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How to protect money in a divorce

  • March 02 2018
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How to protect money in a divorce

By Louise Chan
March 02 2018

Nobody enters into a marriage knowing it will end in divorce, but it’s a reality some couples face. Learn how to ensure that assets are protected from divorce and the financial mess it brings.

How to protect money in a divorce

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  • March 02 2018
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Nobody enters into a marriage knowing it will end in divorce, but it’s a reality some couples face. Learn how to ensure that assets are protected from divorce and the financial mess it brings.

heart pieces how to protect money in a divorce

Most couples who get married look forward to spending a ‘happily ever after’ together, that some conveniently forget to consider that divorce could be in the cards.

It might seem like a pessimistic and unromantic view of marriage, but divorce can happen to anyone regardless of age, race, sex, length and intensity of a couple’s relationship prior to marriage.

Some go through their marriage with all their finances, assets and liabilities jointly held or not properly protected, so it comes as a big blow when one spouse files for divorce and claims a right to all assets.


They could also end up financially crippled after a divorce settlement forces them to surrender a huge portion of their assets—even the money and property they accumulated before marriage.

heart pieces how to protect money in a divorce

Regret always comes last, so the best way to deal with potential loss is to put up a shield against it before it even comes knocking.

Here are some effective and legal ways to protect money and assets from divorce.

Prenuptial agreement

Prenuptial agreements are often seen as unromantic and, in some cases, a reason to doubt the endurance of a relationship. After all, what other reason would a couple have for spending somewhere between $5,000 and $20,000 for a legally binding document to protect their assets from their partner?

Here’s the answer: if the couple doesn’t separate, it’s simply an investment that did not earn money. However, if the marriage does end in divorce, it saves both parties from a long legal battle that will diminish their assets, force both parties to pay tens of thousands of dollars worth of legal fees, and treasured assets prior to marriage stay intact and with their rightful or intended owners.

Prenuptial agreements and cohabitation agreements are just different names for ‘Binding Financial Agreements’ (BFA), which are legal documents that outlines which assets belong to whom, and how finances and other assets will be split in case of separation.

BFAs are especially helpful for couples in which one party is bringing significant assets into a relationship, such as high income, business or inheritance, or liabilities such as debt or lawsuits. This document will indicate which assets are shared, and which are off limits to the other. This can also secure the financial future of one party’s children from a previous marriage or other dependants, such as retired or disabled parents.

Since both parties are required to seek independent legal advice prior to signing a BFA, it ensures that neither gets the short end of the stick. In Australia, BFAs may be drafted and signed before, during or after the marriage, so it is also helpful in the event that a couple is considering divorce, but intend to end things peacefully.

It is of utmost importance, however, that a family law practitioner draft the BFA, especially for those who have significant assets to consider, because cheap DIY kits may be contested in court.

Remember: BFAs or pre-nups aren’t just protection for the party with more assets. It also offers protection for the other party.

BFAs are not legal insults to a person’s future spouse. BFAs are protection for both against the leading cause of divorce: ‘money issues’.

Separation of assets

Couples should also consider separating their assets from the relationship.

That is, one party who owns a property prior to the marriage should consider keeping the deed only in their name—if they don’t want to end up having to fight for the right to keep it when divorce happens. Likewise, both parties may want to keep separate bank accounts.

Marriage or long-term cohabitation doesn’t mean the couple has to be joined at the hip, so they don’t have to put all their money in one piggy bank either.

Consider opening a joint account for all living expenses that benefit the family, but have a separate individual account for expenses that can be considered personal luxuries—or a source of funds for surprise gifts.

Statistics show that money issues tend to be one of the primary reasons couples divorce so both parties should also be transparent about having a separate account.

Note, however, that hiding assets from the court doesn’t work, and even a separate bank account doesn’t assure that one party can keep all the money in it if the court believes the other party has a rightful claim to the money.

Separate roles and just compensation

Some couples dabble in businesses together or help each other out when their spouse’s company is in a pinch.

To ensure that there will be no claim to a stake in the company, consider paying the non-stakeowner a just wage and document it. This way, their assistance for the benefit of the other’s business can be considered as services rendered at market value, and their claim may not be justified.

