An Introduction to Property Settlements - What You Need to Know
Firstly, we would like to welcome you to our blog.
Whether you are looking for more information about bankruptcy and family law, contemplating bankruptcy as an option for you or you are currently in bankruptcy while dealing with family law issues, our aim is to provide you with information that is easy to understand and assist you to navigate your situation.
We also understand that the thought and contemplation of divorce and separation can be incredibly stressful and troubling for you. In our earlier blog, we discussed the pathway to reaching an agreement and the approach to divide your assets in the event of separation. In this blog, we are going to delve deeper into some issues that can arise when you are negotiating your property settlement.
Firstly, if you haven’t read our earlier blog about the process, click on this link.
Importance of full and frank disclosure
When you are involved in a family law matter, you have an ongoing obligation to provide full and frank disclosure of your financial position. This obligation starts at the commencement of your family law matter and does not stop until you reach an agreement for finalisation.
The rules of the court emphasize the importance of disclosure and if you breach your duty, you may be exposed to penalties.
When you are thinking about disclosure, the documents and information that is required to be disclosed are as follows:
- Your earnings, including income that is paid or assigned to another party, person or legal entity;
- Any vested or contingent interest in property;
- Any vested or contingent interest in property owned by a legal entity that is fully or partially owned or controlled by you, including income that is paid or assigned to any other person or legal entity;
- Any financial resources available to you, which may include an beneficial interest in a trust or expected inheritance;
- Any trust:
- Of which you are the appointer or trustee;
- Of which you, a child, spouse or de facto partner are an eligible beneficiary;
- Of which a corporation is an eligible beneficiary as to capital or income if the party, or the party's child, spouse or de facto spouse is a shareholder or director of the corporation;
- Over which you have any direct or indirect power or control;
- Of which you have direct or indirect power to remove or appoint a trustee;
- Or which you have the power (whether subject to the concurrence of another person or not) to amend the terms;
- Of which you have the power to disapprove a proposed amendment of the terms or the appointment or removal of a trustee;
- Over which a corporation has a power mentioned in any of the above paragraphs, if you, your child(ren), spouse or de facto partner is a director or shareholder of the corporation; and
- Any disposal of property (whether by sale, transfer, assignment or gift) made by the party, a legal entity mentioned above, a corporation or trust that may affect, defeat or deplete a claim:
- In the 12 months immediately before separation;
- Since your final separation; and
- Liabilities or contingent liabilities.
In meeting your duty of disclosure, you must provide all documents and information that:
- are relevant to your matter;
- are in your possession or control; and
- you have the authority or ability to obtain.
QUICK TIP: This means if your accountant holds copies of the documents requested, you must consult your accountant to obtain copies to provide to your former spouse. On the other hand, if you are waiting for your accountant to prepare a tax return (meaning a document that has yet to be created), then obviously this is a legitimate reason why you cannot provide the document.
The consequences of non-disclosure can be significant. Some of these include:
- The court may prefer make an inference that due to your non-disclosure, the documents or information requested may have been disadvantageous to your case and proceed on that basis to make the inference against you;
- The court will be very cautious about making findings in your favour, severely impacting your position in the proceedings; and
- A costs order may be made against you.
Importance of agreeing to the value of assets or obtaining valuations
The importance of the disclosure process is encapsulated in the composition of the balance sheet of your assets, liabilities and financial resources.
It is the case that attributing a value to something may not be possible by the provision of financial disclosure. This can include the value of a property, trust or company.
If you and your former spouse are unable to agree as to a value, the only remedy to is to seek a formal valuation of the asset.
QUICK TIP: it is a much stronger position for you and your former spouse to agree to a valuer. The normal process is one party proposes 3, of which the other party nominates from your selection. That person is then ‘jointly appointed’ to conduct the valuation. When this happens, it is important that all communications to the valuer are made jointly and you or the other party make no unilateral communication to the valuer. This ensures the legitimacy of the valuation and removes any contention of bias.
