Step by step guide to living together
What you'll learn in this step: The money you save by living together
can be channelled towards a deposit on a house or other investments.
So you've taken the big decision and decided to move in together... things
will certainly change. And one of the most important things that will change
is your finances. After all, two can often live more cheaply than one, so you
might find you have more money than you did as a single person.
Most of the money you will save will come from sharing the rent and bills
such as electricity, gas and telephone. The amount you save can be quite sizeable
so it's a good idea to harness these funds and put them to good use, by saving
towards a house deposit or maybe investing in shares. And because you’ve made
the commitment to live together, decisions on where to invest money are also
likely to be joint ones. So how do you manage the finances in a de facto relationship?
Learn more: Breaking up is
hard to do, The Age, 12 Feb 2001
Living together can be an expensive proposition if you haven't sorted out
your finances.
Learn more: Marriage blossoms,
The Age, 24 Sept 2001
Dianna and Gianni Marion have been married for almost three years. But discovering
their differing money values was a complete surprise.
Money talks
In an ideal world you should both sit down together and discuss your finances.
If one of you is a spendthrift and the other is a penny pincher, you need to
find some common ground. Otherwise you'll soon be at loggerheads. And you need
to discuss how you will handle your bills. What if one of you hates paying bills
late and the other likes to wait for the second warning?
If one of you comes to the relationship with more money and assets than the
other person or if you have children from a previous relationship, you should
at the very least write down all the assets each of you brings to the relationship.
This is not the same as a pre-nuptial or a cohabitation agreement, but it does
identify what each of you independently brought to the relationship should problems
occur in the years ahead.
www.relate.gov.au
provides information on Relate (marriage and relationship education) services
run by 46 community organisations approved and funded by the Federal Government.
The services offer information and skills to help you improve your relationships
and better manage day-to-day difficulties that may arise.
See Moneymanager's living together checklist
of financial issues you and your partner should discuss.
What you'll learn in this step: You can save money by living together,
but there are good reasons why you should avoid merging every aspect of your
financial lives.
Joint bank accounts
Just because you're living together doesn't necessarily mean you should merge
your bank accounts. While aggregating your money into one account might earn
you higher interest, there's a lot to be said for each partner maintaining the
financial independence of separate accounts.
Not least, the statistic that of all relationships that fail, one in three
will have one partner withdraw all the money from the bank account without telling
the other. The only way to prevent this is to insist on two signatories for
all withdrawals. This is fine if it is just a savings account where you only
make a handful of major withdrawals but an impractical solution if it is a day-to-day
transaction account. And if you do have a joint account, make sure there is
no overdraft facility one party could exploit.
Credit cards
Joint credit cards can be dangerous. One day you might find yourself faced
with a huge debt from your spendthrift partner as they hit the plastic to take
revenge on you for the failure of the relationship. If the relationship does
turn sour and you have joint cards, phone your credit card provider immediately
to put a stop on the account.
Compare the credit
cards by rates and features.
 It's
beneficial to own a credit card so you can build up your own independent credit
rating.
What insurance can we combine?
Home and contents is the obvious insurance that can be combined when you start
living together. If your insurer offers a pay-by-the-month facility, try to
pay the annual premium upfront. Then if you part ways, you won't be left with
the ongoing monthly commitment.
You should also consider life insurance, particularly if you are considering
starting a family. It's not just the working partner who should take out life
insurance. If the non-working partner were to die, the on-going costs of caring
for the family could strain your income.
Income insurance is also worth considering. Once you have commitments such
as a mortgage or a personal loan, you need to ensure you can still meet them
should you not be able to work due to injury or illness.
Learn more about health insurance and Life insurance.
Tax breaks
The Australian Taxation Office defines a de facto as a spouse. The key is not
whether you have taken marriage vows but rather whether you are living in a
bona fide domestic relationship. As a result, all the tax benefits available
to a married couple are equally available to a de facto couple. This includes
the dependant spouse rebate and the benefits of income splitting.
Dangers in income splitting
While income splitting is as readily available to de facto couples as to married
couples, if you choose to take advantage of this benefit, make sure you fully
understand the implications. Income splitting is when you put investments in
the name of the partner with the lower marginal tax rate in order to pay less
tax. The downside of putting assets in the name of just one party in a de facto
relationship is that if you split up, then the higher income earner may meet
problems in justifying ownership of an asset held in the other partner's name.
Also if you transfer the ownership back to original owner, the investment will
be subject to capital gains tax when the investment are next sold.
