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The importance of having your financial affairs at or soon after separation

The importance of having your financial affairs at or soon after separation

Brett was recently involved in a matter with a number of trusts and corporate trustees, it was somewhat more difficult and unusual as the parties wished to retain certain business interests within certain entities and divide up and sell other interests.

Whilst the overall value of the Estate was modest, it was important that time and detail be spent in drafting and negotiating the Orders.

Thankfully the other side were represented by good family lawyers and both parties had the common intention to come to a resolution and get the deal down.

However, the deal did take some 18 months to resolve.  The main reason for this was that the parties did not have their tax returns or financial statements up to date.

We often find it amazing how many clients come to us without their financial affairs in order, but expect their family lawyer will be able to give them specific advice about a financial settlement.

As a first step, it is always imperative to have tax returns (individual and company), together with up to date financial statements.  In most cases it is also important for the parties to ensure they have access to accurate management accounts for the current financial year.

In this particular matter, we all agreed that the parties needed to get their tax affairs in order and this took a fair bit of time, it also then produced some other issues, including Division 7A issues, UPE’s and potential disputes about loan account balances.

The problem for this particular matter was that whilst the parties had run successful businesses, they had not really followed the advices of their accountants and had been ripping money out of various different entities at various different times even after they had separated as their separation was amicable.

The second lesson we think is important in matters such as this one, is to try to keep things as they are once you separate – even if you are amicable, do not continue to mess around with corporate structures and financial decisions.  If you are amicable, think about the necessity to resolve your financial split amicably but quickly after separation.

It is so important to remember that our family law system does not draw a line in the sand at the date of separation.  It always looks at current assets and values.

I think the main lesson here is even if you are amicable and you wish to effect a property settlement, that you do it soon after you separate and make sure your tax affairs are up to date.

With this cooperation and attitude, it makes it a lot easier for the lawyers to put together a deal.

It has always been Brett’s experience, that the longer a matter is delayed, the more risk there is of the amicable relationship falling apart and the more costly it will become.

In this matter, it certainly was costly to the parties, but thankfully they maintained a good relationship post separation and a deal was done.


The Problem with Appeals in the Family Court

Brett recently had a case where a client received what Brett perceived to be “unjust judgment”.  In his view, there were clear errors in the Judgment and that if our client appealed, she would have had good prospects of being successful.

The matter was a property settlement matter and had been a difficult and litigious matter from the outset.

However, just because the Judgment in Brett’s view was a bad/shocking Judgment and not correct at Law, it did not mean that our client should appeal because we had to consider the following factors:

  1. It is extremely difficult to be successful on Appeals and just because we though the Judgment was wrong, it does not mean that the Appeal would definitely be successful;


  1. Appeals are expensive and if our client lost the Appeal, she would be liable for the costs of the other party in most cases;


  1. Even if we were successful with the Appeal, it is likely, that the Appeal Court would not substitute it’s own Order, but would Order a Re-Trial;


  1. We may get a Costs Order against the other party, but it would not be for reimbursement of all the client’s legal costs, more than likely it would be a Cost Certificate and these Certificates award paltry amounts to clients;


  1. Our client would have to endure the matter restarting again before a different Judge and it would have taken a further 12 to 18 months to get to a Hearing and then await a further Judgment and uncertain outcome.


All of the above, needed to be assessed objectively, despite Brett’s frustration at the decision, when advising our client on what to do.

The point is that in these cases, litigation can produce some unjust outcomes, but the commercial realities make it untenable to appeal or proceed further in the matter.

Of course, there are exceptions to this where the size of the Estate is so substantial that Appeals are worth the risk.  However, in a lot of cases for the average “mum and dad”, the amount of money spent at an Appeal and in the Re-Trial process, with still an uncertainty of further outcome, mean that in a lot of cases, the decision not to appeal is due to commercial reasons, rather than legal reasons.

In this particular case, Brett did have a look back and think about how he could have avoided a Trial, but it was extremely difficult again – it was one of those few matters where parties are polarized in their dispute.  However, offers were made which were not far away from the ultimate outcome and in hindsight, Brett wishes he had pushed his client to offer that extra bit of money that could have perhaps settled the matter or at least protected them when it came to a Costs argument at the end.

The above does not mean you should settle at all costs and that you mediate and settle regardless of outcomes.

In our view, we always like to achieve the best outcomes for the client in the circumstances of their case, and usually that is achieved through mediation and negotiation and sometimes litigation.  The main lesson in Brett’s view to learn, is that Appeals, in the majority of cases, are simply not going to be worth the effort time and cost and sometimes it is better to walk away with your tail between your legs.


The treatment of Tax Debts in Matrimonial Property Settlement

Brett was recently involved in a case which went to Trial, whereby my client had failed to prepare and lodge tax returns during a 7 year de facto relationship.

The difficulty in these types of matters is that where one or both parties fail to put tax returns in, there suddenly is a debt that a party has post separation in relation to outstanding tax – the question is whether the Family Court will deduct that tax debt from the value of property when dividing the property up.

This has the potential to polarize the parties significantly as the one who does not have the tax debt, does not wish to be held responsible for part of the other party’s tax debt – however the party with the tax debt will often say that their gross earnings have contributed towards the household and other contributions during the relationship, so it is only fair the tax debt be taken up.

In this particular case, the Judge took up most of the tax debt that was outstanding during the relationship but made a percentage adjustment against my client in relation to contributions.

Despite excellent lawyers on the other side and the best intentions of both parties, it was one of those matters that could not settle at Mediation and unfortunately it had to proceed to a contested Hearing.

It is so important to make sure your taxes are done during your relationship, so that the value of the property pool when you separate has already been depleted because tax debts have been properly paid.

The Law is discretionary when it comes to whether the Court will take up tax debt or not.  The question is usually just and equitable in the circumstances of the case to take up the debt and deduct it from the value of the other property of the parties.  It is not a straight forward decision and it depends upon the different circumstances in each particular case.

There is no guaranteed outcome.

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