Structure of Properties when divorcing?

[jmillar]

Hi everyone,

I was speaking to a friend who works in the family court, who was telling me it makes no difference what entity a property is held in. Whether it is held in a personal name, trust, SMSF or even in someone else's name, if you own/control the property then it is put into the 'pot' and split up when going through a divorce.

A family member of mine was told the exact opposite by both his accountant, and a friend who has been through a divorce.

Can anyone confirm which is correct?

The reason for my question is that divorces are unfortunately so common in this day and age. If there is a 'safer' structure then I'd like to know about it sooner rather than later, as I'd rather take $1M assets into a marriage in a 'safe' structure than $2M in a 'vulnerable' structure.

Also could anyone recommend someone to see about the implications of each structure and which will be best for asset protection etc?

Thanks

 

[Peter_Tersteeg]

2-3 times a year we have to restructure people's loans because they're divorcing or separating. It's not a good position to be in.

My observation is that there's pretty much nothing you can do to protect your assets from the family court in a separation. Super, trusts, personal, it's all up for grabs.

Interestingly Geoffrey Eddelsten has declared bankruptcy this week.

 

[thatbum]

A family member of mine was told the exact opposite by both his accountant, and a friend who has been through a divorce.

Lol, legal advice from an accountant and a friend. Sounds reliable...

The friend working at the family court is much closer. The structure makes no difference 99% of the time.

EDIT: A friend I can understand, but that's particularly bad for an accountant to be giving such advice. I'm really curious to hear what structure the accountant is suggesting helps in the family court.

 

[Bats]

To stay with the majority, your structures are irrelevant in a family court situation, everything you own or is under your control goes into the pot for consideration/distribution.

 

[Terry_w]

ha ha, taking family law addvice from an accountant!

"structure" doesn't really matter in terms of property settlements resulting from a breakdown of a marriage/relationship because the family law act allows assets owned under different ownerships to be taken into account and orders made against the owners. e.g. You have a trust set up to own property, you control the trust, you have contributed money to it, caused it to buy a property. This property will be considered an asset of the marriage. The court may make an order on the trustee to transfer the property to the spouse - even if the spouse is not a beneficiary - i.e. force the trustee to breach the trust deed.

But there are ways to structure things to work in your favour, to a certain extent. One example is that your parents may be wanting to make a gift to you of say $100,000. This could instead be structured as a loan. If you were to divorce it would be an asset of the parents.

Instead of inheriting it may be safer for your parents to leave their assets to an appropriately structured testamentary discretionary trust. This way you will not inherit directly and therefore there may be less chance that the assets of the trust will be considered 'assets of the marriage' - they assets were not built up during the marriage, but this protection will not be guaranteed.

 

[fresh investor]

Does this mean every asset goes into the pot for splitting during a divorce? Or is it just those assets acquired after the relationship started? I've heard of signing a prenuptial agreement but also heard it is not worth the paper it's written on. How true is this?

Cheers,

Fresh.

 

[property_girl]

I am not a lawyer, but I have been divorced. I had a good divorce lawyer. I went into my marriage with lots of assets and my husband came in with debts. I also got gifted a property by my parents during the marriage. My lawyer ensured that I left the marriage with all the properties and assets I had when I entered the marriage as well as the ppty gifted to me. I didn't believe him when he told me that partners are not entitled to any portion of a marriage's assets that they had not contributed to until he showed me the relevant legislation.

 

[Terry_w]

I am not a lawyer, but I have been divorced. I had a good divorce lawyer. I went into my marriage with lots of assets and my husband came in with debts. I also got gifted a property by my parents during the marriage. My lawyer ensured that I left the marriage with all the properties and assets I had when I entered the marriage as well as the ppty gifted to me. I didn't believe him when he told me that partners are not entitled to any portion of a marriage's assets that they had not contributed to until he showed me the relevant legislation.

Gee you were lucky/skilled lawyer.

I am a lawyer (but stay away from family law) and can say that assets built up prior to the marriage and or received as a gift during the marriage can be used in a property settlement. The relevant section, from memory, is s 79 of the Family Law Act.

However, the less contribution made by a person the less change they will get a slice. Contributions can be financial or non financial.

property_girl do you remember the legislation your lawyer referred to?

 

[Terry_w]

Does this mean every asset goes into the pot for splitting during a divorce? Or is it just those assets acquired after the relationship started? I've heard of signing a prenuptial agreement but also heard it is not worth the paper it's written on. How true is this?

Cheers,

Fresh.

