How to protect your assets from your partner or future relationships
How to protect your assets from your partner
This page has been written to help people who are either:
- Embarking on a new relationship (or thinking about it);
- Already in a relationship; or
- Someone who has a vested interest in helping someone else avoid the challenges that financial separation can bring if the relationship ends.
Here you will learn what to know and how to protect your assets from your partner or future relationships. To do that we’ll answer questions like these:
- When do you become de facto?
- What is a de facto entitled to when separated?
- What can a de facto claim when separated?
- What does de facto relationship mean in relation to financial risk?
- What is involved in protecting assets from de facto relationships?
- Can you get a prenup in a de facto relationship?
- What is a cohabitation agreement?
This information is relevant for people in these states and territories of Australia – ACT, New South Wales, Queensland, Victoria, Tasmania, Northern Territory and South Australia.
When do you become de facto?
In Australia, you may become legally classified as a de facto couple when:
You have been living together in a relationship for two or more years;
You have had one or more children together (regardless of the length of the relationship); or
The relationship is legally registered as a de facto relationship in Australia.
These factors, along with geographical circumstances, are often called “gateway” provisions providing access to a property settlement (the financial separation of assets and liabilities).
What is a de facto entitled to when separated?
In Australia, when a proved de facto relationship ends, the process is similar to the end of a marriage. If there is no existing, legally binding Financial Agreement in place prior to separation, then both parties to the de facto relationship need to go through the property settlement process (property /asset division).
This takes into account all of the assets and liabilities of both people of the relationship, whether acquired together or separately, as well as any financial or non-financial contributions made over the course of the relationship, as well as future needs.
There are laws and processes that impact how the property division is to be done however, in short, a de facto may be entitled to a share of the property pool (also referred to as the asset pool), that includes the following:
- Assets:
- Liabilities; &
- Financial resources
Both parties participate in a process known as Financial Disclosure. This is where each person compiles information and supporting evidence of their assets, liabilities and financial resources, and that information is then shared (disclosed) between them with the goal of putting together a comprehensive picture of the total “property pool”.
Assets of the relationship
Assets to be disclosed include all property, superannuation balances, real estate, share portfolios, investments and any items of value that you have at the time the property settlement process is being completed.
This includes assets that each party brought to the relationship.
Liabilities of the relationship
Liabilities to be disclosed includes all loans, mortgages, overdrafts, store & credit card debt, tax debt, outstanding/unpaid bills/invoices etc.
Financial and non-financial contributions considerations
A property settlement must take into consideration both financial, non-financial and parent/homemaker contributions.
Financial contributions to the relationship includes, but are not limited to:
- wages/salary
- savings
- investment income (e.g.
- property sale proceeds, dividends etc)
- financial gifts
- inheritances
- windfalls
Non-financial contributions made during the relationship may include, but are not limited to:
- Maintenance, renovation or improvement of home/investment properties
- Management of investments without payment
- Acts and things that do not involve financial input
Parent and homemaker contributions made during the relationship may include, but are not limited to:
- Care and management of children &/or elderly/disabled family members
- Domestic duties
- Household upkeep
As part of this assessment, family violence is also considered where those issues are asserted.
If you are in a de facto relationship currently, speak to an experienced family lawyer to get a clearer picture of what the financial and non-financial contributions are, and how that may impact your property settlement.
Alternatively, if you are investigating asset protection for current or future de facto relationships, seek early advice to learn what asset protection mechanisms may be possible.
However, these are not the only considerations. There is another factor to consider in determining the terms of your property settlement and that is something called current and future circumstances.
Current and future circumstances considerations
The division of any property settlement can be adjusted on account of current and future circumstances.
Essentially this is where consideration is to be made in relation to:
- The age and state of health of both parties
- Each person’s ability to financially support themselves (e.g. each person’s current and likely future earning capacity)
- The care of any children from the relationship (& how it may affect a significant disparity of earnings potential)
- Any financial wastage by the parties
- Any other factors which might impact on either party’s ability to financially support themselves and their dependent children.
In longer-term de facto relationships, the standard of living accustomed to may also be taken into account in some instances, and the property split may be adjusted to reflect this.
When can a de facto make a property settlement claim?
If your property settlement has not been legally finalised, then your former partner may file to make a property settlement claim up to 2 years from the date of separation.
Beyond the two year time period, a delayed claim may be permitted if your former partner makes an application citing a reason the Court sees as valid, where they will be required to prove ‘hardship’ for the application to proceed. This area of the law is complex and if you find yourself in this situation, we highly recommend you obtain specialist family law advice.
Protecting assets from de facto relationships and minimising future financial risk
A property settlement is essential to avoid additional financial risk beyond any informal agreement, into the future.
