Reader Question: Finances for a Married Couple

It’s time again to dip into the mail bag and answer some long awaited reader questions. If you have a personal finance question, feel free to contact me and I’ll do the best that I can to find an answer.

This weeks question comes from “P”, who is newly married and is wondering how to structure the finances between the newly formed partnership. Here was the question:

Can you post about advice you would give to someone who is newly married (or about to be) about joining assest and savings? whether to keep separate accounts or joint accounts, etc.

I’ve done some research into this topic before I got married in 2005 and it seems as though keeping your finances separate may be the best bet for taxation and tracking purposes.

The strategy is for the higher income earner to pay for all the expenses, while the lower income earner does the investing. The reason being is that investment gains are taxed in the hands of the person that funded the account.  Thus, it would be best to attribute this money back to the spouse in the lower tax bracket for tax optimization.

When tax season comes along, CRA will expect there to be a paper trail for where the investment money originated from. This is where having separate accounts can be helpful, especially if you are audited. :)

Anyone have anything to add?

Note that I’m not a financial planner or tax expert so please do you own due diligence. My advice above is based on my own experience.

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FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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Neil
11 years ago

Advice based on “higher income earner” is often moot to my generation. My wife and I have incomes in the same tax bracket, and regularly swap position for top earner, depending on who most recently got a raise.

We do manage everything in a joint account, because our experiment with separate accounts usually lead to hard feelings that one person (me) was always on the hook for unusual expenses…the balancing act was also challenging, since this was early in our relationship when we had little-to-no savings.

Even now, though, virtually all of our investments are in tax shelters (TFSA or RRSP), and our excess cash that can’t be sheltered goes to paying down the mortgage. It’s hard to see a downside to our joint accounts.

paulette
12 years ago

Its sounds good for the tax. Although i have doubts of applying this to those couples who are not really in good terms:)

David
13 years ago

Separate accounts, with a joint account for household expenses. I’ve always chosen to do it that way. It makes keeping a paper trail much simpler, and protects you from the spending habits of your partner. Rememeber not all couples are, or remain true to their goals. I have heard too many tales where an account has un-discussed expenditures, which can lead to a very rocky relationship.

David

florch
13 years ago

Good eye opener…we’ve always had everything together where possible – (RRSP’s the obvious exception). Would the Smith Maneuver be an exception where the higher earner would want to own the investment and therefore the tax deduction?

Also (although I know rules change) would any of this be affected by the new income splitting rules in retirement?

Brenna
13 years ago

My husband and I have our own separate bank and IRA accounts and joint household, wealth and other savings accounts. We use quicken and keep all of our investments accounted for. When it comes to tax time; we let the CPA file for us. We still have our separate credit cards and the one duplicate card we have – I don’t use it at all. My husband just authorizes me on two of his cards.

Canadian Money Blog Reviewers
13 years ago

FT: probably the “safest approach indeed”

FJ and CD: I am glad to hear that.. will be less trouble. I guess if I don’t invest more than my spouse’s net income in her investment account, CRA can’t really say anything. I’ll probably ask an accountant to be sure.

Canadian Dream
13 years ago

I handle things similar to FJ. One joint account the everything goes into and then from there it is moved around to the separate investment accounts.

FinancialJungle.com
13 years ago

I have a joint account with my wife just so we can consolidate our incomes and expenses. However, we do have separate trading accounts with similar balances. As for tax saving, I allocate tax-heavy investments under her name. These include income trusts and high interest savings.

Kevin Beitel
13 years ago

Sorry, I meant surplus revenues not… surplus reviews.

Kevin Beitel
13 years ago

Speaking of Mishmashed… Ever wonder why our politicians take surplus reviews generated through taxation and throw it into general revenues? It makes it easier to hide it from the Governor General auditing…