Financial resources and how they impact property settlements

The definition of “property” in the context of a property settlement in Australia is outlined in section 4 of the Family Law Act 1975 (“FLA”). It defines the “property" as:

(a) in relation to the parties to a marriage or either of them--means property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion; or

(b) in relation to the parties to a de facto relationship or either of them--means property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion.

The property pool that is considered available for division between separated couples usually includes assets such as cash in bank accounts, real properties, shares, investments, superannuation, motor vehicles, furniture, jewelry, business interests, etc.

While the definition of financial resources differs from assets when considering a property settlement, the FLA does not provide a specific definition for it. In the High Court case of Hall & Hall [2016] HCA 23 defined a financial resource as “a source of financial support which a party can reasonably suspect to be available to him or her to supply a financial need or deficiency”.

A financial resource may have the potential to generate future income or to give access to capital, which may not be immediately divisible but can influence the financial situation of a party in the future.

The Court may take into account financial resources of the parties and may adjust the division of the property pool having regard to those financial resources. Such adjustments will usually be based on the future needs of each party, ensuring a fair distribution that accounts for both current assets and future financial prospects.

Financial resources may include:

• Future Inheritances: Expecting to receive an inheritance even if not in the near future, can still be considered a potential financial resource. It can significantly impact a party's future financial security/position.

• Trust Beneficiaries: Interests in trusts, especially where an individual is a discretionary beneficiary, may not provide immediate financial benefits but can be regarded as a potential future income stream or cash flow, depending on what has happened in the past.

• Superannuation Interests: A superannuation interest is generally treated as property and can be available for spitting if necessary. However, the defined benefit superannuation schemes, known for their (at times, generous) pension phase, may generate significant income for one party upon retirement. Therefore, this entitlement is considered more as a valuable financial resource than mere property, especially in the long term. Consideration must be given to the nature of the interest at the time (i.e. whether it is in the growth phase or payment phase).

• Employment Leave: Significant periods of leave, such as long service leave may be seen as financial resources. This perspective was supported by Baker J in the Whitehead case (1979), where it was concluded that accrued long-service leave entitlements constitute a financial resource rather than an asset.

• Pending Legal Claims: An anticipated payout from litigation, such as a personal injury claim or other litigation where a financial settlement is expected, are likely to be included as they represent a future financial benefit.

• Loan Repayments: The expected repayment of loans owed to an individual can improve their financial position once received, and therefore be taken into account.

• Business Goodwill: The value associated with a business’s reputation and client relationships, particularly if it could generate financial gain beyond tangible assets, can also be considered as a financial resource.

• Tax Losses: Tax losses that can be used to offset future taxable income, therefore improving financial status, can also be seen as a financial resource.

• Support from Family Members: Regular or reliable financial support or expected support from family members, while not a formal asset, can be considered a financial resource due to its potential effect on an individual's financial position.

In summary, the consideration of relevant financial resources is essential for achieving a fair and equitable property settlement when negotiating a property settlement with a former spouse. The identification of these resources is important and should not be overlooked.

If you are exploring a property settlement and you need family law advice it is beneficial to see a specialist. To make an appointment with a member of our team please contact us today at (02) 6225 7040 or by email info@rmfamilylaw.com.au.

Valuations and the Asset Pool

One of the first questions when completing a property settlement is “What is the asset pool?” By quantifying the assets, liabilities, superannuation, and financial resources of the parties, parties can then start to think about how the asset pool will be divided between them, having regard to their respective contributions and future needs.

It is important that the asset pool is identified before any settlement negotiations take place, the parties attend a mediation/conciliation conference, or the matter proceeds to a hearing.

The value of some assets, such as bank accounts, shares, and accumulation superannuation interests, are usually easily identified by obtaining the most recent account statement. The value of other assets however can be more difficult to identify, examples of such assets include:

• Motor vehicles;

• Collectable items, including antiques and vehicles;

• Real estate;

• Businesses; and

• Defined benefit superannuation interests.

