The Nitty Gritty Of Who Owns and Who Owes What

Diving Into The Balance Sheet

Assets create wealth, not income. 

It's time to see what's really going on in your partner's life and whether you are aligned on the difference between being wealthy and being seen to be rich.

This is a wild and weird zone in our modern world. 

Despite such massive advances women still control less than 2% of the assets around the world. 

In relationships, women tend to have 80% less retirement investments than their male partners. 

This is predominantly because women earn less and are still the ones who tend to stop working to be the stay-at-home parent or reduce their working hours to look after kids.

Right up front, before you have kids, you must set up your relationships guiding principles around your wealth creation and the purpose of the assets in service of your lives.

One balance sheet in service of your love and your lives.

This does not mean all assets are jointly owned. No, that is silly. You must both have assets in your own names to make the most of tax efficient investing allowances, effective estate planning and so forth. That is just the mechanism of asset titling. What matters is that together you view all assets in service of your joint lives.

Of course marriages end. That does not mean you set out planning on your exit. Design your life to live it how you want it to unfold and for what you hope for. 

And be pragmatic.

Your balance sheet should reflect your commitment to each other. Asset ownership should be as close to 50 / 50 as possible.

Remember…

What you earn should not determine what you own.

The way you invest your money should be done on the same basis as you spend and save it - aligned to the greatest good of all - you, your partner and the relationship.

You should have joint financial freedom targets. 

Your financial Freedom number is the net worth you need to be financially free

One target, one net worth.

Each month on your money date you track how you are doing against your various money goals. Wealth Pie, your savings goals, your spend goal and your net worth targets which are tracked on your balance sheet.

Yours, Mine, Ours

When it comes to your investing, you're going to have assets in your name, your partner's name, and in your joint name. This ensures you make the best use of tax efficient investment allowances, effective inheritance tax and estate planning, and for emotional and financial security.

Plan how you are going to invest. Set up an investment plan that will achieve your financial freedom goals. Design your freedom portfolio together and then decide in whose name different assets will be held. 

There may be situations where one of you has run a business where they have signed surety on a debt or it's a high risk business where there might be lawsuits - if this is the case it is best that that partner does not own any of the personal assets in the relationship and instead you can look into trusts and other structures that could provide asset protection.

There are many ways you can hold assets, but the key principle needs to be that your assets are yours as this joint partnership. 

The way you own the assets should serve and protect the unit - not one individual in the unit. 

Company based retirement schemes will obviously be in the name of the employee. So if one person has a company retirement scheme , see if there is an option in your country for a non earning partner to have a retirement plan too. If not, ensure you invest in your discretionary pot in a way that balances that out and ensure your partner is named as the beneficiary on the retirement scheme.

I believe best practice is that you build up your net worth in a way that the assets in each of your names and your joint names are roughly equivalent.

Asset ownership should also never be based on who earned the income to get the asset.

This may be triggering for you. Perhaps you are of the belief that assets and investments should be in the name of the person whose money was used to get that asset. Perhaps you don’t think you should have assets in your name if you didn’t earn the money.  

Notice what story comes up for you. 

Get curious.

There Is No Right Way

At the end of the day it is your responsibility to design the financial frameworks and principles and agreements that will guide and support your love. You can and should make it the way you want it. 

Just ensure you have fully examined your wounds and hurts and propensity to self betray. 

We Aren’t Starting This Journey Together From Scratch

What about when you have been around the block a few times and you’re coming into a relationship later in life with a set of baggage and a set of assets.

Early on in life, when you first get married, most people typically don’t bring a whole bunch of assets into the relationship. Debt yes, but assets no.

But what about entering into relationships with assets? How do you deal with this? 

I believe every relationship should have a prenuptial agreement / antenuptial contract in place if you get married or a cohabitation or a civil partnership agreement if you choose not to marry.

This deals with how you treat assets you come into the relationship with and how you treat assets built up during the relationship - in the event of a breakdown of the relationship.

The most important thing is to have your eyes and your hearts wide open.  Be conscious and take the time and energy to think and discuss these things through.

