HOW TO PROTECT YOUR ASSETS IN A RELATIONSHIP BREAKDOWN
Most couples who enter a relationship look forward to spending a ‘happily ever after’ together, but some conveniently forget to consider that separation could be on the cards given the statistics of relationship breakdowns.
Some go through their relationship with all their finances, assets and liabilities jointly held or not properly protected, so it comes as a big blow when one partner wishes to part ways and claims a right to all assets. They could also end up financially crippled after a financial settlement forces them to surrender a huge portion of their assets—even the money and property they accumulated before the relationship. Regret always comes last, so the best way to deal with potential loss is to put up a shield against it before it even comes knocking.
Binding Financial Agreements
Binding Financial Agreements (BFA)are legal documents that outline which assets belong to whom, and how finances and other assets will be split in the case of separation. Both parties are required to seek independent legal advice prior to signing and it may be drafted before, during or after the relationship, so it is also helpful in the event that a couple is considering a separation but intend to end things peacefully.
BFAs are especially helpful for couples in which one party is bringing significant assets into a relationship, such as high income, business or an inheritance, or liabilities such as debt. This document will indicate which assets are shared, and which are off limits to the other. This can also secure the financial future of one party’s children from a previous relationship.
Separation of assets
Couples should also consider separating their assets from the relationship. That is, one party who owns a property prior to the relationship should consider keeping the asset only in their name—if they don’t want to end up having to fight for the right to keep it when a separation happens. Likewise, both parties may want to keep separate bank accounts.
It is important to properly document all important financial transactions. Proper documentation can prove if an asset acquired during the relationship should be placed in the asset pool or belong only to one party. For instance, an inheritance received by one party from their parents during the relationship could be considered by the court as a gift bestowed to the couple. This means the true owner may be forced to sell the asset and split the proceeds if their estranged partner makes a claim to it.
Both giving and receiving parties may want to consider drawing up a document specifying who the intended beneficiary is. This must be signed by both parties in the relationship, and the gifting party to ensure that the asset in question was never part of the couple’s asset pool.
In some cases, couples also incur joint debt, perhaps due to a home mortgage or some other loan in which one guaranteed for the other. Debts will also be divided by the court in a legal separation of assets so, if only one party is truly responsible for the debt, it is important to keep proper documentation for this. This can be a simple handwritten and signed document where both parties acknowledge the terms of the loan and repayment or an actual legal document.
A discretionary trust can offer protection against a potential expartner claims to a beneficiary’s assets.Creating a discretionary trust which names one party and/or their blood descendants as the sole beneficiaries could ensure that assets will be kept in the family.
The beneficiary or heir must not be the sole trustee or appointor for the trust, because significant control over the trust and asset may be considered as ownership. If this happens, the court can— and probably will— demand that the asset be pulled out of the trust and added to the asset pool.
The timing of inheritance gifting and when the asset is placed in the trust are also crucial. That is, if the inheritance was given to the person before it was transferred to the trust, the court will consider it as an asset acquired during relationship, and it will still be distributed. If, however, the asset was held in the trust before any or all the beneficiaries receive anything, the asset will be protected from the separation.
Use of Testamentary Trusts in Parent’s Wills
Similar to the above, the use of Testamentary or Will Trusts can protect assets and ensure they are solely for the use of the blood descendants. In this case, a Testamentary or Will Trust can only be created via a Will and the Will maker has to pass away for the Trust to become active.
I.e.: If parents include Testamentary Trust clauses within their Wills, the beneficiary can inherit these funds into this Trust structure which offers asset protection benefits as itemised, instead of receiving the funds in their individual name which is normally open slather in a relationship breakdown settlement.
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