Financial circumstances can often be a difficult subject, but it is vital for those planning a future together. The earlier in your relationship you have such conversations the better, but even if your first date now seems a distant memory, it is better late than never.
Rosie Hooper, chartered financial planner expert at Quilter, says:
“While it is likely considered a less than romantic conversation to broach, having an open discussion about your finances as a couple can be hugely beneficial.
“Many people are either not aware or fail to make use of the generous benefits available to couples, which could be costly in the long run.
“To help create a better financial future for you and your partner, you should be aware of the big financial faux pas that so many couples make and do your best to avoid them.”
Rosie discusses the top five financial mistakes she sees couples make:
1. Not talking about your finances
Talking openly to one another about your finances is very important. It may seem an uncomfortable topic to bring up, but it’s a conversation that ultimately could prevent more difficult discussions later down the line.
There may be one person in a relationship who makes financial decisions, but ideally both partners should understand the decisions being made about their combined wealth. It also makes sense when considering if one of them were to die, it could leave the other partner vulnerable if they have no understanding of the financial side of the relationship.
By discussing your financial circumstances, you’ll be able to budget and plan more effectively as a couple, which will help you reach your financial goals together. It is a good idea to speak with a financial planner to help explore the options available and make the best decisions for you.
2. Only linking your current accounts
Many couples have combined current accounts or a jointly held mortgage. However, spousal linking of investment accounts in the UK is increasingly common as it can help to lower the overall charges paid by each partner.
There are also other options which could help you save money such as joint life cover, car insurance, or other similar products.
3. Thinking about the future
For better or for worse, a lot of government policy around the tax benefits of your personal finances still favour those who are married or in a civil partnership.
Individually, you can pass on up to £175,000 (the current Resident Nil Rate Band)** of your residential property tax-free. This amount is effectively doubled to £350,000 when combined with the allowance of your spouse or civil partner. Layered on top of your inheritance tax allowance of £325,000, it’s therefore possible to pass on £1m inheritance free as a couple to your children (or other ‘closely related individuals’).
The UK’s six million cohabitees are less fortunate and cannot claim the combined allowances.
So, whilst marriage may not be for everyone, the fact is one of the shrewdest moves you can make is to pop the question.
4. Holding assets in the wrong name
How money or an asset is held, who owns it and who will benefit from it often underpins good financial planning, but these factors are rarely considered by married couples.
For example, Quilter’s research*** shows that many couples could achieve 40% more return on interest payments in savings accounts if they were placed in the name of a partner on a lower tax band.
A financial adviser can help make sure assets are held in the right name and product, and that you’re receiving the maximum tax relief available.
5. Protecting one life only
An all-too common mistake is the failure to buy life cover for one partner, usually a new mother, when they take a career break. While the working partner will often have life cover and death-in-service benefit as a part of their employment benefits, they overlook what would happen if the non-working partner were to pass away. For example, how would you pay for childcare to continue working?
It’s important both partners are adequately covered in case the worst happens and speaking to financial adviser is a good place to start. Not only will this give you the peace of mind that those who depend on you will be taken care of if you were to pass away, but it can also make a difficult situation far easier for your loved ones if the worst were to happen.