Finally, Mr SMG and I have bought a house. If you've been visiting my progress bars on my homepage then you will have noticed that last year in June, I reached my goal for a house deposit and have since then, been house hunting madly. It's either dump the funds into another asset or leave it earning a pitiful amount of bank interest that becomes bugger all after tax.
After checking out almost seventy open house inspections, making a few multiple re-visits, reading property contracts after contracts, I can definitely say that I'm much more of a walking encyclopaedia when it relates to property structures, easements, covenants, location, aspects and layouts.
It's significantly tougher looking for a house to live in than buying an investment property(IP).
With IPs, you can literally overlook annoying little things like the ceiling being an average standard height or the bedrooms are smaller than usual. But oh my...when looking for a house to actually live in, the hunt is tougher because of minor things like some rooms not receiving sufficient sunlight(installing skylights being impractical or impossible due to the house being double storey), the kitchen pantry is too small, the ceilings aren't high enough, there is scruffy or dingy carpet that has to be pulled off and wooden floorboards installed, the master bedroom is too small, no built ins, the stove isn't gas but electric, the house isn't double brick, three bedrooms and one bathroom aren't big enough, it's strata or community titled and not free standing...so on and so forth.
I have absolutely no qualms about renovating but at this stage of my life, I don't have time to sniff paint, rip carpets off, drill and rebuild. Theoretically, ripping up the carpets, installing polished wooden floorboards, adding skylights, building outdoor alfresco dining areas, fresh paint, building built ins, renovating kitchens and bathrooms all add value to property than buying one that already has all those features in place(thus building equity to enable refinancing for further acquisitions) . However, like mentioned, I simply haven't got the time to do those things in the near future...perhaps with the next property in the coming years.
All these fussy complaints would have been overlooked if we were just buying another IP. If it was just another investment property, I'd have no issues with buying a single brick, fibro, cladding or whatever type of property as long as it met the simple requisites of location, transport, shops and possibly schools (it depends on which type of tenants you wish to target).
With our latest acquisition, my finances have become merged somewhat with Mr SMG's finances so it is getting rather difficult to break down the performance of my investment portfolio. The only thing that hasn't been merged or intermingled is my stock portfolio, which I'm happy to say actually grew by 20% over the past year. If you have read previous posts of mine, then you'll know which stocks I hold across the various sectors (mining, agricultural, retail and financial).
The power of compounding is nothing to be sneezed at. Every single dollar has been working hard over these years and it's amazing how much capital growth and passive income there have been from investing and reinvesting the income from those investments back into obtaining additional assets.
So far, so good.
Showing posts with label Relationship and money. Show all posts
Showing posts with label Relationship and money. Show all posts
Wednesday, April 10, 2013
Friday, May 4, 2012
"How Do You Hide Money From Your De Facto, Wife Or Girlfriend?"
Believe it or not, that was one of the search phrases that a local Sydneysider googled. I know I actually wrote two posts on how to hide assets which you can read here, and here but I had no intentions to assist with deviousness of hiding assets from your marital spouse.
Obviously exceptions exist, such as your spouse is a gambler or a junkie or pretty much a useless good for nothing but generally, I'm not particularly interested in the exceptions to the rule when I'm writing for this blog.
If someone feels desperate, worried or concerned enough to try and hide money from their girlfriend or de facto then maybe they ought to reconsider the relationship. The best way is probably just being honest and straightforward. If necessary, get a BFS drawn up if you're really concerned about your assets.
If the relationship fails at the BFS contemplation and phrasing stage then that should solve your concerns. This is probably why people don't really stray too far from their social circle and from their peer groups. When entering into a relationship or seriously thinking about taking it one step further, money usually only becomes an issue when one party has significantly more than the other.
Obviously exceptions exist, such as your spouse is a gambler or a junkie or pretty much a useless good for nothing but generally, I'm not particularly interested in the exceptions to the rule when I'm writing for this blog.
If someone feels desperate, worried or concerned enough to try and hide money from their girlfriend or de facto then maybe they ought to reconsider the relationship. The best way is probably just being honest and straightforward. If necessary, get a BFS drawn up if you're really concerned about your assets.
If the relationship fails at the BFS contemplation and phrasing stage then that should solve your concerns. This is probably why people don't really stray too far from their social circle and from their peer groups. When entering into a relationship or seriously thinking about taking it one step further, money usually only becomes an issue when one party has significantly more than the other.
Thursday, February 16, 2012
Simple Valentines Day
SMG blog is written solely from my viewpoint so it's usually only about my own personal adventures, trials and tribulations with regards to my life and my personal finance. However, incase you haven't read between the lines, Mr SMG does exist but I usually ignore and disregard his personal finances when it relates to this blog!! I'm sure he wouldn't appreciate me splashing his personal finances out to y'all.
In previous years, I use to receive extravagantly huge, vases of flowers(yes, multiple vases of flowers *.*) on Valentines Day but after consecutive years of roses that never bloomed and exotic flowers that wilted by the end of the week, it was time to call it quits with the floral gifts and instead ask for perennial flowering plants which live indefinitely...until you forget to water them of course!
