Prenup or PreNuptial Agreement

Financial Agreements before Marriage: Prenup or PreNuptial Agreement

It’s not the 1950s. In Australia two generations ago divorce was rare and no one knew what a prenup was. You married in your early 20s, had 2.8 kids, and usually you stayed married, till death do us part.

Society doesn’t plan your married life any more. Marriage isn’t seen as permanent, divorce is comparatively easy, and there’s little social stigma in going through two, three, or more marriages with children from each of them

People going into a marriage today may need to consider more complicated issues. They may wish to protect their existing children, they may have parents who need care or they may simply understand the statistical reality that, today marriages are fairly short-term affairs. They hope for and work towards the best future together, but they use a prenuptial agreement to insure anyway.

Section 90B of the Family Law Act 1975 refers to Prenuptial Financial Agreements before Marriage. Commonly known as a prenup, prenuptial agreements or pre nups, they are most commonly used to protect the assets of the wealthier party in the event of a marriage break down.

Contrary to popular opinion, prenuptial agreements are not just for the rich and famous. Increasing numbers of less famous couples are opting for written prenup agreements to protect the financial assets each partner brings to the relationship.

A Financial Agreement is the method Parliament has set up for you to protect the assets you take into a marriage by predetermining how those assets should be dealt with, if the marriage fails.

A Prenuptial Financial Agreement made under section 90B is a substitute for court action and means that before marriage the parties have negotiated a settlement of their family issues should the marriage end. This means that, at least insofar as they concern money and possibly child maintenance issues, the couple has resolved its issues in advance without needing the court to impose a solution.

For example. An engaged couple with children from prior marriages may use a prenup financial agreement to spell out what will happen to their property when they die. This means they can pass on separate property to their children and still provide for each other if need be. Without a prenuptial financial agreement, a surviving spouse might have the right to claim a large portion of the other spouse’s property, leaving much less for the children.

Couples often use prenuptial financial agreements to protect the assets of either partner from debts incurred by the other, or if one party is at risk of being sued.

Lets look at an example;

Julie and Alan are both in their late 40s and about to be married, each for the second time. Julie is a financial adviser who has two teenage children. Alan is a builder who has a six- year-old daughter. Each of them owns a home. After they marry, they plan to rent out Alan’s house and live at Julie’s place. Both Julie and Alan want to protect their property from the other person’s debts. Although Julie’s business is quite successful, she and Alan want to be sure that there will not be any caveats placed against Alan’s home if a disgruntled investor sues Julie, or if her business runs into financial troubles. They are equally concerned about protecting Julie’s assets and income from Alan’s business debts and any child support obligations to his ex-wife.

What should Julie and Alan do?

Alan and Julie can quarantine their property by entering into a prenuptial financial agreement (prenup) with each other (under section 90B of the Act). This means Alan’s house will not form part of the asset pool available to creditors in the event that someone tries to sue Julie or visa versa. The Agreement will also prohibit Alan’s Ex-wife wife from making a claim in relation to Julie’s property.

Financial agreements can reassure and comfort people entering into a marriage or de facto relationships. They are recognised and enforceable under the Family Law act and can save you time, money and a lot of heartache.

Prenup / Prenuptial Financial agreement kits are available for immediate download only $129.95

“How You Can Prevent The Tax Office (ATO – IRS) And A Court Of Law From Seizing Your Assets!”

Your company SHIELD is an invaluable asset. It’s especially vital to you during a business crises.

But this protective shield can easily be pierced.

If this occurs, your liability protection (together with all of the tax benefits) you have through owning a company could be totally wiped out! All it takes is for the Australian Taxation Office to conduct an investigation of your company records.

And the ATO is stepping-up its inspection of company records in the financial year!

After reviewing your records, they may find inconsistencies and errors unbeknown to you. If you haven’t kept complete and accurate minutes (and other forms) NOW required by federal law… your troubles could start right there and then!

