How to Protect Assets from a Divorce
It can be a stressful time when going through a separation or divorce, especially when you consider that most people own major assets with their spouse, like their family home and cars, and some have had their property since before the marriage.
It can be even more frightening to think that you could potentially walk away from those things you’ve worked so hard to achieve because the relationship didn’t work out.
Typically, most people who experience a relationship breakdown or the end of a marriage will engage with lawyers to help divide the asset pool with their spouse (or de facto); and they achieve this most often by way of an Application for Consent Orders to the Federal Circuit and Family Court of Australia.
However, at any stage of your relationship – before, during or after – it is important to know that there are options available to you to help protect any assets that you may already have, or which you might acquire in the future, from being available for division after your separation or divorce.
How to Protect Assets from Divorce Australia
On 27 December 2000, amendments were made to the Family Law Act 1975 (Cth) (‘the Act’) which introduced the concept of financial agreements; this was the first time that married couples could enter into an agreement to contract-out of the provisions of the Act that previously required Court intervention in every case.
Also known as a prenup, Binding Financial Agreements provide an opportunity for parties to a marriage (or defacto partnership) to contemplate and decide from the outset how their respective financial interests, including any assets and spousal maintenance, might be dealt with after their separation or divorce.
Couples enter into these Agreements during their marriage, in contemplation of their separation or divorce, and also after they have obtained a divorce order from the Court.
Each of these three types of Agreement are provided for within the Act:
- Section 90B of the Act provides for financial agreements before marriage;
- Section 90C of the Act provides for financial agreements during a marriage; and
- Section 90D of the Act provides for financial agreements after a divorce order is made.
It is important to note, however, that these agreements cannot be used for issues concerning the parenting of the children of the relationship, and an Application for Parenting Orders may still be necessary where your separation is not amicable.
How can a Financial Agreement protect assets from a Divorce?
Entering into a Binding Financial Agreement is not as easy as typesetting an agreement between you and signing on the dotted line.
Instead, the Family Law Act 1975 (Cth) requires that both parties to a financial agreement receive independent legal advice, to avoid coercion, control, fraud and mistake, and to ensure that each of the parties knows what impact the agreement will have on their rights and entitlements.
You should be aware that a lawyer, or law firm, can only ever assist and provide advice to one of the parties, to ensure that there is a degree of independence and so that there can be no conflict of interest.
This is why each of you must have your own lawyer.
If you are making the agreement before you are due to be married, it is a good idea to think about how your financial interests might look in many years’ time, should your marriage fail.
Often what we bring to a marriage is far different from what we might have in a decade or two, and changes such as children have a great impact on our lives.
The drafting of a Binding Financial Agreement is not something that happens overnight, and often takes great consideration to ensure that the advice provided is specific to you.
This is not something to be rushed, and you should give careful and meaningful consideration to the implications that signing may have on you.
Financial Agreements & Protecting Assets
Binding Financial Agreements are often attractive to couples who are currently, or intending to be, married or living together because they wish to have some certainty as to how their financial affairs will be dealt with should their marriage break down, including the protection of certain assets.
Some other common reasons for choosing a Binding Financial Agreement instead of formal property settlement by way of Application for Property Orders are:
- The avoidance of conflict concerning financial matters, both during and after the relationship;
- The avoidance of expense, uncertainty and delay of litigation;
- The ability to protect assets from a divorce held before the commencement of the relationship, or acquired during it by inheritance or otherwise; and
- The ability to make your own arrangements for ownership and management of assets during or at the end of the relationship.
There is notably a greater degree of flexibility in what you might achieve with a Binding Financial Agreement, and the surety of protecting your assets from a divorce can often be the most attractive element.
For some, it is vitally important that the assets they hold before the commencement of a marriage are kept theirs after a separation or divorce; whether it be an heirloom, a company, a home, or a collection of some description.
In the event of divorce or separation, the terms of the Binding Financial Agreement may be enlivened, and offer each of the parties surety of their next steps regarding how assets and other financial interests are to be dealt with.
Duty of Disclosure in Family Law
As with all property settlement matters, it is best practice that the parties to a financial agreement exchange full and frank disclosure between them as regards their financial standing.
This disclosure includes, but is not limited to:
- Payslips, or other proof of income and earnings;
- Bank statements for all accounts over which they have control, whether personal or business, and in whatever name;
- Trust documents, including financial statements, for any trust of which the parties are named appointor, trustee or beneficiary;
- Evidence of ownership of all real property, whether held jointly or separately;
- Evidence of any disposal of property, whether real or personal, including any profit derived from its sale, when it was sold, and whether any loans associated with it were discharged;
- Evidence of any liabilities they may have, including credit cards, HECS debts, income tax debts, home loans, car loans or personal finance;
- Statements of balance for all superannuation accounts in each of their names; and
- Evidence of any other financial resource.
If either of the parties conceals an asset at the time of making the financial agreement – especially where they conceal the asset to induce the other person to sign the agreement – this may (likely) mean that the agreement was obtained by fraud, and can be later set aside by the Court.
This can otherwise make the matter unnecessarily complex and expensive for all involved.
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Related Blog – What is my partner entitled to in a Divorce?
