de facto asset protection

Protecting My Assets In A De Facto Relationship

No matter how you look at it, ending a de facto relationship can be a difficult and emotionally traumatizing experience. The financial implications of a breakup can further muddy the water between separating de facto couples. This is often more evident if no consideration was given to de facto asset protection strategies at the commencement of the de facto relationship.

asset protection strategiesIf you have assets, irrespective of the dollar value, breaking up with a de facto partner can be made more difficult by concerns about the financial fallout. Coupled with de facto asset protection concerns and succession planning issues one party to a relationship may have a very different agenda.

The question then becomes, can you protect assets when in a de facto relationship when you are either intending to marry or just live with your partner in a de facto relationship?

Imagine this, you are in love and at the beginning of an exciting new relationship. You also have significant assets, including investment properties and wish to negotiate some form of de facto asset protection agreement with your new love.

In terms of asset protection strategies it is possible to come to an agreement about what will happen to your assets and any relationship assets if your relationship was to breakdown, whether you get married or not. These agreements are often called Binding Financial Agreements or BFA’s. There are two main ways to make an agreement and in turn protect your assets when in a de facto relationship.

If you are interested in ways to protect assets when in a de facto relationship, then the first option is to come to an agreement with your partner that any property brought into the relationship y either of you, won’t form part of the relationship asset pool if your relationship was to breakdown. De facto couples could agree, for example, that an investment property, and any inheritances received, will belong to one of you only.

Any assets that are acquired together in the course of the de facto relationship will become assets of the relationship and can be divided in the event of a relationship breakdown. The property that you bring into the relationship will thereby be ‘quarantined’ from division.

The problem with this asset protection strategy is that it doesn’t necessarily protect your interests very well. If you were to find yourself a respondent in a de facto claim you may find that a court wont make orders in relation to the property that’s been quarantined, but it may elect to give a higher percentage of jointly acquired assets to the other party, because you have the investment property or inheritance.

As we mentioned earlier there is a second option when considering an asset protection strategy. This type of agreement determines how all of your property will be divided on separation, whether you own it now or will acquire it in the future in joint names or not.

This asset protection strategy is certainly preferable in terms of making a comprehensive binding financial agreement that will not be overturned in court in the event the relationship breaks down.

Circumstances can change and predicting your future financial status may be difficult but ensuring that your binding financial agreement has a sense of fairness is advisable. Your asset protection strategy may look fair and reasonable to both parties if there are no children & for example each party keeps whatever they brought into the relationship, and the rest is divided equally if the relationship breaks down. The same de facto asset protection strategy may look unfair if a child is born to the relationship and one of you is the primary care giver to that child and therefore not earning an income.

It’s also difficult to predict future events. What if, you have an accident and can’t work, your de facto partner takes over the payment of a mortgage on an investment property they previously signed away any right to? A binding financial 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 type of change in circumstances. A sense of fairness and changes in circumstances need to be considered when planning de facto asset protection strategies and creating binding financial agreements.

One of the biggest issues with any de facto asset protection strategy is time. You are often making an agreement about how you will divide relationship property and other assets in the event of a de facto relationship breakdown in 8, 13 or 21 years time and this can be both positive & negative for both parties.

Although you are trying to protect assets when in a de facto relationship any agreement you sign, can also have a negative impact on you if you’re the one who ends up disadvantaged, in light of subsequent events or change of circumstances.

You also need to keep in mind that by creating a binding financial agreement you are admitting your relationship is a de facto relationship. If you were to find yourself a respondent in a de facto matter you would not be able to challenge the courts jurisdiction to hear the matter as a litigation strategy. This is because you would have effectively admitted the relationship through the creation of the binding financial agreement.

The great advantage of having any form of de facto asset protection, such as a binding financial agreement, is that it provides a sense of comfort and some certainty in the event of a relationship breakdown. Nothing can be assured, the courts have far reaching powers and can set aside binding financial agreements in some circumstances.

That said, a fair, properly drafted binding financial agreement which fulfils the requirements of the legislation should withstand scrutiny in later years, as long as there are no exceptional circumstances which would make it subsequently unfair, and there are no changes to the law that affect the agreement.

However if your intention is to protect assets when in a de facto relationship, you and your partner must make full disclosure of all assets. These agreements are most effective if they take into account all circumstances that may arise over time. Therefore the drafting of a comprehensive agreement can be time consuming and expensive. This is why we have made our templates available as they help couples prepare the draft outline of their binding financial agreement together & then take this to a Family lawyer, this in itself provides significant savings.

We understand that presenting your partner with a binding financial agreement alongside an engagement ring may put a damper on celebrations.

It’s important to weigh up the impact a binding financial agreement might have on your relationship or any asset protection when in a de facto relationship for that matter.

If you’re planning to marry, the rule of thumb is to ensure any agreement is signed well before a wedding or engagement party for that matter. This is because your partner may feel under pressure to sign it. The Courts have overturned binding financial agreements on this basis.

One more word of advice. In the event that you negotiate a binding financial agreement that specifies that a property, which is brought into the relationship, should belong only you, you should try to maintain separate finances in relation to that property throughout the de facto relationship.

We have heard accounts of investment properties quarantined for one party in a binding financial agreement, but the mortgage is paid out of a joint bank account in both party’s names which effectively put the asset at risk. Being careful about things like this will help avoid complications in the future.

You should also think about the legal title to property for inheritance purposes. If you have a joint tenancy, your partner will receive it all if you die first. However, if you have a tenancy in common, then each of you will be able to leave your half by Will. These things matter and need careful thought.

In some circumstances, a well-constructed trust may provide you with asset protection, as long as you are prepared to give up all the rights of ownership and control over the assets, and you have trustees who’ll be completely independent from you.

Trying to negotiate a legal binding financial agreement that will meet both of your needs can be a daunting and emotional experience. Starting with one of our templates and sample clauses may eliminate some of the stress associated with this process

But regardless of how simple or complicated the division of your assets may appear to be, it’s important and a legal requirement that each of you has access to independent and unbiased legal advice.

Remember, the information contained on the site does not constitute legal advice. If you think you need legal advice you should contact an Accredited Family Law Specialist.

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