Bills can be a headache at the best of times. Figuring out who pays for what in a relationship can be complicated enough to trigger a migraine.
Should you split bills evenly in your marriage or partnership? What if one person makes substantially more? Should it be based on a percentage of income instead?
A 50/50 split is one way to go, but it seems fraught with problems.
“Fifty/fifty isn’t usually sustainable as incomes differ, and over a lifetime one partner usually takes time off to raise children, care for elderly relatives, or may be on sick leave for a period,” says Kathy Waite, net worth manager at Your Managers Group of Companies. “Fifty/fifty is a roommate, not a marriage.”
Fee-only financial planner Marie Engen of Boomer & Echo agrees that splitting expenses down the middle has the potential for unhappily-ever-after.
“This may work if both salaries are somewhat equal, but if there’s a considerable difference the lower-income partner is eventually going to resent it,” Engen says.
Ron Graham, president of fee-only financial-planning firm Ron Graham and Associates Ltd., has seen the ways a 50/50 split can work out for the worst.
“I have some clients with vastly different incomes who keep their finances separate,” Graham says. “They discuss and agree to which expenses they will pay jointly and each put an equal amount into the pot to pay those joint expenses. The balance of their incomes is then available to be spent according to each partner’s wishes. This is where sometimes conflicts arise. One person has money to go on vacation, and the other cannot afford it. I have seen some couples take separate vacations as a result. Sometimes these relationships do not last.”
A better plan
So what are alternatives? Some couples decide on another breakdown, say 60/40. Some have an informal agreement where one covers the mortgage and the car, and the other takes care of things like food and kids’ clothing. Others have the higher-paid partner pay the bills while the lower income-earner’s wages go straight to investments.
Pooling resources appears to be the most effective means to a marriage not marred by money woes.
“I have seen most harmony from a joint account all income goes into,” Waite says. “From this, pay fixed expenses … Figure out what you afford as an allowance for each person and open individual bank accounts. That way, the lower-income earner isn’t overstretched paying a high percentage of income towards fixed costs, and you each have some personal money you can spend without feeling guilty.
“Save for joint goals out of the joint income so no one feels the mountain is insurmountable alone,” she adds.
Graham says that putting money into a joint account, with each person having an equal amount of spending money, works well, especially when there’s a large discrepancy in incomes.
“If you go into a relationship thinking that your money belongs to you, this can lead to conflict and potentially separation,” he says. “My suggestion for newlyweds is to pool their resources to pay for the family expenses, put aside savings for future goals, and pay five to 10 per cent of the total to each partner to spend as they wish.
“This way, each partner gets to spend the same amount on what they want,” he says. “The family expenses are covered, and they are putting aside funds for future goals like buying a house, new vehicle, kids’ education retirement, et cetera.”
Engen is onboard with the idea of shared money too.
“I believe that in a committed relationship, income should be pooled,” she says. “Couples should determine together what is required and budget for regular expenses and short- to medium-term savings for large purchases and Registered Education Savings Plan (RESPs). Longer term Registered Retirement Savings Plans (RRSP) investments would depend on variables such as the availability and type of company pension plans. Each partner should have an amount for their own discretionary spending, no questions asked.”
Often one person has more of an interest in financial matters than the other, Engen notes, from paying bills to investing. “The other partner should be involved in discussing goals and strategies and at least have basic knowledge of assets owned,” she says.
To avoid future disagreements, Waite suggests handling joint expenses systematically.
“It’s really important to write down what you agree [to],” Waite says. “Email it to each other, use a spreadsheet saved in a joint Dropbox or OneDrive, or write it in a notebook so there are no arguments later.