When people enter into long-term relationships, they often embrace a ‘what’s mine is yours’ approach to sharing their lives with each other. While this type of ‘collaborative’ lifestyle does have its advantages – not least the convenience and cost effectiveness of a single shared bank account, or the ability to purchase a bigger property by pooling your income as co-applicants for a bond, it’s important to realise that a shared approach to financial management is not without its risks.
That’s according to Johan Strydom, Product Head at FNB Fiduciary, who says that surviving partners who have faced financial challenges and difficult choices on the death of their life partners, highlight the potential risks that couples need to consider when they make the decision to share everything, including their financial resources.
“While sharing all your money matters may have some romantic appeal and might offer financial benefits, it is vital that couples enter into this type of financial relationship with their eyes open to the potential risks it presents,” Strydom says, “the most important, and potentially devastating of which, is what will happen to your bank account or home loan if one partner passes away.”
Strydom highlights the risks associated with partners sharing a bank account as a case in point. If the primary account holder to such an account passes away, the bank is required by law to freeze the account until the estate of the deceased person has been fully processed. “This requirement can be challenging for a surviving spouse or partner, even if they held separate bank accounts, but it is especially difficult in a joint arrangement,” he says, “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.”
And he points out that co-applicants on home loans can face similar problems. “When one of the co-applicants on a bond passes away, it impacts the entire credit agreement with the bank.” he says, “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 says that in any of these scenarios, the financial pressure placed on the surviving partner can be immense if adequate preparations have not been made. While these preparations will differ according to the unique situation of each couple, Strydom says there are some rules of thumb that every financial partnership should adhere to. “If you have a bond, especially a joint one, make sure that both parties have adequate life insurance in place to cover the full amount of the bond.” he urges, “and don’t ever be tempted to cancel that life insurance later in life, before the bond is fully paid off. The older you are when a co-applicant dies, the more difficult it will be to refinance the loan or get credit elsewhere to pay it off.”
He also recommends that partners who only use one bank account also consider opening separate bank accounts and ensure that they have access to enough money to cover their essential expenses for a month or two if their partner passes away.
“I’m certainly not suggesting that couples should not share their financial lives through shared accounts or bond co-applications,” Strydom emphasises, “I’m just stressing how important it is that couples who take this approach to their finances are aware of the risks and make the necessary arrangements to mitigate them. Nobody wants to think about the possibility that their partner may pass away; but if your money matters are so closely interlinked, it is essential that you do consider the possible repercussions and be sure that you’re prepared for them.”