How should married couples split finances and is it different for co-habiting couples?
These are just some of the questions I get asked quite regularly on TV and radio and also by you lovely readers!
Love isn’t all you need when it comes to dealing with your finances. Mixing love and money is never easy in a relationship. However, you need to face the challenges head-on, or you run the risk that your finances will tear you apart.
According to the relationship charity Relate, the main cause of rows that lead to separation is money. This scored higher than arguments about the in-laws and even higher than bedroom issues. That’s why we’ve put together this guide to show you the pitfalls to avoid and how to have a happy financial relationship with your partner.
- Should you have a joint account or not?
- Dealing with your partner’s debt…or yours!
- Buying a home together
- Planning your retirement together
- Coping with a spendthrift partner
- …or a miser partner!
- Oh…and do a pre-nup
- The good news about how marriage makes you richer!
One of the first issues you face when you move in together, is whether to merge your finances into one joint account or maintain individual accounts.
The important things you need to agree on (or compromise on) are:
- Whether you will have a joint account, separate accounts or a mixture of the two.
- How the bills will be paid, and from which account – particularly the rent or mortgage.
- Who will pay the most towards the bills – it’s generally fairest to work on a percentage of each partner’s income.
- Whether you will set up additional savings accounts – and how much you will put into them.
- How much autonomy you have over the money you have in separate accounts.
there’s no right answer
The answer isn’t going to be the same for everyone.
In finding your solution, you’ll need to get to grips with your attitude to money.
- You each need to know if the other is a spendthrift, a miser or just isn’t that interested in money generally.
- You also need a general agreement abut the things you think are important enough to spend money on – whether you love to splurge on travelling, or want to prioritise saving for a home.
For many couples, the right decision may well lie in finding the middle ground.
- Keeping the bulk of your money individually and opening a joint account for household expenses can often be a useful way to blend your finances initially without risking arguments over who spent this much on that. Later on down the line, you may want to merge more of your money, but this is a good halfway house.
- Some couples like to have one account that they both draw from. This can work well if there is only one earner.
- Other couples – again with one earner – come up with a ‘salary’ that the earner pays to the non-earner each month and that ‘salary’ is kept separate. The bills etc are paid from the main account.
our moneymagpie survey found you don’t like joint accounts 🙂
We surveyed over 2,000 of you and found that more than a quarter of cohabiting and married Britons blame “divorce-inducing” quarrels on outdated monetary ties.
The majority still accept that a joint bank account has the potential of building trust and openness. But one-in-four now believe that amalgamating income – and especially savings – is likely to cause irreversible “rifts” that may end in break-up or divorce.
Our survey found that
- 34 per cent of married and living-as-married couples have opted to keep their bank accounts separate.
- Perhaps unsurprisingly, older couples who have been together for over 30 years are by far the most likely to have a joint account (80 per cent).
- But the number of joint accounts drops markedly among those in relationships of less than six years (52 per cent). Fewer still are shared by those in relationships of less than three years (40 per cent).
- Of those without joint accounts, the overwhelming majority (62 per cent) said the primary driver was financial independence.
- Some 24 per cent of those with joint accounts admit to feeling “guilty” using combined funds for their own personal use or enjoyment.
- Those with dependents, such as children from a previous relationship, or an ex-partner to support, also opted against a joint account on the basis of fairness (34 per cent).
- One in four (27 per cent) of these believed financial autonomy also reduces the possibility of disagreements, rows and arguments from occurring.
- A further 25 per cent of those without joint accounts admitted that they “didn’t trust” their partner with money.
- Some seven per cent said they avoided a joint account because they didn’t want their partner to know how much they spend.
Bu whatever your situation, make sure you both know how to make the most of your savings and if one partner has a debt problem, you both need to understand how you’re going to tackle this, and tackle it together.
what about if you’re co-habiting
When you’re co-habiting you have fewer rights (and tax advantages) than married people.
You are also more likely to split up, even if you have children and own property together.
So it’s much more important to keep finances a bit more separate and keep track of your personal spending and assets.
It’s still worth considering a joint account, though, if you are paying bills together.
