Curly Question

[AussieBob]

G'day Investors,

Firstly I'd just like to say what a great bunch of people you all are and what a goldmine of information this forum is. I've been "lurking" around here for a couple of months now and haven't posted much, but here goes.

A bit of a curly one for my first post.

I have a family trust set up with four IP's all doing quite nicely. I'm married with two kids 5 & 7. We have a PPOR worth some $500k.

Unfortunately thats where the good news ends. It's very likely that We'll be divorcing in the near future. Among the traumas facing us all (kids in particular), there will be the usual property splits to consider. If there are any lawyers out there I would like opinions please. (Even if you're not a lawyer and have some personal experience in this I would be interested.

My problem is likely to be my wife. Under a normal divorce settlement it would be likely that she would receive at least half (or more) of our net assets, and almost certainly the kids too. And I wouldn't have a problem with that if she had contributed equally to the asset base. But she has not. Our PPOR was fully paid for prior to our marriage (even before meeting) and the trust was established a year after marriage. Financially She has brought nothing. She has never even been interested in investing. I'm the one who's spent Saturdays trawling the papers and going to open houses. I'm the one who's had a job all these years. Now don't get me wrong - I'm not trying to minimise the importance of a full time mother with two young kids, but during all these years where I've been trying to secure or family's future I've always been made to feel like I'm wasting my time.

She did not want anything to do with the estalishment of the trust, indeed she would'nt have a clue on how to run it. She wanted nothing to do with the purchase of the IP's or their subsequent management. I've had to do the lot. Finally this year she's talking about getting a job. I think it'll be too late to save our marriage.

She and the kids are naturally beneficiaries of the trust. But with the exception of leaving her our PPOR (after all she'll need a place to live) I believe the assets of the trust should morally be left to me, or in the trust but strike her out as a beneficiary.

I also believe ther are a couple of good accountants out there (Dale & Nick) while you may not have law on your CV, your opinions would be appreciated.

Any comments???

Bob

PS no comment received in response to this posting will be taken as advice or held against its writer for any legal purposes.

 

[asy]

Wow Bob...

Divorce is never easy with or without assets...

I have one question which may seem ridiculous, but I will ask anyway...

Have you spoken to your wife?

What I mean is, what makes you think that divorce is imminent, have you discussed it (I mean, I knew mine was imminent and there was no discussion...), and if so, have you asked her what her thoughts are regarding the settlement?

My Ex and I came up with our own Consent Agreement (the property and kid settlement) and you can download the format from http://www.familycourt.gov.au/forms/html/kits.html . This will give you the full kits to literally do it yourself. However, I would VERY strongly suggest, even if you both end up agreeing, get legal advice before you lodge. If you both totally agree, split the cost of having a neutral solicitor looking over it for legality.

In my case, I felt it was best to just walk away, which I did, with nothing really but my kids. I know I have the knowledge to make more and the desire to make more, and the wherewithal to make much more than he ever will. (Even if he does earn more than I do).

I guess it's a case of, what's the WORST that can happen, she gets half? She gets 3 out of the 5 houses? And the kids? Well, the reality of it is that she is most likely to get the kids anyway... And, as you said, they will need somewhere to live.

My point is, I can understand that giving away what you feel is yours hurts, but if she doesn't have any inkling of investing, then who's going to be better off in 5 years anyway?

The other question is, perhaps think about something like, if you think she will end up with 3/5 houses anyway (as an example) give her one outright, and have the other 2 put into a trust with her as the sole beneficiary, but you as the trustee. You administer and she gets the right to all the rents and profits of the properties. At least this way she won't simply sell them and fritter away the money. Or, offer to put one into each child's name, with her as the beneficiary until they turn 18 or 21 or something. That way she gets the benifit of the two houses but they actually belong to your children.

what do you think?

asy

PS: As per your disclaimer, you know I ain't no lawyer! These are just ideas to start discussion...

PS: does anyone know, are pre-nups legal in Aus yet?

 

[strangep]

Hi AB

Firstly, I second asy's thoughts and would encourage you to talk to your wife and try to avoid this if possible.

If, however, there is no chance of ressurecting the relationship, correct me if I'm wrong but I was of the opinion that the assets of a trust could not be the subject of a court order in a divorce.

