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      Is My Partner’s Business Part of Our Property Settlement? 1000 562 Dorter

      Is My Partner’s Business Part of Our Property Settlement?

      When a couple divorces or separates, a financial or property settlement is almost always necessary. 

      If a party to the separation owns a business, even if the business was started before the marriage, it is treated as part of the asset pool and is taken into consideration in a property settlement between them. In this article, we will discuss how a partner’s business is part of the property settlement, and what steps can be taken to ensure a just and equitable division of assets. 

      What factors influence how businesses are considered in a property settlement?

      In most situations, if a spouse has ownership in a business, it is considered in the division of assets after separation. 

      In a property settlement, all assets and liabilities are identified, and, if there is no agreement as to the value, the assets are valued. 

      Valuing a business is important if no agreement is reached because the value affects the value of the asset pool. There are many factors which may affect the overall value of the business. These include:

      • The structure of the business: whether it is sole trading, a partnership, a trust or a private company;
      • The tangible assets of the business;
      • Its future potential; 
      • Its public reputation; and 
      • Whether it can be sold

      A sole trader may argue that the business is just an income stream and there are no assets to be distributed. A larger business may have issues around its future earning potential. The business owner may not disclose or may hide assets within or outside the business, such as in a trust. 

      If parties cannot agree on a business valuation, the courts may need to intervene, and a third-party valuer be appointed to provide an independent assessment. 

      Even if a spouse did not contribute or was not involved in the business, their contributions within the relationship (such as to the family home or children) are considered and may ‘offset’ the other spouse’s contributions to the business. Contributions can be financial, non-financial, homemaking and/or parenting contributions.  

      How can different business structures be considered?

      Sole Traders

      If a spouse operates a business as a sole trader, there is typically less value to assess. However, there may be assets in the form of stock, equipment, vehicles and/or cash.  

      Company-Owned Business

      A privately owned business can be valued. A valuer considers the assets of the company, ownership and its internal structure. Tax Returns and financial reports are obtained for this process.

      Business Structured in a Trust

      Businesses within a trust are usually used to protect significant assets. The Trust deed and financials for the trust/s are considered in order to ascertain the assets of and the value of the trust. 

      How can my partner’s business be divided?

      Often parties reach an amicable solution so that one spouse can retain their interest in a business. If not, the Family Court can make orders for the sale of a spouse’s business interests.   

      Businesses can be a complex area of property settlement. It is important to ensure the business is included in the asset pool in a property settlement, and the value for the business interests are accurate. 

      Our experienced property settlement lawyers provide expert legal advice and help you navigate the family law process to ensure you receive your fair and equitable property settlement.
      Call us today on 02 9929 8840 or click here to book a no obligation consultation.

        Trusts: Property under Section 79 of the Family Law Act? 1024 683 Dorter

        Trusts: Property under Section 79 of the Family Law Act?

        The dissolution of a marriage requires the division of property in which the parties to the marriage have a declarable interest.

        Section 79 of the Family Law Act confers a broad discretionary power on the Court to vary the legal interests in any property ‘to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion’ and to make orders for settlement of property interests in consideration of what is ‘just and equitable’.

        It is well established that trusts fall within the ambit of property divisions, however the rights of beneficiaries in a discretionary trust are generally restricted to the due consideration and administration of the trust.

        The landmark High Court decision of Kennon v Spry [2008] HCA 56, presented relatively unusual circumstances which has since allowed the Court, through a series of cases, to broaden the concept of property in the context of characterising interests of a spouse as beneficiary under a discretionary trust.

        Principles of Property Settlement

        The Court in exercising its discretionary powers for the division of property to a marriage is guided by the core principles set out under sections 79(2) and 79(4). These principles are applied through the “Four Step Process”:

        1. Identify the assets and liabilities of each party individually and jointly (i.e. what you own, and what you owe), and what they are worth.
        2. Identify the contributions made by each party during the marriage:
          • direct financial contributions by each party, such as property each had when they began to live together, and wage and salary earnings while living together;
          • indirect financial contributions by each party, such as gifts and inheritances from family members;
          • non-financial contributions to property, such as renovations to a home, management of investments, or running a business; and
          • contributions to the welfare of the family, such as caring for children and doing housework.
        3. Consider each party’s future needs – a court will take into account things like age, health, financial resources, care of children and income earning capacity.
        4. Assess whether the Orders are just and equitable in the circumstances.

        Rights and Interests in Discretionary Trusts

        Beneficiaries to a trust, discretionary or otherwise, are entitled to ensure the due administration of the trust by the trustee.

        As noted in Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, if a beneficiary requests it, a trustee is in general obliged to provide documents and information to the beneficiary, at his cost, in relation to the trust property, and to provide an accounting in respect of the administration of it. Historically, the basis of the right to inspect documents was regarded as proprietary on the basis that trust documents are in equity the property of the beneficiaries, albeit vested to the trustee.

        The entitlement to request documents is limited only to those documents which can be categorised as being ‘trust documents’ as Re Londonderry’s Settlements [1965] Ch 918 noted the following features of trust documents:

        • they are documents in the possession of trustee; and
        • they contain information about the trust which the beneficiaries are entitled to know; and
        • the beneficiaries have a proprietary interest in the document and are accordingly entitled to see them.

        Notably, correspondence does not fall within the category of being trust documents.

        Kennon v Spry

        The circumstances of Kennon v Spry were noted by the Court to be unusual, insofar as they included a discretionary trust created by the husband prior to the marriage, of which he was both settlor and trustee allowing the Court to find that at all relevant times the trust was a vehicle for the benefit of the husband and the wife and the children.

