How should a couple with disparate earnings divide costs?
October 8, 2013 6:42 AM Subscribe
My fiancé makes 200,000 a year while I make 116,000. He has an annual bonus potential between 300,000 and 600,000 in addition. My bonus potential is between 2,000 and 11,600.
If we buy a house with a monthly mortgage of 4700, real estate tax included, what is a fair division of our monthly costs given the disparity in our earnings?
I was thinking I pay half the principal, mortgage and tax, as well as most groceries, and he pays for everything else. The latter would include energy and maintenance (heating, electric, housecleaning, landscaping) plus eating out. Also, various repair work. Later, a larger remodel, when his bonus happens.
If we have to sell down the line we split the profit 50-50.
Is that fair?
If we buy a house with a monthly mortgage of 4700, real estate tax included, what is a fair division of our monthly costs given the disparity in our earnings?
I was thinking I pay half the principal, mortgage and tax, as well as most groceries, and he pays for everything else. The latter would include energy and maintenance (heating, electric, housecleaning, landscaping) plus eating out. Also, various repair work. Later, a larger remodel, when his bonus happens.
If we have to sell down the line we split the profit 50-50.
Is that fair?
Since he's going to be your husband, why aren't you paying all of these expenses out of one bank account?
posted by roomthreeseventeen at 6:50 AM on October 8, 2013 [47 favorites]
posted by roomthreeseventeen at 6:50 AM on October 8, 2013 [47 favorites]
we work on the principle of "equal shares, not equal amounts". Our monthly debt share is calculated by percentage of our respective incomes, and we see this as the most fair arrangement (as I am earning a bit more).
So, to each their own debt payments, and purchases of luxuries (shoes, clothes, whatever) - we don't have allowances for those either. What ever is left over after debt budgeting is your to do with as you wish.
posted by alchemist at 6:50 AM on October 8, 2013 [2 favorites]
So, to each their own debt payments, and purchases of luxuries (shoes, clothes, whatever) - we don't have allowances for those either. What ever is left over after debt budgeting is your to do with as you wish.
posted by alchemist at 6:50 AM on October 8, 2013 [2 favorites]
Shared finances aren't for everyone, roomthreeseventeen.
I would make it easy on yourselves. Open another bank account into which you deposit an equal percentage of your earnings, enough to cover all shared costs like mortgage, etc. The bonus complicates that a bit; it should probably be the same percentage that he's been putting in already.
Revenue from selling would go back into that account, and if you just want to cash out you can split it according to the split with which you're sharing costs already. Or maybe marital property laws in your location entitle you to 50%.
Have you seen a lawyer about possibly drafting a prenup? I only ask because keeping your finances as separate as possible (like you seem to want) is tough with a large shared investment like an expensive house.
posted by supercres at 6:56 AM on October 8, 2013 [9 favorites]
I would make it easy on yourselves. Open another bank account into which you deposit an equal percentage of your earnings, enough to cover all shared costs like mortgage, etc. The bonus complicates that a bit; it should probably be the same percentage that he's been putting in already.
Revenue from selling would go back into that account, and if you just want to cash out you can split it according to the split with which you're sharing costs already. Or maybe marital property laws in your location entitle you to 50%.
Have you seen a lawyer about possibly drafting a prenup? I only ask because keeping your finances as separate as possible (like you seem to want) is tough with a large shared investment like an expensive house.
posted by supercres at 6:56 AM on October 8, 2013 [9 favorites]
Depends on how you want to deal with money in your relationship. I have to say that I would be a bit sad if my husband and I were so wealthy but we still nickled and dimed one another by splitting costs for shared things, but that's between me and my (non-existent) husband.
I think that because your earnings are so disparate you should use a percentage system. My boyfriend and I do that with dates - he makes $10,000 more a year than I do so he pays for more stuff (but we are still well below the poverty line, which might have something do with how important the proportional split is to us).
What have you done prior to this with your finances? The way you already manage your expenses together might be a helpful model for big purchases, too.
posted by sockermom at 7:00 AM on October 8, 2013 [6 favorites]
I think that because your earnings are so disparate you should use a percentage system. My boyfriend and I do that with dates - he makes $10,000 more a year than I do so he pays for more stuff (but we are still well below the poverty line, which might have something do with how important the proportional split is to us).
What have you done prior to this with your finances? The way you already manage your expenses together might be a helpful model for big purchases, too.
posted by sockermom at 7:00 AM on October 8, 2013 [6 favorites]
There's no absolute standard for "fair" here because every couple/family approaches their finances in a different way. My husband earns 3-4X what I do, but we put all of our income in one account and don't monitor who spends more of it. That wouldn't work for plenty of families.
So you need to sit down together and work out which way is going to work for you two. Some people think it's fair to put all the money in one account for bills and savings and then give each partner an "allowance" either the same amount, or proportional to their earnings. Some people think that the only fair way is to divide all bills 50-50 regardless of income. Some people just lump it all in together. Some people keep all their receipts and pay either other back. etc. etc. There is no right or wrong way (as long as you're not going into debt or whatever) there's just what works to you and jibes with your own personal sense of fairness, which may not be the same as someone else's.
posted by gaspode at 7:04 AM on October 8, 2013 [4 favorites]
So you need to sit down together and work out which way is going to work for you two. Some people think it's fair to put all the money in one account for bills and savings and then give each partner an "allowance" either the same amount, or proportional to their earnings. Some people think that the only fair way is to divide all bills 50-50 regardless of income. Some people just lump it all in together. Some people keep all their receipts and pay either other back. etc. etc. There is no right or wrong way (as long as you're not going into debt or whatever) there's just what works to you and jibes with your own personal sense of fairness, which may not be the same as someone else's.
posted by gaspode at 7:04 AM on October 8, 2013 [4 favorites]
Fairness isn't really the issue--and I'd hasten to add that I hardly think it "fair" to split proceeds 50/50 if he alone bears the costs of the improvements--it's really just how you decide with your partner how you want to do it.
From your framing, it sounds like you want us to be a sounding board for a proposal to your fiance. Metafilter is irrelevant to that discussion.