- Work out together how much your monthly bills are likely to add up to
- Agree between you whether you should put half each in every month or if the higher-earning partner should put a larger sum.
- Make sure that you both have access to the account and can both see where the money is going.
When you merely co-habit you have fewer rights to each other’s property and financial support. For example, if you split up:
- You don’t have a right to financial support from your ex-partner, even if you have had children together. The children do have a right to that support though.
- You don’t have a right to part of any assets – including the home you shared together – unless your name is on them or you can prove payments you made towards them (e.g. mortgage payments or HP payments).
- You don’t have a right to your ex-partner’s pension or other investments.
However, if you did borrow a mortgage together to buy a house, or you bought a sofa on HP together, or took out any other loan together then you are connected financially and your partner’s credit record will be connected to yours.
This means that even if your credit record is clean as a whistle, if your partner has had CCJs (County Court Judgements), or other black marks, this can impact on your ability to borrow now and for a while in the future.
So it’s a good idea to make your partner tell you what their credit record says about them.
Make it easier by both checking your credit record for free together. That way they won’t feel that you’re having a go at them. Get your free service here.
One of the biggest money problems that couples have to deal with at some point is debt – particularly if one partner enters the relationship with more debt than the other, or builds up debts while they are together.
Various studies have found that partners lie to each other about their levels of indebtedness and this can cause problems later on if the debt becomes too much to handle.
This can be disastrous for both members of the couple, because if you are sharing your life with someone, then unfortunately, you are sharing their debt issues too.
Also, remember that your partner’s credit rating will have an impact if/when you apply for joint credit – including a mortgage.
If you’re not married yet, a prenuptial agreement may be worthwhile if you want to try to protect one partner’s assets from the other partner’s creditors. See what we say about that below
However, the priority for most couples is to deal with the debt between you – as quickly as possible. We have a whole debt section here crammed with simple but effective ways to cope with debt so get cracking.
Buying a home together is one of the biggest financial steps you can take, so make sure you know what you’re getting yourself into before you commit.
Usually couples enter a joint mortgage and become joint tenants, owning and being responsible for the whole property equally.
Unless you have a witnessed agreement drawn up stating otherwise, you share bills, the mortgage payments and if one partner dies, that share passes on to the other.
Problems can arise, however, when one partner is contributing more or in a different way to another.
For example, one might pay the mortgage and the other the household bills.
This is where a Letter of Intent or a Declaration of Trust comes in. It details several key features to your arrangement including how much each of you has paid towards the purchase, what your ongoing contributions will be, and how much each of you will receive should you decide to sell the property.
Crucially, this document can be updated if circumstances change later on.
getting a mortgage when you live together
if you’re not married it’s even more important to keep records of what you are each spending and to have legal documents showing what your status is.
- Mortgage set-up costs
- Pay off your mortgage in double-quick time
- Go here ot get a better mortgage deal
Another crucial consideration for any married couple is retirement planning.
A recent survey by pensions company Prudential has discovered that one in five couples haven’t discussed retirement planning. Around three in five have no idea what income they will receive as a couple in retirement, and one in five have no idea how much their partner has in pension savings. Its study found that women were particularly at risk from this trend, as they were more likely to expect to live at least partly on their partner’s income.
Investing for your future is vital, but you may find that you disagree with your partner on exactly how to do this.
More often than not, one partner may be more willing to take risk than the other, and one may place more importance on saving than the other.
The answer lies in discussing your goals: working out how much you need to retire on and by when.
From here you can decide how much to put away each month, and what to invest in.
Your investment portfolios should compliment each other and balance out any risk, to add another layer of protection.
Because this is SUCH an important issue and making the right decision can add thousands (literally) to your annual income when you retire, I suggest you get help from an independent financial advisor now about this.
A spendthrift is someone who spends their money extravagantly or wastefully. In real terms that can mean someone who spends their money on things that you think are wasteful or someone who spends more than they (or the two of you) earn. A real spendthrift will have plenty of debt to show for it.
When you’re married, even more than when you cohabit, a spendthrift can put you in a very vulnerable position. Joint loans (including the mortgage) are responsibility of both spouses. So you could be doing your bit, but they could put your house – and your peace of mind – at risk.
