💸 In this episode, we dive into the often tricky and emotionally charged topic of money and relationships. Our expert guest shares insights on managing joint finances, communicating effectively about money, and aligning financial goals with your couple goals. We also explore practical strategies for optimising tax benefits, the cost of being single, navigating divorce, and more.

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Managing money together but maintaining independence

• Everyone is independent when you come into relationships, so it can be hard to adjust to being with somebody and then identifying what is important to you both.

• An easy way to start is, if you're living together, for example, is looking at your joint expenditures - the really mundane stuff, like council tax and, bills, food, and maybe setting up a joint bank account just for your core expenditure on a joint basis. You can both pay in a monthly budget so that it doesn't need to be 50-50.

• If one person does earn significantly more than the other, you can absolutely discuss whether you should split things equally or based on each other’s earnings.

• After you split up your joint expenses (in whatever ratio you deem appropriate), the remainder of your personal earnings can be your own (not shared).

• It’s a great way to start those conversations about goals-based planning. What are your short, medium, and long-term objectives? If you want to buy a house in the short term, what do we both need to start saving together? It’s having that oversight of each other's finances, but also maintaining your independence, which is so important to many people.

What about pensions?

• Pensions are fantastic. They have so many great tax benefits associated with them. The really obvious one is receiving income tax relief on all personal contributions that you make into a pension.

• As an example, if you put 80 pounds into a pension, the government will give you 20 pounds directly into your pension. So it grows up your contribution to a hundred pounds. If you are a higher rate or an additional rate taxpayer, you can claim back any additional tax relief on your self-assessment tax return and any growth in that pension fund, whilst it's in there, is completely free of income tax and capital gains tax.

• Essentially, it’s very, very tax efficient. There is a trade-off, however, in that you will not be able to access your pension until the minimum pension age, which is actually increasing to 57 in 2028.

• You need to be really comfortable that you are locking this money away for your long-term future if you do need that in the short term. If you are trying to buy a house together, for example, it may be that you decide that you actually need access to some of this surplus income in the short term. This means it may not be the right thing to lock it away at this point in time.

• Now, most employers do offer a workplace pension. They are obliged to under auto-enrollment rules, which came in a number of years ago, and they will make contributions into that scheme for you, which is just an added benefit for you.

• Quite often, it is the woman who takes time out of work to look after the children and their pension benefits suffer as a result of that.

• This is why it’s important to have a conversation with your partner to see if they can contribute to your pension if you take time off for caring or childcare responsibilities. You can put up to 3600 pounds gross in each tax year. It will only cost your partner 2,880 pounds to do that because you'll get tax relief.

the transition from singledom to a partnership

• Being single is definitely more expensive.

• Mortgages are tricky because if you're single, you can borrow less and will ultimately impact the type of property that you can buy. There are a lot of benefits to being married - an example is transferring between spouses during a lifetime and on death are free from inheritance tax. There are many more tax planning opportunities when somebody's married versus being an unmarried couple.

• The key considerations when you’re planning money as a couple include wills and legal planning.

• It’s really important to review your wills regularly. It’s also worth considering prenuptial agreements, they can be really beneficial in the right circumstances. They're there to protect both spouses in the event of a breakdown of marriage.

• Lastly, if one person, for example, bought a property and took out a mortgage on that property when they were single, they might not have taken any life cover to cover that debt. Now that the situation changed, it is worth considering taking out life cover to protect the new spouse so they can continue living in that property if something were to happen.

divorce and debt

• The no-fault divorce that came into effect this year will hopefully make it easier and less contentious for couples to apply for a divorce. It will then hopefully be less contentious at the start, but it is still recommended that both parties seek legal advice from a family lawyer.

• Family lawyers are really helpful in looking at the different options available and also how to divide the assets fairly and in the best interest the client that they're representing.

• You should look at assets as a whole, get a fair settlement for each spouse, and recognize what they brought into the relationship. For example, a woman has children and takes time out off work, she may not have financially contributed to the household, but she contributed in different ways by bringing up the children, which in itself is hugely valuable.

• When it comes to debt, it depends on what type of debt it is. A mortgage is very common.

• But if someone has debt or serious money problems, it, it's very, very difficult. These issues are often not disclosed when you first start dating. It’s about trying to understand how they ended up in debt, understanding that, and then helping them to get to a point where that debt is cleared.

• It may be that they need some kind of money counselling alongside that, or you help them with their budgeting, but it's just about trying to have an open and honest no judgment discussion.

• This is why it’s important to discuss the emotional side of money. It can provide you with a real insight into why that person might react a certain way or have certain views. Understanding someone’s background is crucial.

make it or break it?

• You need to be on the same page broadly when it comes to financial objectives and approaches. If you are incredibly different then it's probably going to be difficult to have a joint financial journey together.

• If somebody wants to take out a million-pound mortgage to buy a house and the other person doesn't feel comfortable at all about that, it is going to cause major strains on your relationship.

• Again, having those conversations early, how you feel about certain types of finances, what’s driving those emotions etc. will hopefully get you on the same page to then move forward together.

• Respect your partner’s absolute ‘no-go’s’,

To summarise, Abigail recommends open conversations with your significant other about debt and money problems, how they envision a future together, and whether you’d like to start a family together. Keep having these conversations as your relationship evolves.

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RESOURCES

• Abigail Banks (LinkedIn) is a Senior Chartered Financial Planner at The Private Office and has been working in the industry for seven years. She provides advice to private clients across a range of financial planning areas including investment advice, retirement planning and inter-generational planning. Abigail is passionate about inclusivity in financial services and particularly enjoys working alongside women to ensure they have the confidence to take control of their finances.