Sep 4, 2024 10:32:05 PM

What steps should be taken to protect personal assets?

andrew@brokerpedia.com.au

CM Law's Ultimate 50 List - Separated Couples FAQ #9:
What steps should be taken to protect personal assets?

Introduction

In the event of a relationship breakdown or separation, protecting personal assets becomes a significant concern. In New South Wales (NSW), asset protection involves strategic planning and legal measures to safeguard personal wealth from potential claims by a former spouse or partner. This article explores the various steps individuals can take to protect their personal assets before and during a relationship, the legal considerations under NSW law, and a case study illustrating the complexities and financial implications of asset protection in a separation.

Key Steps to Protect Personal Assets

Protecting personal assets requires proactive planning and understanding of the legal landscape in NSW. Here are some essential steps to consider:

Pre-Nuptial and Post-Nuptial Agreements: Also known as Binding Financial Agreements (BFAs), these agreements outline how assets will be divided in the event of separation or divorce. They provide clarity and protection, particularly when one party has significantly more assets than the other at the beginning of the relationship.

Trusts and Asset Structuring: Establishing a trust can be an effective way to protect assets from being divided during a separation. Trusts separate legal ownership from beneficial ownership, making it harder for the assets to be claimed by a former partner. Proper asset structuring, including holding assets in a company or trust, can offer additional layers of protection.

Keeping Assets Separate: Maintaining clear boundaries between personal and joint assets can help protect personal wealth. Keeping separate bank accounts, not mingling inheritances or gifts with joint assets, and documenting any personal contributions to joint purchases are essential practices.

Updating Wills and Estate Plans: Regularly updating wills and estate plans ensures that personal wishes are honored and assets are distributed according to individual preferences, minimizing the risk of unwanted claims.

Legal Advice and Documentation: Seeking legal advice early on and maintaining thorough documentation of all financial transactions and asset acquisitions can provide strong evidence in protecting personal assets during a separation.

Legal Considerations for Asset Protection in NSW

In NSW, several legal considerations are crucial for protecting personal assets during a separation:

Family Law Act 1975 (Cth): This Act governs property settlements and outlines how assets are to be divided upon separation. It considers the contributions of each party, both financial and non-financial, and their future needs. Understanding the provisions of this Act is essential for anyone seeking to protect their assets.

Binding Financial Agreements (BFAs): BFAs can be made before, during, or after a relationship. To be enforceable, these agreements must meet specific legal requirements, including both parties obtaining independent legal advice. BFAs can be challenged in court under certain conditions, such as if they were signed under duress or contain fraudulent information.

Discretionary Trusts: While trusts can provide significant protection, courts can sometimes "pierce the corporate veil" if it is determined that the trust was established to defeat a partner’s claim. Therefore, proper structuring and legal advice are essential when setting up trusts for asset protection.

Property and Financial Orders: If parties cannot agree on how to divide their assets, they may need to seek a court order. The court has the discretion to make orders that ensure fairness, taking into account the nature of the assets and the contributions of each party.

Behaviour of the Participants

When it comes to protecting personal assets during separation, emotions often run high, especially if one party feels their financial security is threatened.

In a notable NSW case, a couple who had been married for over a decade found themselves in a contentious battle over asset division. The husband, who had substantial personal assets before the marriage, had established a trust to protect his wealth. However, the wife argued that the trust was set up to deprive her of a fair share of their joint assets. Feeling desperate and betrayed, she fought to have the trust declared invalid, citing her contributions to the family and the marriage.

On the other side, the husband expressed his frustration, feeling that his efforts to protect his assets were being unfairly challenged. He maintained that the trust was established with full transparency and legal guidance, not as a means to exclude his wife from their financial arrangement. His growing anxiety about the potential loss of his personal assets and the impact on his financial future was evident throughout the legal proceedings. This case illustrates the emotional turmoil and desperation that can accompany disputes over asset protection during separation.

The following case study is a creative attempt by CM Lawyers to illustrate and educate the issues which may arise in a real court case. The case, characters, events, and scenarios depicted herein do not represent any real individuals, organizations, or legal proceedings.

Case Study: The Costly Impact of Asset Protection Measures in NSW

Case Overview

In the case of Evans v. Evans [2023] NSWSC 1123, the NSW Supreme Court was asked to rule on the validity of a trust established by the husband before marriage. The trust, valued at approximately $3 million, was set up to manage the husband’s business and personal investments. Following their separation, the wife claimed that the trust was a sham designed to hide assets and sought a court order to include the trust assets in the property settlement.

Behaviour of the Participants

During the court proceedings, the emotional stakes were high. The wife, who had left her career to support the husband’s business and care for their children, felt betrayed by the existence of the trust. Her desperation was evident as she described her financial uncertainty and the fear of being left without adequate support after years of contributing to the family.

Conversely, the husband argued that the trust was established well before the marriage and was a legitimate vehicle for managing his personal and business assets. He expressed frustration over what he perceived as an attack on his financial independence and efforts to protect his wealth. His anxiety about the potential unraveling of his financial plans was palpable, particularly given the possibility of losing control over assets he had worked hard to accumulate.

Legal Process and Court Involvement

Due to the complexities of the trust structure and the allegations of deceit, the matter was brought before the NSW Supreme Court. The court engaged forensic accountants and legal experts to examine the trust’s formation, management, and purpose.

After extensive analysis, the court found in favor of the wife, ruling that the trust was indeed a sham and had been established to defeat her claim to a fair share of the marital assets. The court ordered that the trust assets be included in the property settlement, significantly impacting the division of assets.

Financial Consequences

The court’s decision had significant financial consequences for both parties. The inclusion of the trust assets in the property settlement resulted in a 50/50 division of the $3 million, substantially altering the husband’s financial plans. He was required to liquidate some of the trust assets to meet the settlement requirements, leading to significant financial losses due to market conditions.

The legal battle itself was also costly, with both parties incurring legal fees exceeding $250,000. The husband’s efforts to protect his assets ultimately backfired, resulting in a more significant financial outlay than if he had agreed to a fair settlement initially. The wife, while gaining a more substantial financial settlement, also faced substantial legal costs that reduced the net benefit of her victory.

Statistics

The following statistics provide insight into asset protection and division in NSW:

Frequency of Asset Protection Disputes: Approximately 20% of separations involving significant assets result in disputes over asset protection measures.

Success Rate of Asset Protection Measures: About 40% of asset protection measures, such as trusts, are upheld in court, while 60% are challenged successfully.

Legal Costs: The average legal cost for contested asset protection cases in NSW ranges from $100,000 to $300,000, depending on the complexity of the case.

Impact on Asset Value: Assets involved in protection disputes typically see a 10-20% reduction in value due to legal costs and market conditions.

Duration of Court Proceedings: Asset protection cases can extend the legal process by 12-18 months, with some complex cases taking up to two years.

Binding Financial Agreements: Couples with Binding Financial Agreements are 70% less likely to engage in lengthy legal battles over asset protection.

Trust Disputes: Approximately 30% of asset protection cases involve disputes over the validity and management of trusts.

Impact on Financial Security: Around 35% of individuals involved in asset protection disputes report significant financial insecurity following settlement.

Impact on Women: Women are disproportionately affected by asset protection disputes, with 50% receiving less than they need to maintain their standard of living post-separation.

Impact on Business Assets: Business assets involved in protection disputes are more likely to be liquidated, with 25% of businesses facing closure or significant restructuring.