Personally, my wife and I (with a similar income disparity) view ourselves as a unit; while we maintain separate bank accounts, it's all family money, regardless of the source. I think that's more "fair."
posted by Admiral Haddock at 7:10 AM on October 8, 2013 [14 favorites]
From your framing, it sounds like you want us to be a sounding board for a proposal to your fiance. Metafilter is irrelevant to that discussion.
Personally, my wife and I (with a similar income disparity) view ourselves as a unit; while we maintain separate bank accounts, it's all family money, regardless of the source. I think that's more "fair."
posted by Admiral Haddock at 7:10 AM on October 8, 2013 [14 favorites]
What's fair is whatever works for the two of you. Fair is a discussion, and compromise - your proposal sounds to me like a reasonable place to start the conversation, not end it. Take it to your fiance and see what he thinks about it.
For whatever it's worth, to me, that sounds mostly pretty fair except for splitting the house profits. I'm in agreement with Admiral Haddock that were I your fiancee, that part of the proposal might give me pause and would probably be where I'd want to kick around some other options and try to come up with one that we could both be happy with.
But my assessment of fair would also depend on things you haven't told us. Is one of you carrying around tons of student loans? Consumer debt? Health issues that tend to rack up high medical bills? Way ahead of the other on retirement savings? Driving a car that's about to kick the bucket and maybe needing to save up a bit for a replacement? There may be other short- and long-term considerations beyond just incoming cash flow that tilt the balance of fair, here.
posted by Stacey at 7:17 AM on October 8, 2013 [2 favorites]
For whatever it's worth, to me, that sounds mostly pretty fair except for splitting the house profits. I'm in agreement with Admiral Haddock that were I your fiancee, that part of the proposal might give me pause and would probably be where I'd want to kick around some other options and try to come up with one that we could both be happy with.
But my assessment of fair would also depend on things you haven't told us. Is one of you carrying around tons of student loans? Consumer debt? Health issues that tend to rack up high medical bills? Way ahead of the other on retirement savings? Driving a car that's about to kick the bucket and maybe needing to save up a bit for a replacement? There may be other short- and long-term considerations beyond just incoming cash flow that tilt the balance of fair, here.
posted by Stacey at 7:17 AM on October 8, 2013 [2 favorites]
There is no 'fair' model other than what you both agree is fair. It's your marriage, and ultimately you have to decide what you, as a couple consider fair.
For example: if your fiancé makes 200k and you make 116k, after tax the net difference between those two salaries is probably all disposable income for him. So were you to go 50:50 on fixed costs like the mortgage you will end up with a much smaller disposable income. This is fair in terms of inputs but unfair in terms of effects. It means if your fiancé wants to spend money - remodeling the bathroom, swish holidays etc and you try and match him then you'll be putting a lot less into your savings.
This is why you need the conversation. You talk about how much independence or ownership you want to retain over your own finances. You talk about expectations of lifestyle. You talk about sacrifices - whether one of you trades lifestyle up or down to meet the other's budget, and what happens if you have kids where more often than not the wife's career takes a step back.
In your circumstances I think it's worth addressing hypotheticals like where the potential $600k bonus goes. I mean, a $4,700 monthly mortgage can get you a nice place. But if your fiancé ends up making $800k a year is he going to want to live in a house he can basically buy for cash?
You also talk about what marriage means. For me it emphatically means richer and poorer. But some people want or need an exit strategy if the worst comes to the worst. In short - when you talk about money, and especially when you're talking about a lot of money, you are also really talking about attitudes to marriage generally.
posted by MuffinMan at 7:20 AM on October 8, 2013 [6 favorites]
For example: if your fiancé makes 200k and you make 116k, after tax the net difference between those two salaries is probably all disposable income for him. So were you to go 50:50 on fixed costs like the mortgage you will end up with a much smaller disposable income. This is fair in terms of inputs but unfair in terms of effects. It means if your fiancé wants to spend money - remodeling the bathroom, swish holidays etc and you try and match him then you'll be putting a lot less into your savings.
This is why you need the conversation. You talk about how much independence or ownership you want to retain over your own finances. You talk about expectations of lifestyle. You talk about sacrifices - whether one of you trades lifestyle up or down to meet the other's budget, and what happens if you have kids where more often than not the wife's career takes a step back.
In your circumstances I think it's worth addressing hypotheticals like where the potential $600k bonus goes. I mean, a $4,700 monthly mortgage can get you a nice place. But if your fiancé ends up making $800k a year is he going to want to live in a house he can basically buy for cash?
You also talk about what marriage means. For me it emphatically means richer and poorer. But some people want or need an exit strategy if the worst comes to the worst. In short - when you talk about money, and especially when you're talking about a lot of money, you are also really talking about attitudes to marriage generally.
posted by MuffinMan at 7:20 AM on October 8, 2013 [6 favorites]
There's no one "right/fair" way of doing things, different people are happy with different methods. My other half makes nearly double what I do. We split all shared costs (fuel, groceries, utilities, mortgage, childcare, car and house repair bills) 50/50 and we have a joint bank account that we use just for paying these. We each pay our share into that account at the beginning of the month.
posted by EndsOfInvention at 7:23 AM on October 8, 2013
posted by EndsOfInvention at 7:23 AM on October 8, 2013
Previous questions on AskMe have advocated splitting the rent/mortgage in equal proportion to your respective incomes. The person who makes 2/3rds of the income pays 2/3rds of the rent/mortgage since, obviously, your mortgage was chosen due to the ability of your combined income to pay for it.
