For richer or poorer? Or should we just go Dutch?

Does combining your finances with your partner make sense? Samantha Downes investigates
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The Independent Online

Sharing lives and beds is one thing, but when it comes to bank balances many of us are not quite so open, or trusting. Indeed, one in 10 of us has money set aside that our partners know nothing about.

According to website MyVoucherCodes.co.uk, a quarter of those with a secret stash were keeping the money aside because they were worried their partner would try to spend it.

Having an emergency cash reserve may seem like a good idea, but hiding it from your partner is not the recipe for a loving relationship. Andrew Swallow, an adviser with Swallow Financial Planning in Kensington, London, believes that if you are keeping money secret from a partner you need to assess what kind of relationship you are in. "A couple who are in it for the long-term will have shared goals, such as buying a home together, which require honesty," he said.

"You need to be honest with yourself and your partner. If you are in a couple but you know your relationship is not going to last the distance, then keep your finances separate. But if you are with someone, and know the relationship is going somewhere, then you are best off having a talk sooner rather than later."

Shared financial goals can only benefit a relationship, he believes. Once you've established you are in a committed relationship, then the most romantic thing you can do is pay a trip to the solicitor – particularly if you don't intend to get married.

"If you are buying any substantial asset together such as a house, and you are not married, then the brutal truth is that you both need to make a will," says Swallow. "If your partner dies and you are not married, and you have no will, then you could find yourself in a financial mess, your partner's family could have a claim on the property and you could be forced to sell to pay inheritance tax."

If you are not married and your partner dies, then you may have to pay inheritance tax, a tax of 40 per cent on a property worth £325,000 or more. Significantly, you don't benefit from the couple's IHT allowance, which allows you to own a property worth up to £650,000.

Of course, it's not about simply being married. You may have substantial assets and/or you've been in a previous relationship in which you had children. In this case a will is necessary as well as a pre-nuptial agreement – a legal document which sets out who gets what if you split up. "Pre-nups are not yet recognised in law but courts will take them into account. Of course they are not cheap to draw up, so you need to see a specialist family solicitor," adds Swallow.

Kate Marsden, an adviser with Very Nice Advice in Cookham, Berkshire, points out that there are other advantages to being married or in a civil partnership. Couples who are married, or civil partners, can usually transfer assets to each other without having to pay any capital gains tax. This is set at 28 per cent of any asset worth over £10,600.

"For example, Peter, who is a higher rate taxpayer, could transfer a whole bunch of dividend-paying shares to Paul, who is a basic-rate taxpayer. That will minimise the tax payable on the dividends. Those in marital difficulties should also be aware that if they separate from their spouse, they can still transfer assets between themselves and their partner in that same tax year, without a capital gains tax liability."

"That means if you stop living together early in the tax year, you have a good few months to transfer assets such as second homes, or shares, between yourselves as you work out a financial settlement."

And on that topic, she says: "Remember that wills are not rendered null and void on divorce because your ex will be, so to speak, deleted from it. The rest will remain valid. It's worth reviewing."

What if you don't want to get married, but still want the financial benefits of being in a couple? Andrew Swallow says an unmarried couple can maximise their finances by setting up a company and paying themselves a salary from it but they would only really benefit if one of them was self employed. "If you are both self-employed and one of you earns more than the other, you can set up a company, in which you are both partners, and can combine your tax allowances. You need to get expert advice but setting up the company is relatively easy."

Combining finances on a big scale, such as buying a property or setting up a company together is all very well, but many couples find the financial nitty-gritty of life, such as paying bills, or even deciding who should pay them, may turn out to be a financial flashpoint.

Kim Stephenson, a psychologist and author of Taming the Pound, says all couples are unique and need to find a financial framework that works for them.

He explains: "If you are both independent, you may need to have separate finances, but for the relationship to work, and to make sure the gas bill gets paid, then you need to either split things down the middle or divvy up who pays what between you and stick to it."

For most people, he says, having a joint account for the major bills into which they both pay most of their money, with individual accounts that allow individual "pocket money", works the best. "You need to sit down and decide are toys for the baby, dry cleaning bills, gadgets for the car, basic clothing, joint expenses or individual ones. Are all clothes individual expenses, or only really impractical ones.

"You can buy presents for one another out of 'your own' money, but what about treats for both of you? Is a luxury evening out a treat from one of you to the other, or a joint expense? If it is a joint expense, who is responsible for making up the shortfall if you can't pay the mortgage or the joint credit card for essential shopping this month?"

So, is that XBox Kinnect (or Burberry handbag) a luxury – or a household expense you just can't do without?

Amanda Whyte is a businesswoman and journalist from London and married to Ian, a management consultant. They have two children. She and her husband like to keep things separate. "We don't have a joint account and we keep our finances as separate as possible. We have talked about [a joint account] but never got round to it."

Amanda believes that as long as enough money is coming in to cover the bills, their system works perfectly. "Ian pays the mortgage and the bills. I work three days a week for IPC Media and the childcare comes out of my salary. I also buy most of the stuff for the kids, pay into my pension, buy my own clothes and I finance my own business. We aren't too badly off, but we don't have savings – apart from our pensions. We both agree that any extra money should be spent on fun things. In fact we've just bought a camper van."

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