Cri­sis: Sam Hen­der­son

Money Magazine Australia - - CON­TENTS -

While birds of a feather flock to­gether, op­po­sites at­tract and love is blind. So what do you do when you’re des­per­ately head over heels for some­one who doesn’t share your com­mit­ment to fi­nan­cial free­dom, your dis­ci­pline for sav­ing and your mind­set about build­ing an as­set base for re­tire­ment?

Well, you’re not alone. It’s been sug­gested that around 85% of cou­ples ar­gue reg­u­larly over money. In fact, for many cou­ples it’s the No. 1 is­sue in their re­la­tion­ship for a va­ri­ety of rea­sons, such as ill­ness, dis­abil­ity, re­dun­dancy, gam­bling, al­co­hol or drug ad­dic­tion, spend­ing ad­dic­tions, pay dis­par­ity, child­hood ex­pe­ri­ence of money and many other fac­tors that shape one’s spend­ing habits.

But that doesn’t mean you have to risk ev­ery­thing for love. In a News Corp story by Karina Bar­ry­more from 2014, she sug­gests via a TAL sur­vey that around 300,000 Aus­tralians have se­cret bank ac­counts un­known to their part­ners, and around 45% of peo­ple have ac­counts that their part­ners sim­ply can’t ac­cess. Some­times it makes good fi­nan­cial sense to have your own pool of funds stashed away from your poorly ed­u­cated (fi­nan­cially) sig­nif­i­cant other.

Hav­ing your own bank ac­count may help those who are more fi­nan­cially sta­ble, such as your­selves, our loyal

read­ers, but what do you do if

there’s a more sub­stan­tial dis­par­ity in as­sets, and how do you pro­tect your­self in the event of a break-up?

A loan agree­ment is a com­mon strat­egy used by par­ents who are lend­ing money to adult chil­dren to buy houses in the event that the re­la­tion­ship breaks down. It’s sim­ply the process of the lender (par­ent) es­tab­lish­ing a writ­ten loan agree­ment, with terms ex­plain­ing that the lender has to be re­paid in the event of a re­la­tion­ship break­down. While it doesn’t ac­count for the growth in the as­set, which is of­ten shared by the cou­ple, it at least pro­vides a sit­u­a­tion of loss re­cov­ery for the lend­ing par­ents.

An­other strat­egy I’ve seen when par­ents lend money is to put the prop­erty in the name of a fam­ily trust con­trolled by the lend­ing par­ent. Ide­ally a rental agree­ment could be put in place, pro­tect­ing the own­ers’ (par­ents’) as­sets in the event of a re­la­tion­ship break­down.

But far and away the best op­tion for pro­tect­ing your as­sets from a part­ner is a bind­ing fi­nan­cial agree­ment (BFA). This is also com­monly re­ferred to as a pre-nup­tial agree­ment, or pre-nup. A BFA can be made be­fore, dur­ing or af­ter a re­la­tion­ship by any­one in a re­la­tion­ship of any kind, in­clud­ing same-sex cou­ples, de fac­tos or mar­ried cou­ples.

A BFA is a writ­ten con­tract stat­ing how your as­sets, li­a­bil­i­ties and fi­nan­cial re­sources will be split in the event of a re­la­tion­ship break­down. While they are gen­er­ally ac­cepted as be­ing “set in stone”, they can be chal­lenged, and there is a host of cases where a BFA has been set aside by the courts. I should point out, though, that there is cur­rently an ex­pec­ta­tion that sweep­ing changes are im­mi­nent in par­lia­ment to en­sure BFAs are more widely ac­cepted and en­force­able. A good fam­ily lawyer will be able to as­sist you in any case.

So while your part­ner might be hope­less with money, you need to be vig­i­lant in pro­tect­ing ev­ery­thing you’ve worked hard for. It’s there­fore rec­om­mended that you treat your fi­nances like your es­tate plan­ning, and when you put in place your wills, pow­ers of at­tor­ney, tes­ta­men­tary trust and pow­ers of guardian­ship, you throw in a BFA, de­scrib­ing it as be­ing rec­om­mended by your lawyer for as­set-pro­tec­tion pur­poses.

This is par­tic­u­larly com­mon and highly rec­om­mended for those who are re­mar­ry­ing or re-part­ner­ing, hav­ing al­ready been through the un­for­tu­nate process of a re­la­tion­ship break-up.

If you’re not sure what to say to your hope­less sig­nif­i­cant other, just say you read it in Money and Hendo told you to do it!

Sam Hen­der­son is CEO of Hen­der­son Maxwell (hen­der­son­maxwell.com.au) and host of Sky News Busi­ness’s Your Money Your Call – Super.

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