Superannuation for many years was not property under the Family Law legislation and the Court had no power to deal with it although the Court, to overcome this difficulty, made an adjustment to a party’s interests and in some cases extreme adjustments to compensate a party for the loss in the other party’s superannuation. The classic examples for high adjustments related to people in professions or employment where there were large superannuation interests such as airline pilots, politicians, and public servants.
Many of the cases involved, for example, airline pilots who had superannuation entitlements in excess of $300,000 and the only other property was the matrimonial home with a net interest of say $150,000, the home being the only substantial asset of the parties. If you go back to the ’80s and 90’s those amounts were extremely high amounts especially in Brisbane. Of course, today such interests could relate to a normal family law situation. The Court was powerless to make any orders in regard to the superannuation entitlements of the husband and the wife would only end up with a substantial interest in the smaller asset base of the house. The husband would retain his high superannuation entitlements and high income and, in most cases, received a small property component to assist him to re-establish himself.
In family law, this has changed, and superannuation is now deemed to be an asset and can be dealt with by the Court. Initially not so in de facto or same-sex relationships which were governed by state legislation in the Property Law Act which Wayne Goss the Premier of Queensland at the time introduced with little fanfare just prior to Christmas in 1999. A very smart move on his part as there was opposition from some sections of the populous to prevent any legislation being introduced in these situations. With all the fanfare of Christmas, it was not picked up by the media to any large degree. I remember it quite well because at the time I was a member of an advisory group to the coalition parties and part of the issues with which we were dealing were those very issues and how to draft legislation that would appease the more conservative elements of the National Party.
Wayne Goss snuck his Act in under our very noses and extended the ambit of the legislation to cover not only same-sex relationships but to all relationships be it same-sex or otherwise, for example where a grandmother and grandson resided together and had accumulated joint property.
Property Law Amendment Act No 89 of 1999
Section 260(1)A “de facto spouse” is either one or of two persons, whether of the same or the opposite sex, who are living or have lived together as a couple. (ii)4 Subsection (1) – (a) two persons are a couple if they live together on a genuine domestic basis in a relationship based on intimacy, trust, and personal commitment to each other.
Dictionary definition of intimacy – the state of being intimate.
– closely acquainted familiar, close (an intimate friend – an intimate relationship)
– promoting close personal relationships
– a very close friend
In 2008 legislation in similar terms was introduced into the Family Law Act and the Federal Family Court now has jurisdiction in relation to such issues.
However, the State legislation still stands and is relevant to all relationships except marriages in which your clients may be involved if the relationship ended prior to 2008.
For whatever reasons the State de facto legislation for want of a better word did not apply to superannuation. The State Act is closely based on the Family Law Act and the principles applied by the State Courts are very similar to those applied by the Family Court in relation to marriage apart from considerations which the Family Court can now give to superannuation.
So how does this relate to you? Nearly half of all marriages be their first marriages, second marriages or heaven forbid third marriages to end in divorce. So, there is a good chance that one in every two married couples will split up.
I am not sure of the figures relating to de facto couples, but I believe the divorce rate, for want of a better term, is even higher in these relationships.
In regard to your single clients, what happens if they subsequently form a relationship and how will that affect them as far as their assets are concerned. Should they enter into a marriage or a de facto relationship how would their assets be affected if that relationship split up?
Many couples engage Financial Advisers to provide financial advice one would assume on the best methods of accumulating wealth taking into consideration the investments they should make, the assets they should acquire, the most appropriate structuring to do this which would minimize any taxation liabilities.
They possibly do this on the basis that if they are single, they will remain single, or if entering into a relationship they will seek further advice and if married or in a de facto relationship they will remain in that relationship.
What happens to their assets if the parties separate? Is the careful planning of their financial structuring put asunder? They may agree in those circumstances, that their assets will be divided between them in a certain manner, but such agreement has no meaning or effect unless put in the proper format. The agreement, unless it complies with the current legislation, may not be recognized by any Court be it State or Federal and the assets will be divided as the Court determines which in many circumstances could be quite disastrous.
