When you build a life with a partner, your financial decisions rarely affect just one of you.
Changes in your family circumstances, income, living arrangements, or health can all affect your shared finances.
While it’s impossible to predict exactly what the future holds, preparing for some of the possibilities together can make it easier to respond when circumstances change.
Read on to discover six life events you and your partner should be prepared for.
1. Starting or growing your family
Having a child or welcoming a new grandchild can change your financial situation overnight.
As well as the immediate costs of food, clothes, and occasional childcare, you may also want to think about how you could support them later in life. For example, you might want to help with university costs or contribute towards their first home.
There are several ways you could set money aside for these purposes, including:
- Opening a Junior ISA (JISA)
- Making pension contributions on their behalf
- Placing money into a trust for a specific purpose.
The most suitable option will depend on when you expect the money to be needed and what you want it to be used for.
It’s also worth reviewing your wills when your family changes. If you already have children, you may need to update them when another child arrives to ensure they are looked after if something happens to you. You may also want to reconsider how you would like your wealth to be passed on.
Having these conversations early gives you and your partner more time to decide what you want to achieve and how you can effectively and efficiently fund it.
2. One of you taking time out of work
Starting a family isn’t the only reason one partner might step away from employment. Caring responsibilities, illness, or redundancy can all lead to one person earning less or stopping work altogether.
This can have considerable financial implications. For example, if one partner spends several years out of the workforce, they may accumulate less in their pension than the other. As such, it can be useful to look at your finances as a couple as well as individually.
You might also want to explore protection policies that will help ensure your household wealth and income remain secure if anything were to happen to either you or your partner.
3. Buying a home together
Buying a property is often one of the biggest financial commitments you can make as a couple.
So, before you buy, it’s worth discussing how you will contribute towards the deposit and mortgage, as well as how ownership of the property will be structured.
This is particularly important if you are contributing different amounts. You should both understand what your respective interests in the property are and what would happen to it if your circumstances changed.
It’s also worth remembering that your home forms part of your wider financial and estate planning. The property ownership can affect what happens to your share if one of you dies, while changes in your family circumstances may mean your existing arrangements need to be revisited.
4. The possibility of separating
No one enters a long-term relationship expecting it to end. However, having a clear understanding of your individual finances can be valuable even if you end up staying together for the rest of your lives.
You may have very different levels of savings, investments, or pension funds, particularly if one of you has earned significantly more or spent time away from work caring for children.
Even if you stay together throughout your lives, understanding what you each own and how those assets are held can give you both greater financial independence.
It can also help you make decisions based on your individual standings that could benefit you both. For instance, one of you may use all of your Annual Allowance and could make additional contributions into the other partner’s pension, supporting their future and ensuring more of your wealth remains tax-efficient.
5. Retirement
Retirement is another major transition that is worth planning for together.
You may not retire at the same time, and you may not have accumulated the same amount of pension wealth. These differences can affect the lifestyle you are able to afford in later life.
Discussing your expectations early can help you work out what you both want retirement to look like and whether your current savings and investments are likely to support it.
It’s also another opportunity to consider whether your pension contributions are being used effectively as a couple, rather than simply looking at each person’s retirement savings in isolation.
6. Losing a partner
Perhaps the most difficult eventuality to plan for is the death of one partner.
Although it can be uncomfortable to discuss, knowing what should happen to your finances can remove some uncertainty at an already difficult time.
This could mean making sure your wills are up to date, checking who is nominated to receive pension benefits, reviewing your life insurance, and considering how your assets are owned.
You may also want to consider the potential Inheritance Tax (IHT) implications of your estate. Depending on your circumstances, decisions made during your lifetime around gifting, pensions, and the ownership of assets could affect the amount of tax eventually payable.
Discussing your wishes while you are both well means you can make these decisions together. You can agree who you would like to benefit from your wealth and how you would want the surviving partner to be supported.
Get in touch
A financial planner can ensure you and your partner understand your finances, discuss your individual and collective goals, and review your plans as your circumstances change, helping you prepare for the twists and turns that are a natural part of life.
Email admin@stonegatewealth.co.uk or call us on 01785 876222.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
Production