This year has been very busy so instead we both decided to not do anything at all except for lunch out and dinner with family. It's been a relief both ways. Usually I'll be fretting about buying gifts and Mr SMG will be fretting about booking something mysterious. Our Valentines Day spending has dropped significantly. From around $1,000 jointly (insane!!) to around $80 joint expenditure this year.
And it was totally fine by me. Florists usually chemically treat flowers to extend their life for Valentines Day and restaurants have sub-par food and service because they're fully booked with couples wining and dining one another. I'd take a non-conventional date to celebrate as opposed to following the crowd.
So yea, that was SMG's Valentines Day. Hope my dear readers found some love, received some loving or at least got a flirtatious wink from someone hot and sexy ;) Happy Belated Valentines Day and have an awesome weekend =)
Sunday, October 23, 2011
Failed relationships: Hiding your money
Have you ever thought about what happens when defacto relationships and marriages fail? There was a sneaky search query from a Melbournian who stumbled onto my money and relationship post, 'What's mine is mine, what's yours is yours.'
"www.google.com.au — how+to+hide+my+money+when+a+defacto+relationship+fails"
Best advice for the googler is - seek advice from your solicitor/lawyer/accountant immediately.
Usually it's a bit too late to be looking at salvaging your assets from a defacto breakup when you've already split up. I won't be covering how to hide assets from your spouse in the event of divorces because that's rather devious particularly when there are kids involved. Obviously there are several means of hiding assets from married spouses but that's not for me to tell you.
It's different when it concerns defacto relationships. Just because you've lived together for six months shouldn't mean that you or your partner are entitled to one another's assets. Unfortunately the law behaves otherwise. If you're in a defacto relationship and you've got all the assets and your defacto didn't sign any 'binding financial agreement' then you're probably up to your neck in trouble if your defacto decides to take you to court to clean you out.
The unethical side of hiding your assets
In some cases, it's fair that your defacto should be entitled because they helped pay for half the furniture, half the mortgage despite their names not being on the title document, half the bills for maintaining the property when something breaks down (if they were renting, they wouldn't have paid for maintenance) - so the law does look at several points in arriving at their decision about what to split and how much to split. They look at the dependency of the two parties, the financial contribution from each party to the household bills and expenses, the housework, how intertwined your finances are, joint accounts and several other aspects of the relationship such as whether or not there are kids involved.
How can you hide your assets?
You can hide your cash money by transferring it out of your account. You can hide your assets by 'selling' them to your family and friends and buying them back again later. You can hide portable assets by simply relocating them elsewhere. The law doesn't like to tamper with any assets that have been transferred and or sold to third parties. Or if you want to really put various assets out of reach, you can open up some family/discretionary trusts and transfer your funds into them. You'll probably get some whopping bill from your accountant and solicitor but how much is at stake? Work out the pros and cons. The hardest part to hide is your property and your superannuation.
Your property and your superannuation can be split upon dissolution of a marriage and a defacto relationship. As assets, they're very difficult to hide, sell and in the case of superannuation - impossible to hide or transfer.
Before couples move in together, they should take a long hard look at each other's financial state. If you've got plenty of assets and the other party has nothing then you should take steps at ensuring that your assets are protected by having them sign a 'binding financial agreement' (commonly referred to as prenup). It's not the most romantic idea but so many relationships fail and aren't everlasting. Everyone wants to find 'the one' to love and grow old with but this notion is outdated with the divorce statistics.
"www.google.com.au — how+to+hide+my+money+when+a+defacto+relationship+fails"
Best advice for the googler is - seek advice from your solicitor/lawyer/accountant immediately.
Usually it's a bit too late to be looking at salvaging your assets from a defacto breakup when you've already split up. I won't be covering how to hide assets from your spouse in the event of divorces because that's rather devious particularly when there are kids involved. Obviously there are several means of hiding assets from married spouses but that's not for me to tell you.
It's different when it concerns defacto relationships. Just because you've lived together for six months shouldn't mean that you or your partner are entitled to one another's assets. Unfortunately the law behaves otherwise. If you're in a defacto relationship and you've got all the assets and your defacto didn't sign any 'binding financial agreement' then you're probably up to your neck in trouble if your defacto decides to take you to court to clean you out.
The unethical side of hiding your assets
In some cases, it's fair that your defacto should be entitled because they helped pay for half the furniture, half the mortgage despite their names not being on the title document, half the bills for maintaining the property when something breaks down (if they were renting, they wouldn't have paid for maintenance) - so the law does look at several points in arriving at their decision about what to split and how much to split. They look at the dependency of the two parties, the financial contribution from each party to the household bills and expenses, the housework, how intertwined your finances are, joint accounts and several other aspects of the relationship such as whether or not there are kids involved.
How can you hide your assets?
