When negotiating family law settlements. the primary focus is quite rightly on ‘who is to get what’ and ‘what percentage’ as well as dealing with the emotional attachment to particular assets. This is the starting point in family law. However, it is important when negotiating to consider the following three questions, all of which are of great importance:
Have you sought Tax Advice?
Always seek tax advice before entering into any settlement. Knowing about and understanding the tax implications of various changes to your assets and liabilities is crucial to achieve a fair outcome and important for peace of mind.
If, for example, you have any investment properties, it is extremely important that you obtain advice about any future capital gains tax payable, together with tax that may apply on any other asset you may wish to retain. It is possible for tax liabilities to be “negotiated” as part of a family law settlement.
Did you know that an expected capital gain isn’t deducted from the value of an asset you take in your settlement? This fact alone might cause you to not want it.
You would also want to make sure that a cash sum paid to you on settlement is not paid to you as a dividend from a company that your spouse keeps. This method of payment could lead to a large tax bill to you on 30 June the following year that you did not anticipate, and catches you post settlement, so that you cannot recoup the money from your former spouse.
We make sure that we collaborate with our clients’ accountants and finalise their settlement together.
Have you updated your Will?
Most Australians who are married with assets now have a will. Did you know that after separating (before divorce) your “old” will is still valid? Tragically, we have seen the unfortunate circumstance of a person in the midst of a battle at the family court die unexpectedly. It is devastating for their family (often young children are involved) to find that the other spouse with whom they were fighting in court has the legal entitlement under the will to all the dying person’s assets.
In our view, between separating and divorcing, you must have an “interim will” in place.
On separation, most people don’t want to leave any assets or rights to their former partner in the event of death, nor do they want to risk that their ex may contest their Will.
It is recommended that you periodically update your Will at:
- the time of separation
- at the time of settlement of your family law matter (or immediately after)
- every few years thereafter or whenever there is a change in circumstances warranting the Will being updated (such as the purchase of a new asset or the birth of a child).
Making supported decisions based on facts and not emotions is definitely the better and less stressful way to go. We strongly suggest that if you have not already done so you also contact your superannuation trustee and life insurance policy fund to nominate a new death beneficiary, as you have probably previously nominated your ex partner as the beneficiary of those should you die.
Further we also recommend releases be given by each separated spouse to the other of their estate for the future in any family law settlement document.
Have you sought advice from a Financial Planner?
Both ascertaining what you need for the future and planning how you will invest your property settlement to best secure your financial future is very important.
Obtaining advice from a financial planner can often give people, going through a separation, the advice and comfort they need to make informed financial decisions such as; should they try to keep the family home? or what proportion of the settlement should be in a superannuation fund?
Many people approach the planner too late.
You need to ask the planner the following question:
‘If I want to retire at 62 with a $45,000 annual income, what is the minimum settlement figure I will need and what proportion of it should I take in cash and super?’
It is important that you are aware of your current financial situation and what your financial options are as you transition from being “in a relationship” to being “separated” (or from a single household to two households).
Some financial planners have developed modelling software to run a number of ‘what if’ scenarios, specific to each client’s circumstances. We test any number of future variables including income, expenses, superannuation, settlement outcome, retirement dates and timing. This can give you a better understanding of all of the financial options available to you and enable a more viable and realistic way forward. Often these models can assist you to establish a “bottom line” for what you really need (as opposed to what you might wish for) in a settlement.
By following these simple steps you can enjoy peace of mind that the settlement you are entering in to is in your best interest. We can partner with your adviser and accountant or can recommend appropriate expert professionals that we regularly collaborate with.
Contact one of our experienced Family Lawyers today who can assess your circumstances and help put measures in place for a secure future for you and your family.