Everyone’s personal circumstances are different. You may have built a family business together, have complicated business and asset structures or funds in an SMSF. While this certainly isn’t a formula for every situation, a property settlement usually involves these basic steps:
Step 1: What do you own?
We first need to work out what you and your partner own. This may sound simple but in some circumstances determining the asset pool isn’t easy – especially when the business structures are complex or substantial. Your advisors develop a clear picture of who owns what and where they hold these assets. From a property settlement perspective, it doesn’t matter who legally owns the assets or owes the liabilities (for example; a trust, company, an individual, a partnership or a super fund) – everything gets added into the pot.
We then need to look at the market value of everything so we have a true indication of our total pot value. This may involve getting real estate agents to value real estate, plant and equipment and any businesses you have an interest in.
Step 2: How did you get those assets?
We need to understand how you came to have the assets you have. Were they gifted to you or did you work to get those assets? The contribution you made to those assets may be taken into account when working out the settlement. Keep in mind, these contributions could be financial or non-financial (time).
Step 3: Considering your future requirements
The past is the past, but a property settlement also needs to consider the future. For example, are there are children involved what is the financial impact for them? Has there been a stay at home parent and what is the impact of them not having worked for a period of time. Other factors include:
- both parties age
- both parties health
- what a reasonable standard of living is
- how long you were in the relationship for
- what the likely assets and income is for each party
- whether either party can be appropriately employed
- the role each party plays in the children’s care
Step 4 – Is the property settlement fair and equitable?
You might think that a 50/50 split would be fair and equitable, but a property settlement is usually based on a myriad of factors. As part of the process we need to consider what truly is fair and equitable and this is where expert advice plays a role.
We also wouldn’t want you to be burdened now or in the future by an asset split which isn’t fair from a tax perspective. Therefore, it’s important to consider what the tax implications are. Transfers of assets and businesses could result in income tax, capital gains tax, GST, or stamp duty.
While there are some exemptions and rollovers available, these don’t apply in every case. Unlike a simple case of transferring a property from one spouse to another as part of a court order (where relief from capital gains or stamp duty could apply), transferring assets to or from a company or trust is not a straightforward matter. We also need to consider the tax on any dividends required to pay out company loans.
Would you be taking on a tax bill in the future if you wanted to get money out of the entities? If you sold the assets within the entities, what were the implications going to be?
Optimising the end position
As part of the settlement process, it’s important that we find an outcome that is not only optimal for now, but one that produces the least risk going forward. Which means delving deeper into the following:
- Does the asset split optimise the tax benefits?
- What are the tax implications for controlling certain assets, companies, or trusts?
- What are the “other costs” that could occur during or after settlement?
- What are the consequences of taking over a trust or company?
- Could you effectively distribute the proceeds held by those trusts and companies to either yourself or your children?
- Would any small changes now have a great impact to your future?
Our specialist separation and divorce accountants act as expert advisors in complex and challenging asset splits. If you are going through a property settlement, or have friends that you know need some help, contact us for some advice. You can reach us on 07 3023 4800 or at firstname.lastname@example.org.
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