While it would count as a joint asset split 50/50 in the event of a split or divorce, that is the nature and risk of having joint assets, absent any other written contracts.
posted by deanc at 7:25 AM on October 8, 2013
While it would count as a joint asset split 50/50 in the event of a split or divorce, that is the nature and risk of having joint assets, absent any other written contracts.
posted by deanc at 7:25 AM on October 8, 2013
The answer to your question depends partly on how much "everything else" costs. Also, make sure you both understand who pays for the unexpected expenses that arise.
posted by lyssabee at 7:27 AM on October 8, 2013
posted by lyssabee at 7:27 AM on October 8, 2013
Whatever you decide, agree to revisit it once you have kids.
posted by wutangclan at 7:35 AM on October 8, 2013 [6 favorites]
posted by wutangclan at 7:35 AM on October 8, 2013 [6 favorites]
Hmm. This question is very foreign to me because you both really make a lot of money so it's hard for me to understand a scarcity approach to the situation where you feel like you need to mete everything out in order for your budget to work. Maybe it doesn't seem like a lot to you. I've heard lots of rich people don't realize they are rich because they tend to compare themselves to richer people.
In terms of what's good for your relationship, it is probably advisable to take a generosity approach and offer to contribute as much as possible, looking at your budget realistically. When you are done paying for your part of the mortgage, what are you going to spend your remaining part of the money on? Do you have the mindset of acting, budgeting and spending as a team?
I'm sure there's relationships where it works nicely to parcel everything out so precisely. To me that would make more sense when finances were tight and there's good reason to, as opposed to the situation of having lots of money and wanting to make sure that everything goes with an abstract concept of fairness.
posted by mermily at 7:44 AM on October 8, 2013 [3 favorites]
In terms of what's good for your relationship, it is probably advisable to take a generosity approach and offer to contribute as much as possible, looking at your budget realistically. When you are done paying for your part of the mortgage, what are you going to spend your remaining part of the money on? Do you have the mindset of acting, budgeting and spending as a team?
I'm sure there's relationships where it works nicely to parcel everything out so precisely. To me that would make more sense when finances were tight and there's good reason to, as opposed to the situation of having lots of money and wanting to make sure that everything goes with an abstract concept of fairness.
posted by mermily at 7:44 AM on October 8, 2013 [3 favorites]
This question confuses me because in reality everything is pooled in a marriage, but operating on the basis of seperate finances, how would you be able to afford a $2,350/month mortgage payment on a $116,000 yearly salary? That seems kindof tight to me.
posted by Asparagus at 7:47 AM on October 8, 2013 [2 favorites]
posted by Asparagus at 7:47 AM on October 8, 2013 [2 favorites]
What's "fair" shouldn't be decided by the internet mob (as much fun as we can be). You have to reach an ongoing agreement that you both feel great about. This shouldn't be too hard given how much you both make.
You may, however, want to treat this predicament as an opportunity to really discuss financial issues. What will you do if relatives get sick or need a loan? What are your retirement philosophies? What is your insurance situation regarding death and disability? What do you think you're entitled to in the unfortunate event of a divorce? What if there are kids? What about unemployment, going back to school, or changing careers?
Basically: you have income and assets, you need to figure out what to do with those resources, and isn't it best to figure those issues out when you're deeply in love? I recommend talking with some financial planners and, if you want to write things down, putting together a pre-nup with the decisions you make. You can always revisit and adjust the agreement as time goes along.
Ps - I know the word pre-nup is terrifying for people who are engaged, but the pre-nup process is worth going through, even if you don't sign the papers (though you should sign them).
posted by eisenkr at 7:59 AM on October 8, 2013 [1 favorite]
You may, however, want to treat this predicament as an opportunity to really discuss financial issues. What will you do if relatives get sick or need a loan? What are your retirement philosophies? What is your insurance situation regarding death and disability? What do you think you're entitled to in the unfortunate event of a divorce? What if there are kids? What about unemployment, going back to school, or changing careers?
Basically: you have income and assets, you need to figure out what to do with those resources, and isn't it best to figure those issues out when you're deeply in love? I recommend talking with some financial planners and, if you want to write things down, putting together a pre-nup with the decisions you make. You can always revisit and adjust the agreement as time goes along.
Ps - I know the word pre-nup is terrifying for people who are engaged, but the pre-nup process is worth going through, even if you don't sign the papers (though you should sign them).
posted by eisenkr at 7:59 AM on October 8, 2013 [1 favorite]
Many above have mentioned contributions in a ratio based on earnings. Another option, which has worked for me in more than one relationship with disparate income, is contributions on the basis of disposable income. You mutually decide what is "mandatory" (like maybe housing if it's not joint, gas/transportation to get to work, maybe health insurance, maybe taxes if you're paying those sepatately, maybe costs for children if one of you has a kid, maybe paying off student loans if the other was fully supported thru college by family).
Income, minus mandatory expenses, equals disposable income. You can use ratio of disposable income to decide in what proportion to contribute to a joint account, after $ is in the joint, it is owned 50/50 and you can pay joint expenses out of it. Or, if you don't want a shared acct for some reason, you can use the same ratio to divide shared expenses.
posted by quinoa at 7:59 AM on October 8, 2013 [1 favorite]
Income, minus mandatory expenses, equals disposable income. You can use ratio of disposable income to decide in what proportion to contribute to a joint account, after $ is in the joint, it is owned 50/50 and you can pay joint expenses out of it. Or, if you don't want a shared acct for some reason, you can use the same ratio to divide shared expenses.
posted by quinoa at 7:59 AM on October 8, 2013 [1 favorite]
Also: don't forget taxes! You may be losing more of your 116k to the government once you get married. That has to factor into your budget.
posted by eisenkr at 8:00 AM on October 8, 2013
posted by eisenkr at 8:00 AM on October 8, 2013
Ratio of earnings doesn't work because you end up with a disparity in discretionary income.
Honestly - speaking as someone who has personal experience with this sort of situation - we found what works best for us is one bank account.
Anything else just seemed difficult for us.
posted by JPD at 8:13 AM on October 8, 2013 [1 favorite]
Honestly - speaking as someone who has personal experience with this sort of situation - we found what works best for us is one bank account.
Anything else just seemed difficult for us.
posted by JPD at 8:13 AM on October 8, 2013 [1 favorite]
... in reality everything is pooled in a marriage, but operating on the basis of seperate finance...
