Money in the Family

This is an article I wrote for polyfamilies about how we handled money at Homeport:

Handling Money in the Family: an alternative to the "common pot"

Most of us were raised in families where money was handled in a "common pot": all of the income our parents earned went into an account and all spending was done from that account.

Many poly families work on the same model - money is pooled and spent as needed. This can work perfectly well, but there are also other ways to manage household finances.

My friend Scott and I took a class called "Utopias, Dystopias, and Experimental Communities," in which we examined many intentional communities, including their financial models. A few years later, he and I and others, including my not-yet-husband Dave, formed The Homeport Collective. We're not a polyfamily - we've had people in both monogamous and polyamorous relationships as members - but rather a group who lived in an extended family model for almost a decade, and how we share expenses works.

The basis of this system is that a a fair share of expenses is not defined as an equal dollar amount from each person. Each adult in the household earns a different amount of money. Let's say that the breakdown looks like this:

Jane $40,000
John $25,000
Chris $60,000

In total, the income into the house is $125,000. Each person earns a percentage of that income:

Jane 32%
John 20%
Chris 48%

Instead of breaking down the costs of living together by "equal shares," we break them down by percentage in accordance with the percentage of income earned. This means that the expenses have fair, proportionately equivalent, IMPACT on everyone, even though the dollar amounts are different. This is a dynamic model: you can adjust the percentages as the income in the household varies.

That's the simplest version of the model. Let me address some particulars:

In our case, we did not use gross income, but instead used take-home income after major expenses such as health insurance, student loans, and some other agreed-upon expenses. We had a whole set of decisions around what counted as house expenses vs individual expenses. For instance, while cable TV was deemed a house expense, pay-per-view movies would be paid for individually; basic phone service became a house expense, while long-distance bills were split according to usage. We chose to make most child-related expenses house expenses. The major exceptions were college savings and school expenses, paid for by the parents. Those decisions worked for us, though they might not work for you.

When looking at the finances (among other things), we found that it's very important to have a strong consensus model for how to MAKE those decisions. It's important to come to solutions that everyone is really comfortable

with and to make sure they get recorded accurately.

There are ways to take unfair advantage from within this sytem, but it's important to remember that this is about living with people you care about and wish the best for. You are setting up these guidelines for YOU, your household, not for a random group of strangers.

After a couple of years of renting and using this model, we bought a house together. We investigated incorporation but determined that it would be too difficult to get the mortgage we needed. Instead three of us bought the house together. With the help of a lawyer we developed a joint operating agreement that described the ownership structure that overlaid the mortgage.

Basically, it's a system for determining percentage of ownership. Part of each person's overall monthly contribution is tagged for ownership expenses. Over time, the total amount that one person puts in towards ownership expenses over the total amount that everyone has put in is that person's percentage of ownership. So let's say that after a given amount of time, it looks like this:

Jane $10,000   25.6%
John $17,000   43.6%
Chris $12,000   30.7%
Total $39,000 100.0%

You need a strong consensus model here, too. What counts as an ownership expense? We decided to count anything a landlord would pay for if we were renting. This includes not only the mortgage and homeowner's insurance, but also major appliances, repairs, trash and snow removal, lawn work, etc.

So here's some advice on making this work:

  1. For the ownership side, DO make a legal agreement. If you want to see ours, ask me. Make sure you cover all the bases - people moving out who are on the mortgage, people moving out who are not on the mortgage, people dying (life insurance is your friend), people joining, kicking someone out - all of it.

  2. Do NOT let percentage of income or percentage of ownership give someone more sway in decision making. This model can work beautifully with widely disparate incomes (we had a period of time when our extremes were a 6 figure earner and a non-income earner), but only if everyone respects the professional abilities and choices of every member of the household.

  3. DO make decisions about general cases before you make them about particular cases. Take the time to figure out HOW you will decide if something is a common expense or an individual expense, an ownership expense or an operational expense BEFORE you are presented with a particular case.

Last but not least: remember that people can be uncomfortable and edgy about money, and that shifting to a new model can have emotional repercussions. Be gentle with one another. Keep talking.

For comments and questions, email catya@pobox.com