Facing a Grey Divorce? PART 2: Your Top 8 Questions Answered.
In PART 1 of our Facing a Grey Divorce series, we covered the profile of a typical “grey” divorcee and identified some of the more common challenges they face. At Doolan Wagner Family Lawyers we recognise that a divorce is difficult no matter how long you’ve been married or living in a de-facto relationship, or how old you are. But if you’re an older adult separating or divorcing after a long-term marriage or relationship, there are often unique or differently felt issues. Fortunately these issues are mitigated by the options that can be available, especially with the right expert advice and dispute resolution tools at the ready.
Let’s look at the Top 8 questions our team of experienced family lawyers are often asked in “grey” divorces, separations and financial settlements. The answers below will undoubtedly prove helpful in providing information for anyone considering or facing a separation or divorce, to make informed decisions moving forward.
- Our home is in my name alone. It was structured that way for asset protection purposes. Does that mean I get to keep it as part of our settlement?
There is a common misconception that if your home is in your name alone you will be automatically able to keep it as part of a property settlement. The Family Law Act gives Courts the power to deal with any asset including real estate, whether it is in someone’s sole name or jointly owned by you and your ex-partner. In property settlement proceedings, the Court may “alter” the interests of the parties to the marriage so that a “just & equitable” outcome is achieved.
The house would therefore form part of the pool of assets which can be divided following separation. This is the case even where your former partner has never lived in or accessed the house. You still may be able to keep the house, if this is agreed by you and your former partner or if ordered by the court, however it will still form part of your entitlement in the property settlement.
There is also a procedure you should consider during the negotiation phase, if the home is held as joint tenants. This means that should one of you pass, the interest will automatically go to the survivor. In that situation the interest in the home does not pass through a Will. Once you are separated it is likely that you do not want that to occur to your interest in the home should you predecease the other party. It is possible, and indeed it is advisable to consider taking the appropriate action by severing the joint tenancy, to ensure that your interest passes according to the terms of your Will.
- What is the correct date for valuing the assets, liabilities and superannuation for the purposes of settlement? Is it the date of separation, the date of divorce or currently?
One of the first steps to reaching a property settlement is to identify and value all of the assets, liabilities and Superannuation which you and your ex-partner have an interest in. This is an essential step to identifying the value of the asset pool which can then be divided either by agreement or court order. In Australia, assets and liabilities are valued as at the date that the Court determines a matter if the matter is in Court. In the case where you and your ex-partner agree to a property settlement, it is ordinarily a date close to that of the agreement. In some instances, there may be a significant time gap between separation and the date at which the Court determines a matter. During this time, assets such as the matrimonial home or a business may significantly increase or even decrease in value. The Court will value that property as at the date of hearing and not adjust and divide the assets and liabilities as they stood at separation. That being said, the Family Law Act requires the Court to consider post-separation contributions of the parties to the acquisition, maintenance and improvement of all assets, for example where one party has made all of the mortgage re-payments since separation and worked to maintain and increase the value of the matrimonial home. However, it is important to note that this does not mean that you would be entitled to complete compensation for your post-separation financial contributions.
- I want to reach an amicable financial settlement with my spouse but don’t necessarily want to get divorced. Is this possible?
Divorce and financial separation are two different matters. You may reach a financial settlement with your spouse without necessarily making an application for divorce.
Although the Family Law Act 1975 (Cth) prescribes a 12-month period from the date of separation for parties to make a Divorce Application, the same does not apply with respect to settling financial matters.
Financial matters can be settled with your spouse on a final basis at any time and without the requirement of a divorce order. In fact, it is common for parties to reach a property settlement in the period of separation prior to divorce and remain separated for several years before contemplating making a Divorce Application with the Court.
