Divorce and separation often bring emotional and financial upheaval, especially when it comes to dividing assets. When married or de facto couples separate, the separation or divorce process can greatly impact each party’s financial position. Assets held in the relationship and as individuals will all be weighed up during the settlement process.
In Australia, protecting your wealth during such times involves understanding legal frameworks, employing strategic planning, and seeking tailored advice. This guide outlines key strategies to help safeguard your financial future.
Can assets acquired before marriage be protected?
All assets, whether acquired before marriage or after separation will usually be included in the asset pool for division between the parties. However, the courts will consider whether either party came into the relationship with significant wealth or made substantial financial contributions at the commencement of the relationship, during the relationship and after separation. If one party’s contributions were greater they will receive an adjustment in their favour for this factor.
Understanding the legal framework – How the Family Law Act considers assets in a divorce
Asset division in Australia is regulated under the Family Law Act 1975, aiming to achieve a fair and reasonable distribution of the combined property pool. The Court refers to this as a “just and equitable” outcome. However, “just and equitable” does not mean a 50/50 split.
Key factors considered include:
- Length of the marriage or de facto relationship.
- Financial and non-financial contributions by both parties.
- Future needs, including age, health, care of children and earning capacity.
Seeking independent legal advice early in the process can clarify your rights and responsibilities under the law.
Pre-divorce planning: Protecting your assets with a Binding Financial Agreement
Taking proactive financial measures before or during a relationship can significantly strengthen long-term asset protection strategies.
Binding Financial Agreements (BFAs)
- A BFA is a legal document outlining how assets will be divided in the event of separation.
- These agreements can be entered into before, during, or after a marriage or de facto relationship.
- Both parties must obtain independent legal advice for the agreement to be enforceable.
Trusts for asset protection
All assets are usually included in the asset pool for division following separation including assets held in trusts. It is important to seek legal advice as soon as possible particularly if trusts and companies are involved.
Separate bank accounts
Keeping separate bank accounts while in a relationship can help ensure your accounts are secure in a worst-case scenario. Regardless of how you choose to do your banking while in a relationship, you must provide full and frank disclosure when you go through family law property settlement.
Review estate planning documents and beneficiary nominations
Ensure your estate plan – including wills, superannuation nominations, and powers of attorney- is current and reflects your intentions after a relationship ends, particularly in blended family scenarios.
Managing finances post-separation
After separation, taking control of your finances is essential to prevent unnecessary disputes.
Here are some things you should consider if you haven’t already.
- Open separate bank accounts and redirect your income.
- Limit access to joint accounts and credit cards.
- Record all financial transactions and maintain accurate documentation of assets and debts.
Separate and secure assets in a divorce
Differentiate between marital property and property brought into the relationship (assets owned before the marriage or acquired independently). Keeping these assets distinct can help prevent their inclusion in the asset pool or at least assist in achieving an adjustment in your favour.
Separate and secure your finances by opening individual bank accounts and redirecting your income and personal savings into these accounts. Secure any joint lines of credit and have credit cards put solely in your name to ensure financial independence.
Protect business assets
If you own a business, consider implementing measures like trusts or company structures well before separation. This ensures business interests are safeguarded while remaining compliant with Australian law. This must be done well before divorce proceedings and in compliance with legal standards. Seeking professional advice from a family law expert can help you navigate the complexities of business asset protection.
Superannuation splitting
While superannuation is considered an asset, specific strategies can minimise its division during a property settlement or minimise the impacts on each party.
Can I use super to buy out my former spouse from the family home?
Limit co-mingling of assets
Avoid blending personal and marital assets (e.g., inheritance or gifts) into joint accounts or property. This separation can make arguing their exclusion from the marital property pool easier. Keep accurate records of all transactions, assets, and debts to document everything.
Get professional advice from a financial planner and a family lawyer
Safeguarding your assets during divorce can be a complex process. Seeking professional financial advice is essential to help you to understand financial matters in relation to family law.
Consulting with both a family lawyer and a financial adviser ensures:
- Proper structuring of legal documents.
- Compliance with Australian law.
- Tailored advice for your specific circumstances
Full and frank disclosure – a vital aspect of the divorce settlement
Full and frank disclosure is essential in divorce settlements, ensuring transparency in financial matters. Both parties must honestly reveal assets, liabilities, income, and expenses. This process allows the court or mediators to consider contributions and entitlements fairly, fostering equitable property division and avoiding disputes or penalties for non-disclosure.
Penalties for concealing assets
Attempting to hide assets during divorce proceedings can have severe consequences under Australian law, including:
- Financial penalties.
- Adverse court rulings, such as awarding a greater share to the other party.
Full disclosure is essential to ensure compliance and fairness in property settlements.
Protecting your asset pool in a divorce settlement – by staying out of court
One final significant cost related to assets and divorce is legal fees. It’s essential to ensure you have legal advice and the correct financial advice, and of course, professional advice and services come with a cost. Long, drawn-out court battles can be very costly – both personally and financially – and both parties may risk losing significant amounts of the asset pool if an agreement cannot be reached early on.
Here are some alternatives that can protect your assets in a divorce.
Dispute resolution and mediation
Consider mediation or collaborative law to reach agreements outside of court where disputes arise. These processes can save time, reduce costs, and help protect your wealth.
Collaborative law
Collaborative law offers a non-adversarial approach to divorce, allowing couples to negotiate asset division with the guidance of trained professionals. Fostering open communication and mutual respect helps protect shared assets from excessive legal costs or court intervention, ensuring tailored solutions that preserve financial stability and long-term interests.
Final thoughts on how to protect assets from divorce
Protecting assets during a divorce requires early action, sound legal advice, and meticulous financial planning. By understanding the legal framework and employing strategies like binding financial agreements, trusts, and estate planning, you can safeguard your wealth and ensure a more secure future.
For personalised assistance, please speak to one of our highly experienced property settlement lawyers. We can help you better understand how to protect assets from divorce and how Australian family law considers asset division after a relationship ends.
