A divorce is not just the dissolution of a romantic relationship; it’s also the breakdown of an economic partnership. Is there any way to ensure asset protection during a divorce?
A divorce can be a complex process. From the first home you made together; the two cars and a mortgage, to the child or children you raised together and the assets you bought – including shared financial accounts and credit card debts – your life and what you have to show for it, more often than not, is inextricably linked to that of your partners.
How Property Settlements are Determined
Assessing and legally deciding the entitlements of either partner in the relationship are determined by a number of factors.
Whether you handle the matter independently and try to settle, or take the matter of your separation to court, your legal representative will be looking at the contribution of either spouse to the relationship, their child’s life, and the ability of either spouse to care for themselves and their children as a result.
These factors are included in Section 75 of the Family Law Act, and include:
- The length of the relationship;
- Health of parties;
- Age of parties;
- Number of children;
- Whether the children are below the age of 18, above the age of 18, or above the age of 18 but still living at home and thus considered as dependents;
- The earning capacity of the male and female;
- The primary caregiver of the children;
- The financial resources that one party has over another – including superannuation;
- The value of assets, liabilities;
- The net financial contributions of either party; and
- The net (non-financial) contributions of either party.
- Based on these factors and more, either legal representative will advise accordingly.
Similar to most family matters, you want to handle property disputes outside of court if you can manage it. Your legal representative can work through your property agreement to, where possible and applicable, reach a considered and even distribution of property resources.
Your property entitlements will be considered based on:
- The assets you and your partner walked into the relationship with; including property, investments and business;
- The net value of your current assets, including the value of property such as houses, shares and cars; and
- Each person’s contributions over the course of the relationship – which include direct financial contributions (your wage, payments earned off properties or improvements made to properties), and indirect financial contributions (gifts, inheritances or the regular payment of household expenses).
Asset Protection During Divorce
Nobody enters a marriage thinking about divorce, but it is unfortunately a reality for many. This is especially true for those who are entering a second or third marriage and have accumulated assets prior to their new marriage. How can they ensure asset protection for their children?
A binding financial agreement
may be your best option. There are no set rules about what a binding financial agreement should look like or contain, but you must receive independent legal advice to enter into one.
Option 1: Quarantine
The first option
is to come to an agreement that any property brought into the relationship won’t form part of the property for distribution if the two parties decide to separate. For example, you could agree that your investment property, and any inheritance you receive, will be yours and yours alone. Any assets that you acquire together in the course of your relationship can be divided in accordance with the usual principles that will apply to the circumstances that exist at the time of separation. The property that you bring into the relationship will thereby be ‘quarantined’ from division.
The problem with this arrangement is that it doesn’t necessarily protect your interests very well. The courts may not make orders in relation to the property that’s been quarantined, but it may choose to give more of the jointly acquired assets to your former partner, because you have the investment property or inheritance.
Option 2: Comprehensive agreement
The other agreement option determines how all of your property will be divided on separation, whether you own it now or will acquire it in the future.
Such an agreement is certainly preferable in terms of making comprehensive arrangements in the event of a relationship breakdown.
It can be very difficult to predict what your circumstances may be in the future. An agreement which may look fair if there are no children – for example that each party keeps whatever they brought into the relationship, and the rest is divided equally – may look unfair if a child is born to the relationship and one of you is the primary carer of that child.
It’s also hard to anticipate future events. For example, what if you become disabled and can’t work, and your partner has to take over the payment of the mortgage on your investment property? An agreement saying that the property will always remain entirely yours may seem fair at the time, but can become unfair as a result of this change in circumstances.
Although an agreement can provide asset protection, it can also be the cause of self-inflicted injury if you’re the one who would end up being disadvantaged, in light of subsequent events or change of circumstances.
The great advantage of having such an agreement, however, is that it provides some certainty around asset protection in the event of a relationship breakdown. Yet, as mentioned before, nothing can be assured, since the courts have the power to set aside agreements in certain circumstances.
We can assist with advising you on drafting a binding financial agreement and on whether you ought to sign one. Contact us today
for your FREE, 10-minute phone consultation.