A financial settlement can help parties resolve all matters pertaining to their respective and joint assets, liabilities, and superannuation. Accordingly, it is prudent to resolve those matters as soon as practicable where possible. This is also the approach favoured by the Court as provided by the “clean break” principle contained in sections 81 and 90ST of the Family Law Act 1975 (Cth) which provides that as far as practicable, the Court make orders to finally determine the financial relationship between parties to assist the parties with avoiding any further proceedings between them.
- What is the effect of having provided a bank guarantee? How can I remove myself from this potential liability as part of my financial settlement following my separation?
A bank guarantee is a promise in writing to a third party (such as a supplier or landlord) for guaranteeing that a payment will be made on your (or your spouse’s) behalf, by a third-party lender. When a loan is secured by a guarantee, it is usually secured against a property or cash deposit.
Usually, debt that has arisen during a relationship forms part of the matrimonial liabilities and must be accounted for as part of any family law property settlement.
However, with respect to bank guarantees, to assist with reducing future potential liability, as part of any financial settlement, it is important to seek that the Court makes appropriate orders with respect to each party being solely responsible for any future debts and claims which may arise. Entering into such orders is prudent in assisting with removing yourself from any potential future liability, whether known or unknown to you at the time of reaching a financial settlement with your former partner.
- We have used income splitting as a legitimate tax minimisation strategy for many years. What happens now that we are separating?
Income splitting, whether via a trust or through a company, is a legitimate means of minimising your family’s collective tax liability. Upon separation, the continuation of an income splitting practice is a decision you and your former partner need to resolve. Most people, for a number of reasons, would not see this as being a practicable long-term solution. The Court also has a duty to sever all financial ties between parties, which makes Orders regarding an ongoing income splitting arrangement likely problematic. For this reason, it is usual for one (1) party to retain the entity through which income is split and for the other party to relinquish their interests in it.
If a party relinquishes their interest in the entity through which they have historically received income and it is intended that that party no longer receive any funds from the entity, the Court will have regard to that in determining whether a property settlement is just and equitable and also in assessing whether a party has an obligation to pay their former partner spouse maintenance. In determining either of these matters, the Court can have regard to a party’s “true” income that is available to them or their income earning capacity, which may include income that was previously split or distributed to another party. It is important to remember however this is only one (1) consideration in the determination of a just and equitable property settlement and/or a spouse maintenance application, and each matter will need to be determined on the individual circumstances and merits of the case.
- Our superannuation is nearly all held in my spouse’s name. How can this be divided?
Since 2002, parties have been able to split their respective superannuation entitlements by way of an Order of the Family Law Courts upon the breakdown of a de facto relationship or marriage. In this regard, superannuation is treated as property, similar to a matrimonial home, investment or bank account. This applies to both retail superannuation funds or self-managed superannuation funds and whether an agreement is reached between you and your former partner, or a judge imposes a decision. In addition to binding each of the parties to the Order, superannuation splitting Orders are also binding on the Trustee of the superannuation fund. For this reason, the Trustee of the relevant fund is required to be afforded procedural fairness and an opportunity to object to the making of the proposed splitting Orders prior to the Court making such Orders.
At the crux of the Court’s decision as to whether and/or how a couple’s superannuation entitlements should be split, or in approving Orders by consent, is whether the split of superannuation is just and equitable. In determining this, the Court will have consideration to the parties’ circumstances and the “mix” of superannuation and non-superannuation assets each party would receive as part of the settlement.
The splitting of superannuation entitlements can become somewhat more problematic or convoluted for self-managed superannuation funds (SMSF). For this reason, some parties may prefer to remain in the same self-managed superannuation fund (SMSF). If this is you, you should read our article on matters you should consider in adopting that course: Separating but staying together – what to consider if you remain in the same SMSF . If, as part of a separation, you prefer for you and your spouse’s entitlements in the SMSF to be separated, and one or both of your entitlements “rolled out” into a retail fund or another SMSF, it will be important to consider the underlying assets of the fund in determining the structure of a splitting Order and how a member’s entitlements can be “rolled out”. You should speak to a specialist Family Lawyer if you are considering a superannuation splitting Order of a SMSF.
