Can Love and Money Mix? Rory and Dan Ask the Uncomfortable Questions | Ep 28

Every marriage has a prenup

Rory: Welcome back to another episode of the Blueprint Finance podcast. It feels like I've been offline for a while. Mate, it's so good to be back.

Daniel: Today is about this whole concept of your financial journey. Ninety percent of people, at some stage, will have a joint financial venture with someone else. So how are you going to navigate that? How do couples split their finances? How should they split their finances? What are the things to worry about? That's the head topic for today.

Rory: The P word. We will be talking about prenups. The funny thing is, as we were writing this episode, we thought, "We're really not qualified to be discussing this."

Daniel: Absolutely not. So we'll do a bonus episode in a couple of weeks and get a lawyer on.

Rory: The lawyer guest couldn't make it today, so this is not legal advice. It's a hot topic, and marketing slid this episode across our desks with a wink.

Daniel: And we're keen to get stuck in. We've done the work, we're prepped. This is really relevant stuff to scratch the surface on. But I'm backing you and saying: please seek legal advice for any specific queries you've got. Let's tuck into it.

Rory: Can we talk a little bit about the prenup to begin with? Who has one? Who needs one? Do we all have one? Give us the oil.

Daniel: Coming into this episode, I was under the assumption that only the folks who'd paid the fee to get a property sharing agreement or a prenuptial agreement had one. But we've been enlightened in our research by this amazing quote from James Sexton. Maybe this is one of the reasons the topic's so hot right now. I've seen so many videos of this New York divorce lawyer talking about which couples are successful financially and which aren't. So I'll read the quote:

Daniel: "Every marriage has a prenup. The only question is who writes it. You can let the government write it for you after something goes wrong, or you can write it together with someone you love while you're both on the same team."

Rory: You either have one by default or you have one by choice. That quote was a bit of a penny-drop moment for me. Such a great way to frame it.

Daniel: So you've got a prenup right now. The New Zealand government's family law has sorted it for you.

Prenups aren't just for the uber rich

Rory: It's an interesting way to look at it. Prenups aren't something I've thought about a lot. It has come up in conversation in my own relationship, and we might touch on that. But it seems almost reserved for the uber rich, the uber wealthy, Hollywood. You see it on the US dramas: prenups gone wrong, prenups on fire. It's not reserved for that upper echelon, though. To be very simplistic about it: you're young, in love, and one person has more existing wealth than the other. That's what we're getting at. Is a conversation required? Does it need to be awkward, or is it something you can do tactfully, as a team, with mutual agreement?

Daniel: Well said. And it underlines what's really the theme of the podcast: if you have a prenup or relationship agreement, what are your values, financially? We all make decisions on love these days. That's how we drive our lives forward, by the people we love and want to stay close to. But finance is tied into every fibre of that, because you need resources to do anything. So what are the financial values, and what's the agreement? What is something specifically just yours, or just mine, or is everything joint? Having that conversation is so important. That's what we want to tuck into: what do most people do? Not what we recommend. We're definitely not making any recommendations.

Rory: No. We might give our opinions.

Daniel: Exactly. I think having a conversation with your partner is incredibly important, just around the values piece. Where are we heading as a couple? What's important? And then, if something does go belly up, what's the correct setup for us?

The mum-and-dad gift that becomes relationship property

Rory: There are some nuances around it as well. Say someone owns a home, and perhaps they received some gift money. Around 34% of first home buyers have some sort of mum-and-dad contribution, give or take. So that becomes relationship property. Or there could be a scenario where someone else, like the parents, has a vested interest in the property, some sort of ownership stake, but it's a handshake agreement. Now it's getting complicated when the missus moves in, or the mister moves in if it's the other way around. Because it's not always the guy that's leading financially.

Daniel: Especially these days.

Rory: It was the woman, in my case.

Daniel: That's such a good point. Stepping into a relationship, I think it's really important to understand who's got what, and then take a blanket approach to how you're going to deal with it. This is a perfect example. Say there's a property in question, and someone has chipped in. Parents have given either a gift or a loan. If there's nothing to address that money, the cash that's been gifted will become relationship property after three years of de facto, or after marriage. There are no two ways about it.

Rory: Legally, it does.

Daniel: That's right. Unless there's a specific agreement. A deed of acknowledgement of debt is what we most commonly see in our line of work. It's essentially saying this money is still owned by the parents, and it can be recalled on the sale of the property. If you have something like that, it protects those funds from relationship property claims, because the money hasn't actually been fully given to the child. These things are quite important heading into it, to say, "How are we going to deal with this?" But also to make sure the stakeholder involved is looked after should something go wrong.