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These days a company is the target of the ATO, State and local taxing authorities, employees and unreasonable customers. To keep proper (and accurate) company records is not only important but it’s absolutely crucial! You no longer have to pay high fees to an accountant or solicitor to get your company records in order because this company forms software can do it ALL for you with incredible accuracy and speed.

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Avoid Capital Gains Tax when you separate

Relationship Breakdown and Capital Gains Tax

Introduction

You make a capital gain or capital loss when a capital gains tax (CGT) event happens, such as when you sell or give away a CGT asset (or an interest in a CGT asset) to someone else – including a relative.

There are some situations where the capital gain or capital loss is disregarded – for example, if you acquired the asset before 20 September 1985 (pre-CGT) or if an exemption or rollover applies.

This does not discuss assets transferred under court orders, agreements and arbitral awards made in foreign countries.

Marriage breakdown rollover and what it means

If an asset, or an interest in an asset, is transferred by a person to their spouse as a result of the breakdown of their legal or de facto marriage, rollover applies provided certain conditions are met.

The conditions include that the transfer has to happen because of a court order (including a consent order), a binding financial agreement, an arbitral award or a binding agreement or award used by a de facto couple. For transfers that happen because of a binding financial agreement, an arbitral award or a binding agreement or award used by a de facto couple, rollover only applies if the CGT event happens after 12 December 2006.

The effect of a marriage breakdown rollover is that the spouse transferring the asset disregards the capital gain or capital loss that would otherwise arise. The spouse who receives the asset pays any CGT when they subsequently dispose of it. Basically, the spouse is taken to have paid what the person who transferred the asset paid for it.

Taxpayers don’t choose rollover on marriage breakdown. If the transfer meets the necessary conditions, rollover applies automatically.

From the 2009-10 income year the marriage breakdown rollover will be extended to same sex couples.

If the person transferring the asset acquired it before 20 September 1985 (pre-CGT) and rollover applies, the spouse who receives it is taken to have acquired it pre-CGT – which generally means no CGT is payable by them when they sell it.

If the asset transferred was always the main residence of either spouse, it will generally be exempt from CGT when it is sold. If it was the main residence of either spouse for part of the period they owned it, you may be entitled to a part exemption on sale.

The rollover can also apply to assets transferred from a company or trust to a spouse on marriage breakdown.

Additional rollover conditions for agreements that do not require court intervention

For transfers that happen because of a binding financial agreement, or a binding agreement used by a de facto couple, rollover only applies if at the time of the transfer:

• the spouses involved are separated
• there is no reasonable likelihood of cohabitation being resumed, and
• the transfer happened because of reasons directly connected with the breakdown of the marriage or of the de facto marriage.

The transfer may not be directly connected with the breakdown if, for example:

• the spouses had an agreement before the breakdown of their marriage or de facto marriage that the particular property was to be transferred between them for other reasons not directly related to the marriage breakdown, or
• the agreement provided for the transfer of non-specific property, the transfer does not occur for a considerable time (say, more than 12 months) after the agreement and factors are present that suggest the transfer was not directly connected to the marriage breakdown.

If rollover does not apply

If spouses divide assets under a private or informal arrangement (not because of a court order, binding financial agreement, an arbitral award or other specified agreement or award), the rollover does not apply.

This means the spouse transferring the asset must take any capital gain or capital loss they make into account in working out their net capital gain for the year in which the CGT event happened.

Generally, spouses who divide assets under a private or informal arrangement won’t have dealt with each other at arm’s length in connection with the transfer. In such cases, the spouse who transferred the asset is taken to have received the market value of the asset at the time it was transferred and the spouse who received it is taken to have paid the market value.

What to read/do next

• Marriage breakdown rollover – for more information about the consequences of rollover applying, including the treatment of certain assets.
• Marriage breakdown and transferring of assets – for more information about the rollover conditions and the consequences of rollover not applying.
• Extending the marriage breakdown capital gains tax roll-over relief and related amendments– for information about changes made to the law on 12 December 2006.

Information provided courtesy the Australian Tax Office