Crisis: Sam Henderson

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.