Contracts and Agreements - How to Protect Your Finances
This article is about contracts and agreements e.g. rental agreement, mortgage agreement, loan from family member or friend, credit card agreement, hire purchase agreement etc... and what you should be looking for to protect yourself and your assets. These are the kinds of agreements that affect most of us whether we have limited funds or a great deal of money. Whether we are making these contracts and agreements with people we love and trust or whether we are making them with strangers. There are some simple rules of thumb that we should all be looking at as they apply to most of us. Historically, 100-200 years ago, most countries did not recognise women's rights to own property. They could not get a mortgage or credit without their husband's permission. They themselves were treated as chattels. If they wanted to know about money, they were told not to worry their pretty little heads - so it became the man's job to worry about money and the woman's job to take care of his personal needs and to be the heart of the house. He worked, he provided for their needs, she took care of the children, the household chores and her husband's needs. Consequently when a husband died or divorced her or just disappeared, she was left not knowing how to balance a chequebook, not knowing what her mortgage rates were, or how responsible she was for paying that mortgage down. She had no knowledge of insurance and was often left without insurance coverage for herself and her family. As far as her car was concerned, she knew how to put the key in the ignition and get to the nearest service station. Nowadays, women are in top positions in corporations but many of them still have their husband's making the major decisions on things like insurance, mortgage rates, investments, medical coverage and pension plans. Historically, when a woman gets into a relationship, she's always given her husband dominion over her assets. She could come into a marriage with a house completely in her name and once she gets married and he wants to be put on the title to it, she doesn't question it. Also, historically, a woman takes the softer view. I love him, everything we have is ours. We share and share alike. I should be putting the house in both of our names. WRONG, wrong, wrong. If he wants to be put on the title, or you want him to be put on the title, get 3 evaluations of the house and let him give you his share of the money for that house. After all if you are going into a business partnership and someone wants to buy into your business, you would have your business valued at current prices, and that partner would have to buy in cash at the current value. A house is no different. Once he is on that title, he can do anything with that house, he can take out loans against it, and he can walk out on you, or he can mortgage it to the hilt and die leaving you with debt. The same can be true of a man who owns property, but men usually cover themselves with pre-nuptial agreements. Women, historically have not been that smart. They have got smarter in recent years, but because their emotions are engaged so quickly and so deeply, they often have to be reminded to protect their assets. The same thing holds true if you own your own house and your spouse wants you to sell it so that you can move into a larger place - once again, that partner should be compensating you with the value of his or her share of the house before you sell it. Because if the marriage falls apart, either way you would lose out because when it comes to a division of assets - you only own half of the new house and none of the house that you had in your own name before the partnership. For example, I knew someone who had her own home that she had bought with her own money and had been living there for a number of years and that house was almost paid off. Then she got married. The new husband moved in. A few months later, he decided he didn't want to live in that house. He wanted them to sell it and live in another house. After their divorce 15 years later, all she was able to get was half of the new house and nothing of the house that she had originally. When you are dealing with monies, even if you are in a deep relationship, with a family member, a friendship, your spouse and you trust the other person deeply. You have had a lot of experience over the years and you think to yourself that you don't need a written agreement - think again. You can never tell if or when the other person is going to back off and leave you with the debts and responsibilities or if the other person is going to sell off their half of the partnership leaving you unprotected. You may trust this person wholeheartedly and may never had cause to doubt them - but circumstances can and often do change. For example, I knew a guy who had been having marital problems with his wife. All his money was tied up with hers and in their house. He was advised by a counsellor to start saving money in a different bank account from where he and his wife had an account, a bank she knew nothing about. On New Years Day after everyone had left after a party, she threw him out of the house and would not allow him to come back. Luckily, he had put some money aside in a separate bank account. Had he not done this, he would not have had the money for a month's deposit on a lease and he would have been out in the street. On a professional level, I have a client who is having a house built, and she has known her builder for many years and he's done work on other houses of hers. He has given her a quote for the work and said that it will not be above $120,000 for his labour costs - but she has decided that she doesn't need a written agreement. I advised her that no matter how well she knows her builder, she does need a written agreement stating that his costs will not be above $120K. What happens if he is injured and he hasn't been paying his public liability insurance? What if he goes into bankruptcy and just leaves the job halfway done and leaves the country? If you have a quote from a builder with materials included, their suppliers could go out of business, the builders costs could go up and your costs could go up accordingly. If you want to protect yourself on materials, open up an account at a builder's merchant so that you can buy the materials yourself and you can get the most competitive prices. That way, when your builder is quoting you prices for labour, you know you are just paying for labour and you can negotiate his labour costs, especially now when construction work is in such short supply. So as you can see, on a personal and a professional level, you always need a written agreement. You can be in a romantic relationship or a marriage and all of a sudden your partner goes to the bank and draws all your money and you are left with all the debts. And no matter how much you love someone, where there is money involved, make sure everything is spelled out really well. Make sure your lawyer has covered everything and you are not leaving any loopholes. For example, I knew someone who had been married for 25 years and their only daughter was getting married. The wedding was very expensive and as soon as they got home from their daughter's wedding, she started preparing for bed. She sees her husband has a suitcase and he is emptying his drawers out into the suitcase. What are you doing? I am packing, I'm leaving you. I just wanted to wait until our daughter got married and was out of the house so I could leave you. I have found someone else. After 25 years of marriage, he just walked out and left her with a pile of debts. If you being asked to sign anything e.g. a husband of 30 years - make sure a lawyer checks the paperwork. Ensure that someone can explain it to you and don't be led like a lamb to the slaughter. In the end that partner may leave you, divorce you or die and may leave you with a lot of debt. You need to know what you are going to be responsible for. Another important point to remember is that if anyone wants you to sign papers quickly, your answer has to be NO. Don't ever allow yourself to be rushed into a financial agreement. No matter how good the deal might sound, you need time to assess whether it is right for you. If you are ever asked to sign a lease, or a mortgage with your partner or spouse, make sure you understand it thoroughly. Make sure you can afford it. People have a tendency when they sign a lease or a mortgage to figure out how much they can afford to spend each month. What they DON'T calculate into these costs is a failing economy, or one or both of the partners being laid off or fired and they are out of work for an extended period of time and cannot find other employment. So if you are contemplating signing a lease or a mortgage with a partner, make sure you calculate it for just one income, because if you are basing it on two incomes in this economy you may find that you do not have enough money to cover the rent or the mortgage. Don't be embarrassed to tell your spouse or business partner that you want to speak to a lawyer to have him go over the fine print with you. When signing a legal document, many people don't bother to read the fine print - or if they do bother to read the fine print, they don't understand all the details. Wherever your money is being spent, that's where you need to be very vigilant about your role in protecting it. Barbara Goldsmith, MBA, CeFA, Cergi, CeMAP, Professional Financial Adviser. She ran her own property investment company in the UK for several years before moving to New Zealand three years ago. She advises people and businesses around the world. She has her own weekly television show: Money Talks with Canterbury Television.
