Recent columns have discussed wills that enable you to determine who receives your hard-earned assets after you die. This column will take a different tack, and look at binding financial agreements (including prenuptial and cohabitation agreements) that enable you to decide while things are going well what a fair division of assets would look like if you suffer the pain of a relationship breakdown.
It is best to have the document drawn up by a solicitor for many reasons, but in particular you should note that for the agreement to be binding both parties need to obtain independent legal advice and statements to this effect must be attached to the agreement. This prevents either party claiming that they did not understand what they were signing. A further essential element is that the information provided by both parties is honest and no assets are omitted. If you forget to mention the unit in Port Douglas, due to a memory lapse, you might find that your agreement is void.
However, an important feature of these agreements is that they need not cover the entire assets of both parties if full disclosure is made. For example, a couple might be happy to share all their assets equally in the event of a split - except the beach house that has been in her family for generations - and draw up an agreement just to cover it.
So who needs a prenuptial agreement? There is little point in going to the expense of preparing one if you are a couple of newlyweds with minimal assets. At that stage there is really very little to make agreements about, and in any event you are free at any stage during the marriage to draw up a binding financial agreement if there is a dramatic change in your circumstances. This sometimes happens when one party receives an inheritance or significant assets from their side of the family.
The most common use of these agreements is in second marriages. In these circumstances it is common for both partners to have children from previous relationships, and they may wish to ensure that certain assets brought to the new marriage will eventually pass down to the children of the previous relationship.
While there is a general perception that financial agreements are designed to protect the assets of the wealthy, it is not uncommon for them to be used for emotional reasons. Recently a man who sold his business for a huge sum went through a divorce then started a new relationship with the woman of his dreams. He was too much in love to worry about a binding financial agreement but she insisted on it. Her reasoning? So that none of their friends could claim that she had married him for his money.
If you are planning marriage don't leave an agreement until just before the wedding - a last minute rush could easily give rise to questions of duress. As one Californian family lawyer put it: "prenups shouldn't be signed within earshot of the church wedding bells".
What if you don't have a binding financial agreement? It is possible to make one at any time during a relationship, including after marriage, and that is a better option than leaving decisions to the vagaries and delays of the Family Court. A well thought-out agreement can eliminate an area of possible tension and leave both parties free to concentrate on their relationship. After all, that's what marriage is supposed to be about.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: firstname.lastname@example.org