With the wedding season upon us, the one question couples often ask is: How do we manage our money now that we live together? And the second most frequently asked question is whether they should open a joint bank account.
Before we get into the advantages and disadvantages of a joint bank account, you and your partner first need to decide on the type of marital contract you want to enter into.
In South Africa, there are three types of marital contracts you can choose from:
COMMUNITY OF PROPERTY
This is the default marriage contract in South Africa, therefore making it the most affordable option. If you do not sign an ante nuptial contract (ANC) before the date of the marriage, you will automatically get married in community of property.
If you get married in community of property, it means that all your assets and liabilities – before and after marriage – are merged into one joint estate. Once you are married you both will be jointly and severally liable for the full debt amount, and it will be your joint responsibility to pay the credit providers back.
OUT OF COMMUNITY OF PROPERTY WITH ACCRUAL
Getting married out of community of property with accrual requires you to sign an ANC with a lawyer before the date of marriage – the date you sign the legal document.
The accrual is a way to ensure that both spouses gain a fair share of the estate should the marriage end.
OUT OF COMMUNITY OF PROPERTY WITHOUT ACCRUAL
With this contract, you and your spouse are separate entities. With this contract, ownership is clear-cut, each spouse is responsible for their own estate, before and after the marriage.
Joint accounts are meant to help couples/families manage their finances better, together. But what are the advantages and disadvantages of opening a joint bank account with your partner?
. It allows both of you to contribute to one account from which you pay your joint household expenses.
. It helps you keep track of your monthly expenses and ensure that the bills are paid. (I had a client who thought her partner was taking care of his share of the expenses but only found out a year later that most of the accounts were in arrears!)
. It saves you the hassle of having to send money to each other, a costly exercise due to banking fees.
. It can help you manage your finances better, as there is transparency and accountability.
. Both of you have equal access to the account. This can create an environment where it’s easier to discuss finances and plan together.
. It can lead to fights if one partner’s spending habits derail the budget.
. In South Africa, there is no true “joint account” because there is always a main account holder with signing rights for the partner.
If the main account holder dies, the account will be frozen until their estate is wound up, which takes time. This could spell a financial disaster if all the cash is in the joint account.
. If the account gets overdrawn, both of you are severally and jointly liable.
. A joint account offers no privacy – you both know exactly where and on what your partner is spending money.
Before you open a joint account, you have to look at your individual situation. Look at both the advantages and disadvantages of a joint account.
1 TRANSPARENCY: Before opening a joint bank account, you and your partner have to be honest about how much you both earn, your different financial responsibilities and the debts you have.
2 BUDGETING: To avoid unnecessary fights, you and your partner will have to budget and agree on how much you will both contribute into the joint account. Ideally, this should be in proportion to how much each partner earns.
3 SHOP AROUND: Do your research before opening an account by shopping around for an account that meets both your needs. The bank account should be cost effective, preferably with low fees and other benefits.
4 KNOW YOUR MONEY PERSONALITIES:If one of you is the spender and the other spouse is a saver, your opposite money personalities can potentially cause fights about finances.
You have to be honest about your spending habits and based on that make a decision on whether a joint account will work to the advantage of your union or not.
The ideal situation or middle ground would be for each of you to still hold your own separate account and contribute to a joint account from which you manage the household budget.
This ensures that you maintain financial independence but also allows you to manage your household expenses and financial goals together.