You can hide your cash money by transferring it out of your account. You can hide your assets by 'selling' them to your family and friends and buying them back again later. You can hide portable assets by simply relocating them elsewhere. The law doesn't like to tamper with any assets that have been transferred and or sold to third parties. Or if you want to really put various assets out of reach, you can open up some family/discretionary trusts and transfer your funds into them. You'll probably get some whopping bill from your accountant and solicitor but how much is at stake? Work out the pros and cons. The hardest part to hide is your property and your superannuation.
Your property and your superannuation can be split upon dissolution of a marriage and a defacto relationship. As assets, they're very difficult to hide, sell and in the case of superannuation - impossible to hide or transfer.
Before couples move in together, they should take a long hard look at each other's financial state. If you've got plenty of assets and the other party has nothing then you should take steps at ensuring that your assets are protected by having them sign a 'binding financial agreement' (commonly referred to as prenup). It's not the most romantic idea but so many relationships fail and aren't everlasting. Everyone wants to find 'the one' to love and grow old with but this notion is outdated with the divorce statistics.
Monday, May 16, 2011
Rule One: Never Lose Money
"Rule One: Never Lose Money. Rule Two: Never Forget Rule One."
Warren Buffet
A more classic take on not losing money would be the old proverb, 'A fool and his money are soon parted'. If you don't treat your capital with care and consideration, then expect your capital to be lost or diminished over time.
Over the recent years, I've had many opportunities presented to me in the form of business ideas, ventures, partnership and pretty much anything where particular friends have been short of funds but think that they've got a good venture to offer to me.
The only time I've ever asked for capital was several years ago when interest rates for savings account were at 1% to 4%pa and I didn't want to risk 100% of my savings in the stockmarket until I'd saved a bit more. Inbetween low yield savings account and the high risk stockmarket, was the bond market. Corporate Bonds. They were offered by the major banks in Australia and probably by other investment banks but I didn't look at the investment bank offerings.
To invest in Corporate Bonds, the minimum capital requirement was $100,000 and I didn't have that capital so I had to try and raise some funds.
The yield was about 5%-7% and it was better than the interest returns we were earning individually on our savings account. Anyway, I could only rustle up an aggregate $80k so it wasn't sufficient. I was accepting all the risks and said that I would re-imburse any losses whatsoever and split all the gains with no accounting for the risks that I was accepting on everyone's behalf, simply because I wanted to experiment with other investment options.
The risks of default on the Corporate Bond depended on who the Corporate Bond holder was and I was only going to invest in a Blue Chip company bond. Typically, the higher the risk of bond default, the higher the yield. However, my goal wasn't to maximise the yield. It was only to earn more than the low interest rate on savings account available at that time and yet not expose myself to the higher risks of the stock market.
Anyway, fast forward to now, I haven't asked for capital since and I don't need anyones capital anymore to enter into any investments that interests me. I have my own capital for doing whatever I want.
Because of that, over the years, I have had many business ventures proposed to me. Seeking venture capital or partnerships for cafes, restaurants, take aways etc. On average, the typical amount that I've been asked to lend ranged from $50k to $100k. That's a lot of money when the venture has multiple partners and multiple interested parties.
The problem with diluted ownership in ventures with multiple partners is that you lose control in terms of decision making. It becomes more the case of 'majority rules' and because of that, it means you risk subjecting your capital to greater risk of loss. For me, that's a huge detraction. I'm not interested in investing in any venture where I can't control the outcome directly but can only influence the outcome to some extent.
A friend of mine has recently asked me if I wanted to invest $50k with a partnership of four(total investment capital $200k) into a cafe with her uncle as the chef. So what was the problem with her proposal?
There have been friends in the past who invested and lost, telling me that I was lucky not to have thrown my capital in with them. A the end of the day, it's not a question of luck. It's a question of judgement and analysing your risks and deciding what happens in various scenarios and what the possible outcomes could be. And if the potential scenarios aren't great, then having the gumption to say that you're not interested in investing.
Warren Buffet
A more classic take on not losing money would be the old proverb, 'A fool and his money are soon parted'. If you don't treat your capital with care and consideration, then expect your capital to be lost or diminished over time.
Over the recent years, I've had many opportunities presented to me in the form of business ideas, ventures, partnership and pretty much anything where particular friends have been short of funds but think that they've got a good venture to offer to me.
The only time I've ever asked for capital was several years ago when interest rates for savings account were at 1% to 4%pa and I didn't want to risk 100% of my savings in the stockmarket until I'd saved a bit more. Inbetween low yield savings account and the high risk stockmarket, was the bond market. Corporate Bonds. They were offered by the major banks in Australia and probably by other investment banks but I didn't look at the investment bank offerings.
To invest in Corporate Bonds, the minimum capital requirement was $100,000 and I didn't have that capital so I had to try and raise some funds.
The yield was about 5%-7% and it was better than the interest returns we were earning individually on our savings account. Anyway, I could only rustle up an aggregate $80k so it wasn't sufficient. I was accepting all the risks and said that I would re-imburse any losses whatsoever and split all the gains with no accounting for the risks that I was accepting on everyone's behalf, simply because I wanted to experiment with other investment options.
