Moneymakeover 43, trying to get balance right

[passthesalt]

Personal details

Your age: 43
Your spouse's age: N/a
Partner's age if not married: N/a

Number and age of children: One child, age 6


Income and expenditure
Annual gross income from employment or profession: €55k (currently on 80% salary while I attend college part time)
Annual gross income of spouse/partner: N/a

Monthly take-home pay: €2,700 after maxing pension

Type of employment - e.g. Employee or self-employed. Employed
Employer type: e.g. public servant, private company. Non-profit sector

In general are you:
(b) saving €500-€700 per month

Summary of Assets and Liabilities
Family home value: €475k
Mortgage on family home: €103k
Net equity: €200k (ex partner owns balance)

Cash: €33k (€19k emergency fund; €14k for 2 years college fees)
Defined Contribution pension fund: €90k
Company shares : N/a
Buy to Let Property value: N/a
Buy to let Mortgage: N/a

Total net assets: €348k (also including private Investments €25k in VWCE; pension also 100% in global indexed equities)

Family home mortgage information
Lender: AIB
Interest rate: 3.95% variable

Remaining term: 23 years 5 months
Monthly repayment: €600

Non other borrowings

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? 0

Pension information

Value of pension fund: €90k

Buy to let properties
N/a

Other savings and investments:
€25k in VWCE previously mentioned. Also adding €150 monthly to this via standing order.

Other information which might be relevant

Life insurance: yes

What specific question do you have or what issues are of concern to you?

I would be grateful for advice in getting the balance right across my overall wealth portfolio.

Wondering if I have too much in cash (only earning 2.2% with Trade Republic) even though it’s earmarked for emergency fund and college fees.

My studies will enable me to earn a small amount of extra money alongside my current job and potentially change careers down the line but would involve being self employed and unlikely to result in higher earnings. However, it is something that will allow me to continue earning in retirement as I’m conscious my pension is low. I’ve only been able to start contributing properly in past couple of years.

If moving some funds out of cash is sensible, I’m wondering if it should be into more VWCE or to pay a lump sum off mortgage before potentially fixing at a lower rate, or possibly investing in some much needed upgrades to windows and doors.

Many thanks.

 

[Sarenco]

The big ticket item that jumps out at me is the fact that you seem to own your home jointly with your ex-partner.

Without meaning to pry, is there a long term arrangement in place regarding the property (eg to sell when your child reaches a certain age)? What is the plan for your future housing needs?

Your pension looks a little light for your age. Have you only recently starting maximising your contributions?

Purchasing shares in an ETF on a monthly basis is going to result in a fairly complicated tax position in due course. Are you on top of this?

I wouldn’t worry too much about the interest rate on your cash reserve - it’s small beans in the grand scheme of things.

 

[passthesalt]

We are separated but cohabiting because neither can afford to buy somewhere else ourselves. Ex’s financial position is far worse than mine. If you have suggestions regarding an alternative plan for future housing needs I’m certainly open to hearing them.

I think I mentioned in my post that I only starting upping pension recently. This was because all income was going on rent up until two years ago. I also had no maternity pay and a low salary for most of my career.

I’m aware of my obligations under deemed disposal regarding the ongoing ETF investments. They are being tracked in a spreadsheet. Regardless of how many purchases are made, the tax is payable all together as a single annual payment unless I’m mistaken. Is that what you ask about being on top of or perhaps I’ve overlooked something?

It was more a question of the proportion of (admittedly modest) wealth held in cash, rather than the specific interest rate currently, which I quite understand is small beans. It is indeed the grand scheme of things I am trying to plan and source advice for.

 

[ClubMan]

We are separated but cohabiting

If you're judicially separated but still married then that's very relevant to any analysis of your financial situation as you are still "tied" together. As are any arrangements relating to the PPR and wider finances contained in the judicial separation agreement. Only divorce will cut the ties and sometimes some will still remain (e.g. co-parenting issues, child/spousal maintenance, pension adjustment orders, etc.).

 

[passthesalt]

Yes, I realise that, thank you. We have no separation agreement and right now I don’t have capacity to think about the relationship side of things which is another can of worms. There is no debt on either side other than the mortgage which is shared, and no assets on his side other than the house. Please let me know if there is any guidance regarding my general query as posted.

 

[ClubMan]

In my opinion, and experience, you can't fully plan your finances individually until the separation/divorce is finalised. I've been through this and some of my planning had to go on ice until my separation and eventually divorce were finalised.

 

[passthesalt]

There has never been any joint planning of finances. I am the entire financial operation and if the subject of money is raised for discussion he disappears. I do appreciate what you are saying but things are in a suspended state currently on the relationship side of things and that is likely to be the case for some time to come unfortunately. My financial decision making cannot be similarly suspended. Is there any specific additional information needed exactly, in order for me to have some feedback on my financial situation as outlined? He has no assets or pension.