You can start the property settlement process anytime after the date of separation. The Agreement could be finalised that day if you have both sought legal advice. What most people tend to do though is wait to start the process which can create unnecessary financial risk.
Risk #1
While the law says that de facto partners must complete their property settlement within 2 years of separation, many people negotiate their own agreement without going through the formal processes that make the agreement legally binding. This is known as an ‘informal property settlement’.
This is where prolonged and/or enhanced financial risk is present. It is not uncommon for people to negotiate a property split only for one person to come back later, seeking a larger slice of the property pool. Additionally, it is commonplace that delay leads to significantly higher legal fees.
Getting legal advice from a lawyer who works exclusively in family law every day and getting your Agreement formalised with Court is how you avoid the risk of them coming back for more.
Risk #2
While all de facto separations have two years from the date of separation to finalise their Agreement, the asset pool value on the day you separate may be vastly different from the property pool value two years later.
If time has passed since you provided financial disclosure, and over time you have acquired more assets, you must provide your former partner with updated financial disclosure. This will mean the pool for division is larger and potentially the terms of the agreement need to be revisited and checked over by each party’s lawyer, before being filed with the Court.
So, to move forward with your financial objectives without the risk of those gains accessible to your former partner after the relationship has ended, you must start and finalise these processes in a timely manner. Seek legal advice from an experienced family lawyer to minimise the unnecessary risks.
If however you are not separated from your partner but you would benefit from getting a Financial Agreement in place now, so that in the event of any future separation, you have a clear and legally binding Agreement about “who gets what”, that is also possible.
Just as for married couples in Australia, a Financial Agreement can be made before, during or after a de facto relationship. That is, when in a relationship before it becomes legally recognised as a de facto relationship, during the de facto relationship or upon the end of the relationship.
If you are already separated from your de facto partner, or only considering it, jump to this section here.
If, instead, you are not yet in a de facto relationship, you have avenues available to you in the event of a current or future relationship coming to an end.
Proactive asset protection for new relationships
In Australia, there are steps that can be taken to minimise risk and quarantine assets from new or future relationships.
Can you get a prenup in a de facto relationship?
To do this you must enter into a Binding Financial Agreement detailing how your property is to be treated in the event the relationship ends.
Often colloquially referred to as Cohabitation Agreements (or prenups or Prenuptial Agreements), must be drafted carefully by a specialist family lawyer.
Choosing who you engage to draft and review your Agreement is an important decision. A poorly drafted Financial Agreement will be set aside by a Court and your efforts to avoid the delays and issues of a post-separation negotiation will have been wasted.
And, while no Financial Agreement is foolproof, a Binding Financial Agreement is the highest level of protection available in Australia.
De facto relationship asset protection is possible. For the Agreement to be a legally binding Financial Agreement, the following must be true:
- The Agreement has been drafted correctly by a family lawyer;
- Neither party to the Agreement was under any pressure or duress to sign it (timewise or otherwise);
- Both parties have sought independent family law advice before signing the Agreement; and
- Both parties’ family lawyers review and sign the Agreement.
For optimal benefit, the Agreement should be reviewed regularly and updated accordingly.
Instances when a Financial Agreement should be reviewed and updated include, but are not limited to:
- Changes in relationship status (e.g. from de facto to married);
- When children are born or adopted;
- When individually-owned or combined property or investments are bought and sold;
- When either party retires or has a significant change in income (e.g. from full time work to part time, illness, becomes a carer for a family member);
- When either party has a significant change in health; or
- When either party receives an inheritance or windfall.
As a guide, even if there is no significant change in circumstances, the law changes so getting a review of your Agreement every 3 years is wise.
A final word on how to protect your assets from your partner / future relationships
Whether you are already in a de facto relationship, embarking on a new relationship or looking out for a family member, start by speaking to a family lawyer experienced in drafting legally binding Financial Agreements.
Seek a lawyer who can work alongside your financial advisors as needed and can offer insights and advice into both the practical and financial considerations, including tips for how to approach the conversation about getting a Financial Agreement in place, if that is a barrier for you.
We assist individuals and parents of families who are interested in asset protection, especially where there is generational wealth or family assets they wish to keep in the family. Our family lawyers provide advice about de facto asset protection and are experienced in drafting and reviewing of Cohabitation Agreements / Financial Agreements. To make an appointment with one of our lawyers click here or to learn more about these services and related de facto separation matters, visit this page.
Disclaimer: The information in this article is general in nature and is not a substitute for independent legal advice from a family lawyer.
This information is correct as of the date of publishing and is relevant for people in these states and territories of Australia – ACT, New South Wales, Queensland, Victoria, Tasmania, Northern Territory and South Australia.
