Is marriage the biggest financial risk you’ll take?

Getting married may traditionally be linked to the word “bliss”. But it may be the opposite if you don’t think through the ramifications of hitching your finances to another person’s for an unknown future. John Williams, head of wealth planning at Nedbank Private Wealth, highlights how many of the risks linked to relationships can be mitigated.

If the past year has taught us anything, it is that life is full of risks and many of these have financial consequences. While fear of the risks becoming real may prevent people from skydiving, for example, very few would be stopped from forming a relationship and feeling optimistic about the prospect of saying “I do” in front of family and friends, and enjoying a long life together thereafter.

Risks can arise due to a breakdown in your marriage, but also because of widowhood and subsequent marriages

However, while it may be deemed to be distinctly unromantic, having a plan and going into a relationship with your eyes open financially is strongly recommended. Risks can arise due to a breakdown in your marriage, but also because of widowhood and subsequent marriages. You and your family may, eventually, even be thankful for your actions.

Even if you believe your married life is set to last for decades, here are five things that are relatively simple and, if they don’t end up applying to you, can stand you in good stead for your children ahead of their future relationships.

Talk about the money

Many people still don’t like to talk about money – among friends, or family, and even with their spouse or partner. However, given communication breakdown is cited as the main reason for divorce, perhaps it’s time to buck the trend and sit down and go through the financials in detail.

It’s a useful habit to get into early on in a relationship, even if it’s initially about day-to-day money management, as these will lead into more fundamental discussions and help prepare you for the more onerous conversations about your longer-term finances later on in life (and your relationship), but it should always include how much each other is earning and what savings, investments and pension contributions are being made.

This approach will help you to understand what is possible, based on current spending and savings, and what else needs to be done to ensure a comfortable financial future

This approach will help you to understand what is possible, based on current spending and savings, and what else needs to be done to ensure a comfortable financial future. Moreover, it will also help you and your partner understand your relationship with money, how your upbringing has affected your own approach to finances, and your level of financial literacy.

Ringfence assets

If you are starting a relationship and expect to receive significant sums from your family, or bring substantial wealth of your own, it is worth seeking legal advice on establishing a prenup(tial) agreement. These are generally now taken into account by courts and may even help provide a reason to talk more openly and have a more healthy relationship with money (and other important factors).

Courts can take into account assets that were earned or received before the marriage took place, if it is deemed necessary that a financial settlement requires their inclusion to support both parties’ circumstances (plus any children’s) and their needs, or if the marital and non-marital assets have become “mingled” to such an extent that they are no longer distinct.

If you are starting a relationship and expect to receive significant sums from your family, or bring substantial wealth of your own, it is worth seeking legal advice on establishing a prenup(tial) agreement

However, rather than looking at ringfencing as a declaration that your marriage is being set up to fail – not least as it may be your soon-to-be spouse’s family that is insisting these measures be put in place – see it as a “contract” that may help you avoid an acrimonious and expensive court case in the future. Meanwhile, for prenups to be effective (and legal in other countries in which they might apply), there has to be complete disclosure of assets that might previously have been kept hidden.

Stay involved in the finances

Aside from your initial exchanges about money, it’s important to continue having these conversations in the following years. It is a cliché, but one that remains true: despite many women managing the household finances, the major decisions – including insurance, investments, mortgages and pensions – are typically still directed by the men. Of the people talking in front of a financial adviser, 90% are men.

Aside from your initial exchanges about money, it’s important to continue having these conversations in the following years

Staying involved should also include maintaining a separate bank account. Not only will this allow you to have an amount of cash to access in case of emergencies, it will also allow you to maintain a credit score as an individual, which can be crucial if you need to apply for credit cards, short-term loans, mortgages, etc. in your own name in the future.

Not only does staying involved result in you remaining in touch with the complexities of the UK tax system, it ensures you have a list of your financial anniversaries (such as insurance renewals, fixed mortgage timelines, ISA deadlines, etc.) alongside the family birthdays and celebrations. It also means you can avoid being caught off guard financially should things start to go wrong.

In relationships, 80% of men die first with women commonly living for five years or more alone

This is especially important given that women are more likely to live longer than their spouses. In relationships, 80% of men die first with women commonly living for five years or more alone. Being familiar with the family finances along the way means you shouldn’t be facing a future financial cliff edge, in terms of access, confidence and knowledge, when you’re emotionally distraught following the death of a partner.

