Don’t tell anyone, but I’m a bit of an old romantic. Despite rolling my eyes dramatically when I see couples giggling in their own little world in public, I’m all for a bit of the thrill of falling in love.
Of course, when everything is hearts and flowers we tend to make grand pronouncements with little thought of what the future might hold. And why shouldn’t we, when everything seems rosy?
Not that I want to rain on anyone’s parade, but when you chose to spend the rest of your lives together, you’re not just making an emotional commitment. There can be considerable financial implications too.
Alongside the legal commitments that come from marriage and civil partnerships, many couples chose to combine their finances too. This can be positive in many ways. When partners share their incomes equally regardless of earnings it is both symbolic and practical. It also means if one of you is more financially minded than the other, you can keep an eye on your spending and savings more effectively.
But things do sometimes go wrong with relationships and when they end, there can be major implications for your money.
One of the worst cases I’ve seen involved a woman called ‘Maria’ who contacted me after her former husband faked her signature and documentation to secure a £50,000 second loan against their jointly held property. She didn’t find out about this until after the divorce and when she came to sell the house. In this case, the broker had not followed all of the identification procedures accurately. The fact that the signature was an obvious fake helped the case considerably, but it took over 8 months of negotiations to resolve the matter.
In another case, ‘Clare’ told me how her former partner had managed to clear out two savings accounts for their children over a period of years, taking all £22,000 in total.
And sadly, there has still been little progress legally since James contacted me a few years ago to tell me that his partner had left him for another person then vanished, leaving £9,000 in a savings account that he couldn’t touch because both people had to authorise the release of the funds. Banks and financial institutions are reluctant to release money without permission from both parties in case of future lawsuits, so these situations usually end up in the courts, where the outcome is less than straightforward.
Here’s my guide to what you need to know about jointly held accounts, savings and other financial agreements.
Joint financial agreements
A joint account, or any joint financial agreement, is any arrangement where more than one person is listed on the account or policy. These vary depending on the agreement (a credit card might have a primary and secondary card holder, for example).
Joint accounts work in the same way as normal accounts, only there are two or more people who have access and control over them. These arrangements are not just for couples though. Friends sharing houses might set up a joint account for their bills or just to save money collectively. In fact, as rents rocket, one of the big emerging trends in finance is the ‘collective’ account or bill payment system for precisely this set of circumstances.
How do joint financial agreements work?
Most joint arrangements will require you to sign a paper or digital mandate (a document instructing the financial firm what to do). This will specify if it is ‘both to sign’, meaning both parties have to provide their authorisation to do things like withdrawing cash, authorising payments and more, or ‘either to sign’ which allows you to operate individually with what you do with the account.
The more cautious reader might be thinking that the latter option is rather risky, but realistically, for many people the ‘two to sign’ option can be frustrating for carrying out simple banking transactions, so they tend to go with ‘either to sign’ as it at least allows them to act independently while keeping an eye on what’s going on.
As a side note, I’d recommend that when setting up any kind of joint agreement, you ensure that the business will speak to both parties independently about any activity on the account. Some secondary credit card holders may find they can’t get account information without this, for example.
What can go wrong?
When things go wrong with joint agreements, they can go spectacularly and horrifically awry. As I mentioned before, some of the hardest complaints I’m ever asked to sort out have involved former partners blowing stacks of cash when the relationship ends, faking signatures to borrow money illegally or simply vanishing, leaving credit balances frozen or debts outstanding.
Most relationships that run their course don’t involve situations this dramatic – but it does happen. Which is why, when the writing is on the wall, you might want to have a think about your options, just in case.
Sometimes, the general frostiness that can exist during a break-up can make it hard to get a consensus on what to do with joint finances. Other times the person you’re in a joint account or arrangement with might be terrible with money or just reckless. The latter is a major issue as it means you can quickly rack up debts that are nothing to do with you. It’s possible to extend an overdraft and max it out before the other person on the account even realises, for example. I’ve also seen people attempt to guarantee a whole cheque book full of cheques before an account can be frozen.
