Including amicable and litigious property and children’s matters

Binding Financial Agreements in Australia

Binding Financial Agreement (BFA) is the term the Federal Circuit and Family Court of Australia (FCFCOA) uses for Pre-nuptial agreements (pre-nups), Post-nuptial agreements (post-nups); and cohabitation agreements. The Family Law Act 1975 (Cth) allows parties in a marriage or de facto relationship to enter into a BFA to avoid disputes about division of their finances in the event of a relationship breakdown. BFAs alter the normal avenue for division of property and other assets, deviating from the FCFCOA’s normal jurisdiction.

How do they work?

A BFA allows a couple to agree in advance on an acceptable division of assets. When a marriage or de-facto relationship breaks down, a BFA can allow a couple to amicably separate without the need for costly, time-consuming and stressful action in the FCFCOA.

Ensuring that a BFA is properly drafted and executed can provide certainty and prevent the FCFCOA from interfering with the agreed property distribution following the breakdown of a relationship.

When do the parties enter into a BFA?

BFAs can be entered into:

  • before the commencement of a marriage or relationship; or
  • at any point during the marriage or relationship; or
  • after separation or divorce.

How binding is BFA on the FCFCOA?

A BFA is binding if it has been correctly drafted and executed. To be binding, BFAs must meet certain requirements: if they are not met, the agreement may be set aside or void. To avoid the agreement being set aside, each party must obtain independent legal advice and have their solicitor sign a certificate of independent legal advice.

Parties should review BFAs entered into before the commencement of or during a marriage or relationship about every two years or after a significant event in the lives of the parties, such as the birth of a child or a party receiving an inheritance.

What can a BFA cover?

A BFA can specify how the parties agree to divide the asset pool if the relationship fails. They deal with property, financial resources and maintenance, which can include:

  1. The financial settlement (i.e. property settlement, including superannuation entitlements);
  2. The financial support (maintenance) of one spouse by the other;
  3. The agreed arrangements for the children; and
  4. Any incidental issues.

Issues a BFA can deal with include:

  1. Preserving family farms or other businesses for future generations;
  2. Protecting existing assets or likely inheritances;
  3. Ensuring that children of previous relationships inherit;
  4. Avoiding disputes about financial matters at the end of a relationship; or
  5. Providing more weight to the contribution of a higher income earner.

What your lawyer needs to know to advise you about a BFA

When your lawyer is advising you about a BFA and before they can draft an agreement, they may need to take the following into account:

  1. Both parties’ current assets including chattels, vehicles, shares, furniture, and valuables;
  2. The current value of these assets;
  3. Their superannuation entitlements;
  4. The current market value of property a party intends to own personally;
  5. Each party’s liabilities including any loans, mortgages or debts;
  6. Whether there is any other family law financial agreement which may apply;
  7. The date when cohabitation commenced;
  8. The date when the relationship commenced;
  9. Both parties’ occupations and future capacity to earn an income;
  10. Whether either party has been married previously; and
  11. The number and age of any children.

What are the benefits of a BFA?

In the event that a relationship ends, a properly drafted and executed BFA may give the parties a degree of certainty, making them feel more secure in knowing that the property they have accumulated before the relationship or marriage is safe. If parties agree in advance regarding the division of property after a separation, any issues arising are more likely to be resolved with less stress, argument and legal expenses, and no court delays.

Terminating a BFA

The Family Law Act sets out the circumstances in which the FCFCOA may set aside a BFA. These include:

  1. where the agreement has been obtained by fraudulent means, including material non-disclosure (e.g. by failing to disclose an asset);
  2. a party to the agreement entered into the BFA for the purpose of defrauding or defeating a creditor;
  3. the agreement is void or unenforceable (e.g. the BFA was not prepared properly and does not comply with the legislative requirements set out in sec 90G or sec 90UJ);
  4. circumstances have arisen since the BFA was made which make it impossible or impracticable for the BFA to be carried out;
  5. since the making of the BFA, a material change in circumstances has occurred (relating to the care, welfare and development of a child of the relationship) and, as a result of the change, a party to the agreement will suffer hardship if the Court does not set the BFA aside;
  6. a party’s conduct in the making of the BFA was, in all the circumstances, unconscionable;
  7. a “payment flag” is operating on a superannuation interest covered by the BFA and there is no reasonable likelihood that the operation of the flag will be terminated by a “flag lifting” under that part; or
  8. the BFA covers at least one superannuation interest that is an “unsplittable interest”.

