Article By Faye Watts
Divorce. New Relationships. Remarriage. Life over fifty has the potential to get messy not only emotionally, but also financially. How many of us have heard horror stories about women conned out of their life savings after falling head over heels for someone they met online? Or just the day to day messiness of entwining two families and their financial responsibilities.
Faye Watts, founding partner at www.fuseaccountants.co.uk, looks at how to keep an eye on what’s yours when you move on.
Why be cautious
While it’s lovely to put on those rose coloured spectacles, many of us will have been through more than enough to hold onto what we could after our first marriage, and want to be a bit more careful this time around. Even if you’re a true romantic, it pays to keep an eagle eye on what’s yours, if not for your own sake, but for your children and even grand-children. I have come across many instances where relationships got financially messy, including:
- A woman whose second marriage was to her long term best friend, following the tragic death of her first husband. Within two years her new husband was embroiled in an ongoing affair and on divorce claimed a 50% entitlement to a portion of three solely owned investment properties owned for nearly 20 years, which were acquired during her first marriage
- A woman whose ex-husband was awarded 50% of her childhood home inherited from her parents. As it was in her sole name, she was hit with a whopping great capital gains tax bill while he just walked away with a nice settlement
- A woman who found out that her new husband was filing for bankruptcy and had to quickly file for divorce to protect her own assets
- A woman whose new partner (not husband) lived in her house and paid towards the bills and upkeep of the home, rather than a rent. He is now laying claim to a percentage of her property.
I could go on but the gist of it is we need to be a bit more savvy second time around. So, what can you do?
Start with a conversation
Open up the discussion about your financial status early on in your relationship. Do they have any county court judgments or debt you don’t know about (or vice versa)? Have they ever been bankrupt? What’s the status on any maintenance payments they might be making to a previous spouse? If you don’t already know, find out about their attitude to money…is it easy come easy go, or reassuringly sensible? How do you feel about sharing your money pot with this person? Getting used to talking about finances will make things easier from the start.
If your new partner moves in with you
If you want to protect your own property then you could ask your partner to pay rent rather than a contribution, which could be deemed to be a contribution to the mortgage and running costs of home. Make it a commercial rent and you can even earn up to £7,500 rental income tax free from a lodger in your own home from April 2016 (previously £4,250). A simple tenancy agreement will be a pre-emptive move towards stopping him or her claiming it as their home. Worth speaking to a friendly lawyer.
If you remarry and go on to buy property in joint names your new husband (and not your children) will get your share if you die before him. Buying the property as tenants in common and stipulating who you want your share to go to in your Will may go some way to protecting your assets for your children, but there still leaves the problem of your partner being ousted out of their home. What’s often done here is to set up a life interest trust, whereby the surviving partner has a right to reside in the home as long as they are alive, but the property (or their share of it) will revert to your chosen beneficiaries on their death. You can also consider other trust planning to protect and name any other assets before the marriage.
Even if your new partner has no children, and reassures you that they have no one to leave the property to, still be careful. No one knows what new partner may come along when they are left on their own (and there are plenty of tales of younger care workers becoming more than care workers) and your children may well find their inheritance in the hands of a new spouse or their family.
Have a Pre-Nup
These are controversial; there’s no getting away with it and some say that they simply won’t stand up in court. However, my opinion is that courts will at least consider them and bring them into the equation so again that friendly lawyer will help you here.
Keep your money from previous marriage separate
Rather than mingling all your money into a joint account, keep your money from your previous marriage and life in an account that’s separate and easily defined. This will make things easier if things go awry. Keep them in your own name and detail them thoroughly at the time of marrying.
If you own a business
How can you prevent them gaining a share of your business? Think about who you might like shares to be given to, and look at any restructuring necessary sooner rather than later, especially if you propose to leave the business to your kids.
If Things Later Go Wrong… Separation
If you own property together, you may end up paying extortionate capital gains tax on any transfers outside the tax year or separation. Seek tax advice in the same tax year, not later, or you will lose your ability to transfer money between spouses tax free. Once that year is out, or if someone moves out, things can get messier to sort out, and potentially much more expensive. If you do move out of the family home, perhaps keep some part time residence there. This may help you avoid some capital gains tax!
The first step is to get a new will drawn up by a solicitor or will writer. Situations with new partners and children from previous relationships are too complicated to rely on a DIY will. Also, update it regularly if circumstances change.
If you are not leaving your new partner the house explain why to your legal advisor so they can make sure it is addressed in the will (for example, “he has property of his own so I want my assets to go to my children”). It is always worthwhile to include a Letter of Wishes. Wills can be challenged, so make it clear to everyone what you intending with your assets.
Make sure your children know what is in the will, where it can found and who the executors are. List your assets to your children, from bank accounts and how to get into them, to jewellery, so that nothing can “go missing”.
If you are lending a new partner (or anyone for that matter) money then ensure the transaction is recorded, i.e. by bank transfer or cheque rather than cash. Put an agreement in writing outlining how and when you will be paid back. Documenting these transaction tends to make people more honourable in delivering on them.
Power of Attorney
As you get older you may like to think about who will be your Power of Attorney if you get ill, or dementia sets in. It’s not an easy subject to think about but the cold hard reality is that you want someone who will handle both your own care and your finances in a way that considers your best interests. I have heard of cases where the new partner simply cannot handle this type of care (or just has enough to cope with in their own children), and a safe bet is to give that responsibility to your children or other trusted person. Remember, you can have dementia for 20 years so this isn’t a decision to be made lightly.
How to handle these conversations
It’s not easy to have these type of conversations. If your partner has children from previous relationship you may find them more understanding, but if not, then you will have to hope that they trust and respect your wishes. There’s no dodging it, it will be difficult but here are some tips that may help:
- If you’re thinking of moving in together, do try and bring these things up as early as possible so you both have time to think and talk them through
- Try and make it a conversation rather than a dictation of your own wants
- Do try and phrase it in terms of what you’d like to “share” and keep it positive rather than sound too protective and distrustful
- Set aside time and place for proper conversations, and not fit them in when you’re driving to his parents
- Seek professional advice as a third party advisor will make recommendations to you based on each of your personal circumstances from an unbiased viewpoint.