Keeping Family Break Ups Commercial

Practical strategies to get you and your family through

No marriage or relationship is always smooth sailing. You are caught up in sharing responsibilities: mortgage, children and the sleep deprivation. But you make it through. Marriage is for life: “until death do us part”. Then it becomes “too much” for one – someone says those tragic words. Your marriage is no more. The solemn vows are no longer.

What do you do now? Well, you live every day at a time. You remain practical and protect yourself and your children. You draw on the experiences of the family lawyer.

Most Civic Legal' cases are settled without protracted legal proceedings.

1. Do we have to go to court and slug it out?

Often, when working with the accountant and adviser, the separating couple reach agreement. Thus, our family lawyers can apply for Orders in the Family Court or complete a Binding Financial Agreement (BFA).

We like to exhaust mediation and negotiate a satisfactory resolution – before we embark on expensive litigation.

2. How much transfer duty do we pay?

Court Orders are drafted under the watchful eye of the accountant and adviser who have long term knowledge of the client's business and financial affairs. Correctly drafted, the Order and BFA only suffer nominal transfer duty (the old stamp duty) on the property transfers.

3. Who pays the Capital Gains Tax?

Capital Gains Tax is deferred. However, the transfer of property carries with it the pregnant CGT obligations. We work with the accountant to ensure that there is a fair split. A home can be CGT free thanks to the principal place of residence exemption. Alternatively, a rental property can be loaded with CGT which the receiving party has to pay when and if the property is eventually sold.

The accountant and adviser are trained to fully set out the on-going financial needs of the client to a high level.

4. What about the children?

Children have a right to know both their parents and be protected from harm. The concept of equal shared parental responsibility applies, provided children are not put at risk. Issues include:

  • Live with whom? - Previously known as custody or residence
  • Live with both parents? Shared care, joint custody and joint residence
  • Quantity and character of time spent with the non-residential parent - otherwise known as visitation, access or contact
  • Parents making decisions affecting their children together or unilaterally - parental responsibility
  • Who has the children on special days? Including birthdays, parent's birthdays, Father's Day, Mother's Day, Christmas and Easter
  • How is handover conducted?
  • Children communicating with their parents by telephone
  • Parent moves intrastate, interstate or overseas?
  • Restraining parents from removing a child from the Commonwealth of Australia
  • Child's passport
  • Getting a child back from overseas under the Hague Convention
  • Child's medical, educational and religious needs
  • Determining the parentage of the child
  • Changing the child's name

The Family Court makes decisions in the child's best interests. However, determining what is in the child's best interest is complex and is particular to the needs of each child.

Significant people in the lives of the child, such as grandparents, are able to start or intervene in Family Court proceedings.

Disputes are best resolved outside court if possible - orders and BFAs can be equipped to deal with delicate children issues.

Parties are expected to make a genuine effort to resolve disputes co-operatively. This is by attending family disputes resolution sessions - before taking any matter to court. This is provided there is no risk of family violence or child abuse.

You are forced into dispute resolution. The court cannot hear an application for a parenting order unless a certificate from a lawyer accompanies an application for an order.

What if matters are not resolved? You issue proceedings in either the Family Court or the Federal Magistrates Court. However, we find that most cases are resolved by consent before final hearing.

5. Is “fault” required to get a Divorce? He has been cheating on me for years.

Thanks to no-fault divorce, all you need is 12 months separation. You can even live separately in the same house – especially as the recession bites.

Divorce only applies to married people.

You can reunite for up to three months in an attempt to reconcile without jeopardising a prior period of separation. If you are married for less than two years you can only obtain a divorce where you attend a counselling session or where there are special circumstances.

Either party may file for divorce without consent of the other party.

Where you apply for a divorce you show that there are satisfactory arrangements made for children under 18 years old.

You cannot lodge a divorce application unless you or your partner are an Australian citizen, permanent resident or have been living in Australia for not less than 12 months before lodging the application. Working with your accountant and adviser, it is best to retain the services of a lawyer to deal with your application.

6. I want to deal with the children and property split now – do I have to wait for the divorce?

Generally, the 2 most emotional issues are the dividing of the assets and children. Such matters are often addressed after separation, but before the divorce. You don't have to wait for the divorce to come through. In fact, you only get 12 months after the divorce to split up the assets. After that, you keep what is in your name. Many business owners and professionals have all their assets in their non-working spouse's name. Twelve months after divorce, you lose all those assets. You have to act quickly.

The courts believe that, generally, children should maintain a relationship with both parents. When it comes to children, the courts have a bias. It takes the children's best interests to heart. To reduce emotional pain for the children, we seek to deliver an early outcome to provide stability for the children.

