How best to protect girlfriends financial position?

Jaguar_Skills

This may seem like a bit of an odd title but effectively my girlfriend and I aren’t married, have been together 7 years, and have recently given birth to our first child. We have a joint mortgage together on our home and we own a 50% share of a BTL.

As I am a higher rate tax payer I have been trying to plunge significant amounts of my bonuses into a private pension (as salary sacrifice not yet an option although will be soon) and I’m going to also set up a S&S ISA.

Because we aren’t married we got onto the subject of how she would fare if the unthinkable happened and we split up? Our plan is to have a second child before she is in a higher risk category (she’s 34) and then get married after that. I know from a tax perspective this isn’t best practice but she won’t just get married quickly for that reason.

I’m not really sure if I can protect her other than setting up a separate pension and ISA in her name and me pay it which is all a bit of a faff. I would rather have it in jut my name but have her protected to get half of it if we broke up.

Does anyone have any thoughts?

Mojisola

Jaguar_Skills wrote: »

Because we aren’t married we got onto the subject of how she would fare if the unthinkable happened and we split up?

I’m not really sure if I can protect her other than setting up a separate pension and ISA in her name and me pay it which is all a bit of a faff.

I would rather have it in jut my name but have her protected to get half of it if we broke up.

As you aren't married, she wouldn't be entitled to anything from you if you broke up.

You would be expected to pay child support (if the children stayed with her) but she wouldn't have any entitlement.

Put up with the faff and give her some financial security.

If the even more unthinkable happened and you died, what would her financial position be like then? Do you have a will leaving her any capital?

While you stay unmarried, you miss out on some financial safety nets like Widowed Parent's Allowance and the doubling of the IHT threshold.

Alice_Holt

Do you have a will ?

EdGasketTheSecond

I'd say the best way to protect your girlfriend would be to marry her.

xylophone

Why do you/your girlfriend wish to wait until after the birth of a second child before you marry?

Have you made a will? Has she?

Your wills should cover the guardianship and welfare of your child should tragedy strike.

zagubov

Why aren't you marrying your girlfriend?

Is it because somebody else (e.g. your wife) objects?

Tom99

Get a will and if you split up you can give her whatever you like, so she won't go without, unless you change your current attitude towards wanting to protect her.

Robin9

You might like to look at this post on the same subject

http://forums.moneysavingexpert.com/member.php?u=2398472

To which I might add on the guardian aspects. There is a world of difference re suitable guardians when then children are babies, 5, 10 or 15 yo.

Use a solicitor for your will. He/she will go through the what ifs.

Jaguar_Skills

Sorry yes, we have a will so she is protected in the event I die

Obviously that doesn’t cover splitting up.

The reason we aren’t marrying yet is because she wants a nice wedding, not just one to protect her financially, and because of her age we’d prefer to have the second child first rather than marry now then have the second child and go into a higher risk profile.

Thanks for all your replies.

bowlhead99

So basically you want to crack on with making babies while the sun shines rather than pay for a lavish wedding party. And both of them come with lots of financial cost so you can't do both right now. I suppose that's a straightforward position to understand.

So the question is, nothing you have in place 'covers' splitting up and what do you do about that. Well, you can't buy insurance against a boyfriend not wanting to be his girlfriend's boyfriend any more and calling it off (or vice versa). And at the point of an acrimonious break up (the point at which you can't stand the sight of the woman any more) you are perhaps not going to want to give her anything at all.

So the only way to make sure she gets something for herself for later life (whether you are dumping her because she's been banging everyone in the local football team, or she is dumping you because she wants to go and bang everyone in the local football team) is to start giving her your stuff now - e.g. as you suggested, spend your income on funding ISAs and pensions for her. No doubt you may come to regret having done that when she goes off to bang the local football team and uses the security of having those investments to give her the financial freedom to afford a taxi there and back.

That's why (apart from wills or life insurance) many people don't make financial provision for their non-spouse partner. Instead they build up their own assets so that they know they'll be able to continue to pay a decent amount of child support for as long as it's needed, and also be able to make gifts for their ex-partner's own maintenance if they choose to do so. But that gifting of maintenance money to the ex after break-up (on top of child support funding) would be optional rather than contractual. If you want her to definitely get something, you have to definitely give it to her now so there is no backing out later when you're upset. You can give it to her in her hand or in trust.

A personal pension in her name is a sort-of-OK idea because it is not a 'windfall' that she can cash in just by breaking up with you - she can't access it until she's much older, so it helps her life's financial goals, allowing her to make lesser pension provision herself and frees up cashflow that she would have otherwise needed to spend on that objective.

However, the main reason it is only 'sort of' a decent idea is that as you are high rate taxpayer and she is not, it is pretty inefficient for you to fund a personal pension for her with only basic tax relief instead of funding your own with higher rate tax relief. When you earn £100 it gets taxed down to £60. If you stick that in a pension you can have £100 again to invest. Whereas if she sticks it in a pension and only gets basic rate relief, she only gets £75 to invest. Assuming you're both basic rate taxpayers in retirement your family income will be much better if you are retiring on the money that has grown from £100 invested than the money that has grown from £75 invested. Because the pot is a third bigger.

You could fund ISA/LISA though for her instead. Which if it is to protect her as she's being thrown out on her ear as the relationship breaks down and she wants to go buy a house and car etc, it would be way more practical because she can actually access the money rather than not access it until her late 50s (which would be the case with a pension). However the net of tax investment returns for the 'family unit' overall, could be expected to be better from the pension (when done with higher rate relief).

le_loup

Well bowlhead, your literary powers have not left you.

To the OP what is it about a lush wedding that is preferable to financial stability for your girlfriend? ........... or for you!