/ Financial Advice Required

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Steve2013 - on 09 Jan 2013

I'm posting under a different username as I'd like to remain anonymous with this one, for several reasons.

In a few months time, it's very likely that I will be coming into a reasonable amount of money. The company I work for is being sold and I have a minority shareholding (there's only two shareholders, but about ten staff). I stand to receive between about 150-200k, depending on the finalised purchase agreement.

This is a large amount of money for me. My parents never had this kind of cash and although I earn a decent living now, this is quite a big thing for me. I'm still in my twenties.

I want to pay my mortgage off with the sale proceeds. This amounts to about 120k. The rest will be saved.

I'm not married but I live with my long-term partner (no immediate plans for marriage). The mortgage is in both our names. I have told a few close friends about this and they have all said I should be very careful about paying off the mortgage at it would mean that my partner would have rights to half of the house should things go sour between us. There's about 35k capital in the house already (I stumped up all of the 30k deposit). This would mean that the house will have been paid off in its entirety by me, give or take a few thousand pounds that my partner has contributed over the past year or so.

Am I being naive in just happily paying off the mortgage with the sale proceeds? It never entered my mind that I could be 'ripped off' in the future if we separate. I was more than happy to stump up the deposit as I earn considerably more than my partner and I had more savings at the time. Is the complete repayment of the mortgage a step too far? If so, what are my options?

Thank you.
Clint86 - on 09 Jan 2013
In reply to Steve2013: Talk it through with her?
omerta on 09 Jan 2013
In reply to Steve2013:

Maybe I'm very cynical but I wouldn't pay off the mortgage with the proceeds. You're looking at a phenomenal amount of money as a one-off, especially at your age; definitely enough to guarantee your surety for a while to go. I was placed in a similar position a few years ago, and I'm very protective of my assets as a result. I wouldn't let love blind you to the fact that if you sink a large amount of this into the house and your relationship then goes tits up, you stand to lose a helluva lot.

Maybe play down the pay-off and put in 20k? Or spread the rest into ISAs and investment trusts backed by as impartial financial advice as you can find. Or buy another property on the side with it and get the rental income from it. Either way, secure yourself first before anyone else
kevin stephens - on 09 Jan 2013
In reply to Steve2013:

If you have a good tracker mortgage you may gain more in interest (ISSA?) then you save by paying off the mortgage.

I would buy stuff that may need replacing in few years, car etc and save the rest. If your company is being sold how secure is your job?
tlm - on 09 Jan 2013
In reply to Steve2013:

There is the legal side:

http://www.fool.co.uk/Your-Money/guides/Splitting-Up.aspx

and there is the what will actually happen side. You might never split up. She might choose not to take half of the money of the house if you do split up. You can never see the future - just do what feels right to you.
Edradour - on 09 Jan 2013
In reply to Steve2013:

I would be careful. When you bought the house did you and your partner sign a contract to say that you would get back the deposit if the house was sold for whatever reason? I know this is pessimistic but realistically, most relationships don't last a lifetime and breaking up is hard to do without losing a lot of money at the same time.

Before paying off the mortgage I would recommend setting something up to protect yourself. When I did this with an ex (I also paid all of the deposit) we had a contract that said on sale of the property 32% (the amount of the deposit) of the sale price would go to me and the rest would be split 50:50. If you've paid off the whole mortgage you are effectively subsidising your girlfriend, which is a lovely thing to do but perhaps not the most financially savvy if she is earning too.

If I was getting that sort of money I would pay off all immediate debt first (any credit cards, loans etc) and then approach a financial advisor. I suspect that paying off a large chunk of the mortgage will make sense but you can also make a handy second income of that sort of money. Investment in medium risk stocks and shares will yield about 10% interest over the medium to long term (investments can go up as well as down).

However, it all depends on your outlook on life. Paying off the mortgage now will enable you and your girlfriend to perhaps enjoy a better standard of living using your existing incomes. Using the money as an investment could mean you can cut down on work hours and have a better standard of life that way.

