Draft ruling on tax implications of property settlement transfers

As is oft the case I am a little late in catching up with my Proctor reading.

On reading the May edition I came across an article by Chris Nyst and Rohan McAdam alerting us to a new draft ruling of the ATO foreshadowing "a significant change in the way it will assess for taxation purposes, the distribution of joint matrimonial property pursuant to property proceedings under section 79 of the Family Law Act 1975."

The Family Court can and often does order a private company ( or individual party to the proceedings to cause the private company ) to pay money or transfer property to another party to the proceedings. Currently section 109J of the ITAA exempts such distributions for income tax assessment purposes, but according to Nyst and McAdam, under the new draft ruling, when money or property is paid by a private company or a party to the matrimonial proceedings, or transferred to a shareholder, the payment will be deemed to be an ordinary dividend , assessable as income of the shareholder under section 44 of the ITAA.

Just another reason to bring the accountants in on the terms of settlement to avoid a law claim at a later stage.

The Circle of Care

"Family lawyers want to provide a holistic service to their clients that help them not only get through a divorce and settlement but prepare them for their new circumstances.Some lawyers have referred to this as providing a "circle of care ".  Within the circle of care, there are professionals that can help with the transition to the next stage of life.It comprises their lawyer, who can deal with the legal ramifications of a divorce, but because of the trusted relationship is also able to refer them to psychologists and counsellors, to provide assistance for emotional issues. Their lawyer may then refer them to a new accountant, particularly if their former partner, because of the conflict of interest that might arise, is still using the previous one. Family lawyers recognise that there is need for broad planning advice that can then be drilled down to specific strategies early in the process, they may want to recommend that their clients meet with a financial adviser."

Collins Mann October 2010

Saving the Mediation.

Sometimes persisting and taking the extra step can save a mediation.

Mediated a property settlement arising from a marriage yesterday and things were progressing reasonably okay.

Late in the day however, when the parties were tiring, an issue arose in relation to the possible existence of a military pension derived from the husband's service over 20 years ago.The husband maintained there was no pension,as his years of service were insufficient, however the wife was concerned, after having located an old  bank deposit record which appeared to relate to the husband's service.

The wife wanted confirmation from Veterans Affairs that there was no entitlement, her solicitor insisting that the agreement reached be conditional on this.Both parties wanted finality however and the husband's solicitor was concerned that if the parties left with only a conditional agreement, the settlement might break down.

The only thing left to do to save the situation,was to contact Veteran's Affairs, however it was after 5pm and expectations were not high that the necessary information to satisfy the parties could be accessed.

Fortunately after the customary waiting period, we got through to a very obliging Departmental officer who on being advised of the importance of the information for the parties, unhesitatingly searched the relevant records and provided the necessary confirmation that there was no record of any military pension having issued or been applied for.

In these circumstances the parties were able to proceed to settlement with confidence and left the building with a signed agreement in a form suitable for lodgement with the court.

 Leaving without a final agreement may have placed the entire settlement in jeopardy, a situation neither party wanted, considering the modest pool and the potential costs of litigation.

Spousal Maintenance

Under the Family Law Act, a person has a responsibility to assist his or her former spouse or de facto partner financially if that other person can't meet his or her reasonable financial needs from their own income or assets.

Where an entitlement can be established, maintenance enables an adjustment to be made in favour of one or other party for any disparity that may exist between the income or the earning capacity of the parties based on their individual financial needs.

The Family Court and the Federal Magistrates Court are able to deal with spousal maintenance applications and parties can also reach an agreement on maintenance arrangements at mediation.You should try to resolve the dispute before going to court if at all possible as this will involve a saving not only financially but in terms of emotional stress.

Maintenance is not automatically awarded however and time limits apply, so it is best to seek legal advice.Your lawyer will be able to explain the circumstances in which you may be entitled to spouse maintenance and point out the various options for seeking a resolution.If you are the party from whom payment is sought, then your lawyer can explain the limits on your liability based on your capacity to pay. In selecting a mediator, you should ensure that your lawyer is able to come with you to mediation should you so desire as important legal issues are involved.

Mike Emerson Co-principal Brisbane Mediations.