Q. My partner is going to move in with me. I’m about 20 years older and I have built up significant assets including a house, a beach house and an investment property. It’s important to me that a few of these things, particularly the beach house and family heirlooms, will ultimately belong to my adult children.
I don’t want them to be shared with my partner if we separate. My partner is totally in support of this, so can we just sign an agreement between ourselves or do we need lawyers involved? What level of detail do we need to go into? And when is a good time to do this?
A. It’s great that you’ve talked this through with your partner and you’re on the same page. It can be a difficult topic to bring up! Many of the agreements we do are for people in your situation – beginning second (or third) relationships, and with assets they would like to pass on to their adult children.
Getting a prenup
You do need a legal agreement in place – a Contracting Out agreement, often known as a prenuptial agreement.
This will dictate how your assets will be divided if you separate. Without one, if you are married or living together for three years then a lot of your assets may be classed as “relationship property”. This means your assets will need to be divided equally between the two of you if you separate.
Prenuptial agreements are only legally binding if they are in writing and signed by both parties after they have received independent legal advice. This means you can’t share the same lawyer – each person needs to have an independent lawyer advising them on their rights and options.
It’s a good idea for you and your partner to agree on at least the main points yourselves, before you meet with your lawyers. This will save you time and money.
What to put in a prenup
You’ll want to include any assets you don’t want to share in a separation, while balancing this with what your partner considers fair. Essentially your partner is the disadvantaged party, so think about how to make it work for them.
You may need to pay for their lawyer and compromise more than you want to, initially. It’s an agreement after all, and if either of you are not comfortable with it, this will affect your relationship.
Some people keep them short, referring to property and say, bigger items like jewellery. Others can be pages long, listing vintage cars, artwork, items of furniture, music collections, iTunes accounts, pets and the kitchen mixer.
It’s really up to you. If you’re listing the beach house, for example, and you have kayaks, a boat and a jet ski, then you may want to throw these into the agreement. The test is how you would feel parting with these things or buying out your “partner’s share” of them in three years if things don’t work out.
In your question, you don’t mention including the home you’ll be living in together. If this isn’t part of your prenup, your partner will likely be entitled to half of it if you separate, so think carefully about whether you can live with this possibility.
Sometimes people feel uncomfortable moving into “their partner’s house”, rather than a home that is new for both of you, with the feel of a fresh start together. To create a more shared feeling of ownership, but still protect your equity in the home, you could consider asking them to invest in the ownership. For example, they could buy 15 per cent of your home, and pay that proportion of the mortgage, home maintenance etc. This could be documented in your agreement.
When to get a prenup
It is not uncommon for people to come to me the week before, or even the day before the wedding. Sometimes it will be just before their relationship is about to reach the three-year mark. This is simply not allowing enough time.
Getting a prenup can be a long process. This can take between 3-6 months to complete, and longer if it’s hard to come to an agreement. You’ll need to discuss it yourselves, meet with your lawyers, negotiate the terms, have documents drawn up, then sign the final document. Normally, I would see the client at least twice before the agreement is finalised.
My advice is to get one as soon as you can, and ideally before you are living together – certainly before you get financially entwined. The prenup process can be stressful, so you certainly want it well out of the way before any special occasions like weddings.
Keep it current
The prenup may not last forever; if your circumstances change you will need to update your agreement. For example, if you acquire new assets or have children together it will need revising. I advise my clients to review their prenups every 3-5 years.
Prenups are an effective way of protecting assets for your future, and the future of your loved ones. It is best to discuss them openly and early on in your relationship, like you have done – ideally from the time you know you want to commit to each other. This will set you on the best path to a smooth and collaborative agreement.
Think about how you can make the agreement work for your partner too, you both need to be happy with it. Lastly, be proactive and make it a priority. When people are in love it is often the last thing they want to be thinking about… and often the first think they should consider.