When separations turn nasty

Rory: It's interesting to think about, because it's all good when things are good and the relationship's on track. But we had a bit of a chat off air about the separations we see. They get nasty. All your good intentions go out the window.

Daniel: Someone's made a mistake, someone's changed, and then you get spite and vengeance coming into it. And the most direct way to avenge yourself is to strip someone bare financially. This is exactly what's going on in that quote. You can either write the prenup with someone you love, at a time when you've got the best intentions, or it's written by default, and it may be adversarial rather than amicable.

Rory: Absolutely. What percentage of breakups are amicable versus ferocious? It's probably leaning well towards the painful scenarios.

Daniel: Oh, 100%. Especially if there's a full family involved.

Rory: I was really open to the prenup.

Daniel: Absolutely open to it. I think it's a great way to identify things. But at the same time, you have this idea that you're in it and you believe in it. I think that's a lot of people's hesitation: if I sign one, then I'm foreshadowing the demise of the relationship.

Rory: That's the taboo around it. You've got one foot in, one foot out. I'm already making a contingency plan for us not working.

Daniel: Going down the aisle saying "this is forever" while I'm also having a backup agreement. What the heck?

Joint, separate or hybrid: how couples run their money

Rory: Have a plan, make a choice, or go by default. I think so many of us do the default. Even around how we structure our daily finances. Is everything going to be absolutely joined, like one account? Are we going to be completely separate financially and just contribute equally to bills? Or a hybrid approach?

Daniel: There are three different options. Option A would be fully joint accounts, which I think is what most couples I see do. Maybe some people have personal accounts for spending money.

Rory: Pocket money.

Daniel: The fishing account. Option B would be some joint accounts, plus transactional accounts where the income comes in and then the money flows into the joint account to pay bills. And option C would be fully non-joint. Maybe just one joint account, a mortgage account or something to pay the mortgage, which they both direct debit into, and then fully running separate rigs from that. I think that would get very difficult, but you hear stories of some couples doing that, even with kids. Everyone has a separate way of doing things. It's very personal, very private to them. But what we're trying to say is: make a plan, have a contingency, and have a long-term plan for how it's actually going to work alongside your wealth-building journey. Whether you're concerned with keeping things separate, or fully joint and not keeping track of things, either way there has to be a plan to build wealth running alongside it.

Case study: Clayton v Clayton

Rory: Totally. And it's about fairness. Marketing have pulled a really good case study.

Daniel: You love this one. I think it's actually really important to cover.

Rory: Mrs Clayton versus Mr Clayton. They entered into a relationship, and their agreement was that after being together for a year, she would have a $10,000 settlement on divorce. After two years, $20,000. After three years, $30,000, capped. Quite a niche agreement, but that was signed and sealed.

Daniel: At the start of the relationship.

Rory: Correct. Pre-marriage, that was the agreement. And they ended up being married for 17 years, with a couple of kids. She was raising the kids and he was running a successful business. Obviously things didn't work out, 17 years later they got divorced, and the family worth was estimated at around $28 million.

Daniel: Oh my goodness.

Rory: He went back to the agreement and said, "It's 30K. That's it." She challenged him, and it was set to go to the Supreme Court. They ended up settling out of court. The Supreme Court did comment that although the case wasn't tried, it probably looked like it would have been a 50/50 split. So the original agreement would have been overridden. That's another fascinating side of all this: you can have a prenup, but if it's just ludicrous and not fair, it can be overridden. When that agreement was set up, they didn't have a family. A lot of things hadn't played out. Then they were together for almost two decades. $30,000 versus an almost $30 million combined estate was just not fair.

Is 50/50 guaranteed?

Daniel: It's so interesting. And that exact logic goes the other way. Say there was no prenup, in a situation where it's a married couple with a homemaker, and either parent could be the homemaker. You get a separation, and people think 50/50. But it's actually not. It could sometimes be 60/40, even 80/20 in the split of net worth, if one individual has very high income-earning potential alongside the other, who has no income-earning potential and maybe an obligation to still take care of young children. You could get to 80/20. Whereas this case probably would have settled at 50/50. If the lawyer representing the other party can make a really good case, "we deserve the majority of this wealth because it's going to feed all these people, and this person can go and earn all this income," it could really end up like that. So it goes both ways. Fairness on both parts is prioritised in the courts. You'd hope so.

