Grey Separation and Divorce - PART 1
Our Family Lawyers receive many enquiries from clients who are separating (or considering a separation) later in life. For this reason, we are kicking off our newsletter with a Four-Part Series; on matters specifically related to Grey Separations and Divorces.
Topics covered will focus on the big picture grey divorcees face, answering some of the most commonly asked questions and in doing so, dispel some of the common myths. We will also work hard to equip anyone who is facing a grey separation divorce with some legal and practical “knowhow” to navigate the day-to-day road ahead.
Separating or getting divorced, no matter what your age, is difficult. However, a divorce later in life can pose its own unique considerations and make some of the expected consequences of a separation felt more sharply. If you are facing a Grey Separation or Divorce, having the right information is crucial so you can make informed decisions as to what steps you should take regarding your future and how to navigate the day-to-day road ahead during your separation and/or divorce.
What is a “Grey Divorce"?
?There is a growing trend in couples divorcing later in life, with the average age of people getting divorced shifting to people aged in their mid-40s, and a significant increase in the numbers of those separating after the age of 50; often referred to as “Grey Divorce” or “Silver Splitters”.
Why is the incidence of older couples separating on the rise?
?This may be due to several factors, including people marrying later, living longer, retiring later in life, maintaining their health and activity into older age, or even changing careers/aspirations later in life.
?What are the unique challenges a Grey Separation or Divorce presents?
?Couples separating later in life face different obstacles compared to those who separate in their younger years. If you are facing a divorce in later life, some of the areas you may need to consider include:
Let’s look at the Top 6 questions our team of experienced family lawyers are often asked in “grey” separations, divorces, and financial settlements. The answers below will undoubtedly prove helpful in providing information for anyone considering or facing a separation or divorce, to make informed decisions moving forward.
??1.??Our home is in my name alone.?It was structured that way for asset protection purposes.?Does that mean I get to keep it as part of our settlement??
There is a common misconception that if your home is in your name alone you will be automatically able to keep it as part of a property settlement. The Family Law Act gives the Court the power to deal with any asset including real estate, whether it is in someone’s sole name or jointly owned by you and your ex-partner.?In property settlement proceedings, the Court may “alter” the interests of the parties to the marriage so that a “just & equitable” outcome is achieved.
The house would therefore form part of the pool of assets which can be divided following separation.?This is the case even where your former partner has never lived in or accessed the house. You still may be able to keep the house, if this is agreed by you and your former partner or if ordered by the court, however it will still form part of your entitlement in the property settlement.?
There is also a procedure you should consider during the negotiation phase, if the home is held as joint tenants.?This means that should one of you pass away, the interest will automatically go to the survivor.?In that situation the interest in the home does not pass through a Will.?Once you are separated it is likely that you do not want that to occur to your interest in the home should you predecease the other party. It is possible, and indeed it is advisable to consider taking the appropriate action by severing the joint tenancy, to ensure that your interest passes according to the terms of your Will.???
2.??What is the correct date for valuing the assets, liabilities and superannuation for the purposes of settlement??Is it the date of separation, the date of divorce or currently?
One of the first steps to reaching a property settlement is to identify and value all of the assets, liabilities and superannuation which you and your ex-partner have an interest in. This is an essential step to identifying the value of the asset pool which can then be divided either by agreement or court order. In Australia, assets and liabilities are valued as at the date that the Court determines a matter if the matter is in Court. In the case where you and your ex-partner agree to a property settlement, it is ordinarily a date close to that of the agreement. In some instances, there may be a significant time gap between separation and the date on which the Court determines a matter. During this time, assets such as the matrimonial home or a business may significantly increase or even decrease in value.
The Court will value that property as at the date of hearing and not adjust and divide the assets and liabilities as they stood at separation. That being said, the Family Law Act requires the Court to consider post-separation contributions of the parties to the acquisition, maintenance and improvement of all assets, for example where one party has made all of the mortgage repayments since separation and worked to maintain and increase the value of the matrimonial home. However, it is important to note that this does not mean that you would be entitled to complete compensation for your post-separation financial contributions.
?3.??I want to reach an amicable financial settlement with my spouse but don’t necessarily want to get divorced.?Is this possible?
Divorce and financial separation are two different matters. You may reach a financial settlement with your spouse without necessarily making an application for divorce.
Although the Family Law Act 1975 (Cth) prescribes a 12-month period from the date of separation before parties can make a Divorce Application, the same does not apply with respect to settling financial matters.
