Merging Finances

Case study: Merging finances

Merging finances after moving in together or getting married is a big step. This is a perfect time to see a financial planner to talk about issues including mortgages and refinancing, superannuation, and protecting assets. Joanna and Chris contacted us to talk about how to manage their individual assets after deciding it was time that Chris moved into Joanna’s house.

Protecting your assets with co-habitation agreements and pre-nuptial agreements

Chris had a young child from his previous marriage and both Chris and Joanna were keen to ensure that their individual assets were protected should their relationship end acrimoniously.

Although not married, as far as their financial assets are concerned, Joanna and Chris will legally be considered as being in a de facto relationship after residing together for a short period. We advised them to seek legal advice regarding establishing a written cohabitation agreement. This would protect their individual assets prior to moving in together, clarify who was financially responsible for Chris’s child, and ensure that any assets accumulated during their de facto relationship would be split evenly if the relationship should end. Joanna’s parents were guarantors on her home loan, so the agreement also protected them in the event of the relationship’s demise.

Writing the cohabitation agreement together gave Joanna and Chris a chance to discuss whether they would run their finances together or separately, whether individual bank accounts would be maintained outside of a joint account for everyday living expenses, and whether both were comfortable with the other’s spending and saving habits.

Mortgages and refinancing

A year after moving in together, Joanna and Chris decided to renovate Joanna’s house. To do this, they decided to refinance the mortgage and open a new line of credit. Due to their robust cohabitation agreement, they had peace of mind knowing that any funds spent on the investment would be fairly distributed between them if they split and they felt comfortable they could avoid the costly and unnecessary expense of stamp duty charges to change the names on the property title.

Protecting your assets

Joanna and Chris decided to buy a new car together and took out a joint loan which makes them both jointly and severably liable for the debt. Ownership is considered as ‘joint’ under the terms of their cohabitation agreement even though, for tax purposes, it is registered in one name only.

A couple of years later, Chris wanted to buy an investment property but Joanna disagreed. They extended their cohabitation agreement to incorporate Chris’s property as a separate asset and separate loan that Joanna has neither entitlement to nor liability for.

Wills and estate planning

Joanna and Chris eventually had two children together and continued to share parenting responsibilities for Chris’s first child with Chris’s former wife, the child’s mother. Chris had started a business that was highly leveraged and risky, so we advised them to update their will to establish a testamentary trust, not only to protect their assets but to ensure they were distributed according to their wishes.

The testamentary trust safeguards the couple’s assets against the possibility of Chris becoming bankrupt and, in the event that the couple separate, will distribute their assets between the three children in a way which Chris and Joanna agree is fair. If one dies before the other, the trust also stipulates that the surviving spouse will pass on their assets to their children in the manner that has been agreed. Given Chris has been married previously, the cohabitation agreement and testamentary trust also protect Joanna’s share of their joint assets if something were to happen to him and his ex wife challenged the terms of his estate.

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StrategyOne Advice Network is an authorised representative of Fitpatricks Private Wealth Pty Ltd, AFSL No. 247429, ABN 33 093 667 595 (“Fitzpatricks”).

The information in the above Case Study is of a general nature only and is not intended as a personal advice. It does not take into account your particular investment objectives, financial situation and needs. Before making a financial decision you should assess whether the advice is appropriate to your individual financial situation, needs and objectives. We recommend you consult a professional financial planner who will assist you.

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