Combining Finances After Marriage

Anthony Bell

Finance Expert

Assuming you are just married or in a long term relationship and are wanting to combine your finances, there are number of things that you need to consider.

married-rings

The first is that there may be considerable tax consequences that might arise if you transfer your assets into joint names.

Whether you’re married or not, when you own an asset such as property or shares in your name and you want to transfer the asset into joint names, you are effectively selling 50% of your interest in the asset which may well then be subject to capital gains tax on 50% of any capital gain you have made since you acquired the asset (generally not including your family home).

For assets such as property, stamp duty will also be payable on 50% of the value of the property, even if you are living in the property.  This can amount to a considerable sum.  For example, in NSW stamp duty on 50% of a property worth $700,000 is more than $11,000.

Ironically, there are certain exemptions available from capital gains tax and stamp duty that couples may be able to take advantage of when assets are transferred between them as part of a financial settlement typically arising from a separation or divorce.

So whilst the theory of combining assets may sound like the right thing to do, it is critical that you seek professional advice to avoid triggering an unnecessary tax bill.

There is a second factor here that is often overlooked and that is asset protection.  If one partner is a salary and wage owner which means typically low risk profile whilst the other is say a business owner that is substantially more exposed to business risk and the risk of legal action against them, it is very important to consider who owns the assets in the relationship.  Often, it makes sense to have the “safer” partner be the asset holder and the “riskier” partner the one exposed to the liabilities in the relationship.

Of course this can be fine in theory but it is not always possible to achieve in practice.  There are many techniques that can be used to assist in this area that should be considered, but as always they can come at either a cost now or in the future, so again seeking professional advice is so critical here as is ensuring that you have adequate insurance in place to cover the major risks.

There can of course be immediate advantages that can be achieved.  For example, by operating joint bank accounts, any interest that is earned is split between you.  So if one of you is a stay at home partner or low income earner, 50% of interest earned will be taxed at a low or nil tax rate compared to the other partner/spouse if they are a high income earner, thus effectively and sometimes considerably lowering your combined overall tax burden.

The same thing can apply to new assets such as property or shares acquired in the future.

I am also a big fan of tax offset accounts as a way to pay down your mortgage faster and if you are financially disciplined enough, having both your salaries (if you are both working) deposited into a mortgage offset account and keeping the cash there as long as possible, will reduce your overall loan interest which can literally save years on a mortgage.

I should also mention that there are a number of ways that spouses can protect the assets they bring into a relationship from a potential separation down the track.  Seek legal advice if this is something that concerns you.

To summarise, combining assets might sound great in theory, but may not actually provide you both with the best net result.  You need to work out with your accountant what the tax consequences will be of any decision you take will be as well as what you might be exposing both of you to in the future.

Image Credit: Amber Engfer Photography

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