I'm not sure if you mean, like, in the sense that a married couple operates as a unit, but legally, assets are pooled only if people choose for it to be (e.g. creating joint bank accounts, both signing off loans, etc.) Pooling of assets isn't inherent or compelled if you do not necessarily need it to be.
posted by griphus at 8:16 AM on October 8, 2013 [1 favorite]
I'm not sure if you mean, like, in the sense that a married couple operates as a unit, but legally, assets are pooled only if people choose for it to be (e.g. creating joint bank accounts, both signing off loans, etc.) Pooling of assets isn't inherent or compelled if you do not necessarily need it to be.
posted by griphus at 8:16 AM on October 8, 2013 [1 favorite]
My god your household has a shit tonne of money flowing in per year, more than I have in 20 years...
Anyway, I would engineer your approach a little differently. Get an "us" bank account and decide what percentage of of your incomes should go to the "us" account. For example, put 40% of his income and 40% of your income into the "us" account. Then draw up your budget for shared things, like a house (and its care) and groceries from that shared account's amount.
For more complex and down the road things like if you sell the house and divorce, you need a lawyer.
posted by WeekendJen at 8:20 AM on October 8, 2013 [1 favorite]
Anyway, I would engineer your approach a little differently. Get an "us" bank account and decide what percentage of of your incomes should go to the "us" account. For example, put 40% of his income and 40% of your income into the "us" account. Then draw up your budget for shared things, like a house (and its care) and groceries from that shared account's amount.
For more complex and down the road things like if you sell the house and divorce, you need a lawyer.
posted by WeekendJen at 8:20 AM on October 8, 2013 [1 favorite]
Nobody can tell you what's fair for YOUR relationship.
I can tell you how we deal with money: all our money goes in to one bank account and all expenses are paid from that account. Any money he earns is mine, any money I earn is his. We agree upon a budget together. We both keep a close eye on our financial tracking software. We are both responsible for reaching our savings goals and cutting spending in the ways we've discussed, and we are both allowed to spend discretionary money however we see fit without asking the other for permission, since we've already agreed to be guided by the same principles.
He is a public school teacher and I am an ABD PhD student. He makes more than I do right now, but 2 years ago it was the other way around and 2 years in the future it's likely to flip-flop again. We just don't bother keeping score.
Reasons this probably works for us: we have yet to argue about money (we've been married for 2 years, together for 14), neither of us has any expensive hobbies, we have the same values and like to spend money on the same things, we have enough money that we don't have to make extremely difficult decisions like "food or heat" (which obviously cuts down on stress), and neither of us feels like Having Money (rather than being able to live as we want to) is important.
posted by Cygnet at 8:22 AM on October 8, 2013
I can tell you how we deal with money: all our money goes in to one bank account and all expenses are paid from that account. Any money he earns is mine, any money I earn is his. We agree upon a budget together. We both keep a close eye on our financial tracking software. We are both responsible for reaching our savings goals and cutting spending in the ways we've discussed, and we are both allowed to spend discretionary money however we see fit without asking the other for permission, since we've already agreed to be guided by the same principles.
He is a public school teacher and I am an ABD PhD student. He makes more than I do right now, but 2 years ago it was the other way around and 2 years in the future it's likely to flip-flop again. We just don't bother keeping score.
Reasons this probably works for us: we have yet to argue about money (we've been married for 2 years, together for 14), neither of us has any expensive hobbies, we have the same values and like to spend money on the same things, we have enough money that we don't have to make extremely difficult decisions like "food or heat" (which obviously cuts down on stress), and neither of us feels like Having Money (rather than being able to live as we want to) is important.
posted by Cygnet at 8:22 AM on October 8, 2013
how would you be able to afford a $2,350/month mortgage payment on a $116,000 yearly salary? That seems kindof tight to me.'
I'm guessing you haven't rented an apartment in a big city in a while... Our rent is a bit more than that and our COMBINED income is significantly less. We make it work just fine.
posted by Cygnet at 8:24 AM on October 8, 2013 [1 favorite]
I'm guessing you haven't rented an apartment in a big city in a while... Our rent is a bit more than that and our COMBINED income is significantly less. We make it work just fine.
posted by Cygnet at 8:24 AM on October 8, 2013 [1 favorite]
Pooling of assets isn't inherent or compelled if you do not necessarily need it to be.
Doesn't this depend on the state? Texas is a community property state and my understanding is that in a divorce, our separate bank accounts aren't actually separate. Our house that we purchased as a married couple is 50% his even if "I" payed more equity into it.
This seems like a really tricky question to me because of the "future potential marriage and thus the potential for a divorce that could negate any prior verbal agreements in ways that Internet Commenters can't predict." I would really really want to speak to an expert, especially if I was the lesser-earning party.
posted by muddgirl at 8:26 AM on October 8, 2013 [2 favorites]
Doesn't this depend on the state? Texas is a community property state and my understanding is that in a divorce, our separate bank accounts aren't actually separate. Our house that we purchased as a married couple is 50% his even if "I" payed more equity into it.
This seems like a really tricky question to me because of the "future potential marriage and thus the potential for a divorce that could negate any prior verbal agreements in ways that Internet Commenters can't predict." I would really really want to speak to an expert, especially if I was the lesser-earning party.
posted by muddgirl at 8:26 AM on October 8, 2013 [2 favorites]
Doesn't this depend on the state?
I was only thinking at the IRS level so, yeah, you're absolutely right.
posted by griphus at 8:28 AM on October 8, 2013
I was only thinking at the IRS level so, yeah, you're absolutely right.
posted by griphus at 8:28 AM on October 8, 2013
Mod note: Folks, please keep your comments primarily focusing on the question and not down the rabbit hole of property/divorce laws in individual states
posted by jessamyn (staff) at 8:28 AM on October 8, 2013
posted by jessamyn (staff) at 8:28 AM on October 8, 2013
You earn very well, better than most(?), but my partner earns 2x what I do, and as people above say: we split everything (mortgage, bills) 50/50. She gets bonuses, I don't.
And we don't have joint bank accounts.
We have always kept our taxes/accounts/everything separate, and I have always advocated this approach. If you establish it, it becomes second nature.