The risks of default on the Corporate Bond depended on who the Corporate Bond holder was and I was only going to invest in a Blue Chip company bond. Typically, the higher the risk of bond default, the higher the yield. However, my goal wasn't to maximise the yield. It was only to earn more than the low interest rate on savings account available at that time and yet not expose myself to the higher risks of the stock market.
Anyway, fast forward to now, I haven't asked for capital since and I don't need anyones capital anymore to enter into any investments that interests me. I have my own capital for doing whatever I want.
Because of that, over the years, I have had many business ventures proposed to me. Seeking venture capital or partnerships for cafes, restaurants, take aways etc. On average, the typical amount that I've been asked to lend ranged from $50k to $100k. That's a lot of money when the venture has multiple partners and multiple interested parties.
The problem with diluted ownership in ventures with multiple partners is that you lose control in terms of decision making. It becomes more the case of 'majority rules' and because of that, it means you risk subjecting your capital to greater risk of loss. For me, that's a huge detraction. I'm not interested in investing in any venture where I can't control the outcome directly but can only influence the outcome to some extent.
A friend of mine has recently asked me if I wanted to invest $50k with a partnership of four(total investment capital $200k) into a cafe with her uncle as the chef. So what was the problem with her proposal?
- Firstly, her uncle would not be injecting any capital.
- Secondly, the business' success will depend on mainly his performance.
- Thirdly, I knew her and trusted her, but I did not know her uncle and I had no idea about how professional and dedicated he was to the food industry or how much I could trust him
There have been friends in the past who invested and lost, telling me that I was lucky not to have thrown my capital in with them. A the end of the day, it's not a question of luck. It's a question of judgement and analysing your risks and deciding what happens in various scenarios and what the possible outcomes could be. And if the potential scenarios aren't great, then having the gumption to say that you're not interested in investing.
Wednesday, March 9, 2011
Relationship & Money Agony Aunt: Bossy Kate de Brito
Relationship + money agony aunt: Bossy aka Kate de Brito
Bossy, an Aussie blogger, cross sections several sensitive personal finance topics that people can't really discuss with their family and friends and yet they need advice. She's like Australia's agony aunt on relationship + money. Not only that, the comments that she receives are funny, interesting or illuminating. Readers write in with their tortured scenarios and hope that Bossy and her illustrious readers will help them find a solution.
Read a few here of the personal finance orientated posts here:
Or you can read the quirkier blog posts on relationships, etiquette and social issues here:
Bossy, an Aussie blogger, cross sections several sensitive personal finance topics that people can't really discuss with their family and friends and yet they need advice. She's like Australia's agony aunt on relationship + money. Not only that, the comments that she receives are funny, interesting or illuminating. Readers write in with their tortured scenarios and hope that Bossy and her illustrious readers will help them find a solution.
Read a few here of the personal finance orientated posts here:
- We have two young kids but he wants a prenup >219 comments
- Why do I have to pay just because I'm a man >119 comments
- My husband makes me feel like a bludger when I ask him for more money >365 comments
- Should I dump my boyfriend to help my ex? >114 comments
- I gave her Louis Vuitton and now I find her with another man >179 comments
- My boss kissed me. What do I do? >117 comments
- I'm renting from a relative. Why won't they help me more? >233 comments
Or you can read the quirkier blog posts on relationships, etiquette and social issues here:
- My wife has piled on the kilos, how can I tell her to lose weight > 236 comments
- Is it ok for my boyfriend to spit? > 103 comments
- I said no to a date with my fat friend, now they all think I'm shallow > 162 comments
- My boyfriend lives in squalor. What can I do? > 124 comments
- I've known them 25 years but they dumped me after the divorce > 68 comments
Saturday, November 20, 2010
Spending everything on the house
Housing in Sydney isn't cheap. Particularly anything within 30km radius of our CBD. We were at a friend's house for her birthday BBQ. Almost all of us aspire to buy a house eventually with the backyard and space so that we can have cats and dogs as pets...and kids too I guess.
The wishlist:
* 3 bedroom (or more) house
* 2 car garage
* 600-700 metre square property - this ensures a backyard
* Within 30km radius of CBD
* Close to shops, public transport (trains + buses), schools and arterial roads (motorways and main roads), parks
* Proximity to the beach would be a dream (this requiring a few millions!!)
* Facing east for morning sun
The reality is that almost all of us live either with our parents, in apartments, town houses or villas. Town houses and villas are more spacious but has no yard. Houses can cost anything between $600,000 to a few millions in the 'desirable suburbs' and the starting points are 2 bedroom houses with no carpark. Or 2 bedrooms, with car park but no yard.
So for anything feasible for an average couple with two cars and planning to have kids, it needs to be at least 3 bedrooms, with car space for two cars and a backyard for the 'potential' kids.
