Money management for couples

Can romance and finance go hand in hand? Absolutely, if you and your partner find common ground where you both feel comfortable and respected. Here are some tips for understanding your relationship to money and creating a safe space to talk about your finances.

Mind the salary gap

For many couples, the difference between their incomes makes things tricky. If only one member of the couple is a high earner and the expenses are split down the middle, the other person could have a hard time making ends meet. It might seem fairer for each partner to contribute proportionally to their income. But would that give the person who's paying more a bigger say in decisions about vacations or large purchases?

In their French-language book L’amour et l’argent, sociologists Hélène Belleau and Delphine Lobet suggest asking 4 basic questions to clarify things:

1. Whose money is it? Even when members of a couple say they share everything equally, differences in income can influence how each person's contribution is perceived.
2. Who has access to the money? Do both partners have access to the chequing and savings accounts and the credit? If one person depends on the other for transactions, it creates a power dynamic that can cause tension.
3. Who controls the money? It may seem natural for the person who makes the larger contribution to have the last word on big expenditures. But would that cause the couple to lead a more lavish lifestyle and spend on things the other person might consider unnecessary?
4. Who takes care of the money on a day-to-day basis? Things like budgeting, paying bills and transferring money between accounts should be viewed as household tasks, just like cooking and cleaning. But they also provide access to key information about your finances.

It's important to answer these questions honestly and communicate openly, without holding anything back. Talk about your expectations and preferences and look at your financial statements and other documents as needed.

Here's some advice to get the discussion started:

1. It's best to have the money talk early in the relationship. It might seem taboo, but it's an easier conversation to have when things are going well.
2. Decide whether you're going to manage your personal finances individually or jointly.
3. Make a budget to decide who's going to pay for what and where the money's going to go. Be fair and avoid the common pitfalls. You need to split up household expenses, savings and big expenses like your car or mortgage.
4. It's important to work together on things like your emergency fund, travel- and child-related expenses and retirement and estate planning. These sorts of decisions have an impact on your financial security as a couple.
5. Be honest. Don't hide your financial situation from your partner—they're going to find out sooner or later!

Remember: Your marital status has an impact on how your assets get split up if you and your spouse separate. Married couples are entitled to a 50/50 split. That's not the case for common-law partners without a cohabitation agreement. Find out how breaking up could affect your personal finances.

3 approaches to money management

Here are the pros and cons for 3 common approaches to money management for couples.

An even split

"When you split the expenses 50/50, both members of the couple contribute equally to shared expenses, regardless of any income gap," says author and sociologist Hélène Belleau. Couples can regularly compare which expenses each person is paying or transfer a fixed amount to a joint account based on their budget. In this arrangement, each person has their own account for discretionary spending.

New couples who don't have kids or major shared debts often use this approach. "It's a good way for couples to get to know each other and their relationship to money. There's not too much risk because each person retains control over their income," says Ms. Belleau.

But the couple does have to agree on what's considered a shared expense and do a little accounting. Plus, sharing expenses equally may not always be fair, especially for couples with big income gaps. Doing an even split can put the lower earner at a disadvantage by hindering their ability to save.

Pooling your resources

"Here, money is seen as a collective good. Each person's income is considered family income, which is used to pay both shared and personal expenses,” says Ms. Belleau. Couples with children or who have been together for a number of years often take this approach.

It's streamlined because it eliminates the need to allocate expenses to one partner or the other. It's also a way of compensating for unpaid work like household chores and family responsibilities. "If one member of the couple earns less, they're not directly penalized,” says Ms. Belleau. One of the pitfalls of this approach is not pooling savings as well. This is a common mistake that puts the person who does more household chores—often the mother—at a serious disadvantage.

For this approach to work, both people need to have similar financial priorities and a high degree of trust. It can cause tension if the person with the higher income ends up having more authority over financial decisions, whether it's conscious or not.

Prorating

"With this approach, each person pays a proportion of the expenses based on their income," says Ms. Belleau. "The lower earner pays less for joint expenses and the higher earner pays more." Couples taking this approach need to agree on what qualifies as a joint expense and calculate how much each partner needs to contribute. Things may need to be adjusted regularly depending on how the couple's income and expenses change over time.

The aim is to make sure expenses are shared fairly and give each person a certain amount of financial independence. Once they have paid their share, each person can use the rest of their money as they wish. This arrangement also recognizes non-financial contributions, like childcare and housework, because the amount the person has to pay is proportional to their income.

However, if the income gap is very high, the budget may not be equitable, and the lower earner could end up living beyond their means. One way to correct this imbalance is to make sure both people are saving equally or equitably. It's also important to include the names of both partners in purchase contracts for shared durable goods like the family vehicle, home and furniture to avoid an imbalance if the couple isn't married and splits up. "The goods were purchased jointly, even if you only contributed 10% and they were paid with the other person's card," said Ms. Belleau.

Protect your financial security

Each new stage in your life together is a good time to review your insurance needs and beneficiaries. What would happen if you or your spouse had to stop working because of an accident or illness? Disability insurance provides guaranteed income in these sorts of situations. It's an option worth considering to protect your financial balance. Plus, it's easier to focus on getting better when you're not stressed about money.

Life insurance makes sure your spouse and children will be financially secure if you pass away. Contact a financial security advisor to review your situation and find insurance that's right for you.

5 topics for discussion:

• Your will, so your partner doesn't get excluded from your estate
• Life and disability insurance
• Protection mandates
• Your children's education
• Your family goals (travelling, buying a house, retirement, etc.)

Remember to be open and honest!