What happens to your finances when you get together

So you think you’ve found the one, your perfect fit, your other half.  Before you get carried away with promises of forever, let’s discuss some ways to smooth the path towards happily ever after.

Numerous surveys have been conducted over the years on relationships and common areas of conflict.  The disagreement ranking at number one on just about every piece of research?  Money. Everyone has a distinct and different attitude towards money, often learned in childhood.  A calm conversation over coffee before you move in together can help set boundaries and rules regarding spending that will leave both parties feeling secure.

Some common ways to blend your finances and run a home together;

Maintain Independence - Set up a shared bank account to pay shared expenses.  In this example each partner would have their income paid into their personal account and would redirect a pre-agreed portion into the jointly owned bank account. All expenses for the running of the home – rent, utilities, food, etc. would then be drawn from this account. One partner may be able to pay a higher percentage if they are earning more than the other.

Split Expenses by Type - One partner pays for one type of expense, rent/mortgage, whilst the other may pay for entertainment /food/drink.

Jointly Managed - In this scenario all income and expenses are jointly managed and shared.

Most couples start with a more independent approach, and adapt towards jointly managed finances as the relationship develops and longer term life goals such as purchasing a home together, having children, and saving for retirement come into play.

It is important to outline financial goals and direction together, and to discuss attitudes towards money.  Often one person will be a saver; they may identify feeling safe and secure with having a large nest egg, while another may be more of a spender; they live for the experience, and see money more as a tool. Creating a balance, and understanding the spending habits and goals for both partners is the key to harmony.  Be honest. How we relate to, and spend money can foster resentment as months turn into years. 

Suggestion:  Pre-agreed limits on spending, and joint decision making on purchases above specific amounts may provide peace-of-mind to both partners.

Should you consider a pre-nuptial agreement?  Yes, they’re widely seen as un-romantic, perhaps even betting against the success of the relationship, but with the odds of a marriage succeeding long-term about the same as flipping a coin they should definitely be considered where the partners are entering marriage with unequal assets.  In particular if one party has large family holding or business. In this scenario it would be suggested that the family protect the business, possibly by looking at a trust or re-aligning the business structure.

To finish on some good news, the tax-man will often reward your relationship, depending on your tax jurisdiction, with joint allowances to offset tax for married couples. In marriages with two different nationalities financial decisions should be made with the help of a qualified financial advisor to help you become tax optimized.