If you have accumulated wealth or even a family business or property which you intend to gift to your children under your will, you might be concerned that your children could ultimately lose part or all of that property if they go through a divorce or de facto separation. Perhaps you have accumulated property and you are concerned your new spouse might be entitled to some of it if you break up. Perhaps you just want some certainty that if you do separate from your spouse, you won’t need to go through a lengthy family law dispute.
The harsh reality is that all assets and liabilities are up for grabs in the event of a separation. It matters not whose name the asset is held in. Sure the court will take into account the fact that some property came from your side (whether by inheritance, gift from your family, or property you owned at the beginning of the relationship), which could even eventuate in you receiving a greater chunk of the property pool. However, the court will not take a dollar in dollar out approach. That is, just because you contribute a certain asset or sum of funds, does not mean that you will be able to retain that item/s if you separate, and it could very well end up in the hands of your former partner.
There is however one way to avoid this unfavourable outcome. By entering into a Financial Agreement (often referred to as a Binding Financial Agreement, BFA, or pre-nup), you can effectively contract out of the family law system, provided the Agreement adheres to the various requirements set out in the Family Law Act.
Whilst they are often called “pre-nups”, they do not have to be made before you marry, and de facto couples including same sex couples can enter into these types of agreements also. If you are a de facto couple, you can enter into a Financial Agreement:
before you start living together;
during your relationship when you are living together; or
after you separate.
If you are married or intend on marrying, you can enter into an agreement:
before you marry;
during your marriage; or
after you divorce.
A Financial Agreement can be as simple or as complex as you want it to be. For instance, if there is a particular property you wish to ensure you retain at the end of the relationship and you are not too concerned about what happens to the other assets and liabilities, you can enter into an Agreement that provides you will retain that property upon separation. The remaining assets and liabilities can be dealt with at the end of the relationship, either by agreement between you and your partner or if you can’t reach agreement by a court order.
Alternatively, you can have an agreement that deals with all property, including property you own at the time of the agreement, and future property you might accumulate. This option is particularly appealing if you wish to avoid a family law dispute altogether and the associated legal costs, and wish to have certainty as to your financial position in the event of a separation.
It is important that the Agreement is drafted by a lawyer experienced not only in family law, but in drafting these types of Agreements, and that both parties obtain independent legal advice before signing the Agreement about the advantages and disadvantages to you of entering into the Agreement and the effect of the Agreement on your rights. If the Agreement is not drafted in accordance with the requirements set out in the Family Law Act, the Agreement can be set aside and there have been many instances where this has occurred.
A compliant Financial Agreement is the only way you can have an agreement enforced upon separation. Any verbal agreement or even written and signed agreement will not be legally binding and will not be taken into account by a court.
When looking at Succession Planning, it is worthwhile considering a Financial Agreement for your children and their spouses to ensure your hard work is not lost in a lengthy and acrimonious court battle.
If you would like further information about Financial Agreements or wish to have a confidential discussion, please do not hesitate to contact Jacinta Norris of our office.