Managing finances in a relationship

What should you discuss with your partner?

Before you consider merging finances or making any big purchases together, consider having an open and honest conversation with your partner on important things such as:

• Your views on money management
• Your income, expenses, assets and debts
• Your credit history and credit rating, as this may affect your ability to borrow money
• Individual and shared financial goals now and in the future (this may include property, travel, marriage, children)
• What a joint budget and savings plan might look like
• What are the best joint account options for couples in your financial situation, if you decide to merge finances that way
• Your job security and whether you can see a change in the future
• Your contingency plan if one of you isn’t earning an income
• How you’ll contribute or divide any repayments (for example, will you split it 50/50 or split it proportionate to your income?)
• Any secret spending habits (Aussies fork out over $11 billion a year on sneaky purchases such as clothing or guilt foods¹)

How could you and your partner benefit from joining your finances?

Sharing finances comes with a range of benefits, and can be a good option for couples who spend money in a similar way, communicate openly and effectively about financial matters, and who trust each other. By joining your finances, you could have:

• Easier management of household expenses, like bills or rent
• Potentially lower fees, as having one bank account, one insurance policy, or one credit card may be cheaper than having two separate ones
• The potential to earn more interest if you combine your savings together in one account
• Greater purchasing power, since you’ve pooled your funds
• Less paperwork and administration (for example, you’ll only have to fill out one form, manage one bank account, and you’ll have less joint venture financial statements if you’ve invested together)

What are some of the risks of merging your money?

Joining finances has its advantages, but there are also potential issues that can arise, regardless of whether you’re spending together, saving together or investing together. 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.

By merging your finances, you are also merging your responsibilities, risks and any consequences that arise. Before making any financial commitments together, it can also help 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 affect your future borrowing plans and stay on your record for years to come.
• Ignorance isn’t an excuse. If you or your partner sign papers that you haven’t read properly, or that you don’t fully understand, you’re no less liable for any loans or guarantees you may have signed off on.

It may be beneficial for you and your partner to discuss different issues and scenarios, and agree on some ground rules up front. This could help prevent any misunderstandings or arguments in future.

What should you and your partner consider if you’re thinking of buying a home together?

Buying a home is a big step in a relationship. A mortgage is likely to be the biggest debt you and your partner will take on together, and home loans are typically a long-term debt (the most common home loan terms in Australia are 25 and 30 years²). There are a few considerations that you may wish to take into account before committing to purchase a property together.

Have you thought about signing a co-purchase agreement?

A co-purchase agreement is a legally binding document that outlines each person’s rights and responsibilities, including how mortgage repayments will be divided, as well as how disputes will be resolved if the relationship ends or someone fails to make repayments. While it can be unpleasant to think about, it can help to put things into writing, just in case the unexpected happens.

Are you aware of joint and several liability?

Most home loans have a joint or several liability clause that could affect your repayments and your future financial situation. Joint and several liability means that you’re both jointly responsible for each other’s debts, so if your partner can’t make payments, the bank can seek this money from you. To protect both you and your partner in this case, consider addressing this in your co-purchase agreement, and ask what your lender can do to limit your liability as a co-borrower.

Will you be joint tenants, or tenants in common?

When you buy a home together, there are two types of shared ownership that you can choose from: joint tenancy, and tenants in common.

• Joint tenancy means that as a couple, you own the entire property together, but as an individual you have no rights of ownership.
• In a tenancy in common arrangement, both of you own part of a share in the property, and you can choose what to do with your share, regardless of your partner.

Many married couples choose joint tenancy because of the rights of survivorship, where if one passes away, the property ownership is automatically transferred 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.

How can you manage your finances if you choose to go your separate ways?

If you do happen to split from your partner (whether you’re married or in a de facto relationship), you may need to arrange how ‘property of the relationship’ (your assets and debts) will be divided, regardless of whether you hold them separately or together.

This can be formalised between the two of you without court involvement if you can reach an agreement³. If you can’t agree, you can apply to a court for financial orders regarding the division of your property and superannuation, as well as any spouse maintenance that may be payable⁴. Applying to the court typically needs to be done within two years of you splitting from your former partner, otherwise you’ll need to have special approval from the court to proceed with your application⁵.

With all this in mind, if you’re concerned about who might get what, you may want to think about entering into a binding financial agreement (also known as a pre-nuptial agreement) with your partner before you get married, or if you are in a de facto relationship.