Q. My partner and I just moved in and we’re wondering what’s the best way to manage our collective finances? What happens financially if we decide to separate? Assuming we don’t have children.

A: Before you consider merging finances, it is vitally important to have an open and honest conversation with your partner to gain an insight into their views and values towards money and form a collective approach to your joint financial future.

If you are looking to plan your finances jointly, there really should be no secrets. Important questions to understand are; How much do you each earn? How much do you each spend? and the biggy; What debts do you currently have?

If you are planning to save together then it may be in your collective best interest to clear legacy debts first.

If either of you have an impaired credit history, it is really important that this is communicated and the consequences understood. It may mean your plans to buy a home may be delayed until a credit record is repaired. This is better to be dealt with upfront rather than having a mortgage application declined.

Collective financial goal setting is vital. What are you both working towards? As with all aspects of a relationship, commitment is the key. Whilst individual financial contributions may vary depending upon income and capacity, it is important that you each commit to agreed saving and spending behaviour in order to achieve your goals. 

For newer relationships where trust is being built, keeping basic banking separate would be the norm. Some couples operate very successfully throughout their lives with separate bank accounts but contribute to a collective expense or savings account.

Most couples will operate their finances out of a joint account but with understood boundaries around spending and saving. Sharing finances comes with a range of benefits and can be a good option for couples who spend money in a similar way, communicate openly and effectively about financial matters, and who trust each other.

Some couples I have worked with operate under the joint finance model but also retain a separate personal account that they can use for their own purposes without the scrutiny of their spouse. 

Under either scenario, I recommend you have an emergency fund to meet any unexpected expenses.

For joint savings for future goals, I recommend you set up a joint savings account that both of you need to approve withdrawal from. Transfer savings into this account on a regular basis either from your joint everyday account or both transfer an agreed amount on a predetermined regular basis.

It is important to recognize that your circumstances may change and any arrangement needs to take this into consideration. You need to consider and agree on how would you manage finances if either of you were to be out of the workforce for a period of time? Either planned or unplanned. 

Make sure you are both on the same page around values such as gambling. You don’t have to share the same values but at least agree on how much can be spent and respect these limits.

By merging your finances, you are also merging your responsibilities, risks and any consequences that arise. If your partner defaults on their repayments, you may be liable for the amount owing, including fees, interest and charges, even if your relationship ends. 

Non- payment of liabilities will affect both of your credit ratings. Ignorance isn’t an excuse. If you or your partner sign papers that you haven’t read or that you don’t understand, you are no less liable for any loans or guarantees you may have signed off on.

It may be beneficial for you and your partner to discuss different issues and scenarios and agree on these ground rules up front. This could help prevent any misunderstandings or arguments in future.

Q: What happens financially if we decided to separate and end our relationship. Assuming we do not have children?

A: If you do happen to split from your partner, establish separate bank accounts and credit cards immediately. Cancel joint credit cards but retain a joint bank account until you resolve the separation. Cancel direct debits from the joint account and reestablish them from your personal accounts unless they relate to ongoing joint expenses. 

Whether you are married or in a de facto relationship, you will need to arrange how your assets and liabilities will be divided, regardless of whether you hold them separately or together.

This can be formalised between the two of you without court involvement if you can reach an agreement. If you can’t agree, you can apply to a court for financial orders regarding the division of your property and Superannuation.

Applying to the court typically needs to be done within two years of you splitting from your former partner, otherwise, you’ll need to have special approval from the court to proceed with your application.

If you are concerned about who might get what, you may want to think about entering into a binding financial agreement with your partner before you enter a de facto relationship or get married. A binding financial agreement should provide details on when the relationship commenced and when you moved into together. A list and identification of assets and financial interests held by either party together with their value. Details of any liabilities either of you have. Details as to how assets and liabilities should be dealt with in the event that the relationship was to cease.

Before attempting to execute a binding financial agreement, ensure you get legal advice.