Importance of making an offer and resolving the matter early
The longer a family law matter runs, the more it is going to cost you.
At every juncture, you should be looking for an opportunity to settle the matter in a commercial and practical way.
At the very outset, when you have provided and received financial disclosure and settled any valuation issues, and obtained legal advice as to your range of entitlement of the matrimonial assets, you should be looking to make your best offer to settle the matter.
There are a number of benefits to you for doing this, including:
- You will resolve the matter early, reducing the stress and impact on your life of the family law proceedings;
- Making an offer at the outset may protect you from a costs order in the future. If you make a reasonable offer, which is not accepted by the other party and your matter continues to finalisation in litigation and you receive a result similar to the offer made at the outset, this puts you in a strong position to ask the court for some or all of your costs for having been put through the litigation; and
- It also limits ongoing legal fees, having to provide ongoing disclosure, navigating the depreciation or appreciation of assets and the inclusion of events post separation in your family law settlement.
Depending on the nature of your family law matter and the money involved, it may be to your advantage to prosecute your claim, especially when the other party is ill advised and being unreasonable. But you shouldn’t discount the emotional stress that is involved in a family law matter, if there is an opportunity for you to finalise the matter within the range of your entitlement, in a commercial way, this is something you should seriously consider.
In family law matters where there is a significant financial imbalance between the parties to fund lawyers and prosecute their case, it is possible to ask the court to make an order for the other party to pay some funds to assist the lesser party make their case. This is called a ‘litigation funding’ application.
There are many ways these sorts of orders can be made, but the intention is that the playing field should be levelled.
QUICK TIP: these sorts of payments will be treated as an interim property settlement to you and will likely be accounted for in any final property settlement you achieve.
Litigation funding applications are inherently complex and we highly recommend that you seek expert legal advice if you are facing these issues in your family law matter.
Interim property settlement
An interim property settlement is treated like an ‘advance’ on the property settlement you will receive at the conclusion of your family law matter.
These sorts of applications are becoming more common where the assets held by parties are in property and not in cash. This may involve the sale of a property to assist with your day-to-day living expenses.
QUICK TIP: the court will only entertain an amount which is less than you will certainly receive at the finalisation of your matter. For instance, if the lowest range of your entitlement is 30%, you cannot ask the court for more than this as an interim amount.
Any amount received by way of interim property settlement will be attributed to you in the final resolution of your matter. For example, if you receive cash which amounts to 20% of the net property pool available for distribution and you agree or a court makes an order for you to receive 40%, then you shall receive 20% at the finalisation, having already received the other 20%.
Interim property settlement applications are inherently complex and we highly recommend that you seek expert legal advice if you are facing these issues in your family law matter.
Spousal maintenance is often assumed to be included in a property settlement. This is actually not the case and is a separate issue.
The legal test for determining whether or not a person is entitled to spousal maintenance is:
- Firstly, the person must establish a ‘need’ for maintenance. Their expenses must reasonably exceed their income. If this is true and accepted, then we move to step 2; and
- Secondly, the other party must have capacity to ‘meet’ the ‘need’. This means that the second party must have a surplus of funds to assist the shortfall experienced by the other party.
Spousal maintenance applications are inherently complex and we highly recommend that you seek expert legal advice if you are facing these issues in your family law matter.
We note that the content of this article is not intended to provide legal advice. It is general information only. You should not rely on it as legal advice. If you would like to discuss anything of interest or concern to you, please contact us. Nothing arising from the content of this article is intended to create a legal relationship between us and any reader. If you would like to obtain legal advice from Tim Nicholls on your family law circumstances or to instruct him to act in your family law proceedings, call Understanding Bankruptcy and we will organise for Tim Nicholls to make contact with you.
If you would like more information or have questions on Bankruptcy and Family Law please call Understanding Bankruptcy on 1300 794 492 or email firstname.lastname@example.org