Family law matters often involve complex financial issues that require significant time and effort to resolve. There are, however, effective ways that financial advisors, together with the assistance of an experienced family law practitioner, can assist their clients to navigate those issues during the initial phase, the disclosure phase, the valuation phase and the finalisation phase of a family law matter involving property and finances.
In this article we share our top tips:
The initial phase:
- An accurate corporate structure or diagram is a very useful tool in understanding the structure of the parties’ interests where there are entities, trusts or self-managed superannuation. This is particularly helpful if your client can provide this either at, or shortly after, the initial client meeting with their family lawyer. Of particular benefit is:
- The names of any entities, trusts and superannuation entitlements;
- The roles each party or any third parties hold within each of the structures (for example, Director, Shareholder and, if so, how many shares, Appointor).
- The key assets and liabilities held by each of the structures.
- Any information that can be provided to assist to formulate a draft balance sheet / property pool (a document setting out each party’s assets, liabilities and superannuation interests) at the early stages of a financial matter will assist your client to receive timely family law advice about both outcomes and any short-term decisions to progress their matter towards finalisation.
- If you or your client can provide documents to support the items within the balance sheet / property pool, then this is very helpful. Some examples of this information include:
- A draft current balance sheet for each of the parties’ corporate, trust or superannuation interests.
- The details of any shareholdings or share portfolios.
- The details of any cryptocurrency holdings.
- A current superannuation balance printout.
- If there is a taxation debt, loan or other liability then it is helpful to receive the documents from the Australian Taxation Office reflecting the taxation debt, the loan agreement documents and any supporting documents reflecting the liability.
- Estimates of any contingent liabilities such as capital gains tax.
- Any information that can assist to determine the individual’s or the family’s expenses / financial commitments. This could take the form of a budget.
- It is generally beneficial for our mutual clients to meet with both their financial advisor and their family lawyer shortly after the initial (family law) meeting to ensure that all parties have an agreed and accurate understanding about the financial circumstances of the matter. This provides a solid foundation for the progression of the matter.
The disclosure phase:
- Parties have ongoing obligations to provide full and frank disclosure about their financial circumstances prior to and throughout court proceedings relation to financial matters. Those obligations are set out comprehensively within Chapter 6 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth). While we won’t detail those obligations please get in touch if you would like to discuss.
- Timely and ongoing updated disclosure assists not only to formulate the balance sheet / property pool, but also to ensure that your clients will be viewed favourably for having complied with their disclosure obligations if court proceedings are necessary (or already commenced).
- It is generally very useful for family law practitioners to be able to assist their clients, not only in complying with their disclosure obligations, but also to progress the matter towards final resolution to receive at least the following documents as quickly as possible:
- The bank statements for each bank account (savings, credit cards, loans, mortgages or any other accounts), for the past 12 months to the current date.
- Income Tax Returns and Notices of Assessment for the past 3 financial years.
- The three most recent superannuation statements and a printout of current superannuation entitlements.
- In relation any self-managed superannuation fund:
- The Superannuation Deed and the Constitution for any corporate trustee.
- The tax returns and financial statements for the past 3 financial years.
- Statements for any bank accounts held by the fund for the past 12 months to date.
- In relation to a corporate, trust and partnership interests (where able to be obtained and disclosed):
- the Trust Deed, Company Constitution or Partnership Agreement (as the case may be);
- tax returns and financial statements for the last three (3) financial years;
- the four (4) most recent business activity statements (BAS) lodged;
- a current draft balance sheet, if prepared.
- The bank statements for the past 12 months for the entities and trusts (where able to be obtained and disclosed).
- Statements of any shares / investments owned in public or private companies together with any transactions statements regarding dealing with those interests for past 12 months to date.
- Statements for any cryptocurrency or other investments for the past 12 months to date.
- Any appraisals or valuations already obtained in the last 12 months in relation to any assets (real property, vehicles, jewellery etc).
- Any loan documents or ledgers reflecting personal loans between third parties for the past 12 months.
- Any documents verifying the purchase or sale of any items of significance in the past 12 months.
- Any documents to verify any other liabilities which are intended to be included in the property pool.
The valuation phase:
- It is common in family law matters for formal valuations to be jointly obtained to assist in establishing the balance sheet / property pool available for division, including to determine the parties’ interests in any corporation, trusts or self-managed superannuation fund.
- The valuation process can often be critical to the resolution of family law disputes and the timely provision of information requested by valuers is essential to the progress towards resolution. The delay in providing information for the valuation is an area which can cause prejudice to a party where this may attract criticism from the Court and the other party.
- Examples of information useful to assist progressing the valuation process in relation to corporate, trust and superannuation interests include:
- Preliminary information to obtain a fee estimate. This is generally able to be obtained through the provision of the information set out in the initial phase and the disclosure phase outlined above.
- It is common for valuers to then send lengthy requests for further information upon receipt of the preliminary information. If it is possible, that information should be provided to the valuer in reply to their requests within 14 days. If that is not possible, then it is helpful to be in a position to advise the valuer when the information will become available.
- A summary of each entity/business is often very helpful in progressing the valuation. For example, a practical summary about what is the purpose of the entity/business, who is involved in it, how many employees, where it operates.
- A schedule of the plant and equipment, real property and other assets owned by each entity. This will often need to be valued separately to be included as part of the corporate interest’s valuation.
- Loan agreements and updated loan ledger statements where there are inter-related loans. This is in circumstances where there may be disputes between the parties about the legitimacy of those debts.
- Analysis of key events which may assist with the provision of advice regarding timing.
- After the valuation report has been received each party has a period of 21 days to ask the valuer clarifying questions. It is important for financial advisors and family Law practitioners to work together to review the valuation and to be able to raise any potential errors or issues of clarification with the valuer prior to the expiration of the 21-day period.
The finalisation phase:
- It is important for financial advisors and family law practitioners to work together to ensure that any terms of settlement can be implemented and give effect to the intention of the parties having regard to who is to retain the corporate interests and any taxation or other consequences of the structure of the agreement. Some of the important things to be aware of and look out for include:
- Ensuring that any applicable Capital Gains Tax, Goods and Services Tax and realisation costs are accounted for as part of the settlement.
- Ensuring that any transfer of interests occurs in the most tax effective method possible.
- Consideration of any unintended consequences, for example resettlement of a Trust and the impacts if this was to occur.
- Ensuring that any superannuation divisions can practically occur having regard to the makeup of the assets of the superannuation fund.
- Once a matter has finalised it is important for financial advisors to continue to be involved with the implementation of the settlement in circumstances where this will often involve the transfer of cooperate interests, sale of property, and division of superannuation.
We’ve prepared a printable checklist we hope you find helpful.
Please get in touch if you have any questions or related topics you would like to explore.
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