It is also important to protect the superannuation entitlements, particularly if your spouse has or is reaching retirement at which time access to the funds may be imminent. There is a procedure available to put the relevant fund/s on notice of a potential claim so that they are obliged to inform you of any claim being made prior to paying out the funds. You should speak to a specialist Family Lawyer if your spouse is nearing retirement age to ensure that the interest is preserved until the property settlement is resolved.
- We have used funds in the company for many years and treated them as a loan. What will happen now? Are we both going to be liable for the tax that we will have to pay?
Whilst a matter to discuss with your accountant, one solution, if one of the spouses is a shareholder of the Company, might be to write-off (forgive) the loan and treat the amount owing as a Division 7A dividend. The unfranked dividend will then be included by the spouse as part of their assessable income.
You may be liable for income tax if you are deemed to have received a Division 7A dividend.
- I am about to receive a significant inheritance. How is that going to be treated? Will my soon to be ex-spouse get half?
The answer will depend on the circumstances of each case.
If, for example, the parties had no other assets other than the inheritance, but the other party has contributed financially and as a homemaker and parent throughout the relationship, it would be open to the Court to make a property settlement in favour of the other party from the inheritance.
On the other hand, if there are ample funds from which a property settlement can be made and one of the parties receives an inheritance, then a recently acquired inheritance would normally be treated as an entitlement of that party alone. Here, the other party cannot be regarded as having contributed significantly to an inheritance received late in the relationship or post-separation except in exceptional cases – such as the care of the testator prior to death or having looked after the inherited property. Even if the inheritance is excluded it will be considered as being available to the party in any property settlement.
There is light at the end of the tunnel. The breakup of a marriage or de-facto relationship can be difficult and emotionally draining, especially after a long-term marriage. However, with considered financial advice, emotional support and by engaging a trusted family lawyer to guide you through the process, you can move onto the next stage of your life with confidence.
If you are considering a grey divorce, or even separation or divorce at any stage of life, or you have a Family Law enquiry, please contact us on (02) 9437 0010 or email at firstname.lastname@example.org to discuss your matter with no obligation, in complete confidence.
At Doolan Wagner Family Lawyers we specialise in complex family law matters and are conveniently located in St Leonards, on Sydney’s North Shore. We have a team of accredited and experienced family lawyers available to help guide you through the emotional and financial challenges of separation and divorce.
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About the Authors:
Lisa Wagner is Managing Director and Principal of Doolan Wagner Family Lawyers. Lisa is an Accredited Family Law specialist holding honours degrees in economics and law. She is also a Collaboratively trained Family Lawyer, a nationally registered Family Dispute Resolution Practitioner, and a Parenting Coordinator. Lisa has close to 30 years’ experience as a specialist family lawyer, experienced litigator and skilful negotiator in all family law matters; working for the majority of that time in Sydney’s CBD as well as on Sydney’s lower North Shore and Northern Beaches.
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Christine La Cava is a Senior Associate at Doolan Wagner Family Lawyers. Christine is an Accredited Family Law specialist and a Collaboratively trained Family Lawyer, who has worked exclusively in Family Law for the past fifteen years, predominantly in the Northern Beaches area of Sydney. Additionally, Christine has held roles in Local Courts throughout NSW including as Chamber Magistrate, Clerk of the Court, Registrar and Coroner. For those matters that require Court intervention, Christine is experienced in the Court process having regularly appeared before Judges and Registrars in both the Family Court of Australia and Federal Circuit Court of Australia. Christine’s breadth of experience and natural empathy, mean that you can feel confident in knowing you are being represented by a senior family lawyer who has proven experience in achieving the best outcomes for her clients.
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These posts are only intended as an overview or comment on current issues that may interest you and are not legal advice. If there are any matters that you would like us to advise you on, then please contact us.