Protecting your assets in a divorce
Separation and divorce can be financially devastating, and if you’re currently trying to work out who gets what, it’s important to know how to protect your assets.
What have each of you done?
A common question is whether the contribution of each spouse to the asset pool is the same.
Traditionally there have been two roles in a marriage or long-term relationship – the breadwinner and the homemaker.
What happens if the breadwinner is a high-income professional, or a skilled entrepreneur who has accumulated a significant fortune?
The court considers the contributions made by each spouse, but increasingly, will not usually give greater weight to one person’s role or contribution over the other.
Courts used to consider what was called a “special contribution” made by a high-earning breadwinner, but in recent times that has fallen out of favour.
A case example
In a recent case, a couple split up after 36 years of marriage. They had four children together, and had accumulated an asset pool of just under $10 million.
The husband was the “breadwinner” while the wife largely took care of the home and children, although she did at times work in the husband’s business.
The husband asked the court for 70 per cent of the asset pool, claiming that without his business knowledge and expertise, they would not have been able to reach that level of wealth.
However, the judge thought otherwise.
“Under the previous approach, the dice was loaded against a wife who performed a role as a homemaker and parent,” the judge said.
“One might ask how she could compete with a high flying businessman? Clean the floors such that one could eat off them? Iron her husband’s shirts to within an inch of their lives?
“Make the bathroom tiles sparkle such that one has to put on sunglasses to take a shower?”
The judge concluded there was “no level playing field” as it was comparing fundamentally different activities.
He said both the husband and wife had made an equal contribution and the asset pool was divided 50/50.
Does a Trust provide protection?
Another issue to consider when dividing assets, is in relation to Family Discretionary Trusts.
There have been a number of cases decided by the court, where the assets of the Trust have been considered “property” of the parties in the marriage, rather than just a “financial resource”.
In cases where the evidence shows that a party to the marriage has control, or de facto control, of a Discretionary Trust, then the relevant interest in the Trust will most likely be treated as property under the Family Law Act and able to be included in the property division.
What about companies?
And for those who own a business, it’s important to remember that under the law, a company is an independent legal identity, with the same rights as a person.
When courts make decisions regarding property settlements, who owns what in a company or business will also be considered.
The Family Court has significant power, so that in property settlements the court can look through a corporate structure and see who actually controls it, and particularly, if it is a family company most likely that the assets it holds will be treated as assets of the relationship0 and available for division.
An analysis of a company’s constitution and shareholders agreement is needed before using the argument that the company is a “mere puppet” of the person.
It is also necessary to consider the extent to which the Corporations Act may impact the rights and obligations of the shareholder, including whether there are rights and obligations conferred by the Act that supports a finding that the corporation is a “mere puppet” of one of the parties.
Get good advice
This can be a complex area of law, and it’s important that you get the right legal advice if you, or your spouse, control or own a company.
There are a number of ways to protect your business before marriage, but if separation has already happened and there are no agreements in place, the fate of your business is in the hands of the judicial system.
If you have any concerns about separation and divorce, asset division, or any other aspect of family law, get in touch with us today. Contact Michael Lynch Family Law on: (07) 3221 4300 or email: [email protected]