One set of couple, are essentially engaged and they bought an apartment in the Upper North Shore (where the house prices start off from around $1.2 million). Problem is, they said that they spent all their money on the apartment and haven't got enough to buy the rings or get married. This isn't the exception though. Another friend said that she couldn't get married either because they were in the exact same situation.
Their mortgage payments are too much and they can't afford to save up for the wedding.
Mortgage versus diamonds and getting married
With a property, you have a home that you can live in. If they're directing all their spare funds towards their housing mortgage instead of a wedding, it's a form of forced savings. Despite not having much discretionary income left to spare, the savings are at least going towards building housing equity which is ultimately increasing their net wealth. That's a good thing.
The cost of getting married versus paying off the mortgage
Spending $10-$15k, on a diamond ring and then $40-$50k on a wedding is rather insane but that's the average nowadays. To be conservative, if the ring and wedding costs $50k in total, once it's spent, it's gone and it's a sunk cost. If however, you were to use that $50k to pay off the mortgage, you can save hundreds of thousands of dollars in interest savings. I'll illustrate using two scenarios:
Base assumptions: Interest rate of 7.5% fixed for the duration of the loan, 30 year mortgage loan
Example 1: $100,000 mortgage loan
Using the $50k to pay off the mortgage will save you $135,254 in interest over the duration of the loan. Instead of paying $151,721 in mortgage interest, you only pay $16,467 in interest
Example 2: $300,000 mortgage loan (the reality for most Sydneysiders)
Using the $50k to pay off the mortgage loan will save you $245,249 in interest over the duration of the loan. Instead of paying $455,155 in mortgage interest, you only pay $209,906 in interest
So for the average couple in Australia, with the average mortgage of $300,000, spending $50k on their diamond ring+wedding, the cost of marital bliss means paying an extra $245,249 in interest. If you're interested in trickier maths, assuming the couple pays the average 30% tax rate, to earn that $245,249, they need to earn a gross income of $350,355 (before tax).
The wishlist:
* 3 bedroom (or more) house
* 2 car garage
* 600-700 metre square property - this ensures a backyard
* Within 30km radius of CBD
* Close to shops, public transport (trains + buses), schools and arterial roads (motorways and main roads), parks
* Proximity to the beach would be a dream (this requiring a few millions!!)
* Facing east for morning sun
The reality is that almost all of us live either with our parents, in apartments, town houses or villas. Town houses and villas are more spacious but has no yard. Houses can cost anything between $600,000 to a few millions in the 'desirable suburbs' and the starting points are 2 bedroom houses with no carpark. Or 2 bedrooms, with car park but no yard.
So for anything feasible for an average couple with two cars and planning to have kids, it needs to be at least 3 bedrooms, with car space for two cars and a backyard for the 'potential' kids.
One set of couple, are essentially engaged and they bought an apartment in the Upper North Shore (where the house prices start off from around $1.2 million). Problem is, they said that they spent all their money on the apartment and haven't got enough to buy the rings or get married. This isn't the exception though. Another friend said that she couldn't get married either because they were in the exact same situation.
Their mortgage payments are too much and they can't afford to save up for the wedding.
Mortgage versus diamonds and getting married
With a property, you have a home that you can live in. If they're directing all their spare funds towards their housing mortgage instead of a wedding, it's a form of forced savings. Despite not having much discretionary income left to spare, the savings are at least going towards building housing equity which is ultimately increasing their net wealth. That's a good thing.
The cost of getting married versus paying off the mortgage
Spending $10-$15k, on a diamond ring and then $40-$50k on a wedding is rather insane but that's the average nowadays. To be conservative, if the ring and wedding costs $50k in total, once it's spent, it's gone and it's a sunk cost. If however, you were to use that $50k to pay off the mortgage, you can save hundreds of thousands of dollars in interest savings. I'll illustrate using two scenarios:
Base assumptions: Interest rate of 7.5% fixed for the duration of the loan, 30 year mortgage loan
Example 1: $100,000 mortgage loan
Using the $50k to pay off the mortgage will save you $135,254 in interest over the duration of the loan. Instead of paying $151,721 in mortgage interest, you only pay $16,467 in interest
Example 2: $300,000 mortgage loan (the reality for most Sydneysiders)
Using the $50k to pay off the mortgage loan will save you $245,249 in interest over the duration of the loan. Instead of paying $455,155 in mortgage interest, you only pay $209,906 in interest
So for the average couple in Australia, with the average mortgage of $300,000, spending $50k on their diamond ring+wedding, the cost of marital bliss means paying an extra $245,249 in interest. If you're interested in trickier maths, assuming the couple pays the average 30% tax rate, to earn that $245,249, they need to earn a gross income of $350,355 (before tax).
Wednesday, November 10, 2010
What's mine is mine, what's yours is yours
Hey Spender, meet Saver and their property + shares portfolio...
About 48,000 Australians divorce and separate each year. It's not just something that happens to other people. It's something that can happen to you and your partner too, you never know what the future brings.
