How to protect your assets from a new partner
If you are reading this, you may have been through the divorce or property settlement process yourself. Or instead, you may be looking at protecting assets from new partners for someone you care about. Here we explore how to protect your assets from a new partner as well as any existing partner.
When a couple has been together for two years, the relationship is treated the same as a marriage or de facto relationship. That is, in the event the relationship ends, a financial settlement may be required.
This two year relationship time frame is not the only factor that determines whether there should be a property settlement. Other scenarios where a financial or property settlement may be required are if the couple had been in a relationship for less than two years and:
- Have a child together;
- Bought assets together in both of their names; or
- Mixed their financial resources in any way.
If the relationship is determined to be a de facto relationship then a property settlement is likely. Alternatively, if there is no property settlement done, a claim could be made by one person, anywhere up to two years from the date of separation.
Reducing the risk of a financial claim
While the two year time limit is in place for anyone in a de facto relationship, we have seen the window of time that people have to make a claim be sometimes challenged. This is common where a relationship may have been “on-again, off-again” or there is a dispute about the exact date of the separation.
If one person makes a claim that the separation date was later, and there is no evidence to prove otherwise, then the time frame in which to make a claim may be challenged and extended.
Two years is a significant amount of time, and your wealth may well appreciate during that time. For our clients, the goal is always to minimise the risk of a property settlement claim later on, or at all, if it is not necessary.
When a relationship ends
Below are some scenarios that may unfold upon the end of a relationship:
- One or both parties are unaware of the need for a property settlement and go their separate ways without a property settlement;
- One or both people in the relationship are aware that they may need to go through the property settlement process. They begin negotiations, hopefully avoiding the need to go to Court to get to a resolution; or
- You take your chances and hope that your ex won’t make a claim within the two year window.
There are two ways to minimise the risk of a claim on your wealth, or “property” as it’s collectively referred to in family law:
- During the relationship, ensure that you both keep all finances completely separate at all times. This means paying for everything separately or 50-50 at all times. This approach requires great discipline and detailed record keeping to be effective; or
- Create certainty about any entitlements with a Binding Financial Agreement.
A Binding Financial Agreement (BFA) is a legally binding document that details “who gets what” if the relationship were ever to come to an end.
Protecting assets from new partners with a BFA
An expertly drafted Binding Financial Agreement can be drafted to allow for:
- Protection mechanisms for any business interests (to minimise the risk, impact or disruption);
- A split of the assets and liabilities than might not be permitted otherwise;
- Confidentiality and privacy of the terms of the settlement (unlike matters in Court); and
- Flexibility to accommodate a range of scenarios to ensure both people can be certain about what they will walk away from the relationship with.
A BFA helps people know what they will walk away with but it also protects investments such as businesses. When a BFA is comprehensive, assets or interests may be able to be quarantined from any future settlement.
And importantly, a comprehensive and enforceable BFA will expedite the otherwise slow property settlement process. As the negotiations were completed beforehand, there is far less to manage and do. This significantly reduces stress, legal expenses and a myriad of other issues.
Binding Financial Agreements, if drafted correctly, can include mechanisms for how assets are to be acquired throughout the relationship. While these are not a complete list of the benefits, it illustrates that BFA’s create an increased certainty of outcome.
Importantly, there is a misconception that BFA’s are only for very wealthy individuals. Binding Financial Agreements are suitable for anyone who wishes to avoid the financial uncertainty and disruption that a relationship breakdown brings.
Ensuring your financial agreement can be enforced
To create an enforceable BFA, you must each seek independent legal advice before signing the agreement.
If you ever have children together, you will require amendments to your BFA to ensure that the agreement can be upheld. And, because financial disclosure is required, all information about your financial position must be shared. If any asset is left out, this will make the Agreement invalid.
If the thought of having the conversation creates concern for you, we help our clients with the language and approach that we know has been effective for our clients in the past.
You may be wondering:
“Is this only suitable for people who haven’t yet moved in together?”
How to protect your assets in a new relationship or an existing relationship
A Binding Financial Agreement can be drafted at any point in a relationship. Your Binding Financial Agreement can be drafted before moving in together or even during the relationship. It is an asset protection device for any couple, even if they have no intention to separate.
Given that ongoing conflict and drawn out negotiations or Court processes often contribute to poor health and wellbeing, and create significant issues in businesses, adopting a comprehensive risk management approach that a BFA offers, is wise.
Avoid overlooking a Binding Financial Agreement as a core wealth and asset protection device. If you are already in a relationship, or embarking on a new relationship, give yourself the gift of certainty of outcome. That, and enjoy the added benefit of not having to add property negotiations or Court into the mix if your relationship comes to an end.
Regardless of where you are in your decision-making process, our team can make you aware of your options. To discuss your situation confidentially, phone (03) 9793 7888 or email us at email@example.com.