The importance of financial advice in a family law property settlement
Many family law property settlements are reached through negotiation which can be formally documented through a binding financial agreement or consent orders.
If agreement cannot be reached amicably a party may need to initiate Court proceedings seeking that the Court make orders for the division of the parties property.
No matter how a property settlement is reached, it is important to be aware of the financial impact of the proposed agreement before entering into that agreement. Family lawyers often recommend working with a financial advisor to ensure a property settlement delivers an optimum financial outcome for the client. We explain below some of the benefits in working collaboratively with a financial advisor and lawyer.
Identifying and classifying assets and liabilities
A financial advisor can help to properly identify, classify and evaluate the parties’ assets and liabilities, whether these are held jointly or individually. Assets can be held in various ways, such as through a trust, company or shares. It is important that a full portfolio of the asset pool is ascertained. Only by establishing a complete picture of the parties’ financial position might a fair and reasonable property settlement be negotiated.
In some circumstances, a financial advisor or lawyer will recommend that certain assets, such as business interests, company shares, or defined benefit superannuation schemes be formally valued. Real estate will also often require formal valuation.
Recommending tax effective strategies
Understanding the tax implications of a proposed property settlement can have a significant impact on the net result for each party.
The retention, transfer or division of different types of assets can have different stamp duty and tax consequences.
A financial advisor can recommend strategies and structures for the division of assets to take advantage of duty concessions and tax exemptions or deferrals that are unique to family law property settlements. This may include recommending that a certain asset be retained or transferred. Depending on the stamp duty and tax consequences applicable to that class of asset, it may be more advantageous to retain one type of asset over another.
A financial advisor can also flag and calculate potential future CGT liabilities, which is an important consideration when negotiating the division of property. Advice on transactions concerning companies and trusts may also play a significant part of the advisor’s role.
Advising on superannuation
If a superannuation split forms part of the proposed property division then you will either end up with more, or less in your superannuation account. This may require a reassessment and restructure of your retirement plans.
A financial advisor can evaluate the net effect of a proposed superannuation split, and assess future needs and contributions towards superannuation.
If you have multiple superannuation funds, a financial professional may be able to assist you to determine where to invest any incoming funds.
Assessing future needs and planning ahead
Many financial advisors have sound knowledge of family tax payments and child support, and can assist in determining entitlements and / or obligations.
Your financial adviser can help implement strategies on how to get back on your feet, financially, after separation. This may include budgeting advice and money management strategies, recommending appropriate insurance to protect your income, managing and protecting assets, and developing plans to work towards your financial goals.
Estate planning and death benefits
Once a property settlement has been reached and finalised, a financial advisor and lawyer can work together to implement an effective estate plan in consideration of your new personal and financial circumstances.
They will identify the most tax-effective beneficiary for superannuation entitlements and death benefits and help structure your assets to ensure maximum protection against future family provision claims.
Separating couples are often anxious about their immediate and future financial needs and may seek assistance to achieve a fair and reasonable property settlement. In doing so, it is important to remember that lawyers provide legal advice and not financial advice. Including a financial advisor in your professional team can provide significant benefits when negotiating a property settlement.
This article is intended to provide general information only. You should obtain professional advice before you undertake any course of action.
If you or someone you know wants more information or needs help or advice, please contact us on 03 8415 5600 or email firstname.lastname@example.org.