Relationships: From first date to de facto

Falling in love can be one of the most exciting times in our lives. But over time, romance can be replaced by financial hardship. Here's how to prevent that happening. This is the first instalment of our three-part series on relationships and money.

That moment when you meet the person you want to spend the rest of your life with is life changing - and that feeling of being able to live on love alone, no need for mundane things such as food or water to sustain you.
Plenty of Australians fall in love each year.

And around 120,000 couples (close to 250,000 people) formalise it each year by getting married. Many more enter de facto relationships.

This love is something to be celebrated. And to be clear, many Australians will enjoy long and loving relationships. But it is a fact of modern life that many people will discover theirs is not a 'till death do us part' situation.

As in many developed nations, Australia has a high rate of relationship breakdown.

Ian Shann, family lawyer and principal of Perth-based mediation firm Move On, says no one expects their relationship will end in separation or divorce.

"But the reality is that about 30% of first marriages end in divorce, while second and subsequent marriages have a divorce rate of around 60%. Throw in de facto relationships and the overall figure is closer to 50%," he says. No one thinks it will be their special relationship that goes bust, but the odds are fairly reasonable that it will.

The grim statistics don't stop people looking for a life partner. The growth of dating apps is testimony to this. Why do we do it? As Shann notes, "There is no end to hopefulness when people enter a relationship."

While the odds are slightly in favour of a lasting relationship, if things get rocky you could end up nursing a lot more than a broken heart. Separation and divorce can have a devastating impact on personal wealth. The division of assets, plus contributions towards the cost of raising children, can strain household cashflows and significantly diminish personal wealth.

In fact, money can be a leading cause of relationship conflict. A 2024 survey by Relationships Australia found cost-of-living pressures are a key issue in many relationship breakdowns.

This being the case, if you can sort out financial matters at an early stage, you may have crossed a major hurdle and be on track to enjoy a lasting relationship. If not, it's important to know how to protect your wealth.

Here's what to consider in each life stage.

Stage 1: Starting a relationship

Money matters are probably the last thing on your mind at the start of a relationship.

But Glen Hare, co-founder and financial adviser at Fox & Hare Financial Advice, says there are three core financial issues people should consider when things start getting more serious.

Look for the red and green flags

This stage of a relationship is the ideal time to identify problem areas that could signal trouble further down the track.

"First, look at your partner's relationship with money," says Glen. "Are they risk averse or more aggressive in their money management?

"Second, are they comfortable talking about money? Our personal views around money can be shaped by many factors, including friends, family and work colleagues.

"Third - and most importantly - do your partner's goals align with your own? For example, is your partner keen to buy a home, start a family or take extended leave from work for a sabbatical in the next few years?"

As Hare notes, the financial decisions we make at a younger age contribute to building the life we want to lead. "If you want to buy a home and your partner doesn't, it's likely you will each manage your money in different ways."

Money talk matters 

The only way to know how your other half deals with each of these factors is to have conversations about money. The catch is that these discussions don't always come easily.

"In any relationship, one person is likely to be keener to talk about money than their partner," says Hare. "However, it can help to start conversations where money is the enabler."

This means talking about what you both want to achieve in life and how your financial decisions are aligned to these goals. "If you both want to buy a home in the next few years, you may need to talk about this year's holiday being in Bali instead of Europe," says Hare.

"The key is aligning money decisions with shared goals. If you are not working towards the same goals, there probably isn't a lot of longevity in the relationship."

Stage 2: Living together - de facto or married

This is where things get real - when you and your partner share a home. Official 'coupledom' brings important considerations. Notably, whether you're seen as a couple in the eyes of the law.

Under Australian family law, you may be regarded as being in a de facto relationship if you and your partner have lived together for at least two years.

This isn't the only benchmark, though.

If you share a home, have a sexual relationship or hold yourself out to others as being a couple, you can be viewed as being in a de facto relationship.

This matters because if you break up, all assets can be on the table - yours and theirs - to be divided up in a property settlement. It's a stark reminder to look beyond the early bloom of romance and recognise the possible financial ramifications.