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Top Tip

The wealth management implications of marriage often fall by the wayside in the flush of romance, but our conversations with users underscore just how important it is to be proactive and pragmatic so that both sides will be well taken care of. Wealth managers are extremely adept – and experienced – in working through all manner of issues, so whatever your circumstances we are sure to be able to connect you to an adviser who can help. Don’t hesitate to get in touch for an informal discussion of your needs.

Lee Goggin - Co-Founder

Lee Goggin

Co-Founder

Think twice about stopping work

While there are always very valid reasons why one half of a couple gives up their job – e.g. to take care of the children or an elderly relative – a temporary choice can quickly become long term. Meanwhile, the longer someone is away from work, the more difficult it is to rejoin the workforce. This is not just because potential employers may question your skill set, but also because of the hurdles thrown up by having both parents working, not least the financial burden. If someone needs to leave work early due to an emergency, it is more often the person who took time off before that will be the one stepping away more frequently.

Time away from the career or it being held back – even if it’s because you believe you are not seen to be as committed as colleagues and so do not push for promotion – are among the reasons for the gender pay gap. But this doesn’t just mean less money to spend, it also leads to gender investment, pension and property ownership gaps. The average divorced woman only has a third of the level of pension assets of her former spouse and, while your case may not be as extreme, you may have far fewer options to bolster financial reserves due to poorer employment prospects.

Time away from the career or it being held back – even if it’s because you believe you are not seen to be as committed as colleagues and so do not push for promotion – are among the reasons for the gender pay gap

Another point to bear in mind is that not working may also have implications on your state pension entitlement.

So, if you choose to be a carer over developing a career, see if there are options to take on part-time roles or provide consultancy services. These can help you to retain current knowledge and skills, and to remain in contact with your network.

Draw up a contingency plan

While the term “contingency” is clearly a euphemism for divorce or death, it may help you broach the topic with your family and agree a plan. It also gives you time to understand all of your options in any potential scenario and leave you freer to focus on grief and picking up the pieces of your life, if/when bad things happen.

Pensions are often the most significant financial asset, after the family home, and are often the least understood and one of most complex assets to manage to facilitate a fair financial split

Clearer thinking may also help you avoid the mistakes others often make. For example, a report from the Nuffield Foundation published in 2019 highlighted that of the divorces they researched, 80% of these included at least one relevant pension and yet only 14% contained a pension order. Pensions are often the most significant financial asset, after the family home, and are often the least understood and one of most complex assets to manage to facilitate a fair financial split. But while there is no legal obligation for these to be included in the divorce settlement discussions and there is little, if any, agreement on how the pensions or the offset should be valued, pensions can be used to offset against other capital assets and so should be in scope.

Your contingency plan should also include scenarios where one or both of you becomes mentally incapacitated, and having a Lasting Power of Attorney in place will keep your best interests safeguarded. Wills can also be drawn up with future scenarios included – it’s another myth that a divorce renders a will invalid. Following a divorce, a will should be reviewed as a matter of priority.

London is often called the divorce capital of the world, mainly because the judges can exercise wide discretion. They have the power to require the transfer of property from one spouse to another, including those within company or trust structures that other countries won’t address, but that is often only the case for the very wealthy – most couples won’t have any structures to ringfence assets. And even in cases where the separation of assets is fair, there is no obligation for any professional to ensure that the financial settlement will allow someone to lead a comfortable life after the decree absolute has been granted.

Only cashflow planning can help there, as it maps out your current finances and projects what their future value should be, as well as taking inflation into account

Only cashflow planning can help there, as it maps out your current finances and projects what their future value should be, as well as taking inflation into account. It will help you understand the amount of capital required to fund your income requirements for the rest of your life.

This is important as the reality for a lot of women is that they are more likely to have pressed pause on a career. Being more likely to be the one at home, raising the children and taking care of other relatives often means careers can’t flourish as fully in the future. And while you may not be able to change the situation with regard to your pay and pension gap quickly, you can help increase the proportion of women talking to a financial adviser and achieve better outcomes for you and your family. Especially as this might make for a more informed decision when negotiating a divorce settlement.

Important information

The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.

We always advise consultation with a professional before making any investment and financial planning decisions.

Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.

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