How to combine finances as a couple

‘All that I have, I share with you.’ Married couples make this vow – but what does it really mean in practice?

Living with a spouse, civil partner or just a partner will nearly always mean a degree of shared financial responsibility. This may be anything from simply sharing out the costs of housekeeping, to having fully combined finances where ‘What’s mine is yours’.

Which way is better? That depends on your financial attitudes but also on your financial compatibility with your partner (i.e., how similar your and your partner’s attitudes are towards money and financial management). Here are some ways you may combine your finances with your partner, as well as some of the advantages and potential disadvantages of doing so.

Your mortgage

The most common way to combine finances is with a joint mortgage – if only because it’s hard to afford a mortgage by yourself.

This has many advantages: you can pool your savings to raise a bigger deposit, which can mean a smaller mortgage and also a better deal with lower interest rates.

However, a joint mortgage also carries risks, however. If your partner can’t (or doesn’t) keep up their share of the repayments, you will be liable for the whole cost (or else lose the property).

Also if you contribute different amounts (whether to the deposit or the repayments) it may be worth seeking legal advice so you can agree how the property would be shared out if you were to separate in the future.

The credit score of each partner may also play a role in the potential contribution ratios of each partner in a mortgage situation.

This cuts both ways: someone with a poor credit score should find it easier to borrow if their partner has a good one, while the high-scoring partner will find their borrowing power goes down.

Your credit card(s)

A joint credit card is a popular and simple way to combine much of your finances, while leaving some areas separate.

The main advantage here is being able to keep track of your joint expenditure without combining bank accounts.

The main risk here is letting the debt get out of control, so with a joint card you should make it a priority to pay off the balance in full every month.

If one partner has a better credit score then it may make sense for them to be the primary cardholder.

This may result in a card with more favourable terms, from which both partners can then benefit.

That said, the partner with the lower score should still have their own personal card and pay off the balance in full each month, as this will improve their credit score.

A joint bank account

Some couples choose to have a joint current account. This can help to keep track of incomings and outgoings, making it easier to manage finances overall.

It can also prevent disputes over who pays for what, and reduces the risk of missing bill payments (since everything is handled in one place).

A joint account works best when both partners have similar attitudes to spending and saving.

It may also make sense in cases where one partner earns much more than the other, to prevent a sense of unfairness developing.

The risk of a joint account is that it depends on trust, and on mutually agreed spending habits.

If one partner has a significantly different attitude to money, separate accounts may be best.

Alternatively, you could have a joint account for essential spending, plus a separate private account each.

What are the financial planning perks for couples?

Spouses or civil partners often have some advantages when arranging savings, investments and pensions.

The marriage allowance

One small perk for marriage couples is the marriage allowance.

If one spouse has earnings below the basic rate income tax band, they can transfer £1,260 of their personal allowance to their higher-earning spouse or civil partner.

This can trim their overall tax bill by up to £252 in that tax year. It’s not much, but it’s a couple of nice meals out.

Investing

If you have stocks and shares, it’s best to keep them in an ISA if you can.

If you’ve used up your personal ISA allowance for the year, remember that your spouse has an allowance too.

If both are used up, you have another safety buffer: you each have a capital gains tax (CGT) allowance.

You can transfer assets to each other without incurring a tax bill, so you can make full use of both CGT allowances.

Also remember there are lower and higher rates of CGT (check yours, as it can be quite complex).

If you can ensure that the lower-rated partner makes the excess gain, then your tax bill will be lower.

Income tax

If one spouse is a higher-rate taxpayer and the other a basic-rate taxpayer, you may be able to make good use of this.

For instance, if you also have a buy-to-let property, then the income from this is taxed at the owner’s highest rate.

Transferring sole ownership into the name of the basic-rate taxpayer could potentially save a lot of money. The same applies to other sources of taxable income.

Saving into pensions

If one spouse is a higher-rate taxpayer and the other a basic-rate taxpayer, then it could make financial sense for the lower-rated partner to pay into a pension in their spouse’s name.

This will double the tax relief, resulting in a much larger final pension pot.

However, you will need to engage a solicitor to secure pension rights for the lower-earning spouse in the case of a split.

Drawing pensions

If your spouse has purchased a joint-life annuity, then this will continue to pay a guaranteed (if reduced) income to you if your spouse dies before you do.

Similarly, if your spouse has bought a guaranteed annuity, then this will keep paying out to the end of the guaranteed period even if your spouse dies before then.

Inheriting savings

If you have an ISA, you can pass on its tax-free status to your spouse when you die.

You spouse inherits a special ISA allowance for that year alone, up to the value of the original ISA, so the money can stay sheltered from tax.

This must be claimed within three years of the date of death or by 180 days after the administration of the estate is complete.

How financial advice can help couples

One of the biggest causes of relationship problems is a lack of ‘financial compatibility’.

Financial advice can help to prevent such disagreements over money, by recommending an approach that suits you both.

So when you see a financial adviser, make sure you go together and talk at length about your priorities as a couple.

This should give you a clear and unbiased financial plan that addresses both your needs and personalities equally.

Get expert financial advice

Couples who choose to combine their finances can experience a range of benefits.

UK couples can take advantage of the government’s marriage allowance to transfer funds while reducing their tax bill. transfer investment assets between one another without incurring extra taxes, reduce income and property taxes, and pass on tax-free ISA inheritance money to a spouse should their partner pass away.

However, combining finances can also come with risks, including being liable for full mortgage payments should your partner default, and having to tackle rising debt costs and interest repayments should your partner have a significantly different attitude towards spending than you do.

Unbiased can match you with an expert financial adviser who can provide guidance on how best to combine your finances with your partner’s in a way that is sustainable, manageable, and beneficial for both of you.