This time of year prompts a media outpouring around romantic themes and it is certainly not difficult to put a wealth management spin on affairs of the heart. Read on to learn what the experts on our panel think couples need to know about managing their money.
Although happy singlehood and other lifestyles are on the rise, most people still prefer to form a long-term partnership with a significant other. But while emotional attachment is foremost, these are serious practical, financial and very often legal arrangements too. If you are in a couple, that should certainly be one lens through which you see managing your wealth.
Here are expert tips and strategies relevant to various stages of life, and relationship.
Firstly, know that “as good as married” actually isn’t
Cohabiting long term is now of course very common. Yet the very first thing couples should know is that “as good as married” actually isn’t in terms of financial benefits and protections.
“The myth of the ‘common-law’ marriage needs to be dispelled as it is simply not recognised in law, no matter how many years you may have lived together,” notes Charles Calkin, Financial Planner at James Hambro & Partners. “To enjoy the tax and legal benefits of marriage you have to be in a proper marriage or civil partnership.”
The myth of the ‘common-law’ marriage needs to be dispelled as it is simply not recognised in law, no matter how many years you may have lived together
Engage an objective third party
It is often underappreciated how important professional advisers’ combination of people skills, experience and technical knowledge is. It is certainly not just about the numbers when it comes to managing wealth as a couple or family. There is great value in having an objective third party acting as a bridge between people who are very emotionally involved, but who may have different views and interests.
There is great value in having an objective third party acting as a bridge between people who are very emotionally involved, but who may have different views and interests
This is true throughout relationships, but is especially important when couples become engaged. “Having found the love of your life, you need to find a wealth manager for you lives together to act as a counsellor and a facilitator for awkward conversations,” says Michael Martin, Private Client Manager at 7IM. “A question asked by a fiancé(e) may come across as heartless, whereas a question asked by someone like me will be answered.”
Although forming a life partnership is the bedrock of many people’s success in life, it is worth remembering that sadly around half of marriages end in divorce. You could therefore see a financial “fact find” conducted with the help of adviser as an important part of due diligence before entering what is in actuality one of the most serious contracts there is.
“It may sound slightly cynical, but my grandfather always advised me that selecting a spouse bears many parallels to buying stocks and shares,” says Harry Merrison, Investment Manager at Kingswood Group. “Committing to someone will hopefully be the best investment you’ve ever made, but you must do your ‘research’, remembering that there are two sides to every trade!”
Committing to someone will hopefully be the best investment you’ve ever made, but you must do your ‘research’
Secure safety nets for each other (and the family)
Most committed relationships will involve at least some level of financial interdependency, and potentially complete dependency at least for a time if one partner takes time out of their career for raising children.
Re-doing your wills is vital if you are entering a marriage or civil partnership, and especially so if you are content to remain as cohabitees in order to guarantee inheritance. Huge swathes of the population, including the wealthy, don’t have an up-to-date will in place at all, and this could add financial hardship to grief should the worst happen.
Huge swathes of the population, including the wealthy, don’t have an up-to-date will in place at all, and this could add financial hardship to grief should the worst happen
In addition to wills, Martin reminds couples just starting out to update expression of wishes documents for pensions and to secure several safety nets: “Protect yourselves – and that means life cover, critical illness cover and income protection.”
Taking advice in this area is wise too, notes Colin MacKenzie, Director, Investment Management at Arbuthnot Latham & Co., Limited: “Couples must establish the desired day-to-day living expenditure to be provided for, and then the levels of income protection, life or critical illness cover that are appropriate in light of the affordability of the related premiums.”
Affordability is certainly paramount, but there is merit in going big on protections in your younger years, Martin argues. “Get as much cover as you can as you will never be healthier or younger than you are right now. You will probably have more disposable income than any other time in your life as well.”
Top Tip
Lee Goggin
Co-Founder
Feel the benefits of joining forces financially
With people often coming to serious coupledom later in life now, and financial independence likely being prized by both parties, it can no longer be assumed that everything will be shared. Segregating your affairs may have significant downsides, however.
“More couples today have their own assets and income and when embarking on a journey for financial planning, may choose to take this advice separately,” says Lorraine Denton, Senior Financial Planner at Punter Southall Wealth. “However, I always feel that this should be carried out on a joint basis to make sure you do not miss out on beneficial tax planning, using all allowances available.”
“This doesn’t mean that you cannot still have your own savings, bank account, income kept separately and your own risk-profile for investments, but don’t miss out on what could be considerable tax savings, not just for you both during your lifetime, but for your children too when they receive your legacy.”
You can certainly have investment portfolios run separately, as Denton highlights. However, it may be worthwhile looking at them as a whole to make sure that – as a couple – your holdings are properly diversified and not overly concentrated in one asset class, market, sector or type of security.
