Love is tricky, but a break-up can be a nightmare if you don’t have your paperwork in order. In this comprehensive guide, we will delve into the world of prenuptial agreements, more commonly known as prenups. This guide will explore the benefits of prenups, the steps to create one, and what exactly a prenup covers.

What Is a Prenup?

A prenup is a legal agreement that spells out what exactly happens with your money and assets if a divorce happens. Prenups make it clear who gets what – like who keeps the house, who pays the debts, and who might get ongoing payments of support money. They can also protect things like family inheritance or business debts. It's a plan for what comes next if things don't work out.

Relationship breakups are a reality of life. In New Zealand, when a relationship concludes, either from separation or death, the Property (Relationships) Act usually requires a 50:50 split of all relationship property. That includes de facto couples whose relationship has lasted at least three years.

So, let’s say you own a debt-free $1 million dollar house, and your girlfriend or boyfriend has no assets at all, but you’ve been together for at least three years. You then break up, which means your (now former) spouse should be able to walk away with $500,000.

Prenups help avoid this situation, which in New Zealand are formally termed “contracting out agreements”. A prenup lets you opt out of this aspect of relationship property law and create your own arrangements instead – with a few catches!

While this may be a challenging subject to broach with your partner, it clearly could be well worth it. A conversation about a prenup could strengthen your relationship and pave the way for a more secure future together.

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Who Stands to Benefit from a Prenup?

Home Owners

As illustrated by the example above, a prenup can help protect each partner's respective ownership rights in the home. It can specify how the property will be divided in case of a divorce or separation, ensuring that each partner's investment is safeguarded.

Business Owners

Entrepreneurs often find solace in prenups, as these agreements can insulate their business interests from becoming battlegrounds in a divorce. By preserving the stability of their companies, prenups ensure that personal and professional lives remain separate.

Debt Management

In cases where couples bring disparate levels of debt into a marriage, prenups establish clear lines of responsibility for pre-existing debts. This can help avert disputes over debt repayment in the unfortunate event of separation.

High-Asset Individuals

While prenups are not exclusive to the wealthy, they offer significant protection for those with substantial assets. Whether it's a thriving business, a portfolio of investments, or valuable real estate, these agreements can shield the fruits of your hard work – or inheritance!

Preserving Family Assets

Prenups become indispensable when family assets, such as heirlooms or trusts, need safeguarding. These legal documents can keep family legacies intact.

A Growing Trend

Once upon a time, prenups might have been thought of as something for old and rich people.

Nowadays, especially with the three-year threshold in New Zealand law, prenups can nearly be for anyone.

Another reason for this is because younger couples often structure their households differently. Both partners typically have careers, and there's greater diversity in expectations regarding childcare responsibilities. Millennials and Gen Z individuals often engage in freelance work or operate as independent contractors, leading to less income stability.

Another complicating factor is when a blended family comes into play, which is also increasingly common.

Whatever the reasons a prenup can give clarity around a couple’s finances.

But, for a prenup to hold legal weight in New Zealand, it must follow strict criteria:

1. It must be documented in writing.
2. Both parties must have sought separate legal advice prior to signing.
3. A legal practitioner must see the signing of the document.
4. The lawyer must confirm that they have clearly explained what the agreement means and what it involves.
5. There must be no duress such as “sign it or the marriage is off” the day before a wedding.
6. It must be just. This is a catch-all area, which means a judge can overturn an agreement which is considered seriously unfair due to the passing of time or changed circumstances. For instance, if you signed a strict prenup 20 years ago, but since then have raised a family and built a financial life together – expect the agreement to be overturned if challenged.

