The most common approach adopted by either the Family Court in determining the division of assets is the "global approach" whereby the court establishes a balance sheet of the assets and liabilities and then applies a percentage division to the assets; for example, the Court may decide that the assets be divided between the husband as to 50% and to the wife as to 50%, if the pool of assets totalled $1,000,000 each would receive $500,000.
If the asset pool primarily consisted of real estate jointly owned by the parties the division may be appropriate.
Consider however, the situation of parties owning two parcels of real estate both worth $500,000; one being the home in which the parties live and the other being an investment property. If each party took one of the properties do they end up receiving the same asset division?
The party who takes the investment property is taking the capital gains tax burden even though there would be roll over relief at the time of transfer. Even if the investment property was to become the primary residence of the party into whose name it was transferred, capital gains tax would apply in part, upon sale.
The result financially for each party may be substantially different depending upon the CGT payable.
Similarly, recent changes to the Family Law Act treat superannuation as if it is an asset; this change together with the recent budget measures relating to superannuation have changed the nature of that asset.
Consider parties with assets of $1,000,000. Consisting of a house worth $500,000 and one of the parties with superannuation benefits of $500,000. Superannuation is now, not only a sum of money to fund retirement, but also a tax minimisation vehicle and may be part of an investment strategy; particularly if the party holding superannuation is over 60.
An allocated pension of 10% of the superannuation fund would allow the superannuant a tax free income of $50,000 a year and the ability to salary sacrifice into super, paying not their marginal rate but 15 cents in the dollar.
At the end of five years one party would have the property together with and appreciation in value, whereas the party that retained the superannuation fund would have the original $500,000 with any appreciation in the fund, together with the tax benefits of the salary sacrifice and the additional savings, or investment of that saving, arising out of a $50,000 p.a. tax free income.
In the last example, the more equitable settlement would have been to sell the home and divide the proceeds equally and to split the superannuation into two funds, one in the name of each of the parties, so both can enjoy the same benefits.
If you are involved in a Family Law matter sound financial planning, and accounting advice should be obtained before any discussion are entered into, or decisions made.
