What do I need to know about joint finances?

Should you manage your money jointly or separately?

Choosing to jointly manage your money is a big decision, but what exactly are joint finances and what are the consequences of having them?

A quick overview of joint finances

Although it’s not particularly romantic, one of the potential first signs that you’re making a serious commitment to each other is to have joint finances. If you have ‘joint finances’ it means that both you and a partner have jointly signed-up to a financial account or a product, for example:

• Taking out a credit card in both names
• Opening a current account together
• Signing for a mortgage in both your names

It could encourage you both to get into better habits

If you know that your partner can see where your money is going, you may be more careful with your money.

The Money Advice Service provides a free Budget Planner that automatically analyses your household spending for you and provides personalised tips to help you get the most out of your money.

Are you or your partner too quick to go on a spending spree?

After checking out each other’s bank statement, would you say that at least one of you seems a little quick to spend their money? Or is it hard to tell because you just don’t know what is ‘normal’. Well, on average, UK consumers spend almost a year of their lives deliberating their purchasing decisions. That breaks down as:

• Two and a half hours per week
• Five days a year
• 340 days over the average lifetime

In general, the average person puts an awful lot of thought into whether or not to part with their cash and the majority of us are not compulsive spenders who buy on impulse. In fact, research shows that the average UK consumer spends:

• One hour deciding whether to make a small purchase (from lunch to a lipstick)
• Two weeks considering medium-sized purchases (such as a weekend getaway
• Three and a half months to make a decision on a large purchase (like a car or holiday)

In fact, nine out of 10 UK consumers are now so cautious with their spending that they will usually only buy a new household appliance such as a fridge freezer or washing machine if it is not cost-effective to have it repaired.

How does your household spending compare?

As a couple, do you over indulge in retail therapy or would you say your spending habits are reasonable? The Office for National Statistics (ONS) recently released a report that reveals what UK households spend their money on.

Here are seven of the highlights, why not compare your spending habits as a couple to see if your spending as a household is in line with the findings:

1. Average weekly household spending: £573 during 2017-18, up 0.7% on 2016-17 (adjusted for inflation)
2. The UK has had five years of almost-continuous growth in spending
3. If your income is in the top 10%, you are likely to spend four times more than someone with a wage that’s in the lowest 10%
4. If you are in one of the lowest-income households, you’ll spend over half your money on the essentials, such as housing, fuel, food and clothing
5. If you earn one of the highest incomes, you’re likely to only need about one third of your money to cover the essentials
6. Household spending varies depending on your age and peaks when you’re 30-40, usually at this age range you tend to be bringing up children
7. People are only spending a little less than the previous year, but as the headlines around shop closures testify, we are buying more online

Do banks offer incentives to open a joint account?

If you decide to open a joint account, the chances are that you will deposit a significant amount into the account each month, to cover your mortgage, rent or bills.

That’s why some banks feel it is worth offering you useful perks. There are many comparison sites that will help you to choose the best joint account for you, but this will depend on what you find attractive as a couple. The perks on offer can typically include:

• Cashback
• High interest when you’re in credit by a certain amount
• Supermarket rewards

How to decide if having joint finances is right for you and your partner?

For many couples, having joint finances works out well, but it is not for everyone; only about a third have one. Before committing yourselves to putting both your names on any financial products, perhaps you should consider if it really is a good idea.

To help you decide, you could start by reviewing your joint income and outgoings. Include everything that you earn (do not forget to add in the average amount received from overtime if applicable) and any benefits from the government. Then, take a look at any outstanding loans and credit card balances.

1. Become aware of each other’s spending habits
To make this easy, you could swap bank statements with your partner.

2. Have a credit score amnesty
What do you actually know about each other’s finances? Maybe getting credit reports would be a good idea, so that you both know exactly where you stand. Consider signing up to a website that offers access to this information, such as Experian or Noddle. If it turns out that one of you has bad credit, it may be best to reconsider having joint finances. If you suffer from bad credit, it means that your credit score or history is poor.

If possible, avoid taking out joint loans or joint bills until your partner’s credit score improves.

3. You could keep personal accounts as well as a joint account
Even if you do open a joint bank account, you are still free to have your own, separate personal account and savings account. You could use a personal account to receive wages and or benefits, then transfer amounts to your joint account and savings account as you see fit.

Did you know that only 38% of women feel in control of their financial futures? Keeping your own, separate account as well as a joint account may help with this.

