Episode 72 - FS360 Podcast - Family Law Matters

Q.  What areas of work does Nicholes Family Lawyers work on and how does that interrelate with accounting and advisory?

A.   We practice in all areas family law, including:

• Property divisions;
• Parenting arrangements;
• Spousal maintenance;
• Divorce;
• Child support and Binding Child Support Agreements;
• Child protection;
• IVF and surrogacy;
• Adoption.
• International Family Law/relocation and child abduction.
• Binding Financial Agreements.

Our area often interrelates with accounting and advisory in property divisions and spousal maintenance. Often we are advising clients on the division of trusts, companies or the transfer of businesses, which are areas accountants and advisors are often extremely experienced in. Whilst we have a good knowledge of those areas it is necessary to consult with our client's accountant to ascertain any anticipated tax payable on income or companies, any CGT that might crystalize in the future,

Q. Could you please explain the concept of how business, companies and trusts are treated in family law proceedings and its significance in family law proceedings in dividing companies and trusts?

A.   The Federal Circuit and Family Court of Australia can divide assets irrespective of the name the asset, business, or shares, are registered in and the Court can ascertain what is occurring beyond the legal registration of the entity.

The Court can look beyond what is described in any corporate arrangements in making Orders that it considers just and equitable and will consider who has historically had control of a company/trust, who is the director/trustee/appointor and who began the company/trust;

The nature of the business, the assets it holds, the goodwill it possesses, the role each party has played in the business, are things the Court will consider in determining how it should be divided. A company will not be left directly to say a shareholder alone just because they hold the shares.

One of the more important considerations with companies, trusts, etc, is the value of the entity, as that is what the Court can divide. Companies and trusts are able to be valued by expert valuers and that information can be critical for the Court in determining how it is split and if relevant, how much one party needs to pay the other party out of their entitlements in the entity.

Q. What advice would you give to clients wanting to protect assets held in a trust or company from being considered part of the marital asset pool in family law disputes?

A. It is a common misconception that assets can be protected from your spouse by registering them in the name of a company or trust which you control;

The only substantive protection a party can have over their own assets is the appropriate drafting and execution of a Binding Financial Agreement. Any other measure does not provide appropriate protection.

A Binding Financial Agreement is a contract created pursuant to the Family Law legislation that excludes the jurisdiction of the Federal Circuit and Family Court of Australia. If prepared appropriately, it could determine how a house is divided and when it is sold, how superannuation should be treated, who keeps the family dog, family motor vehicle, etc. These documents are incredibly flexible and can be created before, during or after both a de facto relationship or marriage;

Any parties separating without the protection of a BFA are subject to the jurisdiction of the Federal Circuit and Family Court. A BFA is the only thing that can take that jurisdiction away.

Q. Please describe some of the various ways in which parties may attempt to transfer assets to avoid inclusion in property division proceedings and explain how the Family Law Act operates to prevent this from defeating family law proceedings?

A. Section 106B specifically empowers the Court to set aside, or restrain a party, from transferring assets to a third party.

This most often occurs with the transfer of business, controlling shares in a company, or the role of appointor or trustee of a trust.

There is a large amount of case law that shows Judges are prepared to essentially "undo" those transactions if it appears the transaction was not in the ordinary course of business (say a genuine and reasonable sale of assets) and if it is apparent that the transaction is being done to "defeat" or "undermine" their former partner's entitlements.

Parties should exercise significant caution before attempting to transfer any asset to another party without both family law and accounting advise.

Q. What is spousal maintenance in Australia and how does that work?

A. When parties separate there is no immediate right for alimony, or as our Court calls it, spousal maintenance;

A party might be entitled to spousal maintenance if they satisfy a few criteria.

First is that they need to establish that they do not have the capacity to maintain themselves by reason of having the care of a child of the marriage, by reason of physical or mental incapacity for appropriate gainful employment, or any other adequate reason.

Secondly, is that they need to establish that the other party is reasonably able to provide them maintenance based on their employment and income.

Spousal maintenance in practice, is difficult to obtain. It requires one party to be unable to financially provide (one example might be if the primary carer of a child keeps the family home post separation but cannot fully afford the mortgage) and if the other parent has a strong income with limited expenses of their own, then the Court is able to exercise their discretion and require that party to maintain the other.

Spousal maintenance is not usually ordered forever, more often than not it is for a few years, depending on the significance of the need for spousal maintenance. It is rare for spousal maintenance orders to exceed 5 years.

Q. How are inheritances treated in family law matters?

A. Inheritances are complex, the case law on it varies greatly and is highly discretionary and client's often struggle with this issue in family law due to the significant emotions associated with the inheritance;

At it's most basic, an inheritance, if received, can be divided by the Court as it meets the term "property" and is therefore able to be divided.

The Court can approach received inheritances generally in two ways. Firstly, by dividing the whole of the asset pool on a "global" basis where the entire balance of assets is divided (say by 50%, 57%, 63% to one party, whatever the Court deems appropriate) or it can assess the division on an "asset by asset" basis, which is where the Court can isolate the inheritance away from any other asset and determine how it should be divided. The first example is more common when an asset is received earlier in the relationship, say a house was inherited, or funds were given at the very beginning of the marriage, it is harder to isolate those types of assets, whereas if an inheritance is received very late in the relationship or even post separation, it is easier for the Court to isolate and review how that inheritance was received.

An inheritance that has not yet been received but is likely to be received in the near future is not by it's definition "property" and is more akin to a future financial resource, that they will receive, but at an unknown time in the future. Future financial resources cannot be divided and if a party had a substantial inheritance to be received in the future then that may result in their former partner receiving a greater share of the available assets, as the Court is obliged to consider future financial circumstances in deciding what division is appropriate.

Essentially, if an inheritance is received the timing is key, and the Court does not fully isolate any assets in that way, so once an inheritance is received it is property available for division. In saying that, Court's will often award a party that receives an inheritance a larger portion of the asset pool.