Dealing with Property Following Separation but Pre Settlement
On separation, the issue arises as to how the parties’ joint and individually held property is to be dealt with. There will be situations where a party draws on joint property, for example drawing on joint funds, drawing down repayments on the mortgage, running a credit card to its limit, or selling certain property.
The issue of intention and purpose becomes crucial to examine here.
Add Backs/Notional Property
Generally speaking, monies spent reasonably by either party during separation in conducting their post separation lives will not be “added back” in to the pool.
We would encourage separating parties to maintain thorough financial records, such as the source used for payment of legal fees. As far as possible, legal fees should be paid from post-separation income.
In the event that certain property has been disposed of or transferred between separation and settlement, then this property is regarded as ‘notional property.’ It is then notionally ‘added back’ in to the pool of assets as property that is said to exist notionally.
There are three common categories of ‘add backs’ that the Family Law Courts have identified:
- Funds spent on legal fees
Whilst this is an issue which the Courts have discretion, if legal fees have been paid from funds which were available to both parties at separation, then these funds are ‘added back’ as a notional asset of the party who had the benefit of such funds
- Premature distribution of funds
This situation most commonly arises where one party disposes of a certain asset and uses the proceeds of such sale for their own benefit.
- Deliberate diminution of the property pool
This is where parties allege ‘waste’ and is most commonly seen in circumstances where one party has spent funds on selfish pursuits such as gambling, lavish holidays, extravagant gifts etc.. Unfortunately, it is incumbent on the innocent party to ‘trace’ the wasted funds and demonstrate that the other party has dealt recklessly with the parties’ assets.
Valuation of Property
In finalising property matters between you and your spouse or former partner, there may be difficulties in identifying and/or valuing certain property. Our team of property settlement lawyers in Brisbane can help you through this sometimes difficult process.
Such issues can arise due to a variety of reasons such as:
- Either party’s involvement in a business or an interest in a company, trust or partnership;
- Interest of either or both parties in rural property where that property forms part of an ongoing family concern; and
- In circumstances where one party is not aware of the other’s property and as such must engage in investigative searches and enquiries to identify the net value of all assets.
There are certain issues to consider when it comes to family trusts. If you are seen to have the ability to control a trust, then the assets of that trust will constitute ‘your property’ in family law proceedings. The court also has the power to set aside any document which alters parties’ rights under a trust.
In the breakdown of any relationship and where parties’ property has involved companies, partnerships, or trusts, it is necessary to consider the implications of any change in ownership. At Emerson Family Law we will be able to assist you in upholding efficient structures even if this means referring parties on to the appropriate tax, estate, and financial planning professionals.
Under the Family Law Act 1975 (Cth) there are certain tax and duty exemptions which parties may avail of. Whether your agreement is formalised by way of Consent Orders or Binding Financial Agreement, parties may be able to avail of stamp duty exemptions as well as obtain CGT rollover relief on any restructure.
Superannuation is included in any overall consideration of the net asset pool in property matters. There are various ways in which parties can deal with their respective superannuation policies and as such it is vital that you receive early advice in relation to your matter generally. If you and your spouse or former partner have a superannuation interest or an allocated pension, mechanisms exist to enable that interest to be split and for you or your spouse to acquire an interest in that fund, or to roll over that interest in to yours. This can be done either by agreement or by way of court order.
The “Clean Break Principle” essentially states that following the breakdown of a relationship, after the parties’ respective entitlements have been looked after, the parties need no longer share any aspect of their financial lives.
There are a number of ways in which property settlements can be formalised, such as Binding Financial Agreements, Consent Orders or in some cases by way of court orders made by a Judicial Officer.
Further information regarding Pre Nups/Binding Financial Agreements and Consent Orders can be found here.
We strongly urge parties to consider putting financial matters to bed formally.
Unless you have court orders or a Binding Financial Agreement, a situation may arise where your former spouse may make a further claim on your property despite an earlier division of assets pursuant to some agreement between the parties following separation.
There could be a situation where:
- Both parties parted on amicable terms and resolved the issue of division of assets in a similar fashion.
- Both parties never made an application for divorce as there was never any immediate or pressing need to do so.
- Several years pass and both your respective financial positions have changed where one has clearly done better than the other through prudent investments or the growth of business.
- It is open to your former partner to file proceedings in the Family Law Courts to obtain a share of your property. The Courts will then have to determine a property settlement based on the property the parties have at the time of the hearing and not what they had at the time of separation.
Therefore, we strongly urge early advice in relation to the best manner in which to formalise property matters between you and your former spouse and or partner.
Spousal Maintenance can be claimed by married couples as well as De Facto spouses. The law surrounding spousal maintenance is complex and there is no automatic right to spousal maintenance. As such, you should seek advice so as to ascertain whether you are in fact entitled to receive, or liable to pay, spousal maintenance.
The Family Law Act provides that where one party has a surplus of funds after meeting their own reasonable expenses, and the other party is unable to meet their reasonable needs, the party with a surplus must fund the other party’s deficit to the extent that it is reasonable to do so.
There are a number of factors that the Courts will consider in determining any application for Spousal Maintenance, including:
- Where one party has the primary care and control of the children;
- Where a party wishes to continue in their role as primary carer for the children;
- Age or physical or mental incapacity; and
- Inability to obtain appropriate gainful employment.
The Court has the ability to make a range of orders when it comes to Spousal Maintenance. Orders can be made obligating parties to pay Spousal Maintenance by lump sum or periodically. Also, the Courts can also determine the duration of such obligation and can make orders on an interim basis until such time as the matter is finally heard at trial. There may be circumstances which deem it reasonable for final orders to be made as well.