Personally, I would protect myself financially from a 'girlfriend' in case things go tits up in the future. I don't think this is malicious or shows in any way that you care less about her - it just makes financial sense and I'm sure she'd do similar.
TheDrunkenBakers - on 09 Jan 2013
In reply to Steve2013:

I think its very straight forward*

If i was presented with the option of paying off my mortgage I would do this in a heartbeat. I would talk it through with you partner and suggest that she sign a kind of prenup stating that if you were to split that the percentage ownership/asset value be maintained from the proceeds of sale. This is easy to do (my brother did the same thing recently which paid off as they split in the end).

OK, you partner might think you are being tight but you have to protect yourself and your hard work. If you get married/engaged then bin the agreement as I believe in a marriage that everything should be 50/50 regardless of the origin but until that time the asset should be yours.

*if she wont or cant understand this then you may have a different conversation looming.
Steve2013 - on 09 Jan 2013
In reply to Fickalli:

Thanks for the quick replies everybody. To answer a few questions that have been asked:

- No agreement over the 30k deposit was made. It wasn't even discussed. I had the money at the time and I said I'd be happy to pay the required deposit.

- The mortgage has another 3.5 year left at a fixed rate, then it moves to a BR tracker.

I'm not financially 'tight' in any way shape or form and I was more than happy to pay the deposit with no agreement in place. I just wanted somewhere reasonable to live with my partner and me being a little older and a little wealthier meant that I happily paid the deposit. However, 120k is quite a serious amount of money for me and my mates' comments have made me sit up and think a little.

An agreement like the one Fickalli mentions seems reasonable to me....
richyfenn on 09 Jan 2013
In reply to Steve2013:

Bought our 1st house 2 and a half years ago with my long term girlfriend where I paid all the deposit and more with inheritance. She paid for the fix up and decoration (a fair sum). In all it was a 6:1 ratio share of the toatal cost (the 6 was my contribution).

We had been together for 8 years, so were basically married anyway (we are now :) We did talk about it (no serious discussion) and just verbally agreed to split anything up fairly should the worst happen. We had no interest in doing any kind of pre-nup' before getting married.

Depends on how long you've been together and if you believe you'll be together forever etc. If you're likely to get married/partner4life and want to share it all no matter what then you shouldn't need to worry about it. But if there's any wavering in that belief then either the relationship is still too young and you'd be better off just saving it for a while.

I had my inheritance sitting in savings for years, which was great before the crunch. Then I was waiting until prices were more stable and to get a few more years on the relationship before I thought about using it.

Oh how I'd love not to have a mortgage ;-)
edunn on 09 Jan 2013
In reply to Steve2013:

How happy will paying off the mortgage make you?

How unhappy will loosing your money in a breakup make you?

Whatever you invest in there will be some sort of risk that you loose your money (ISA's, cars, property, etc). If you intend to use the money as an investment then there are better things to invest in. If you want to use the money to better your quality of life, then pay the mortgage.
EeeByGum - on 09 Jan 2013
In reply to Steve2013: By all means pay off the mortgage, but if you feel that your relationship won't last, why not make a contract that splits the house as per investment if you were to split. A pretty sorry place to be if you ask me though.
Cú Chullain - on 09 Jan 2013
In reply to Steve2013:

Put it on Lukcy Jim at the 3.45, Kemtpon Park

Seriously though, if your financial contributions to the house are that one sided already and you are thinking of making a huge dent in your mortgage I would have a word with your girlfriend first. Dont let it become a question of 'you dont trust me'. Its a huge wedge of cash that can't be ignored on the grounds that 'you will never break up'. As others have said, if you go on to get married then you can review your situation but right now its too much to risk and you need to protect your assets, she would be advised to do the same if the situation was reversed.
Toby_W on 09 Jan 2013
In reply to Steve2013:

Also have you thought of sticking half the money in a pension or long term investment then not only will you have no mortgage you'll also be able to retire early.

Just a thought. Regarding the other question I have no advice I'm afraid.

Cheers and congrats.

Toby
Ferret on 09 Jan 2013
In reply to Toby_W: Yeh - speak with a good pensions adviser.... putting money into a pension up to the maximum allowed per annum over next few years may be a good bet as you can maximise tax releifs on it. Upside is you get extra in your pension pot and they say the earlier and larger the better on that - the downside is it's tied up in Pension so is not life changing now.

To OP - some combination of agreeing finances with partner and reducing/removing mortgage and investing in other assets (rental property perhaps) and/or big annual pension contributions for a while might be best. Keeping enough in hand for a rainy day or to allow you to take time out if you want to re-train as something else in a few years if a new lifestyle beckons or whatever.

