Money and Couples Series: How We Merged Our Finances, Part 2 (To Commingle or Not to Commingle)

Disclaimer - I’m not an attorney, and this is not legal advice.

In Part 1, we discussed how my husband and I logistically combined our day-to-day accounts and set up our joint spending tracking system when we got married. Now in part 2 I want to focus on the non day-to-day accounts, or the retirement accounts for each of us. These accounts were a bit more surprising and required additional discussion because we don’t tend to touch them as often as the day-to-day accounts. There are options with these accounts though and there are things you should know about these accounts too before you get married.

First of all, know that your retirement accounts stay your own - these accounts can only ever have one name on them. Whether it’s a Roth IRA or a old employer 401(k), these accounts are only ever yours and cannot be joint with your spouse or anyone else. (You should make sure to have a beneficiary designated on them though, so that when you eventually do die, they pass smoothly to whoever you like.) Same goes for any contribution limits to these accounts as well, by the way.

Know that your retirement accounts stay your own

You have lots of options here though, all of which are based on the premise of community property vs separate property and in which state you live.

What is community property?

Community property is property that is designated as “community”, or jointly owned with your spouse, even if it’s in just one person’s name. Community property is a Spanish concept in origin and is meant to protect a non-earning spouse in a marriage in case of divorce. If you live in a state that is designated a “community property” state, then any property, with some exceptions, acquired by either of you during marriage is designated as community by default. Separate property then is property that is not community - it was acquired before you got married or meets one of the exceptions (which I won’t go into here).

For example, paychecks earned by either of you during marriage are designated as community and in any divorce, would effectively would be treated as if they had been distributed 50/50 to each of you. You want to be learning this knowledge now when you have the chance to potentially do something about it (like discuss and/or agree to separate arrangements in a prenuptial agreement) and not wait until later when you need it because the divorce is actually happening.

Of course, if you don’t live in a community property state, then any distribution would generally be based on ownership proportions, i.e. whoever received the paycheck ‘owns’ the money from the paycheck.

Commingling? What is that?

All of this can change though if you ‘commingle’ separate property with community property.

For example, if you have old retirement accounts from a previous employer before you were married and no longer contribute anything to it, that remains separate property. Once you roll it over into an account that has post-marriage money (ie a current employer retirement account), that generally becomes tougher to distinguish between the separate property and community property and so that would generally become community property for all intents and purposes.

Talking about it and beyond

There can be quite a few emotions involved here, so do take into account some considerations when you’re having these conversations with your partner. As far as a prenuptial agreement goes, from my (non-legal) standpoint, the conversations involved leading up to the agreement are the most important, even more important than any document that comes out of the discussion. The goal is to get the two of you to think about and discuss different possibilities for different current and future assets and liabilities and how you would feel about each. I personally found that having these discussions enabled the two of us to get even more on the same page about our money together.

Now, we use Mint and Personal Capital to track net worth together - we have linked all of our accounts (both individual and joint) to get an accurate picture of our finances in one place. I highly recommend it for you and your partner too! Because net worth is just a number after adding up all the accounts you own (bank accounts, retirement accounts, etc) and subtracting the accounts you owe (student loans, mortgage, etc), your net worth (jointly) is how you can track financial progress and generally know if you’re doing things right.

The two of us have personally decided that we use a spreadsheet, updated monthly, to keep track of our savings rates, pre-tax spending, and other numbers (including net worth), that we find motivating.

Need help making your personal financial system work for you? Reach out here for a free 15-minute intro chat with Sarah today!

Sarah GerberDecember 1, 2020