7. What about de facto relationship breakdowns?

Until 2002, you could live with someone for many years – yet there were no de facto laws in Western Australia. Now, the WA Family Court hears such matters. While de facto relationship is defined widely, you still need to come within the definition:

  1. length of the relationship
  2. the financial / non-financial contributions of each other
  3. children (if any)
  4. if you live in Western Australia

De factos (including same-sex couples) obtain equivalent remedies to married couples in the Family Court for financial matters.

8. De facto and children

The Family Court treats children of de facto relationships no differently to children of married couples. This includes orders as to where they live, what time they spend with each parent, child support and other specific arrangements.

9. What about my Will?

Both marriage and divorce revokes your Will. For example, upon separation you generally want to immediately make a new Will. The new Will cuts your partner out of the Will. However, a few months later when you finally get the divorce that new Will is revoked. To stop this, you make your new Will in contemplation of the expected divorce.

10.   Do I pay child maintenance with after tax dollars?

Raising children is an expensive business and more so if the parents are separated.

Most maintenance (child support) is paid with after tax dollars. The highest marginal tax rate is 46.5%. If you are on that rate, you need to earn almost $40,000 to have $20,000 left to pay the child support.

A Child Maintenance Trust allows your children to pay the tax but generally at a lower tax rate – even a tax rate of zero. This is tax-effective income splitting.

With such a trust, you hold assets for your children's benefit. In effect, you put “capital” into the trust (e.g. machinery, livestock, or more rarely shares and property – anything that makes an income). Some or all of the income created from the trust can be paid to your children (or their guardian). This covers your maintenance obligation. The children then pay tax at the generous adult tax rate threshold. E.g. for each child the first $6,000 is tax-free (as it is for any Australian adult).

Usually, a child under 18 years of age pays tax at a rate of 66% for passive income from a trust. This is not the case for a Child Maintenance Trust. Under the Income Tax Assessment Act 1936, the trust income is "excepted trust income". A properly set up Child Maintenance Trust gives the child the more generous adult tax rate threshold.

Sadly, your children eventually get their hands on the capital. This can be when they turn 18, 21 or even 80 years from the date that you set the trust up. This date is called the "vesting age". This is why small business owners are the most prevalent users of these Child Maintenance Trusts.

Small business owners can use trust assets for commercial purposes. Obviously, a fair market price has to be paid for use of the trust assets. You can't put a worthless item into the trust and lease it out for a lot of money to your business.

A farmer can put sheep into the trust. The jeweller can put a polishing machine into the trust. The sheep and machine, through a service trust arrangement back to the business, make a lot of income (using market rates). Thankfully, they are depreciating items. They eventually become worthless. Therefore, after time there is no capital left to give the children.

Conversely, a non-business owner often has to put something appreciating into the trust. This is often shares and property. This means that a lot of capital is tied up in the trust that eventually is handed to the children. An alternative for the non-business owner is to purchase an annuity in the name of the trust.

The trust is only available for a “family breakdown”. You also need a legal obligation to pay maintenance for your children.

A "family breakdown" is the end of a domestic relationship - either a marriage or defacto relationship. There is no requirement to be actually divorced. You don't have to have been married or in a de facto relationship. A one-night fling will do it.

Both parents must agree to the trust being set up and used. The other parent may not care about saving you tax. In fact, they are often happiest when you are suffering the most. There are 4 major benefits to explain to the other parent:

  1. The trust assets are protected from external creditors if you become bankrupt. If you go bankrupt, your children will end up with a lot less maintenance.
  2. There is a guarantee of the assets in the trust, even if you get sick. If you stop work, the assets are still in the trust. There is greater protection.
  3. When the time comes for the children to get the asset:
    1. The 50% Capital Gains Tax Concession is available to the children (as natural persons)
    2. The 50% CGT small business concessions may be available
    3. Before the trust so vests, loans can be made to beneficiaries
  4. If cines to worse, you can share some of the tax savings with the other partner or give more to the children.

Whether a Child Maintenance Trust is for you, is a question for your accountant and adviser to give advice on.

For an instruction form and more information, click here.

Dictionary of Family Law Terms

Access: a term no longer used in family law. See 'spend time with'.

Adult child maintenance: provided by parents in relation to children who are aged 18 years or older. They may only be made where maintenance is necessary to enable a child to complete their education or where the child has a mental or physical disability.

Affidavit: your typed statement setting out the facts of your case (your evidence). It is sworn or affirmed, usually before a Justice of the Peace, Notary Public or experienced lawyer, as a true statement. Affidavits may also be sworn by other people in support of your case (witnesses).

Case Assessment Conference: usually, the first Court date. In child-related proceedings, you and the other party meet with a family consultant. They discuss the case and issues with you. A Magistrate then holds a hearing and the family consultant makes recommendations. Orders and directions are then made. If your matter only relates to financial issues, you only meet with the Registrar.

