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Is it getting serious? Don’t let money ruin a new relationship

Our personal relationship with money is rarely simple. But a new partner can complicate it even further and, as the years roll on, the financial stakes only get higher.

The median age of divorce for both men and women is now in the mid-40s, according to the most recent Australian Bureau of Statistics report1. This means there are plenty of people beginning new relationships who have children and assets they’ve accumulated over years of hard work, that are likely to face the difficulty of trying to protect both.

So, how do you ensure money doesn’t sabotage a new financial relationship?

Take time to talk

According to financial experts, if you want your new relationship to thrive it is crucial to discuss each other’s attitude to money, personal finances and financial goals.

It’s not a fun or easy conversation to have, but often couples leave it too late or don’t discuss it at all, explains Simon Lucas CFP, a financial adviser at Perreemium Accountants and Advisers in Melbourne. 

“A lot of people are pretty set in their way of doing things financially by their 40s and 50s, as they have been operating that way for several decades,” he explains.

“Communication is key here, as money can be a delicate issue and people can have very different views about it and how they want to use it.”

Discussing each partner’s current financial position can be a good place to begin, says Lucas. “You need to be open with your new partner. If you’re not willing to share information, that’s not a good way to start a new relationship.”

The conversation can then move to financial priorities and future goals. “If you have different goals, you can discuss what to do first, and start planning how you are going to achieve it,” says Lucas.

Beginning with the basics

New couples need to revisit their current asset protection strategies by reviewing the appropriateness of existing insurance policies for vehicles, home and contents, income protection as well as their health and life insurance. This is vital if either or both partners have children, there is a joint mortgage to repay, or if you wish to equalise the assets you leave to beneficiaries.

Lucas suggests chatting to a financial adviser about the potential tax implications before restructuring the way any assets are held. Although some couples wish to move existing assets into joint ownership, there can be capital gains tax benefits from keeping assets separately held.

You need to be open with your new partner. If you’re not willing to share information, that’s not a good way to start a new relationship.

Protecting your assets

When it comes to buying a new property together, couples need to consider the best ownership structure. “As joint tenants, the property automatically passes to the surviving spouse and they have total control of where it passes on his or her death,” notes Lucas.

“As tenants-in-common, you can nominate the percentage of ownership you each have and that percentage passes to the estate and is dealt with under the terms of the Will, giving you greater control.”

For some couples, a ‘life interest’ in a tenants-in-common property is worth considering. This allows the surviving partner to reside in the property for life, with the other partner’s share of the asset passing to their nominated beneficiaries on the survivor’s death.

With super representing a major asset for many older couples, it is important to ensure you consider making a binding death benefit nomination in favour of your children, your new partner, or other preferred beneficiaries.

“A binding nomination means you can decide which of your eligible beneficiaries will directly receive your super benefits, so it’s a nice, clean way to handle your super,” explains Lucas.

Another option is to nominate your legal personal representative to receive your super so it is dealt with through your Will and a testamentary trust. “You can then include provisions such as your children needing to attain a certain age to get the money, or your spouse getting the benefit of the income but not the capital from your super benefit,” says Lucas.

Avoiding surprises

Communication is also vital to avoiding unpleasant shocks at retirement.

Lucas remembers a couple in their early sixties who had been together for several years and had bought joint investment properties, but had never discussed what would happen if one was forced into early retirement.

Despite the joint investments, the working partner was unwilling to subsidise the other’s lifestyle for three or four years until retirement, leaving the retired partner no choice but to access their super earlier than planned. “They had not discussed what would happen in retirement and it turned out their expectations were very different,” he says.

Planning for your estate

According to the NSW government, studies show an average of 45% of Australians don’t have a valid Will2, and with more and more Wills being challenged by family, friends or estranged spouses, an up-to-date document is essential. Otherwise your children or new partner may not receive the appropriate assets if you die.

Careful estate planning not only protects your assets, but also ensures they are distributed in the most tax effective and equitable way. In most cases leaving your super to your new partner ensures they receive it tax-free.

“To equalise your estate, it may be better to leave your children cash – not super – as there is then no tax payable for them,” explains Lucas.

New relationships are hard enough without worrying about money. If you are looking for more information about any concerns you might have, you can find an adviser here.

Disclaimer
Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of super, pension and investment products. This document may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. A PDS for Colonial First State’s products are available at colonialfirststate.com.au or by calling us on 13 13 36.