(And yes, there are still issues with money. She can afford to spend more than I do. It is a constant source of friction that she can afford to spend X on Y and that is 10% of my pre-tax income. You cope. You prioritise. And I have no idea how the law would shake out if called in).
posted by Mezentian at 8:30 AM on October 8, 2013 [1 favorite]
And we don't have joint bank accounts.
We have always kept our taxes/accounts/everything separate, and I have always advocated this approach. If you establish it, it becomes second nature.
(And yes, there are still issues with money. She can afford to spend more than I do. It is a constant source of friction that she can afford to spend X on Y and that is 10% of my pre-tax income. You cope. You prioritise. And I have no idea how the law would shake out if called in).
posted by Mezentian at 8:30 AM on October 8, 2013 [1 favorite]
To actually answer the question - I make about 2x what my spouse makes, and we divide our joint expenses according to proportion of anticipated income (this includes mortgage, groceries, utilities, eating out, and vacations). This means he has less disposable income than I do, but in exchange I also pay the lions share of home improvement expenses, as well as funding a retirement account basically on my own.
Your income disparity is much greater than mine, so what's "fair" for our relationship isn't going to be "fair" for yours. I think the most important thing is that your lifestyles and opinions on money are in sync, and that you can have tough finances conversations without fighting. Otherwise, no arrangement is going to work.
posted by muddgirl at 8:39 AM on October 8, 2013
Your income disparity is much greater than mine, so what's "fair" for our relationship isn't going to be "fair" for yours. I think the most important thing is that your lifestyles and opinions on money are in sync, and that you can have tough finances conversations without fighting. Otherwise, no arrangement is going to work.
posted by muddgirl at 8:39 AM on October 8, 2013
Is that fair?
One thing to consider, as you're looking down the barrel of a 30 year mortgage and a marriage which will hopefully last you the rest of your life, is that fortunes change over the course of a lifetime, sometimes radically. People get sick, they inherit money, they get promoted, they get demoted, they take time off to write a book or have kids. And that's 'fair.'
A joint account and a single big pool of money can save you a lot of math.
If it is really important to you, because of your personal pride or your shared values, there are a lot of different ways to make things 'fair' but it's a lot of work not just to come up with the system but run it month after month, year after year.
If I were you I'd throw it in a big pot and each of you gets an allowance of 1000 a month (or whatever) for personal spendiness and the feeling of having your own money, and then just never think about it beyond that.
posted by A Terrible Llama at 9:35 AM on October 8, 2013 [12 favorites]
One thing to consider, as you're looking down the barrel of a 30 year mortgage and a marriage which will hopefully last you the rest of your life, is that fortunes change over the course of a lifetime, sometimes radically. People get sick, they inherit money, they get promoted, they get demoted, they take time off to write a book or have kids. And that's 'fair.'
A joint account and a single big pool of money can save you a lot of math.
If it is really important to you, because of your personal pride or your shared values, there are a lot of different ways to make things 'fair' but it's a lot of work not just to come up with the system but run it month after month, year after year.
If I were you I'd throw it in a big pot and each of you gets an allowance of 1000 a month (or whatever) for personal spendiness and the feeling of having your own money, and then just never think about it beyond that.
posted by A Terrible Llama at 9:35 AM on October 8, 2013 [12 favorites]
Like everyone else says, this has as much to do with what the two of you feel is fair, and I would say when you decide what "fair" means, you also discuss it in context of fluctuations such as loss of job, parental leave, disability. It's not just about today.
We use a proportional system. We don't have the problem of one person making half a million in bonuses (more like $2000), but we have a rough agreement about what that money is. If I make my bonuses, it's because I've busted my ass, and he might have had to make his own dinner occasionally. So a little of that is mine for me to do what I will with. The rest goes into savings.
I think you need a professional to help you guys figure out what to do about the bonus money, as that money is so substantial that it needs to be managed with a mind to taxes, retirement, and other things that are going to be split and distributed if you split up. I would work up the proportional contributions* based on base salary.
*In our case, we added up all joint costs - groceries, car insurance, bills, crap - and calculated the percentage of our incomes that would cover those things and savings. I don't know what the percentage is right this second, but say it's 57%. 57% of my paycheck goes into the joint account every payday. Joint expenses are paid out of that account.
I think the "I pay for groceries and you pay the electric bill" kind of division doesn't really grow appropriately beyond roommate stage (not that I would ever make that kind of agreement with a roommate either). I also don't believe that "it's all the same money" is appropriate to everyone's lifestyle or situation.
It is really very important that you have these talks out loud with voices, not in your heads with imaginary people, before you get married though. He is making the kind of money that may very well come with some expectations that will surprise you, and not the kind of surprise you want to get when you're a couple years in and freshly pregnant.
posted by Lyn Never at 9:44 AM on October 8, 2013 [5 favorites]
We use a proportional system. We don't have the problem of one person making half a million in bonuses (more like $2000), but we have a rough agreement about what that money is. If I make my bonuses, it's because I've busted my ass, and he might have had to make his own dinner occasionally. So a little of that is mine for me to do what I will with. The rest goes into savings.
I think you need a professional to help you guys figure out what to do about the bonus money, as that money is so substantial that it needs to be managed with a mind to taxes, retirement, and other things that are going to be split and distributed if you split up. I would work up the proportional contributions* based on base salary.
*In our case, we added up all joint costs - groceries, car insurance, bills, crap - and calculated the percentage of our incomes that would cover those things and savings. I don't know what the percentage is right this second, but say it's 57%. 57% of my paycheck goes into the joint account every payday. Joint expenses are paid out of that account.
I think the "I pay for groceries and you pay the electric bill" kind of division doesn't really grow appropriately beyond roommate stage (not that I would ever make that kind of agreement with a roommate either). I also don't believe that "it's all the same money" is appropriate to everyone's lifestyle or situation.
It is really very important that you have these talks out loud with voices, not in your heads with imaginary people, before you get married though. He is making the kind of money that may very well come with some expectations that will surprise you, and not the kind of surprise you want to get when you're a couple years in and freshly pregnant.
posted by Lyn Never at 9:44 AM on October 8, 2013 [5 favorites]
I really liked A Practical Wedding's post about combining finances, which might be a good read about pros and cons of combining or not combining finances after marriage.
