With time most of us will see at least one client, often more, go through a divorce or relationship breakdown. And this usually comes with a splitting up of assets, which often has significant tax implications. But before we look at the tax side, let’s look at the family law that governs this splitting of assets.
Because it is difficult to work on the tax side, when we have no idea of the legal side.
Family Court of Australia
The Family Court of Australia is a superior Australian federal court of record. It deals with family law matters, such as divorce applications, parenting disputes, and the division of wealth upon separation. Together with the Federal Circuit Court of Australia, it covers family law matters in all states and territories except WA. Its core function is to determine complex cases and specialised areas in family law. It is also to provide national coverage as the national appellate court for family law matters.
Family Law Act 1975
The Family Law Act 1975, referred to as the FLA by legal practitioners, is an Act of the Australian Parliament. It has 15 parts and is the main Australian legislation dealing with divorce, parenting arrangements between separated parents (whether married or not), property separation, and financial maintenance involving children or divorced or separated de facto partners.
Separation & Divorce
The Family Law Act 1975 established the principle of no-fault divorce in Australian Law. When granting a divorce the Court does not consider why the marriage ended and the only ground for divorce is that the marriage broke down and there is no reasonable likelihood that the parties will get back together.
The Federal Circuit Court of Australia has the jurisdiction or power to deal with dissolution of marriage (i.e. divorce) under Part VI of the Family Law Act 1975. The granting of a divorce does not determine issues of financial support, property distribution or arrangements for children. It simply recognises that the marriage has ended.
Laws affecting children
The Family Law Act 1975 focuses on the rights of children and the responsibilities that each parent has towards their children. The Act aims to ensure that children can enjoy a meaningful relationship with each of their parents, and are protected from harm.
Under the Family Law Act 1975 there is a presumption that both parents will have an equal parental responsibility where they will both have a role in making decisions about issues such as where a child’s education and health.
The presumption does not apply if the parent engaged in abuse of the child or family violence.
The presumption also does not apply if it is not in the best interests of the child.
Shared parental responsibility is not the same as equal time. Parents will spend equal time with a child only where:
- they can agree to this arrangement or
- a court finds that equal time is in the best interests of the child and is the most suitable arrangement.
Family dispute resolution
The process to resolve disputes over children goes through two stages. First separating families need to make a genuine effort to come to an agreement through a family dispute resolution (FDR). If that fails, they file an application for parenting orders in court.
This requirement applies to anyone wanting to file an application with a family law court. It also includes those seeking changes to an existing parenting order. There are a few exceptions to this requirement, such as cases involving family violence, child abuse or urgency.
Unless an exemption applies, parties seeking to have a parenting matter determined by a family law court will need to file a certificate from an accredited FDR practitioner. The certificate is issued under Section 60I of the Family Law Act 1975 and is commonly known as a Section 60I Certificate.
Property and financial outcomes
Australia is an equitable distribution country meaning that net wealth is not split evenly (50/ 50) upon divorce. Instead Courts are given wide powers so as to determine what a “just and equitable ” division of wealth would be. The Courts take over 27 statutory factors into account. The vast majority of outcomes result in a division of 55-65% in favour of the economically weaker spouse. And that is before the payment of legal fees. This process is not without its critics. On average the wealth re allocation process takes between 2 years , or for the more wealthy, up to 4 years.
Last Updated on 13 Mar 2018