Who is at Fault for Financial Losses in a Marriage?

As a general principle, financial losses incurred by the parties in the course of their marriage or de-facto relationship should be shared between them regardless of whether these were the fault of only one person in the relationship. Exceptions however are made where one of the parties has deliberately embarked upon a course of action to reduce the value of an asset, or has acted recklessly or negligently with a matrimonial asset with the overall effect of minimising its value. The typical example is gambling.

In circumstances of waste or premature distribution of property, the Court has the discretion to notionally ‘add back’ the value of the property into the pool of assets.

Traditionally, the three main categories where the Court will consider adding an asset back to the pool of assets, include:

Financial Losses

In Kowaliw (1981) FLC 91-092, following separation the husband allowed a prospective purchaser to occupy the former matrimonial home rent free for 12 months and during this time the husband did not live in the property and made no repayments toward the mortgage or rates. The prospective purchaser subsequently changed his mind and did not purchase the property. The husband sold the property and invested the proceeds.  The wife argued that this was twelve months of lost income. The court said that the Husband’s actions in allowing no payment of rent as economically reckless and therefore was found solely responsible for that part of the liabilities comprising the rates and mortgage repayments.

Premature Distribution of Assets

Where there has been a premature distribution of “matrimonial assets” in favour of one party. In Townsend v Townsend [1994] FamCA 144, following separation the husband sold his taxi for $148,000.00 and retained all of the net proceeds of sale. The court found that the Husband prematurely disposed of a matrimonial asset to which the wife had a legitimate interest in. The Court ‘added back’ the sale proceeds into the pool of assets available for distribution.

Joint Money is used to pay for Legal Fees before separation

Where a party uses matrimonial money to pay for their legal fees (DJM v JLM [1998] FamCA 97) but if legal fees were paid from monies earned post separation, then they would generally not be added back (Chorn and Hopkins [2004] FamCA 633)

A more recent High Court decision, Stanford v Stanford [2012] HCA 52, raises some questions about how the Court should consider these types of deliberate use or wastage of assets by one party. Ultimately, it still remains a matter of discretion for the Court in each case.

For more information or to make an appointment with a Family Law Solicitor in either our Canberra or Queanbeyan office contact:

Carlos Turini e: cturini@elringtons.com.au | p: 02 6206 1300 http://elringtons.com.au/wp-content/uploads/2011/07/Specialist-accreditaion.jpg

Stamp Duty & Capital Gains Tax Concessions In Family Law Property Matters

By Carlos Turini – Family Law Specialist

There are many good reasons why former spouses should formalise legally their property settlement including that they may be exempted from paying stamp duty which is otherwise payable for the transfer of title to their real property, cars and shares.

They may also be exempted from paying capital gains tax when they sell the home they formerly owned together.

These exemptions normally represent savings of tens of thousands of dollars.

The exemptions will apply to married couples and their children and to partners of a de facto relationship and their children.

From 1 July 2009 the marriage or relationship breakdown rollover is extended to same-sex couples.[1]

The exemptions are available if the parties enter into consent orders or a financial agreement under the Family Law Act 1975.

Stamp Duties exemptions in New South Wales

Part 7 of the Duties Act 1997 (NSW) details the exemptions applicable to the payment of duty for certain transactions including the transfer of title transfer to property between former spouses or between former spouses and their children.

The transfer of the property of a trust to one of the spouses may also be exempted from stamp duty.

Importantly, in order to be entitled to the exemption, the parties must enter into a legal document which is recognised under the Act as appropriate including:

  • Orders made under the Family Law Act including consent orders; or
  • A financial agreement

The Chief Commissioner of Stamp Duties (NSW) also has the discretion to accept other form of agreements provided that the Commissioner is satisfied that that the agreement was made “for the purpose of dividing matrimonial property as a consequence of the dissolution, annulment or breakdown of the marriage”.

The easiest way to obtain the exemptions is for the parties to enter into consent orders or a financial agreement. Such documents if properly drafted will attract the exemptions without the need for the Commissioner’s discretion in order to be approved.

Stamp Duties exemptions in Australian Capital Territory

Similarly, in the Australian Capital Territory, former spouses may be exempted from paying stamp duty in relation to the transfer of title to their property if made as part of consent orders or a financial agreement under the Family Law Act 1975 (Cth) or the Married Persons Property Act 1986.