 

[Clamball]

I think it is good that you have an emergency fund currently. You will probably need it to fund your divorce. I would not suggest that you maximise your pension currently, your future housing needs are more urgent than your income in retirement plus a pension adjustment order may mean some of your planned pension may end up with your ex spouse as he is not pension secure. I think your desire to balance your wealth portfolio is very well intentioned but it is currently built on a house of cards that could fall very shortly due to the marriage failure.

The 6 year old is the most important consideration currently so I would assume that one of you will end up living in the home with the child until they finish full time education - in 17 years time. Meanwhile the other spouse has €200 K of wealth tied up in the equity of the house which cannot be realised until 2043. They in reality cannot purchase their own accommodation until then.

Only a suggestion but use the €25K of savings to build a garden cabin to create a separate living space for the spouse?

I do wish you well.

 

[BigBoots82]

Would you take on a lodger for an extra 14k a year tax free?

 

[_OkGo_]

@passthesalt , fair play keeping it all going, job, uni & kid. Not easy in your situation.

We have no separation agreement and right now I don’t have capacity to think about the relationship side of things which is another can of worms

Leaving aside all the emotional part of it, what is your end goal? If you see no chance of staying in the relationship and you want a divorce as soon as possible then this drives your financial goals. I'm assuming the ideal outcome is for you and your child to stay in the existing property

I would at least be meeting a solicior to understand what you need to do to protect yourself financially.

We are separated but cohabiting because neither can afford to buy somewhere else ourselves

You are not that far from being able to afford to buy out your ex. You have €200k equity and €58k in savings. You can borrow 3.5x income so another €193k. You are "only" €25k short.

You are saving and will return to full salary of €68k in the next 2 years so this should be very manageable for you. But I would still meet a mortgage broker now just to understand what might be possible for you. There are exemptions to the lending rules and you may be a good candidate for this, especially since your income is currently 80% of full time equivalent.

It is important to understand how you are achieving the 4-day week. If you are using unpaid parental leave at 1 day per week then your salary is still technically €68k which would help a future mortgage application

At the end of the day, it is your ex's own responsibility to find suitable accommodation for himself once divorced. He has no chance of purchasing the existing property so he needs to plan for that himself. It's not your problem

 

[Brendan Burgess]

You are not that far from being able to afford to buy out your ex. You have €200k equity and €58k in savings. You can borrow 3.5x income so another €193k. You are "only" €25k short.

I think that this is really the key objective.

You need to plan for this even if it seems unlikely now and even if it might not happen for some time.

So you should not be putting any unmatched money into your pension scheme.
You should not be investing in anything which you can't access without penalty at more than a month or two's notice.
You probably should not be changing jobs as that would impact your ability to get a mortgage.

Normally, I would advise paying down the mortgage rather than investing. But in this case, if you overpay your mortgage, even though it's you overpaying it, he will likely claim half of whatever extra equity you build up.

Brendan

 

[passthesalt]

Many thanks all. Very helpful to have those perspectives and a new angle to consider things from certainly. Much appreciated.

 

[passthesalt]

It is important to understand how you are achieving the 4-day week. If you are using unpaid parental leave at 1 day per week then your salary is still technically €68k which would help a future mortgage application

I am not using unpaid parental leave, rather I have an arrangement with my employer to work 80% of hours with a proportionate cut in pay, annual leave etc. The structure of the degree programme is such that I will likely be able to return to full time work and full pay from this September so that will hopefully progress my mortgage eligibility sooner. The original mortgage was actually calculated only on my income and savings (with OH factored in as a dependent).

I am also considering seeking a salary increase (role and title have become more senior, responsibilities have increased, all targets exceeded over 4 years with no salary progression) so hopefully that might strengthen my borrowing power also.

Only a suggestion but use the €25K of savings to build a garden cabin to create a separate living space for the spouse?

There isn’t space enough in the garden. However, I did think about an attic conversion a while back. But it would just burn through my cash which doesn’t seem wise right now.

Would you take on a lodger for an extra 14k a year tax free?

I can’t say I’d rule it out if I were stuck and had the place to myself to decide. But as it is we are using all the bedrooms with the current arrangement, which includes us both working from home. So I don’t think so.

The 6 year old is the most important consideration currently

Very much so.

You are not that far from being able to afford to buy out your ex. You have €200k equity and €58k in savings. You can borrow 3.5x income so another €193k. You are "only" €25k short.

I hadn’t realised this might be a possibility at all. Thank you for broadening my horizon on this.

So you should not be putting any unmatched money into your pension scheme.
You should not be investing in anything which you can't access without penalty at more than a month or two's notice.
You probably should not be changing jobs as that would impact your ability to get a mortgage.

All extremely, tangibly helpful and well noted. A very different direction than what I had been expecting but definitely helps clarify my position, objectives, and what can be done to work towards it.

Many thanks again.

 

[1988€?]

If you could somehow afford to buy him out and own the house outright. He could use the money to buy or rent something else (assuming he is agreeable). This would give both of you space to potentially meet someone new (if that’s what you’d like) in the future. A new partner may also bring greater financial support for you and your ex. Not an easy subject and you both might not be ready for that now. However living separately makes it at least a possibility……..I wish you well, it’s a difficult situation……Andrew