How to budget as a couple when one of you earns much more than the other

Budgeting as a couple can be as complicated as it is unromantic. But when one partner makes much more than the other or goes from top earner to a laggard, managing money and emotions becomes even trickier, financial planners say.

So what’s the right way to do it? What’s fair and what isn’t when you’re balancing your relationship with vastly unequal disposable incomes?

Ask a few couples how they do it, and you’ll hear very different answers. You’ll hear lots of advice, too, but it all comes down to two common themes: transparency and autonomy.

In Ottawa, Nicole McRae and Sarah Manns, both of whom are 38, keep all their bank and investment accounts separate but try to split expenses proportionally to their income.

Ms. McRae, a federal government policy analyst whose income is nearly twice her spouse’s, covers most of the bigger bills along with vehicle costs and most of the groceries. Ms. Manns, who also works in government, is responsible for some of the utility bills, the couple’s streaming subscriptions and the occasional online grocery order or purchase from the farmer’s market, among other things.

And when Ms. Manns had cancer and went on disability leave, which saw her income drop by 30 per cent, Ms. McRae made sure to pick up even more of the tab.

In Guelph, Ont., Lia McAllister, 35, and her husband, who is a chartered professional accountant, pool all of their money into a single joint account from which they pay for everything.

Ms. McAllister just landed a full-time job after years working only part-time in the evenings to avoid child-care costs for the couple’s three children. Although her husband was until recently earning more than five times her income, she said she never had to worry about who’d be paying for what.

“Even though he was making significantly more than me, we just viewed it as our money,” she said.

In Victoria, Mohammed Asaduallah, 33, has gone from outearning his partner to seeing his income shrink to a fraction of hers when he traded a career in tech for the role of fintech-startup founder at Benji Technologies.

Mr. Asaduallah’s income has since increased, now that his business is more established, but he has yet to catch up to his partner. Through it all, the couple, who’ve been together for four years, have continued to split common expenses 50/50 and see no reason to change that.

“There is no expectation that ‘now your money is my money because I’m making less,’” Mr. Asaduallah said.

Dividing expenses equally is one of the wide variety of setups that Natasha Knox, a certified financial planner and founder of Alaphia Financial Wellness, has seen couples choose on their own.

She has come across partners keeping finances separate, blending them completely or settling for something in between. The problems – financially and emotionally – tend to appear when whatever arrangement couples land on is marked by a lack of transparency or agency.

“My rule of thumb is that separate money is okay, secret money – and that includes debts – is not,” Ms. Knox said.

Some degree of autonomy is, usually, another must-have in a functioning financial relationship, she added. One adult having to ask another adult for money is “not a great dynamic,” she said.

“Both partners need to have some sort of agency and autonomy irrespective of whether they are contributing economically to the household,” she said.

Secrecy and overbearing behaviours often stem from fear or lack of trust, she said. People, for example, may hide their debts because they worry about being judged. Partners may insist on controlling the household financial outflows because they’re worried about their significant other’s financial habits.

That’s why it’s important to have a frank conversation about finances before moving in together or getting married, Ms. Knox says.

Still, even couples who talk about money don’t always know everything they should be taking into consideration.

Liz Schieck, a certified financial planner at the New School of Finance, says she’s sat in on many meetings that ended with partners realizing “there’s a big difference between equal and equitable.”

“One of the biggest traps people fall into is they assume that what is the most fair thing is to split 50/50,” she said.

An equal division of expenses can become an issue if the lower-earning partner doesn’t have enough disposable income left to reach their savings or debt-payment goals. Worse, it can even drive the lower earner into debt, Ms. Schieck said.

For example, imagine a couple where one person takes home $3,000 a month after tax and the other $6,000. If they’re paying $3,000 a month in rent, splitting it equally, the lower-earner is shelling out half of their net income in housing costs and will be left with only $1,500 to pay for everything else. Meanwhile, the higher-earner will have $4,500 left over, or three times as much.

Often in these scenarios, “a dynamic starts to emerge where one person feels that they’re good with money and the other that they’re bad with money,” Ms. Schieck said.

When Ms. Schieck helps clients in this predicament piece together their full financial picture, she says they are often shocked to discover just how unequal their disposable incomes are.

“They both realize that it makes no sense, which is really wonderful,” she said.

And yet, some couples who share household expenses in accordance to the size of their respective incomes choose to maintain the 50/50 split for one payment: the mortgage. That’s the case, for example, for Ms. McRae and Ms. Manns.

“I just felt strongly about ensuring that I was contributing my half because it’s such a large joint purchase,” Ms. Manns said.

Ms. McRae said she also wants to keep mortgage contributions 50/50 to establish equal ownership of the house, which the two purchased together at a time when their incomes were similar.

“I didn’t want Sarah to feel like our home is potentially more mine than hers,” she said.

Usually, though, who pays the mortgage has little bearing on how assets are divided for married couples in case of marriage breakdown, said Sanjana Bhatia, director of tax and insurance planning at Sun Life.

“It makes no difference if spouses are responsible for running the household, earning the family income, or a blend of both – each spouse’s contributions are considered equal,” she said. “While it varies from province to province, this sentiment is reflected throughout the division of property legislation in each province.”

However, this isn’t always the case for common-law couples, Ms. Bhatia cautioned. In provinces that don’t have property-division rights for unmarried couples, such as Ontario, PEI, New Brunswick and Newfoundland and Labrador, property is divided based on ownership. In other words, whoever bought the property into the relationship gets to keep it. If partners bought the home together with joint title, it will be divided equally, according to Ms. Bhatia.

In provinces where provincial family law legislation offers no protection to unmarried couples, “a common-law spouse who is not on title and who makes significant contributions on the mortgage should have a domestic contract to protect his or her mortgage contributions,” Ms. Bhatia said via email.

In general, how assets are divided if your relationship falls apart varies based on which jurisdiction you live in, whether you’re married or cohabiting and depending on whether you’ve drawn up a domestic contract, Ms. Bhatia added.

Whether you want to keep accounts separate or you’re fully merging your money, it’s a good idea to structure your finances with an eye to the worst-case scenario, said Ms. Schieck: What would happen if the relationship fell apart or one of you died?

“We don’t want one person to have all the savings and the other to be at risk or be vulnerable if that relationship doesn’t pan out forever,” she said.

Keeping at least one bank account and a credit card to your name, along with ensuring you have a credit score, will make it easy to stand on your own two feet financially in case of a breakup or if your partner passed away, Ms. Knox said.

That’s the approach personal finance writer Alyssa Davies took. In Calgary, Ms. Davies, 31, who blogs at Mixed Up Money, said she and her husband have both shared and individual accounts.

One the one hand, they contribute to household expenses based on their incomes, with each of them sending their share through an automatic transfer to a joint account from which Ms. Davies pays the bills and allocates the rest to various shared savings goals.

On the other hand, they each also have both an individual account from which they can each spend independently as well as a small personal emergency fund, said Ms. Davies., who is the author of the forthcoming book Financial First Aid: Your Tool Kit for Life’s Money Emergencies. The individual emergency funds, which are in addition to a larger, shared household rainy-day fund, each hold about a month’s worth of expenses, she said.

“If something happened, like he unexpectedly passed away, and for some reason I couldn’t access something and I needed money to cover a bill – that’s why that’s there,” Ms. Davies said.

Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.