Ahead of Valentine’s Day, Paul Gillen offers advice to couples thinking of cohabiting.
The decision to share a home is a major moment in any relationship, whether you’re doing it for the first time, or you have been there before. It’s not just about choosing new curtains and finding space for each other’s clothes. Finance can be a big source of friction between couples and thinking about the challenges in advance can help.
Here are seven tips to suit young couples moving in together for the first time or older couples who are making a fresh start.
1. Who owns the house?
If you are renting, moving in together can be just a matter of deciding if and how to split the rent. If you are buying a house together, or someone is moving into a house that one partner is already paying a mortgage on, it can become complicated. Will you both pay equal shares of the mortgage? What happens if you are not married and, after several years, decide to separate? Are you legally recognised as joint owners and, if not, will one partner who has contributed equally to the mortgage end up with nothing in return? Paul Gillen, a financial planner at Seven Investment Management (7IM), says: “It’s often easier to think about these questions at the outset and take professional advice if necessary.”
2. Agree what happens about gifts from the Bank of Mum and Dad
The Bank of Mum and Dad has become one of the nation’s biggest lenders. It can also be very generous. George Martineau, head of financial planning at 7IM, says that younger couples should think seriously about prenuptial agreements, if one side of the family is making a large gift or loan to get them on to the housing ladder.
The most recent statistics show that there were more than 239,000 marriages in 2015, and more than 101,000 divorces – that’s two divorces for every five marriages. Martineau says: “Many of my older clients would like to make a big cash gift to their son or daughter, but they worry about what will happen if the couple separates. They don’t want to see their child’s ex make off with half the money if it all goes wrong.
“Couples don’t like to start out together thinking about separating, but if one person is bringing substantially more to the relationship than the other – no matter what their age – it is worth discussing and consulting a solicitor. A prenuptial agreement should not be seen as a negative judgement on the quality of your relationship.”
3. Decide how you'll pool your money
Sharing a house means sharing bills and that can spell trouble, especially for cash-strapped younger couples. 7IM research has shown that money is a big source of rows for at least one in five young couples, with 22% arguing regularly about it.
There are several approaches couples take regarding how they pay for domestic expenses and whether or not to pool their incomes. The three main ones are:
What’s mine is yours
Gillen says: “Some couples will open a joint account and all their money will go in there. They will make joint decisions on all expenditure. This sounds simple, but it can create problems if one of you wants to buy a new pair or trainers or perfume and doesn’t want to ask for permission. It rules out bold romantic gestures, too, if the gift comes out of a joint account.”
Joint account with pocket money accounts
Gillen says: “Other couples find the best way to avoid fights over personal expenditure is if they put all their income into one account, but then agree pocket money allowances. This money can be set up as a direct debit into a personal account to be used for treats. The only issue here is that you have to agree what counts as a treat and what is essential. Which account does the money come from to pay for those ‘must-have’ shoes?”
Separate accounts and a household account
Gillen says: “Under this model, a couple will work out what they need to cover household costs such as food, utility bills and maintenance. They’ll work out how much each person should contribute towards this from their salary, and they can each keep what’s left. It leaves each partner feeling more independent, but there may be some negotiation on how much each person contributes if one partner earns significantly more than the other, and you’ll still need to talk about big items of expenditure, such as holidays or a new kitchen.”
He adds: “No system is perfect. Couples need to talk this through and work out what’s best for them, but the key thing is to talk and have that conversation early on to avoid hidden resentments simmering that can eventually lead to serious problems.”
4. Write a will
It seems gloomy, but it is important to write a will and especially so if you’re getting remarried and have children from a previous relationship. Martineau says: “When you remarry, any previous will is void. Couples remarrying need to think about what will happen to their share of the money if they die – does it all stay with the new spouse, does some of it go to the children, and which children? It can be very romantic pooling resources, but problematic if you have to disentangle them later, and thinking ahead can save some nasty family feuds.”
5. Set up Powers of Attorney
Powers of Attorney allow you to delegate responsibility for decisions around your financial affairs and physical welfare should you become incapacitated. Your partner will not automatically have these rights. And you may want to involve close friends.
Gillen says: “Most people only think of Powers of Attorney for ageing parents, but even young couples should consider them. Imagine that you were both involved in a car crash, where one partner survived but was in hospital for a long time. Who would be able to access your accounts to ensure that essential bills continued to be paid? It’s not an impossible scenario and worth being prepared for.”
6. Organise life insurance
Moving in together is a good opportunity to think about life insurance, especially if you are buying a house together. Gillen says: “Romantic couples like to think of ‘for better’ more than ‘for worse’, but you want to make sure that things such as mortgage repayments are covered if one of you dies or is no longer able to work, so it is worth sorting out insurance early on.”
7. Make a retirement plan
7IM’s research shows that even for young couples, retirement planning is a major worry – 29% of 18- to 36-year-olds said that it was a serious money concern for them.
Martineau says: “For younger couples, it is good to try to at least start putting some money away for retirement. Older couples who already have pensions in place should really see an adviser to make sure that they are building up their retirement pots in the most tax-efficient way possible, making the most of each other’s allowances. An adviser can help them draw down their income in retirement tax effectively, too.”
Paul Gillen is a financial planner at Seven Investment Management (7IM).