An adviser will be able to spot many other instances in which joining forces financially might garner better results.
I always feel that this should be carried out on a joint basis to make sure you do not miss out on beneficial tax planning, using all allowances available
Offsetting savings against mortgages is certainly one to consider, explains MacKenzie. “Interest rates are currently low, which reduces the return from deposits and also the cost of debt, but rather than maintaining a repayment mortgage and separate savings accounts, an offset mortgage could save a couple money over the longer term by reducing their mortgage balance and also the amount of interest charged.”
More broadly, it follows that a lifelong union should signal the need for a lifelong financial plan. Your golden years will naturally figure highly in this.
“Whatever their stage in life, retirement planning should form an integral part of a couple’s long-term financial plan and the tax implications of contributions, withdrawals and life time allowances need to be considered carefully,” MacKenzie continues.
Rather than maintaining a repayment mortgage and separate savings accounts, an offset mortgage could save a couple money over the longer term by reducing their mortgage balance and also the amount of interest charged
Regularly assess your assets and their ownership structures
The protections just outlined will of course need to be revised as your circumstances change. This is just one of the many reasons why, at the outset of a life together and at regular intervals, couples should make a thoroughgoing assessment of all their assets and liabilities. The fact that it may well uncover forgotten ISAs or pensions makes this process even more worthwhile to carry out.
Reviewing the ownership structure of all assets to check they are optimised against a couple’s combined tax position should follow, advises Ola Adeosun, Partner and member of the Wealth Planning team at LGT Vestra: “A common wealth planning approach for married couples is to utilise various tax efficient allowances and reliefs available to both of them, including holding a buy-to-let property in joint names, utilising ISAs and pension allowances, making use of respective personal allowances and capital gains exempt allowance.”
A common wealth planning approach for married couples is to utilise various tax efficient allowances and reliefs available to both of them, including holding a buy-to-let property in joint names, utilising ISAs and pension allowances, making use of respective personal allowances and capital gains exempt allowance
However, he cautions that ownership structures must be regularly reassessed to avoid unintended consequences since, for instance, if a couple owns property as joint tenants, wills are typically bypassed so the surviving spouse automatically inherits. “This may well be the intended outcome, particularly if there are valid mirror wills in place, but this may not tie up with succession plans,” he says.
Maximise your legacy
Although these issues become more of a priority as the years pass, at findaWEALTHMANAGER.com, we find that estate planning and inheritance are incredibly important to users of all ages – largely because the nil-rate threshold for 40% Inheritance Tax remains stubbornly low at £325,000 (although shared allowances and the residence nil rate band can raise this to £1m for a married couple). As Nero Patel, Wealth Planning Director at Canaccord Genuity Wealth Management observes, “planning sooner rather than later in this area is vital if you want to maximise the amount that your beneficiaries receive”.
As several of our experts observed, there are many perfectly legitimate tax mitigation tools at High Net Worth Individuals’ disposal which they may not even be aware of without a professional adviser in place. For instance, many people do not realise that ISAs can be inherited by spouses with their tax sheltering benefits remaining intact, says Denton. She also highlights how Family Investment Companies can be used to benefit both spouses (for more on FICs see here).
A very simple and effective way strategy is to use your ‘annual exemption’ of £3,000, which you can gift each tax year without any IHT implications
Gifting to grown-up children is another underused but potentially powerful weapon to add to the IHT arsenal, Patel notes: A very simple and effective way strategy is to use your ‘annual exemption’ of £3,000, which you can gift each tax year without any IHT implications. You can only carry forward any unused exemption for one year however, so acting on this before the end of the tax year is key.”
Think about life after loss
Finally, there also needs to be awareness around the full financial implications of life moving on when one spouse is inevitably left behind. It is of course to be hoped that survivors go on to find happiness again, but there are some risks to remarrying, Calkin points out.
“You will often find a widow’s or widower’s pension is available to a husband or wife that would not be available to an unmarried partner. But you need to know that remarrying may bring it to an end.
“One of my clients was married to a GP and would lose a substantial widow’s pension if she were to remarry, so it is important to check out the terms of any pension arrangements.”
Do any of these issues strike a chord?
By necessity, this piece only scratches the surface of what wealth managers can do to help couples maximise their wealth through clever investment management and financial planning strategies. Whatever your situation, and however complex you believe you situation to be, we can guarantee that the wealth managers on our panel have a raft of solutions standing ready.
Whatever your situation, and however complex you believe you situation to be, we can guarantee that the wealth managers on our panel have a raft of solutions standing ready
Whether you are a just starting out or a couple of many years standing, there is sure to be more you can be doing to make your wealth work harder – and you have nothing to lose by having a no-obligation discussion with experts from our panel. Let us arrange some fast and free today.