Terminating Process

A Binding Financial Agreement can be “terminated” in one of two ways:

  1. the parties can enter into another financial agreement, provided that a specific provision is included in the new agreement stating that the former agreement is terminated; or
  2. the parties can enter into a “termination agreement” pursuant to sec 90J (for married couples) or sec 90UL (for de facto couples). As with the original BFA, for a termination agreement to be binding and enforceable, it must be signed by all parties, and each party must have received independent legal advice with respect to the termination agreement.

What now?

Contact us for advice and assistance in negotiating, correctly drafting and executing a BFA tailored to your specific circumstances.

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Family Law Property Division

The significance of gifts or contributions made by third parties

When determining an application to divide assets and liabilities between separated spouses/de-facto partners, the Federal Circuit and Family Court of Australia (FCFCOA), considers who made the contributions to the acquisition, maintenance and improvement of property.

The FCFCOA also considers the future needs” factors set out in s75(2) of the Family Law Act 1975 (the Act) when deciding whether to make an adjustment to one or both parties’ property ownership.

This article does not deal in detail with the circumstances in which the FCFCOA may make an adjustment based on the parties’ future needs.

What is a Contribution?

The FCFCOA will only make an Order for property division if it is satisfied that, in all the circumstances, it is just and equitable to do so. In determining whether an Order should be made, the FCFCOA looks at the contributions the parties made to the property pool. Contributions can be financial or non-financial and:-

  1. may be made directly or indirectly by or on behalf of a party to or a child of the marriage/ relationship to the acquisition, conservation or improvement of their property; or.
  2. made by a party to the marriage/relationship for the welfare of the family (comprising the parties and their children).

The FCFCOA determines what property division should be made on the basis of the contributions made by each party, also taking into account the adjusting factors set out in Section 75(2). However, it is not always a party to or a child of the marriage/relationship who makes contributions.

What about contributions made by someone who is not a party to the marriage or relationship?

Contributions can be made by third parties, most often the parties’ parents. Contributions made by or on behalf of a party to the marriage/relationship are taken into account. Contributions made by a third party must be attributed to one or sometimes both of the parties to the marriage/relationship.

Who gets the “credit” for contributions on behalf of a party can make a big difference to the outcome of property proceedings.

The parties welcome outside contributions when times are good but they become the subject of argument and disagreement when separation occurs and times are bad.

Who can make a contribution and who gets the benefit of that contribution?

The most common example of a contribution made by a third party is a gift from one party’s parents of money or specific property.

How will the court apply the benefit of such contribution? 

What was the Intention of the third party when they made the contribution?

The actual intention of the donor may not have been carefully considered at the time the gift was made. In circumstances where a property division is being considered, it is often asserted that what was intended to be a gift was actually a loan which must be repaid.

In determining the weight to be given to a gift to only one party the Court may:

  1. Allow the recipient of the gift to be credited with the value to which the gift had increased at the date of the hearing; or
  2. Give the recipient of the gift credit for its initial value; or
  3. If the gift has been mixed with other contributions over a long period, not attempt to give it a particular value, but rather consider it a fact to be taken into account along with other relevant factors.

Gift to both parties?

Even where the gift by a relative of one party is made to both parties, it is open to the FCFCOA, in certain circumstances, to treat it as a contribution by the party to whom the donor was related. In the marriage of Pices the Court took into account the relationship of the spouse and their parents in concluding that the gift from the parents should be regarded as a contribution by the related spouse. If however the gift was clearly intended to be given to both parties, the Court will regard it as an equal contribution.

Non-financial contributions by a third party

A non-financial contribution may be made by a relative. Provision of childcare or provision of accommodation, are examples of such non-financial contributions that can be made by a parent or relative and can assist one party or the other in property proceedings.

What now?

If you are engaged in a property settlement with your spouse/partner and a third party has made a financial or a non-financial contribution to the marriage/relationship, this can lead to a stressful and complex situation. Contact us for assistance and support with your family law property settlement..

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Mediation in Family Law

What to expect

Mediation is the process where a mediator (usually an experienced family lawyer, barrister or former Judge) assists people in dispute to negotiate a mutually satisfactory resolution and avoid Court proceedings. In Family Law disputes the process is called “Family Dispute Resolution” (FDR) and mediators are called Family Dispute Resolution Practitioners (FDRP) but in this article we use the terms “mediation” and “mediator”.

It is normal to feel anxious about attending a mediation with your ex-partner, especially If you have never taken part in one before.

The mediator does not take sides in the dispute or make a decision about which party is right or wrong. They work with you and your ex-partner (and possibly your lawyers) to reach agreement as part of your separation.

The mediation

There is no one fixed mediation process: different mediators use different processes and have different skill sets and styles. Your lawyer will help you to select the right mediator given the nature and complexity of the issues and the dynamic with the other party (and their advisor).