Prenups orBinding Financial Agreements are legally binding and must be followed by the courts. But there are circumstances where they won't work - they may be defective, assets not disclosed, interests in trusts not discclosed, wording not meeting the legislation, independant legal advice not obtained, lawyer not explaining certain aspects etc.

see s 90k
http://www.austlii.edu.au/au/legis/cth/consol_act/fla1975114/s90k.html

 

[property_girl]

property_girl do you remember the legislation your lawyer referred to?

I wish I could. All I remember is that I kept saying that I was pretty sure that it was all up for grabs. My lawyer disabused me of that notion. He ended up photocopying the relevant clause of the legislation and highlighted it. I kept it but now cannot find it. sorry.

Yes, I did have a good lawyer. He knew his stuff.

 

[Jamie_]

Do you both need to have a lawyer if you are going through the family courts and CANNOT agree on what the 50/50 value should be?
Do they simply take a look at all finances, properties, assets and allow for each side to buy the other out? - Say for example someone wants to buy the other party out.

(I did actually try and look for other info on SS but didn't come up with much in this regard)

 

[Peter_Tersteeg]

People do manage to come to a fairly easy agreement which they're both satisfied with. You probably still need some level of legal assistance to draw up the separation agreement, but if you can do this you'll make it far easier and quicker.

 

[thatbum]

Do you both need to have a lawyer if you are going through the family courts and CANNOT agree on what the 50/50 value should be?
Do they simply take a look at all finances, properties, assets and allow for each side to buy the other out? - Say for example someone wants to buy the other party out.

(I did actually try and look for other info on SS but didn't come up with much in this regard)

I'm not exactly sure what you mean by your question? But I'll try and address the points you raised.

1. You don't "need" a lawyer for anything, but obviously it helps - although at some points more than others.

2. If you can't agree on the value of the relationship assets, then that is simply another part of the dispute that needs to go through mediation or decided by the court. Its almost always a stupid thing to disagree on though, since is relatively simple to value most things.

3. I'm not sure who you mean by "they"? The family court?

 

[thatbum]

People do manage to come to a fairly easy agreement which they're both satisfied with. You probably still need some level of legal assistance to draw up the separation agreement, but if you can do this you'll make it far easier and quicker.

Yes I'd say there's 2 points where parties should get some legal advice in almost every situation - even if its amicable.

1. After the asset pool is agreed, each party should get an independent legal opinion on what a fair and equitable split is for them. Not only is this just good due diligence, its required that any split is fair and equitable even if both parties consent.

Generally the legal advice should roughly match up and that is what both parties need to check.

2. After the parties actually agree on a split, a lawyer to draft up the proposed consent orders. You might be able to get away with just the one lawyer between you here.


Those are the two points I regularly advise my more money-conscious clients not to stinge out on during a separation.

 

[macca446]

Hi,
I am unfortunately going through this over the last few months,I am grateful that me and my ex partner have the complete understanding together that we both put as much time and effort into everything as each other so 50/50 split was a no brainer for both of us with no lawyers involved. I am settling soon on 4 property sales and 2 more next year and moving on just how things should be in the perfect world.
Macca446

 

[thatbum]

Hi,
I am unfortunately going through this over the last few months,I am grateful that me and my ex partner have the complete understanding together that we both put as much time and effort into everything as each other so 50/50 split was a no brainer for both of us with no lawyers involved. I am settling soon on 4 property sales and 2 more next year and moving on just how things should be in the perfect world.
Macca446

Are you putting in consent orders? Who is going to draw them up?

 

[macca446]

Are you putting in consent orders? Who is going to draw them up?

Nothing drawn up all verbal,but either of us are out to rip each other off upon settlement we split the funds and although not ideal in some ways as cgt to be pain next year we still have trust in doing the right thing with by each other,unless things change we are both happy for it to be like this.
Macca446

 

[thatbum]

Nothing drawn up all verbal,but either of us are out to rip each other off upon settlement we split the funds and although not ideal in some ways as cgt to be pain next year we still have trust in doing the right thing with by each other,unless things change we are both happy for it to be like this.
Macca446

Especially if you're intending to do more property investing next year, I would suggest you at least get consent orders done up.

I regularly have to sort out the fallout from so-called informal agreements for my clients - sometimes many years later. Consent orders will "lock it in" much more effectively.

 

[macca446]

Especially if you're intending to do more property investing next year, I would suggest you at least get consent orders done up.

I regularly have to sort out the fallout from so-called informal agreements for my clients - sometimes many years later. Consent orders will "lock it in" much more effectively.

Yes I do understand in that way,but for me I am actually walking away from property altogether for a while and focus on life a bit more,not to say later i will but not in the foreseen future at least for now.
Macca446

 

[Terry_w]

I believe that any future property division by a court will be based on what you own at the time of the hearing, not at the point of separation. A good reason to finalise properly now.

Is that right ThatBum? Mr Bum?