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Prenups vs Trusts

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Asset protection...My understanding is that prenuptial agreements only protect what you had before getting married (or becoming de facto).

I will soon be moving in with my partner and registering the relationship. I am wondering about my options for asset protection. My understanding is that prenuptial agreements only protect what you had before getting married (or becoming de facto).

Would a legal trust be any better if it were created before registration of the relationship? Or worse? What are the pros and cons of a prenup vs trust? 
Taken me a while to get to this one but here we go:
  • A prenup = a Binding Financial Agreement pursuant to the wording of the Family Law Act 1975.
  • A Binding Financial Agreement does not have to be registered with the Family Court but it does need to comply with strict requirements laid down in the FLA, including obvious requirements of full and frank disclosure and both parties must seek independent legal advice PRIOR to entering into the agreement.
  • The 'legal advice' is now evidenced by the practitioner providing you with a 'Certificate of Independent Legal Advice' where we swear that we have provided you with advice in respect to (1) the effect of the agreement on your legal rights; and (2) the relative advantages and disadvantages of entering into the Agreement.
  • De facto Binding Financial Agreements, ONLY in WA, are still governed by the Family Court Act 1997. Incredibly, the Acts are NOT in-line and recent amendments to s.90G of the Family Law Act 1975 re the requirements for a valid and binding BFA are not yet reflected in the Family Court Act and hence don't apply to defacto BFA's in WA.
  • A BFA essentially allows you and your partner to 'contract out of' the provisions of the Family Law Act or defacto equivalent thereof - meaning? Assuming validity at separation, the net assets of the relationship are divided pursuant to the terms of the BFA, not the Family Law Act 1975.
  • You can enter into a BFA at any point in the relationship - whether before marriage, during the course of a marriage or after divorce - the Agreement is simply made pursuant to a different section of the applicable Act (see below from FLA):
Family Law Act 1975
90B. Financial agreements before marriage 
90C. Financial agreements during marriage 
90D. Financial agreements after divorce order is made
 
  • So in broad answer to your first query - nope - a prenup/BFA can 'protect' (and by this I assume you mean quarantine from the other party in the event of separation) any asset you want - i.e. whether you acquired it prior to marriage or after it - it depends when you want to enter into the agreement. If you would like to 'protect' assets which do not exist yet (so maybe you want to ensure that the income generated by X investment always remains your property) then you can do that too - you do, however, and for obvious reasons, need to be VERY specific in your particularisation/identification and most importantly valuation of the 'future asset'. Keep in mind, as stated above, that full and frank disclosure is a requirement for a valid and binding agreement. So if you fail to properly estimate the worth of the future asset then, theoretically, there is a door open for challenge as to its validity. There is a heap more to this subject matter and I don't pretend to know enough or have enough time to advise you in any way.
  • A trust is a financial resource and arguably (ref a very large Re-Trial in WA atm re classification of trust as an asset) an asset. Its inclusion in the asset pool depends on your position/entitlement to distributions, dividends, trust assets etc etc this is a complex area. But, in the context of your question, unless you specifically excluded the Trust by entering into a BFA, and you had a quantifiable interest in the Trust (which sounds like you would) the value of that interest would be included in the pool for division at seperation.
Based on what you have said, I think you need a BFA.

Given recent attacks - let me make it clear the above by no means constitutes advice and is intended as general information only. There are a thousand more considerations and WA, which is the jurisdiction I am familiar with, has odd rules concerning defactos due to the fact it is governed by a different Act.

This is a huge subject area Grafenburg but none of the concepts are particularly difficult and you could get a lot more useful information by scouring Google and 'hitting up' some of the good minds on this very Forum.

Too scared to continue…

Hope the above helps

- Zer0ne -

Be aware also..

That the bankruptcy laws changed in 2005.. so if the house is in your name, but your spouse goes bankrupt, they may still come after the house.  In that case, BFAs have been known to be thrown out or disregarded, they have a harder time ignoring trusts. 

I'm facing bankruptcy, and they may come after the wife's house, despite it being bought with $$ of hers from before our marriage and only ever being in her name.

Splitting up is not the only scenario you need to plan for. 

I'd suggest you get yourself some legal/financial advice on your particular situation as the laws keep changing.  My wife is wishing now she had put all of her property in a trust.
Zer0ne83 sounds like he knows what he's on about. All I can say - in very vague terms - is that family trusts don't seem to offer much 'protection' in Family Court proceedings any more. Whist I haven't been following matters closely - my impression is that recent family court decisions has virtually rendered trusts useless. Perhaps Zer0ne83 got more info on that.

Update:

DOES THE PROPERTY OF A TRUST CONSTITUTE PROPERTY FOR THE PURPOSE OF FAMILY COURT PROCEEDINGS?

 Section 79 of the FLA gives a wide discretionary power to a Court to vary the interests in any property of parties to a marriage.

 The decision as to whether an interest in a Trust constitutes property under the FLA, depends upon the facts and circumstances of each case. Of particular significance is the recent High Court decision in Spry and Kennon1 wherein the High Court confirmed the long standing practice in the Family Court that if a party to a marriage has the power to remove and appoint the Trustee of a Trust then the assets of that Trust can be held to be the property of that party, the Trust is seen as the alter ego of that person.

Last edit: by 4mydaughter


4MYDAUGHTER
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