The division of property following divorce or separation

Some key points about property settlement after divorce

Separation is not easy on either party or on the dependants and other family members. The question of who gets what after the divorce only serves to complicate the issue further, if you are not fully aware of what the law has to say in the matter. The complications can be quite enormous if you jointly hold property of significant value in various locations. The Family Law Act covers these aspects and it can be enforced by local courts, the Family Court of Australia or the Federal Court. Take a quick look at some key points to know about how property settlement after divorce is treated under Australian law.

You can reach an agreement with your partner about property settlement

The best way to go about dividing the property between the two of you is to discuss the issue and come to an agreement between you both. If you are unable to reach agreement, you may need to engage lawyers to arrive at an acceptable division strategy. Once you have finalised the division, this can be put into writing and consent orders can be sought. On receipt of the legal consent, your property division agreement is legally binding on both of you and you can proceed to make the settlement without further complications.

When you cannot agree on a settlement strategy

In such a situation, you will need apply to the relevant court for legal assistance. Typically, the Federal Court or the Family Court handles these applications. The procedure involves a hearing before the judge, following which the court decides how to divide the property. There are four steps in the property settlement process:

  • All the assets and liabilities (both cash and non- cash) belonging to either partner are identified and valued. Experts may be called in, if necessary, to ensure that a fair and accurate valuation is made.
  • The contribution of either partner in the relationship is measured. It is not restricted to merely cash contributions, but also includes the effort and time of a partner invested in parenting or in taking care of the home. The duration of the relationship, the presence of dependent family members (such as children) and many other factors play a key role in helping the court make a fair assessment of contributions.
  • Evaluation of the future needs of either partner is the third step and many aspects are factored in here as well, such as the age of both partners, the earnings and earning potential, standard of living, and the person who is more qualified to care for a child from the relationship.
  • The final and critical step is an objective look at whether the proposed property division is fair and just to both parties involved.

Icon Legal can assist you further advice or assistance in relation to the division of property or any other family law matter.

Purchasing Property Through A Self-Managed Super Fund

Since changes to superannuation legislation in 2007, which allowed for self-managed super funds (SMSFs) to borrow money for property assets, there has been a dramatic increase in the number of people setting up a SMSF in order to purchase an investment property.  Whilst there are many benefits to this, there are strict rules which must be followed.

The primary benefit of purchasing property through your super fund is the potential tax benefits.  For example, where an investment property is purchased outside of super and then sold to fund your retirement, the sale will be subject to capital gains tax.  If you were to purchase the same property through your SMSF, the tax burden could potentially be reduced to zero provided the property is sold after your super fund switches to pension phase.  If the property is sold by before you retire a maximum 10% capital gains tax is payable, provided the property has been owned for at least 12 months.  This could result in savings running in the tens of thousands of dollars.

Alternatively if you continue to rent out the property during the pension phase the rental income is only taxed at 15 per cent, rather than your personal tax rate.

It sounds simple right?  Unfortunately there are a couple of negatives that you need to be aware of.  Firstly setting up a SMSF can be a costly and complicated process.  On top of this when borrowing lenders typically will only lend around 65-70% of the purchase price to a SMSF and often charge a higher interest rate.

The loan must also be what is termed a non-recourse loan, meaning that the property itself must be the only asset provided as security for the loan. On top of this a SMSF cannot develop or improve a property that has a mortgage over it, with the loan having to be fully paid out before any improvements to the property can be made.

The property is also subject to the sole-purpose test, meaning that it must be owned purely for the purpose of investing for retirement, so it can’t be lived in, used as a holiday home or rented by a member of the SMSF, or any related parties of a member.

The safest bet is to ensure that you have the capacity to fully pay out the mortgage on the property prior to retirement; otherwise servicing the loan could prove difficult.

It is important to seek financial and legal advice before purchasing an investment property through a SMSF as the ATO watches these types of investments very closely.

Call us at Icon Legal on (07) 3399 6006 if you would like advice about purchasing a property through a self-managed super fund.