For many of our clients, protecting their assets for the benefit of their children is the utmost priority. Of particular concern is that their spouse or partner may remarry (or re-partner), either after separation or after our client’s death, and any of their assets will subsequently be ‘lost’ or ‘evaporated’ before reaching their children. Proper Succession and Estate Planning can ensure that such assets are protected for future generations and do not end up in the hands of step-parents or step-siblings. Our firm can assist with the preparation of a Binding Financial Agreement (BFA), Will, or both to achieve these aims.
Binding Financial Agreements (BFA)
A BFA is an agreement between spouses or partners that determines how their assets will be divided in the event of separation or divorce. While many clients are aware of the American ‘pre-nup’, a BFA can be entered into at any time – either before marriage (or before entering into a domestic partnership by cohabiting), during the course of the relationship, or after separation. A BFA ensures your assets are protected while you are still alive and is an important consideration where:
- You and your spouse have brought unequal assets to the relationship;
- You or your spouse has inherited, or will inherit, a significant asset or assets and wishes for such asset to ‘stay in the family’;
- One partner has a higher earning capacity than the other (e.g. due to differences in age or health, or because one partner has greater work experience or qualifications) and you want to ensure fairness in any spousal maintenance; and/or
- You intend to purchase substantial assets together and want to ensure that, if you separate, such assets are divided according to your contributions.
In the absence of a BFA, a Court may award one partner a much larger share of the marital asset ‘pool’ and assets may need to be sold to fulfil the Court’s orders. For example, the Court may order that the parties sell the family home and divide the sale proceeds, when (prior to the separation) the parties had intended for their children to receive the house. In the case of a ‘blended family’ or subsequent relationship, the risk may be heightened; a widower may have received substantial assets from his late wife, whose intention was for their children to eventually receive the benefit, but without a BFA in place, such assets may be ‘lost’ should the widower separate from his new partner. A BFA is a key piece of your Succession Plan (what you hope to achieve during your lifetime) and a properly-drafted document is the only way to ensure your wishes are followed in the event of divorce or separation.
Will
While a BFA deals with the death of a relationship, a Will deals with assets on the death of a person. While you may trust your spouse implicitly, you may also be alive to the possibility that they may re-marry or re-partner after your death. If your spouse had received your assets absolutely on your death, they could then give ‘your’ assets to their new partner during their lifetime; bequeath them to their new partner in their Will; or ‘lose’ such assets in separation proceedings as described above. It is therefore crucial that you obtain proper legal advice in order to protect your assets for the benefit of your children in the event that your spouse survives you.
Some options which may be available to you to protect assets for your children include:
- Placing assets in a discretionary testamentary trust, created in your Will for the benefit of your children (potentially with your spouse having limited access to Trust capital);
- Creating a life interest in your residence for your spouse, so they can reside there for their lifetime, but on their death, the property reverts back to your children;
- Entering into mutual Wills so that your spouse cannot amend their Will after your death; and/or
- Making allowances for your children outside your Estate, for example through transferring assets to them during your lifetime or nominating them as recipients of your superannuation.
Any attempts to ‘ring-fence’ assets from your spouse must also be weighed up against your duty to make ‘fair and reasonable’ provision for them, hence the importance of proper advice. It is also important to remember that any BFA you may have entered into with your spouse is no longer binding when one partner has died unless divorce or separation proceedings had been commenced before death.
Our team specialises in Estate and Succession Planning, particularly for clients whose prerogative is asset protection. If you are looking to protect your assets for future generations, contact us today to arrange an initial discussion.