Most people don’t enter relationships to get ahead financially, but becoming a couple can open up financial options that you wouldn’t have considered tackling on your own. Moving in together allows you to share costs, combine salaries and leverage both your financial situations to potentially create superior financial results. This can provide a vital advantage, for example when house prices soar or planning for retirement.
Why is it important to find the right partner?
Although it may not seem like it at the time, entering into a relationship can be one of the largest financial decisions you make. The person you choose is the person you could potentially share your finances with for the rest of your life. This is why it is important that you both share a similar financial belief system. Large gaps in your financial beliefs and the way you view your money often lead to arguments over money further down the track, regardless of how much you earn.
Discussing your views about money early on with a potential partner can be very beneficial in insuring that arguments about money do not divide you if you decide to commit. If you find that the gaps in your views are too large and cannot be bridged, then letting the relationship go could save you in the long run.
How long do you have to decide if they are the right one for you?
At the end of the day this is your choice. Relationships are very complex and there are many things to consider when choosing the right ‘one’. However, from a financial standpoint you have three years from when you have started living together before the Property (Relationships) Act 1976 (PRA) applies to a de facto relationship. Once this applies to you then the general rule of thumb is that in the event you separate then your assets will be split 50:50. Once you are married the PRA automatically applied regardless of how long you have been in a relationship.
For more information on the PRA, view our Information Sheet titled ‘The cost of a relationship breakup’.
What happens if you are entering a relationship with unequal assets?
The PRA breaks assets into two parts; relationship property and separate property. Relationship property is assets/ debts that have been acquired during the relationship, while separate property is assets/debts owned independently before the relationship began. It is however easy for separate property to be mixed in with relationship property and therefore be classed as such. An example of this is:
During the relationship a couple opens a joint bank account. One partner moves savings earned outside of the relationship into the joint account. The total value of the joint saving account is now classed as relationship property.
If you are going into a relationship with unequal assets, then it could be a good idea to consider a ‘prenup’. A ‘prenup’ should be formed before you reach the three year mark of a de facto relationship or if you get married before this time. It is a contract that essentially contracts you out of the PRA, and outlining how assets will be split if the relationship ends. This can provide protection to either partner if they think the relationship may not end amicably.
In order for a ‘prenup’ to be legally enforceable, it must contain the following:
- The agreement has to be in writing and be signed by both partners.
- Each partner must have independent legal advice before signing the agreement.
- The signature of each partner has to be witnessed by a lawyer, who has to certify that he or she has explained to the partner the effect and implications of the agreement.
Can a ‘prenup’ be overturned?
The short answer is yes it can. Despite having a ‘prenup’ in place the Court can still override the agreement if it feels that one partner would suffer a serious injustice as a result of the agreement’s terms. In these cases, a 50/50 split can occur, or depending on the nature of the relationship, the Court could decide on an uneven split to avoid one partner being economically disadvantaged.
Your best form of protection is to do your homework early. Although it may be uncomfortable and seem unromantic, having a conversation about finances with a potential partner early on can make the difference between the success and failure of the relationship not only financially but emotionally as well.
Disclaimer: This information is designed to be general in nature and should not be considered a substitute for obtaining professional legal advice or separation advice. The information is regarded as being accurate at time of publishing. However, the information can change and it is recommended the reader check for updated information before taking any action. Milestone Direct Ltd takes no responsibility for anyone taking action on the information contained within this document.