What You Need To Know About Merging Finances Later In Life
Emma-Lou Montgomery, associate director for Personal Investing at Fidelity International, says…
When it comes to meeting someone later in life, you will already have your own financial lives. That means that you need to think about how to make them align. However, just because your goals need to align doesn’t mean they need to be the same. Don’t panic if you find you have completely different attitudes to money than the person you’re with. It can actually be beneficial and bring some financial balance to your relationship. For instance, if one of you is a saver and the other a spender, you can use these differences to your mutual benefit by sharing saving habits and smart spending tactics to get the best of both worlds.
Begin by being open and honest about all aspects of money – from savings and investments, through to debt and borrowing and financial goals. This is one of the primary building blocks of a good relationship and the best place to start is with a list of your assets and debts; from there you can work out what you would like to merge and what you would like to keep separate.
There are advantages to pooling some parts of your finances. For example, if you are saving and investing, you could be better off as a married couple if you pool your income, as some providers offer better rates for higher deposits. It’s also worth noting the free interspousal transfers for Capital Gains Tax and Inheritance Tax purposes, so both parties can use their allowances unhindered.
If you are thinking about opening a joint account, you need to talk about it first. If you have a joint account, or any form of credit with a spouse or partner, their credit history will have an impact on your credit score. For example, if you’re added to an account on which there are debts, you’ll become jointly liable for paying off those debts. In some circumstances, the creditor can choose to come after you for the entire debt, even the amount accrued before you were on the account.
Few people like talking about their own mortality or their potential long-term care needs. But this is incredibly important. Recent research showed that 2.6 million women in the UK over the age of 55 don’t think they will be able to afford later life care. If you are still earning, think about what you want care to look like for you and your partner. For example, are you planning to downsize and release equity from your house or will your pension pot provide the funds you need? Speak to your partner about your wishes and their plans, and put a savings proposal together – the earlier you start, the longer you’ll have to build up a healthy pot.
While thinking about later life, it’s also prudent to revisit your will if you have met someone new. This ensures that your money will be treated in line with your wishes once you have passed on and you may also want to discuss the topic of Power of Attorneys in case one of you becomes incapacitated. Finding a partner and embarking on a new part of life is exciting but it’s also important that you retain your financial independence in a relationship. Make sure that, aside from your joint finances, you can build or add to your own savings pot from which you can withdraw funds when you like or in an emergency.
Kirsty Anderson, pensions expert at M&G Wealth, says…
Start your joint financial planning as early as possible. When you come together later in life you may be at different stages regarding your family and career, and you need to establish a common understanding of both shorter and longer term financial priorities and objectives. This could include things like at what age you want to retire from work, whether you want to give up work completely or wind down gradually, where you want to live in retirement and what sort of lifestyle you envisage, as well as what you want to happen to your estate when you die.
Having a joint account to cover household expenses can often make sense. But it may also be more beneficial to hold separate accounts to maintain a level of financial independence and perhaps buy gifts for each other or plan surprises. For longer term savings such as ISAs, pensions and bonds, a financial adviser can help you to understand the various exemptions and allowances available and where it’s most financially beneficial to bring things together or keep them separate.
The ability to plan together financially as a couple could lead to real income advantages in retirement. Couples coming together later in life will have accumulated a ‘financial history’ whether that be savings or debt. Being open and honest about your financial position will help you create a joint plan, work out your priorities and what you want to achieve financially. For example, you might be able to transfer part of your personal allowance to your spouse or civil partner to pay less tax as a couple overall. Having a holistic view of your joint financial objectives also means you can take advantage of the annual exemptions and allowances when drawing income from different types of savings.
Estate planning is a key component of financial planning. Planning can help to mitigate any future tax complications around inheritance tax, for example. When couples get together in later life, chances are that they might be creating a ‘merged’ family with children on both sides. By understanding each other’s position and how they’d like their estate to be passed on, and planning now, each can have confidence that their instructions will be carried out and their family will be financially taken care of. While no one can predict the future, looking at family history may give you an idea of what your health needs in later years may look like in later years. Putting in place power of attorneys, making a will and considering the use of trusts are key considerations. Advisers often cite paying for long-term care as one of the main concerns of their clients and indeed for intergenerational wealth planning. This does need to be considered as part of the overall financial plan.
Speak to a financial adviser first but splitting retirement savings is often a good idea. There are various tax exemptions and allowances available to us as individuals. By ensuring both parties are maximising their different savings options, it could mean they can maximise their available income in the most tax-efficient way. Consider where it makes sense to merge your finances perhaps for practical reasons – having a joint account to cover household expenses – and where it might be more beneficial to hold separate accounts, whether that’s to be able to maintain a level of financial independence or to take advantages of tax exemptions and allowances such as having your own pension savings.
Knowing exactly what policies and savings are held and having access to these will be helpful should something happen unexpectedly. It’s also worth having an emergency fund that can be accessed immediately and, for some, taking out a life insurance where it’s possible and affordable may be an option to consider. Seeking good quality professional financial advice will be beneficial for most people. Both parties need to be involved and a financial adviser will make sure both joint and individual needs are considered. It’s vital that both parties are open and honest about their current assets and liabilities, future income needs and concerns, as well as what they’d like to happen in the event of any unforeseen circumstances or when they’re no longer here.
Laura Newman, head of specialist advice & investment services at NatWest Premier, says…
One of the advantages for couples getting married later in life and merging their finances is that their combined income is likely to be higher than when they were younger. This means they are likely to have a larger disposable income which can provide a more comfortable lifestyle. Older couples also tend to have more assets such as property or investments which can help provide a financial safety net for the future. With age comes wisdom, so couples marrying later in life are likely to have accumulated more financial knowledge, which means they can help each other with potentially more complicated financial issues.
Setting up a joint account can help to keep track of your spending. When both partners are aware of how much money is in their joint bank account, it’s easier to have conversations around spending, saving and future planning. Far too many couples find out too late in the game that their spouse owes thousands in credit cards or hasn’t paid a bill in months, all because they keep their finances separate. While it can be scary to ‘open the books’ on your finances, it is important to discuss these things as openly as possible before committing to each other. The aim is to start getting into the habit of having conversations about money and how two independent households can work together.
To make things fairer, some couples take turns in managing household finances. For example, one month you might handle household spending and your partner might focus on savings and investment. The next month, you can swap jobs. It’s important to share roles equally where possible.
Consider a prenuptial agreement that outlines the terms when dividing up financial assets. Also, consider trust planning that offers support for your spouse after your death and protects your first family. And remember, part or all of your wealth can be passed to your surviving spouse completely free of inheritance tax (IHT). Any unused portion of IHT allowance within the £325,000 allowance following death can be passed onto your surviving partner which means your spouse’s allowance would double.
It's a fact that many of us will need medical care that can be more expensive than expected. A disadvantage of getting into a new relationship later in life means that conversations around health are more likely to be a focus in comparison to if you’re getting married younger. It’s important to be open about any long-term medical issues and the financial impacts of these.
For more information and advice, visit FidelityInternational.com, MAndG.com & NatWest.com.
*DISCLAIMER: Anything written by SheerLuxe is not intended to constitute financial advice. The views expressed in this article reflect the opinions of the individuals, not the company. Always consult with an independent financial advisor or expert before making an investment or personal finance decisions.
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