Splitting bills based on gross income - what to include?

Arbie79

Evening all,

On the face of it, this is a simple question, but there are a couple of nuances that I just can’t reach a decision on and would appreciate some other viewpoints.

My partner and I are unmarried with two children and currently live in Armed Forces accommodation (for which we pay well below the going rates on the open rental market). We are fortunate enough to own our own homes independently in other parts of the country; hers is rented out at c. £1k/month, and mine is about to be sold, with c. £150k of equity. Prior to living in the Armed Forces accommodation we lived in my house for 2 1/2 years, to which my OH contributed proportional bills but no mortgage.

In the future, it is likely that when we purchase our family home we will use the equity from my house as a deposit and it will initially be in my name to save on stamp duty costs; she will maintain her property as an investment. We will both contribute to the mortgage on that future property proportionally, according to our income.

We currently split our bills (including the rent for the Armed Forces property) based on gross income. Is it reasonable to include my OH’s £12k pa rental income in this calculation?

In addition, my OH works PT three days a week and takes care of our children for the other two; should we make an allowance for what is basically a full-time job in our calculations?

Finance can be a really emotive topic, and I’d love to know what others think before I open up a discussion with my OH. Thanks in advance!

Arbie

Keep_pedalling

Keep it simple 50/50. While you are thinking of finances, do you both have wills and lasting powers of attorney in place? It not sort it pronto or risk a major financial disaster is anything happens to either of you.

RAS

And organise life insurance.

What is the rental income net of allowable expenses? and does she have a savings cushion in case the tenant stops paying but expensive repairs are needed? It's a business.

Arbie79

Thanks for the advice; we have wills in place but not powers of attorney; really valid point. As things stand we split rent and bills 70/30 based on our gross income from our jobs (me full time, OH part time), but we keep our houses and any associated income separate.

RAS, good point re the net income; maybe the way ahead is to understand that all our assets will benefit us in different ways going forward and it’s a joint venture, this relationship and family thing!

theoretica

I think I agree with the above on looking at rental profit, rather than income.  And, of course, any interest or income from your equity.

pjcox2005

I would have said to include rental profit if you're intention was to go based on finance only as you'll be missing out on a return (whether rental/interest/dividends) by putting all house sale money into the new family home.

However, if she is working part-time to care for kids then I just don't think basing it on finance/wages coming in works. She has taken both a hit to her income but at the same time saved you an expense of childcare to benefit you and the family as a whole.

Buying a house together, kids together - i think it's probably time to combine everything in full. So all income shared, all expenses paid, all remaining money spent together.

tacpot12

I tend to agree with pjcox2005. Treat all the income as shared income. Agree what are the shared outgoings, e.g. you might decide that mobile phones are not a shared outgoing, and then split the income after the shared outgoings are paid equally between you. If yo do this on the basis of gross salaries, you can both have the  same amounts going into your pensions, and can have your own money to spend as you wish. 

It is probably worth trying to agree what joint savings you will make, e.g. for birthdays, Christmas, holidays, replacing appliances and repairing the house (when you have bought your own), etc. If one of you saves for these things and the other does not, there is a risk that the one who does not save will be perceived as being stingy when the cannot afford things.

When you do buy a house together, you might want to consider a Declaration of Trust if you are putting down all the deposit. In fact I would strongly recommend this. If your partner won't do this, don't buy a house together, or ask her to sell her rented property so that she can contribute 50% of the deposit, or get married before you buy the house. 

stig

be aware it won’t save you stamp duty if you’re married,  as the second property test looks at if you or your spouse/civil partner owns other residential property. As you say ‘partner’ though hopefully this won’t apply to you.

it also won’t save you stamp duty if your partner is in fact a beneficial owner of an interest in the new property no matter whose name  it’s in, which the fact that she’s prepared to pay the mortgage on it suggests may be the case. You might need to check this with your conveyancer at the time as stamp duty actually follows beneficial, not legal, ownership although usually these are the same.

Stig.

maman

I'm one who would normally advocate 50:50 and her income from the flat would definitely be included as part of her income.  

BUT

Ideally I wouldn't have started from here because I'd have wanted to discuss  how we manage temporarily with reduced finances before having the children. I'd favour a pro rata arrangement but only until the children are of school age. Then, I'd include any childcare costs as a shared bill. You might be doing this already as your partner is at work p/t. 

I hate the shared pot idea but I know it's commonly used, especially by older people where perhaps the woman (usually) has made a career from housekeeping. Personally I like separate bank accounts and then paying into another account for bills and also savings for your deposit or other large expenditure. 

pinkshoes

Me and Mr Pinkshoes get paid into our own accounts then have a joint account.

The joint account is for all household expenses (mortgage, food, gas, elec, water, council tax, stuff for kids etc...). 

I work 3 days a week term time (teacher) and he works full time.

We work out what all the shared costs are (including money for a holiday) then pay it via fair proportions of our salaries. So he pays 60% and I pay 40%. 

We got into a bit of a slanging match over finances as he said it was unfair I get to work part time, even though I do 90% of the housework and cooking. 

So I said fine, I'll work full time, but because of the long hours during term for teachers, he would need to do half the childcare (school drop off and pick up), do half all the cooking and cleaning, we would need a cleaner, we would need to pay for a dog walker at least three times a week and as all my holiday would be childcare for the 3 kids, then he would need to take some of his holiday to look after the kids so I could also have a life. (he generally takes a week holiday at christmas, a week in summer, then uses the other 4 weeks to take days off during term time so he can do what he likes!)

Needless to say, given it would only earn us another £500 a year once extra costs were deducted, plus he would actually have to help out LOTS, he decided me working part time made far more sense as a family!