A modern financial dilemma - suggestions welcome

[shepmeadflat]

Sorry this is a bit long but Im in a dilemma over what to do and would like to get feedback on if im being reasonable or not:

Over the last 12 years of marriage the incomes of me (husband MJ) and my wife LJ have been more or less the same. During this time 100% of each incomes of both have been paid into our joint account, and subsequent savings divied equally into individual savings, childrens accounts or bonds.

LJ's (wife) income is now considerably greater than MJ's as she works contracts. This would usually be considered of great benefit to both, and is, however LJ's accountant has advised her that if she draws more than 36k a year as a salary she will become liable for higher rate tax.

Since working on contracts LJ has drawn 3k a month and paid it into the joint account, while the remainder (11k) has accrued in her private business account. This has been the case for some 12 months, and while in general the core matrimonial principle of 'whats mine is yours' is accepted, the imbalance in finances held in each name causes me some concern from time to time.

To illustrate the point more specifically, consider the current household contributions from each income represented as a percentage of the income of both:

LJ (wife)

now earns $3500 per week x 46 weeks (6 off as hols) = $161,000 gross

$161,000 x approx 22% Tax = 35,420 deducted = $125,580 net

= $10,465 earned net per month.

$3000 paid into j/acc in dividends + 1000 expenses = $4000

$4000 divided $10,465 x 100 = 38% of her income contributed to household.

MJ (husband)

Currently - earns $5000 net per month & pays all into household j/acc = 100% of his income - all but everything gets spent, & I hate to say it but usually on credit card by my wife.


However, if I paid in 38% of salary (same as LJ) x $5000 = $1900


The current household cash outgoings is IRO $7700 a month.


Therefore - recalculated at a 50% contribution by each in order to cover outgoings, ie:

LJ - 10,465 x 50% = 5230
MJ - 5000 x 50% = 2500

= $7730.00.

This would leave 50% of each of their incomes to be saved in whichever individual account is considered most beneficial.

The upside to me (husband) of this is that equilibrium would be returned to the finances bringing with it a considerable amount of peace of mind, the downside is that there would likely be a higher amount of tax to be paid by LJ in depositing an increased percentage of her income into the joint account.

I guess an alternative is that im granted joint signatory on the business account by LJ thereby re-establishing balance across the finances held in our individual names.

Am I being reasonable to suggest this to her, or paranoid ? what should I do - stop whingeing I guess !? or wait 'til she leaves one day and takes the house, kids and the cash?!

[disneysteve]

I believe that ALL income for a married couple is JOINT income. There should be no MINE and HERS. If you are a couple, you should live as a couple, not as two individuals sharing a house and sharing expenses. All the money should go into one pot and you should decide together how it gets spent and what gets saved.

[jIM_Ohio]

I believe that ALL income for a married couple is JOINT income. There should be no MINE and HERS. If you are a couple, you should live as a couple, not as two individuals sharing a house and sharing expenses. All the money should go into one pot and you should decide together how it gets spent and what gets saved.

If you are a contractor, it is advised you track that income in a separate bank account. The IRS likes it that way too.

And banks don't always like account balances going to 0 either.

[jpg7n16]

The upside to me (husband) of this is that equilibrium would be returned to the finances bringing with it a considerable amount of peace of mind, the downside is that there would likely be a higher amount of tax to be paid by LJ in depositing an increased percentage of her income into the joint account.

Okay 1st off- you have a marriage problem, not a financial problem.

2nd off - it all depends on how her business is structured. In order for there to be any new tax implications, the company must be a C-Corp??

If her business is a sole proprietorship, then the accounts don't matter - she gets taxed on it all either way.

And if a Corporation (where there's no flow-through of income) - it may even save on taxes to cash out some as a higher salary anyways. True you might move to a higher bracket, but it may still be less than the corporate bracket the company is in. I'm not sure, and you need to ask your accountant about this. (If you pay 28% on personal income, but 30% on corporate income, it'd be worth it to make the switch)

Am I being reasonable to suggest this to her, or paranoid ? what should I do - stop whingeing I guess !? or wait 'til she leaves one day and takes the house, kids and the cash?!

If she decides to leave, the courts will even it out anyways. She can't just take everything and run. Legally, you both own half of everything (unless you signed some prenuptual agreement). And this would all get sorted out in court for custody rights, and a division of assets (home, cash, cars, etc.)

But there's no need to worry about something that's not happening! I show you the legal process to get your mind out of "freak out" mode.
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Have you tried talking to your wife about this? Don't make suggestions about what she should do, before you even discuss with her what's going on.

You may want to see a marriage counselor. My evidence: you reached out to an internet forum, before you reached out to your wife.

[disneysteve]

If you are a contractor, it is advised you track that income in a separate bank account. The IRS likes it that way too.

When I say all money goes into one pot, I don't necessarily mean one account. It can be split up however it needs to be to be properly tracked for business and tax purposes, but it should still be considered to be joint income. If the money in the business account is there because it is needed to operate the business, that's one thing. If, however, it is there just to avoid paying taxes on it and, as a result, it isn't available for household use, that's a totally different issue.

Okay 1st off- you have a marriage problem, not a financial problem.

Bingo! My feelings exactly.

[Joan.of.the.Arch]

I think everyone who has commented so far probably lives in USA and was looking at it from that point of view. Are you perhaps in Australia (you said "whingeing", whereas USAers usually would say "whining", yet you do use $.) Perhaps tax law, the legal side of finances in marriage & divorce are a bit different outside of USA and may make a difference in advice you need.