What is fair is what will depend on how the two of you think about money, think about the two of you as an income making/spending unit, what assets you're bringing into the marriage and what kind of spending personalities you have. Personally, we treat marriage as "mini-socalism" and I can't picture doing it any other way.
posted by fontophilic at 9:46 AM on October 8, 2013
What is fair is what will depend on how the two of you think about money, think about the two of you as an income making/spending unit, what assets you're bringing into the marriage and what kind of spending personalities you have. Personally, we treat marriage as "mini-socalism" and I can't picture doing it any other way.
posted by fontophilic at 9:46 AM on October 8, 2013
I'd recommend two things.
Pre-marital classes so that you and your intended can really understand the options for finances within a marriage as well being sure that you're on the same page financially for now and for the future.
Go to an accountant, a CPA who deals with high income wage earners. You need professional advice on how to manage a hefty sum of dough, specifically so you can shield your earnings and make good financial choices.
A third stop may be to an attorney to discuss estate planning and trusts. I'm serious, that's a significant chunk of change there!
You need to be good stewards of your blessings.
I enjoy having joint accounts. It makes bill paying easy and budgeting easy. I'm not playing around with the dough you two are pulling down, but knowing exactly what's coming in and what's going out and what's getting socked away is important to me. Both partners should know this and understand it.
The US government views a married couple as one taxpaying entity. Tax benefits are determined as Married, Filing Jointly, and I think that if I'm Married Filing Jointly, I should be Married, Banking Jointly.
Of course, these are things you should be discussing with your beshert.
But seriously, this isn't chump change, so get the advice from professionals.
posted by Ruthless Bunny at 10:23 AM on October 8, 2013 [2 favorites]
Pre-marital classes so that you and your intended can really understand the options for finances within a marriage as well being sure that you're on the same page financially for now and for the future.
Go to an accountant, a CPA who deals with high income wage earners. You need professional advice on how to manage a hefty sum of dough, specifically so you can shield your earnings and make good financial choices.
A third stop may be to an attorney to discuss estate planning and trusts. I'm serious, that's a significant chunk of change there!
You need to be good stewards of your blessings.
I enjoy having joint accounts. It makes bill paying easy and budgeting easy. I'm not playing around with the dough you two are pulling down, but knowing exactly what's coming in and what's going out and what's getting socked away is important to me. Both partners should know this and understand it.
The US government views a married couple as one taxpaying entity. Tax benefits are determined as Married, Filing Jointly, and I think that if I'm Married Filing Jointly, I should be Married, Banking Jointly.
Of course, these are things you should be discussing with your beshert.
But seriously, this isn't chump change, so get the advice from professionals.
posted by Ruthless Bunny at 10:23 AM on October 8, 2013 [2 favorites]
The only thing that is "fair" is whatever you and your fiance work out. There's no right or wrong way, only what you two decide to do. Is your fiance proposing a different scheme? it would help if we knew if there was another proposal on the table.
My husband and I each contribute roughly the same amount into a joint account every month and pay all our joint expenses (mortgage, food, entertainment, child expenses) out of that and whatever amount we have leftover above that set joint account amount we can use however we sit fit.
If your fiance is proposing joint expenses that are more than you, as the one making less salary, can afford to contribute equally to, I suggest he fund them himself.
posted by otherwordlyglow at 10:48 AM on October 8, 2013
My husband and I each contribute roughly the same amount into a joint account every month and pay all our joint expenses (mortgage, food, entertainment, child expenses) out of that and whatever amount we have leftover above that set joint account amount we can use however we sit fit.
If your fiance is proposing joint expenses that are more than you, as the one making less salary, can afford to contribute equally to, I suggest he fund them himself.
posted by otherwordlyglow at 10:48 AM on October 8, 2013
Before we pooled our incomes into one account, my husband and I split costs 60/40, as our incomes were (roughly) that percentage.
He usually gets an end-of-year bonus; I do not. We did not (and do not) account for his bonus when budgeting, because it's variable; we budget using our yearly salaries. When he gets the bonus, we treat it as just that: a bonus, which we put toward savings, mortgage, new electronic toys, whatever. It's served us well, as we don't end up overstretching ourselves, and in the occasional year when he gets a very small or no bonus (he got extra days of vacation in lieu of money one year), our regular expenses are still no problem to meet.
posted by telophase at 11:23 AM on October 8, 2013
He usually gets an end-of-year bonus; I do not. We did not (and do not) account for his bonus when budgeting, because it's variable; we budget using our yearly salaries. When he gets the bonus, we treat it as just that: a bonus, which we put toward savings, mortgage, new electronic toys, whatever. It's served us well, as we don't end up overstretching ourselves, and in the occasional year when he gets a very small or no bonus (he got extra days of vacation in lieu of money one year), our regular expenses are still no problem to meet.
posted by telophase at 11:23 AM on October 8, 2013
My partner and I (we are unmarried) have a big income disparity, and we decided to split it proportionally to our incomes. However, rather than opening another bank account we just looked at all the monthly outgoings and each pay different things to add up to roughly a proportional share. So for example he pays the whole mortgage and childcare bills, and I pay all the household bills and grocery shopping. We pre-agreed on the percentage of our leftover income that gets saved, and that is done automatically every month. Then we don't have any messing about with transferring money to other checking accounts, and any money left over in our own accounts is for us to save or spend.
posted by Joh at 11:30 AM on October 8, 2013
posted by Joh at 11:30 AM on October 8, 2013
We also have an income disparity. We put all our money into one joint account, from which joint expenses (everything on your list) and savings are drawn. All of these expenses have to be agreed upon by both of us. Then, every month, we each get an equal stipend which gets deposited into our own individual accounts. We can each spend this anyway we choose.
The joint account saves us from doing math. It also helps control costs. I basically never even *look* at that pile of money because I am not allowed to spend from it. I have to keep myself within the much smaller limits of my individual account. But I can buy whatever I want with that money, so it avoids conflicts.
