Unfortunately, many separations end in hostile disputes over money. A common situation when trying to resolve property matters is when one partner makes a considerable dent in the family finances by squandering assets or racking up additional debt.

A bitter ex-partner may go on a spending spree, ignorant of the consequences. Alternatively, he or she may have been reckless during the relationship either through risky business ventures, gambling or other addictions.

Whether the wastage has occurred before or after the relationship ends, the potential for a fair split of the assets after separation may seem flawed. Fortunately, the Family Court is empowered to use discretion to achieve a just outcome. These discretionary processes have traditionally included the concept of ‘add-backs’.

This article explains how a family law financial settlement may be dealt with when one party independently deals with property to the detriment of the other.

Dealing with property matters generally

It is first useful to outline the steps a Court takes to determine how property should be divided. The process involves:

1. identifying the assets, liabilities and financial resources of the parties;
2. assessing the parties’ respective financial and non-financial contributions;
3. evaluating the parties’ future needs taking into account their relative earning capacities, state of health and the need of the primary carer of children to provide a suitable home;
4. in all of the circumstances, making orders that are ‘just and equitable’.

The starting point is usually an equal distribution of assets before consideration of several other factors.

Notional property and add-backs

The Court’s approach to a financial settlement is discretionary, allowing it to consider the parties’ circumstances with the objective of providing an outcome that is fair and just.

Adding back property means including into the pool of assets a notional value for property or funds that have been wasted, exhausted or prematurely disposed of for the benefit of one party or a third party.

The ‘notional’ property will form part of the asset pool from which a division of property is made. The purpose is to bring back the value of assets that would otherwise have been available to both parties, had the other party not caused the asset to be depleted.

When will an add-back be appropriate?

The starting point is that assets accrued or losses sustained (whether jointly or individually) during the course of the marriage or relationship should be shared between the parties, although not necessarily, equally. However, in exceptional circumstances it is appropriate for the Court to deviate from this principle. Generally, add-backs will arise in the following circumstances:

• losses incurred as a result of a party’s deliberate efforts to diminish or deplete the value of assets, such as a premature distribution of assets;
• losses sustained by a party’s reckless, negligent or wanton conduct;
• where a party has used joint funds to pay for his or her own legal costs.

Premature disposition of assets

Occasionally, a party deliberately sets out to diminish the matrimonial assets, making them unavailable for distribution. This may occur by selling or transferring property to a third party or making extravagant or lavish gifts.

To justify an add-back, the Court will need to assess the reasonableness of the expenditure in light of the surrounding circumstances, including an assessment of the overall asset pool and the amount spent. For example, in one case, the wife assisted her adult daughter by gifting $15,000 as a deposit to purchase a property. The Court considered that it was not unusual for parents to assist their children and, given the magnitude of the asset pool, it was unreasonable for that amount to be added back.

In another case the husband sold his taxi licence and vehicle, which had been used to operate a business throughout the course of the marriage. He benefited from the proceeds and the Court determined that the value of the funds received should form part of the asset pool for distribution between the parties on the basis that the wife had a legitimate interest in the taxi business.

Reckless conduct and waste

Money wasted on individual pursuits or gambling addictions during or after the relationship may be added back to the asset pool. The conduct of the spendthrift party will be relevant in determining such cases and the Court plays a discretionary role in deciding whether or not the losses should be borne individually or jointly. Considerations may include whether the person has an underlying illness, and his or her attempts to obtain help.

Adding back legal costs

Parties are required to fund their own legal costs and outstanding legal fees do not constitute a liability forming part of the asset pool.

Money taken from a joint account by one party to pay his or her legal fees may be subject to an add-back. This however is a matter for discretion and will depend on the particular circumstances – if the funds existed at the time of separation and both parties have an interest in them, then it is likely they would be added back. Conversely, if funds used to pay legal costs were sourced from a party’s own efforts or provided as a gift or loan post-separation, then it is unlikely these will be added back to the pool of assets.

