This article is Part 2 in the series ‘Pre-Nups – The Death of Love?’.
So, you want in a pre-nup (in Australia, called a ‘Financial Agreement’) in place?
If ‘yes’, you aren’t alone. More and more people are thinking about them, and putting them in place when they marry, they begin new relationships, or plan to do so. Mostly, those people have been married before, and have endured an unpleasant relationship breakdown – before embarking on a long-term relationship again, they want a document which avoids what they went through last time.
Other categories of people who will seek a Financial Agreement are those who:-
- Run substantial businesses, and do not wish to see it (and its staff) hamstrung by having its owner(s) go through an acrimonious separation; or
- Have ‘family’ wealth (a business, real estate, a farming enterprise), and seek to preserve their relatives’ legacy from claims after relationship breakdown.
All very understandable motivations. These people are hoping for the best, but planning for the worst, specifying what will happen if, despite their best efforts, things don’t work out, and there is a separation down the track.
But a deep breath is often taken before floating the concept of a Financial Agreement with a partner, because there is also a relationship at stake, a relationship which is important to the person who is seeking the Financial Agreement…and a relationship which can be tested if the approach to the Agreement is not managed thoughtfully.
In the prior part of this Blog, I observed that Financial Agreements can be a blunt instrument. If so, they can trigger the end of the relationship – the death of love.
But I also observed that this not need be the case. With some care, they can achieve their purpose, without jeopardising the very relationship they are meant to cover.
- No surprises. Financial Agreements will not have a solid foundation if they are sprung upon someone at the last minute. They cannot be signed on the eve of a wedding (or even within months of it). There has been such a spate of these cases that the phenomenon is referred to as ‘ink on the wedding dress’. Instead, they must be discussed, drafted, exchanged and considered, well before a wedding, with your partner offered a reasonable opportunity to take, and reflect on, independent legal advice.
- Give content. As observed above, there is usually an important reason for the Financial Agreement. Sometimes the Agreement is even being required by a third party – a business partner, or a relative from whom an asset was received. Whatever your motivation for the Agreement, make it clear. For your partner to accept the concept of the Agreement, they must understand why it is important to you, and why you seek to have it in place. If your partner can understand the rationale behind the Agreement, you are likely to get less push-back.
- Be realistic. Remember, what you are buying with a Financial Agreement is as much certainty as is possible. You are not buying a get out of jail free card. Accordingly, you may be able to protect a key asset from being pulled into a post-separation dispute, and therefore being sold. But that does not mean that the Agreement can be used as an instrument to protect you from having to pay anything, ever. If all your Agreement does is quarantine your wealth, leaving your spouse’s contributions unrewarded, no matter the length of your relationship, and no matter their contributions during that time, then you are asking for something that the law will likely not deliver. Your partner is unlikely to sign up to that. Appreciate that Financial Agreements are a legal product which have limitations, and follow the advice of your family lawyer in staying within those bounds.
- Be objective. What are you asking of your partner? Their companionship? Their support, faith, encouragement and fidelity? For them to give up their career to support yours? For them to join with you in having, and raising , children? Now, what does the Agreement provide for your spouse if separation occurs in 2 years? What about in 5 years, 10 years, 20 years, 40 years? Now ask yourself, what if the tables were turned. Would you invest what you are asking of your spouse, over 2 or 3 decades, for the provision in the Agreement? If the answer is ‘no’, you will need to revisit its provisions. So, think of the negotiation of the Agreement as a business deal. You will not get a trade partner to enter a contract that provides you with gain at their expense. Instead, there has to be a quid pro quo, a scenario from which both party secures an acceptable outcome. It is no different with the Financial Agreement. If the Agreement provides you with all of the upside, and leaves your spouse with all of the risk, then you will struggle to get it over the line.
- Look ahead. While it is all very well to have an Agreement which circles the wagons around a particular asset, protecting it from future claim, the roller-coaster of life means that the provisions of the Agreement will need to be considered against the background of different situations. As the nature and dynamic of your relationship changes, so too will the effect of the Agreement on you and your partner. The variables of ‘life’ are limitless, but include time (length of relationship), age, health, income and income earning capacity, children and the responsibility for their care. An appropriate outcome when you are a young, childless couple, who are both in the workforce, separating after 5 years of marriage, will differ from an appropriate outcome if one of you is not working and caring for 2 children, having been out of the workforce for 10 years. And an appropriate outcome will be different again if you are both 60, with one of you having been out of the workforce since the children left home 15 years ago. So give thought to what the Agreement will provide if separation occurs at different points in your relationship – your partner is certainly looking that the Agreement from that angle;
- Be open-minded. Be proactive in suggesting ways which achieve your objectives, and those of your partner. That might be to say that, if separation occurs prior to a defined number of years, that you will each simply retain your respective wealth. But that if the relationship endures for an agreed number of years, or other events come to pass, that the outcome will alter – an increased outcome with each year that passes, or upon the happening of key events, such as the birth of children, or leaving work to support your carer advancement. The options are limitless, and can include concepts such as sliding scales providing for different outcomes for different relationship lengths.
A word of warning when negotiating the terms of a pre-nup. I regularly hear the criticism that, if a partner wants to make provision for themselves in a Financial Agreement, then they are obviously in the relationship for the wrong reasons, motivated only by the pursuit of money. Think that through before verbalising it. A partner’s expectation that, after many years of investment in a relationship, their contributions would be rewarded, and that they would share in the fruits of that relationship, would be considered by many to be anything but mercenary. So be ready to confront this potential blockage – just because your partner asks for value to be placed on the contributions they make over time does not make them a ‘gold-digger’.
Ultimately, what you are doing in the negotiation of the Financial Agreement is providing reassurance. Reassurance to your partner that, for all you are asking them to contribute to your time together, they will not be disadvantaged. For most people, this means that they will be ‘financially okay’ if they sign the Agreement – that they will be able to re-house, and have money sufficient to ‘live’ and have a reasonable quality of life, if ever the worst happens, and you separate. In short, that if they do as you wish, by signing the Agreement, they will not be left penniless if separation triggers the Agreement after 20 years of marriage. In many ways, that reassurance (translated into a financial outcome) is the ‘price’ of having your own goals met.
Keeping these concepts in mind will help you maximise your outcome – achieving your objectives by having a Financial Agreement in place, while not undermining your relationship by requiring your partner to live with an Agreement which makes them feel oppressed. There is a ‘sweet spot’ where everyone can be at peace with the Agreement, so use the tips above to get there.