• Do you keep track of how much you spend and save per month?
• How do you make spending decisions? Is your approach similar?
• How do you feel about your current lifestyle/level of spending - do you want to cut back or to spend more freely? Do you each spend a similar amount on non-essentials?

This will help you understand each other’s financial habits and make informed decisions about your financial future as a couple.

Your financial goals

What are your short-term and long-term financial goals?

This might just be paying your bills and rent each month, with a little extra put aside for a holiday or Christmas. You may also be thinking about longer-term goals, such as saving for a deposit on a house, for a wedding, for parental leave, taking a year off work to retrain, retiring, etc.

• How certain are your goals? How flexible are you on when you need them by or how much you need to have saved?
• How much can you afford to put aside each month for your goals?
• Are all your goals shared equally as a couple or are some of them personal?
• Do you want to track your progress towards these goals? Which of you will be responsible for this tracking?
• How often do you want to check back in and revisit?

Handling shared costs

How you split your shared expenses is up to you to decide. What matters most is that you are both happy with whatever you agree on so as not to build resentment.

Which expenses are shared?

What counts as a shared expense vs a personal one may seem obvious to some, but it differs for every couple. For most, shared expenses will include:

• Rent or mortgage costs
• Household utility bills
• Household food

But you may also want to consider whether it will include:

• Transport costs e.g. if you drive this may include the costs of the car/motorbike plus insurance, servicing/MOT, or if you use public transport it may be season ticket costs
• Discretionary spending, such as going out
• Holidays
• Clothes
• Gym membership

How will you split the costs of shared expenses?

50/50

For some the most ‘fair’ way to split costs is 50:50, with each contributing the same amount to joint expenses.

This is often the default choice early in a relationship, when you first decide to combine finances, particularly if you both have similar incomes and outgoings.

If there is a significant income disparity, splitting costs 50/50 requires limiting your joint spending to the amount the lower-income partner can comfortably match.

Proportionate to income

Where there is income disparity some prefer to split expenses proportionate to their income. For example, if one of you earns £2000 per month and the other £3000 per month, you could split expenses at that ratio, so person A pays 40% of all costs and person B pays 60%.

There can be some debate on how you define ‘pay’ using this approach. For example:

• Before or after pension contributions and other salary sacrifice schemes
• Base pay only, or including bonuses and overtime
• Whether to account for differences in fixed costs like commuting

Remember this is not a science and you can just pick whatever proportion makes sense to you both.

Being responsible for different bills/expenses

Sometimes one method of ‘simplifying’ joint expenses is to divide them up between you, so you are each responsible for different things. For example, one of you may pay for rent/mortgage whilst the other pays the utilities (this can especially make sense if one of you already rents or owns a property that the other moves into). Or if one of you earns much more than the other, you may share basic expenses but the higher earning partner pays for all date nights and holidays - or you could alternate who pays, with the person paying choosing activities that fit their budget.

This can be a more relaxed approach, since it avoids the need for a spreadsheet or transferring money for ‘your share’ of each expense. But it has some pitfalls worth keeping on top of.

For example, it can mean that the person who is more proactive in going food shopping or planning dates ends up paying more. Or that the person responsible for a certain bill (such as food or electricity) may be more motivated to keep those costs down than the person who isn’t.

There is also a risk that, once you add everything up, the totals turn out unfairly skewed. Arrangements that start out fair can drift over time, as some bills rise faster than others or your circumstances change.

This means that you will likely still need to keep track of how much each of you are spending on shared costs, and rejig as necessary to ensure things stay fair.

How this changes if you have children

There is often an expectation that one member of the household will take the lead on childcare. This might mean leaving work entirely, or working reduced hours to reduce reliance on third-party childcare.

It generally helps to think of the household as a partnership, where the non-financial contribution, such as childcare and home management, counts for as much as the financial one.

Married or co-habiting partners?

The nuances of these decisions change depending on your marital status, for two reasons:

1. Married couples have legal rights to ‘joint’ finances in divorce, co-habiting couples don’t

In practice, this means unmarried co-habiting couples need to think carefully about informal arrangements like ‘I’ll pay the mortgage, you pay the bills.’ If the relationship ends, the partner paying the mortgage could later claim in court that they own the larger share of the house, using their mortgage payments as evidence.

2. Gifts between married couples are free of potential Inheritance Tax

If you are married, there is no risk of potential inheritance tax on gifts within 7 years of the date of gifting. This isn’t the case if you’re unmarried.

This is generally only relevant if your combined net wealth is over £650,000, and if so you should seek specialist advice.

Consider opening a joint account

Once you have decided on how you will split your expenses, you need to establish a way of operationalising it. One of the most straightforward options is to use a joint account, but there may be reasons this is not appropriate for your situation so you need to consider this carefully.

Benefits of having a joint account ✅

• A convenient way of pooling funds in whatever ratio you prefer, and easy to change how much you each contribute to the account as circumstances change
• All bills are centralised in one place
• You both have access to transaction and budgeting data
• You can use functionality like ‘pots’ to track progress towards shared goals
• Money might feel more shared

Risks of having a joint account ⚠️

These risks are similar to any other joint accounts, including mortgages.

• When you set up a joint account with someone, they will appear as a ‘Financial Association’ on your credit report. If either of you has a poor credit history, it may be better to keep your accounts separate.
• Money in a joint account is owned equally by both of you, and either partner can spend or transfer out all of it, regardless of who deposited what. If you break up, you risk losing money you have pooled.
• Similarly, any overdraft is also owed by both of you. If your partner runs up an overdraft, the bank can come after you for it even if you split up.
• You might disagree about which transactions to use the joint account for, vs which to pay for out of your personal funds

Where to open a joint account

If you’re opening a joint account, you should be able to get one from any bank.