Capital Gains Tax exemptions

As a general proposition, the sale of assets such as real estate, shares or managed fund investments attracts a tax liability on the capital gain made on the sale. There are some exemptions, for example, on the sale of the matrimonial home.[2]

In relation to family law matters, a party who acquires sole title to the former matrimonial home in his/her own name as part of a formal family law property settlement will normally be exempted from paying capital gains tax when that party sells the property. There are numerous considerations even in that simple scenario including, for example:

(1)   Whether the proprietor has continued to use the property as the main residence;

(2)   Whether that party used the home also to run his/her business;

(3)   The title to the real property was transferred from the party as an individual to an entity such as a trust or a super fund

Other more complex family law scenarios which may attract relief from capital gains tax may relate, for example, to investment properties. If title to an investment property is transferred to one of the parties (rather than an entity) as part of a family law property settlement, that party may be entitled to “roll over “relief or postponement of the capital gains tax liability.

Family lawyers are not normally tax experts and it is important that parties involved in a family law property matter obtain appropriate advice. In addition to obtaining legal advice from a family law expert, it is important to obtain taxation advice from their accountant and or their registered financial adviser[3] about the tax implications of the family law property settlement that they have in mind.

First Home Owners Grants Entitlements and Family Law Property Settlements

In addition, there are concessions offered in the ACT to persons who previously received a First Home Owners Grant but have since transferred title to the property as a result of a family law property settlement – See: ACT Government Concession scheme

For more information or to make and appointment in either our Canberra or Queanbeyan office please contact:  Carlos Turini http://elringtons.com.au/wp-content/uploads/2011/07/Specialist-accreditaion.jpg

e: cturini@elringtons.com.au | p: 02 6206 1300


[1] 1. Marriage or relationship breakdown and transferring of assets  – https://www.ato.gov.au/general/capital-gains-tax/relationship-breakdown/agreements-the-rollover-applies-to/

[2] There are numerous considerations regarding such exemptions including, for example, whether the property was being used also to operate a business.

[3] Registered with the Taxation Practitioner Board.

De Facto Partners’ Property Disputes

Now in the Family Court

Major amendments to the Family Law Act 1975 (Cth) came into effect from 1 March 2009 to allow former partners in a de facto relationship involved in a property dispute to bring an application in the Family Court or the Federal Magistrate Court.

These changes affect both heterosexual and same sex de facto couples.

The States and Territories reached an agreement (except Western Australia which has made similar amendments to its version of the Family Law Act many years ago) to create the new uniform laws to be applied by the Family Court and the Federal Magistrates Court.

Existing State and Territory laws will continue to apply in relation to:

1.      de facto relationships that ended before 1 March 2009; and

2.      other ‘domestic relationships’ which do not fall under the definition of ‘de facto relationships.

There are a number of requirements in order for a de facto relationship to fall under the new provisions of the Family Law Act.

What Is a De Facto Relationship?

The Family Law Act defines a de facto relationship as ‘a couple living together on a genuine domestic basis. In order for the Court to come to a conclusion about whether a relationship comes under the definition is must consider a number of matters including:

1.      the duration of the relationship;

2.      whether a sexual relationship exists;

3.      the degree of financial dependence or interdependence;

4.      the ownership, use and acquisition of their property; and

5.      whether the relationship is or was registered under a prescribed law of a State or Territory as a prescribed kind of relationship; the care and support of children.

A de facto relationship can ‘exist between 2 persons of different sexes and between 2 persons of the same sex’; and

In addition, ‘a de facto relationship can exist even if one of the persons is legally married to someone else or in another de facto relationship’.

Persons biologically related to each other who live together do not come under the definition in the Act.

Sometimes, a domestic relationship may exist, for example, between a son or a daughter who care for an elderly parent and it is conceivable that a claim may be open, say, for the carer for property adjustment. Such a claim would not be available under the Family Law ct but may still be available under one of the State or Territory laws.

De Facto Relationships Must Have Ended After 1 March 2009

In order for a claim to be open under the Family Law Act the de facto relationship must have ended after 1 March 2009.

Frequently, it is difficult to establish when a relationship has ended as for example:

1.      Parties may be living separately because of work requirements or travel;

2.      A party may consider that a relationship has ended yet the financial relationship continues, he/she continues to live under the same roof with his partner, to share meals, domestic tasks and generally to represent to the world that they are still together.

The above are examples in relation to applications for divorce. The applicant must establish that the marriage has broken down irretrievably and that the parties have separated for no less than 12 months. One important, specific, requirement in such cases is evidence that the intention to separate has been communicated to the other party.