[cjscully]

Am I being reasonable to suggest this to her, or paranoid ? what should I do - stop whingeing I guess !? or wait 'til she leaves one day and takes the house, kids and the cash?!

No matter where you live and what the tax laws are if you think that she may one day leave and take the house, kids and cash, your problem is not financial. I've been married nearly 25 years and I can tell you that (a) Open communication is vital to a marriage. If you don't feel like you can say pretty much anything that's on your mind to your wife, that's problem number one. I'm not saying she won't have a reaction to what you say, or that she shouldn't. I'm saying that you both should be open and honest enough to be able to work through whatever the problem is. (b) Maintaining a marriage takes work and contribution from both parties. I'm not talking about financial contribution. I'm talking about support, love, trust and similar contributions. (c) If thoughts like those expressed above are even crossing your mind, one or both of you are failing at (a) and (b).

[shepmeadflat]

Thanks all for you folks input - fundamentally I guess I have to talk to her (again) about this - the last time I tried (6 months ago) we fell out over it - she said she accepted that the cash etc was joint money even though held in her name, and why the need to have in joint names anyway as we're married? This is where my problem has been - every month we use all the cash from my salary that gets paid straight into the j/ac and there's none left, she puts 38% of hers in from her business account and 'keeps' the rest aside - (for a "rainy day" ?..) paranoia maybe , but it happens.. her job is now twice as big as mine so I guess its partly a self esteem issue, being a natural 'bread winner' all my life and now dealing with how things have changed.

[jpg7n16]

As far as "rainy day" money goes, you should have a combined emergency fund account that holds the equivalent of 3-6 months of living expenses in cash. That is a legitimate part of your financial plan.

But as far as your feelings about it goes, have you talked to her about them?

And are you both working together to find the best way to keep you both happy? Or only trying to get her to change?


Questions you guys need to discuss together:

-why does this arrangement make you uncomfortable? what specifically about it? what are you afraid of?
-what arrangement would you like to see instead? why?
-what arrangement would she prefer? why?
-why does the difference in income bother you?
-are there other accounts you could create together? what are you both doing about retirement accounts?
-what goals do you have for the finances in the marriage?
-what goals does she have for the finances in the marriage?
-which goals can you agree to work on together going forward?
-how can she help you reach your goals?
-how can you help her reach her goals?
-how will you collaborate and work on your shared goals going forward?
-what do you want your marriage to look like in 25 years?


As there are no set-in-stone answers for these questions, we're not going to be able to give you as much help as she will.

Unless you find a goal that you would both like to achieve, but neither knows how. Then we can be a lot of help

[DebbieL]

I think it is totally unfair that you put all your money into the joint account (which if I read correctly she spends the majority of), and she is only putting a small percentage of hers in joint funds. Wrong. I would be upset if I were in your shoes.

It sounds like you've already told her how you feel and it started a fight, and now you are reluctant to bring it up? Something seems wrong here. I feel there is too much power in her court, and you aren't being treated fairly, IMO.

[maat55]

I would just make sure you have your names in joint(excluding IRA's, they would have beneficiaries) on all accounts, this helps if one of you are to pass as well.

[skydivingchic]

First, a bit of background on my perspective. DBF has his own business. I do his books on a monthly basis and he has an accountant for the business taxes and other stuff. When he first started this gig, the raw dollar amount he was making was probably ~30-40% greater than my salary. We keep separate finances and split all joint living expenses 50/50 regardless of how much we each make. The condo is titled joint tenants and we each pay 50% of the mortgage, HOA, and any maintenance type stuff. We have life insurance policies with each other as beneficiary so that the surviving partner would be able to pay off the mortgage in the event of one of us dying. After 14+ years together we are starting to talk marriage and fully intend to maintain our system of finances after we are "legal". No kids nor will there ever be.

I would point out a few things about your wife's business account. They may or may not be applicable to her situation, but these are things I have learned from maintaining DBF's books. Being self employed is EXPENSIVE. I was amazed at the amount of taxes he pays. Both parts of SS and Medicare plus normal income taxes plus business taxes. It adds up fast. Suddenly the amount of money he makes doesn't seem quite so big.

401k matching. One big benefit to being self employed is being able to set the 401k matching policies. DBF is the only employee, so his company has a very generous 401k matching policy plus he is able to max out his portion of the 401k. If both the employer and the employee put in the maximum allowable amount, that adds up to $49,000. Again, I don't know what your wife's situation is, but a good chunk of the money sitting in DBF's business account is earmarked for 401k matching funds. I believe there is a federal law stating that spouses MUST be the beneficiary on 401k funds unless they waive that right in writing, so if this is where some of the money is going, you should be protected unless you've waived your rights.

Emergency funds. In bad economic times (like now), contract employees are often the first to be cut. People who are self employed can't get unemployment benefits. As such, it is best to have a substantial EF (like 12+ months of salary and operating expenses) for the business. Additionally, contract work can vary substantially month to month. That means it is a good idea to also have a hill and valley fund to make up the shortfall during slower times.

Vacation/sick time. If you are self employed and you don't work, you don't get paid. You need to maintain a buffer so that you can take time off.

Again, these things may or may not apply to your wife's situation. But they are things to consider when looking at what may seem like a huge amount of money sitting in an account in her name.