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  • Meet Your Match
  • By Barbara Drury
  • Sydney Morning Herald
    Page 1 of 2
  • 22/06/2005 Make a Comment
  • Contributed by: admin ( 47 articles in 2005 )
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Settling property matters by mutual consent can save warring parties a fortune when a marriage ends. Barbara Drury counts the costs.

Most people enter into marriage full of hope and optimism, but divorce makes pragmatists of even the most starry-eyed lovers. While money can't cure a broken heart, a fair property settlement can certainly ease the pain.

With almost one in two marriages entered into today expected to end in divorce, Government policy and family law are beginning to be framed to recognise the positive benefits of making divorce and property settlements simpler and as non-confrontational as possible.

The introduction of prenuptial agreements, the inclusion of super in property settlements and support for mediation should result in an easier distribution of property and fewer costly court battles.

In May, the federal budget extended the deferral of capital gains tax to couples who separate without going to the Family Court (which is a federal jurisdiction). Previously, divorcing couples could transfer assets without tax only under a court order, which could be expensive.

The Government also announced it would spend $200 million over four years to establish a network of family relationship centres, and $13 million for community dispute resolution services. The Government also proposes tightening child support arrangements.

Divorce statistics explain all this activity. One in five marriages ends in divorce within 10 years, and more than one in three marriages ends within 20 years.

According to a report by AMP and National Centre for Social and Economic Modelling, if trends continue, 48 per cent of couples marrying this year will divorce.

Divorce may be common, but the financial consequences are still uncommonly difficult for many people, especially in the years immediately following the breakup.

Based on figures for the past 10 years, the report found that the average man's household disposable income fell by 8 per cent, or $4100 in the year after divorce, while the average woman's household disposable income fell 42 per cent, or $21,400.

The report also found that divorced men were more likely to enter into a new relationship and less than 50 per cent of divorced men were in households without children. By comparison, two out of three divorced women were in households with children.

Because women tend to end up with the house and children, they are initially asset-rich but income-poor. There is less impact on men's incomes, but they tend to leave the home and take on more debt.

In other words, no one wins financially from divorce.

Men and women tend to improve their financial situation over time, but without careful planning, divorce can have a long-term impact on lifestyle and wealth accumulation.

Michael Lynch, of Michael Lynch Family Lawyers, says there are three financial issues involved in divorce: property division, child support and spouse maintenance.

Lynch suggests separating couples do a budget and keep a diary of child-access arrangements, where children are involved. "From a lawyer's perspective, this becomes an invaluable tool to track financial needs," he says.

Spouse maintenance is regulated by the Family Law Act and is determined at the discretion of the Family Court on the basis of one spouse's financial needs and the other's capacity to pay. If one partner earns much more than the other, it will not take them as long to recover from the financial effects of divorce, so this should be taken into account.

By comparison, child support is formula-based and regulated by the Child Support Agency.

Division of property is based on an assessment of the financial and non-financial contributions of each party to the marriage. It should not be assumed the split will be 50:50.

A recent court decision substantially increased the wife's share of the split because the husband, who had a much higher income, expected to receive a substantial inheritance.

Less complicated or non-contested divorces can now be heard in the Federal Magistrates Court, but only the Family Court can deal with property pools of more than $700,000.

However, even the Family Court now actively encourages warring couples to settle their property disputes through some form of voluntary mediation as part of what the court terms pre-action procedure. As part of this process, couples are expected to make a meaningful attempt to arrange a financial settlement by exchanging financial documentation so each party is in a position to put forward an offer.

Deborah Cherrie, of law firm Taussig Cherrie and Associates, says reasonably savvy clients who are financially literate tend to mediate by themselves without the need for lawyers, through intermediaries such as Relationships Australia (see below), and then come back to their lawyers with an agreed settlement.

"It's not cheap but it's cheaper than litigation," she says.

For wealthy clients, it is common for both parties to engage lawyers before engaging an experienced and well-respected member of the bar as a mediator.

"That form of mediation tends to turn into conciliation or arbitration," Cherrie says. This is because a barrister is in a good position to tell clients what will or will not be considered in court.

Lynch says the majority of matters are resolved by consent orders. In this case, he says a period of negotiation and the preparation of a consent order might cost $4000 to $5000, but if negotiation doesn't succeed, an application to the Family Court is required.

The first stage of proceedings is a conciliation conference. Lynch says it can cost about $6000 to get to that stage, and about four months for the filing of the application.

At conciliation, everyone needs to be given a cost estimate of future proceedings. That, coupled with the fact that it can take up to 18 months for a final hearing, can provide a reality check for anyone hell-bent on using the courts for revenge.

About 80 per cent of court actions stop there.

Once warring couples realise the time and costs involved, many decide to settle, with just 5 per cent of matters going to a final hearing.

Resolving property matters by mutual consent is preferable to long, drawn-out court battles, but Lynch advises couples to get a documented agreement - that is, a consent order - to finalise their property settlement, because nothing else is enforceable.

"There's the added benefit that consent orders provide stamp duty exemptions and capital gains tax rollover relief," Lynch says.

He advises people to take note of all items of property and whether they are registered in joint or individual names. Property includes everything from furniture to shares, real estate and, from December 2000, super.

Legally, the pool of property to be divided is taken as of the date of separation, while the valuation date is the date of resolution, usually the hearing date.

To complicate matters, Lynch says de facto couples are "legally, a different world".

For example, super is not regarded as property in de facto property decisions. While the Family Law Act governs marital property disputes, de facto and same-sex couple disputes are governed by state legislation, which varies from state to state.

To avoid the uncertainty of property settlements, increasing numbers of wealthy individuals are drawing up prenuptial agreements, also called binding financial agreements, especially when they are embarking on second marriages.

Because prenups have been legally binding only since December 2000, they are largely untested in the courts.

To make sure they are watertight, all assets must be disclosed and both parties need to take independent legal advice.

Prenups don't affect the rights of children to child support, and the Family Court can overturn them if there is evidence of fraud or unconscionable conduct.

A simple prenup may cost $1000, while more complicated agreements will cost much more.

$1 million down the drain

This is a salutary tale of two recent divorces and the financial and emotional benefits of a conciliatory approach to property settlements.

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