Some may place higher trust in a high street bank and may prefer one with a branch available nearby. Others prefer challenger banks, which typically group your spending into categories automatically and let you set up savings pots for specific goals, tracking your progress towards them. This potentially saves you from having to do your budget/goal tracking in a separate application or spreadsheet (or a bit of paper).

Moneysavingexpert has a list of the ‘best’ current accounts based on customer reviews and benefits provided including switching bonuses.

Should you also keep personal accounts?

Many couples, especially younger ones where both partners earn, keep their individual accounts and transfer an agreed amount into the joint account. This might be a fixed sum, a percentage of income, or everything except an agreed amount kept back for personal spending. This allows each person to keep ownership of their income, and privacy for their personal spending transactions (including presents!), whilst ensuring all joint expenses are covered by the joint account.

Other couples prefer to have everything in the same account. All household income is deposited into an account you both have access to, and all expenses are paid from this account, with no distinction between ‘my money’/‘your money’.

Bear in mind that sharing all your income with someone requires real trust that spending decisions will suit you both. There is a risk that in cases of financial abuse or divorce one party could take all of the jointly held funds.

It is also generally safer to have more than one account available. This is just in case there is ever a problem with your main current account e.g. if you get locked out of your account or if a bank has technical issues. This is less likely to be a problem for those who keep separate individual current accounts. You can of course also achieve this with a second joint account.

Alternatives to a joint account

If you don’t want a joint account, services like Splitwise can help to keep track of who owes what, or you can simply keep track via a spreadsheet.

Joint savings/investments

It is worth noting that even when sharing a current account, most savings accounts are in individual names rather than joint. Pensions and ISAs especially cannot be held as a couple, only as an individual.

How you divide savings between you may depend on your tax brackets, marital status, and how much of your ISA allowances you’ve each used. It is helpful if each party has at least some savings in their name in case of emergency, for instance if one party is incapacitated or dies.

Create a budget 📝

We would always recommend budgeting, but this is especially important when you are combining finances to ensure everyone is on the same page. A budget helps you track your income, expenses, and savings and ensures that you’re spending and saving wisely. You and your partner should sit down and create a budget that works for both of you, clarifying which expenses you consider joint vs individual.

The issues for budget creation are similar to the issues discussed already - you could choose to have separate budgets for personal spending, and just a ‘house’ budget, if you choose to combine that way. Alternatively, you may both prefer sight of the entire budget, and combine everything.

It is also worth discussing the following questions as part of this process:

• How often do you want to check your spending vs budget?
• Who will do it?
• What will you do when you overspend? Will you draw down on savings, reduce spending in other categories, or reduce how much you’re putting aside for your goals?

Joint property ownership 🏠

If you do not currently own a property and you intend to buy one as a couple you should consider the following:

• Will you buy the house as ‘joint tenants’ or ‘tenants in common’? As joint tenants, you both legally own the whole house jointly, and as tenants in common you both legally own one half of the house. This difference might sound academic, but it affects what happens if you later split up or one of you dies.
• Will you both contribute equally to the deposit, mortgage, and upkeep? If not, are you comfortable with the imbalance, or would you prefer a legal document setting out the difference in contributions? These are called ‘deeds of trust’, and when combined with the above choice of buying as ‘tenants in common’ they allow for one partner to carve out a specific sum relating to their deposit, or a percentage of the property value if you decide that is fairer.
• What will you do if one of you is out of work for a period of time? Will you obtain insurance to cover this risk, or accept picking up the shortfall?
• The risks of having joint accounts apply to joint mortgages as well, so if one of you has poor credit this may affect the financial prospects of the joint mortgage-holder.

As with any sharing of finances, what matters most is that both parties involved are happy with the situation and consider it fair. It is not for others to dictate and you simply need to decide what you are each comfortable with. We recommend you seek legal advice before making any decisions.

Seek professional advice

If you’re having trouble combining your finances or aren’t sure where to start, consider seeking the advice of a financial professional. A financial adviser can help you create a plan for managing your finances as a couple and provide guidance on reaching your financial goals.

Revisit regularly

As your situations change your finances will need to as well. This may be due to big life events, such as having a baby, dropping down to a single income due to health/education, or simply changing goals and priorities.

Combining finances with a partner can be challenging, but with open communication, a solid budget, and a clear plan, it’s possible to successfully manage your finances as a team. Remember to be honest, transparent, and patient with each other as you work towards your financial goals together.

Red flags and risks 🚩

Whilst outside of the scope of the wiki, there are red flags and risks associated with sharing finances.

There are two main risk areas - abuse via financial control, and financial infidelity.

Financial Abuse

Financial abuse is a serious issue, and can form part of an otherwise abusive relationship or stand in isolation. It can range from preventing a partner from being able to earn their own money and therefore have financial independence from the abuser, to forcibly obtaining credit cards or loans in a partner’s name, or to controlling spending patterns.

See Moneyhelper’s thorough guide on spotting financial abuse and leaving a financially abusive relationship safely.

Financial Infidelity

Financial infidelity is a pattern of behaviour where somebody hides their financial activities from a partner. This may be related to other problematic behaviours like compulsive gambling, or be as straightforward as misleading a partner on earning amounts or spending levels.

Whilst not abusive, financial infidelity can lead to escalating problems if finances are combined, and it is important to be aware of these risks and understand what to do if you are concerned. There are many online resources - Wikipedia has a thorough explanation.