If you're in a stable relationship and contemplating the big move to living together, you need to sit down and discuss your finances and how you expect to split expenses when you're sharing a place together. Especially since the Family Law for de facto relationships changed on 1st March 2009.
Don't co-sign or guarantee anybody's loans, not your family members, nor your partner's:
Do not ever co-sign on any one else's loan. If they can't afford to qualify for the loan or purchase on their own, they'll just have to save longer for it. If you guarantee their loan, if they default, the debt collector will be chasing your ass for it! Don't ever let anyone pressure you to sign one. Don't ever sign loan contracts on the spot. If you are signing on as a witness, double check that you're only signing as a witness. Read the documents and if in doubt, get legal advice.
A friend of mine, for all her kindness and generosity, guaranteed her boyfriend's phone contract. She ended up with a $2,000 phone contract when he skipped the state and left no forwarding address for the phone company. That's a cheap mistake compared to mistakes where people have co-signed their significant other's car loan contract or credit cards. So, moral of the story is, just don't sign it.
Before moving in with your partner. Have the 'finance and money' talk.
I don't want to be the one to break up a relationship, but it will save you a lot of heartache and possibly STD (Sexually Transmitted Debt) later on if things go awry. Particularly if your partner has been hiding their debts and liabilities from you. As long as you've lived together for 6 months or longer, if you split up, our laws may have classified you as being in a defacto relationship and thus, all your assets plus superannuation fund are liable to being split by the court if the relationship goes sour and your former partner takes you to the Family Court.
You could try bringing up the subject gently by saying, "Do you think we should get a BFS/PreNup drawn up before we move in together so if anything were to happen, we would end up with what we entered the relationship with?"
If that triggers a lot of anger and resentment, I'd probably avoid the topic entirely and don't even contemplate moving in with them. It's not romantic anymore if the situation turns ugly. Arguments, fights, recrimations and bitterness and for some, the desire to be nasty and take you to court.There's really no beating around the bush about this topic. If your partner is neither keen nor interested in discussing their finances with you, moving in with them probably should be avoided. Especially if you have a lot of assets. In the old days, people never moved in with each other before marriage anyway.
If you both decide to get a Binding Financial Agreement/Pre-Nup drawn up
Pre-Nups were used previously a few years ago. The problem was that they weren't recognised by the law officially so even if couples had Pre-Nups drawn up, sometimes the court would just divide things up based on the case presented at court.
With a Binding Financial Agreements (BFS) in place, provided you don't have children together and you've been together for just a few years, it's more likely that the court will uphold the BFS in the case of a split and your ex takes you to court to demand a share of your assets.
Your BFS should cover how you'll be splitting assets brought into the relationship (usually it's what's mine is mine and what's yours is yours!), how you'll split assets that were acquired and built up while in the relationship (usally a 50/50 split or some other ratio depending on who the higher income earner is and whether they're unhappy with the 50/50 ratio or not).
Ensure that your BFS has future actions, scenarios and what will happen if those scenarios were to occur and how property will be divided or retained. Other grounds that you may wish to cover on your BFS can be existing mortgages, future mortgages, kids, future loans and liabilities, personal items etc. If your financial situation changes in any dramatic or distinctive way, ensure your BFS is updated if you don't want to risk having your BFS challenged in court.
I really recommend you visit the two links below and have a good read to understand how BFS works and when they won't be binding. They also have a few case studies used as examples that will help you understand how BFS works:
* http://www.legalcontract.com.au/binding_financial_agreement.php
and
* http://www.rk.com.au/uploads/File/Binding%20Financial%20Agreements%20Article%20FINAL%282%29.pdf
If you and your defacto partner or marital spouse has not got a BFA and they are taking you to the Family Court, Elrington Boardman Allport Lawyers has outlined their Four Step Approach to defacto relationship property claims which is an interesting read.
A few important points about a Binding Financial Agreement
Noel Whittaker is one of the SMH's financial specialist who excels in answering reader mailbag questions. He received a few questions from readers concerning realationships and money. This is an extract from the issue that was printed on 3/11/2010:
My reflections on this: I definitely agree with Noel's advice regarding consulting the family law laywer ASAP. She might end up having to create a trust account to transfer her assets into in order to protect them. She needs an emergency plan, needs to organise double signatories on all joint accounts for all withdrawals, changing the pins on personal accounts and printing out copies of bank statements and loan statements on the date of separation. Ensure there are no overdraft facilities- if there are any, cancel all the overdraft facilities so that they can't be exploited. If there are any joint credit cards, cancel those cards and get them stopped immediately.
What are the costs involved?
ResolveConflict, a family law firm provides us with a few estimates of separation costs where the other party wants a share of the property/assets:
$3000-$5000 to have the the documents prepared jointly
$30,000-$100,000 each if going through the courts
$10,000 each day, if it's through mediation involving lawyers and documentation
$15,000 each for alternative forms of dispute resolution
Going through the courts will be costly and acrimonious. If you want to still be friends and have a civil relationship(kids or no kids), the best method is always the mediation route.