The Prenup Creation Process: A Roadmap

Crafting a prenup may seem daunting, but a well-structured agreement is within reach with these steps:

1. Open discussion: Initiate an open and honest conversation with your partner about the idea of a prenup. Early dialogue is key to ensure both parties understand the implications.
2. Look for advice: See a good lawyer, first and foremost! A few dollars spent here might be the best money you ever spend. They will be able to help and guide you through the process, ensuring nothing is missed.
3. Full financial disclosure: To build trust and create a fair agreement, both individuals must provide complete financial disclosure. Transparency is the foundation of a valid prenup.
4. Defining assets and debts: Clearly outline which assets and debts are to be considered separate and which will be deemed joint property within the marriage.
5. Spousal support: Should one of you get paid support money if you separate? Part of prenups sometimes include spousal support (otherwise known as spousal maintenance or alimony).
6. Timing is key: If you’re getting married, write and sign a prenup well in advance of the wedding day to avoid any appearance of coercion. Rushed agreements can be challenged in court.

Believe it or not, a prenup can be signed at any time during a relationship. However, it should ideally be signed before the relationship property laws begin to apply, i.e., the three-year mark, although there are limited circumstances which can also apply before that point.

What's Included and Excluded in a Prenup

Prenuptial Agreements Typically Encompass the Following Aspects

• Assets: This category includes real estate, bank accounts, investments, businesses, and personal property.
• Debts: Prenups clarify responsibility for pre-existing debts, such as student loans, credit card debt, or mortgages.
• Spousal Support: Decide whether one person will get an income from the other, preventing future disputes.
• Inheritance: Protection for family inheritances, ensuring they remain within the intended lineage.

Not Covered

Child Support

Prenuptial agreements have no jurisdiction over child custody or child support arrangements, as these are determined based on the best interests of the child.

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Inheritance

Inheritance is often a significant gift left by a relative or friend, aimed to personally benefit the recipient. Inheritance is rarely intended to benefit the recipient's partner, but many New Zealanders unknowingly mix up their inheritance into the relationship property with well-intentioned but careless decisions.

Inheritance falls outside of relationship property if you follow the rules. If you are a beneficiary of a will, the gift you receive is automatically separate property by law. It's not relationship property, which means your spouse or partner can't claim half of it if your relationship ends.

You should be careful to keep the inheritance separate from your relationship property. If you mix them, the inheritance can lose its 'separate character' and become part of the relationship property. Examples include:

• Asking for the executor of the will to pay your inheritance money into your joint bank account
• Using your inheritance to reduce the size (or pay off) the mortgage for a shared asset
• Using your inheritance to clear personal debts in both of your names

For example, if you had a sum of money you inherit paid into your joint account and you spend it renovating a property you jointly own or paying joint bills, that money becomes relationship property.

Understanding the Costs and Benefits

While prenups come with expenses, the long-term advantages often outweigh the initial costs:

• Legal fees: Budget for legal fees, which typically range from $1,000 to $1,500 per side. This investment ensures that your prenup is legally sound and provides peace of mind.
• Emotional and financial security: Consider the emotional and financial turmoil a well-crafted prenup can prevent. It's a valuable asset in protecting both love and wealth.

The Bottomline: Strengthen Your Relationship With a Prenuptial Agreement

In the world of love and commitment, prenuptial agreements are tools for establishing the rules when it comes to the assets that come along with love. They are not a testament to distrust but a practical means of safeguarding what matters most.

Transparency, early discussions, and fair representation are the cornerstones of a successful prenup. Whether you're a high-net-worth individual, a business owner, or are just thinking about your family, a thoughtfully constructed prenup can offer the peace of mind for you and your partner.

Remember, while the initial conversation about prenuptial agreements may feel uncomfortable, it can ultimately strengthen your relationship by promoting open communication and trust. Approach the topic early in the relationship if assets are involved, recognise that love is about building a future together, and a prenup can be a crucial pillar in that foundation.

Important note: we’re a financial advice and investment management service provider, we’re not a law firm! To learn more about this area speak to a good lawyer who specialises in family law, as they’ll be able to ensure you’re aware of everything you need to know. They can also suggest the best way forward for your personal situation.