The mediator may initially choose to meet with both parties separately (often by telephone or video conferencing) for an ‘intake session’ to discuss your concerns and your desired outcomes. The mediator will use the information gleaned from these conversations to help them decide how to conduct the discussion and negotiation.

The mediator may ask both parties’ lawyers to open with statements on their clients’ behalf. The goal is to:

  1. work out what the main issues are; and
  2. narrow down the issues to those about which the parties disagree.

The mediator may then ask each party to consider options for settlement. They may also ask one party to make an offer. Offers will be exchanged until agreement is reached. The aim of this process is to resolve the issues in dispute.

Negotiations can be in a joint session or separately, either in person or remotely by video or telephone conferencing.

If you choose to do the mediation separately the mediator will convey the offers back and forth between the parties and may make suggestions on the framing of offers. This approach tends to be preferred in family law disputes because a spouse may not feel comfortable, or may be emotional or fearful of the other person and so unwilling to be on the same call as them.

Each party is in a different room with their lawyer and the mediator goes back and forth. This can also be done by separate phone or video calls between the parties and the mediator. Each spouse can make decisions without pressure and with the assistance of their legal advisor.

Can I bring a support person?

You are welcome to bring a friend or family member with you to the mediation if you believe it will help you on the day. You should discuss this with your lawyer beforehand. If you choose to bring someone with you, they must not obstruct the prospects of a settlement or inflame the dispute. Before the mediation you should discuss with your lawyer the name and your relationship to your proposed support person. The mediator may require enough time for them to obtain the other party’s agreement to the inclusion of your proposed support person.

What is my lawyer’s role?

Your lawyer plays an integral role in managing the negotiation process, taking into account their experience and their knowledge of the mediator and the other lawyer.

As mediation aims to reach a mutual consensus, mediation is very different from Court and your lawyer will act differently to how they would in Court. Rather than advocate as they would in Court, they will most likely calmly discuss the case with other practitioners. Your lawyer will guide you through the process respectfully and work with the other lawyer and the mediator to positively problem solve. An aggressive approach at mediation is likely to reduce rather than enhance the prospects of settlement.

What is my role?

Assisted by the mediator and your lawyer, you can be best informed to decide whether to reject or accept offers of settlement and what (if any) counter-offer you wish to put on the table. Reaching agreement often requires both parties to compromise. The mediator will inform you of the other party’s offers and counter, but the final decision is up to you.

You should not feel pressured to agree to an offer if you do not feel comfortable with it. If during the mediation you feel uncomfortable, you should tell the mediator so they can try to resolve your concerns. If you are feeling fearful, overly anxious or overwhelmed, you can take a break, giving you a chance to clear your head, calm down, or refocus.

Reaching agreement

Once agreement has been reached at mediation, the lawyers set out the terms of the agreement in writing, usually in the days immediately following the mediation. The documents are then signed by the parties and their lawyers. If the matter is in Court and the next hearing is imminent, the signed documents may be handed up to the Registrar or Judge at the next hearing. If the matter is not already in Court, the documents are filed electronically in Court. The agreement is not final until the Order is made.

Agreement not reached

If the parties do not reach agreement at mediation, your lawyer will discuss the next steps with you. You will need to work with your lawyer to determine a strategy which may include making further offers, or litigation culminating in Court Orders.

Where to now?

We are there to prepare you for and support you through the mediation process. Preparation and obtaining all the information you need to make informed decisions and negotiate the issues is key to a successful mediation. We will work with you before the mediation so you are well prepared and know what to expect. Contact us to speak to a lawyer about mediation in family law.

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Living separately and apart under one roof

If a married couple has separated and wishes to file for divorce, the Federal Circuit and Family Court of Australia (FCFCOA) must be satisfied that under section 48 of the Family Law Act 1975:

  • The marriage has broken down irretrievably and there is no chance of reconciliation,
  • The parties have separated for at least 12 months, and
  • if there are children of the marriage:
    • proper arrangements have been made for their care and welfare, or
    • if proper arrangements have not been made for their care and welfare, the FCFCOA is satisfied that it is proper to proceed with the Divorce.

Despite the requirement for 12 month’s separation before filing a divorce application, parties are not required to live apart after they have decided to separate. Separation under one roof is when a couple separate but continue to live in the same house following separation (even for a short period).

Parties may decide to live together after separation for convenience, financial benefits or to provide their children with stability.

A couple may be deemed to have separated when they cease living together as a couple. If “separation under one roof” applies to you, you may need to support your divorce application by filing an affidavit demonstrating a change in your marriage.