If you can't bring yourself to agree the finances with your partner there may be a problem, or you may just hate that type of stuff and some of the alternatives part and part type things would protect you at least partially....
Philip on 09 Jan 2013
150-200K minus 120K leaves enough for a lovely wedding (10k), honeymoon (5k), new car (15-25k) and the rest to save for the baby.

Go on, surprise her, put a ring on her finger. You'll have a lovely life, no mortgage worries.

Unless she's minger go for it. (If you're also unsure of this you could post a picture of her too).
tlm - on 09 Jan 2013
In reply to Steve2013:

Also, when people split up, they don't always act unfairly or argue about money. Me and my ex just worked it out between ourselves, didn't involve any solicitors and worked out what we thought would be a fair deal.

For example, if you live in the house for 30 years, with no need to pay a mortgage because it is paid off, then split up because you went philandering, would it really be fair for her to end up with no equity because she thought that she had a home already and never had the chance to pay off a mortgage?

Fairness isn't always about who has paid for what in a partnership.
grumpyoldjanner - on 09 Jan 2013
In reply to Steve2013:

With house prices as they are have you considered using the money to buy 1 or 2 new flats/houses (depending on final sum) to rent out. These could be bought in your name to avoid the problem if you split up and the rent could be used to pay the mortgage on the house you are currently living in. In X years you'll have then paid of your mortgage and own 2 or 3 houses instead of the one.
TheDrunkenBakers - on 09 Jan 2013
In reply to tlm:
> (In reply to Steve2013)
>
> Also, when people split up, they don't always act unfairly or argue about money. Me and my ex just worked it out between ourselves, didn't involve any solicitors and worked out what we thought would be a fair deal.
>
> For example, if you live in the house for 30 years, with no need to pay a mortgage because it is paid off, then split up because you went philandering, would it really be fair for her to end up with no equity because she thought that she had a home already and never had the chance to pay off a mortgage?

I cant speak for everyone but I was suggesting an arrangement to protect against the prospect of a near term split. 30 years together is better than most marriages nowadays and i agree that a 50/50 split in that case would be appropriate.
>
> Fairness isn't always about who has paid for what in a partnership.

TheDrunkenBakers - on 09 Jan 2013
In reply to Steve2013:

You could alway spend it on fast cars, fast women and drugs and blow the lot in 3 months.

Not sensible but great fun.
tlm - on 09 Jan 2013
In reply to TheDrunkenBakers:

> I cant speak for everyone but I was suggesting an arrangement to protect against the prospect of a near term split. 30 years together is better than most marriages nowadays and i agree that a 50/50 split in that case would be appropriate.

But an agreement may make her feel insecure in her own home for the next x years until it is decided that she has done her time...

If you see a relationship as a long term thing, then treat it as a long term thing. If they were married, would it make a difference? (Of course, I have no idea if the op actually considers it as a long term thing or not).

tlm - on 09 Jan 2013
In reply to TheDrunkenBakers:
> (In reply to Steve2013)
>
> You could alway spend it on fast cars, fast women and drugs and blow the lot in 3 months.

My mate did that - well the fast car bit. He did sell it in the end and get some of the money back, but not all the petrol money!

John_Hat - on 09 Jan 2013
In reply to grumpyoldjanner:
> (In reply to Steve2013)
>
> With house prices as they are have you considered using the money to buy 1 or 2 new flats/houses (depending on final sum) to rent out. These could be bought in your name to avoid the problem if you split up and the rent could be used to pay the mortgage on the house you are currently living in. In X years you'll have then paid of your mortgage and own 2 or 3 houses instead of the one.

This is the option I would choose.

1. Get rid of all short term debt

2. Don't pay off the mortgage, buy a number of rental properties. Don't buy them outright, put down enough deposit (say 20-30k per) to get a good rate and mortgage the rest. On this basis you could get possibly 4 or 5 rental properties. You can always sell them to recover the capital if necessary.

3. Put the remainder in a high interest contingency fund for a rainy day.

However, I would strongly suggest with these kind of funds you see at least one, preferably two financial advisors, and compare and contrast their advice.