Testing the waters 

The days where couples automatically pooled all their cash are increasingly behind us. A Finder survey found six out of 10 Australian couples share their money equally (see table, opposite). However, this differs widely between generations. Baby boomers (77%) were the most likely to share finances equally, compared with Gen X (61%), Gen Y (58%) and Gen Z (31%).

That said, around 84% of couples have a joint account, and it can be a simple way to gauge your financial compatibility while also having a practical role to play.

"If your intention is to live together, it can help to open a joint account where each person contributes an equal amount for shared household bills," says Hare. "This alone can be the first prompt for a numbers-based conversation."

Your partner's willingness to go along with a joint account can speak volumes.

"If they can't commit to this, it can be a red flag," says Hare.

Take a 'household' view

The contribution to living costs in a joint account doesn't have to be split 50:50. A higher-income earner may contribute more than their lower-income partner. Hare says it can help for couples to take a 'broader household' view rather than clinging to a 'yours and mine' approach.

This can be particularly important when the relationship progresses to growing savings, buying a home and building a portfolio of investments together. That's because tax can play a role in whose name various assets are held.

"Tax is important in a relationship," says Hare. "One partner almost always earns more than the other, and it makes sense for investments to be held in the name of the lower-income earner as they will be on a lower marginal tax rate. Yes, this involves trust and looking at things from the broader household perspective."

As a guide to how this can work, Hare cites the example of a de facto couple he recently advised. The man had a $400,000 mortgage on an owner-occupied home and a small balance in the loan's offset account. His partner had savings of around $250,000, having just sold an investment property.

"It made financial sense for the $250,000 to be deposited in the offset account rather than held in a separate savings account," says Hare. From a household perspective, the savings on loan interest would far outweigh the interest income his partner would earn.

"The challenge for couples in this position is whether they are comfortable combining their finances to this extent," notes Hare. However, one person who earns more may have higher personal wealth. This doesn't mean their partner contributes less to the household.

"Finance is just one element a person brings to a relationship," says Hare.

What's mine (isn't) yours

A pre-nuptial agreement, known as binding financial agreement (BFA) in Australia, is a legal contract that clarifies who gets what if the relationship ends. It can be entered into and updated at any stage of a relationship. In this sense, a BFA can be seen as an insurance policy to protect your financial position if things go wrong.

But they're not the answer for everyone. It's estimated that fewer than one in five Australian couples has a BFA in place. There are good reasons for this.

Ian Shann believes a BFA "can save a huge amount of grief later on" but notes intending couples may feel it's not a great way to prepare for a long-term marriage. Beyond the psychological hurdle, young couples often don't have much in the way of wealth to protect.

A bigger issue can be the cost. Shann says the formalities behind a BFA can be onerous. As a result, a BFA can cost around $5000 per person.

Glen Hare says that among his clients, who have an average age of 34, the question of a prenup arises only occasionally and is typically triggered by one of two situations.

The first is where one member of a couple has seen a breakdown in their parents' relationship and the impact this can have.

The second is when one person in a couple has received a large inheritance. "They often feel a sense of obligation to keep the money in the family," says Hare.

"In this circumstance, their partner often accepts the idea of being carved out of the inheritance [by a BFA] as there tends to be a psychological disconnect from the money or inherited asset."

The picture is becoming more complex as the Bank of Mum and Dad plays a growing role helping adult kids buy a home. Shann says this can see a couple face outside pressure to sign a BFA, giving parents reassurance that their financial contribution to buying a home doesn't end up in the hands of their child's estranged spouse.

The picture for BFAs can be different for older or re-partnering couples.

Life admin for new couples

Among the excitement of setting up a home together, couples need to tick off a few life admin matters.

One of these is having life insurance in place.

"Life cover isn't for you, it's for your partner," says financial adviser Glen Hare. "Your need for cover should be triggered when you have either debt or children. Importantly, both partners should have appropriate life cover to reduce the strain on the household if the unexpected happens."

Another step to address is drawing up a will. Hare recommends having a will in place from the time you move out of home and start growing personal wealth.

"It can be very cost effective to organise a will in your 20s as most people typically just state who will inherit their entire estate rather than nominating a beneficiary for every single asset," he says.

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