How to prove separation under one roof:

Your affidavit will need to illustrate changes in the marriage which show that you and your spouse have separated. It should also explain why you and your spouse continued living together following the breakdown of your marriage. The FCFCOA will consider whether you and your spouse stopped acting like a husband and wife, in which case separation will have taken place.

The Social Security Act 1991 sets out a range of factors that must be considered when determining a person is a member of a couple relationship or separated under one roof. Relevant details you should include in your affidavit to prove you are separated include:

  • Changes to financial aspects of the relationship;
  • Changes to the nature of the household;
  • Closing joint bank accounts;
  • Opening separate bank accounts;
  • Re-negotiating shared loans;
  • If you are sharing living spaces such bedrooms, bathrooms and other living areas;
  • Changes to superannuation beneficiaries, life insurance, wills or other legal arrangements;
  • Changes to household duties;
  • Changes in sleeping arrangements;
  • Whether you have started independently shopping for groceries, cooking, cleaning etc.;
  • Changes to shared telephone numbers or email addresses;
  • Changes to social aspects of the relationship;
  • Changes to childcare arrangements;
  • Whether you are invited to events separately or as a couple;
  • If any religious or cultural considerations are relevant in concealing the separation to other people;
  • Reduction or absence of shared activities or family outings;
  • Evidence that you have announced the separation to family and friends.
  • The presence or absence or cessation of a sexual relationship or intimacy (however, this is not a conclusive sign of a separation as separated couples may still engage in a sexual relationship). The sex may be a part of the marriage but sexual relationship in itself is not the evidence that the married couple continued their relationship;
  • Not spending time together on special occasions such as birthdays or holidays;
  • Whether any of the parties have formed a sexual/romantic relationship with another person;
  • Any previous or current AVOs restraining contact between the parties;
The nature of the parties’ commitment.

The Court will consider the parties level of commitment to each other and their relationship by looking at the following factors:

  1. If the parties would provide assistance if the other was in a crisis or ill (especially if it is a long-term serious illness where ongoing care would be required);
  2. If the parties have any joint plans for the future;
  3. How often the parties communicate and share information with each other;
  4. If either party intends to divorce the other party;
  5. Changes to intimacy and companionship.

Parties will also need to inform the FCFCOA of any government agencies that have been advised of the separation (e.g. Centrelink).

Overall, the Court will look at the “whole picture” of the relationship, rather than focusing on the five factors as mentioned above. All relevant information regarding a spouse’s separation and circumstances will be taken into consideration.

A separated couple under one roof will need to prove to the FCFCOA that, although they live under the same roof, they live and act independently and do not act like a married couple anymore.

What now?

Contact us for assistance, support and advice in relation to all Family Law matters such as separation under the same roof.

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What is just and equitable?

The Federal Circuit and Family Court of Australia (FCFCOA) must be satisfied that an order in relation to the division of property in a Family Law property settlement is just and equitable before making it.

In leading cases (such as Mallett & Mallett and Hickey & Hickey), the Court has stated that the just and equitable requirement is generally the last of the four step process undertaken by the court in family law property settlements.

What does just and equitable mean?

In Mallet & Mallet the words ‘just and equitable’ were described as the “overriding requirement” to determine whether it is just and equitable to make AN order at all and IF one is made, what that order should be. In determining whether the order is just and equitable, the court must consider not just the underlying percentage distribution of the assets but also the justice and equity of the outcome (i.e. the actual order) (see  Russell & Russell and JEL v DDF).

The main purpose of section 79(2) is to ensure that the Court:

  1. alters the parties’ property rights only if justice requires it to do so; and
  2. If the court decides it is just and equitable to make any order, the court is satisfied that the alteration of property goes no further than the justice of the matter demands.

What are the four steps?

Before the High Court case of Stanford v Stanford, the four steps the Court considered in determining what orders it makes, were:

  1. identify the value of the parties’ property, liabilities and financial resources at the date of the hearing;
  2. identify and assess the parties’ contributions and determine their contribution based entitlements as a percentage of the net value of the property pool;
  3. identify and assess the relevant ‘future needs’ factors under section 79(4) and 75(2) of the Family Law Act and determine any adjustment necessary;
  4. consider the effect of those findings and determine what order is just and equitable in the circumstances.

The court’s decision making In property disputes involves an exercise of discretion, having regard to these four steps, which turns on the facts of each individual matter (Russell & Russell).

The effect of Stanford

In the case of Stanford the High Court expressed its views on the proper approach to an application for property adjustment under s.79 of the Family Law Act.

