Wednesday, April 1, 2020

Difficult But Necessary Things To Consider Before Sharing Finances

Successful Partnership Joint Finances

Andrew Wood

A very tricky subject, which often goes unmentioned in a relationship, marriage or partnership is the treatment of the family finances between partners. It is quite common these days to sign pre-nuptial agreements which give partners various levels of protection in case the relationship breaks down.

This type of agreement is frowned upon by some but is actually a very sensible way to protect both parties from a misuse of trust or even abuse of their value to the relationship. Agreements are usually written to allow both parties protection of whatever assets they each bring to the relationship, as well as the treatment of those acquired jointly during the partnership, should it fail.

For example “gold diggers” can be deterred from misbehaving and stage managing a relationship breakdown to access assets of the other party. This may extend to children of previous relationships who can sometimes ingeniously create situations so they can become major beneficiaries.

Very often successful relationships economically ride on a single breadwinner and a financially dependent partner. This is perfectly acceptable provided all parties are happy with such an arrangement. However, if there is a relationship breakdown it often becomes clear that the breadwinner actually took control of the finances many years before and has made specific provisions to be in control of the partnership assets to the detriment of the other partner, sometimes by hiding assets.

When you undertake financial planning it is something which should be approached jointly. In many instances both parties can be jointly liable, and also named equally as beneficiaries of the assets.

Sometimes the breadwinner needs to have greater external protection than the other partner. This is commonly true because the breadwinner’s income generation needs to be protected from accident and illness. So, we usually find that a hefty life insurance policy is taken out on the breadwinner and protection extended to critical illness and salary protection to cover all eventualities.

That can be the point where the breadwinner begins to take over control of the family finances and perhaps makes some additional provisions of which the other partner is unaware. So, if you are part of a partnership where you are not the breadwinner what “protection” has been set up for you?

The elephant in the room here is the existence of finances which are frequently not being managed jointly and where no one really wants to discuss the subject because it is a rather delicate matter. Does this sound familiar?

There is no magic wand which can be waved to make this all evaporate into a well settled situation where fairness prevails. The breadwinner often sincerely believes that they bring more to the family unit than anyone else. Equal partnerships need to treated as such no matter who plays what role.

So, the most sensible thing which you can do is to talk to your partner and ascertain what the situation really is. This can be difficult depending on how long you have been in the relationship.

No matter how you try to protect yourself we know that there can be a nagging doubt and even the possibility that a partner is already making additional arrangements elsewhere, as financial secrets.

Many people experience how their ex misbehaves and subsequently disappears with much of the family assets. Having previously taken the attitude that “it could never happen to me” they often admit that it just did.

What you can do is to openly and legally try to protect yourself from such eventualities by making provisions for yourself. As an expat you may well find it very much more difficult to seek protection and redress as you would expect back home.

Do you have any protected, deferred or frozen pensions in your own right? These would have been established when you were working prior to your partnership, or even maybe continuing whilst you are working as an expat. Establish that these exist with your joint adviser and make sure they are kept up to date. Nobody can take these away from you except by agreement.

If there are any occupational pension schemes your working partner belongs to make sure you are named as the beneficiary. It is rare that an occupational pension scheme would offer benefits to anyone else other than a spouse or civil partner.

If there are any independent pension or investment schemes it is best if you are a joint investor. If the payment of ongoing contributions to a scheme is involved make sure that, if your partner becomes incapacitated or dies, there will be a benefit pay out and that you will not be required to continue contributions. Some investors add their partners as joint investors but if they die the partner would either have to continue contributions or lose significant benefits in surrender penalties.

Make sure you have a joint succession plan. What happens if either of you dies? Are the children included in an ultimate succession plan? If you both die at the same time and leave the children are they well provided for? Are you aware that guardianship laws in various countries are different and children, under age 18 or 21, can sometimes end up in unnecessary complex situations which could really affect their futures?

This means planning for the dreaded inheritance tax (IHT) as well. If your partner dies, this may leave you in a position where you are lumbered with a significant bill and you have no access to benefits before this tax is paid. There are life insurance policies which are designed to deal with such difficulties and take some of the initial sting away from you or other beneficiaries when you need funds most. It is hard enough for any grieving family to deal with their loss let alone having the perceive “Ebenezer” tax man at your door with a massive bill for your family. 

Of course you may be one of the lucky ones who, along with your partner, approached the relationship and financial planning affairs openly and with a level headed attitude. If so congratulations as this is rare. There are very few totally honest relationships when it comes to finances. This being a fact you are best advised to figure out where the elephant is in your room so you can gauge exactly how big it is and estimate the effort required to have the anomalies corrected in the future.

Questions to the author can be directed to PFS International Consultants at: [email protected]

Andrew Wood
“Andrew Wood is an expat affairs writer and independent financial adviser. He lives in Bangkok and has been spending a week every month in Yangon since 2012. Andrew loves Asia and has been living in various Asian countries for 33 years. He understands and advises on all aspects of “the business of living life”. Andrew can be reached at [email protected]

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