There may be difficulties in the trusts' administration though where you are both trustees and/or appointors.

Hope everything works out well for all of you.

Cheers

Paul

PS. Disclaimer applies. I'm not an accountant or solicitor and any comments are just opinion.

 

[abcdiamond]

This is an excert from 23/11/2001, Sydney Morning herald article.

In Australia, where the pre-nup became legally binding last December, the idea is still in its infancy. So far, the users are those marrying for a second time rather than first-timers not yet burnt by love.

Full article here:
SMH 23/11/01

Beware of one thing: You get divorced, the other side gets half, it gets spent, you get back together again, you split up again, and guess what - the other side gets another half. !!!
IT HAPPENS

 

[Jimmyjamjars]

Agree with Asy.
If there's any way possible to work it out amicably, please try to do so, as a workmate of mine just went through a very NON amicable divorce and it gets very ugly. It drags out for so long that the majority of the wealth goes to neither you nor her. (Guess who ?) I guess it's hard for me to comprehend as Mrs. JJJ and I haven't had even a major argument in 17 years together but I've talked to several people who've been through it and all have said to try and work out a manageable agreement. Legal teams can sometimes try and instill ill will which sometimes isn't there to begin with. Once seeds are planted, anything can grow.

Ditto to what strangep said .... hope all turns out well for you, Bob
JIM

Disclaimer
These are only the rantings of a very contented man & therefore tend to sound more like waffle than rant.

 

[abcdiamond]

I agree with Jimmyjamjars,
My ex-wife and I came to an amicable agreement, until her legal advisors got involved. She ended up with LESS than we originally agreed upon. And of course all the bitterness that followed.

I just came across this organisation in case it helps, (never used them myself though):

Australian Information & Support Services for Men Pty Ltd.
Unit 5a 21 Stud Rd
Bayswater Vic 3153
Phone: 03 9738 2478, Facsimile: 03 9878 4725
Email: [email protected]

 

[asy]

Originally posted by strangep
correct me if I'm wrong but I was of the opinion that the assets of a trust could not be the subject of a court order in a divorce.

I believe you are totally incorrect...

The Family Court's claws are long and wide reaching.

They will unravel whatever they like to get at whatever they need to. And that's not a criticism, sometimes it is VERY necessary.

Can anyone out there confirm?

asy

 

[Savanna100]

Check out the possibility that you can keep assets you bought into the marriage....you mentioned that one of your houses was bought by you before you even met her.

If so, is it only in your name????. I have heard somewhere that you can keep previous assets.


Sorry I can't help you more but I was a lawyer specialising in Planning Law, not family law. in fact, I deliberately avoided studying family law at uni because it is the area that a lot of female lawyers tend to get stuck in.....

guess what all my friends need help with these days .....not planning law !!!!

 

[Cosmo]

Hi aussieBob
Are we related? Your situation is very similar to mine except for the trust stuff. My divorce was back in ’99 and yes it all seems so unfair doesn’t it. Have you seen a solicitor yet? Don’t expect any miracles there they all operate out of the same “rule” book.
In a nutshell yours and her TOTAL net assets (super, assets in a trust, out of a trust, your name, her name, jointly held etc etc) after a reasonably long marriage are divided by 2 and that’s what would be yours in the split. Other things that can change this 50/50 split are

1) Children to the marriage and their ages.
2) length of time out of the workforce (raising kids) and their ability to get back in
3) health issues
4) a very short marriage
5) etc etc etc

Get the idea………..

Because you have been in the workforce with no break you are seen by the courts as having a very good ability to continue doing so and your wife because she has been out of the workforce the courts see that she should continue doing so………..that’s the bias I’m afraid. (A few typical assumptions here…sorry)

If you go to court the judge, her solicitor and even yours will bleed you dry so don’t go there!

Forget mediation they reflect the courts view of the situation

The best deal is for you to sit down and talk it out with her. Avoid the solicitors until you 2 reach a private Consent agreement and then have it approved by the courts. Try to come up with some creative ideas for the asset split. Can you buy her out? For god sakes try to keep the capital appreciating assets and dump the cars , boats etc.
It took the current property boom for me to return to the net wealth I had in marriage. For you it might take a bit longer but with your track record it wont be too long before its just a bad memory and you’re way in front.
Finally, the absolute main thing to consider here is the outcome for your kids. I do joint custody week about and it’s the most challenging job I’ve ever taken on but extremely rewarding.

