Talking about money with your partner is hard enough – in fact, nearly half of Aussies avoid the matter altogether.
Couple that with the fact that research has shown that money does, in fact, matter in a relationship, and you have yourself a minefield of a conversation to navigate through.
Remaining in a long-term relationship requires commitment and trust – and the last thing on your mind is a question that implies the total opposite: “What if we break up?”
But failing to adequately prepare for the worst can have serious financial consequences when things take a sour turn.
In Michael Tiyce’s experience as a divorce lawyer spanning more than two decades, he’s seen too many of his clients lose assets that they’ve worked hard for as a result of divorce.
“Unfortunately, the majority of our clients come to us for help once a situation has occurred and it’s often too late to make preparations,” he said.
While it’s important to have faith in a relationship, it’s also important to plan ahead for the future and secure protections for your finances. Here are five tips from Tiyce and Sydney-based financial adviser James Gerrard on how to divorce-proof your finances:
1. Organise a prenup
In the event that the relationship goes bottom-up, who gets what? There’s every reason to want to evade dealing with this awful eventuality, but prenups are legal agreements can help couples establish how they plan to agree to settle matters such as assets, debts and custody.
“Most people are unaware that couples who are de facto, married and in same sex relationship are now able to organise prenuptial agreements before, during and after separation,” Tiyce pointed out.
“Being prepared and having a prenup in place can give you and your partner peace of mind that your finances are protected.”
2. Alternatively, set up a family trust structure
According to Gerrard, this structure is more discreet in nature yet still allows for the protection of assets in a relationship breakdown. One of his clients, who has made use of this structure by having her family as controlling trustees and majority beneficiaries, will also acquire property and shares to increase the protection of her assets should her relationship break down.
But make sure you know the ins and outs of it, Gerrard told Yahoo Finance. “There are some issues to consider when using a trust, such as no land tax threshold and no negative gearing in a trust, so legal and accounting advice should be sought.”
3. Write your will
Protecting your finances don’t just mean protecting your own, but protecting your next in kin and the ones you love.
“Most people shudder at the thought of leaving debt to partners and children and likewise, worry about confusion over who is entitled to what,” Tiyce said.
By creating a will, you’ll be setting out your intentions for your finances and sentimental items and erase any possibility for ambiguity or argument.
4. Know what insurance you have
A surprising number of clients aren’t fully clear on what protection they have for their various assets such as home, contents and life insurance, Tiyce observed.
“If you live in a fire or flood prone location, it’s important to seek out the right insurance.”
It’s also a good idea to understand what insurance you have in your superannuation – and don’t fall for the myth that insurance in your super is cheaper.
5. Understand de facto laws
It’s important to keep in mind you don’t have to be married to your partner in order to set up legal arrangements to sort your shared assets, Gerrard pointed out.
“Understanding state based de facto laws that apply in your state is crucial to make sure you know when your assets can be exposed to a financial settlement,” he told Yahoo Finance.
For example, in NSW, de facto laws apply after two years of being in a domestic relationship, meaning a financial claim can be made on either side if the relationship goes bust.
“People can be caught off-guard by de facto laws as it’s relatively common that two people in a relationship will live together and maintain separate finances.
“However, they do not realise they may have to split all of their assets with their partner if they split after two years.”
Gerrard advises speaking to partners about prenups, trusts or living arrangements in the period before a de facto status for those who are concerned about protecting their assets.
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