Rory: 100%. I find it so interesting. It's like when we had a chat about wills. Even wills can be challenged. You can have this legal agreement, but it's not necessarily set in stone. It really is about fairness. That's what it comes down to.

"It's my KiwiSaver." It isn't.

Daniel: The whole thing is a good opportunity to recognise that if you're in a partnership without an agreement, everything is joint. You should look at everything as a shared benefit. Your KiwiSaver is a great example. In the eyes of the law, that's a joint asset. Even if a husband or wife has a KiwiSaver with, say, 100 grand in it, it's a marital asset. But some people think it's just their KiwiSaver. So it's a mindset of addressing everything as joint and saying, "How can we actually grow everything together?" Because in the best case, we're going to have a really good retirement. Worst case, if we do split, everything is going to be joint. So how can we grow everything? What's the plan?

Rory: That's right. Relationship property is not about title.

Daniel: Your side bank account with 50 grand in it that doesn't have your partner's name on it? It's not yours.

Rory: Upon separation, it's still 50/50. Same with the business, the KiwiSaver.

Daniel: All your stuff. Everything that hasn't been addressed in an agreement, a prenup or a mid-nup, is joint relationship property. You do talk to clients at times and they say, "This house is my house," and they treat it separately. Sometimes that could actually hinder them, because they're burdening a mortgage separately in order to keep things separate financially. But if there's no agreement and you did split up, you'd have to share it anyway. So you might as well bring it into the family profit and loss.

Friends and family buying together

Rory: You'll see groups of friends buying properties, and mum and dad helping out. Is the majority of that stuff backed up with agreements?

Daniel: When it's family, from my end, it's generally just a handshake agreement. Obviously I don't see everything that goes on with the lawyers. But when I've helped friends buy a house together, which is actually really common, there's usually a property sharing agreement. That's very different from a relationship property agreement. It sets out the share each individual holds of the property, and maybe separates out portions of the mortgage. Say you had a million-dollar mortgage and four people. Each person has a $250K mortgage, they pay it off accordingly, and the more they pay off, the bigger their equity stake. Likewise, if some parties put in more deposit, they'll have a smaller mortgage for the same ownership stake, versus their co-owner who put in a smaller deposit and carries a larger mortgage. There are so many ways you can set it up. When it's friends, the lawyers will really push to get a property sharing agreement in place. With family, most of it's a handshake.

Rory: What sort of numbers are we seeing? Three, four, five friends buying a house?

Daniel: I've done five before. It's pretty hectic. I've done four individual parties, like two couples and two friends, so that's actually six people on the title.

Rory: The family pack.

Daniel: Friends buy together, co-own, and perhaps in the future it becomes a rental. It's an equity builder on the side. In the modern world, a lot of people want to limit their exposure. They want some exposure to property, but they don't want a full owner-occupied home to themselves. It's a great way to share the risk of having a mortgage.

Rory: 100%. You're in that co-living phase of life where it's really fun, you're starting your careers, you've got a little bit of deposit money but not the whole shebang. Joining forces is magic. We see more of it. Property is going to outrun wage increases, so that's a great way to get on the ladder. But the protection side would be interesting. If it's a five-pack and everybody's responsible for their split, there's more chance of things going awry. Someone gets an illness, gets sick, the disability side of things, and then there's a risk of default on that part of the mortgage. That affects the whole household.

Daniel: Essentially, in the bank's eyes, everyone is co-signed for the entire mortgage. You as a borrower are guaranteeing the entire loan. If your mate defaults, they can come after you to pay the arrears, and you would have to pay it. They're not concerned about what's going on in the background. You're responsible for the full mortgage. That's another element the property sharing agreement has to cover. And in line with this conversation: say four people own a property, one of them is in a relationship, and that relationship busts up. That person's partner has a claim against their stake. That's something we've seen before. A relationship property claim against a portion of the house, 50% of the one-quarter, or whatever it is.

Rory: What a nightmare. You're rolling the dice with these scenarios.

Daniel: Get a property agreement sorted and make a plan. That's the key thing. It aligns so closely to the advice we give around insurance, because it is insurance. A prenup or relationship property agreement is a form of insurance, to make sure that if the relationship breaks down, you're sorted.

Case study: Sally Ridge and Adam Parore

Rory: There's another case study in here. It's a celebrity one, so it feels a little strange to talk about.

Daniel: You're a celebrity in the office, at least.

