Joint or Separate Accounts: Banking with Your Significant Other

Whether you're married, engaged, in a long-term relationship or just starting to get serious with someone, one important conversation to have at some point is whether to treat your money as a joint asset or something that you and your partner each manage separately.

Traditionally, many married couples have combined their money in a joint bank account. However, these days, there's a whole range of options for managing one's finances, with many people choosing to come up with their own unique solutions.

If you've been thinking about how best to manage your money with your significant other, here's a brief overview of how joint bank accounts work, and a few reasons to consider setting up separate accounts, joint accounts or a mix of both.

How Joint Accounts Work

Joint bank accounts are simply a type of bank account—either checking account or savings account—that allows more than one person to access funds and manage the account. Account owners could include spouses, girlfriends, boyfriends, or others—and everyone named on the account has equal access to money in the account, regardless of who opened the joint account or deposited funds.

Additionally, the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) provide $250,000 of federally backed insurance coverage per depositor in case of bank failure. This means a joint account with two owners receives $500,000 of deposit insurance instead of $250,000 for an individual account. *

Reasons You Might Want a Joint Bank Account

1. Sharing a joint bank account can promote transparency—and trust.

To successfully manage shared funds in a joint account, couples must keep open clear lines of communication and be candid about their financial situation, including goals, challenges and worries. Because saving and spending transactions can be easily viewed by both you and your significant other, sharing an account can foster openness and accountability in a relationship.

This is not to say that couples with separate accounts aren't also in trusting relationships. But joint accounts can help couples perceive their assets and finances as shared—like their lives—encouraging a general sense of togetherness.

2. Joint accounts may aid in financial planning.

Just from a practical standpoint, it's often easier to create and maintain a budget, plan for the future and stay motivated with savings habits when all of a relationship's finances are together in one place. A shared account may help a family gauge their overall finances more often and ensure that budgeting goals are on track.

A joint account can also make paying household bills easier. Instead of one partner in the relationship taking on all the financial management chores for an account, such as reconciling monthly credit card statements or paying the bills, having a joint account makes it easier to evenly split up bookkeeping responsibilities.

3. Joint accounts can make it easier to handle unexpected expenses and emergencies.

A joint account allows both partners to access money at any time, which can be anywhere from a convenience ("My car broke down and I can immediately write a check using the funds we've saved up together.") to a real lifesaver ("My partner landed in the hospital and I need to handle the household expenses for awhile.")

And if one partner becomes incapacitated or passes away, there won't be a complicated legal process to access the money in your shared account.

Reasons You Might Want to Keep Your Bank Accounts Separate

1. Individual accounts can offer added independence.

With separate bank accounts, each individual maintains some degree of freedom over their personal finances. Combining a couple's finances into a joint account can simplify regular financial tasks and increase efficiency, but it may also take away a person's sense of autonomy or independence. Because all transactions are shared, it's easy for one person to view every action the other partner is taking in the account. Even with someone a person cares about deeply, it's understandable to experience this as a loss of control, especially during the first few months of merging funds.

2. It could be harder to protect individual assets

If you and your partner are in significantly different financial circumstances; for example, if one person is earning a much higher income—or is carrying much more debt—it may be prudent to maintain separate accounts. For example, creditors could decide to take action to seize outstanding funds, which could include garnishment from joint accounts. And if one account owner mismanages the shared account, spending too freely, everyone may be affected.

Also keep in mind that the balance of the joint account may inflate the assets of all account owners for eligibility purposes. If your significant other is in college, this could affect their eligibility for financial aid. If your significant other is elderly, it could reduce their eligibility for Medicaid long-term care.

3. Separate accounts limit possible damages in case of a break-up

It happens sometimes: Relationships end. And, unfortunately, when two people are separating, joint accounts can sometimes turn into a wild card. If one individual empties the account on their own, legal action may be necessary.

Also, even in the event of a split, all parties will continue to share a joint account until it's closed. If an individual who co-owns the account gets married and divorced, their spouse may also be entitled to money in the account, regardless of who deposited the funds.

Reasons to Consider a Hybrid System

In addition to having joint or separate accounts, another option for couples is to merge a portion of their finances into a shared account, keeping the rest in individual accounts.

The joint account could be used to pay everyday bills, including rent or a mortgage, groceries, utility bills, and car or student loans; or to save towards a shared goal. The separate accounts, in the meantime, allow each person to have their own allowance, so to speak. Couples can choose to have the same stipends in both of their separate accounts or vary them, based on individual income or need.

Deciding between joint accounts, separate accounts or a hybrid system for you and your significant other isn't an easy decision, and there's no one right answer. If you're not sure which approach would work best, consider these questions:

• How will we handle regular expenses, such as rent and groceries?
• How will we prepare for emergencies?
• How will we pay off debt?
• How will we save for major life goals, such as buying a home, paying for children's college and retirement?

Talking through questions like these, and keeping open lines of communication about money, will help determine whether a separate account, a joint account or a mix is best for you and your partner.

Click here to learn more about your options when opening a joint bank account at Bank of Hawaii.

*See the FDIC website for details on the per depositor limitation.