Conversations about money can often feel uncomfortable. While you might be happy to chat with your friends and family about most topics, talking about financial issues might seem inappropriate.

In fact, research from the Money and Pensions Service shows that just 44% of people feel comfortable talking to friends about money, and only 52% feel happy to have these discussions with their family.

However, having these discussions at the right time and in a constructive way could save you from issues later on.

Read on to discover three financial conversations that could prove to be beneficial.

1. Discussing what would happen in the event of a divorce

It may seem very negative to discuss the potential for your marriage to fail, but in the same way you’d buy home insurance hoping to never need it, this is a contingency rather than a prediction.

Having an honest conversation with your spouse about the financial implications if you do separate may bring hidden anxieties out into the open and, in many cases, strengthen trust between partners.

It can be natural in a partnership for one of you to manage everyday spending and the household budget, while the other may be more proactive in terms of tax planning, investments, and pensions.

This can mean that one of you might not know the true value of your assets, for example, or how your pensions are structured.

Your conversation could include:

  • If we had to split our incomes across two households, what would this look like?
  • How would we factor in any children financially?
  • Can we review our full list of bank accounts, pensions, insurance policies, and investments together, so we both know how much we have and where everything is?
  • What do our individual credit reports look like?

These conversations can ensure that you both have a comprehensive overview of your joint finances, as well as a clear idea of how these could work if you do separate.

2. Explaining how you plan to leave your estate

Death can feel like another taboo conversation, particularly if you’re talking about it in relation to finances. According to the National Wills Register, 53% of adults have not discussed what should happen to their estate upon their death. What’s more, fewer than a quarter of adults with children have spoken to them about their estate.

This reluctance is understandable. Discussing finances in the context of death can feel insensitive, or there may be fears that the conversation will lead to arguments.

However, an uncomfortable conversation now could prevent issues down the line. If your grown-up children don’t know how to access your financial details and documents, for example, this may lead to further stress when they are already struggling with bereavement.

This doesn’t mean you have to give full disclosure on every aspect of your finances. But it might be a good idea to talk to your family about what to expect in your will, so there are no surprises further down the line.

You could also discuss whether lifetime gifting could be appropriate. In some cases, gifting your wealth while you’re still alive can remove these funds from your estate, potentially lowering any Inheritance Tax (IHT) your family will be liable for.

It can also be more beneficial for your loved ones to receive gifts to help them with costs such as school fees or their mortgage, rather than a lump-sum inheritance much later in life.

A conversation can also clarify who will receive what and help to manage expectations and assumptions. According to Aviva, 37% of people say they are dependent on receiving an inheritance, but 60% are unsure of how much they will actually receive.

You may have your own reasons for dividing your estate in a certain way, and discussing them while you’re alive allows you to answer any questions and explain your rationale.

Left until after you die, this could cause tension or conflict at an already difficult time.

3. Being open and honest about outstanding debts and their implications

Debt can feel like a big subject, but the reality is that many people’s financial arrangements include borrowing in some capacity. So you don’t need to approach this conversation as an admission of guilt; rather, it’s about informing your loved ones what the debt status is, in the event it could affect them at some point.

The conversation could include:

  • Establishing who is responsible for the debt – In some cases, couples may be jointly responsible, while at other times the debt may just be against an individual. This is important to clarify upfront, as if you separate, for example, there could be implications for settling the debt.
  • Discussing what would happen if you die before the debt is cleared – Contrary to popular misconception, children do not inherit debt from their parents. Rather, this is paid directly from your estate. However, this could lead to your beneficiaries receiving less than they anticipated. If your debt is larger than the estate, then your beneficiaries would not receive anything. Any debts that can’t be repaid from your estate would usually be written off, unless someone is jointly responsible or has guaranteed the debt. Secured borrowing could also have implications for other assets, such as your family home.
  • Considering the implications for retirement planning – It could be that the debt affects your retirement planning or future goals. Discussing this with your spouse, partner, or family could help to manage expectations about how your later life may look.

Get in touch

These conversations may seem difficult, but approached in the right way, they can be beneficial to everyone concerned. If you’d like to ask us about how to begin these discussions or talk to us about any other aspect of your financial planning, we will be happy to help. Please email info@blueskyifas.co.uk or call us on 01189 876655.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

The Financial Conduct Authority does not regulate estate planning or tax planning.