Many of our clients want to know how to protect assets from divorce in Australia. After a relationship breakdown they don’t want property built up over many years to be broken up and handed to a former partner. Here are asset protection strategies you may want to raise with your lawyer, along with the limits on what any of them can actually do.
Key takeaways
Property brought into a relationship may still form part of the asset pool.
A formal financial agreement is a common asset protection tool.
The Court requires property matters to be just and equitable.
The Court’s four-step process shapes what happens to your house.
Trust assets can be counted if one party controls the trust.
The role of an inheritance depends on your specific circumstances.
Time limits apply, and they are shorter than most people expect.
Can you protect assets owned before a relationship?
Parties are often confused about what counts as part of an asset division. It’s a common belief that whatever you brought into the relationship stays yours. That isn’t how it works. The Family Law Act 1975 governs asset division in Australia, and under that law all marital assets are typically considered, whether they were acquired before or during the relationship. Even assets bought after the relationship ends may be included in some cases.
Property held in one person’s name is not automatically quarantined either. The Court looks at the whole financial situation of both parties, not the paperwork.
Using a formal agreement to protect assets
A binding financial agreement is one of the more common ways couples set out what happens to their property. Made before a wedding, it’s the arrangement people usually mean when they say prenuptial agreement. You can also put one in place during a marriage, whereas consent orders are usually sought once a couple has separated. Being proactive gives you more room to move.
Agreements of this kind are available to married couples and to parties in a de facto relationship. Since 2022, de facto separation in Western Australia has been dealt with under the same federal system as the rest of the country, so the same options are open there.
An informal agreement between the two of you carries no weight if it’s later disputed. Only a properly executed agreement, or orders made by the Court, will bind the other party.
The parties do have to meet certain requirements for the agreement to be enforceable, including:
Having it in writing and signed by both parties.
Obtaining independent legal advice.
Receiving a signed statement from their lawyer showing that advice was given.
How the Court approaches financial matters
Parties don’t need approval from the Federal Circuit and Family Court of Australia to make an agreement, but an agreement can still be challenged on a number of grounds. Understanding how the law assesses these arrangements reduces the chance of yours being overturned.
The Court doesn’t just look at whose name sits on the title of a particular asset. A judicial officer takes a holistic view of the entire asset pool, guided throughout by the principle of what’s just and equitable, and weighs all the evidence put before them. It applies a four-step process set out in the Family Law Act. Two key factors are:
Each party’s financial and non-financial contributions.
Each party’s future needs, including income, age, health and care of children.
Any agreement you want the Court to accept has to account for those factors. Where one party has limited earning capacity, the future needs step can shift the division considerably, and financial support may be ordered separately.
Protecting the family home in a divorce
The family home is the most valuable asset most couples own. Think carefully about how you want it handled. Two common outcomes are:
The home stays with one party, who takes on full responsibility for the associated costs, such as mortgage repayments and rates.
The house is sold and the proceeds are divided between the parties.
If you brought the house into the relationship, you may want to keep it in your family. Including a provision that you retain the house outright is possible, though the agreement could later be challenged in the limited circumstances set out in the Family Law Act.
Isolating the largest asset in the settlement may change how the Court views your former partner’s financial independence. Concessions in other areas may be necessary, such as transferring other assets and funds.
It’s also crucial to be able to account for contributions made to the house. Some tips:
Get an accurate valuation of the property.
Keep clear documentation of financial arrangements, including home loans, contracts of sale and maintenance records.
Retain invoices for major improvements you’ve funded.
Bear in mind that using joint funds for mortgage repayments or renovations may dilute your contributions.
Protecting a business from a divorce settlement
Some people have a family business, or an enterprise they founded themselves, that they need to protect. A properly drafted agreement can help manage assets held in family company structures.
Keep the business’s finances away from the relationship. Separate bank accounts won’t put money beyond reach, but they make it far easier to show which funds came from where.
Maintain strict financial records. Keep company tax returns, statements and distributions in order, because it matters that you can show the company functions separately from your relationship.
Consider the business’s structure. A sole trader arrangement and a partnership carry different tax implications. Get legal and accounting advice on how this affects your situation.
Get the business valued regularly. How profitability has risen or fallen during and after the relationship feeds directly into assessing each partner’s contributions.
Define in writing how ownership will be handled, and think carefully about what assets may need to be liquidated to cover a party’s entitlement.