 If you can't do that then you should be in so deep with each other yet.

Set up your agreements not only on how you will deal with your money stuff going forward but also how you will deal with money stuff you bring into the relationship and what you’ll do if it ends. These conversations and agreements should also include how you deal with past life obligations like kids from previous marriages, ex’s, parents and siblings.

Also consider how to deal with any debt that is brought into the relationship and any debt that may be taken on board whilst in the relationship. 

Do NOT get married in-community-of-property 

This is a system where everything belongs to you both - this means both the assets and debts. It’s just a BAD system.

Get Yourselves Protected

Life happens! 

Cash safety nets

Come to an agreement on your emergency fund. How big it needs to be, what constitutes an emergency and how you will decide if and when money gets used from this fund. It’s meant to be there for real emergencies - so treat it as such.

Agree on your cash safety net. Get alignment on its purpose, how big it will be,  what account it will be kept in, who has access to it and mechanisms to ensure neither of you rob it by accident.

Get specific and never just assume you're on the same page. 

One of the many powerful things about Financial Freedom University is it gives couples a powerful framework to work through every aspect of their money world together. 

If one of you wants a bigger emergency fund and safety net in order to feel safe financially - you must respect that. But if it starts getting so big that there's just no cash to invest and everything's just sitting in cash and not working for you, then you also need to explore what is going on and have conversations about how to achieve your goals and feel emotionally and financially safe. 

Insurance

What type do you need? Life? Household and vehicle? Medical? 

If you need them - how much cover do you need?

If one person is really fearful and they keep signing up for more and more insurance. Discuss what is really going on. Know what your fear is costing you. Likewise - if you or your partner is avoiding protection because you don’t want to face life's realities or you’re very blase about risk - be prepared to examine that too.

Wealth Documents

You must also have your wills, your guardianship plan, and your estate plan sorted out. 

All of this is covered in the Dying Free Masterclass including a fantastic resource “The Book of Death” which helps you get this all together in one place. 

If you truly love somebody, you will have your will in place. You will have your health directive and your financial directive in place. 

Make doing this a service to the relationship. Do not avoid it.

What To Do About Devastating Debt 

Like income, outflows and assets - not all debt is the same.

 All consumer debt is devastating.  Consumer debt is cited as one of the biggest causes of relational strain and it is also a big contributor to financial infidelity.

It is never okay to have consumer debt. I believe every relationship should have a very clear agreement on NO consumer debt and very clear frameworks on how and when you will decide on neutral and expansion debt.

Make sure you both understand the difference between consumer debt, neutral debt and expansion debt and for simplicity sake agree that NO form of debt is ever entered into with both of you being involved in the decision. Whether you want that holiday, whether you want that couch, whatever that is, consumer debt is not and must never be an option. 

When it comes to neutral debt like a mortgage for a home, talk about this endlessly. Understand the full impact of your choices and how it will impact your financial goals and your joint vision. 

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HOW BIG A MORTGAGE SHOULD YOU CONSIDER TAKING ON?

As a simple rule of thumb, your mortgage repayment on a 15 year principle plus interest repayment mortgage should never exceed 25% of your joint household income.

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Expansion debt, this is where you use debt to buy and control assets to accelerate your financial freedom. Have long and detailed conversations on how you both feel about it. Understand the downside and the risks involved and ensure you both always agree on whatever decisions you make on expansion debt.  If one person is really afraid of debt  - honour that and explore what is underneath that fear. Is it not understanding the opportunity and the risk fully? Is it from something in their past. Get curious but never bully your partner to get what you want. 

Remember - your discussions should always be to find the win / win for you both and your relationship.

Business debt, how are you going to deal with that? You should never, ever take on any kind of business debt or surety or guarantees for anyone else where you put your personal assets and your partner's assets at risk. This should also be an agreement.

If you're going to take on debt in a business, how are you going to make sure that your personal assets and your joint assets are protected? Your personal assets should be ring-fenced and never be put at risk by a business. That might mean you need to move them over into trusts or some other structure. 

