The sting of separation and divorce has no equal.
There are thousands of quotes that encapsulate the financial consequences of divorce, and none more brutally honest than:
Married couples in Australia have a 40 to 50 percent chance of divorcing. The latest data published by the Australian Bureau of Statistics shows that:
The data does not capture:
The reality is that divorce (separation for de facto couples) has a real and detrimental impact on wealth. Those that fall in the above statistics are left exposed. What can they and their families do about it?
There are several mechanisms that can be utilised to protect wealth under federal and state laws.
In the context of separation and divorce, one such mechanism is a financial agreement, more commonly referred to as a pre-nuptial agreement.
Although nearly two decades have passed since the inception of financial agreements in Australia, they remain an underutilised asset protection and estate planning mechanism.
Consequently, men and women fail to protect or conserve their hard-earned wealth, and that of their families, when divorce or separation befalls them in the absence of a financial agreement.
A financial agreement ousts the Family Court’s power to determine property settlement and maintenance disputes between married and de facto couples.
In the absence of a financial agreement, the Court’s power to determine the couple’s affairs is engaged when one of them makes a competent application regarding:
The Court’s reach is not limited to the wealth of the couple. It can extend to the wealth of related and unrelated third parties, such as family members, business partners and their respective entities. This is because the Court has the power to divest third parties of their rights in specific circumstances.
Commonly, a member of the couple in such disputes, asserts that assets, or a portion of them, held by a third party are, for all intents and purposes:
In some cases, neither member of the couple may have made any measurable or discernible contributions to the acquisition, improvement or maintenance of the wealth of third parties, the subject of the dispute.
Parties seeking to avoid the above, and achieve certainty or asset protection, should enter into financial agreements so that they oust the Court’s abovementioned power. This can be done at any point prior to, during or after marriage (or a de facto relationship).
Consequently, financial agreements are a critical component to asset protection and estate planning. They manage risk when effectively used and fend off challenges from others.
A financial agreement must be in writing, made between parties and deal with:
Accordingly, couples can agree, record and predetermine their financial outcomes without the intervention of the Court.
For a financial agreement to be binding (under Commonwealth legislation), the following must be satisfied:
A financial agreement cannot be changed unless:
Notably, parties that enter into a financial agreement solely under Western Australian legislation and never intend to marry, but subsequently marry, need to be aware that their agreement terminates upon marriage.
If they still require the protection of a financial agreement, they should enter into an agreement under Commonwealth legislation and, advisedly, well prior to their marriage.
The Court can set aside a financial agreement upon application in limited circumstances, including where:
Financial agreements must be drafted with the utmost care and in accordance with the requirements of the law.
It is only in those circumstances that financial agreements achieve their intended goal of ousting the Court’s power and consequentially facilitating effective estate planning and protecting wealth.
In addition to financial agreements, parties must execute other documents that work harmoniously with financial agreements such as Wills, enduring powers of attorney and commercial agreements in relation to the operation of intergenerational assets such as farms and businesses.
Article by Kondwani Mwenda (Director) of FMD Legal
The content of this article is a brief summary and overview only. It does not constitute legal advice. Accordingly, you must seek legal or other professional advice before acting or relying on any of the content.