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Modern love | How to navigate the minefield of love and finance

Introduction

There are very few hard “rights” and “wrongs” when it comes to couples and their finances except the undeniable truth that communication is right and burying your head in the sand is wrong.

Every couple is different and a plan that suits one, won’t suit another. Most people agree that if you are more aligned in your financial personality that can be helpful when viewing your finances jointly. Even if you don’t see eye to-eye-on everything, there will be some areas where you are aligned, or that it makes sense to agree to disagree. The main point here is that communication is key to come up with a strategy that works for you and your partner.

Early stages

Only you will know the right time in your relationship to start talking about finances. You will normally get a feel for a partner’s financial personality early on, for example, when discussing sharing the cost of dates. Try not to give this too much weight, the early stages of a relationship may not be a true test of someone’s views on finances. When things get more serious and you begin sharing the costs of things like holidays, make sure you have some frank discussions about expectations. A shared kitty for expenses is one way that couples can manage things like that. Don’t put off these conversations, even in the early stages. It is a good precedent to be open about finances from an early stage.

Moving in

Things get more complex when you move in together. Most people will come up with a plan for paying the rent, utilities and council tax. It is always good to think about the worst-case scenario when it comes to finances. Let me give you an example, perhaps you decide you will go halves on a nice TV. It is unlikely, in the excitement of moving in together, that your thoughts will be focussed on a potential break-up, but who will keep the TV? Think about things like that, and stress-test your plan. A good compromise might be for one to buy the TV and the other to buy a new barbecue, and so you can each walk away should things go wrong. A bad compromise would be for one to buy the TV and the other to pay for a trip away. It may seem reasonable at the time, but in the event of a break-up, it doesn’t seem so fair.

Long-term relationships

More and more couples are cohabiting rather than marrying or entering into civil partnerships, but lots of people are unaware of what this means in terms of your rights after a split or upon the death of a partner. Co-habiting couples have no automatic right to each other’s assets upon death. An appointment with a solicitor can help answer your questions and give you the advice you need.

The Money Advice Service advises putting a “living together agreement” or cohabitation agreement in place1. They do caveat that it may be over-ruled in court but suggest that it is, never-the-less, better than nothing and a good exercise in communication.

‘Til death do us part

Continuing on the uplifting theme of things going wrong… I always ask clients about their power of attorney arrangements and their will. Appointing someone as your attorney means they can make decisions on your behalf if you are unable to do so. For example, if you were in hospital, it could allow someone to access your bank account to pay your bills. Wills are important too, especially if you are not married, as it can allow you to make efficient financial decisions as a couple. It is important to review these arrangements regularly to ensure they remain up-to-date and reflective of your wishes. A good solicitor can advise you.

Another thing to consider are pre and post-nuptial agreements. Julia Middleton, a specialist in family law at EMG solicitors said: “It can be beneficial for a pre-nuptial agreement to be prepared and signed before your marriage to clarify the identity of the assets that you each hold prior to your marriage, and how any assets acquired during your marriage are to be divided in the event of a separation. Whilst you would hope and expect your marriage to continue and endure for the rest of your joint lives, in the unfortunate circumstances that this is not the case, a pre-nuptial agreement can be helpful in avoiding any dispute regarding the assets you each owned at the date of your marriage.”

In terms of pre-nuptial agreements, the Money Advice Service explains the legal standing, as it differs between the UK and Scotland. Again, an independent solicitor can advise you.

Earning different amounts

A couple is unlikely to earn similar amounts and there is a difference between fairness and equality. Women statistically spend more time on housework and caring duties. Likewise, if it’s your partner taking on the lion’s share of the domestic duties and allowing you to shatter the glass ceiling, then that contribution should be recognised. Talking about your life goals can help you recognise and appreciate the work that each person is doing to achieve those goals.

Discussing the future and your finances can make people feel uncomfortable but you really need to be pragmatic. There is no one-size-fits-all approach. Communication is the key to reaching an agreement that suits you and your partner.

If one of you is reliant on the other to maintain their standard of living, or you have other dependants, you need to think carefully about protection policies and life insurance. A good financial advisor can be invaluable in ensuring you are covered should the worst happen.

Married couples benefit from spousal transfers tax-free, which means that if one of you is a higher rate taxpayer and the other is a basic rate taxpayer or a non-taxpayer, it may be worth transferring some assets into the other’s name to reduce your collective tax bill. Tax allowances are generally ‘use it or lose it’ so this can make a big difference.

Joint finances

There are benefits to viewing things jointly, but if being independent is more your style then that is also fine. My husband and I have lived together for 16 years and only opened a joint account about five years ago. We still only use it sporadically.

If some areas of your life lend themselves to joint finances, then it is okay to compartmentalise. We pay childcare and pet insurance jointly. Almost everything else is split in a way that we see as fair and which incentivises us. I buy the children’s clothes because I don’t expect my husband to understand the pleasure that I get from seeing them coordinated and smart. My husband pays the TV bill because I will never be okay with how much he spends on sports channels.

The important thing is that you are aligned in your long-term objectives. The journey that gets you there is very personal. Getting the right financial advice can help to put a plan in place and the opinion of an objective third party can be important.

Debt

Think very carefully about the implications of taking out joint debt. You are both responsible for paying off the whole debt, not just half each, and your credit records will be combined, which means that your credit score can be negatively affected by your partner’s past or future indiscretions or bankruptcy, and vice versa1.

Again, also think about the worst-case scenario. If one of you becomes unable to work, can you repay the debt on your own? A financial advisor can advise you on suitable protection policies.  

Sharing responsibility for your finances

It is normal for one partner to take the lead in various areas, but it is important that we take control jointly of our finances. There is an imbalance in financial wellbeing between men and women, which goes beyond the pay gap. Finances are a complex subject and it is appealing to leave matters in a partner’s hands, but it is really important that we don’t. On a more sinister level, financial coercion is an element of domestic abuse and giving a partner control of your finances can leave you vulnerable2.

Conclusion

It is important to be open, and to communicate and agree a financial plan. The need to do these things increases as your relationship becomes more complex, and debt and dependants become part of the picture. Whilst uncomfortable, always think about the worst-case scenario, and this is where independent advice from a financial advisor and a solicitor can be invaluable.  

Email: Carmen.gabriel@brewin.co.uk

+44 (0)191 279 7541

Sources and resources

Sources

Beginners guide to managing your money

https://www.moneyadviceservice.org.uk/en/articles/beginners-guide-to-managing-your-money

Where to get free debt advice

https://www.moneyadviceservice.org.uk/en/tools/debt-advice-locator

More about financial abuse

https://www.womensaid.org.uk/information-support/what-is-domestic-abuse/financial-abuse/

Brewin Dolphin online investment (low cost, high-value savings solutions you choose yourself)

https://www.brewin.co.uk/individuals/our-services/online-investments/

Brewin Dolphin wealth management (advice and solutions for more complex finances)

https://www.brewin.co.uk/individuals/our-services/wealth-management/

EMG Solicitors – Family Law

https://www.emgsolicitors.com/service/family-law-durham/

EMG Solicitors – Wills and Powers of Attorney 

https://www.emgsolicitors.com/service/wills-trusts-and-probate-durham/

About the author

Carmen Gabriel is an investment manager at Brewin Dolphin’s Newcastle office. 

One thing she is keen to see change a bit faster is the imbalance in financial wellbeing between women and men. Women are increasingly becoming key financial decision-makers in an industry that has typically catered for men by men that now needs to pull its socks up. Neither women nor men are getting enough financial advice.

We’re really pleased to have Carmen as a contributor to HLN to help us address the balance by providing this information to our readers. 

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