The Division of Assets by The Family Court
The Court firstly ascertains the gross asset value and then deducts all liabilities giving a net asset value base. The liabilities could also include those liabilities brought into the relationship by a party or their partner. The Court then ascertains the contributions of the parties towards the acquisition and improvement to the gross asset base. This means that the Court looks closely at the assets brought into the relationship by a party and their liabilities and the assets brought in by their partner and their partner’s liabilities.
After making the initial determination the Court then looks at the future financial positions of the parties under Section 75(2) of the Act. These factors could include the ages of the parties, their ability to maintain employment, the incomes they can earn, and whether the parties have children of the relationship or otherwise who are dependents and are supported by that party. After looking at all these considerations and other considerations under Section 75(2) the Court can make a further determination on the distribution of the net asset base and could increase the percentage interest of one party in the assets on the basis of the principles set out under Section 75(2) of the Family Law Act.
After giving consideration to all these matters the Court can then make a further distribution of the assets on the basis of a just and equitable distribution of assets depending on the circumstances of each case.
So, what can be done to protect these assets should a split occur?
The agreements a party can enter into change the principles under the Family Law Act. The agreements set out the basis of the distribution of the assets should there be a separation in their relationship. The parties to the agreement are bound by the terms of the agreement once it has been signed by them and the terms of the agreement then take full force and effect subject to certain qualifications.
In the case of males, many males, seeking to enter into agreements, have already been through a separation or a divorce and have had a disposition of their assets to their detriment. They are more concerned about entering into binding agreements when considering second marriages to protect the assets that they have.
This relates to women and men entering into de facto relationships as well.
How can a Financial Agreement assist you?
I will go through the normal terms of a financial agreement but bear in mind that a financial agreement can be varied during the course of the relationship if circumstances change and if the terms of the agreement require variation. The agreements can be varied from time to time. There are certain requirements for such variations to make them binding. The financial circumstances of parties will change over a lengthy period of time and any agreements entered into at an earlier time, may require further consideration and amendment.
In regard to any relationship be it marriage or a de facto relationship, financial agreements under the provisions of the Family Law Act can be entered into when contemplating a relationship, during a relationship, after a separation, and in the case of marriage after divorce.
The requirements of the legislation in regard to financial agreements are quite stringent and certain certificates which I will refer to are required to be entered into by the client and their solicitor to make them binding. There is a high onus on the parties to make full disclosure of their assets. Financial Advisers no doubt you have full knowledge of those assets. There is a high onus on the Lawyer giving advice and drafting the agreements to ensure that the parties fully understand the terms of the agreement that they are entering into. The agreements can quite drastically change the rights they may have under the Family Law legislation and the legislation has endeavored to ensure that the parties are fully aware of the rights that they give up when entering into these agreements.
The agreements under the Family Law Act must have schedules attached to those agreements fully detailing the assets of the parties at the time of entering into the agreement. Now that is a simple matter if they are receiving financial advice, as no doubt the Financial Adviser will have full details and schedules of the assets of their client and their investments. This should be an easy requirement to fulfill under the act.
The financial agreements of course have recitals giving the history of the relationship and the acquisition of the assets during the period of that relationship. It records that the parties are giving up their rights under the Family Law Act and that their rights are to be determined now by the terms of the agreement they are entering into. It is acknowledged in the terms of the recital that they are fully aware of their legal obligations and of the necessity to make full and proper disclosure.
The agreement, which is most often drafted for parties, is in the following terms. As I said earlier the terms of the agreement can be changed and adapted to suit the parties’ financial position as they progress through their lives. Again, there are specific requirements for doing that of course but normally parties enter into an agreement in the following terms:
Assets owned prior to the relationship
This deals with assets owned by the parties prior to the relationship. Normally these assets remain separate property and the dealing of the parties with that property during the relationship will not alter that ownership. The investment of funds, say on the sale of the property, owned by a party will remain that party’s investment unless otherwise agreed. However, a Financial Adviser may advise the client otherwise if for any reason such as a taxation advantage the adviser believes it would be in his / her clients’ interest.
Superannuation
This deals with superannuation and employee benefits. Normally under the terms of the agreement, the party who has those entitlements will maintain those entitlements.
It is more beneficial now under the new legislation for parties to maintain their superannuation interests, which was not as advantageous prior to the present changes. One party may acquire an interest in the other party’s superannuation fund. Of course, the legislation does not allow any payment out of the entitlements or benefits unless the parties are entitled because of age or otherwise to such payments.
