The importance of financial advice in a family law property settlement
Most property settlements are reached through negotiation, without the need to attend Court. Negotiations can be formally documented through a binding financial agreement or consent orders. As a last resort, the parties may need to initiate Court proceedings whereby orders will be made regarding the division of the parties’ property.
No matter how a property settlement is reached, it is important to be aware of the financial impact of the proposed agreement before finalising it. Family lawyers often recommend working with a trusted accountant, or qualified financial planner to be their financial advisor to help ensure a property settlement delivers an optimum financial outcome for the client.
Some of the benefits in working collaboratively with a financial advisor and lawyer are set out below.
Identifying and classifying assets and liabilities
In many instances, a financial advisor can help to properly identify, classify and evaluate the parties’ assets and liabilities, whether these are held jointly or individually. Assets can be held in various ways, whether through a trust, company or shares and it is important that a full portfolio of the asset pool is obtained.
In circumstances where there is a break down in communications, and agreement cannot be reached, a complete picture of the parties’ financial position is even more important to ensure that a fair and reasonable property settlement can be negotiated. The parties will eventually need to sign a declaration when Consent Orders are reached or Agreements are entered into that they agree with the financial position of each other and need to be sure of the disclosure given by each party is adequate. Disclosure in legal terms means the provision of the last three years of income tax returns, trust returns, bank statements, share statements and the like. The Family Court has the power to order these to be produced if one party does not wish to. The penalties can be harsh for parties that refuse to disclose their financials or try to ‘hide’ assets.
In some circumstances, a financial advisor or lawyer will recommend that certain assets, such as business interests and company shares, be formally valued, and there are specialists who do that for the lawyer.
Recommending tax effective strategies
Understanding the tax implications of a proposed property settlement can have a significant impact on the net result for each party.
The retention, transfer or division of different types of assets can have different stamp duty and tax consequences.
A financial advisor can recommend strategies and structures for the division of assets to take advantage of duty concessions and tax exemptions or deferrals that are unique to family law property settlements. This may include recommending that a certain asset be retained or transferred. Depending on the stamp duty and tax consequences applicable to that class of asset, it may be more advantageous to retain one type of asset over another.
A financial advisor can also flag and calculate potential future Capital Gains Tax (‘CGT’) liabilities which is an important consideration when negotiating the division of property. Advice on transactions concerning companies and trusts may also play a significant part of the advisor’s role.
Advising on superannuation
If a superannuation split forms part of the proposed property division then you will either end up with more, or less in your superannuation account. This may require a reassessment and restructure of your retirement plans. A financial advisor can evaluate the net effect of a proposed superannuation split and assess future needs and contributions towards superannuation.
Assessing future needs and planning ahead
Most financial advisors have sound knowledge of family tax payments and child support and can assist in determining entitlements and / or obligations.
Your financial adviser can help implement strategies on how to get back on your feet, financially, after separation. This may include budgeting advice and money management strategies, recommending appropriate insurance to protect your income, managing and protecting assets, and developing plans to work towards your financial goals.
Estate planning and death benefits
Once a property settlement has been reached and finalised, a financial advisor and lawyer can work together to implement an effective estate plan in consideration of your new personal and financial circumstances.
They will identify the most tax-effective beneficiary for superannuation entitlements and death benefits and help structure your assets to ensure maximum protection against future family provision claims.
Conclusion
Separating couples are often anxious about their immediate and future financial needs and may seek assistance to achieve a fair and reasonable property settlement. In doing so, it is important to remember that lawyers provide legal advice and not financial advice. Including a financial advisor (including an accountant) in your professional team can provide significant benefits when negotiating a property settlement.
If you or someone you know wants more information or needs help or advice, please contact us on (02) 9918 0222 or email office@millardslawyers.com.au.