In Stanford, the High Court stated that the Court must first consider whether it is just and equitable to make an order, rather than considering whether the order is just and equitable as a ‘fourth step’. Stanford refocussed attention on the Court’s obligation not to make an order adjusting property interests unless it was just and equitable to do so.

Watson & Ling confirmed that the breakdown of a marriage or de facto relationship does not automatically result in the parties’ property being altered and, nor should the making of an order at all be assumed.

Accordingly, the requirement to consider whether an order is just and equitable is now more accurately considered as the first step, adding an extra step to the four step process.

How is the just and equitable requirement (as a first step) satisfied?

The just and equitable requirement as a first step is generally satisfied because, once the parties no longer live together, there will no longer be common use of the property. Consequently , the assumptions underpinning the parties’ property arrangements will have been brought to an end. The question of whether it is just and equitable to alter the existing property interests is readily answered where both parties are seeking orders which alter their respective property interests. Whether it is just and equitable to make an order is more difficult to answer where one party seeks that no order be made.

The just and equitable requirement: Case Studies

Bevan & Bevan found in the appeal that the trial judge erred in determining that altering the existing property interests of parties who had largely lived apart for 18 years and the husband had told the wife she could retain the assets was just and equitable.

In the Full Court appeal of Redman & Redman, the husband and the wife applied for consent orders to be made. The sole purpose of the orders sought was to transfer the family home in an intact marriage from the name of the husband to the names of both himself and his wife and to employ the Family Law Act 1975 to achieve this to avoid paying stamp duty. The Registrar refused to make the order. On appeal, the Court indicated that it has power under s 79 to make orders where the parties’ marriage was intact. However, the court must have a principled reason for interfering with the parties’ existing legal and equitable interests (per Stanford). There was no apparent reason and the appeal was dismissed.

Are you unsure what order is just and equitable in your case?

If you have recently separated, contact us for advice regarding what orders are just and equitable in your case.

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Family Law property – what are future needs?

If you have separated from your former partner and cannot reach agreement regarding a division of property, you may end up before a Court considering what property division orders should be made.

Most couples undergoing a separation reach agreement regarding the division of their property and never see the inside of a court room. If you reach agreement, you should ensure that it is formalised, either by:

  1. orders made by consent and issued by the Federal Circuit and Family Court of Australia (FCFCOA); or
  2. signing a binding financial agreement.

Even if you and your former partner reach agreement, it is important to obtain advice about the way in which the FCFCOA determines your property entitlement. This is an important tool in negotiations with your former partner.

If your matter were before the FCFCOA, it is likely to consider:

  1. firstly- what assets and liabilities form the asset pool available for division between you and your former partner;
  2. next – the financial and non-financial contributions made by you and your former partner. The court determines each party’s percentage entitlement to the property pool based on those contributions; then
  3. then – what further adjustment (if any) should be made in favour of you or your former partner based on your “future needs”. The FCFCOA looks to the future and decides whether to make an adjustment based upon any of the matters set out in section 75(2) of the Family Law Act 1975 (FLA).

Future needs factors that may result in an adjustment being made include:

  1. Where one party is of advanced years or suffers from some long term or permanent health condition; and
  2. Where one party has the ongoing or primary care of children of the relationship; and
  3. Where one party has a greater future earning capacity.

Evidence which may be relevant to “future needs” factors includes:

  1. Age and state of health of parties.

Possible considerations:-

  1. If one party is nearing retirement age, are they likely to retire in the near future or continue working?
  2. What is the nature and severity of any illness suffered by a party and is that illness long term or likely to be remedied (if so within what kind of period);
  3. Does an illness or health condition of one party effect their ability to care for the children or to earn income?
  • Care and control of children of the relationship under 18 years of age.

Possible considerations:-

  1. for the party with whom the children live:
    • The number and ages of the children and the number of years before they turn 18;
    • the amount of supervision the children require;
    • How care of the children effects the lifestyle/recreation time of that party and their ability to work;
    • The extent to which child support paid contributes towards the children’s expenses.
  2. for the party with whom the children spend time:
    • The amount of time the children spend with that party and the extent to which that relieves the other party of the burden of caring for children or allows them freedom of lifestyle/recreation and to be gainfully employed;
    • The number and ages of the children and the number of years before they turn 18;
    • Whether child support has been paid and the history of payments, including the likelihood of payments continuing in the future;
    • The level of child support payments.
  • Earning capacity.

