Moving in with someone is a big step. Starting a life with a partner can be amazing, and it is easy to get swept up in colour palettes and love bubbles. But at this time, when everything is an ‘us’, is the most important time to think about ‘you.’
Entering into joint bank accounts or going in 50/50 in a loan might seem like the most practical way to manage your finances, but these systems can unintentionally lead to bigger problems in the long run.
What is Sexually Transmitted Debt?
No one wants to imagine that a good thing might end, but when there are assets involved, it is better to be safe than sorry. Sorry is behind the new financial societal phenomenon – sexually transmitted debt – it is on the rise.
Sexually transmitted debt can manifest in a number of ways:
- When one party accepts a debt or liability that they would not have otherwise accepted if not for the emotional connection in the relationship with the other party
- If one party to the relationship is not fully aware of the debts of the other party, they may be left liable to pay the debt due to the nature of the financial ties between the parties
- If one party stops meeting their commitment to shared debts leaving the other party to satisfy financial obligations.
How it starts
The way that debt can transfer from one side to another is not always the same across the board but there are a few common denominators:
- Whether you and your partner are in a de facto relationship.
Many people fall into a de facto relationship and don’t necessarily realise the full extent or liability behind this concept. The Family Law Act S 4AA outlines factors that the Court uses to define whether a de facto relationship exists. Amongst other things, the duration of the relationship, the amount of financial interdependence, the care of children and the degree of mutual commitment to a shared life are all relevant considerations to finding a de facto relationship. De facto relationships include same sex relationships and can operate to have the same effect legally as a marriage.
- What assets and/or debts you came into the relationship with.
When one party has more assets than the other or they earn more than the other person, is usually when things start to get tricky. You could find yourself contributing more, paying more towards bills and expenses and even covering your partners shortfalls and debts. Whether you plan for this to happen or not, should the relationship break down you may be liable to continue to support the person financially.
Basically, if at the end of the relationship a Court can find that your partner is not able to support themselves and you have the means to support them, you may be liable to continue to maintain your partner.
How to protect yourself – Binding Financial Agreements
Ex-de facto couples in this situation are common fixtures throughout the Family Law Courts, where the matter has escalated to the point that a Judge has to untangle the assets and liabilities of both parties for a fair and equitable outcome.
However, there is a more effective way to protect yourself from incurring your partner’s liabilities.
Binding Financial Agreement
A Binding Financial Agreement, commonly referred to as a pre-up is a legally binding document that allows you and your partner to decide how to divide your property and financial resources if there is a breakdown in your relationship. It protects your interests whilst also keeping the matter out of the courtroom in what will be an emotionally charged scenario.
Here are the fun facts:
- Can be drafted before, during or after a relationship.
- Deals with issues of spousal maintenance.
- Can be used to protect your business, investments and property.
- Financially protects children, either from the present or earlier relationship.
- Peace of mind that your and your partner’s interests are protected.
Many people believe they can prepare this document. However, a Binding Financial Agreement can be challenged if one partner does not get Independent Legal Advice or the Agreement is deemed to not be equitable if the document is challenged.
Our suggestion is to engage an experienced lawyer or at a minimum have a lawyer review your documentation and seek independent legal advice for one of the parties.
To learn more about Binding Financial Agreements or to discuss your circumstances, please do not hesitate to contact our Family Law team on (02) 8858 3211.