One of the reasons I like this system is that it doesn't have to be revisited as we change circumstances. Kid? No problem. That's a joint expense. Raise for one of us? Goes to joint. Bonus? Goes to joint. Profit from selling? Goes back into joint.
This basically comes down to each person putting in what they can afford do, as opposed to a 50/50 split.
Good luck!
posted by pizzazz at 11:36 AM on October 8, 2013 [2 favorites]
The joint account saves us from doing math. It also helps control costs. I basically never even *look* at that pile of money because I am not allowed to spend from it. I have to keep myself within the much smaller limits of my individual account. But I can buy whatever I want with that money, so it avoids conflicts.
One of the reasons I like this system is that it doesn't have to be revisited as we change circumstances. Kid? No problem. That's a joint expense. Raise for one of us? Goes to joint. Bonus? Goes to joint. Profit from selling? Goes back into joint.
This basically comes down to each person putting in what they can afford do, as opposed to a 50/50 split.
Good luck!
posted by pizzazz at 11:36 AM on October 8, 2013 [2 favorites]
I think it's okay to split expenses however the two of you deem fair.
That said... To me, your split would seem unfair, because you're asking your fiance to pay for more of the expenses, but you want to gain equal equity in the house.
My partner and I don't earn nearly what you and your partner do but we do have different income levels. I make more income and I ended up buying the house, paying 100% of the down payment, with my partner paying me a monthly rent that's below market rent. His "equity" is in the cash he can save up by not having to put as much into the mortgage/utilities. He also benefits because if we sell it out, I will probably ask him to pay the same amount, but we'll have a nicer place. Or if we end up renting it out, he will probably get part of the rental income in return for helping do the managing.
In my mind, you can share *all* the necessities 50/50, including house down payment, and you get 50% equity. He can choose to treat you to dinner, theater, vacations, etc. But then it's completely his choice and you don't get to be upset if he decides he wants to save money.
OR you split things proportionally, including the down payment, in which case you get that proportion of the house. Then you have equal rights to make decisions about all the expenses you budgeted.
OR you do what we did and pay rent and not worry about the house, down payment, equity, etc. And pay the other shared bills as you see fair.
posted by ethidda at 11:53 AM on October 8, 2013 [1 favorite]
That said... To me, your split would seem unfair, because you're asking your fiance to pay for more of the expenses, but you want to gain equal equity in the house.
My partner and I don't earn nearly what you and your partner do but we do have different income levels. I make more income and I ended up buying the house, paying 100% of the down payment, with my partner paying me a monthly rent that's below market rent. His "equity" is in the cash he can save up by not having to put as much into the mortgage/utilities. He also benefits because if we sell it out, I will probably ask him to pay the same amount, but we'll have a nicer place. Or if we end up renting it out, he will probably get part of the rental income in return for helping do the managing.
In my mind, you can share *all* the necessities 50/50, including house down payment, and you get 50% equity. He can choose to treat you to dinner, theater, vacations, etc. But then it's completely his choice and you don't get to be upset if he decides he wants to save money.
OR you split things proportionally, including the down payment, in which case you get that proportion of the house. Then you have equal rights to make decisions about all the expenses you budgeted.
OR you do what we did and pay rent and not worry about the house, down payment, equity, etc. And pay the other shared bills as you see fair.
posted by ethidda at 11:53 AM on October 8, 2013 [1 favorite]
The only thing that is "fair" is whatever you and your fiance work out. There's no right or wrong way, only what you two decide to do. Is your fiance proposing a different scheme? it would help if we knew if there was another proposal on the table.
This. As you can see from the variety of schemes described in the thread, there is no objective definition of "fair" when it comes to combining incomes.
My husband and I have separate checking accounts for our personal spending, but all joint expenses are paid out of the same pot. My husband earns more than me so he puts more in, but we decided not to use an income-proportional calculation. Instead we crunched the numbers so that we both have the same amount of "fun money." When there is a change to either of our salaries, we just punch the new number into the formula and adjust how much goes into the pot from each of us.
The way we see it, I work just as hard as him. The discrepancy in our salaries is the result of external forces that are totally irrelevant to how much we should have within the context of our marriage. It shouldn't be harder for me to save up for the things I want to buy, I shouldn't have to limit myself more when going out with friends, buying presents for each other shouldn't be more of a strain on me than on him, etc.
If you and/or your partner would prefer to keep money separate rather than pooled, and proportional rather than equal, that's not for anyone but the two of you to decide, but marriage comes with its own set of rules regarding marital property. You may need to look into getting a prenup, in which case you should each retain your own counsel to review the terms. Your lawyer should thoroughly advise you of any and all rights to marital property that you might be forfeiting with the prenup, and how things may play out for you if you've lost your job, if you've taken a big hit to your career and earning potential by having children, etc. Remember that what is "fair" in the current circumstances could become unreasonably burdensome to one of you through normal life events.
posted by keep it under cover at 12:20 PM on October 8, 2013 [3 favorites]
This. As you can see from the variety of schemes described in the thread, there is no objective definition of "fair" when it comes to combining incomes.
My husband and I have separate checking accounts for our personal spending, but all joint expenses are paid out of the same pot. My husband earns more than me so he puts more in, but we decided not to use an income-proportional calculation. Instead we crunched the numbers so that we both have the same amount of "fun money." When there is a change to either of our salaries, we just punch the new number into the formula and adjust how much goes into the pot from each of us.
The way we see it, I work just as hard as him. The discrepancy in our salaries is the result of external forces that are totally irrelevant to how much we should have within the context of our marriage. It shouldn't be harder for me to save up for the things I want to buy, I shouldn't have to limit myself more when going out with friends, buying presents for each other shouldn't be more of a strain on me than on him, etc.
If you and/or your partner would prefer to keep money separate rather than pooled, and proportional rather than equal, that's not for anyone but the two of you to decide, but marriage comes with its own set of rules regarding marital property. You may need to look into getting a prenup, in which case you should each retain your own counsel to review the terms. Your lawyer should thoroughly advise you of any and all rights to marital property that you might be forfeiting with the prenup, and how things may play out for you if you've lost your job, if you've taken a big hit to your career and earning potential by having children, etc. Remember that what is "fair" in the current circumstances could become unreasonably burdensome to one of you through normal life events.
posted by keep it under cover at 12:20 PM on October 8, 2013 [3 favorites]
I can't make recommendations since its a bit of a minefield but in my house we make a pretty good income about the same as yours without the massive bonuses.
