For richer, for poorer

Love may be in the February air. But before a date turns into a relationship it is important to understand the financial implications of a late-in-life romance. Older lovers are more likely than younger ones to come with baggage – and I don’t mean the ‘are you staying the night’ sort. I mean property, savings, and of course children. But they may also come with debt – past or present – and perhaps other liabilities; should I mention children again? It is as important to be honest about these things as it is to declare your taste in films or furniture and whether a long walk is your idea of heaven or hell. Falling out about money can contribute to a relationship ending. One survey in America earlier this year found that around two out of three people thought honesty about money was as important as sexual fidelity. Sorting out a fair and sustainable financial arrangement can help you stay together.

Joint accounts
If you have a joint mortgage, a joint credit card, a joint current account, or a joint savings account the money in the account or the debt belongs in full to both of you. It is what the banks call ‘jointly and severally’. That means either of you can perfectly legally make off with all the savings or spend everything in the current account without asking the other. And if there is a debt then you are both liable for all of it. So if one of you disappears or cannot meet the repayments then the whole burden falls on the other. Not half of it; all of it. That means you are liable for an overdraft on a joint current account even if it was your partner who spent all the money and carried on spending even more.

So think very, very carefully before you open a joint account, take out a joint credit card, or sign together for a loan. Each of you is liable for the whole debt. You need to know someone very, very well to take on that commitment.

Of course, if you live together you will have joint expenses. And a joint current account is one way of dealing with that. But do it properly. Work out your joint bills every month for rent, gas, electricity, water, council tax, broadband, television – all genuine joint expenses of the home. Decide what proportion of them each of you pays – half each perhaps or in proportion to your incomes or your usage – and then each of you should make a standing order into the account for that amount in time to meet the payments out. You may want to keep a balance of, say, £250, in there to avoid overdraft charges in case payments are late.

Debt
If your new partner has debt – a mortgage, a credit card, an overdraft – it is really important to find out. Of course, their own debt is their business and not yours. But a debt in the household can make life more difficult for those they share it with. And if you take out a joint financial product with them – such as a current account, credit card or mortgage – then their bad credit rating will hit yours as well. Good fences make good neighbours. And generally separate finances can make good relationships.

Joint accounts and debts which are not met will affect the credit rating of both of you.

Jane and Wilbur live together and have a joint current account for household expenses. They each have their own account and credit card. In December Wilbur misses his credit card payment. He did make it a month late in January, but that missed payment means a red mark – green is on time, amber is late, red is missed – will appear on Wilbur’s credit rating. And if anyone checks up on Jane’s credit record they will see Wilbur’s red mark because she has a joint financial relationship – the current account – with him. That will hinder both of them from getting credit – separately or together. Only if they had no joint financial deals would they keep their credit mistakes to themselves.

To marry or not
What rights does an unmarried partner have when the relationship ends? In England and Wales almost none. So getting married can be a good thing for the financially weaker partner. A wife or husband has pretty much the right to an equal share of their partner’s property, even if they have contributed nothing towards it. But a woman who moves in with a man into his house who contributes financially to their joint costs of living, perhaps decorates and cares for the home and even has babies with him ends up with no rights to that home at all.

One advantage of not marrying is that you can own two homes – one each – without paying Capital Gains Tax on either when they are sold. If you marry or form a civil partnership then you have to name one home as your principal residence and you will potentially be liable for Capital Gains Tax on the growth in value of the other when you sell it. However, the rules are highly complex and you should seek advice if you are in that position.

Wills
Marriage or simply living together and owning things jointly can exclude your own children from inheriting.

Michael and Susan meet in the fifties and marry. They each have a home which they sell and they buy another one together. They own the new home jointly (as joint tenants in the jargon used by the law). That means they each own all of it. Michael has two children Sam and Sarah and Susan has one – Jonathan. Michael and Susan made wills leaving everything to each other. Michael dies unexpectedly when he is 60 and Susan inherits the whole property. A couple of years later Susan meets another man who moves in with her. They marry and make new wills leaving all their property to each other. Five years later Susan contracts a fatal disease and dies and her new husband Richard, inherits the house. He is free to do what he likes with it leaving Sam, Sarah, and Jonathan without any inheritance from their parents.

If you remarry it is important to make a new will because one made before you were married becomes void. The only exception is if it is a will made in anticipation of marriage to a named person and you do indeed marry them.  When you draw up your will take care to ensure that the property you have earned does not bypass your own children and disappear into a collateral branch of the family. In Scotland the rules are different but it is still important to make a new will on marriage or when you enter a new long-term relationship.

e-mail Paul Lewis on paul@paullewis.co.uk