I hope what I've written may help someone, someday. The law is pretty poor in respect of being unable to conserve property that was previously acquired prior to the relationship becoming defacto/married. That's the worst part of the law. That what you have worked so hard to save up and invest (over a period of several years) can be so easily ripped away by the family court when you've lived with your partner for just six months. Romance exists but on the flip side of the coin, when relationships start falling apart, things can turn really ugly, very quickly.
About 48,000 Australians divorce and separate each year. It's not just something that happens to other people. It's something that can happen to you and your partner too, you never know what the future brings.
If you're in a stable relationship and contemplating the big move to living together, you need to sit down and discuss your finances and how you expect to split expenses when you're sharing a place together. Especially since the Family Law for de facto relationships changed on 1st March 2009.
Don't co-sign or guarantee anybody's loans, not your family members, nor your partner's:
Do not ever co-sign on any one else's loan. If they can't afford to qualify for the loan or purchase on their own, they'll just have to save longer for it. If you guarantee their loan, if they default, the debt collector will be chasing your ass for it! Don't ever let anyone pressure you to sign one. Don't ever sign loan contracts on the spot. If you are signing on as a witness, double check that you're only signing as a witness. Read the documents and if in doubt, get legal advice.
A friend of mine, for all her kindness and generosity, guaranteed her boyfriend's phone contract. She ended up with a $2,000 phone contract when he skipped the state and left no forwarding address for the phone company. That's a cheap mistake compared to mistakes where people have co-signed their significant other's car loan contract or credit cards. So, moral of the story is, just don't sign it.
Before moving in with your partner. Have the 'finance and money' talk.
I don't want to be the one to break up a relationship, but it will save you a lot of heartache and possibly STD (Sexually Transmitted Debt) later on if things go awry. Particularly if your partner has been hiding their debts and liabilities from you. As long as you've lived together for 6 months or longer, if you split up, our laws may have classified you as being in a defacto relationship and thus, all your assets plus superannuation fund are liable to being split by the court if the relationship goes sour and your former partner takes you to the Family Court.
- If you both have similar amounts of assets and liabilities: It's not really much of an issue to worry about.
- If you're the one with the house and the savings while your partner has no assets, you should look at protecting yourself with a BFS (Binding Financial Agreement) - previously known as a Pre-Nup. If you end up splitting, you will protect yourself against being taken to the cleaners.
- If your partner has more than you in terms of assets then if they don't bring the topic up, it's up to you whether you wish to raise the issue or let sleeping dogs lie. If however, they bring up the topic, you shouldn't get angry or upset with them, fair is fair. If you were on the other side of the fence, you'd want to protect yourself too.
- If your partner has no assets but a bunch of liabilities and debts: Three words - sexually transmitted debt. Protect yourself with a BFS (Binding Financial Agreement) - previously known as a Pre-Nup. If you end up splitting, you will protect yourself against being liable for their debts and loans. Saying, "Babe, I think we need to get a BFS/PreNup drawn up before moving in together" may not be the sweetest, most romantic thing to say but bear in mind, that when you move in together, all your assets are vulnerable to being divided in the event of a split.
- If either of you have kids from previous relationship, both of you should definitely discuss financial matters, assets and property beforehand and get a BFS drawn up.
You could try bringing up the subject gently by saying, "Do you think we should get a BFS/PreNup drawn up before we move in together so if anything were to happen, we would end up with what we entered the relationship with?"
If that triggers a lot of anger and resentment, I'd probably avoid the topic entirely and don't even contemplate moving in with them. It's not romantic anymore if the situation turns ugly. Arguments, fights, recrimations and bitterness and for some, the desire to be nasty and take you to court.There's really no beating around the bush about this topic. If your partner is neither keen nor interested in discussing their finances with you, moving in with them probably should be avoided. Especially if you have a lot of assets. In the old days, people never moved in with each other before marriage anyway.
If you both decide to get a Binding Financial Agreement/Pre-Nup drawn up
Pre-Nups were used previously a few years ago. The problem was that they weren't recognised by the law officially so even if couples had Pre-Nups drawn up, sometimes the court would just divide things up based on the case presented at court.
With a Binding Financial Agreements (BFS) in place, provided you don't have children together and you've been together for just a few years, it's more likely that the court will uphold the BFS in the case of a split and your ex takes you to court to demand a share of your assets.
Your BFS should cover how you'll be splitting assets brought into the relationship (usually it's what's mine is mine and what's yours is yours!), how you'll split assets that were acquired and built up while in the relationship (usally a 50/50 split or some other ratio depending on who the higher income earner is and whether they're unhappy with the 50/50 ratio or not).
Ensure that your BFS has future actions, scenarios and what will happen if those scenarios were to occur and how property will be divided or retained. Other grounds that you may wish to cover on your BFS can be existing mortgages, future mortgages, kids, future loans and liabilities, personal items etc. If your financial situation changes in any dramatic or distinctive way, ensure your BFS is updated if you don't want to risk having your BFS challenged in court.
