By Anthony Bell, Finance Expert www.bellpartners.com
Mixing your assets can be fraught with danger and uncertainty but, as RESCU’s finance expert Anthony Bell explains, this can be reduced with some upfront discussion and planning.
Keep in mind that issues over finances are a big cause of relationship issues and breakdowns, so it makes sense to deal with it early on in the relationship.
A starting point would be to discuss your attitudes to finances. If one of you is very particular about every dollar, and the other is completely carefree and loose with their money, this can cause tension. Speak about where you agree and where you are different. Managing it doesn’t mean you both have to completely change, but you put in place ways of minimising its impact on your day to day lives. Again, better to uncover these aspects early instead of it being a surprise later.
Also, cover what each of you is bringing into the relationship financially. One of you might earn significantly more, or have more in assets than the other. Equally, there might be family assets you will have a share of that you want to protect.
Strongly consider getting a cohabitation agreement or binding financial agreement. These documents set out what each partner is entitled to in the event of the relationship breaking down and provides protection for each partner. It might seem pessimistic to enter into such an arrangement when things are going well, but being sadly realistic, close to half of all longer-term relationships break down at some stage. Having such an agreement in place can reduce the angst if there is a breakdown by providing certainty at a difficult time. As a positive, undertaking such an agreement can often bring up and allow resolution for any money issues at an earlier point.
If you do undertake a financial agreement, I strongly advise having a lawyer prepare the document to ensure it is done properly.
Joint bank accounts and borrowing
Whether you start having a joint bank account or not might depend on what you learn about each others’ attitudes to money. If both of you have similar money beliefs, and there is complete trust (a prerequisite for a good relationship surely!) then it might not be a bad idea to have a joint account for joint expenses etc. Again, it is important to be clear on what the account is to be used for to avoid misunderstandings.
Joint borrowings can be a real deal breaker for some relationships. When you jointly borrow money, most loans are structured so that you are both individually responsible for 100% of the loan. It’s not a case of you just being responsible for half the loan. If your partner can’t pay, you have to make up the shortfall. If your partner loses their job and can’t pay, will you feel comfortable making their payments, and likewise if they have to make your payments for you? Before jointly borrowing any money, be clear on its purpose and your relationship. Joint credit cards also fall into this category.
If you aren’t asked to jointly borrow money, but to be a guarantor for a loan, the same rules apply. Whilst your name might not be on the loan, if the borrower defaults, as the guarantor, it becomes your problem! Where you have joint debts, look at your insurances. It’s worth reviewing and even having policies for each where the other one is the beneficiary. This means that should the worst happen and one of you passes away or is injured, the debt can be covered.
Keep watching the budget
If you do mix your assets, including your cash, make sure one of you is responsible for paying bills etc. For the other partner, they still need to involve themselves in reviewing the finances. No point asking why there’s no money if you didn’t keep involved. And as boring and repetitive as the concept might be, a budget is worth having.
In any budget, you should each give yourselves some free spending money. That is, money each week, fortnight or month that you both get and can spend however you like without having to justify it, whether it be for going out, shoes, clothes or whatever. It’s an important part of still retaining some of your own freedom and identity.
It all comes down to being upfront and honest. Money can be an awkward topic, but addressing it properly should be seen as a way of improving your relationship, not threatening it.
