In our latest money matters segment, we chat to Nicholas Hill, Money Expert at the Money and Pension Service to look at if and when you should consider merging finances with your partner. Whether you’re married or in a long-term committed relationship, we hope there are some helpful suggestions here to help you make informed decision.
Are there any benefits to sharing an account?
Nicholas advises: There are a number of pros and cons when considering sharing an account. Whilst sharing a bank account is a straightforward way of sharing money and managing expenses, it comes with certain risks such as joint responsibility for debt if you become overdrawn. The Money Advice Service website has more information on what to consider when merging your finances, such as setting boundaries, how to divide your payments and how to protect yourself and your family should things go wrong.
Benefits to a joint account
If you have a chargeable current account that gives you benefits like breakdown cover, mobile phone insurance and travel insurance, it may be worth making this a joint account so that you both can benefit from the services at no extra cost. If you’re both paying for one, you should determine which gives you the best value for money and cancel the other.
Should you merge all of your finances?
Nicholas advises: There’s no ‘one size fits all’ approach and some couples may prefer to keep their finances totally separate. Whatever is decided, it’s important not to rush into sharing finances with a partner as it’s a big step that could have a significant impact. It could be an idea to try opening a joint account with no overdraft facility where both contribute a small amount each month. Use the money to share the responsibility for one or two household bills to see how you get on.
If you plan to merge your finances, make sure you have similar spending patterns, habits and behaviours – otherwise you could disagree and start arguing about money. Agree a spending threshold between you – if you want to pay for something more expensive than the threshold, you’ll both need to agree to avoid an argument. Talking about money can be daunting and difficult matter but It’s important to have these conversations.
Any ending of a relationship is always difficult, but in the event of a split, try and agree with your ex-partner what you’d like to do with your joint bank accounts. You or your ex-partner should contact your bank or building society as soon as you know you’ll be separating. Remember that both named account holders are liable for repaying any debt or overdraft payments.
Keep an account just for you
Although it may feel great to have a share in everything, it’s best to have your own savings, pensions and current account. This will help you to have some independence and saves any awkward and uncomfortable discussions around personal spending habits. It’s important to have your own pot for a rainy day.
What are the effects of shared finance?
Nicholas advises: If one of you has a poor credit history, it’s not normally a good idea to open a joint account. Just living with someone, or being married to them, will not affect your credit rating but as soon as you open a joint bank account together you will be ‘co-scored’. If you or your partner has a poor credit history, there are a number of ways to try and improve your credit score.
You can improve your finances
Your credit rating is checked each time you apply for finance – including phone contracts, store credit and obtaining a mortgage. Your rating affects not only the amount you can borrow but the rate of interest in which you will replay your obligation.
You can improve your credit score by following your payment schedule, reviewing and where possible reducing the amount of borrowing, and through account management and savings tactics.
In the cases of unmarried couples, how do shared accounts work in the event of death?
Nicholas advises: Unmarried couples can set up joint bank accounts in the same way as married couples. In the event of a partner passing away, the account holder will continue to have access to the account as before and bills paid from the account will continue as normal. However, if the deceased had a personal account in addition to the joint account, the personal account will be frozen by the bank when they are notified of the account holder’s death.
If you’re considering what happens should your partner die, it’s worth noting that married couples and civil partners are allowed to pass their estate to their spouse tax-free when they die. The Money Advice Service website has further details about this and inheritance tax.
Looking for more financial tips? We’ve shared lots of ideas below to help you manage your money below!