Property acquired after the commencement of a relationship
Again, agreements can deal with these issues.
Normally the Agreement states that, where the property is acquired jointly and where there is no specification as to how that property is held or what the parties’ interests are in that property, the parties will hold equal ownership in such property. Of course, if realty is acquired, parties can purchase that as either joint tenants, which gives them equality of interest in that property and which passes upon the demise of a party to the other party, or as tenants in common where it can be specifically stated how the interests of the parties are held and in what percentages.
There is normally a specific term under this section of the agreement that notwithstanding any other provision in the agreement the party’s may during the relationship alter or vary their ownership in the property held by them allowing the other party to acquire an interest in such property. Such alteration or variation will be set forth in writing and signed by the parties, in which case the parties will hold an interest in such property in accordance with the terms of the subsequent agreement signed by them. There will be no alteration or variation to the property rights of the parties pursuant to the terms of an agreement unless the subsequent agreement is evidenced by the parties in writing.
Liabilities
Each party’s liabilities normally remain that party’s responsibility now and in the future. Again, this can vary. There may be guarantees or taxation implications which could vary this situation;
Other provisions
The parties if they so wish can include in the Agreement any lifestyle provisions such as:
- Maintaining separate bank accounts and not intermingling their investments in those accounts;
- The sharing of the household expenses and how they are to be paid;
- Maintaining a life tenancy in a property upon the death of his/her partner;
- Any other such provisions that they feel are necessary.
The parties can include terms in the agreement if they so wish, that upon the birth of children, the wife will be entitled to and acquire a greater interest in the property than that set out in the initial agreement. There may be a provision in the agreement, subject to the qualification of the legislation which I will deal with, enabling the wife to receive financial assistance or spousal maintenance from her spouse during the period of her pregnancy and the caring of the child prior to the wife returning to the workforce.
Division of assets and liabilities
The agreements normally then deal with the division of property and liabilities upon the termination of the relationship and or divorce. Normally the division of the property will be in accordance with the ownership of the parties in the assets as stated in the body of the agreement.
Sale of property
Under the provisions for the division of property, there is normally a provision for the sale of the property so that one party can not unreasonably refuse such sale should it be in the best interests of the parties to sell such property.
Taxation Implications
It may be in the interests of the parties to obtain advice from their financial advisers, taxation specialists such as accountants or legal advisers on the taxation implications which may arise on the division of property after a divorce. I have mentioned the fringe benefit implication. There may be other implications that apply. These must be given consideration to at the time of entering into the agreement. As the taxation implications vary from time to time, parties may need ongoing advice in regard to this and perhaps the terms of the agreement will need to be varied to fit in with those changes.
Spousal Maintenance
The agreements deal with the maintenance of the parties being spousal maintenance. There are limitations to this, and these are as follows:
The legislation is not clear as to whether or not a party is prevented from applying for spousal maintenance after entering into a Financial Agreement and after separation in their relationship. Where the Agreement specifically limits or restricts the rights of a party to apply for spousal maintenance at all or at a particular time or in particular circumstances then, although the financial interests of the parties are clearly defined, it is not certain as to whether or not a party in those circumstances could apply for spousal maintenance after separation in the marriage. To create certainty in regard to this it may be necessary to define the spousal maintenance to be paid should a separation occur.
Section 90F of the Family Law Act states:
- No provision of a Financial Agreement excludes or limits the power of a Court to make an order in relation to the maintenance of a party to a marriage if:
- The court is satisfied that, when the Agreement came into effect, the circumstances of the party were such that, taking into account the terms and effect of the Agreement, the party was unable to support himself or herself without an income-tested pension, allowance, or benefit.
It is clear:
- The assessment of the ability of a party to support themselves without an income-tested pension, allowance, or benefit takes place not when the Agreement is made, but when it takes effect.
Child Maintenance
In regard to child maintenance, it may be in a party’s interest to establish a Child Maintenance Trust to pay for the ongoing child maintenance for the children of the relationship. For this to be accepted, it must be a genuine trust established for the children. The trust will normally hold property which generates an income to pay for the financial support of the children.
Source: https://www.jamesnoblelaw.com.au/protecting-your-financial-interests-under-family-law/