 

[Puppeteer]

Usual disclaimer - I ain't a lawyer and this ain't advice.

My parents were divorced - the messy way. Can't say I recommend it, especially when the kids get stuck in the middle.

Assets that you owned before the marriage you should be able to keep. Generally the courts will look at assets aquired during the marriage and split them up. It starts at a 50-50 basis, but whoever gets the kids usually gets another 20%. Also maintenance costs are a killer because they are calculated on pre-tax dollars but taken out of your net income, and it would seem that the courts take no account of your living expenses. Unfortunately you are almost certainly going to have to pay maintenance regardless of whether you use the courts to determine the asset split or whether you can work it out yourselves.

I did have one friend who was in this situation where he was on very amicable terms with his ex-wife where he paid the prescribed maintenance, and she wrote him a cheque every month refunding most of the money. Of course, if she was ever short, he would help her out. As it turns out, this worked so well that they got back together and have never looked back.

My other experience of relationship breakdown with assets was with my ex-fiance. We owned 2 houses but had no kids. We negotiated how the assets were to be split and basically split them. We signed a contract stating that we were both happy with the arrangement and wouldn't take future action against the other in relation to assetts. (In WA - there is no law concerning how assets get split in a de-facto relationship, so to do this through the courts would have necessitated a visit to the supreme court. Neither of us would have ended up with anything!)

Regardless we didn't want to involve lawyers, except to check over the final agreement. This worked quite well and was really a minimum cost option. We had to pay CGT and stamp duty for the transfers and move a few of the household items and furniture around.

In your situation you might be able to come to some sort of agreement whereby you agree to keep the properties in the trust and use the beneficiary system to distribute income and capital gains. You could then set up a seperate trust structure for future property investment that keeps it completely seperate from the current arrangement. You can then both get long term gains from the property trust, or you could wind it up. You would need to carefully set up an agreement for this, though it should be workable depending upon how well you get along with your wife.

If you owned your PPOR prior to the marriage, then I beleive that you should keep it. If you feel obligated to let your wife keep the house, perhaps consider bargaining it for your sole control of the trust structure.

Another thing to keep in mind is that superannuation is now considered a divisible assett, so your wife is entitled to half of your superannuation and vice versa. I don't know how this works in practice, but again you may be able to come to some sort of agreement.

I strongly recommend that you talk to your wife about how to split the assets up. Maybe arrange for the kids to be baby sat for a weekend and spend the time going through your assets. Make some rules before you start, such as, if tempers get frayed, then you both agree to take a half-hour timeout to compose yourselves. Do try to keep it civil and you both need to be prepared to compromise.

If you think about it, even if you come out $50 - $100K worse off than you think you should be, legal fees for a drawn out case involving corporate structures could easily exceed this. You also sound like you are pretty savvy when it comes to investment, so to make that kind of money back with the sort of asset base you should end up with after the divorce shouldn't take too long.

In my case it took me about a year to be back in front from where I was prior to the relationship breakdown. My ex hasn't moved on, and 5 years on I'm doing better than I ever dreamed.

Anyway, best of luck and stay positive.

 

[strangep]

Thanks asy

I stand corrected

Fortunately, I don't have any personal experience with the Family Court and my opinion was only based on the research I did on trusts before we set one up....I appreciate that it's probably very different in practice.

Still hoping it all works out well for you all AB.

Cheers

Paul

 

[Cosmo]

Hi again AB
Good thing a lot of the responses have disclaimers on them. One would assume that with the age of your children that you’ve probably been married for about 9 years. I’m afraid you would be lucky to see anything more than 60% of your PPOR value returned to in the settlement. If you had been married for less than 2 years you would more than likely get 100% back. Marital assets are a blending process which starts about 2 years into a marriage and arrives at 50/50 by about year 8. From then on its 50/50 no matter who owned what at the beginning. Exclusions are things like recent inheritances, gifts etc they too will take 2 years to become the property of both of you.

Please see a solicitor just to discuss the settlement if it did go to court and use that figure as a starting point.