This is a life changing amount of money and potentially could set you up for ever - don't do *anything* until you are 100% certain its the right thing to do and you have taken all advice necessary (legal, financial, whatever). If that means the cash sits in a bank account for a couple of years its still better to make the right decision later rather than a rash decision soon.

In fact I would suggest sitting on the cash for six months regardless and force yourself not to do anything with it until that period has expired.
TheDrunkenBakers - on 09 Jan 2013
In reply to tlm:
> (In reply to TheDrunkenBakers)
>
> [...]
>
> But an agreement may make her feel insecure in her own home for the next x years until it is decided that she has done her time...
>
> If you see a relationship as a long term thing, then treat it as a long term thing. If they were married, would it make a difference? (Of course, I have no idea if the op actually considers it as a long term thing or not).

I take your point and the OP did mention in his OP that she was long term.

I take a particular stance as I have seen a couple of friends, both male and female, fall foul in similar circumstances. There's nothing like money to create problems where none previously existed.

tlm - on 09 Jan 2013
In reply to John_Hat:

> 2. Don't pay off the mortgage, buy a number of rental properties.

Whether or not this is a good idea will depend on a lot of things. For example, where the OP lives, what house prices are like there, how easy it is to rent, if they like the financial, tax and legal sides of letting houses out etc.

I've rented houses out very happily in the south east for years, but found it a nightmare in Stoke and sold the house to get rid of the worry, loss of money and stress that it caused. It's not always a good thing to do.
John_Hat - on 09 Jan 2013
In reply to tlm:

True - but we rent property out 100 miles from where we live (via a management company).

Like I say, it's what I would do when faced by the same decision. That's all. Other's mileage may vary...

One thing I wouldn't do is pay off the mortgage unless I was 100% convinced this was the best use of the cash.
JayPee630 - on 09 Jan 2013
In reply to John_Hat:

Oh the naivety of people thinking that just chatting to their partners will make any difference a bit of time down the line if they split up.

Seriously, don't do anything that doesn't have some safe guards built in that stops her getting half your cash if you split up.

I've seen a number of friends lose LOTS of cash etc. and they all had been "but we'll never split up/she loves me/shes says she'll be reasonable".

You're in your 20s, statistically you might well split up...
Rollo - on 09 Jan 2013
In reply to Steve2013:

>The mortgage is in both our names...... There's about 35k capital in the house already (I stumped up all of the 30k deposit).

So presumably the house is in both your names?? So if you were to split up after having paid off the mortgage half the house is hers, unless you do some complex legal pre-nup giggery-pokery.

Crazy thought that might make things simpler (from a legal POV): buy the house off her for 17.5k (half the 35k capital). In this way if you split up you know it is all yours (unless you get married).

Although this would cost you 17.5k !!
John_Hat - on 09 Jan 2013
In reply to Steve2013:

Got a bit more time now to reply.

OK, basically, you've got a multitude of options from the extremely safe (dump it in a bank account) to the extremely risky. What you do with the money will depend on your attitude to risk. Clearly, the greater the risk, the greater the reward.

Paying off the mortgage has its own risks attached, so unless you thoroughly prepare the legal ground then that, in itself, is risky. However you may decide that potentially losing a chunk of it at a later date if you split up is a risk you are happy to take.

What you need to do is to have, in your mind, a full picture of all the options available to you. You can get some of that from research on t'internet, some from conversations with friends, lawyers and financial advisors, but I would (strongly) suggest that you don't make any decisions until that picture is complete.

Stuffing it in the bank has the advantage that you can wait until your thinking and research is complete before making any decisions.

Having a lump sum like this available is a very rare event, and hence you probably have a number of once-in-a-lifetime opportunities. Make the most of them!

ClimberEd - on 09 Jan 2013
In reply to tlm:
> (In reply to TheDrunkenBakers)
>
> [...]
>
> But an agreement may make her feel insecure in her own home for the next x years until it is decided that she has done her time...
>
> If you see a relationship as a long term thing, then treat it as a long term thing. If they were married, would it make a difference? (Of course, I have no idea if the op actually considers it as a long term thing or not).


