Can’t buy me love: the 5 things to discuss before joining finances

Money may make the world go around, but it can be a particularly awkward conversation and the source of great disagreements among couples. It’s not exclusive to age either – arguably it can be a harder conversation when there’s more at stake and you are both well-established and hold substantial assets.

However, taking the time to discuss your finances and your attitudes towards money before moving in or considering combining finances can offer you both clarity and security. It might also tell you whether you are well suited or not. If you are complete opposites in your approach to money management, you might find money isn’t the only factor that rose-tinted glasses have been hiding in the honeymoon period.

Here are five things you should discuss about finances – whether or not you combine your money.

1. Your income, assets and debts

If you are serious about your relationship with each other, a good starting point is understanding each other’s finances.

• What do you each earn from paid employment?
• What investments do you have, including property?
• What debts do you each have?
• What does your superannuation look like and is it enough?
• What regular expenses do you each have?

Understanding each other’s debts can be an important one, as this can end up affecting both of you. Don’t forget that living together as a couple affects your tax situation too and can influence items like Centrelink payments or Medicare benefits.

Consider a situation where your partner became ill or incapacitated, you may decide to help pay the debts to assist them. Or their debts may affect your ability to take joint loans, such as for a mortgage. Any debts that your partner accrues on joint accounts, like credit cards, or loans become your responsibility too.

For those considering a pre-nup (a Binding Financial Agreement) before moving in together, this is a necessary step to outline financial plans in the event of the breakdown of the relationship.

For those who are more established in their finances and who may have dependents as well, a pre-nup can be a valuable way of protecting all parties and assets if the relationship ends in a way that is fair to everyone – this isn’t just something you need for marriage. Both parties should independently consult legal advice for setting a Binding Financial Agreement up.

2. Your financial goals individually and together

How do you want to spend your money over time as a couple and what are your long-term goals for how your life will look. This is where you should consider your lifestyle and what you each enjoy spending money on, alongside plans like buying assets together or saving for how your future might look – such as retirement and travel.

Your goals don’t need to look identical – and it’s also fine to have some goals that are just individual, but here is where you get an idea of how you might be as a financial fit.

If one of you regularly spends on luxury items and dines at Michelin star restaurants, while the other tends to thrift and reuse and dining is an occasional treat at a local takeaway, that could be a financial mismatch. You’ll need to work out if you can work around this and find a middle-ground everyone is happy with or if it will eventually become a big problem.

Or another example might be how you view investment. For some, property is a big part of their strategy, while others prefer not to own and focus purely on assets like shares instead.

You might also consider what joint assets you might like to own together down the track – and whether you both agree on that, such as a home, car or other investments.

Your joint and individual goals will influence how you plan for and budget for your life together.

3. Budgeting and paying

You’ve gotten through the first two and it’s all still rosy and positive. The next conversation is about how you pay for joint plans and expenses and budget for them. As part of this, you might consider whether you maintain separate finances, partially or completely combine your finances.

Many couples maintain separate finances, so the decision not to combine shouldn’t be taken as a negative. Separate finances can be a security thing for both parties, or allow for continued independence within the relationship. It’s a personal decision to you and your partner. But remember, separate finances or not, if you live together as a couple for two years, Australian law treats you as a de facto relationship and will determine your finances in the same way as a married couple.

When it comes to combining finances, some couples may choose to only partially combine their finances by setting up a joint account or shared credit card for joint expenses like rent and other household expenses, or as part of getting a loan. They can also choose to combine all finances in one account – this is a step that shouldn’t be taken lightly.

If you each have different finances, you might choose a particular split for how you pay expenses and in what portions. For example, some couples with differing income levels might set their portions of rental payments according to those incomes, such as a 60:40 split.

This is also a good time to discuss ad hoc spend and luxuries. If you’ve chosen to combine finances, couples might set aside ‘play’ money where you can spend it how you choose without input from the other person. Or they might set an amount where a certain level of spend needs to be discussed in the couple beforehand.

This can be a sensitive area and you should be aware of what coercive financial control looks like when it comes to combining your finances – if one person in a relationship has restricted access to finances for even basic needs like food or clothing and the other person doesn’t, this would be an example of financial abuse. It can also look like accruing debts in the other person's name to force control. If you think you might be a victim of this, contact a support line for assistance, such as 1800RESPECT (1800 737 732) or call 000 for an emergency.

4. What happens in a split

If you thought the previous discussions were not romantic, this one might throw you. What do you do if it all goes haywire?

Some questions to consider:

• What happens to joint assets? You might choose to sell or one partner may wish to buy the other’s share.
• How will you split finances
• Other aspects of your life, such as children or pets.

Some couples may be happy just having discussed this broadly. Others may take the added caution of a Binding Financial Agreement (a pre-nup) which can apply whether you marry or remain de facto. Either way, your legal rights in a relationship breakdown remain the same.

To ensure the pre-nup (or post-nup if you set one up further into your relationship and living together) is legally valid and binding, you should each independently seek legal advice.

5. In an emergency, injury, illness or death

From unromantic to the downright dark – what will happen in a worst-case scenario for you and your partner? You need to plan ahead and consider how you might need to fund different situations and what you want to happen.

This is the time to map out medical plans, powers of attorney, enduring guardianship, update Wills and look at insurance. Seeking both legal and financial expert advice can be helpful, particularly if your arrangements might be more complicated, such as factoring dependents outside of your current relationship.

For insurance, look whether you want to switch to couples insurance or remain in separate insurance. Then look at life insurance and update any beneficiaries of your insurance policies and your superannuation.

How do you want your partner to be cared for if you pass away? Your life insurance or superannuation could pay for your share of joint debts allowing your partner to continue enjoying your joint debts. If you had children before this relationship, you might want to update how they receive any death benefits.

Or alternatively, the life insurance you choose might allow your partner to care for you if you became incapacitated and unable to care for yourself any more.

This is an activity both partners should consider and they should look at whether their arrangements adequately cover their changed living situation.

Money can't buy me love... but it actually can affect your happiness together

The Beatles may once have sung "money can't buy me love", but understanding it and budgeting can make a huge difference to your future happiness.

Taking the time to discuss your finances and plan for any outcome may not be sexy, but it could be a critical point of difference in your relationship down the track by giving each of you clarity and avoiding unnecessarily disagreements over how money is spent or split.

If you need more help in your discussion, you can find some great resources at Moneysmart.gov.au and consider seeking expert legal and financial advice for help.