Most divorce lawyers will tell you that the number one reason for people to appear in their office is due to money issues. In fact, in 2013, researchers at Kansas State University found that couples who argued about money early in their relationships, regardless of their income, debt or net worth, were at great risk of divorce.
Binding financial agreements (BFA, also known as pre-nuptial agreements) don’t sound very romantic but they do make sense, particularly where one partner has considerably more assets than the other before marriage. Such agreements have had a formal legal standing in Australia since 2000 but it is important that both partners seek legal and financial advice before signing as these agreements can be set aside by the courts if found to be unjust or unreasonable.
Even more important than a legal agreement is a full and open discussion on joint financial affairs, and mutual agreement of how income will be shared and expenses paid.
Whether you are already living together or planning to, some of the important points to discuss openly include:
- Honesty is always the best policy.
It’s important to have a frank and open conversation with your partner about your income from any source, your assets and liabilities, and your spending habits. It’s important to have a complete understanding of your partner’s attitude towards money as well – are they a spendthrift or miser. Knowing what they are like from the start can avoid potential conflicts in the future. It’s also important have discussions about money on an ongoing basis. Circumstances will often change such as an unexpected large expense or change in employment so keeping up a regular dialogue about money is vital to avoid arguments.
- Make a budget for income and expenditure that you can both agree on.
In most relationships, one person earns more than the other so they will often cover more of the expenses such as bills and mortgage repayments. While there is nothing wrong with this, it’s important that the person on the higher income doesn’t feel that they are carrying the full financial burden while the other person feels that they aren’t making a fair contribution. One way of making this fairer is to open a joint bank account to cover joint expenses and make contributions based on each partner’s proportion of income, e.g. if one person is earning $100,000 and the other $50,000, the person on the higher income contributes twice as much to the shared account.
- Division of labour also needs to be discussed.
It’s not enough to just divide finances in a way that is fair and equitable, it is also important to discuss who will be taking care of different aspects of your life together, whether that is child care, cooking or cleaning, both partners need to pull their weight equally.
- Not everything needs to be shared.
While it’s important to have shared responsibility for managing income and expenses, it’s also important to keep something for yourself. Whether it’s for a special treat or to go out with friends, having money set aside that each person can use at their own discretion can help to avoid conflicts.
- Have a shared financial vision and plan.
If you’ve made a commitment to spend the rest of your life with a person, it makes sense to also develop a clear financial plan to achieve your goals. Once you have an idea of what your financial goals are, enlist the help of a financial planner to help you achieve them.
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