Key points

• Separating couples should share financial losses incurred during the relationship unless those losses result from one party’s negligence, recklessness or intentional conduct to reduce or deplete matrimonial assets.
• Each case will turn on its merits and the entire circumstances of the expenditure is considered when assessing its reasonableness.
• Funds existing at the time of separation and subsequently used for reasonably necessary living expenses are not added back to the asset pool.
• Clear evidence is required of assets and expenditure before and after separation and separating parties should take care to record assets and liabilities at the time of separation and thereafter.

Conclusion

High Court cases such as Stanford v Stanford [2012] HCA 52 and Bevan v Bevan (2013) FLC 93-545 suggest that concepts of add-backs and notional property may have become outmoded and their application more the exception than the rule.

There is no guarantee that a dissipated asset will be notionally ‘returned’ to the asset pool on a dollar for dollar basis. However, and as confirmed in subsequent cases, the Family Court has discretion to adjust property interests by considering a myriad of factors and on a just and equitable basis. Such factors include circumstances where assets are purposely, negligently or recklessly depleted.

It is important to obtain good legal advice before or soon after you separate from your spouse or de facto partner. An experienced family lawyer can assist in preserving hard-earned assets, preventing wastage and maximising your chances of a fair property settlement.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

Most property settlements are reached through negotiation, without the need to attend Court. Negotiations can be formally documented through a binding financial agreement or consent orders. As a last resort, the parties may need to initiate Court proceedings whereby orders will be made regarding the division of the parties’ property.

No matter how a property settlement is reached, it is important to be aware of the financial impact of the proposed agreement before finalising it. Family lawyers often recommend working with a financial advisor to ensure a property settlement delivers an optimum financial outcome for the client. We explain below some of the benefits in working collaboratively with a financial advisor and lawyer.

Identifying and classifying assets and liabilities

A financial advisor can help to properly identify, classify and evaluate the parties’ assets and liabilities, whether these are held jointly or individually. Assets can be held in various ways, whether through a trust, company or shares and it is important that a full portfolio of the asset pool is obtained. Only by presenting a complete picture of the parties’ financial position, might a fair and reasonable property settlement be negotiated.

In some circumstances, a financial advisor or lawyer will recommend that certain assets, such as business interests and company shares, be formally valued.

Recommending tax effective strategies

Understanding the tax implications of a proposed property settlement can have a significant impact on the net result for each party.

The retention, transfer or division of different types of assets can have different stamp duty and tax consequences.

A financial advisor can recommend strategies and structures for the division of assets to take advantage of duty concessions and tax exemptions or deferrals that are unique to family law property settlements. This may include recommending that a certain asset be retained or transferred. Depending on the stamp duty and tax consequences applicable to that class of asset, it may be more advantageous to retain one type of asset over another.

A financial advisor can also flag and calculate potential future CGT liabilities which is an important consideration when negotiating the division of property. Advice on transactions concerning companies and trusts may also play a significant part of the advisor’s role.

Advising on superannuation

If a superannuation split forms part of the proposed property division then you will either end up with more, or less in your superannuation account. This may require a reassessment and restructure of your retirement plans. A financial advisor can evaluate the net effect of a proposed superannuation split and assess future needs and contributions towards superannuation.

Assessing future needs and planning ahead

Most financial advisors have sound knowledge of family tax payments and child support and can assist in determining entitlements and / or obligations.

Your financial adviser can help implement strategies on how to get back on your feet, financially, after separation. This may include budgeting advice and money management strategies, recommending appropriate insurance to protect your income, managing and protecting assets, and developing plans to work towards your financial goals.

Estate planning and death benefits

Once a property settlement has been reached and finalised, a financial advisor and lawyer can work together to implement an effective estate plan in consideration of your new personal and financial circumstances.

They will identify the most tax-effective beneficiary for superannuation entitlements and death benefits and help structure your assets to ensure maximum protection against future family provision claims.

