When entering into a long-term relationship, a ‘what’s mine is yours’ approach is often embraced, however, this kind of approach to financial management does have its risks.
If you approach finances this way in a relationship, people will face financial challenges and difficult choices if their partner passes away, Johan Strydom, Product Head at FNB Fiduciary said.
“It is vital that couples enter into this type of financial relationship with their eyes open to the potential risks it presents,” Strydom said.
Strydom presents two scenarios where partners sharing finances can lead to problems:
Scenario 1: Sharing bank accounts
When partners share a bank account, if the primary account holder passes away, then the bank by law is required to freeze the account until the estate of the deceased person has been fully processed.
Strydom said, “It is difficult in a joint arrangement because the surviving partner will be unable to access the account, or the money in it, for the full time it takes to wind up the estate”.
Scenario 2: Home loan
Partners who are co-applicants on home loans can face problems if one partner passes away.
“When one of the co-applicants on a bond passes away it impacts the entire credit agreement with the bank which means that, in terms of the bond arrangement, the total amount owing on the loan will need to be paid back to the bank,” Strydom said.
There are some rules of thumb that every financial partnership should adhere to:
- Partners that have a joint bond should make sure that both parties have adequate life insurance in place to cover the full amount of the bond.
- Partners who only use one bank account should also consider opening separate bank accounts to ensure they have access to enough money to cover their essential expenses if their partner passes away.
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