|Summary: In the event of a marital breakdown, a court will assess the matrimonial assets of both parties, including superannuation, and divide the assets. Binding Financial Agreements are sometimes a consideration for those entering into a second marriage.|
|Key take-out: Once a marriage has ended, a person may want to revisit their will, and change their superannuation and life insurance beneficiaries from their spouse.|
|Key beneficiaries: General investors. Category: Portfolio management.|
With the rate of divorce increasing slightly over the past several years to approximately 13 divorces per 1,000 married men/women (Australian Bureau of Statistics, 2012), it is important to understand some of the financial consequences that could result from marital breakdown as well as some of the current market trends that are occurring in family law.
Sanaz Naimi of Berry Family Law, a Melbourne legal firm specialising solely in the practice of family law and marriage law, answers a few questions relating to this subject.
How is the matrimonial pool split between the two parties after a marital breakdown, including superannuation assets?
The court takes the following four step approach when dividing property (i.e. assets) including superannuation:
- Identify and value the matrimonial assets (including superannuation) and liabilities to determine the net pool of property.
- Assess the contributions made by the parties towards the acquisition, improvement and conservation of their property, both financially and non-financially, taking into account any non-financial contribution in the role as a parent or homemaker made by either of them.
- Assess whether one spouse has a greater ‘future need’ than the other. The court weighs up future matters including issues such as age, health, income, employment and the care of any children of the relationship.
- Assess whether the proposed settlement is otherwise ‘just and equitable’.
The court also may consider, and make orders, with respect to spousal maintenance (i.e. financial support). An order is a decree, a decision, a declaration or a judgment made by the court. When an order is made, each person who is bound by the order must follow it.
Binding Financial Agreements (often referred to as “pre nups”) are sometimes a consideration for those entering into a second marriage. What sort of asset protection can such agreements provide to protect the assets and investments of each of the parties entering into a marriage or a de-facto relationship?
A properly drawn up financial agreement is binding and can oust the property jurisdiction of the Family Courts.
Spouses may use a financial agreement to quarantine any present or future asset or interest, including superannuation.
Spouses can also direct how their shared or separate assets will be divided in the event their marriage does not continue.
Binding Financial Agreements are a great tool for parents wanting to protect their assets so that such assets pass safely to their children, safe from an estranged son-in-law or daughter-in-law.
The agreements do not have to be fair or be approved by the court.
Agreements can include superannuation splitting provisions and to some extent oust future spousal maintenance entitlements.
Property settlements by way of a Binding Financial Agreement can provide rollover relief for capital gains tax and stamp duty.
When a marriage has ended what should be done from a superannuation, life insurance and estate planning perspective (i.e. do the parties need to do anything in relation to these matters)?
Once a marriage has ended, a person may want to revisit their will, or if they do not have a current will, make sure they have one in place. Given that marriage, separation and divorce affect the validity of a will, it is important that legal advice is sought as to how a marital breakdown will affect a will.
Parties may also want to consider the preparation of a Financial Power of Attorney and a Medical Power of Attorney. A Financial Power of Attorney will allow somebody else to make financial decisions on their behalf if they cannot do so themselves, in the same way a Medical Power of Attorney will allow somebody to make decisions about their health if they are unable to do so. In the absence of a Medical Power of Attorney, the estranged spouse is still likely to be the next of kin and consequently have the power to turn off life support or direct your doctor on treatment if you cannot.
The parties should also contact their superannuation fund and life insurer to complete a Binding Nomination Form, altering the beneficiary of their entitlements to someone other than their estranged spouse or partner. Given that estimates suggest that superannuation funds represent 15% of the personal wealth of all Australians, second in importance only to the family home, it is important that a new beneficiary nomination is updated speedily to reflect the changed circumstances of the divorcee.
The answers set out above are for the purpose of giving general information only and should not be construed as legal advice.
This is an edited version of an article which first appeared in The Investing Times. Mark Sullivan is a Senior Adviser with Lachlan Partners who is the publisher of the Investing Times newsletter.