Possible considerations:-

  1. the earning capacity of the parties during the relationship;
  2. Whether one party’s earning capacity has been affected by the relationship (whether due to caring for children or otherwise);
  3. each party’s current income and potential earning capacity;
  4. If one party is not working or is not working full time, their capacity to obtain employment or other employment and their expected remuneration in that employment;
  5. training or further qualifications a party may need to complete to obtain employment;
  6. the likelihood of a party receiving or retaining an income producing asset as part of the property settlement;
  7. The size of the property pool to be divided between the parties relative to each party’s income and earning capacity.

What Now?

Contact us for advice and support in resolving your family law issues.

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Family Law property – contributions

In a property settlement, the first step of the four-step process in determining a split of the assets of a marriage or de-facto

In a property settlement, the first step of the four-step process in determining a split of the assets of a marriage or de-facto relationship is identification of the asset pool. The next step is assessment of the contributions of the parties to the asset pool, which is achieved by applying sections 79 or 90SM of the Family Law Act 1975 (Cth) (“the Act”).

The percentage split of the property pool is affected by assessment of the extent of each parties’ contributions. Greater contributions by a party may increase that party’s entitlement.

The Court takes into account different types of contributions.

Financial contributions

These are contributions by or on behalf of a party to the relationship, or a child of the relationship, to the acquisition, conservation or improvement of the parties’ property.

They include significant assets or superannuation brought into the relationship at the start of the relationship, or the contributions of salary, superannuation or other earnings generated during the relationship.

Non-financial contributions

These are contributions by or on behalf of a party to the relationship, or a child of the relationship, which may not have a “price-tag”, to the acquisition, conservation or improvement of the parties’ property.

They include home improvement or renovations undertaken by a party which improve the value of the matrimonial or investment home.

Homemaker or parenting contributions

These are contributions by a party to the welfare of the parties to the relationship (including any children) as a homemaker or parent.

They include parenting duties, cleaning duties and general house maintenance duties. The weight given to these contributions is on par with financial and non-financial contributions.

Weight attached to contributions

The Court takes into account when in a relationship contributions were made. Progressively less weight attaches to initial contributions over time. Contributions made by a party at the beginning of a relationship bear greater weight in a short relationship than they do in a long relationship. A party who contributes the majority of the asset at the start of a short relationships has grounds to leave the relationship with most of those assets, which is a less likely outcome in a longer relationship.

Specific types of contributions

Specific types of contributions may also be relevant to certain assets. For example, one partner caring for an injured partner may be a relevant contribution in determining the entitlement (if any) of the uninjured partner to the injured partner’s personal injury compensation payment.

A gift by third parties to a party to the relationship may also be a classified as a contribution. These contributions (often from parents) include monetary gifts, assistance with home purchases, or a gift of household furnishings.

What now?

Above is a brief overview of contributions-related factors which may be considered by a court in property proceedings. This is a complex area of law and it is important to get advice from an experienced family lawyer. Contact us for advice specific to your circumstances or if you have any questions about contributions in family law property settlements.

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Identification and valuation of assets in family law property settlements

The breakdown of a marriage or de facto relationship can be incredibly stressful. Both parties want to achieve the best possible outcome for themselves. Consequently, dividing assets can be a difficult process.

However, receiving legal advice about your available options should help to minimise your emotional and financial stress. In this article, we cover what assets are included in the asset pool and how they are valued and divided.

What Assets are Included in the Asset Pool?

The asset pool is the total net value of all matrimonial assets. This includes assets, liabilities and superannuation interests:-

  • in the name of both parties;
  • in the name of either party; and
  • under the control of one party.

Identifying `matrimonial’ or `relationship’ assets available for distribution between If you and your ex-spouse or de facto partner is an important and sometimes complex step in a property settlement. If you and your ex cannot agree which are matrimonial or relationship assets, the court may have to decide.

The court’s usual approach is to value the matrimonial/relationship assets as at the date of trial (not at the time of separation). The time of Trial may be up to 2 years after the commencement of proceedings. Between the dates of separation and the trial, the value of assets may have significantly risen or fallen. The court will consider any changes in value and, if appropriate, attribute such changes as being a contribution by a party. Depending on whether such change is positive or negative, it may increase or decrease that party’s overall entitlement.

There may be consequences if a party attempts to remove an asset from the pool by disposing of it before settlement. If a party wrongly disposes of an asset after separation, the court will consider the factual circumstances surrounding that disposal. It may decide to notionally “add back” the value of the asset to the matrimonial/relationship assets by treating it as part of the share of the person who dealt with it.. Cases surrounding this complex area of law are regularly developing the law.

A recent study found that the following ‘basic assets’ are usually divided in a settlement. The most common assets and the percentage of cases they were included in are:

  • Furniture – 100%
  • Cars – 95%
  • Bank and credit union accounts – 81%
  • House or unit – 77%
  • Other basic assets – 46%

How are Matrimonial Assets Valued?

