Navigating Asset Protection After Divorce
Strategising post-divorce assets protection requires one to ascertain necessary risks that could arise with regards to finances and property. Safeguarding your assets in Australia must be compliant under the Family Law Act 1975 (Cth). This act was enforced to ensure that Australians receive fair treatment. A divorce is not just heartbreaking; it can be financially devastating as well. This article analyses the most efficient methods and legal compliances that an individual can use to safeguard finances after a divorce.
Understanding Property Settlements in Australia
In Australia, property settlements can be difficult to manage, especially under section 79 of the Family Law Act. Division of property, assets, and superannuation must adhere to strict guidelines. Elderly people and children might be put in a difficult position, so factors like s 75 (2) need to be considered. The duration of the marriage can also dictate outcomes. But in Australia, one should always keep in mind that the reasons for divorce do not affect asset division.
Key risks include:
1. Overlooking hidden assets, which is often the case for divorce settlements. Courts do have their means to find undisclosed assets and chose to penalise non-disclosure privately under s 106A.
2. Inadequate assets attribution tends to take place with real estate or companies, which causes severely unbalanced splits amongst both parties.
3. Potential liabilities: Long-term financial security can be affected by debts or claims emerging post-divorce, such as alimony in accordance with Section 72.
Legal Asset Protection Techniques
1. Binding Financial Agreements
Couples can enter into BFAs either before, during, or after the marriage under sections 90B-90K of the Family Law Act. A well-written BFA can:
1. Allow for the allocation of assets for divorce settlement.
2. Safeguard business interests, family inheritances, or other assets.
3. Decrease conflict by easing ambiguity.
Case Relevant: As seen in Stanford v Stanford [2012] HCA 52, the High Court recognised the need to uphold agreed financial terms as long as they are just.
2. Trust Structures
Family trusts or discretionary trusts can be used to shield property from being treated as part of the estate possessions, but the court has the ability to “pierce” the trust if it is considered a sham to defraud a partner (Kennon v Spry [2008] HCA 56). To avoid this, one can:
1. Create trusts in anticipation of the marriage.
2. Ensure that non-family members act as trustees.
3. Separate commingled marital funds from trust property.
3. Split Superannuation
Superannuation is considered property under s 90MC and a superannuation splitting order allows balances to be apportioned between the married parties. This can be achieved by:
1. Opening a new account and rolling balance funds in post-split.
2. Changing beneficiary nominations to an ex-spouse.
4. Tax Relief
In terms of the Income Tax Assessment Act 1997 (Cth), divorce-related transfers of property might incur capital gains tax (CGT). However, s 126-5 allows for the postponement of tax obligations to the point at which the asset is sold in cases of transfers executed via court orders.
Compliance and Post Divorce Obligations
1. Complete Transparency:
Failure to fully disclose any material information will leave the individual open to the risk that fines or custodial sentences will be imposed. Courts demand nothing less than complete full disclosure.
2. Updating Legal Documents:
Take out all ex-spouses from wills, powers of attorney, and insurance policies and put superannuation and trust beneficiary nominations into review.
3. Enforcement Orders:
Active measures such as property repossession or garnishing orders on wages can be imposed for not abiding by court orders.
Common Pitfalls to Avoid
1. Pre-divorce possession transfers:
The courts may construe this as an effort to conceal assets (Black & Kellner [1992] FamCA 2).
2. Tax neglect:
Any attempts to consolidate asset transfers will most likely undermine tax regulations.
3. Joint obligations:
A failure to address liabilities/in-most cases-mortgages will ultimately burden an individual with future liability.
Proactive Steps for Financial Security
1. Consult a Family Lawyer:
Tailored advice ensures compliance and maximises protection.
2. Document Everything:
Maintain records of financial contributions, agreements, and communications.
3. Consider Mediation:
Resolve disputes amicably to reduce legal costs and delays.
4. Securing Financial Future Post Divorce
Careful planning, obligation compliance, and the use of tools such as BFAs and trusts are essential in protecting assets after divorce. Family law in Australia is reasonable but sidesteps proactive measures that protect assets. You can understand how to protect your assets by knowing your rights, using the law to your advantage, and consulting the right people.
Key Takeaway:
Early legal intervention and transparent financial practices are critical to achieving a just and equitable outcome.
Contact OpenLegal today at enquiries@openlegal.com.au or 1300 937 574 for a confidential consultation to discuss your situation and explore the best path forward.
Desiree Liu, Legal Intern at OpenLegal