Conclusion

Separating couples are often anxious about their immediate and future financial needs and may seek assistance to achieve a fair and reasonable property settlement. In doing so, it is important to remember that lawyers provide legal advice and not financial advice. Including a financial advisor in your professional team can provide significant benefits when negotiating a property settlement.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

Dividing property after separation can be challenging and, while avoiding court is the preferred approach to finalise a property settlement, this is not always possible. Court proceedings can exhaust time and money. When the pool of assets is quite modest, the impact of excessive legal and court costs can put a significant dent in the value of the property a couple has worked hard to obtain.

To target these issues, the Government has introduced a Small Claims Property Pilot program to help parties with small asset pools reach a fair division of assets with minimal cost and without extensive delay, as is often the case for family law matters. Known as the Discrete Property List, the program has been implemented by the Federal Court registries in Brisbane, Parramatta, Adelaide and Melbourne.

The program commenced in January 2020 and will run for two years. Afterwards, its success will be assessed with the possibility of expansion into other regions and on a more permanent basis.

If you are separated with a net joint asset pool of $500,000 or less, you may be eligible to access the program and have your matter dealt with more efficiently and cost effectively by the Federal Court.

The Discrete Property List

The program forms part of the $98.4 million Women’s Economic Security Package (WESP) to fund services and initiatives aimed at supporting victims of family violence and resolving family law disputes.

Traditionally, apart from urgent matters, family law property cases progress through the court in the same manner and within the same timeframe irrespective of the size of the asset pool or complexity of issues involved. This approach has contributed to an excessive backlog of cases which could potentially be lifted by fast tracking some of the smaller, simpler matters.

The program deals with property related matters only, which are referred to as Priority Property Pools under $500,000 (PPP500) cases. A PPP500 case is one where:

• the parties’ net property (including superannuation) is $500,000 or less; and
• there are no entities owned or controlled by either party that will require valuation or expert investigation (for example, a family trust, company or self-managed superannuation fund); and
• neither party is seeking orders for parenting or child support.

The objectives of the program are to:

• fast-track and finalise simple property matters involving small asset pools at minimal expense for the parties involved;
• reduce the current backlog of cases within the family law system and the waiting time for other matters;
• assign a Magistrate to deal with smaller, less-complex matters while freeing up Judges to deal with more complex matters and children’s matters.

Processes and timeframes

The Federal Circuit Court has issued practice directions for parties involved in a PPP500 case. Rather than waiting to be heard by a Judge, matters in the Discrete Property List will, in the first instance be assigned to and case-managed by a Registrar.

In most cases, the matter will be dealt with exclusively by the assigned Registrar with an outcome anticipated within 90 days or the matter referred to a Judge for case management or listed for hearing.

The program fosters early dispute resolution and features intensive monitoring for compliance and exchange of documentation between the parties. To improve the potential outcome using these processes, there is close involvement to ensure cases are properly prepared before alternative dispute resolution takes place.

A PPP500 case will typically take the following path:

• Proceedings are commenced by the parties filing an Initiating Application and a Financial Summary. Prior to the first court date, the case will be confirmed as a PPP500 and preliminary directions made by the Registrar in chambers for financial disclosure and the exchange of relevant documents, such as valuations and expert reports, between the parties.
• On the first court date before the Registrar, and assuming the parties have exchanged the required financial information, a ‘balance sheet’ is settled and the parties may be referred to private mediation, a conciliation conference or Legal Aid conference.
• Alternative Dispute Resolution may take place with a Registrar, external mediator or at a Legal Aid conference. Following, the parties may be in a position to settle the matter by consent, and in such cases, legally binding orders can be made.
• If the matter does not settle, a second court date is arranged – factual issues are identified, the balance sheet is re-checked and settled, and the Registrar’s involvement comes to an end. The case is then referred to a Judge.
• A procedural hearing is convened where issues are identified, and directions made for a final hearing. Parties may have the option to consent to a less adversarial hearing on the papers. If a traditional hearing is preferred, the parties should identify the issues in dispute and relevant evidence in support of their respective positions.
• Final hearing takes place.

