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If you are in a new relationship, things are going great, and you are considering moving in together or even getting married, this is the right time (in between romantic dates and looking lovingly into each other’s eyes) to draw up and sign a Contracting Out Agreement (pre-nup).  I recommend doing a pre-nup while everything is going well.  You don’t have to be rich or even contemplating marriage.  If you are heading in the direction of being together for 3 years and you have your own home or other assets that you want to keep separate, a Contracting Out Agreement is recommended.

It might feel unromantic but it’s an important step in protecting yourself and your finances later on in life.  I have seen lots of people who have separated at a later stage in life and are now financially struggling to keep their home because they can’t afford to buy out their ex-partner’s share.  It’s a very stressful and scary time.  It’s particularly scary for those with children.

The best way to prevent that is to get a prenup.  Some might think that bringing up the pre-nup conversation will ruin their relationship but in my experience, it can actually make the relationship stronger.  The benefit of bringing up the topic is that it forces couples to talk about their finances and how they think about money.  Many couples break up because of money so it’s better to find out from the beginning where each of you stand.   

Even if you’re not currently wealthy, getting a Contracting Out Agreement is important because you never know where you’ll end up financially and if a relationship will stand the test of time.  If you look at the rich and famous, some of them started out with very little and gained a whole lot of money during their relationship.  Their partner can now have half of what they gained.  You never know the future.  If things don’t work out, getting a Contracting Out Agreement can help protect what you’ve accumulated both before and during your relationship.

Today, I see a lot of couples keeping their finances separate during their relationship believing that what is in their own separate account is theirs, should the relationship end.  Many people don’t realise that separate bank accounts and even KiwiSaver are relationship property where wages have been topping up the accounts.  Just because your name alone is on the account, doesn’t mean that it’s yours alone.

A Contracting Out Agreement may also allow you to avoid becoming responsible for your partner’s debts.  Here in New Zealand anything acquired after the relationship, is relationship property, including debts.  This could end in disaster if your partner was getting big loans without your knowledge.  There are statistics from America that show that about 94% of millennial couples (ages 23 to 38 when surveyed) will talk to their partners at least once a week about money but 48% also say they hide debt.  This is really concerning. 

I know of one lady whose husband was taking the family on big overseas holidays every year.  This lady had no idea that he was getting huge loans to pay for these trips.  When they separated, she was now the half owner of a $200,000 loan.  Had she known, she would never have agreed to go on holidays.  He had kept that hidden from her and had told her that his business was doing so well that he could afford it.

A Contracting Out Agreement is recommended if you have children from a previous relationship and your new partner is going to live in the house with you.  It will also be recommended if you’ve received an inheritance and you are going to use it to pay off your mortgage. With a Contracting Out Agreement, you can sort out the details of how you want money or other assets to be split up. 

I recommend having frank conversations with your partner that go deeper than surface level. Talk with your partner not only about what accounts you currently have open and the balances of credit cards, but also about how you spend your money on a day-to-day basis and what your financial goals for the future are.  Once you open the door, it will not only be helpful in terms of getting a Contracting Out Agreement and protecting your assets for your future, but also in helping your relationship to know what each of you have and what your expectations are when it comes to money.  It could save a lot of arguments in the future if you know exactly where each of you stand when it comes to money.

Let me tell you now, the cost of getting a Contracting Out Agreement is so much cheaper than the cost of a messy split, especially if you have to go to court.  I have seen cases in the New Zealand Herald where the couples have spent hundreds of thousands of dollars in court over relationship property issues.  I know of one man who only had a family home as relationship property and it still cost him $70,000 to take the matter to court.  A Contracting Out Agreement avoids the risk of court, the cost of court, and the stress of court. 

I know at this stage of your relationship, all is going well, so you don’t expect to separate.  That’s why now is the best time to get a Contracting Out Agreement.  Such an Agreement gives you clarity and security.  It is about planning and looking after your future yourself. It’s preparing for the “what ifs” of life while you are in love so that if your relationship did end, you don’t have to go to battle for what belongs to you.