Divorce and Separation
What does an asset split really mean
Divorce and Separation
We untangle and assess financial assets to get the best result for you.
Separation and divorce is a time of enormous stress. We know that you may not be in the right frame of mind to face practicalities such as property and taxes. But we also know that you will have peace of mind knowing that you have experts in your corner to secure the best possible outcome for you.
Most people will engage legal advisors to assist them with family law matters. Engaging an experienced tax accountant is also advisable – especially where the assets involved are complex or substantial. Together with your legal team, we work for you to safeguard your interests.
Here are some examples of how we worked with a client to get the best outcome for her financial future.
1. Understanding the business structures
Sometimes when couples with multiple business interests get divorced, there is an active member in the business and a non-active member. Pamela was in this situation when she was referred to us by her lawyer. As the non-active member, she had little understanding of the different business structures they were involved in, who owned what or what that meant for her financially.
Generally, for family law, all of a couple’s assets are considered to be “one pot”. What many people don’t realise is that there are tax implications when pulling that pot apart. In Pamela’s case, she didn’t want all the super which couldn’t be accessed, or all of the assets which would leave her with no liquidity.
We worked with Pamela and her lawyers to develop a solid understanding of all structures that the family held interests in. This included mapping out all the relevant parties and roles of the directors, shareholders, trustees and beneficiaries. Once we had the full picture, we could then advise Pamela of what the tax implications were of taking over parts of the family pot.
2. Determining the asset pool
When business structures such as companies and trusts have been used, determining an asset pool is not as simple working out “mine, yours and joint” assets. There is often a challenge in finding and valuing the assets as well as working out a strategy to transfer them in an effective manner.
In Pamela’s case we had to determine:
- How the family home was held – joint tenants or tenants in common?
- What were the various businesses and what were they worth?
- Was everything properly recorded in the accounts of the businesses?
- What loan accounts were in the different entities?
When we had a clear picture of all the assets, we were then able to come up with a value.
3. Tax Implications of an Asset Split
Before any orders are made to divide the asset pool, it’s important to consider what the tax implications are. These transfers could result in income tax, capital gains tax, GST, or stamp duty.
While there are some exemptions and rollovers available, these don’t apply in every case. Unlike a simple case of transferring a property from one spouse to another as part of a court order (where relief from capital gains or stamp duty could apply), transferring assets to or from a company or trust is not a straightforward matter. We also need to consider the tax on any dividends required to pay out company loans.
For Pamela, we had to consider if she took over some of the entities what the future would look like. Would she be taking on a tax bill in the future if she wanted to get money out of the entities? If we sold the assets within the entities, what were the implications going to be?
4. Optimising the End Position
As part of the settlement process, it was important for Pamela that we find an outcome that was not only optimal, but one that produced the least risk going forward. For us that meant delving deeper into the following:
- Does the asset split optimise the tax benefits?
- What are the tax implications for controlling certain assets, companies, or trusts?
- What are the “other costs” that could occur during or after settlement?
- What are the consequences of taking over the trust or company?
- Could she effectively distribute the proceeds held by those trusts and companies to either herself or her children?
- Would any small changes now have a great impact on her future?
Further help:
If you have any questions like in the article, feel free to contact Marsh & Partners to discuss the options. You can reach us on (07) 3023 4800 or at mail@marshpartners.com.au.