I take enough from my paycheck for walking around money and my personal expensesand the rest goes into a general shared account that pays the bills. Day to days like groceries are just picked up by however does the shopping. I have enough to buy clothes etc and put away a few extra bucks a month for when Christmas comes around. Everyone seems happy with this arrangement but we're not hung up over who's money is who's we're a team with a joint goals...
We don't anticipate divorcing so it could get messy but we're pretty fair folks I don't think either of us would try to gouge the other (I know I won't and she's the big earner) so we feel pretty safe there.
posted by bitdamaged at 12:33 PM on October 8, 2013 [1 favorite]
I take enough from my paycheck for walking around money and my personal expensesand the rest goes into a general shared account that pays the bills. Day to days like groceries are just picked up by however does the shopping. I have enough to buy clothes etc and put away a few extra bucks a month for when Christmas comes around. Everyone seems happy with this arrangement but we're not hung up over who's money is who's we're a team with a joint goals...
We don't anticipate divorcing so it could get messy but we're pretty fair folks I don't think either of us would try to gouge the other (I know I won't and she's the big earner) so we feel pretty safe there.
posted by bitdamaged at 12:33 PM on October 8, 2013 [1 favorite]
I would encourage the two of you to see a fee-only financial planner and talk about this in a number of visits. Then you probably each want to retain an attorney to work out a prenuptial agreement.
There is no one right way to do anything. A professional financial planner is going to have a broader perspective than a bunch of people from the Internet, brilliant though we all undoubtedly are.
posted by Sidhedevil at 4:46 PM on October 8, 2013
There is no one right way to do anything. A professional financial planner is going to have a broader perspective than a bunch of people from the Internet, brilliant though we all undoubtedly are.
posted by Sidhedevil at 4:46 PM on October 8, 2013
It seems to me that a big difference between your situation and that of most people commenting here is the potential volatility of your partner's income. Any given year, he could earn $500,000 or $800,000 (or anything in between). Your own is much more predictable. What feels fair to him in a $800,000 year might feel "tight" in a low-bonus year. So I think you need to figure out how to account for that.
In your plan, the bonus will be used for house renovations or similar, right? Well it sounds like your house is maybe around a million dollars in value? So it's hard to imagine how you could spend even $500,000 on a remodel! And that's if you use the bonus for that just one year. So unless you are spending at a level I can't even comprehend on other stuff, it sounds like you will end up with a lot of savings, most of which will be funded by his bonuses/salary rather than by yours. If you divorced, would your state compel you to split those savings 50/50? Would he feel that was unfair?
I think it sounds like you need a pre-nup, honestly. And to talk with a financial and possibly a relationship counsellor.
posted by lollusc at 6:43 PM on October 8, 2013 [1 favorite]
In your plan, the bonus will be used for house renovations or similar, right? Well it sounds like your house is maybe around a million dollars in value? So it's hard to imagine how you could spend even $500,000 on a remodel! And that's if you use the bonus for that just one year. So unless you are spending at a level I can't even comprehend on other stuff, it sounds like you will end up with a lot of savings, most of which will be funded by his bonuses/salary rather than by yours. If you divorced, would your state compel you to split those savings 50/50? Would he feel that was unfair?
I think it sounds like you need a pre-nup, honestly. And to talk with a financial and possibly a relationship counsellor.
posted by lollusc at 6:43 PM on October 8, 2013 [1 favorite]
Oh and also, if you do decide to base your splitting of expenses proportionally on your respective incomes, include your bonuses in the calculation, but base it on the previous year's bonuses, not on your expected bonuses for the current year. That way you won't end up feeling cheated if you don't get the bonus you were expecting after all.
posted by lollusc at 6:45 PM on October 8, 2013
posted by lollusc at 6:45 PM on October 8, 2013
Looks like a financial advisor plus a pre-nup is in order.
One way to handle the budget issue is to estimate what the monthly requirement is to run your household--the "house fund." This includes all insurance, car payments, medical layouts, and so on. You can do that several ways, so I won't bother to detail it. Let's just say that you come up with a figure (rounded up) of $10,000. Now let's say that you estimate both of your yearly earnings, less the bonuses. You discover that he will earn 2.7 times what you earn. So, you compute his contribution to the "house fund" to be 2.7 times your contribution. This goes into a separate account, which you use to pay your bills. This account may accrue an excess over time, if you have slightly overestimated your operating expenses. You might set that aside in a savings account, to use for when you want to redesign the patio or something.
When time comes to sell the house, the funds you realize from the sale can remain in the "house fund" to reinvest in a new home, or however you choose to use it. Should the unthinkable be the case, the "house fund" can be divided according to the formula you used to create it.
posted by mule98J at 9:19 PM on October 8, 2013
One way to handle the budget issue is to estimate what the monthly requirement is to run your household--the "house fund." This includes all insurance, car payments, medical layouts, and so on. You can do that several ways, so I won't bother to detail it. Let's just say that you come up with a figure (rounded up) of $10,000. Now let's say that you estimate both of your yearly earnings, less the bonuses. You discover that he will earn 2.7 times what you earn. So, you compute his contribution to the "house fund" to be 2.7 times your contribution. This goes into a separate account, which you use to pay your bills. This account may accrue an excess over time, if you have slightly overestimated your operating expenses. You might set that aside in a savings account, to use for when you want to redesign the patio or something.
When time comes to sell the house, the funds you realize from the sale can remain in the "house fund" to reinvest in a new home, or however you choose to use it. Should the unthinkable be the case, the "house fund" can be divided according to the formula you used to create it.
posted by mule98J at 9:19 PM on October 8, 2013
This thread is closed to new comments.
posted by matildatakesovertheworld at 6:50 AM on October 8, 2013 [1 favorite]