Spouse superannuation
Just as you can make spouse contributions to your non-working or low-income-earning
spouse, so you can to your de facto. But if the relationship ends, the money
contributed stays with your partner. Before too long it is expected that super
will be split between the two partners in a divorce. As it stands, assets tend
to have been split with the woman getting the house and the man getting the
super. Her set up for now, him for tomorrow. New legislation should see this
situation change.
Learn more about superannuation, go to Moneymanager's
step by step guide
What you'll learn in this step: Find out whether you and your partner
would benefit from a cohabitation agreement or other legally binding documents.
To make your financial life easier in a de facto relationship, you should work
what you are bringing financially into the relationship, how you will pool your
future money and what will happen if either of you end the relationship – and
get it in writing!
Most people, of course, shy away from pre-nuptial and co-habitation agreements
as being too clinical. After all if you're madly in love, you hardly want to
countenance the prospect of the relationship ever ending. However, getting some
type of legal document set up can cause you a lot of pain later.
Learn more: Divorce proceedings, The
Sydney Morning Herald, 24 Oct 2001
New legislation will change the way superannuation is handled in a divorce,
writes Felicity Robinson.
Co-habitation agreements
Co-habitation agreements are governed by state law under the Property Relationships
Act and set down in writing what you both agree to happen if the relationship
ends. To be binding, the agreement has to be signed by both parties and witnessed
by a solicitor or a justice of the peace. Make sure the agreement allows you
to review it should your circumstances change.
If
you are considering a cohabitation agreement, get legal advice. The agreement
should be fair and cover finances within the relationship – not just where
you started.
Who needs a co-habitation agreement?
- Those who bring substantial assets into a relationship and want to protect
them
- Those with dependants from a previous relationship
- Women
If you broach the matter carefully, explaining how you want to protect your
own assets as much as your partner's, then it needn't be an ordeal. And if you
can't talk frankly with your partner about such matters, maybe you should think
twice about continuing the relationship. It's important to remember that in
a de facto relationship you are less protected than in a marriage. With de factos,
the courts only look at past contributions to a relationship, not the future
needs of each partner. This can be a serious disadvantage if the relationship
sours.
Learn more: Unwed and in the red, Sydney
Morning Herald, 15 March 2000
The big hitch in living together is that it can leave you financially vulnerable.
Pre-nuptial agreement
If you decide to marry you might want to extend your co-habitation agreement
into a pre-nuptial agreement. A “pre-nup” is a binding financial agreement between
people before they marry to insure against one partner exploiting the other
if they break up. It needs to be witnessed by both parties and a solicitor.
It will cost upwards of $200 depending on the complexity of your financial affairs.
In Australia, the pre-nup became legally binding last December.
Learn more: I do, my assets don't, The
Age, 03 Dec 2001
When it's the second time around, the dewy eyes of love are likely to be flashing
dollar signs.
Learn more: Protect assets with a pre-nuptial
agreement, Sydney Morning Herald, 7 Feb 2001
Use of pre-nuptial agreements is growing, especially among people entering
second marriages or where one partner has vastly more assets than the other.
What about a will?
If you have dependants from a previous relationship or have sizeable assets,
it is more important to have a will in a de facto relationship than it is to
have a will in a marriage. This is because if you are married and you die intestate,
your assets will pass to your spouse. Depending on which state you live in,
de facto couples do not always command the same rights as married couples. In
Victoria, if you die intestate, the surviving de facto is not entitled to share
in the estate although you can contest this. In NSW, your de facto spouse will
inherit your estate. In Queensland, you are treated equal to a married spouse
as long as you have been in a relationship for five years.
Learn more: Estate planning advice, did you
know?, Sydney Morning Herald, 6 Feb 2000
Estate planning is a grim but essential task that needs to be undertaken before
you draw up your will.
Learn more: Road test - Wills, The Age,
7 Aug 2000
Find out what a will is, who should have one and what happens with it after
you die.
For more information on wills and estate planning see our factsheets. Go
to factsheet index.
What you'll learn in this step: Putting both names on bills and rental
leases will ensure you have equal rights. This is especially important if the
relationship ends.
What happens if you're renting?
If you're moving from your respective homes and renting a new place together,
one of the first things to consider is whose name is on the lease. If both your
names go on the lease, you are deemed to be co-tenants with equal rights. The
downside is that you are both jointly and severally liable for the rent. So
if one of you leaves, the other is responsible for both rental payments. And
if you end up arguing over payments, as co-tenants you are not covered by the
Residential Tenancies Act and may have to take action in the Magistrates' Court,
which is much more expensive, time consuming and risky.