Presumably, in order to establish that a relationship does not fall under the Family Law Act, the Court will require evidence that the intention to separate has been communicated to the other party before 1 March 2009. (examples?)

“Opting in”

Parties may consent to their case coming under the jurisdiction of the Family Law Act even in cases where the relationship ended before 1 March 2009.

Domicile

In order for a de facto partnership case to fall under the new provisions of the Family Law Act at least one person from the couple must ordinarily live in a ‘participating State or Territory’ at the time of making the application and the couple must have lived in that State or Territory for at least a third of their relationship.

The Two-Years Requirement

In order for a court to make a property order, parties must have cohabited for a period or periods totalling no less than two years or:

a.       The parties must have a child or children of the relationship; and or

b.      they made substantial contributions to the relationship even though it lasted less than two years.

Time Limit

An application for property orders must be filed within two years after the parties separated.

Otherwise, the applicant must obtain the leave of the Court to file his/her application out of time.

What are the reforms?

The new de facto property regime introduced a number of reforms including:

1. When the Court must decide what would be an appropriate property adjustment, it is required to:

(a)   Assess the financial and non financial contributions that each party made to the relationship in different ways including contributions “on behalf of” one of the parties: and

(b)  Make a comparison of the financial circumstances of each of the parties to decided whether there should be an adjustment in favour of one as against the other taking into account such factors as the parties respective ages, health, capacity to work, disparity in income, whether a party has the care of children who are dependants etc.

The latter requirement, for example, does not currently exist under the Property Relationships Act (NSW)1984 but will exist in relation to de facto couples from NSW under the Family Law Act from 1 March 2009.

2. The Family Court will have the power to split one of the parties’ benefits and entitlements under his/her superannuation fund and transfer a share to the other party;

3. When the parties dispute includes children and property, it will now be possible for the totality of the issues in dispute to be decided by one Court at the same time thereby saving the parties considerable time and costs.

For more information or to make an appointment please contact:

Carlos Turini at: cturini@elringtons.com.au or call Carlos on: 02 6206 1300

Further Reading:

De Facto Relationships : “Contracting out of the Family Law Act”

De Facto Relationships and Superannuation Splitting

___________________________________________________________________________

For more information call Carlos Turini on 02 6206 1306 or email Carlos at Carlos.Turini@elringtons.com.au

Family Law: Property Disputes and Settlements

The Full Court of the Family Court some years ago[1] identified  the steps that the Court must follow to decide property matters between former spouses pursuant to section 79 and 75(2) of the Family Law Act. The Full Court’s approach has become a guide to parties’ entitlements. This approach became known as “the four-steps approach” and it has been applied to family law matters for some years since. The Court applies the four-steps approach in circumstances where parties are (or were) married or in a de facto relationship.

A more recent, very significant, decision of the High Court of Australia [2] raised questions about whether the four-steps approach continues to be the appropriate approach in all cases. In spite of the this decision, the four-steps approach remains an important guide to assess what should be an appropriate family law property adjustment in a particular case even if it “merely illuminates the path to the ultimate result”.[3]

The four-steps approach should be used to analyse the likely outcome of a property matter whether or not parties wish to negotiate a settlement or to take the matter to Court.

Examples

Below are a couple of examples about how the four-steps approach is applied by courts in different cases:

The four steps mentioned above provide a general overview of the court’s approach to property settlement and a useful guidance to a solicitor to assess what is his/her client’s entitlement in a particular case. For a more detailed advice on your specific circumstances we invite you to contact our team.

For more information call Carlos Turini or to make an appointment either our Canberra or Queanbeyan office:

p:  (02) 62061300 | e:  Carlos.Turini@elringtons.com.au


[1] Hickey v Hickey [2003] FamCA 395.

[2] Stanford v Stanford [2012] HCA 52 (15 November 2012). In that case, the Court emphasised the importance of section 75(2) of the Family Law Act which reads: The court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order. The Family Court has wide discretion to adjust the proprietary rights of parties under the Family Law Act using the four-steps approach. There are some cases, however, when the Court should not disturb the parties’ proprietary rights and should not make any adjustments at all. A good example may be a short marriage or a short relationship.

[3] Bevan and Bevan [2013] FAM CAFC116

[4] The Court has a wide discretion about how to divide the parties’ superannuation entitlements. Normally, although not in all cases, the adjustment described in the example relates to the non-superannuation pool of assets. In that example, the Court is likely to divide the combined superannuation entitlements of the parties equally between them.