After you have both carefully considered the above three points, try to decide if you think that you have similar attitudes to money and have similar financial goals. If so, it may still be worth considering jointly managing your finances.

Before you start to put this into action, note the following points:

1. Having ‘bad credit’ can affect you both
If you are married or even living with someone who is suffering from a poor credit history, it will not automatically affect your own score. As soon as you create joint finances, for example, by taking out a mortgage together, or opening a joint bank account, you create a financial association. This means that if your partner’s score is poor, your credit score will also suffer.

A study by the Federal Reserve in America found that couples with disparate credit scores are more likely to get divorced, with the theory that it highlights a lack of commitment.

2. A joint bank account means joint liability
Going to go ahead and open an account in joint names? Note that with both names on the account, you will both be liable for any loans that are taken out using it, or any overdraft linked to it.

Be especially careful if something happens that is related to your ability to earn an income, from redundancy to illness. You will both be responsible for repaying any loans, overdrafts or credit card balances taken out in joint names.

3. Anyone you open a joint account with will have access to all the money in it
You will need to have complete trust in whoever you open a joint account with as they will have as much right to all the money within the account as you have. They will also have the right to dip into any overdraft that is linked to it. You are unlikely to be able to put any restrictions on this.

4. If you decide to close a joint account, you will need your partner’s consent
Once you have opened a joint account, you cannot just decide to close it down without the other person’s agreement. The bank or building society will often need both the account holders to put into writing a request to the close the account down. The letter(s) should state how any money in the account should be split between the named account holders and should also include a request to cancel any Direct Debits that are set up on it.

You would both be held responsible for repaying any overdraft. If you and the other person named on the joint account do not both agree to close it, the account will be frozen until you reach an agreement. If you cannot agree how any money is split, you will have to take the matter to court. This could be an expensive and painful process.

For example, if you want to close the account but your partner does not, you would have to ask the account provider to freeze the account until things are resolved.

Until overdrafts are repaid or the account becomes the sole responsibility of the other account holders you will not be able to remove your name from the account.

5. A joint account could be a helpful if your spouse/partner become incapacitated
If you became ill, the other person named on the account could still utilise a joint account to ensure bills get paid whilst the other person recovers.

If the main money earner does not have a joint account and becomes incapacitated and is too ill to use their personal account, it could make life difficult for all concerned.

6. A joint account avoids money being frozen whilst probate takes place
Although we always aim to be upbeat at Loan.co.uk in this case it is best to alert you to the fact that if your partner or spouse dies, even if they have made a will, you will not have access to their funds held within a personal account, until probate takes place and the funds are released.

However, any money within a joint account can be used to anyone named on it, even in the sad event of a death. At least this means that financial disruption is kept to a minimum whilst any applicable insurance policy is paid out and probate is completed.

What if you’re cohabiting but decide to split up?

According to statistics from the ONS, around 20% of families cohabit, with over 50% of 20-year-olds predicted to never get around to tying the knot.  Indeed, many couples agree that they don’t need a piece of paper to prove their love. However, what if the relationship breaks down?

A married couple will generally split everything evenly between them if they divorce, yet it’s different in the eyes of the law if you cohabit rather than get wed. In fact, the only way that one person from the couple can be sure of receiving anything from the relationship is if:

1. They can prove they have rights over a property (such as demonstrating that they have contributed to a mortgage)
2. There are children resulting from the relationship (they may have rights over them until they become 16)

Tips on protecting yourself if you open a joint account

1. Keep some money in your own separate account
Just in case your relationship breaks down, it’s a good idea to have at least some money set aside for a rainy day. A recent survey in America revealed that almost 20% of people keep a savings account, current account, or credit card secret from their partner. Think carefully before doing this though, as 55% say that keeping a secret account is as bad as actually cheating on someone.

2. Monitor the joint account carefully
Take extra care if the bank offers loans or provides an overdraft, remember, you will be jointly liable for it. Make a point of checking your bank statements and query any payments or Direct Debits.

3. Limit access to joint accounts if you split up
Although you won’t be able to close the account without your partner’s agreement, inform the bank about the situation. They may be able to put a block on credit products being extended to the account, or possibly freezing the account until an agreement is made. This will depend on the bank though.

Only you and your partner will know if having joint finances is a good idea, but at least you now have a good idea of the implications.