What is most important is your integrity and considered action. Think through things fully, do scenario planning on the impact of your choices on your goals and your relationship. 

If the decisions and suggestions and desires of the other start breaching your absolute nos for you, you must be prepared to take a stand and have your own back. 

What About Debt Brought Into The Relationship

Eyes and hearts wide open.

As you reveal the nitty gritty of your money worlds to each other, it is likely that one or both of you will have debt. 

Separate your debt into the different types so you know what you are dealing with.

Dealing with debt from the past can be a real big challenge. You need to think hard about whether you are prepared to take on someone else's debt. 

If when you've met somebody and you're getting more serious with them and they reveal that there's a big pile of debt, how will you deal with it?

Know that there is no real way to “ring-fence” a debt in a relationship. You might be able to ring-fence it on paper, but it's going to have an impact on you. 

Are you prepared for that? How will it impact your life vision and goals?

Do you require a person to have cleared their debt before you go deeper into a relationship with them?

If you are prepared to do deeper with someone with consumer debt it needs to be transparent and you need to have a plan for dealing with it. 

Talk about how the debt came about, and know the underlying cause of consumer debt. Remember, debt is a habit and so is wealth. If you don’t understand and deal with the underlying behaviours that cause the debt you will never be able to break free from consumer debt patterns.

Set up a debt blitzing plan and a spending plan that will eliminate this debt. Again, set up agreements on how this will be dealt with and ensure you track this and don’t betray yourself by capitulating on the agreement if the other capitulates on what they say they will do to blitz the debt. 

Blitz Your Debt is Recipe #3 in The Wealth Chef Book. Use it to clear consumer debt from your life forever.

What About Debt and Lending To Family And Friends?

Simple answer - NO!

Debt is an area where I see so many people betraying themselves and putting their relationship at risk.

“I didn't want to be the difficult one. I wanted to help. I wanted to support them. I don’t know how to say no, Yes I know debt is bad for us… BUT! I thought I could help them by agreeing to sign a surety on the loan." 

Going into debt for or with someone is not love - it is codependency.

I see people bailing other people out of their debt habits over and over and over, whether it's their kid, their partner, their sibling, their friend - it is never a good thing. 

If you find yourself doing this, there is a good chance you have some  codependency BS going on in your life. 

Enabling another person's dysfunction and brokenness is not love. 

If you absolutely feel you must sign surety, or a guarantee or even lend someone money make sure you have strong rules and agreements in place on how that debt will be taken on, how repayments will be made and if they breach the repayments how that will be dealt with.

If you are doing this outside your relationship ensure you and your partner are both onboard with this and you are not undermining them or betraying them in your actions.

This is so important because often we have this whole bullsh*t story about “being a nice person and helping others”.  

Helping someone go into consumer debt is not being kind.

More Money Wishful Thinking

I wish somebody else would just manage this money stuff for me.

I want to meet someone who will just take all this horrible money management stuff away from me and I’ll live happily ever after.

I wish I never had to deal with this money stuff and someone else would look after me financially.

Oh, my partner looks after the money stuff… giggle giggle.

You know that knight in shining armour that you hope is going to deal with the money stuff… he doesn’t exist!

Sorry to burst the Hollywood Chick Flick bubble… 

Your prince charming is not coming.

No-one is coming.

Because that someone is you!

Even in the most amazing relationship you cannot and should not expect someone to rescue you financially.

You are not a child. 

There is nothing juicy or sexy or empowered about someone wanting or expecting someone else to rescue them financially. And there is nothing juicy or sexy or empowered about someone wanting to take control over another so they feel safe or powerful. 

If you want a sexy, empowered, vulnerable, juicy, wealthy, I’m OK / You’re OK, connected relationship then you need to be sexy, empowered, vulnerable, juicy and OK on the money front and hold your partner to the same expectation. 

In Part 11 : Great Relationships Are Created we dive into the practice of relating well. Love is a verb. Having a thriving, intimate and connected relationship with money serving and supporting you is something you create - it doesn’t just happen. This section delves into some of the practices you can bring into your life to build and expand your love and intimacy - and ensure your financial wellbeing.