Child maintenance: paid by a parent for the benefit of children where an administrative assessment for child support cannot be made.

Child support: an amount that is paid by the natural or adoptive parents of children, to the person who cares for them.

Child Support Agreement: an agreement between the parents, which may or may not be registered with the Child Support Agency, outlining the arrangements where child support is to be made.

Children's contact services: provides a safe environment for children to maintain contact with their non-resident parent by offering a neutral location for contact, handovers or supervised contact visits.

Conciliation: a dispute resolution process in which an impartial third person assists the parties to the dispute to reach an agreement in the dispute.

Consent Orders: document made where both of you come to an agreement and lodge that agreement in writing (usually called “Terms of Settlement”) for Court approval. These orders are as binding as a Binding Financial Agreement.

Contact: no longer used in family law. Replaced by 'spends time with' or 'communicates with'.

Contact Orders Program: (Mums and Dads Forever) help separated parents manage conflict over child contact arrangements and act in the best interests of their children.

Custody: no longer used in family law. See "lives with".

Decree Absolute: no longer used in divorces. Now “divorce order”.

Decree Nisi: no longer used in divorces. Now “divorce order”.

Enduring Power of Attorney: one person gives another the legal authority to make financial and legal decisions on their behalf.

Enforcement hearing: enables a person who is owed money (the payee) to obtain information about the financial situation of the person who owes the money (the payer).

Enforcement Warrant: used to enforce the payment of a sum of money, by which an enforcement officer is commanded to seize and sell sufficient of the payer's property to satisfy an obligation (including interest and costs).

Financial agreement: entered into before, during or after a marriage that deals with how property or financial resources of the spouses will be dealt with, or deals with the maintenance of either of them.

Lives with: has its ordinary meaning. Replaces terms like 'residence' or 'custody'.

Maiden Surname: surname of a woman prior to her first marriage.

Mareva order: prevents a person from removing property from Australia or dealing with property either in or outside Australia.

Mums & Dads Forever: see Contact Orders Program (Mums and Dads Forever).

Notice of Child Abuse or Family Violence: Court form - Form 4 - used if a person alleges that a child has been abused or is at risk of being abused or that there has been family violence.

Nullity: a decree of nullity is based on the ground that the marriage is void. Voidness means that the marriage never was.

Parental responsibility: all the duties, powers, responsibilities and authority which, by law, parents have to their children. Each parent has parental responsibility for each of their children who is under 18, unless they have agreed otherwise, or the Court has made an order which changes this responsibility in some way. Parental responsibility is not affected by any changes in the parents' relationship, such as separation, divorce or remarriage. Parental responsibility can relate to long-term issues such as education, religion, serious health concerns, or day to day issues such as attendance at sport, parties and homework.

Parenting order: deals with whom a child lives with, spends time with, communicates with and who has parental responsibility for the child.

Parenting Plans: a plan agreed between parties about arrangements for the ongoing care, welfare and development of their children after separation or divorce.

Pre-Trial Conference: when you and the other party meet with a Registrar to outline how the case is going and try and reach an agreement. If you can't reach agreement, the Registrar sets a trial date and makes directions to prepare the case for trial.

Recovery Order: made by a Court requiring a person to return a child to either a parent, a person with parental responsibility for the child or a person who the child is to live with, spend time with or communicate with under a parenting order.

Relationship counselling: is for individuals, couples, families and children who are concerned about their relationships. Counselling sessions concentrate on your concerns and how you can work to resolve them.

Residence: no longer used in family law. See 'lives with'.

Skilled Dads workshop: operated by Ngala, these workshops are designed for all fathers, including those who are experiencing or have experienced divorce, separation or relationship disputes. The workshops are designed to assist all fathers to maintain and enhance their connection with their children whatever their parenting circumstance.

Spend time with: has its ordinary meaning. Replaces terms like 'contact' or 'access'.

Spousal maintenance: one spouse provides the other spouse with periodic living expenses or a lump sum if they are unable to support themselves adequately.

Spouse: your husband or wife, or former husband or wife.

Status Quo: leaving children in living arrangements they are used to and have been in for some time is called “maintaining the status quo”.

Superannuation flagging order: directs the trustee of a superannuation fund not to make a payment pursuant to a spouse's superannuation without the leave of the Court.

Superannuation splitting order: superannuation benefits are split between spouses in a particular way when the payment becomes payable.

Supervised contact: another adult attends during contact visits between a child and the contact parent, never leaving the child unobserved and unprotected. Supervised contact is done to provide an opportunity for a relationship to continue between the child and their parent, while ensuring that the child is not exposed to inappropriate behaviour, or unduly stressful or emotionally distressing situations.


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