Valuation of matrimonial assets, although essential to resolve a family law property settlement, can be contentious. Here’s how the value of many of these items is determined:

Real Property

Land and homes are usually the largest value shared assets. Parties are often able to agree on a value after appraisals from real estate agents. However, it is generally better to get an independent valuation by an expert jointly engaged by both parties, as the value is more precise than an appraisal. This is required by the court if there is a dispute over value.

Business Interests

Parties should jointly instruct an independent expert such as a forensic accountant to carry out a valuation of a business, even if the business has an in-house accountant. In some cases, the value of the business will simply be the value of its assets minus its liabilities. In other cases, it is far more complex.

Motor Vehicles

A jointly appointed expert can be used to ascertain the value of a motor vehicle. If the value of the vehicle isn’t high, a website such as Carsales or Redbook can be used to provide a value range which the parties can use to agree on a price.

Furniture and Jewellery

The court tends to adopt a conservative approach to valuing furniture and jewellery, generally preferring the second-hand value to the insured or replacement value. Independent valuations can be used, but you should consider whether their cost is likely to outstrip the value of the jewellery.

How does the Court Divide the Matrimonial Assets?

If mediation and/or other negotiations fail and a settlement is only achievable by going to court, the court will decide what it believes is ‘just and equitable’ for both parties.

The court will:

  1. Consider the value of the assets after the payment of any liabilities;
  2. Consider the contributions made by each party, including:
    1. Financial contributions;
    1. Non-financial contributions (e.g. repairs to a property or unpaid work in a family business);
    1. Contributions as homemaker;
    1. Contributions as a parent;
  3. Assess the current and future circumstances of the parties referring to a list of factors including:
    1. the age and state of health of each of the parties;
    1. the income earning capacity or disparity between the parties;
    1. the length of the relationship and its effect on each of the parties’ income earning capacities; and
    1. who will be the children’s primary carer in future;
  4. Determine, in the whole of the circumstances and the adjustments made (percentage wise) to the contributions and circumstances of the parties moving forward, whether the division of assets is just and equitable.

The court can apply as much weight to these factors as it considers necessary, so there is no set formula for calculating how much each party will receive.

Couples can often resolve their financial issues outside of court but whether you can negotiate an outcome yourself or require the intervention of the court, you should seek independent legal advice concerning the best approach for your situation and your likely range of entitlement. Contact us to discuss your matter and receive advice on your best course of action.

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Superannuation Splitting

The treatment of superannuation in a property settlement between separating couples was historically a problem area for the Family Courts because of the special qualities of superannuation interests. Because of strict rules governing superannuation interests, it has sometimes been difficult to arrive at a settlement which is fair to both parties.

Property settlements dealt with under the Family Law Act can divide superannuation along with other assets as part of property settlement. As most people have superannuation, this has a significant effect on most people’s property settlement.

There are varying approaches on valuing and determining the division of superannuation interests in family law matters. Each case is approached and determined based on its own specific circumstances.

It is important to seek advice concerning the valuation of either your own or your spouse’s superannuation interest before agreeing on a property settlement.

Accumulation Funds

Accumulation funds, also known as industry funds, are the most commonly held superannuation interests. The value of this type of superannuation interest is usually determined by a recent member statement or a completed superannuation information form.

Self-Managed super funds

Self-managed super funds are becoming more common, particularly as a way to invest in property. However, unlike other types of superannuation, the diverse nature of the self-managed superfunds and the property they own, make a standard valuation regime impossible. An expert is generally required to value a self-managed super fund.

Defined Benefit Funds

To value a defined benefit superannuation fund, you will need to send a Form 6 or a Superannuation Information Request Form to the specific fund. Information provided by the fund regarding a superannuation interest may have to be valued by an Actuary to determine its value for family law purposes. Defined Benefit valuation formulas are usually based on a combination of factors including:

  • The age of a member;
  • A member’s average salary leading up to retirement or the value of the super at retirement; and
  • How long a member has worked for the employer.

How do you split superannuation?

Superannuation interests are split by a splitting order or agreement, usually contained within Court Orders (made by consent or after litigation) or a Binding Financial Agreement (BFA).

After the Orders or BFA are served on the Trustee of the superannuation fund, the Trustee will arrange for a payment from the member spouse’s superannuation interest to a super fund nominated by the non-member spouse. The payment may be expressed as a specific amount or as a percentage of the member spouse’s interest.

A superannuation split cannot be converted to cash. The non-member spouse is not able to access the superannuation they receive until retirement or hardship.

