Key question to ask your clients this week

What are the five worst money mistakes couples make?

1. Plunging into joint property

Over time a relationship invariably gets to a point where living together is on the cards. Although no one wants to think that their relationships may one day end up on the rocks, the chances of this happening are a statistical reality. When that happens, many couples are unfortunately already in a position where they have purchased a property together. The idea of buying property together can be very tempting, as a joint income will pay for a much nicer home.

What couples often fail to realise is that, should the relationship not work out, one of the partners will move out and may wish to sell their share of the property. This would mean that the remaining partner will need enough cash or income to finance both shares of the property. It could become a problem as you need to take the following into account:

• Your ex’s monthly bond repayment
• Any appreciation in the value of your ex’s share in the property. As a rule of thumb, this value should double every seven years
• The transfer fee of your ex’s share into your own name.

Most of the time, this leaves the remaining partner with having to sell the property (and pay the taxes and fees relating to this) because he or she doesn’t have the money to hold onto it.

So how do we deal with this? Financing a property in the name of only one of the partners and agreeing up front how the property will be dealt with should the relationships end (preferably in writing) is a good place to start.

2. Failing to take joint responsibility for your finances

It is common for one partner in a relationship to take charge of the finances, but this can leave the passive partner in a dangerous position. The partner in charge could be spending or investing the money imprudently and even expose the passive partner to potential liabilities.

For this reason it is a sound idea for a couple to draw up a financial plan together. Each partner needs to understand what his or her money is being used for, how it affects their joint finances and what the potential risks and benefits of inappropriate decisions will be over the longer term. Both partners need to be comfortable with the risks and responsibilities involved.

3. Jacking up the lifestyle

It is very tempting for couples to fall into the lifestyle trap. Getting married or moving in together will cut your expenses and free up some extra cash to spend on your lifestyle. Often fancy cars, bigger and better holidays or nicer toys result from this. This is a trap many couples fall into from which they never can escape.

It is only human for us to want to spend the money we have. There are, however, two main problems with this. Firstly, it is extremely hard to scale down your lifestyle if your relationship should end. Secondly, a more conservative approach will mean that there is more money available to pay off your debt or to invest. By being able to do this, a couple will much sooner be in a position of financial independence where they can stop doing what they have to (in terms of work and expenses) and start doing what they want to. This tends to be much more rewarding than having the best toys earlier in life.

4. Failing to stay focused

We already mentioned our propensity to spend what we have because it is there. If we are not specific about what we want to achieve with our money, it is likely to slip through our fingers. At any point in time a couple will have life transitions awaiting them. Transitions are not necessarily the ideal goals we hope for. More commonly they are the things that happen as life happens. Examples of transitions we go through as couples are getting engaged, getting married, buying a house, starting a family, sending kids to school, moving to a bigger home and so on. Whether we plan for these events or not, they will happen regardless. By failing to understand the transitions you as a couple will be going through, it is very difficult to be financially prepared when they occur. The same goes for your goals (the ‘want-to-haves’).

It is vitally important for a couple to sit down on a regular basis and discuss your goals and transitions, and how they may have changed. By doing this, every decision you make has a financial consequence (and most of them do) and you are much more likely to take account of and line up with what you want to achieve over time.

5. Not being clear on how – or that – you’re married

When couples move in together and start sharing expenses and finances, they are regarded by law to be married, even if they’re not. This means that, should the relationship fail, each partner will have a claim to a share of the other’s assets. This could become a very expensive and draining exercise.

The most reliable way to deal with this is to contractually agree how each partner’s assets will be dealt with if a relationship should fail. For married couples, choosing how you want to be married (in community or with an ante nuptial contract, with or without accrual) becomes crucial. By failing to take this into account, the wealthier partner (or the partner with the least debt) may end up paying a fortune from which some never recover.