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Financial matters can be settled with your spouse on a final basis at any time and without the requirement of a divorce order. In fact, it is common for parties to reach a property settlement in the period of separation prior to divorce and remain separated for several years before contemplating filing a Divorce Application in the Court.
A financial settlement can help parties resolve all matters pertaining to their respective and joint assets, liabilities, and superannuation. Accordingly, it is prudent to resolve those matters as soon as practicable where possible. This is also the approach favoured by the Court as provided by the “clean break” principle contained in sections 81 and 90ST of the Family Law Act 1975 (Cth) which provides that as far as practicable, the Court make orders to finally determine the financial relationship between parties to assist the parties with avoiding any further proceedings between them.
?4.??What is the effect of having provided a bank guarantee??How can I remove myself from this potential liability as part of my financial settlement following my separation?
A bank guarantee is a promise in writing to a third party (such as a supplier or landlord) for guaranteeing that a payment will be made on your (or your spouse’s) behalf, by a third-party lender. When a loan is secured by a guarantee, it is usually secured against a property or cash deposit.
Usually, debt that has arisen during a relationship is regarded as a matrimonial liability and must be accounted for as part of any family law property settlement.
However, with respect to bank guarantees, to assist with reducing future potential liability, as part of any financial settlement, it is important to seek that the Court makes appropriate orders with respect to each party being solely responsible for any future debts and claims which may arise. Entering into such orders is prudent in assisting with removing yourself from any potential future liability, whether known or unknown to you at the time of reaching a financial settlement with your former partner.
?5.?????We have used income splitting as a legitimate tax minimisation strategy for many years.?What happens now that we are separating?
Income splitting, whether via a trust or through a company, is a legitimate means of minimising your family’s collective tax liability. Upon separation, the continuation of an income splitting practice is a decision you and your former partner need to resolve. Most people, for a number of reasons, would not see this as being a practicable long-term solution. The Court also has a duty to sever all financial ties between parties, which makes Orders regarding an ongoing income splitting arrangement likely problematic. For this reason, it is usual for one (1) party to retain the entity through which income is split and for the other party to relinquish their interests in it.
If a party relinquishes their interest in the entity through which they have historically received income and it is intended that that party no longer receive any funds from the entity, the Court will have regard to that in determining whether a property settlement is just and equitable and also in assessing whether a party has an obligation to pay their former partner spouse maintenance. In determining either of these matters, the Court can have regard to a party’s “true” income that is available to them or their income earning capacity, which may include income that was previously split or distributed to another party. It is important to remember however this is only one (1) consideration in the determination of a just and equitable property settlement and/or a spouse maintenance application, and each matter will need to be determined on the individual circumstances and merits of the case.
?6.??We have used funds in the company for many years and treated them as a loan.?What will happen now??Are we both going to be liable for the tax that we will have to pay?
Whilst a matter to discuss with your accountant, one solution, if one of the spouses is a shareholder of the Company, might be to write-off (forgive) the loan and treat the amount owing as a Division 7A dividend. The unfranked dividend will then be included by the spouse as part of their assessable income.
You may be liable for income tax if you are deemed to have received a Division 7A dividend.
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Finally, yet importantly .....
there is light at the end of the tunnel. The breakup of a marriage or de-facto relationship can be difficult and emotionally draining, especially after a long-term marriage. However, with considered financial advice, emotional support and by engaging a trusted family lawyer to guide you through the process, you can move onto the next stage of your life with confidence.
?In next week's Doolan Wagner Family Lawyers "Family Law News", we continue our Four-Part Series; on matters specifically related to Grey Separations and Divorces.
Part-Two looks at inheritance, addressing inheritance and family law related questions in family law property settlements. Covering some of the key issues by explaining how inheritances are dealt with in a family law context, with a particular focus on inheritances received during a relationship and post- separation, together with the issue of prospective inheritances.
At Doolan Wagner Family Lawyers we specialise in complex family law matters and are conveniently located in St Leonards, on Sydney’s North Shore.?We have a team of accredited and experienced family lawyers available to help guide you through the emotional and financial challenges of separation and divorce.
Doolan Wagner Family Lawyers – Moving on with Confidence
?lf you are considering a separation or divorce or have a Family Law enquiry, please contact us on (02) 9437 0010 or email us at [email protected]?to discuss your matter in complete confidence, with no obligation.
Disclaimer: These newsletters are only intended as an overview or comment on current issues that may interest you and are not legal advice. If there are any matters that you would like us to advise you on, then please contact us.