Thinking of getting married? Six cash questions you need to ask your future spouse first
It’s all too easy to get carried away in the romance when you meet someone special. And many of us leap into marriage without considering all of the financial consequences.
While this may not sound terribly romantic, the reality is that we can’t exist on love alone – we need money. Money also happens to be the top cause of arguments between couples (according to Relate these are the five most common money issues we argue about).
And with as many as 42% of marriages in England and Wales ending in divorce, we realistically can’t afford to make sure that we’ve thought through the financial implications of marriage – not just in case we split, but to ensure that we’re on the same money page as our partner before we join our financial fate.
So what DO we need to consider financially before we tie the knot with our dream man or woman? According to Zoe Bailey, Director of Financial Planning at Tilney, we need to ask these six cash questions.
1) What’s your financial situation?
Before you start looking at the different ways of combining your finances, it’s important to have an understanding of your partner’s financial situation, as well as being open about your own.
For example, does your partner have debt, bad credit or county court judgements against them? Not only will their financial habits (and past) impact your options as a married couple, but it gives an indication of how careful or reckless they are with money.
It gives you both an opportunity to consider whether you’re happy with the way your future spouse handles money. And if not you can have conversations about what happens going forward now – and save bitter rows and disappointments later when you discover that one of you is a thrifty saver, and the other a spendthrift bankrupt.
2) How shall we combine our finances?
There is no one-size-fits-all approach to combining your finances. There are number of different ways you can join up your money:
- You can open a joint bank account or keep separate accounts.
- You can share a combined account for utilities.
- You can join your savings or keep them separate.
- You can have solo financial products or put them in both names.
Married couples can also transfer assets between themselves without triggering a tax liability. These are known as “inter-spousal transfers” and can be used to move savings and investments in to the name of whichever partner is subject to a lower rate of tax, or to make use of two Individual Savings Accounts allowances.
The right option will depend on your situation and perspectives. But you won’t find the ‘right’ option without actually having a conversation about it. Don’t assume that your husband or wife-to-be thinks the same as you. Ask them.
You may be surprised to discover they have very traditional views on money, or feel strongly that ‘their’ money should still be just theirs after you marry. Having this conversation now can prevent awkward situations later, and allow you to agree an approach to money that you are both happy with.
Or, if you can’t agree on an approach, or a compromise you’re both happy with, it gives you the opportunity to consider whether you’re really a good life match for each other. Because romance aside, if you’re not financially compatible you could find the wheels coming off your marriage pretty quickly.
3) Who will manage the money?
Similarly, it’s important to decide which of you will manage your family money. Some couples prefer it if just one person takes charge and manages the family finances. If you decide this approach works best for you, then make sure you’re both aware of what your outgoings are and clear on your budgets.
Even if you both maintain separate bank accounts and savings, there may well come a time when you’ll need to combine your finances – for example in a mortgage or insurance policies.
So make sure you agree at the outset who will take what role in your family money. And if you do decide that one person will manage your joint family finances, ensure that you’re both up to speed on where you are over the years.
The last thing you’d want is to discover in years to come that your spouse has been financially irresponsible or taken decisions without consulting you, and you’re not as financially healthy as you assumed.
4) What benefits can we use?
While most people tie the knot for love, many couples recognise that marriage can be a tax efficient arrangement too.
One tax perk is the marriage allowance, which is available to couples who are married or in a civil partnership and where neither person is a higher rate tax payer. The lower earner can transfer £1,250 of their annual tax free personal allowance to their partner – creating a tax saving of up to £250 a year.
There may be other benefits you’re entitled to too, for example inclusion in private healthcare policies and pensions. So make sure you explore any benefits that you may be able to take advantage of as a married couple.
5) What happens when we die?
The tax benefits of marriage are not solely confined to your lifetimes either – one of the biggest financial gains comes when one of you dies.
Unmarried couples can pass assets valued up to £325,000 upon death, but anything above this is subject to 40% inheritance tax. So if a partner is left a house that far exceeds this value, they could end up having to sell it.
If you’re married, however, you can pass an estate of any worth to your surviving spouse without immediate tax consequences.
It’s also important to re-do (or make your first) wills as a married couple. If one of you were to die intestate (without a will) then your estate would be shared between the surviving spouse and the deceased’s children.
The surviving spouse would be entitled to the first £250,000 of the estate, all the deceased’s personal effects and 50% of the rest of the estate outright. The other half would divided equally between the deceased’s children.
And money aside, it’s important to make provisions and decisions in case both of you were to die and leave your children orphaned.
It may not feel terribly romantic discussing what happens if one of you were to die before you’ve even said “I do”, but not having these conversations now could cost you dear in future, as this family discovered.
6) What does our future look like?
Speaking of the future, what does it look like to you? And how similar or different is that to your potential life partner?
It’s important to discuss your immediate and long-term plans, and how you’ll pay for them. For example, are you the kind of person who likes to scrimp and save up for big purchases like a home of your own or big family holiday? Or do you prefer to live in the moment and spend your money as you earn it?
And what about retirement? Do you want to put away money so you can lave work early? Or enjoy today and work later, or face the financial consequences when they happen?
How will you spend your retirement too? Are you hoping to travel the world on a yacht? Or spend the winters in warmer climates? Or do you fancy a quiet life living off a modest pension near your grandchildren?
While these years and decisions may seem a long way off now, it’s important to ensure you’re both working towards the same future – and have a similar approach to paying for it. Otherwise you could find yourself calling time on your marriage long before you claim your carriage clock for long service.
Need more help with financial planning? Check out these guides from Tilney.
Photo by Jose Escobar