Can a family trust protect assets in a divorce?
Family trusts come up constantly in these conversations, usually with more confidence than the law supports. A trust can be a sensible way to structure wealth. It is not a wall.
Where one party effectively controls a trust, the Court can treat the trust assets as part of the asset pool. Control matters more than title. A judicial officer will look at who appoints and removes the trustee, who benefits in practice, and what the trust deed actually permits, rather than at the name on the register.
Some points worth understanding before you rely on a trust structure:
Read the trust deed carefully. The powers it gives, and to whom, shape how the trust will be characterised.
Full disclosure of trust interests is required. Both parties have a duty to disclose their financial situation, and that extends to trusts, beneficiary nominations and distributions received.
A trust set up shortly before or during a separation invites scrutiny. Timing counts against you.
Trusts established long before the relationship, controlled by someone else, and administered at arm’s length are treated differently from a structure you run yourself.
Testamentary trusts are a separate matter. They’re created through a will and set out how assets pass after death, so their role here is estate planning rather than divorce.
Attempting to move assets into a trust to keep them from an ex partner tends to backfire. The Court can set aside transactions made to defeat a claim, and it can draw unfavourable conclusions about the rest of your evidence.
Protecting an inheritance or gift
An inheritance you haven’t received yet is treated as a financial resource. In that situation it isn’t property in the same sense as other assets. Whether it affects a settlement depends on factors such as when you’re expected to receive it. Things to consider:
Keep the legal documents showing how the inheritance was obtained, such as a copy of a will naming you as a beneficiary. If the inheritance was used to buy an asset, keep a paper trail showing how the purchase was made.
Think about how an inheritance fits into your own estate planning. Placing inherited property into a testamentary or family trust may help preserve it for adult children from a previous relationship. It’s worth raising this with an estate lawyer and a financial planner.
Protecting superannuation in a divorce
Superannuation is one of the most significant assets in a divorce. Splitting laws allow spouses and de facto partners to divide super in a property settlement, and a financial agreement may include provisions for how you want super interests handled.
Accurate valuations matter, and the method depends on the type of fund. For a self-managed superannuation fund you may need to deal with an individual or corporate trustee. A defined benefit fund uses a complex process to calculate a value, which usually requires a professional actuary.
It’s also worth documenting how much super you hold when entering the relationship. That helps clarify each partner’s contribution to it.
Time limits that affect your options
Waiting can cost you more than any structure will save you. Married couples have twelve months from the date a divorce order takes effect to apply for a property settlement. For de facto separation, the window is two years from the date of separation. Outside those time limits you need the Court’s permission to apply at all, and it isn’t automatically given.
Practical steps that help protect what you bring in
Here’s a short list of actions you can take to help manage your assets in a divorce:
List all the property you’re bringing into the relationship, and get accurate valuations for the major items such as a house or superannuation.
Keep assets that matter most to you in your name. That doesn’t automatically protect them, but it helps you make your case.
Keep your records in order. Tax returns, bank statements and evidence of income make it far easier to establish contributions years later.
Consider separate bank accounts for money you want traced back to you. They don’t shield anything from the asset pool, though they do make the trail clear.
Put an agreement in place early. It clarifies each person’s position and can be reviewed after milestones such as marriage or the birth of a child.
Disclose your financial position fully. Attempting to hide assets can lead to severe consequences.
Seek legal advice so you understand your rights and how any agreement affects your interests.
Speak to an estate lawyer about how estate planning can support asset protection. Various trust structures may help organise your assets.
Be careful with how you handle assets while property matters are being sorted out. If the Court finds a transaction was made to influence the result of a settlement, the agreement can be set aside.
Where the two of you can still talk, dispute resolution is usually faster and cheaper than litigation, and it gives you more say in the result. Implementing strategies early, while the relationship is intact, tends to work better than reacting once it isn’t.
Get professional advice for your situation
Before making any major decisions about how to protect your assets from divorce, get quality advice. Bateys Law Firm has assisted clients through the settlement process, and our team can help in a number of ways:
Support across both family law and estate law matters, which helps when you need a joined-up strategy.
Legal fees disclosed to you in writing before work begins.
Tailored advice for your specific circumstances throughout your settlement.
Disclaimer: This article provides general information only. It is not legal advice. Family law outcomes depend on your circumstances. You should speak with a family lawyer before making decisions about your matter.