In
the early days of the relationship, consider both keeping your respective homes
and renting them out.
Who pays the bills?
When organising your electricity, gas and telephone, consider whose name goes
on the bills. Remember, if it is in both names you are both still jointly and
severally liable. That means each of you will be fully responsible for the bills.
If one doesn't pay the electricity bill, the other one will be held responsible.
While the relationship is going smoothly, having both names and splitting the
bill down the middle might be a smart option. Alternatively you might choose
to put some bills in one name and others in the other. Say one of you pays the
electricity and gas and the other one pays the more expensive telephone bill.
You would each be the customer named for your respective bills.
Another common strategy is to open a joint bank account for household bills
and each contribute a set amount per month to the account.
If
the relationship ends, you can refuse to pay the bills in the other person's
name.
Buying a home
The relationship has been going along smoothly for a couple of years and you
decide you'd like to buy a house together. Will both your names go on the title?
Will you be tenants in common or joint tenants?
How will you contribute to the deposit and the mortgage?
Tenants in common or joint tenants?
It is better to be tenants in common rather than joint tenants. This is particularly
so if you have already had a previous relationship and have children. If you
are joint tenants, your de facto will automatically get the property if you
die and your children will miss out. But if you are tenants in common then if
you die, your nominated beneficiaries inherit the property.
Who pays the mortgage?
Once you decide to make a major purchase like a home, document who contributed
what. If you each pay 50 per cent of the deposit and split the mortgage payments
down the middle, it's wise to get a legal agreement outlining what will happen
should the relationship break down. This becomes increasingly important if one
of you provides a greater portion of the deposit and pays a bigger share of
the mortgage.
You can choose to take out two separate mortgages over the title to avoid any
future conflict over who contributed what. It may be marginally more expensive
because you have two lots of establishment costs, but often the lender will
split the loan without charge.
What you'll learn in this step: Avoid liability for your partner's debt
by taking simple precautions when documents are to be signed.
Women in particular can end up on the receiving end of what is often called
“sexually transmitted debt”. This is where you are liable for somebody else's
debt because you were either named as a co-borrower or acted as guarantor for
your de facto.
Learn more: Sexually Transmited Debt,
The Age, 14 Feb 2000
This year another throng of spouses and partners - mostly women - will unwittingly
succumb to sexually transmitted debt. The prognosis is bleak unless you treat
it early.
The Family Court has recently restructured its dispute
resolution services. These services, now called Mediation, are explained
on the court's website.
Co-borrower
Your de facto takes you to a car showroom to see the snazzy red sports car
he has fallen for. The sales pitch is good – well, he didn't need much
persuasion – and before you know it he is signing up for a loan to finance the
car. The salesman asks you to sign too. If you do, this could be a major mistake.
In a year's time your de facto might drive off into the sunset in his little
red model, and if he doesn't continue his repayments on the vehicle, the finance
company will chase you for the money.
Tips
- Avoid at all costs being co-borrower, particularly when it's something
you don't own or use.
- Don't be pressured to sign on-the-spot loan documents.
- If you're asked to sign a form as a witness, make sure it shows you are
a witness only and that you are not taking on the debt.
- Read the documents before signing.
- Get legal advice.
A fool and his fountain pen
Some people describe those who act as guarantor for somebody as a fool with
a fountain pen. Unfortunately there are plenty of fools around. After all, love
can make you do many things you wouldn't normally. If your de facto asks you
to be a guarantor for a loan, it is generally because the lender is not convinced
that the repayments will be made. If they're not willing to take the risk, why
should you?
By acting as guarantor, you are promising to make the payments if the borrower
defaults. Make sure you know what your maximum liability will be and how long
you will be held liable.
Learn more: The marriage trap, The Sydney
Morning Herald, 12 Nov 2001
Spouses who don't check the ramifications of what they're signing can be headed
for trouble.
The Department of Fair Trading in NSW website has a section on relationship debt.
Case study
This story of a woman whose past life returned to haunt her is just one
case the Consumer Credit Legal Service handled last year.
See full case study |
Questions to ask yourself
- What's the maximum you would have to repay?
- Could you lose your home?
- What could go wrong?
- What's in it for you?
- Have you read and understood the document?
- Have you sought legal advice?
|
Step 1:
Step 2:
Each week financial advisor Noel Whittaker answers your
questions.