Are you bonkers?! :-)

To the OP, by all means pay off the mortgage, but get the girlfriend locked into a legal agreement saying that she isn't entitled to anything first (it's not her money so she shouldn't have any right to it, even it went to the buying of a house)
Sam_in_Leeds - on 09 Jan 2013
In reply to Steve2013:

If I had 200k I'd probably pay for a meeting with a solicitor followed by one with a decent financial adviser - Preferably chartered!
Minneconjou Sioux - on 09 Jan 2013
In reply to Steve2013:

your biggest single issue, before you even worry about your partner taking any of it, will be tax planning.

If you pay off your mortgage with it you will get panalties and it will be counted as income. Not sure what the high tax bracket on 200k will be but expect to lose a large chunk if you don't get a good accountant.

Minneconjou Sioux - on 09 Jan 2013
In reply to Minneconjou Sioux:

To expand. The key point here will be how the money is coming out to you. Is it an asset sale or a sale of shares and can you access your CGE?
Steve2013 - on 09 Jan 2013
In reply to all

Thank you very much for all the comments on here. Some extremely useful information and advice. It's greatly appreciated.
Simon4 - on 09 Jan 2013
In reply to Ferret:
> speak with a good pensions adviser.... putting money into a pension up to the maximum allowed per annum over next few years may be a good bet

Whatever you do, don't put money into a pension - they are a lousy deal and getting worse all the time, wrapped around with a mass of restrictions and fees, with a rotten return normally well less than inflation. Also successive politicians find it quite impossible to resist the temptation to raid private pensions in various ways. Most times you would be better stuffing the money under a mattress than using a pension, unless there is a substantial employer's contribution, which your situation does not suggest. Pensions are also locked away and cannot be used should some emergency arise at some time in your life.

If you want to put some in an account, an ISA is far better as it is under your control and you can adjust it to circumstances. There are limits as to how much you can put in, but you could still do it gradually over a number of years.
Simon4 - on 09 Jan 2013
In reply to Rollo:

> Crazy thought that might make things simpler (from a legal POV): buy the house off her for 17.5k (half the 35k capital). In this way if you split up you know it is all yours (unless you get married).

If he did that, he would probably have to start charging her rent (with a formal legal agreement), to have any sort of protection at all, though it is far from clear that he would in fact be protected, as pre-nups are not really valid in English law.

neilh - on 09 Jan 2013
In reply to Steve2013:

I would not be posting on here for a start- even anoymously ..and if I were you I would take down this post.
lazzaw - on 09 Jan 2013
In reply to John_Hat:
> Stuffing it in the bank has the advantage that you can wait until your thinking and research is complete before making any decisions.

Make sure you stuff it in 2 or 3 banks so that you are still protected by the Government-backed Financial Services Compensation Scheme for up to 85000 for each bank should they go bust
brokenbanjo - on 09 Jan 2013
In reply to Steve2013:

They're snakes with tits mate. Don't trust them. If you do pay mortgage off, get her to sign something stating that you paid it and she has rights to the 5k, that's it. Had fingers burnt by being naive and stupid. They're cold and calculating.
JGibson - on 09 Jan 2013
In reply to Steve2013: I think most people are pretty decent at heart. But the simple truth is that you don't really know how or when you could split, if you do at all. So until you're committed by decision, marriage or children, I'd have a contract in place just to be sure. If she's a reasonable person, she'd understand that.
John_Hat - on 09 Jan 2013
In reply to Simon4:
> (In reply to Ferret)
> [...]
>
> Whatever you do, don't put money into a pension

Agreed.
Eric9Points - on 09 Jan 2013
In reply to Steve2013:

I think Sam in Leeds has given you the best advice.

One other thing is that if you pay off the mortgage and set up some sort of deal where she gets very little from the property if it all goes wrong then she will worry about the possibility in coming out of a relationship in maybe 10 years time with no home and very little capital.
alan barnes - on 09 Jan 2013
In reply to Steve2013:
Hi "Steve" firstly congratulations on all the money, that's great news. I asked my partner about your situation, she worked for a stock brokers until leaving to do a law degree. She said you should invest the money and continue to pay off your mortgage as normal. And definitely do not pay off the mortgage without protecting yourself from your girlfriend taking half in the event of a breakup.
Hope this helps. Thanks. Al.
rubisco - on 09 Jan 2013
I'm sorry, but a lot of the advice in this thread, whilst well-meaning, is complete nonsense.

