Business interests, trusts and partnerships are often left exposed when the personal circumstances of the people involved in these entities change, for example through separation, divorce or even death.
In this article, we look how you can use a financial agreement to protect your business interests, trusts or partnership.
Corporate and trust structures and property settlements
Many couples are not aware that the Family Law Act, which governs the property settlements of divorced as well as separated de facto couples in all Australian States (excluding Western Australia), has far ranging powers. These powers can have a major impact on the commercial and trust interests of former couples who finalise their property settlement in the courts.
Under the Family Law Act, corporate and trust structures are not always insulated from being included as part of a separating couple's asset pool, and the court has the power to compel changes to a company structure, including the transfer of shares and the resignation and appointment of company officers. Likewise, in some circumstances, the court has the power to cause family and testamentary trusts to vest early and distribute the assets of the trust to the beneficiaries.
Where this type of situation applies to your separation, or that of your relatives or business partners, the inclusion of business or trust interests in a family law property settlement could cause significant impact to the finances of the partnership, business or trust.
Protecting your assets
It is not all doom and gloom. As much as the Family Law Act has the potential to impact your assets or entitlements, it also provides the means to protect them. Many of you will have heard of financial agreements – a contract between two people in a relationship that dictates how some or all of their property is apportioned in the event of separation. What you may not know is that these agreements can also be used as a tool to protect business or trust interests, often in combination with company and trust structures.
Financial agreements can be created to specifically quarantine a business, interest, asset or future entitlement (such as an inheritance) out of the property pool at separation. This not only offers protection to the person involved, but can also provide peace of mind for relatives and business partners who could potentially be affected by any change to that person's personal circumstances.
How do I make a financial agreement?
A financial agreement can be entered into at any time prior to or during a relationship, or even post-separation. Before entering into a financial agreement, careful consideration needs to be given as to the appropriateness of the agreement to your personal circumstances.
The agreement must be in writing and signed by both of the parties involved. In addition, the agreement must also contain statements from two independent legal advisors confirming the advice they have each given their client prior to them signing the agreement.