If parties can agree on the value of the above types of assets, the agreed value can be adopted for the purposes of the balance sheet and the property settlement. For example, parties may agree upon the value of a car by obtaining a RedBook valuation, or the value of real estate by obtaining a market appraisal from a real estate agent.

If there is no agreement as to the value of a certain asset, the parties will need to engage an independent expert to value the items. When obtaining a valuation, it is important to:

• Agree upon who will carry out the valuation – the valuer should be appropriately qualified to carry out the valuation;

• Agree upon who will pay for the valuation – it is common for valuation fees to be shared equally between parties;

• Jointly instruct the valuer in writing – it is inappropriate for parties to individually speak with/instruct the valuer; and

• Request that the valuer provide their valuation in writing.

If no agreement can be reached about the appointment of a valuer, and the matter is in Court, the Court has the power to appoint a valuer (known as a Single Expert).

If the matter is in Court, once a joint valuation has been obtained, the parties are bound by the value unless otherwise agreed or ordered by the Court. If one party does not accept the valuation, they can ask questions of the valuer in accordance with Division 7.1.6 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021; obtain a second valuation and/or seek permission from the Court to rely upon a second valuation (known as an Adversarial Expert Report); this is not a straightforward process, and specialist family law advice should be sought prior to making an application to rely upon an Adversarial Expert Report.

If you have questions about valuations and your property settlement you should obtain specialist family law advice. Contact Robinson + McGuinness to arrange an appointment on (02) 6225 7040, by email on info@rmfamilylaw.com.au or get started now online with one of our experienced lawyers.

Author: Peta Sutton, Senior Associate

Formalising your property matter: how to do it and is it necessary?

When you separate, you will often hear stories from family, friends or even friends of friends of their experience going through a separation or divorce. These stories are sometimes the ‘worst case’ scenario, involving lengthy litigation and long paths to resolution. However, this is not the only way. Where you have reached an agreement, you are not always required to enter the Court system.

Whilst some matters require the Court’s intervention, there are many matters which can resolve by direct negotiation, through correspondence via lawyers or at private mediation. Once you and your former partner have reached an agreement as to how to divide your assets, liabilities and superannuation, you will likely want to formalise that agreement as there are benefits in doing so. To do so, you have a number of options.

The most common approach is the ‘consent orders’ process. You and your former partner ( or your lawyers) complete an Application for Consent Orders (which provides the Court with some information about what you each own and the proposed property settlement), along with the Orders you seek that the Court makes to ‘effect’ your property settlement. The Court then sets a date to review the documents and if approved, will grant the Orders that you are seeking. If the Court does not consider that the outcome is ‘just and equitable’, the Court may decline to make the Orders you seek and request you to provide the Court with further information.

Another option is to enter into a Binding Financial Agreement. This is a private agreement which requires you and your former partner to each obtain independent legal advice from a lawyer. The Court does not review the agreement reached between you and you remain outside of the Court system. Due to the requirements of a Binding Financial Agreement, this option can be more expensive however it can be preferable in certain circumstances, and more private.

In some instances, you and your former partner may decide that you are willing to part ways without formalising your agreement. Any agreement reached should at least be communicated between you and your former partner in writing. This option may only be suitable in limited circumstances.

It is important to seek legal advice from a specialist family lawyer as to the most appropriate way to formalise the agreement reached between you. For example, there may be stamp duty exemptions applicable if you transfer property pursuant to a Court Order or a Binding Financial Agreement. If your property settlement involves a superannuation split, there are extra steps that you must take to ensure the Trustee of your super fund has been accorded ‘procedural fairness’ so they can (and will)  implement the superannuation agreement you have reached.

Robinson + McGuinness can provide advice on whether the agreement you have reached is a ‘just and equitable’ outcome, as well as the best way to formalise the agreement based on your individual circumstances. Contact us to make an appointment on (02) 6225 7040 or by email on info@rmfamilylaw.com.au or get started now online with one of our experienced lawyers.

Author: Anika Buckley