Why married couples are signing ‘mid-nups’ to protect their wealth

Welcome to the age of the mid-nup as couples turn to binding financial agreements, what prenups are referred to in Australia, years after they’ve been married.

Divorce specialist Susan Warda, a partner at law firm Mills Oakley, says there’s been a noticeable shift over the past decade.

“I have couples where women might instigate a binding financial agreement during a marriage if they feel the marriage is fragile and they are uncertain about whether or not they will remain in the relationship,” Ms Warda said.

“This can often arise if there has been infidelity in a relationship, but they have made a decision to remain together.

“In other cases, the decision is less emotional and more pragmatic.

“I also see it in circumstances where couples are staying together because of children but both expect that they will separate with the passage of time and they want to set out now what it will look like when they separate by way of asset division.”

The change is being supercharged by several factors. One is the rise of highly educated and working women. Then there’s a great wealth transfer that is under way, prompting parents to have conversations about inheritance that comes with strings. Those strings are to quarantine the wealth to the family bloodline.

A report from wealth management firm JBWere, titled The Growth of Women and Wealth, projects that women will be the primary beneficiaries of this movement, inheriting two-thirds or an estimated $3.2 trillion over the next decade.

“The generations of women coming after us are more informed about money than what we were,” says Cathryn Gross, partner at Minchin Moore Private Wealth Advisers.

“Women are more likely to be university-educated, and most households now require two salaries. These factors are driving women to be more savvy about their money.”

How do mid-nups work?

A binding financial agreement put in place part way through a relationship can effectively draw a line in the sand on the valuation of assets.

It can be used to define how all current joint assets would be divided upon a split, and then set new rules for future earnings or assets.

“You can have a financial agreement that just deals with a discrete aspect such as quarantining future assets,” Ms Warda said.

This is common when one partner is about to receive a large wealth inheritance.

“That person may decide themselves, or at the request of a parent who insists on a BFA prior to transferring assets to them,” Ms Warda said.

“In this case the prenup [BFA] might say that in the event we ever separate, any inheritance either of us receive is quarantined from any asset division in our property settlement.”

The agreement can be used to “set out what things will look like when a couple separate”, covering the entire asset pool.

Crucially, for any BFA to be valid, both parties must get independent legal advice.

“Each party in the relationship has their own lawyer and the financial agreement has to have a certificate of independent legal advice signed by each of their lawyers,” Ms Warda said.

Data from the Australian Bureau Statistics shows that divorce rates have declined ever so slightly in recent years. Roughly three in 10 marriages end in divorce, but divorces are getting more complex because divorce is happening later in life. The median age for men getting a divorce is now 47 years, while women are on average 44.

Financial stress is a leading cause for divorce. Research by the US Institute for Family Studies shows that the wealthier the couple, the less likely a split.

On the flip side of this, the wealthier the couple, the more expensive the divorce is likely to be, making a prenup almost an essential item for wealthier individuals.

According to Unified Lawyers, more complicated divorces involving parenting or property tend to see both parties pay upwards of $100,000.

With a BFA costing upwards of $10,000, Ms Gross adds that it is becoming an important strategy for reducing the risk of financial vulnerability.

“I do see women becoming much more financially independent,” Ms Gross said. “They are being more proactive in thinking, ‘How do I gather all my financial information before I have a conversation about a BFA or separation?’ This move from being uninformed to informed is crucial.”

How to have a conversation about a mid-BFA

Dominique Bergel-Grant, a divorce financial planner at Navigate Your Divorce, said when it came to sparking up the conversation for a BFA well into a relationship, it was important to see the agreement as just another form of insurance.

“A good financial planner might initiate the discussion and say: ‘Look you guys, I’ve just met you, you’ve walked into my office, you’ve been married for 10 years, do you have a financially binding agreement?’ Ms Bergel-Grant said.

Whereas when a financial planner or lawyer isn’t involved, one party in a relationship might initiate a conversation along the following lines: “Look, let’s make sure we are in this relationship for the right reasons and not because we are worried about money,” she said.

“The grey divorce is real and we would be wise to put an insurance policy in place from a position of strength and be adult about it.”

This article first appeared in The Australian as Why married couples are signing ‘mid-nups’ to protect their wealth