By Peter Nevile
Asset Protection on a relationship breakdown………or how not to reduce your wealth.
Very few people find the accumulation of wealth an easy task and it comes as no surprise that most of us wish to preserve it as best we can. In this article I would like to raise a number of issues which may assist in the protection of your wealth and some tips on how you might minimise the risk of its loss or alternatively, failing that, just scaring the living daylights out of you with some observations on how relationship breakdowns can contribute to a potential loss of your wealth.
Like most people who have reached middle age or more I can claim some experience although I would hesitate to claim any expertise in relationships. I must emphasize that I do not practice as a family lawyer and therefore when it comes to legal issues arising from a relationship or matrimonial breakdown expert advice ought to be sought in this area. If you need assistance with a referral to a pragmatic proponent of the art don’t hesitate to contact me.
What I can say is that the Family Law Court appears to have exceedingly wide powers to order what in its opinion ( which may not coincide with yours) is a fair and equitable distribution of family wealth based upon the needs and to a lesser extent the contribution of the parties to that relationship. Those powers range across asset protection structures including superannuation, trusts, companies, joint ventures and other structures which were previously used with varying degrees of success to hide or protect assets from the other spouse or partner amongst others.
I think you can safely assume these days that if the relationship breaks down you can generally look forward to a division and thereby reduction in your current joint assets. It follows that in these circumstances the risk and loss minimisation is very much in your hands. We have all heard the words “I can’t afford to get divorced”. As a result so many relationships continue on the basis that Tina Turner immortalised in that very powerful song “What’s love got to do etc etc”….. when the hip pocket is at significant risk.
The reality is in many cases I’ve seen over the years that there are clients who are either happily married, happily single or unhappily surviving in both positions, who have accumulated considerable material wealth and assets through skill, hard work & modicum of good luck or even by marriage although not necessarily in that order. Frequently they then fail to take even basic precautions regarding the protection of those assets and manage to deplete their material wealth, generally at a much faster rate than its accumulation.
Let me provide some food for thought by outlining a number of examples which may resonate with you. Speaking from a male perspective I have seen sensible professional and business people exit a relationship only to have their heads very quickly turned by younger and firmer flesh. It is not uncommon to see large amounts of money and gifts lavished on the new trophy partner. In many cases she or he seems to posses an admirable capacity to assist in the rapid diminution of wealth previously so painstakingly accumulated. These events are frequently justified on the basis of a new found love, lust or a combination of both and indeed no expense ought be spared in the successful pursuit or either or both. It occurs to me, somewhat cynically perhaps, that attraction does seem to increase proportionately with the presence of a large bank balance, although not always. It does give credence to the old saying “there is no fool like an old fool” and it follows that “a fool and his money are easily parted”. For his read or her as well.
In the interest of a balanced view (which most of us generally aren’t) I should add I have seen a number of women who have recently exited a relationship (although this normally does not happen as quickly as men) become infatuated with the next partner who unlike their previous partner pays them a great deal of attention. While they bask in the glow of a new found self esteem and confidence (or is it a fake tan) the warning signs frequently fly out the window. They all too quickly place their trust in what some times turns out to be a very undeserving object of their attention. Worse, they provide personal guarantees and commit to financial arrangements hopefully investing in a wonderful new life together.
Now as you may have already seen the common issue here is that both men and women who have recently retreated or have been forcibly ejected from a relationship are generally not in the best state of mind to make sound financial decisions. Much like the legendary Ulysees they ought to be bound to the mast from whence they can hear the sirens (I’m not sure what the male equivalent is) but take no precipitous action which they might later regret…for those not familiar with the Odyssey and Homer, just forget the last paragraph.
I thought it might be useful to set out a sort of check list if you will; incorporating what I consider to be fundamental principles that at least ought to be considered in these circumstances. They are certainly not intended to be exclusive. Trying to protect people from their emotions and desires would be a life times work.
- Upon leaving a relationship for whatever reason accept that you may be emotionally vulnerable for some time and lock up your assets in a vault or even in a term deposit and ensure you also deposit your titles, share certificates and any other assets of material or emotional significance.
- Consider appointing someone else as Power of Attorney (a topic I will discuss in detail in a later article).
- If you have Herculean strength then simply resolve to take no action for a least a year which may in any way have a material effect on your assets or income.
If you have exited from a traumatic relationship and you have been left with very little then consider reading on for the time when you hopefully have rebuilt your wealth.
- As a general principle endeavour to separate your personal assets from your business assets or the assets which are likely to attract more risk. This is not always an easy task as banks tend to seek protection in bricks and mortar and other tangible assets wherever they can.
- If you are seeking a mortgage or bank accommodation work out a reasonable amount of security, offer that and no more. If surplus assets are available be assured that the bank will want to take security over any and all of them.
At this stage you may be slightly confused but have another Gin and Tonic and let me assure you that these are all well accepted commercial business practices. Do not try to implement any without seeking professional legal advice because in the space of this article I can only provide an outline. Remember that frequently people who make small fortunes start with big ones.
Many relationship breakdowns result directly or indirectly from financial problems. You owe it to yourself or at least your partner, to do whatever you can to remove or reduce the many and varied paths to unsettled relationships. Alternatively I suppose you can recognise that this could be the catalyst that you are looking for to terminate the relationship that is going nowhere. It reminds me of an excellent piece of advice given to me by an old friend when I was involved in a kaleidoscopic experience of relationships. Ending a relationship is like cutting yourself with a razor blade. It is going to hurt so whatever you do you might as well do it quickly.
Next month I will look at guarantees and STDs commonly known as sexually transmitted debt. Most commonly transmitted by the simple signing of a guarantee.
Whatever you do seek professional advice from your lawyer and accountant. While this will certainly add to their happiness it will, despite the short term pain, in the end be worth it as it will almost certainly add to yours.
Editors Note: Peter Nevile is a Commercial Lawyer who can be contacted on 03 9664 4700 or peter.nevile@nevile.com.au. He or one of his lawyers can assist in risk management along with other legal services