Proper documentation

Marriage and family life should not work like a business, but it is still important to properly document all important financial transactions. Proper documentation can prove if an asset acquired during the relationship should be placed in the asset pool or belong only to one party.

For instance, an inheritance received by one party from their parents during the relationship could be considered by the court as a gift bestowed to the couple. This means the true owner may be forced to sell the asset and split the proceeds if their estranged partner makes a claim to it.

Both giving and receiving parties may want to consider drawing up a document specifying who the intended beneficiary is. This must be signed by both parties in the relationship, and the gifting party to ensure that the asset in question was never part of the couple’s asset pool.

In some cases, couples also incur joint debt, perhaps due to a home mortgage or some other loan in which one guaranteed for the other. Debts will also be divided by the court in a legal separation of assets so, if only one party is truly responsible for the debt, it is important to keep proper documentation for this. This can be a simple handwritten and signed document where both parties acknowledge the terms of the loan and repayment or an actual legal document.

Proper documentation doesn’t necessarily take properties and money out of the asset pool, but it will help the court decide how to correctly split assets and if there are any exceptions to be made.

Discretionary trust

A discretionary trust can offer protection against a potential ex-spouse and in-laws’ claims to a beneficiary’s assets.

It is still not as powerful as a BFA, but for hard-headed progeny who are too starry eyed over their romance to even consider it, a discretionary trust may offer protection if executed correctly.

Creating a discretionary trust which names one party and/or their blood descendants as the sole beneficiaries could ensure that assets will be kept in the family. However, it is important for the discretionary trust to be drawn up by a professional who can cover all the bases prior to transferring any asset.

The beneficiary or heir must not be the sole trustee or appointor for the trust, because significant control over the trust and asset may be considered as ownership. If this happens, the court can— and probably will— demand that the asset be pulled out of the trust and added to the asset pool.

This is because the family court is not fooled by people who use trusts to hide their assets to ensure that their ex-spouse will not benefit from it.

The timing of inheritance gifting and when the asset is placed in the trust are also crucial. That is, if the inheritance was given to the person before it was transferred to the trust, the court will consider it as an asset acquired during marriage, and it will still be distributed.

If, however, the asset was held in the trust before any or all the beneficiaries receive anything, the asset will be protected from the divorce.

Can I spend my money during a divorce?

Many people might not know about this, but ex-spouses who have not yet finalised their property settlement can still spend funds from their joint accounts after separation. However, this does not mean that estranged spouses can spend without repercussion.

Any post-separation spendings made by you and your ex-spouse will be carefully considered by the Family Court and have an impact on the division of the asset pool. This means that the final outcome will vary depending on the specific circumstances of the case.

To have better knowledge about how you can spend your money during a divorce, it would be best to consult with your lawyer. That way, you can mitigate financial risks that can occur once you or your ex-spouse engage in excessive discretionary spending before legally finalising property settlement.

Can inherited money be taken in a divorce?

The division of assets during a divorce is already a complex issue. But things can get a little more complicated once one of the parties desires to include the inheritance that the other party received from his/her parents or another family member.

There are different aspects to consider when one party is disputing the importance of another party’s inheritance during divorce proceedings. It is expected to cause conflicts, but the fate of the said inheritance may vary depending on the case.

Former spouses, however, may come to an agreement on how to divide the assets included in the inheritance. If the negotiation is successful, they must make the agreement official by applying for court orders in the family court.

In the instance wherein no agreement can be made, the family court will decide what will happen to the inheritance. Crucial factors are going to be considered to determine whether the inheritance must be divided between the two ex-spouses or the party who legally received it should keep it for herself/himself.

Last reminder

BFAs are still the most effective way to protect money and other assets when drawn up correctly.

Marriage is supposed to be a lifelong commitment but it is unfortunate that many end in divorce because of money problems. Don’t just think of protecting your money in divorce, think about protecting your marriage from the money issues that could cause its demise.


This information has been sourced from the Family Court of Australia and Aussie Divorce.

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About the author

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Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

About the author

author image
Louise Chan

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

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