How much do you love your partner?

Confused.com columnist Sam Dunn says couples should tread carefully when considering a financial union.

I don’t pry out of excessive prurience, of course, rather from genuine concern for your cash.

When any couple make a commitment to each other, it’s not too long before their finances draw closer together too – a joint credit card often pops up first, followed by savings, then a current account and mortgage.

Naturally, two wallets are better than one: a step-up in spending firepower; more generous savings for a smarter car; a bigger mortgage for a larger property.   

Yet your heavenly match could also leave your money in hell if it all turns sour.

For starters, your credit rating could collapse.

Or you could end up forking out for your partner’s profligacy and bad card debts.

And how about paying every penny of a joint home loan because your ex-partner is either bad-tempered enough to refuse to pay or has fallen on hard times and can no longer keep up?

Double trouble

The problems are twofold. First, very few of the lovestruck bother to stop and carefully question the risks of hitching their personal finances to those of another.

Second, and rather more delicately, even fewer would ever dare suggest a solution to the risks of bigger joint financial decisions such as a mortgage or pension: a neat legal document detailing what would ever happen in the event of a split.

Unfortunately, passion killers don’t get any bigger than two sets of lawyers’ bills so to spare you such humiliation, here are crucial pointers about knowing when to best pool your finances - and when you’re better off pulling apart.

Home is where the heart is

Doubling up has its greatest impact with a mortgage as you can usually borrow a larger sum than when going alone by adding your salaries together; an income multiple of three or four times a combined £60,000 tends to buy you a swankier pad than one with a solo £30,000.

Yet make no mistake, when you sign the mortgage forms, you become jointly and severally liable for that monthly sum; if the relationship heads south and either you or your ex can’t – or won’t – pay, the bank or building society can legitimately hound either or both of you for the money.

This same principle can sour joint credit cards or loans (and even utility bills) too: if your personal circumstances deteriorate, the debts must be settled. And if one party defaults or is unable to pay, the other half remains liable.

Banking issues

What about a joint current account? While it at least relieves a couple’s administrative burden by corralling payments for all bills, it also poses a credit rating risk by creating a financial “link” between the two of you noted by credit reference agencies (a joint mortgage will alert them too).

So if you or your other half hit the skids financially, the poor money management can be contagious if it damages your joint account and make it harder to obtain fresh credit.

A joint life insurance policy might sound like a simple money saver – a £500,000 payout for less than the price of two separate £250,000 policies – but carries particular risks all on its own.

If you were to split years down the line, that joint cover would need an instant junking in favour of a likely very expensive replacement (to pay for dependent kids, say) since you’ll be older with less robust health.

Similarly, even if still together and one half sadly dies, the survivor will benefit from the larger payout but any new subsequent life cover would likely cost more if many years have passed.

Get saving and avoid tax

At least joint savings offer a brighter vision of financial unity: two incomes channelling spare cash into an emergency fund will generate a bigger savings pot much more swiftly than one.

You’ll also qualify for double the usual £85,000 guaranteed protection in the event of a bank crash – cash in joint accounts counts as a half each, so together you can save £170,000 without fear of loss.

And if one partner earns significantly less than the other – or nothing at all – they can cannily avoid higher tax bills.

By parking as much in the way of joint savings in the name of the lower-earning partner, they can make use of the £7,475 tax-free personal income allowance (if under 65) and lower savings tax rates to legitimately keep as much interest as possible. 

Comments

[H. Stewart McCullough]

My wife and I have been married for 56 years and never have we regarded our finances as 'his' and 'hers'! The sign of real love and commitment is when you trust each other completely! We have never been rich in financial terms but extremely rich in having a loving and caring family of four children, 13 grandchildren and 2 great grandchildren.

[lisa]

It is my understanding ythat if you are married you are liable for your partners debt anyway. Or so I found out when my now ex husband took out a loan secured on our house without my knowledge. Yes we had seperate finances at the time, but that was of no help at all. A friend also nearly lost her inherited house when her new husband took out loans secured on it. I now live with a lovely husband who admits he is useless with finances and everything goes into a joint pot to be spent/ saved as suits us both. No hidden bank/ credit card statements. Total honesty as nothing is hidden and a relaxed and happy household.

[d.t.chester]

your reference to joint mortgages with live-in partners touched a nerve. Someone I know has been paying the full mortgage on a property for two years because a former partner walked out, refused to pay their monthly contribution and refuses to agree to the sale of the property until a price is offered which matches their view of a suitable value. The remaining partner has no choice but to remain in the house and pay the full mortgage. Then, when the house is finally sold the price received will have to be equally shared. My advice to lovers is don't share a mortgage unless you're also a gambler.

[Jill Bance]

Re: joint mortgages with live-in partners.
Maybe the partner who is left living in the house should just walk out too; leaving the mortgage unpaid. The lenders will re-possess the property and any monies left over after the sale will be split between the two partners.

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