Again I’ll emphasise that you both can agree on anything as a property settlement literally anything. Her solicitor/ friends/ family will advise against it but if you both agree the consent orders can be drawn up and validated by the courts.This also applies to child support. You can even do your own divorce for $250 (maybe more now) through the family law court if you want to. These are not myths because its exactly what I did.

I personally would cut all financial ties with your ex.You’ll have enough hassles with the kids let alone tangling up the finances between you 2. Over time you’ll want to go your own ways finacially anyway.
And last but not least reconciliation. Have you or her really passed that point of no return in your relationship. Is divorce really the answer. Maybe a long seperation might help you see things clearer. Which ever way it goes I wish you good luck mate.

 

[AussieBob]

Thanks to everyone for some magnificent ideas. I guess it just goes to show that this forum is useful for many things, not just for Property.

From what you are all saying it appears that the best and least painful way to go ia a private agreement between the two of us. Otherwise the real winners will be the legal profession.

We are probably well past the point of no return. We have spoken about our relationship on many ocassions and we are both almost resigned to an unfavourable outcome. Having said that it will probably be on good terms and that gives me confidence that she would be more than receptive to an "Out of court" settlement.

My initial thoughts are that I would not like to leave her destitute, indeed she would not allow it. So I think that I'd be happy to leave her the PPOR and leave her as a beneficiary of the Trust FOR INCOME PURPOSES ONLY. ie I will try to convince her that the capital in the Trust be left to the kids. Sh'e currently a beneficiary but I am the appointor and sole trustee.

This way I can set up a new trust after the dust settles and continue with IP later.

Yes we have been married for nearly 10 years now. So I guess if the leagls get their hands on us we'll come off second best.

Thank you again for all your kind words.

Bob

 

[Aceyducey]

AussieBob,

I hope you can resolve it amiably - I'm sure it's better for your future relationship with your kids.

Bear in mind that you did it once, you can do it again....particularly if your energy isn't sapped by fighting expensive legal battles over the past.

At least you can have the confidence that you will be able to rebuild & still have contact with your family.

Cheers,

Aceyducey

Originally posted by abcdiamond
In Australia, where the pre-nup became legally binding last December, the idea is still in its infancy. So far, the users are those marrying for a second time rather than first-timers not yet burnt by love.

No having been divorced....but having over 50% of relatives of my parents' generation divorced......

I've always felt that prenup agreements are sort of like 'planning to fail'.

I prefer to put the time into making sure a relationship will work rather than working out how we would split future assets when we separate....

Surely when couples with prenups decide to divorce, the prenup gets distorted by the parties & solicitors trying to increase their share - unless it is a VERY amiable split.

Any other thoughts on this?

Cheers,

Aceyducey

 

[abcdiamond]

I seem to agree with Aceyducey, but having gone through 2 financial settlements, I am not as "openminded" as I once was.

Would I do a pre-nup next time ? I think that depends on if it is my Brain or my Heart that is in control

I did wonder if IP's could be placed in a childs name, but that didnt seem to be feasible.

If anyone comes up with any ideal answers to this, I will read with interest.

Good luck to you Aussiebob, hope things work out the best they can.

 

[Cosmo]

Hi AC DC

My thoughts exactly …………..first time around. I thought that divorce was for people who had no idea of marriage. Now I’m one of them! I think you assume that you will have perfect and complete control over what will happen in your marriage……..you don’t.

Things can change.

The stats for divorce are nearly at 50 % for all marriages. One would therefore conclude that a large proportion of marriages have difficulties to result in a 50% divorce rate. I don’t think marriage problems are on the rise but I believe that its all too easy to head for the door at the first sign of trouble these days. I was horrified at how easy it was to get divorced at your local family court. $250, a form to fill in and youre out of there.

PNA’s and FBA’s still have to reflect some sort of a fair deal to work. For eg one could state that what was bought into a marriage remains the property of each other and what is accumulated during the marriage goes 50/50. Remember though, if some significant event should happen (for eg an illness that absorbed the wealth accumulated by you 2), the PNA / FBA more than likely would be challenged in court.

And finally the best investment you could ever make is picking the right life partner.

The rest is a piece of cake

P.S
(“right”is a definition each individual has to come up with)