When two people choose to live together in a de facto relationship or a marriage, they each bring with them assets, liabilities and financial resources that they have acquired prior to the relationship. In some cases, they will have accumulated this from their own respective incomes and endeavours and in others, they may have received gifts or inheritances from their families. During the relationship, they may also receive further benefits and gifts from their family and on occasion, family wealth and assets of significant value may be passed down to them.
The role of trusts and financial structures
While it can be useful to hold family assets in trusts and other structures, the only truly effective way to protect assets received from family from a divorce or separation is to enter into a Binding Financial Agreement (BFA) with your partner either prior to or during your relationship.
What is a Binding Financial Agreement (BFA)
Under the Part VIIIA of the Family Law Act 1975 (Cth), parties entering into a de facto relationship or marriage or parties already living in a de facto relationship or marriage can enter into a Financial Agreement with their partner. This Agreement can deal with how the parties divide the property of their relationship or how they will financially support each other in the event of a breakdown of that relationship in the future.
Protecting pre-relationship and inherited assets
A BFA setting out the terms of a property settlement can state that each party is to keep the assets that they brought into the relationship and the assets that they each receive during the relationship. The Agreement should also explain how the joint assets of the parties are to be distributed in the event of a separation.
Benefits of a BFA
This means that these Agreements can effectively protect assets that are gifted or inherited from a person's family and confirm that the person receiving that gift or inheritance will retain that asset or assets, if the two people separate in the future. The Agreement does this by confirming that each party agrees that the Family Court will not have jurisdiction to determine a division of their relationship property if their relationship ends. It is important that a BFA be prepared carefully and correctly in order to protect your assets. Each party entering into the Agreement will need to have their own independent lawyer to explain the effect of the Agreement on their rights and entitlements and the advantages and disadvantages of signing the Agreement at the time that it is signed.
How can we help?
While you don't enter into a relationship or marriage thinking that it won't last, at the same time it is sensible and practical to give some thought to protecting your assets and the assets that you may receive in the future from your family in case it doesn't work out.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.