5 expensive financial mistakes couples make and how to avoid them

You can’t put a price on love – or at least that’s what they say.

But whether it’s extra spending on gifts and weddings, or the fallout that can come from separation, the costs can all add up. Having frank and open conversations about your finances now can help to avoid costly mistakes later on.

There might be more romantic ways to spend Valentine’s Day, but getting to the bottom of your financial goals together might be one of the most rewarding in the long term.

We take a closer look at five costly mistakes couples make, and how to avoid them.

This article isn’t personal advice. If you’re not sure something is right for you, please speak to a financial adviser.

1. Not talking about money

No matter what stage you’re at in your relationship, if your financial future is tied together, you need to be able to talk to each other about money. It might seem awkward to bring up, but it could save you a lot of heartache later.

If you’re living together, you’ve probably worked out a joint budget or bank account to at least make sure the bills are paid. You could even have joint savings goals.

By talking though your financial challenges together, it could help you both keep more on top of them and even reach your goals sooner. If you think that could be a tricky subject, download our guide for tips on how to get the conversation started.

2. Leaving the finances to one person

Our research found that only 41% of couples take joint responsibility for long-term financial planning. Taking a back seat can be tempting if your partner is more interested in finances, or has more to invest, but it’s a risky strategy.

With only one of you at the helm, intentionally or not, your needs and goals can get side-lined as things are only being viewed from the other person’s perspective. If your partner were to pass away, or you separated, you’d be thrown in at the deep end during what would be an already difficult time.

If you leave your finances up to your partner, it’s time to get involved. You could think about dividing up the financial tasks between you. If this doesn’t work for you, at least make sure you know what your partner is doing and check in every so often.

3. Overlooking tax benefits

Marriage brings some brilliant tax planning opportunities. When you’re married, you can share assets so you can both make the most of tax allowances on things like dividends, capital gains and savings. And if one of you pays tax at a lower rate (or is a non-taxpayer), gifting assets to your spouse can reduce how much income tax you pay.

While it’s smart to share assets purely on a tax basis, think about what would happen in the event of a break up. Gifts to your spouse are irrevocable, so you’ll have no claim over them if things go sour or you separate.

For more useful information about how much you can earn before tax, including income tax allowances and bands, go to our tax facts hub.

Tax rules are complicated, can change and any benefits will depend on your circumstances. If you’re not sure, speak to a tax specialist.

Tax facts

Don’t forget the marriage allowance either. If one of you is a non-taxpayer, and the other a basic rate taxpayer, the non-taxpayer can transfer up to 10% of their personal allowance (£12,500 for the 2020/21 tax year) to the other.

As an example, let’s say you’re a non-tax payer earning £10,000 and your spouse is a basic-rate tax payer earning £20,000. If you claim the marriage allowance you could transfer £1,250 of your personal allowance to your spouse. Your personal allowance becomes £11,250 and your spouse gets a ‘tax credit’ on £1,250 of their taxable income.

This means your spouse will only pay tax on £6,250. As a couple you benefit, because you’d only pay income tax on £6,250 rather than £7,500, which saves you £250.

More on the marriage allowance

4. Assuming your love will last forever

Hindsight is a wonderful thing. While we might start relationships hoping they’ll last, things don’t always work out. Divorce can be an expensive and messy business, so it’s important you protect yourself.

It could be worth considering a pre-nuptial agreement before tying the knot. They aren’t currently legally binding, but they’ll normally be taken into account by the judge and could be upheld in court.

You might want an emergency savings fund in your own name too, just in case.

How much cash should I hold?

If you’re living together without getting married, you’ll have very few rights, so think about how assets are legally owned between you. This means that if you do split, you’ll have legal ownership to protect your rights.

5. Ignoring the fact one of you will pass away first

It doesn’t matter how old you are, all couples need to think about what will happen when one of them dies. Putting this off could make a difficult situation even worse for your loved ones.

You could consider making sure you:

• Have life insurance in place for anyone who depends on you
• Discuss who will be the legal guardians of your children if you both die
• Draw up a will to help make sure your estate is divided in the way you want, and nominate beneficiaries for any pensions you hold

If you’re an HL client, you can update your HL SIPP nominations through your online account in ‘account settings’, or send us an expression of wish form. Your nomination isn’t legally binding, but it lets us know your wishes for when you pass away, which must be taken into account.

How much is inheritance tax?