I really recommend you visit the two links below and have a good read to understand how BFS works and when they won't be binding. They also have a few case studies used as examples that will help you understand how BFS works:
* http://www.legalcontract.com.au/binding_financial_agreement.php
and
* http://www.rk.com.au/uploads/File/Binding%20Financial%20Agreements%20Article%20FINAL%282%29.pdf
If you and your defacto partner or marital spouse has not got a BFA and they are taking you to the Family Court, Elrington Boardman Allport Lawyers has outlined their Four Step Approach to defacto relationship property claims which is an interesting read.
A few important points about a Binding Financial Agreement
"The Agreement need not be fair or ‘even handed’ and can favour one party over the other. The Court will not set aside an agreement simply because it is “unfair”. This is partly because prior to signing the Agreement, the parties must each obtain independent legal advice from a solicitor, including advice as to the advantages and disadvantages of entering into the Agreement.Some reader questions and examples
Once the advice is given, the solicitor for each party will attach a Certificate confirming that advice was given before the parties entered the Agreement. This prohibits parties from arguing that, at the time of signing the Agreement, they were unaware of the consequences of signing it."
Noel Whittaker is one of the SMH's financial specialist who excels in answering reader mailbag questions. He received a few questions from readers concerning realationships and money. This is an extract from the issue that was printed on 3/11/2010:
Reader question: I'm 40, have a good job and have never married. I own a debt-free house and have $250,000 in super. Three years ago I moved in with a man who had left his marriage and who had few assets because of his divorce. Our relationship is now rocky and I'm concerned he will get a hefty share of my assets when we break up. How can I protect myself?Noel's reply: The Family Law Act 1975 applies to de facto relationships. Your situation matches the definitions under the Act, so you should be taking proactive steps now. Consult a family law lawyer to determine the extent of rights your partner may have against you and your estate. Your super is part of this. This should be a warning to anybody contemplating a serious relationship- taking legal advice before the domestic relationship starts could provide you with protection once a binding financial agreement is entered into.
My reflections on this: I definitely agree with Noel's advice regarding consulting the family law laywer ASAP. She might end up having to create a trust account to transfer her assets into in order to protect them. She needs an emergency plan, needs to organise double signatories on all joint accounts for all withdrawals, changing the pins on personal accounts and printing out copies of bank statements and loan statements on the date of separation. Ensure there are no overdraft facilities- if there are any, cancel all the overdraft facilities so that they can't be exploited. If there are any joint credit cards, cancel those cards and get them stopped immediately.
Reader question: You recently discussed retirees providing money for their children's house deposits. You suggested that such large gifts should be made "in the form of a registered mortgage with interest capitalised, to protect the family's wealth". What is a "registered mortgage with interest capitalised" and how does it protect a family's wealth?Noel's reply: You would have your solicitor register the mortgage on the title deed through the relevant state lands and title department (in NSW, it's the Land and Property Management Authority; in Victoria, the Department of Sustainability and Environment), thus giving you a legal claim on the property should it be sold. You then hold the title deed, just as the bank does when you owe the bank.
By capitalising interest, the property owners do not pay you any interest but it is added on to the mortgage — the debt compounds over the years and you have the right to claim that the debt be repaid, with interest. The strategy protects the family wealth in the event that your child's marriage or de facto or same sex relationship should fall asunder and the bitter ex-partner demands half the house. Then you, as mortgagee, can have your solicitor step in and demand that your mortgage and its accrued interest be repaid before any of the remaining amount can be split between the warring parties.
My reflections on this: This is one of Noel's classic great advice. There are a lot of parents out there giving financial loans and gifts without any paperwork or registering any interest in the property. And a lot of relationships going sour where the bitter, former partner demands half of the property and more despite not having contributed a significant sum for the property acquisition. If you live elsewhere outside of Australia, you should visit a solicitor or lawyer who specialises in family law. There's nothing like laying the legal framework to protect yourself before going into relationships that may turn defacto or you ultimately marry each other.What are the costs involved?
ResolveConflict, a family law firm provides us with a few estimates of separation costs where the other party wants a share of the property/assets:
$3000-$5000 to have the the documents prepared jointly
$30,000-$100,000 each if going through the courts
$10,000 each day, if it's through mediation involving lawyers and documentation
$15,000 each for alternative forms of dispute resolution
Going through the courts will be costly and acrimonious. If you want to still be friends and have a civil relationship(kids or no kids), the best method is always the mediation route.
I hope what I've written may help someone, someday. The law is pretty poor in respect of being unable to conserve property that was previously acquired prior to the relationship becoming defacto/married. That's the worst part of the law. That what you have worked so hard to save up and invest (over a period of several years) can be so easily ripped away by the family court when you've lived with your partner for just six months. Romance exists but on the flip side of the coin, when relationships start falling apart, things can turn really ugly, very quickly.
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