Enable Me’s financial adviser Hannah McQueen helps a reader deal with the sticky business of shared debt.
Q: My partner and I split everything, however, instead of paying off his share of the mortgage, he has been investing in high-risk shares which have not yet paid off. I have just
A: I understand why you’re concerned. You’re right — even if you agree between you that separate portions of the mortgage belong to each of you, ultimately you’re both responsible for all of it.
In your case, that doesn’t result in any extra risk for your partner because you’ve paid your portion off (well done on that!). But that risk does apply to you because he hasn’t, so you’re still guaranteeing his half — and there’s the rub.
Perhaps he doesn’t understand your goals, or that there are implications for you as a result of him not focusing on his share of the mortgage/prioritising shares instead. It not only means that you’re still exposed to his debt when he’s not exposed to yours, but it also limits your ability to leverage your equity to grow wealth.
He needs to understand the risks of prioritising investing in shares over repaying the mortgage. If your mortgage rate was, say, 6.5 per cent, you’d need the return on his shares to be greater than 10 per cent per annum for it to provide a higher return after fees and taxes than what you’d save in interest on your mortgage. That is possible, but not guaranteed, so it’s a high-risk strategy, whereas repaying the mortgage faster is a guaranteed, risk-free return.
It could be that neither of you grasp the implications of separate investment strategies, so no one has forced the issue or prioritised resolving it. In my experience, misalignment on how best to get ahead is a potential red flag for future financial conflict within your relationship, so it’s best to tackle it sooner rather than later.
A potential quick fix could be that you propose to start paying off some of his share of the debt, in exchange for a greater share of the property. If that doesn’t go down well (and odds are it won’t, but it will start the conversation) it’s time to bring in some outside help.
It’s likely you’re motivated by different things and perhaps he just needs something bigger and more exciting to aim for than debt reduction alone. But a financial plan worth its salt should be able to engage and reassure you both.
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Advertise with NZME.Having separate finances isn’t a deal breaker, but pulling in opposite directions can be.
It’s clear the current system isn’t working (especially for you) and ultimately you’ll achieve more (and have a more harmonious relationship) if you can agree on a strategy to work towards the same goals, together.
Hannah McQueen is a financial adviser, personal finance author and founder of Enable.me, a financial strategy and coaching service. Read her savvy budgeting tips here, from how much money you should realistically have set aside for a rainy day, to tips for paying off a mortgage faster and smarter.
