Should married couples in Canada keep separate bank accounts or should they opt for joint bank accounts? Will a joint bank account make money management easier or will it make it more complicated to pursue your financial goals? What are the drawbacks of having a joint bank account? Are there any legal implications?
If you and your spouse are considering opening a joint account, you should first review the pros and cons. Only a comprehensive assessment will indicate whether this is the right move for you.
Benefits Of A Joint Bank Account
Before we get to the implications of a joint account on your spending habits and household expenses, you should understand that there are three types of benefits of having joint bank accounts. These are psychological, transactional, and legal.
Makes You Happier
Money is one of those aspects that can either bring a couple closer together or drive them apart. You might have been comfortable handling your finances alone before marriage, but like all other aspects of your life, your money management will likely also need to be combined once you are married. And those who make financial decisions together are evidently happier than those who don’t.
Couples that discuss their finances once a week are happier than those who only discuss it once every few months, according to a TD Bank survey. Further, five academic studies on the effects of pooling finances found that couples with joint bank accounts “experience greater relationship satisfaction” than those who keep their finances separate.
It would be easy to assume that it’s probably the other way around; couples who are generally happier would naturally be more interested in pooling their finances. But the studies prove that it’s not correlation but causation—the act of sharing financial concerns and goals and managing them together can actually bring couples together.
Finance is one of the most sensitive topics of discussion, whether within a relationship or outside of it. When you and your partner feel comfortable enough to talk about your finances and manage them together, it will build trust and make both of you happier.
Simplifies Daily Financial Tasks
This is an important transactional benefit of having joint bank accounts. Now you can tackle your finances together by assigning individual responsibilities. You’re not just combining your financial chores, you’re also pooling your efforts, which will make it easier for both of you.
Maybe one of you pays for utilities and the other manages groceries. Or one takes care of insurance while the other deals with retirement funds. Slowly, you’ll build a routine with individual responsibilities that will free up more time for your family.
Helps With Legal Affairs
In the unfortunate event of a spouse’s death or critical illness, it will be difficult for their partner to access their bank account if the accounts are separate. It can be done, but it takes some time, and either the account holder has to submit documentation and wait for approval, or the remaining spouse has to submit a death certificate.
This delay could have serious implications, because the time it takes to gain access is likely to be exactly when the financial need is most dire. Having to wait or go through bureaucratic procedures could even take a mental toll.
With joint access to an account, however, both of you can easily access your funds without any need to fill out forms or wait for bank authorization. This may not be a pressing concern for recently married Canadian couples, but it helps to keep in mind the legal benefits of having a joint bank account for future needs.
One of the traits that may not be obvious when you’re dating someone is their money management style. You may know how much they spend and how often they go out, but you might not be aware of what proportion of their income they spend and how much they save.
Importantly, you probably won’t know how prudent or organized they are about their monthly expenses. Once married, these traits will have an effect on your financial well-being as well. But with separate bank accounts, you may still not know much about your spouse’s spending or saving habits.
A joint bank account builds transparency by revealing how much partners spend on going out, subscriptions, memberships, etc., as well as how much you can individually and collectively save for emergency funds (please link to that article about emergency funds) and retirement.
This transparency will do away with the need for uncomfortable discussions about finances, as both of you will be aware of your joint financial situation. With nothing to hide, it will be that much easier for you to work together to attain your financial goals.
One of the biggest advantages of having a joint bank account is that there is more accountability for your actions. Not that it’s your spouse’s job to hold you accountable, but the fact that they could will make you naturally be more prudent in your spending habits.
Before marriage, your money management style would have suited your individual needs. Maybe you liked spending your money on going out with friends or making impulse purchases online. Since you didn’t have to explain your expenses to anyone, you may not have taken any serious steps to control or manage them.
With a spouse who has access to your income and expenditures through a joint bank account, however, you will be more likely to be prudent about your financial habits. Since both parties would be accountable, the collective savings will be higher, which is also good news for your long-term financial plans.
Drawbacks Of A Joint Bank Account
So, do all couples have joint bank accounts? According to a survey, 28 percent of millennial couples have opted not to have joint bank accounts. That’s more than double the number in previous generations. That’s because, even with all the demonstrable benefits, there are still some disadvantages to having a joint bank account.
Low Credit Scores Can Impact Joint Finances
Finance is largely considered a taboo subject when dating. Unless there’s a financial emergency, people usually don’t share the details of their financial problems with prospective partners. However, these individual problems can have massive ramifications when they’re carried over into a marriage.
Specifically, your partner’s previous financial problems can affect your present financial health. If they have unpaid debts, massive credit card bills, or large student loans, these will affect your credit score now too. Also, if they have to pay alimony or child support, that may unsettle your finances.
Any entity or institution that wants to reclaim funds from your spouse will now also have access to your funds through your joint bank account. Though you had no part in accruing them, your hard-earned money could be used to settle your spouse’s previous debts.
Loss Of Financial Independence
Financial accountability and transparency may sound worthwhile, but they’re not for everyone. If you’ve always independently managed your finances, it might feel insulting having to explain your financial decisions to someone else.
An expense that may look frivolous to someone else could be vital to you. For example, meeting up with your college friends once every six months—even if you have to fly out for that—might be important to you. Your spouse may not understand what those friends mean to you.
Or maybe you want to support an independent organic grocery store even though it’s more expensive. Your reasons to shop there are more than financial, but your spouse may not agree with your decision.
Similarly, you may have been financially supporting your family. You don’t consider that as an expense but as your responsibility. That was your decision alone when you were single, but now your spouse may read your joint bank account statement and ask you about it. Merely having to explain it might feel too demeaning to justify the benefits of shared finances.
Can Amplify Communication Issues
Having a joint bank account works when you and your spouse can communicate seamlessly. For example when you’re always ready to listen and can tell when your spouse is having an issue—whether at the office or home— or if the two of you have a few things hidden from each other and you can talk about your dreams and fears for the future and your spouse understands them.
But not all couples are on the same wavelength in terms of communication. In some marriages, a joint bank account could bring to light issues with communication and could potentially even amplify them. Since anything to do with money can have an impact on all aspects of your lives, miscommunication, mistrust, or refusal to discuss these things can have profound consequences for your relationship.
It’s also helpful to remember that these problems may not be immediately obvious, so they could compound without you even realizing.
Is A Joint Account Right For You?
If you and your spouse can discuss money matters without difficulty and have a clear idea about each other’s financial histories, then the answer is yes. With a joint bank account, you’ll be able to better manage your finances, be more accountable to each other, and have a better sense of each other’s earning and expenses.
But if you value your financial independence and are used to managing on your own, you may not need a joint bank account. That freedom might be worth more to you than the potential benefits a joint account can offer.
Choosing The Right Account
While a chequing account is a personal banking service extended by most financial institutions, it doesn’t necessarily mean that they are all the same. At first glance, there might not be so much to distinguish one chequing account from the other but the experts at MoneyWizard explored the Canadian banking fray to bring you a few standouts. Not sure what type of chequing account will suit your needs? Compare the best chequing accounts in Canada.