For richer, for poorer
Book extract: In her new book, Your Money reporter Susan Edmunds discusses the money traps single women need to avoid, and finance strategies to prevent friction in relationships.
Relationships and money are a fraught topic. When finances are managed well, a couple should be able to achieve more than a single person. But when they are a source of friction, you can both end up on the back foot.
In a book released next week, Starting Out Starting Over, I’ve looked at what to be cautious of when you meet someone new.
Sexually transmitted debt
Every time I use the phrase ‘‘sexually transmitted debt’’ in a news story, I’ll get an email from someone who thinks it’s crass. But it’s quite a good way of describing a phenomenon that particularly affects women.
People who were quite sorted when they were alone can suddenly become lumbered with a lot of debt once they meet someone new.
When you’re caught up in the excitement of a new relationship it’s not easy to keep the emotion out of decisions. When your new beau tells you that it’s his childhood dream to buy a boat and there’s one on sale for a fantastic price … only he has terrible credit because of *insert sad story here* you might find yourself reaching for the pen to sign the loan agreement.
But if things go bad, the last thing you want is to find yourself single again – and significantly poorer.
A recent survey showed 28 per cent of New Zealanders have been financially hurt by a romantic partner. Sometimes it was a partner taking out debt that they did not know about and ended up being partly liable for, in other cases it was having to pay a partner out when they made a claim for half their assets after a relationship break-up. Sometimes, they were persuaded to act as guarantors for a partner’s business or other loans. Women are more likely than men to take on other people’s debt and provide guarantees. It’s important that you understand what debt your partner has and that you’re clear at each stage if you are being made liable for any borrowing that’s going on.
Outgoing Retirement Commissioner Diane Maxwell has been vocal about this in the past. She says she often sees women in their 50s and 60s getting into new relationships and not wanting to broach the topic of a property sharing agreement. But after just three years together, that new partner can make a claim for a house the woman had spent a lifetime working to pay off.
Case study: Marina
Marina says she’s been talking to her friends about the relationship property law and is struggling with it. They are all over 50, with assets in their own name.
‘‘We find it incomprehensible that, if we start a new relationship, in the case of separation, we could lose half our assets and be liable for our partner’s debts. Yes, one can opt out, but that is not failsafe. And why should we? As the population ages and people start relationships later in life would it not be better to have a law that states what is yours is yours and mine is mine over a certain age?’’
The Law Commission has suggested amending the law so that a house owned by one party before the relationship started would be dealt with differently. It proposes in that case only the increase in value should be split.
Joint account or keep it separate?
Whether it’s better to throw all your money in together or keep it separate is a topic of much debate. The answer? It depends.
I’ve polled financial advisers on this and they seem to agree that the best solution is to have a joint account to fund all the things that you do together as a couple. That’s paying for your rent or mortgage, your bills, your food, your travel, and going out. If you’re doing it together you should pay for it from a joint account.
The reason for this is that (usually) a couple operates at the level that the better-off half can afford. The person who earns less doesn’t stay at home while the higher-earner goes out for dinner or on holiday. But it’s not fair if they are paying a higher percentage of their pay to cover those costs. Pooling the money for the joint expenses evens out that inequity. Then, you have an account each that you put a set amount of money into to cover the things you like to do individually. That might be things like pricey haircuts, clothes, money for a hobby, or trips with friends. This helps because it’s unpleasant to have to feel like you must check every purchase with your partner. If it’s ever likely to be an issue, having this set amount of play money avoids the problem.
Other options
All in: Combine everything, have one credit card account with two cards, forget about who makes what or owns what and just go for it. This is easiest for couples who come into a relationship on a fairly even footing. Sometimes there’s an agreement about how much each person is allowed to spend on themselves each month.
Ratios: Add together your incomes and then work out what percentage comes from each partner. If one of you earns 65 per cent of the money, you agree that person will pay 65 per cent of the joint expenses. Totally separate: Some people choose to operate their accounts more like flatmates, transferring in to a joint account only an equal portion of the bills each month and keeping everything else separate. This is fine if it works for you – and it’s a good option for some people who have significant commitments outside the relationship – but remember that it won’t stop all your assets being up for division if you split.
Allowances: Some couples in which one person earns a lot less than the other have the main earner pay ‘‘pocket money’’ to the other partner. I would avoid this at all costs. If you must do it, make it clear that it is not some sort of favour but instead recognition for work done at home or other contributions to the relationship.
Starting Out Starting Over: A Single Woman’s Guide to Money by Susan Edmunds, available March 27. New Holland Publishers (NZ). RRP $34.99