Conclusion

Legal and other costs for small property cases can be grossly disproportionate to the actual value of the asset pool. With cases taking up to two years to reach a final hearing, parties endure expenses in addition to legal and court costs such as maintaining and insuring assets pending their potential sale, storage fees and short-term accommodation costs. The parties must also contend with the emotional impact of court proceedings and the feeling of being ‘in limbo’ until a property division is finalised.

It is anticipated that PPP500 cases will proceed more expeditiously through to settlement, alleviating some of the emotional and financial stress to those with modest asset pools and freeing up the Court to deal with more complex family law matters.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

The coronavirus (COVID-19) has brought additional stress and uncertainty to many families involved in co-parenting which, by its nature, can be stressful enough.

School closures, state and territory border closures, additional pressure on healthcare workers and providers of essential services, job loss and isolation all pose significant challenges to those families with shared parenting arrangements. This is a time to put conflict aside and take a practical and sensible approach to co-parenting.

If you or your children are in danger, please contact your local police immediately.

Parenting orders – managing in difficult circumstances

• As always, the safety, welfare and best interests of the children should remain a priority. If court orders are in place, it is expected that they be complied with which includes facilitating time spent by the children with each parent pursuant to those orders.
• Where strict compliance is not possible, or compliance puts the safety of the child at risk, the parties should wherever possible, communicate to identify practical and reasonable solutions.
• Ideally, an agreement to vary the arrangements of existing orders should be in writing, whether by text message, email or other app.
• Parents and caregivers can facilitate negotiations through their lawyers and applications to vary consent orders may be filed electronically with the Court.
• Where an agreement cannot be reached, one party may seek leave of the court electronically to vary the orders.

 Co-parenting arrangements generally – practical tips and considerations

• Be proactive – although agreed parenting arrangements may not have changed dramatically yet, anticipate that they may need to, and communicate now to put a plan in place. Obstacles to consider include school closures or extended school holidays, different changeover venues (with some venues now closed), potential lockdowns and additional demands on one or both parents such as health care workers and essential services employees.

• Traditional work arrangements between parents may in fact reverse as full-time employees find themselves out of work and part-time and casual workers, for example nurses, become more in demand.

• Compromise is key – accept that parenting arrangements will likely need to change during these circumstances, at least for the short or medium term. Having said that, parties should not manipulate the current crisis to leverage additional time spent with children when this is clearly not necessary.

• With many travel plans cancelled, parents and caregivers may need to re-think planned activities with children. There are numerous resources online providing creative ways to keep little minds occupied during these times.

• If one parent or caregiver is missing out on scheduled time with a child due to the current crisis, be generous in facilitating communication between that parent and the child – consider using apps such as FaceTime, Skype or Zoom, in addition to the usual phone contact.

• Talk to your children about the current situation and try to remain calm and positive. How you explain what is happening to your children will depend on their age, level of maturity and the individual circumstances.

• Be creative and resourceful but try to maintain, as far as practicable, regular routines such as personal hygiene, healthy meals and bedtimes.

Family Court arrangements

The Family and Federal Circuit Courts continue to operate but have made significant changes to their processes. How the Courts continue to function may no doubt change as the situation evolves.

Presently, only urgent matters will be conducted through face to face hearings for which strict in-court protocol to manage risk will be maintained.

Most other court hearings and events will be by telephone or video conferencing with some non-urgent matters to be postponed.

Documents will be filed electronically with registry services to be provided remotely by telephone or online.

We are here to help

The coronavirus pandemic is an evolving situation with a number of health and business orders issued at federal, state and territory levels. Government directions, advice and laws have, and will likely continue to change as new information and developments arise. It is important to stay informed of these updates through reliable sources.

Effective co-parenting means putting differences aside and working together to make decisions and care arrangements for children that are in their best interests.

We understand that this is a difficult and distressing time for many. Our firm infrastructure facilitates remote working conditions to serve our clients and assist them through these difficult circumstances. We will continue to provide advice and assistance through telephone and video conferencing across all areas of family law.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.