How Couples manage, or don't manage, their money

This article by Andrew Bibby, in a slightly different form, was first published in The Observer, 1999

It isn't sexual incompatibility which drive relationships on to the rocks, it seems, it's money.

According to the counselling service Relate, money is much the most common reason for domestic arguments. The organisation recently asked 2000 couples to identify the things which caused them to row, and the responses suggest that disputes over money aren't only linked to the obvious problem of what to do when money is tight and debts are growing.

Even when the bank account is comfortably full, couples can still fall out over who gets to wield the cheque book or credit card. "How do you decide as a couple what your money should be spent on? Who should decide - and why? These were the things which people told us developed into arguments," says Julia Cole, Relate's spokesperson. Even if, as Julia Cole suggests, money arguments can sometimes be a symptom of deeper-seated problems in a relationship, there are concrete steps to take which can help to minimise the potential for these disputes. Interestingly, changing social attitudes towards marriage and relationships are in any case having an effect on the way in which couples run their money affairs.

In particular, the idea of pooling everything in a single marital bank account is increasingly being challenged. A joint account certainly made sense when the tax system treated wives as simply financial accessories of their husbands, who were assumed to be the household's main breadwinner. But married women have had tax independence for almost nine years. There have been other changes. The growth of joint-career households, of co- habiting heterosexual and gay couples, and of people who separate and then re-marry has paralleled a growing tendency for people to choose to keep their financial affairs separate. It seems that, these days, more people are happy to share their beds than their bank accounts.

According to independent financial adviser Fiona Price, your attitude towards pooling your money with your partner may well depend on your age. "Traditionally, older people have liked to have virtually everything pooled. That's fine up to a point, but I don't think it's ideal," she says. As she points out, it means that both share not only the assets but also each other's financial liabilities.

Julia Cole concurs: "It's quite important from the point of view of self- esteem that you've got money which is just yours alone," she says. There are some occasions - such as Christmas - when separate finances make particular sense: "When you're buying your partner a gift, it's nice to feel that it's out of your own money!," she says.

The idea of pooling everything may in any case not always be quite as egalitarian as it seems, especially if only one partner is working. Women's groups report numerous cases where husbands have attempted to keep some of their income and wealth hidden from their wives, or have emptied joint accounts of all the money when relationships break down. Sallie Quin of Fairshares, the organisation which campaigns for women's pension rights in divorce, has no doubt that women should keep their financial freedom. "Once trust breaks down, people can behave in extraordinary ways. I would say that it's far better to have independent financial set-ups. If you've got a little pot of money, you've got a cushion if anything does suddenly go wrong," she says.

Keeping separate finances doesn't necessarily mean that a joint account has to be eschewed altogether. "One of the things which seems to work quite well is the idea of the relationship account, the joint account out of which come payments for domestic bills, for shopping and so on," says Julia Cole. "Of course, if people dip into the joint account for other things you've got trouble."

The Inland Revenue normally treats accounts and investments held in joint names as being owned in equal shares, but couples can choose if they wish to own them unequally and be taxed accordingly. (Inland Revenue form 17 is the one to complete and send in.) This can mean an overall saving of tax if one partner pays tax at a higher rate than the other. However, any agreement to split interest or income other than 50:50 must reflect the actual ownership of the underlying asset.

If one partner is a non-taxpayer there is a real practical advantage in running separate accounts. Non-taxpayers can register to receive interest on their bank and building society accounts gross of tax (form R85), a much more straightforward arrangement than claiming back a share of tax deducted later.

Separate accounts can also be helpful if there are debt problems. "You are not liable for your partner's debts just because you are married, you're only liable if you have signed up for something," explains Paul Mullins, manager of the Birmingham Settlement's National Debtline service. "Creditors could attempt to argue that there is an implied contract, but generally speaking without a signed document under the Consumer Credit Act there can be no liability." Nevertheless he warns that a creditor armed with a county court judgment can apply to take money direct from a bank account. "The court may grant a garnishee order to access a joint account," he says.

National Debtline generally advises couples to tackle their debts together, with a single financial statement produced for negotiation with creditors. However Paul Mullins says that there can be occasions when debts are better dealt with on an individual basis. He draws attention to the landmark legal ruling in 1993 in the O'Brien case, which offers some protection to women whose homes have been pledged as security for their husbands' businesses. The law lords overturned the possession order on Mrs Bridget O'Brien's home in Slough, partly on the grounds that the bank had failed to adequately explain to her the implication of the security she was giving.

Home ownership raises a number of general questions for couples. Fiona Price says that mortgage arrangements can be tailored to both partners' circumstances, if for example one person has an existing endowment policy linked to a previous mortgage. "The way you repay the mortgage can be done differently for each person. For example, an endowment can be carried on for one person, topped up if necessary, whilst the other person could continue with a repayment arrangement if they wished," she says.

Many people fail to realise that ownership of a shared asset such as the family home can legally be held in two ways, either jointly or (as the law puts it) as 'tenants in common'. The usual assumption, certainly for married couples, is that they will be joint owners. However, this is not always the most appropriate arrangement, and certainly is an issue which couples who are unmarried should consider.

Joint ownership means that both partners together own the whole assets. Couples who opt to own their home 'in common' each separately own their own share, typically 50%. The difference becomes important if one partner dies. For joint owners, the house automatically remains the property of the remaining partner. With a tenancy in common, the half share becomes part of the estate of the person who has died, to be disposed of either under the terms of their will or (if there is no will) the rules of intestacy. In this case assets pass to blood relatives, not cohabitees.

Fiona Price stresses the necessity for couples to make wills, particularly if they are unmarried. She also points out that cohabiting couples should take additional steps when taking out life insurance or pensions. "It's important that life insurance and death benefits are written in trust, so that the benefits are given automatically to the partner and avoid going through probate," she says. This is particularly important if an estate is large enough to incur a potential Inheritance Tax liability.

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