An important tool in your estate planning toolbox is a Binding Financial Agreement or pre-nup, which spells out how assets should be split up if a marriage fails.
Especially for those embarking on a second marriage, a pre-nup can protect existing assets which you may have fought hard for in a first marriage. You can ensure that should your relationship end, at least your children will be protected from an ex-partner trying to claim those assets.
One of the attractive features of a pre-nup is that it can protect almost every kind of asset an individual might want to pass along, for example, cash, superannuation, art collections, or even family businesses. To ensure your pre-nup is airtight, it may need to be highly detailed to avoid legal issues in the future. Further, you need to consider a great number of issues such as:
- Do you want to keep all accounts totally separate?
- Do you want to start to buy assets in joint names? Who is going to contribute? How will you work out a fair split of assets in joint names if your contributions haven’t been equal.
- What if you own assets now, but later sell them and merge the proceeds into assets held in your partner’s name, or joint names? Will your pre-nup take this into account?
- What if your investments crash? Will your pre-nup still look after you?
- Documenting every asset is necessary, such as lists of paintings, cash, shares, interests in businesses and other separate property. Once a pre-nup is penned, it’s nearly unbreakable.
Experts suggest keeping the following 5 ground rules in mind:
- Spouses both need to completely understand what they’re signing. Both parties should prudently have exchanged all necessary financial records. Legal representation is also compulsory for each party.
- Negotiate your pre-nup well before planning your wedding. Keep it separate from the ‘fun’ stuff. And never wait until the week of your wedding day to sign—you’ll want to have signed with a cool head. What’s more, it could be set aside later on the grounds of duress.
- If you do delay getting a pre-nup until after your wedding, bear in mind that this can affect the cost, the advice given and the bargaining power.
- Post-nups are still better than nothing. If you entered into a marriage without a pre-nup, but would like to negotiate a post-nup, come and talk to one of the lawyers at Alliance Family Law.
- After marriage, plan your finances carefully and see a financial planner or accountant. Be aware that with a pre-nup it can be helpful to keep assets in separate names (depending on the pre-nup terms). Without a pre-nup, courts simply consider the entire asset pool as a whole, regardless of whose name an asset is in.
For assistance with BFAs (pre-nups and post-nups) in relation to your particular circumstances, please call Alliance Family Law.