Breaking up is hard to do, but it’s not until negotiations begin around a financial settlement that things really start going to hell.
It’s little wonder that Australians are increasingly deciding to delay what is often a confrontational negotiation but doing so can come at a cost.
Often there are good reasons for taking pause – in cases where couples are building a successful business, or they’ve invested in a startup that isn’t going to bear fruit for another five or 10 years, or they have immature investment properties with significant capital growth potential.
Clearly, there are pros and cons to taking this approach and those who want to come out ahead would do well to understand how the matter is likely to be dealt with in the Family Court. This is especially relevant for recipients of a windfall or inheritance post separation, because such assets have every chance of ending up in play in the division.
Peter Carew, accredited family law specialist with Melbourne-based Carew Counsel Solicitors, says there have been growing numbers of cases involving lengthy separations coming before the court.
“This isn’t just an aberration; this is a constant among Australians who just don’t get things sorted out when they separate,” Carew says.
Most of the long-separation cases end up in court because the parties had a private, back-of-the-envelope deal at the time of separation, or they simply did nothing.
Taking the latter approach can end in tears, as demonstrated by the details of a case a girlfriend told me about last weekend when I told her what I was planning to write about.
She says her friend “got done over” despite – or actually as a direct result of – her benevolence towards her former partner. She’s caught her husband having an affair so she kicked him out. The woman, a CEO of a successful company, remained in the matrimonial home with her son and was the majority caregiver given her husband didn’t pay child support. He, meanwhile, remained in a relationship with his lover for six years at which time he had a heart attack and she left him.
His wife – for they hadn’t bothered divorcing – allowed him to live separately in their large matrimonial home for six months while he recuperated and so he could be close to their son.
Shortly after he left, however, she received a letter from his solicitor seeking half the house and assets, a pool which had grown considerably in the ensuing years because of the wife’s hard work.
When she sought advice, she was told she would probably eventually win, but at a large emotional and legal cost to herself. As her peace of mind – and her desire to avoid a protracted and bitter court battle – were more important to her than money, she chose to give him an undisclosed but generous payout to make him go away.
In cases of divorce, the Family Court prefers to deal with financial settlements promptly. In fact, it has a deadline on when it is prepared to accept maintenance and property proceedings – 12 months in the case of a divorce and two years after the end of a de facto relationship.
In the case above, despite the lengthy separation and the nature of it, the couple were still legally married. So even though the date of separation happened years ago, the Family Court will deal with the assets that exist at the time the matter is brought before it.
“Contributions are assessed at the time of trial, not separation or some other arbitrary and convenient date to parties and practitioners,” Carew says in a recent paper on the subject. Equal weight these days is likely to be given to financial and parenting or homemaking contributions.
In short marriages, significant financial contributions will carry a lot of weight but that weight will diminish with the passage of time, particularly in circumstances where those contributions have gone into the family’s assets or been used for family expenses.
ROLE OF PARENTING
The role of parenting is not something so easily diminished, if a case Carew refers to in his paper is anything to go by. That case involved a couple living together for 22 years, the last 17 of it married. When they split up, the husband was a bankrupt and they continued to live separately in the family home for another 10 years.
In that time, the wife ended up in a superior asset position built solely by her via inheritances and multiple property purchases, all completely post separation. But when the couple finally divorced, the husband decided he wanted a piece of it.
Initially, the trial judge dismissed his application and told him to take a hike, Carew says.
“But the Full Court said, ‘No, the contribution as a homemaker and parent, however limited, is still a significant contribution and it just can’t be diminished,” he says. “So that case was reheard and that husband got a significantly fairer share of the wife’s spoils, almost all of which was acquired post separation.”
In this case, the wife would have been well advised to have done a final property settlement at the time the couple separated.
CLARITY ON DECISIONS
These days, a better-educated society is more likely to motivate couples to take a rational approach together rather than taking the matter to court, Carew says.
“I think past decisions by judges in the Family Court have provided clarity around how they’re going to determine outcomes for people in terms of children and property settlements, and I think people are far more tuned into that.”
Another couple Carew saw decided to delay severing their financial ties because they had a lot to lose.
“They were working together in a business and had significant real estate and it became abundantly clear that if they severed the finance ties at that time… they would have divvied up about $3 to $4 million. Fifteen years later when they decided it was time to get out of the businesses and all the real estate, we were dividing up $25 million.”
These cases show it’s important to be aware of the risks and to make an active decision about how to manage it at the time of separation, Carew says.
“I think the lesson is that you can’t separate, go and build up a substantial new asset pool and think that it’s yours. It’s not,” he says.
The Family Law Act never used to provide a way around that kind of problem but the use of a binding financial agreement can put in place a sunset clause that extends into the future what a couple believes is fair and equitable. At the same time it quarantines things like inheritances and windfalls so they don’t fall into the pool.
It’s kind of like hedging your bets. Not a bad play for those who may eventually have a lot to lose.