Rory: In a very small bucket. This is Sally Ridge and Adam Parore. They got together after Sally and Matthew Ridge broke up. This is what marketing does to us. They're looking for some clickbait. Anyway, she had about $2 million coming into the relationship and Parore had about $220,000. Obviously the Black Caps weren't that lucrative back then.

Daniel: You're not getting that much from club cricket.

Rory: They didn't last. This is all public, so it's fair game to talk about. They were together for nine years. They had property trusts and an accounting business. When they separated, Sally pursued a claim for 50% of the business, and she was declined, and had to pay out $100,000 to Adam Parore.

Daniel: Wow. Just for the claim?

Rory: When everything got weighed up, she was coming after something of his. She had experience, coming out of the Matthew Ridge relationship with $2 million. And then it flipped on her, and she had to pay him out 100 grand. Adam Parore was one of my favourite cricketers.

Daniel: He's a gun. It's funny when you're talking about celebrities in New Zealand. They're so close to you that you feel like you're in someone's personal life.

Rory: The note here is that it's not about men always bringing the wealth. She brought significantly more to that relationship, went after more on her way out, and left with less.

Daniel: To avoid all of this: prenuptial. In theory it should get you sorted.

Rory: They obviously had something in place, because otherwise he would have got a lot more.

Four in five adult Kiwi are partnered

Daniel: An interesting stat I was looking at before the podcast: in the 2023 census, 45% of adults in New Zealand declared they were married. That's essentially half of New Zealanders, which I thought was higher than I expected. Then there's a huge chunk in de facto relationships, probably sitting around 30%. So 75 to 80% of adult New Zealanders are cuffed up. Although we're speaking like this doesn't apply to everyone, it kind of does. Almost four out of five New Zealanders are living with a partner and will have some sort of joint financial relationship. A big thing we often see is that when it comes to wealth building, people aren't on the same page. One person in the couple is really keen to get things going, buy an investment property, rein in the lifestyle, save for tomorrow. The other, not so much. So alongside the prenup, putting that plan in place, getting alignment on your values, getting on the same page, is going to lead to a very successful partnership.

The three-year clock (and the toothbrush)

Rory: You touched on de facto relationships, and we had a bit of a spiel about that. The three-year timeline. All those scenarios we're talking about, when they actually kick in. It's typically from living together. You're living together, the clock starts, and after three years, though it can be sooner, you'll generally be considered a de facto relationship in the eyes of the law.

Daniel: When it comes to relationship property, the laws are pretty comparable to marriage at that point. In terms of entitlement to each other's assets, it's exactly the same thing.

Rory: And if things happen quickly in your relationship, like having children early, that can speed it up. If you've got a kid together, you're basically married. You've got a pretty big contract there.

Daniel: You're tied together, 100%.

Rory: Same with a dog.

Daniel: Where do you draw the line? Anything with a pulse. Even a fish. You're joined.

Rory: We did have a goldfish.

Daniel: I remember when I got into the industry, I was speaking to a lawyer, and he told me about a partner making a relationship property claim against the other. They were trying to round up to the three years, because it was really close. There was a period where they weren't living together, so they were trying to pro-rata it to get to three years and legitimise the claim. And the source of truth they used was that she was leaving a toothbrush at his house. For her lawyer, that was the smoking gun to say, "Yes, she was living there." If you're leaving a toothbrush somewhere, that's your main residence. That's the fork in the ground to say, "Yep, I'm living here." And it held up.

Rory: It held up? Wow. That's a good lawyer. Maybe we should get him on the show.

Daniel: I'll try and track down that lawyer and we'll have them in for the bonus.

Modern relationships, traditional law

Daniel: It becomes so complicated in today's modern age, where people often view themselves individually. The traditional lines of marriage are that you're married and you're one person, essentially. One person brings all the income, the other contributes to the house. That's just how it worked. It's not really like that anymore. Each party is seen as equally responsible to contribute and pay bills. So if you have one who's earning four times the other, how do you reset that dynamic? This conversation is so important now because we're holding onto some of these traditional ideas, and the laws align with those traditional ideas, but values are changing and identities are changing. People in de facto relationships are treated by the law like they're married, but they don't view it like that. So it's actually really important to have a chat and get a relationship agreement in place if you're in that situation.

Rory: At least get a gauge. You want to know where the other person stands.

Daniel: Are you going to be sticking around? Are we going into the old-age home together, or is this a solo thing? Should I look for a single dwelling?