Go and see a financial adviser. You can search for one here:

http://www.unbiased.co.uk/find-an-adviser?gclid=COa8uOW83LQCFczHtAodFCwABw

They will also be able to set up a legal instrument to protect your house if that's the route you decide on.
Ferret on 10 Jan 2013
In reply to Simon4: Yes - but the potential to gain 20, 40 or 45% tax relief on whatever you put in (up to an annual cap/the value of your annual tax bill whichever is smaller) 'pays' for a lot of what you are worried about. Note, I suggested using some of it in that way.... Not all. I pay large amounts into pension to maximise tax reliefs and yes, I will need a pension eventualy, but I also save in rainy day places where I can get at it now if I need to and so I have access to funds that are not hamstrung in the way that a pension pot is at retirement age and can choose what to do with it and when.

Returns being low is a factor of using the wrong fund or being in badly managed, low quality company schemes.

He could only put a few thosand a year in an ISA - at the same time he coudl be puttingf a few thousand a year into pension and gaining significant tax releif. A bit of everytgning , as I suggested (i.e. some going into pension, some into possibly reducing mortgage, some in rain day funds and perhaps some in a renta propery to provide an income and keep the capital somewhere that is more accessible than a pension as others have suggested) seems best idea.

A decent advisor would almost certainly come up with a scheme along the lines of taking the cash and using some for mortgage and/or rental properties if thats what the OP fancies, with an annual task of shifting some from wherever it was 'parked' innitialy (relatively safe funds/cash accounts) into pension and ISA so that after a number of years the available investment cash is all safely in ISA and in a pension in the most tax efficient way. After several years you are left with a number of investements built up in the most cost effective way possible (using tax reliefs), a bunch of it in tax friendly wrappers (ISA) and some of it in long term investments with only a suitable working balance left.
Ferret on 10 Jan 2013
In reply to Steve2013: Somebody else also refered to this. From original message it looks like you have shares that will be bought out at a premium. If thats the case fairly significant capital gains tax can be expected so take advice on how best to deal with the transaction in the first place then see how much 'profit' remains once that tax bill is settled.

I think you would effectively pay tax (18% I think) on the gain (diff between average price you bought/were given the shares at less the sale proceeds). I don't think taper reflief exists any more (i.e a reduction in tax based on how long you held the assets) but there may possibly be scope to use more than one years capital gains tax alloance to increase the amount that can be counted as free of tax. Possibly. Not my area though.
BIgYeti86 - on 10 Jan 2013
In reply to Steve2013:

Speak to a firm of solicters who you trust, they will be able to advise you on:

a) how your mortage is spilt up between you (50/50, or some other split).

b) if it does turn sour with the girlfriend, what she would be entitled to.

There was a moneybox live on BBCR4 on this subject about 23rd Novemeber last year. See if you can find it in the archives.

I think the take home answer from the show is that without any children, if you can demostrate that you paid for the house out of your money, it will be yours. However I am not a lawyer and may be mis-remembering.

If you are well paid now and getting a large windfall it would be worth the money to get proffessional advice and give you peace of mind.
tlm - on 10 Jan 2013
In reply to Rollo:

> Crazy thought that might make things simpler (from a legal POV): buy the house off her for 17.5k (half the 35k capital). In this way if you split up you know it is all yours (unless you get married).
>
> Although this would cost you 17.5k !!

Hmmm.... One of the big reasons that I split from a previous partner was because he looked after himself without thinking about me. We lived in his house - if he had died, I would have been homeless as it would have gone to his daughter. So I bought my own house to safeguard my own interests, moved out, and that made it particularly easy for us to then split up.

Being cynical and looking after your own interests works well if you don't want to work in a partnership. Imagine all the women who could say "I'm not going to carry our child or take maternity leave. Just look at the effect it would have on my career and then where would I be if we split up?" At some point, in order to have a successful long term relationship, you do have to put a bit of trust in the other person!

Rollo - on 10 Jan 2013
In reply to tlm:

Fair enough. I am a tenent in the property owned by my girlfriend (we live together!). She is pretty independent and wants to maintain this as her own investment for the future. I respect and admire her for this (more that it reflects her independent, strong character than anything else).

It makes rent negotiation time interesting!

I also own a flat that I rent out but things will be interesting if we want to move on to somewhere bigger and she doesn't want to sell....

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