You and your partner may be open to sharing all sorts of things - food, the TV remote, or if you’re really lucky maybe even a range of domestic chores. But, what about when it comes to your finances?
While some may prefer to fly solo on that front, there may be practical reasons for combining your finances or making larger purchases together. However, there will be discussions, as well as pros and cons to address upfront, particularly if you want to avoid potential squabbles down the track.
Things to discuss with your partner early on
There are a number of things worth discussing with your partner before you consider merging finances or buying any big-ticket items together. These might include things such as:
- Your views on money management
- Secret spending habits (Aussies fork out over $11 billion a year on sneaky purchases1)
- Your income, expenses, assets and debts
- Your credit history and credit rating as this may impact your ability to borrow money
- Individual and shared financial goals (this might include property, travel, marriage, children)
- What a joint budget and savings plan might look like
- Your job security and whether you see a change on the cards
- Your contingency plan if one of you isn’t earning an income
- How you’ll contribute/divide repayments – 50/50 or proportionate to income.
How you could benefit from joining your finances
Shared finances can work well for couples who spend money in a similar way, communicate openly and effectively about financial matters, and who trust each other.
If that sounds like you, here are some advantages of sharing your finances:
- Easier management of household expenses
- Potentially lower fees, as one account or policy may be cheaper than two
- The potential to earn more interest as you have combined savings
- Greater purchasing power, since you’ve pooled your funds
- Less paperwork and administration
- Both of you can decide how left-over money is best spent.
What risks you should be conscious of when merging your money
Make sure you discuss and agree on some ground rules up front, so you don’t end up in arguments down the track.
Issues can arise when:
- One person is contributing more
- One person is spending more
- One person is making withdrawals without the other’s consent
- One person is doing more of the admin work
- There’s no privacy around what each other spends.
Additional factors to consider:
- Your responsibilities - If your partner defaults on their repayments, you may be liable for the amount owing, including fees, interest and charges, even if your relationship ends.
- The consequences - Lack of payment will affect both of your credit ratings, which could impact your future borrowing plans and stay on your record for years to come.
- Ignorance isn’t an excuse - If you sign papers you don’t read properly or understand you’re no less liable for any loans or guarantees you may have signed off on.
Considerations if you’re thinking of buying a home together
Buying a home is a big step in a relationship, particularly as the most common loan terms in Australia are 25 and 30 years2, and a mortgage is likely to be the biggest debt you’ll ever take on together.
There can be different rules for married and unmarried couples but whatever your situation, it’s good to put things in writing just in case the unexpected happens.
Consider signing a co-purchase agreement
This is a legally-binding document that will detail each person’s rights and responsibilities, including how mortgage repayments will be divided, as well as how disputes will be resolved should the relationship break down or someone fails to make repayments.
Be conscious of joint and several liability
This is a clause under which you’re both jointly responsible for each other’s debts, meaning if your partner doesn’t pay, the bank can come after you. It’s a good idea to address this in your co-purchase agreement and see what the bank can do to limit your liability as a co-borrower.
Decide if you’ll be joint tenants or tenants in common
Many married couples choose joint tenancy so if one dies, the property automatically transfers to the surviving spouse. A tenant in common arrangement however, can make it easier to divide and sell your share of the title, which could be helpful if the relationship breaks down.
Things to be aware of if you do go your separate ways
If you do happen to split from your partner (whether you’re married or in a defacto relationship), a division of assets and debts, whether they’re held separately or together, may be on the cards.
With that in mind, you may want to think about entering into a binding financial agreement (also known as a prenup)—if you’re worried about who might get what.
Should that happen, you may need to arrange how ‘property of the relationship’—so your assets and debts—will be divided, and this can be formalised between the two of you without court involvement3.
Meanwhile, if you can’t agree, you can apply to a court for financial orders regarding the division of property and possibly superannuation, while spouse maintenance may also be payable4.
This must be done within two years of you splitting from your former partner otherwise you’ll need the court’s ok to make an application5.
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This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling 13 30 30, before deciding what’s right for you. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.
All information on this website is subject to change without notice. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability for any resulting loss or damage of the reader or any other person.