Contact us today for help with valuing superannuation interests and your potential entitlements.

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Tax and Family Law Property Settlements

An important but often overlooked aspect of family law property settlements is the tax and duty consequences of parties retaining or disposing of assets. It is essential that all parties receive financial and tax advice before finalising a property settlement to ensure that everyone walks away with what they intended and to avoid nasty surprises later.

Generally, the biggest tax issues in family law matters are:

  • Capital gains tax;
  • Stamp duty;
  • Income tax consequences – “deemed dividends”; and
  • GST.

Capital gains tax (CGT)

CGT is payable on the net capital gain made on the sale, transfer or disposal of property. This includes real estate (other than the family home), shares, leases and different types of rights.

Generally, the following is exempt from CGT:

  • Assets acquired before 20 September 1985;
  • Collectables less than $500;
  • Some personal assets less than $10,000;
  • Cars and motor vehicles;
  • Sale of a small business or business asset;
  • Assets used to produce income; and
  • The parties’ main residence.

CGT and the family home

If you keep the main residence (or family home) selling it later, the sale is exempt from CGT on the profits.

CGT and investment properties

If you have and keep an investment property, the transfer from your former partner to you is not subject to CGT. You must have a certain written agreement or Court order to obtain marriage or relationship “rollover relief”. If you later sell the investment property, you will have to pay CGT on any profit.

Rollover relief on assets from a company or trust

Rollover relief can also apply to assets transferred from a company or trust to a party of the marriage or relationship. But be wary of Division 7A of the Income Tax Assessment Act 1936 (ITAA) [see below].

Capital losses

Capital losses (when what you receive from the sale, transfer or disposal of an asset is less than what you paid for it) can be claimed against income.

Calculating CGT obligations

If and exactly how much CGT you will have to pay or how much loss you may incur is a question for your accountant or tax lawyer.

The Family Law Courts can take future CGT liabilities or losses into account if certain factors are present. For example, how the asset was acquired, the intentions of the parties at that time, and whether the asset sale is inevitable or part of a Court Order, may all be considered.

Transfer duty (formerly called stamp duty)

Generally, properties and motor vehicles in New South Wales are not subject to transfer duty if the transfer from one party to the other is pursuant to a Court Order or Financial Agreement under the Family Law Act 1975.

However, where a private company, owned by one party, transfers, say, a car owned by the company to the other party, transfer duty is payable by the party to whom the car is transferred.

Income tax – deemed dividends

In some cases, the ITAA may “deem” a party to have received a taxable dividend which will determine the income tax payable by that party. This could occur with:

  1. the transfer of cash;
  2. the transfer of an asset; or
  3. forgiving a debt owed to a private company by a party to the relationship.

A deemed dividend can occur where a private company:

  1. pays a shareholder or an associate of a shareholder; or
  2. forgives the debt of a shareholder or an associate of a shareholder.

“Payment” can even include the transfer of property or giving a guarantee and meeting guarantee duties.

An associate of a shareholder includes the relative or partner of, or trust or company controlled by, the shareholder. The party receiving the benefit (not the shareholder) is taxed at their full marginal tax rate.

For example, if your former partner owns a company which pays you money (not as part of a legitimate employment or other contract), the ITAA deems the amount you received as a dividend which is taken into account when calculating your income tax liability.

Trusts can also have deemed dividend consequences.

Exemptions, exclusions and marriage breakdown concessions to the deemed dividend provisions of the ITAA include:

  • loans on commercial terms;
  • the payment of genuine debts; and
  • having the deemed dividend receive the benefit of franking.

A dividend is franked when your income tax calculations take into account the tax already paid by the private company or trust so you are taxed at a lesser rate rather than your full tax rate.

Goods and services tax (GST)

Where a company, owned by one party, transfers a car to the other party, the party receiving the car will not pay GST on the transfer (because it is not made during the course of the business).

However, if the company claimed the GST on the purchase of the car as a credit, it may have to pay GST on the transfer. The company cannot retain the benefit of having claimed GST on its purchase because the car changed its “purpose” from being a company asset to private use. In that case, the transfer changes category of the car from an “enterprise asset” (used or intended to be used in an enterprise that is or should be registered for GST) to a “private asset” (anything that is not an enterprise asset).

What now?

There are many ways that a transfer or retention of assets can lead to tax consequences.

Obtaining taxation advice from an accountant or tax lawyer before entering into a property settlement involving a private company will ensure that you are informed of all tax issues. If you are unsure of the impact of the tax consequences of your or your former partner’s corporate structure or properties on a property settlement, contact us to assist you through the process. Where necessary, we can refer you to an accountant to obtain tax advice.

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