In some of the worst-case scenarios I’ve seen, ex-partners have taken loans or second mortgages out against properties (using faked signatures is illegal, but can be tricky to prove), cleared out their children’s savings accounts or applied for and maxed out credit cards or credit agreements.
If someone has broken the law – and you haven’t agreed to a joint agreement like borrowing against the equity in your home – that’s not your fault and you need to make an urgent complaint about it to the financial services provider and then on to the Financial Ombudsman. You’ll often need to report the criminal activity though, which is hard for many people in difficult relationship situations. Ask the lender or financial service to suspend all debt collection and interest/charges while the matter is investigated.
Joint and several liability
UK law contains a concept that is often misunderstood, known as ‘joint and several liability’. Leaving aside the literal legal definition, what this means in practice is if you enter into a joint contract with another person or people, then you are responsible for the entire agreement if one or more of the other people fail to meet their obligations.
In simple terms, if your partner maxes out your joint bank account overdraft and credit cards and vanishes, you are solely liable for paying off the debt if they can’t be tracked down. This has saddled people with huge debts over the years and is one of the biggest sources of financial stress and hardship that people encounter.
Leaving aside the act of betrayal, it’s clear that many people just don’t understand the scale of the problem.
My fellow consumer rights champion and journalist, Sarah Pennells, published extensive research a few years ago that found that three-quarters of people didn’t know they would be liable for the whole debt on a joint account. Just under half thought that a business would split the debt down the middle – which is not the case.
And leading legal expert, Gary Rycroft advises:
“Prevention is better than cure, which means any one entering into joint financial arrangements for whatever reason (from sharing a house share to sharing your heart) should make a written record of what is agreed in terms of who is responsible for what – and if/when the situation changes how it will be amicably brought to an end. This could be just an email exchange or it could be a formal legal document called a Cohabitation Agreement. As ever in legal matters, evidence is key so make sure you have yours from day one”
Dealing with disputes
If you fall out with someone you’re in a joint agreement with it’s not the end of the world necessarily. But it’s important that you think of all the implications of what might happen next.
As soon as you or your partner mention that there is a relationship problem, your bank or financial institution is obliged to ‘freeze’ the account straight away. While this will stop further spending on the account (other than previously authorised payments) you will not be able to unfreeze the account without the agreement of both parties. Sadly, this isn’t something you can mention ‘off the record’. If you say it out loud even indirectly, the financial organisation should freeze the account.
This can also occur if your partner loses the mental capacity to make financial decisions and you don’t have a Power of Attorney in place. So again, it makes sense to think through your options on what you might do in the worst-case scenarios.
If this sounds a bit extreme, you can approach the bank and ask them if you can change the mandate – though all parties named on the agreement will need to authorise this – so you can’t do it on the sly. You might want to consider cancelling any forms of credit that come with the agreement, like cheque books, overdrafts or credit cards. This is now the time to go through all of your statements to see if there’s anything that you’ve not authorised.
If you’re splitting up with a partner, it can be really distressing, but there are organisations that can help you for free if you’re struggling to cope. Even if your relationship is going well, it makes sense to have a separate bank account in your name, even if there’s only a tenner in it. This means you’ve always options if something does go wrong so you can get paid and pay your bills. You can set up an account online really easily these days and request no paper statements or obvious notifications about financial matters.
Financial abuse is a form of domestic abuse and occurs when a partner, family member, friend or member of the public takes over your right to make independent financial decisions.
While bank staff are trained to look for signs of financial abuse, the ever-reducing branch network means that many people might slip through the net. Tackling financial abuse is something I feel passionately about. So I would strongly encourage anyone who is supporting a friend or family member through a relationship crisis to talk to them about their options.
The free Government website, Money Helper, has a great guide to financial abuse and the help and support that is available.
The big two
The two biggest joint financial commitments (or things a partner can benefit from) are mortgages and pensions. I’ll cover this in a separate column, but if you need help now, Citizens Advice also have a great deal of information here.
The guidance also features links to organisations covering everything from mediation to support if dealing with a violent or threatening partner.
Featured in Times Money Mentor – Martyn James