If you (or they) realise things are getting dangerous, the rule is – communicate! It’s harder if they don’t recognise the problem but there are ways to tackle it:
- Talk about why they spend so much and how they view money and borrowing. Sometimes people take on the spending habits and the fears of money or poverty that their parents had without even realising it. Talking about it can sometimes open their eyes to why they spend so much.
- If you’re dangerously in debt, work out the numbers for yourself first. Try to have a calm conversation, using your figures to illustrate the financial position you’re both in. Use whatever tactics you know might work – after all, you know your partner better than anyone.
- Show them how much money is being wasted on interest payments every month.
- Try to get them to suggest ways of tackling certain debts. Show them your own plan of action and ask if they think it would work and what they think could be done to improve it.
- Try to sell the idea that the two of you are a team fighting the rest of the world. If you can agree that action needs to be taken, then start talking about how you’re going to do it. Get them involved, even if it’s just in a minor way.
- Above all, communicate, communicate, communicate. Share the successes and failures so that you keep each other motivated.
A miser, according to the dictionary, is someone who lives in wretched circumstances in order to save and hoard money. They often won’t spend money on themselves or other people because underneath they’re frightened of losing what they have.
It is sensible to live within your means, but, if your partner goes too far, someone needs to step in. Warning signs include when they refuse to let you spend money on the basics – or the simple pleasures in life.
- Talk calmly about the specific effect the behaviour has on you and your family. For example, “When you reduced my budget for groceries, I wasn’t able to buy fresh fruit and vegetables for the children”.
- Talk together and explain what you want to change.
- Keep your own money. Set up a ‘family’ or personal bank account to share responsibility for managing the money and making decisions.
- The idea is to remove the total control of money from your partner. In the long term, they could come to appreciate letting go of some of the stress.
- Set goals together. Start small – saving for an annual weekend away or regular day out – and work towards bigger targets, such as re-decorating or moving into a bigger house.
As Joan Rivers once said: “Trust your husband, adore your husband, and get as much as you can in your own name.”
Yes, horribly unromantic but sadly, quite a good idea now.
Ideally, I think that pre-nups should be made mandatory by the Government so that all the emotion is taken out of it.
But, if one or both of you have a lot of assets, it’s worth considering doing one,
They’re not legally binding in this country but they are increasingly used as a starting point for divorce agreements and can massively cut legal bills.
Don’t let all this put you off. As well as all the lovey-dovey stuff, being a couple has lots of financial benefits too…
- Sharing rent or mortgage payments and household bills, as well as getting cheaper deals on holidays and food will all add up to impressive savings over time.
- In fact, research from comparison site Uswitch found that over a lifetime someone living on their own ends up paying over £250,000 more on essential living costs than somebody living as part of a couple.
- If you’re married, there are also significant tax benefits. First, spouses can transfer assets to each other without triggering a tax liability – so you can use both of your annual exemptions.
- Any gifts you leave to your spouse will also be exempt from inheritance tax.
- This will save you a whopping 40% on assets above the inheritance tax threshold (£325,000 in 2017/18).
- For 17/18, a further nil rate band of £100,000 may be available in relation to current or former residences. Nil rate band of surviving spouses / civil partners may be increased by unused nil rate bands of deceased spouses / civil partners.
- You can also transfer savings between you to reduce your tax bill.
- By keeping interest on savings outside an ISA below £1,000 each, neither of you will pay tax on it.
- If you have more savings than this, you can transfer the excess to the lowest taxpayer – so you’re taxed at a lower rate.
- There is a Married Couples Allowance, which also works for Civil Partnerships, which could reduce your tax bill by between £326 and £844.50 a year. Find out all about it on the Gov.uk site here
- There is also the Marriage Allowance – confusingly a different thing from the Married Couples Allowance. This allows you to transfer £1,150 of your personal allowance to your husband, wife or civil partner if they earn more than you. This reduces their tax by up to £230 in the tax year (6 April to 5 April). Again, there is information about this on Gov.uk here.
So being married can make you richer – particularly if you stay together and don’t get yourselves one of those nasty, expensive divorces!