        The Court expressly recognised the wife’s right to the due administration of the trust was accompanied in equal measure by the husband’s duty to consider in what way the power should be exercised, including whether to appoint the whole of the assets of the trust to the wife. Accordingly, these circumstances caused the Court to conclude the trust was direct property of the parties to the marriage or to either of them. This combination of corresponding rights and duties caused the parties at all material times to be in direct control of the trust in a way not dissimilar to other property under section 79 of the Act and the divorce did not preclude the trust from being an asset to the parties.

        Following the decision of Kennon v Spry, the Court qualified and clarified the broadening of the concept of ‘property’ for the purposes of section 79. In Rigby & Kingston (No 4) [2021] FamCA 501, the Court clarified that it was not a blanket extension of the meaning of property to include a discretionary beneficiary’s mere expectancy or possibility of a future proprietary right. It is the combination of one party being the trustee and the other being the beneficiary which results in the trust assets falling within the meaning of applicable property for the purposes of property settlement.

        The Court has noted that the bare equitable right of a beneficiary to a discretionary trust alone may obtain a value and be considered an asset of one party alone, but that such a conclusion requires expert actuarial evidence and that such a right would be considered a ‘financial resource’ available to one party.

        Woodcock v Woodcock

        The question of whether a party’s rights under various intergenerational family discretionary trusts are property within section 79 and capable of valuation, has been answered by the recent decision of Woodcock v Woodcock (No 2) [2022] FedCFamC1F 173.

        Unlike the previous cases, the Court did not make a finding that the husband in Woodcock was the sole trustee nor that ‘at any point in the marriage’ he could have received the entirety of the trust assets. However, the Court found that over a period of four years the husband received approximately $15 million from the various trusts and held a ‘position of considerable influence’ over those trusts. This considerable influence included the ability to block distributions from the trusts to other beneficiaries.

        Drawing on the principles of Kennon v Spry and Rigby & Kingston (No 4) the Court found that this was sufficient to find there was a ‘legally endorsed concentration of power of things or resources’ so that the trusts were able to comprise property to the marital pool and be capable of valuation.

        Arising from the principles of an equitable interest in a discretionary trust and the definition of property within the Act, the Court determined through the decisions of Kennon v Spry and Woodcock that discretionary trusts fall within the ambit of family law property settlements and are capable of valuation. This expansion of the definition of property to include discretionary trusts relies on the trust or trust assets being subject to a legally endorsed concentration of power by one or both parties to a marriage, whether through a trustee/beneficiary dynamic or through the holding of a position of considerable influence over the trust.

        Talk to our team

        Assessing whether a trust or trust assets are property capable of valuation requires knowledge of the particular circumstances and context. If you are involved in a property settlement dispute and require further information about the intersection of family law matters and interests held in discretionary trusts, Dorter Family Lawyers & Mediators are experienced family lawyers and can assist you.

        Call us on 02 9929 8840 or book a consultation online here.

          How is a Business Divided in a Divorce? 1024 631 Dorter

          How is a Business Divided in a Divorce?

          When a couple divorces or separates, a property settlement, also known as the division of assets, is almost always necessary.

          In some cases, this process will involve assets like a home, cars, money, and superannuation and in other cases, it may involve complex and highly valuable assets, such as a business.

          In this article, we’re going to discuss how a property settlement involving a business should be handled, including the various steps that should be taken.

          Property Settlements and Businesses

          The breakdown of a marriage or de facto relationship can have a significant impact on a business. Whether both parties to the relationship own the business or it is owned by one party only, the future of the business could be impacted as the business is considered part of the marital property pool.

          It’s important to be aware that the breakdown of a relationship where a business is involved could impact not only the couple, but also any other owners of the business, as well as anyone else with an interest in the business.

          What happens to the business when a couple breaks up?

          As we touched on above, it doesn’t matter whether the business is owned by one party or both parties to the relationship – in most situations, it is considered to be an asset that could be divided in the property settlement.

          The way assets, property and liabilities are divided in a property settlement involves a 4-step process. These steps are:

          Step 1: Identify all assets and liabilities – during this step the value of the business will need to be identified.

          Step 2: Identify the contributions of all parties – contributions can be financial and non-financial, as well as direct and indirect. Even if one party never worked in the business, their contributions to the relationship could make them entitled to a percentage of the business.

          Step 3: Work out the future needs of each party – factors such as parenting, health and age can impact the future needs of each party.

          Step 4: Review the agreement – the property settlement agreement must be just and equitable.

          Identifying the assets in step one is particularly important and it also involves valuing them too. In the case of valuing a business, this can be complex as many factors determine the value of a business. This can also be an area of contention for separating couples, so it is highly recommended that a professional business valuation expert is engaged to avoid disputes arising.

          The aim of these steps is to work out the percentage of the overall property pool that each party is entitled to.

          Who actually gets the business in a property settlement?

          The way assets are split can be complex and will differ from situation to situation. When it comes to a business, there are many different outcomes that could occur.

          One potential option is that the one former spouse buys out the other spouse’s interest in the business. Another option is that the business is split, with each party receiving part of the business. Selling the business to third party and splitting the proceeds in the property settlement is another option. If there is agreement, there are certain circumstances where former spouses could continue to own and operate the business as is.

          The right option is dependent on the unique factors of your situation and the type of business operated. In some cases, the former spouses may have an amicable relationship where their split hasn’t interrupted the business operations, while in other cases, there has been a significant loss of trust and it’s not possible to come to an agreement.

          It’s best to seek legal advice before making a decision regarding a business in a property settlement as there can be long-term consequences of these decisions that could be overlooked.

          What if the former spouses cannot reach an agreement for their property settlement?

          The family law system in Australia has been designed to allow people to reach agreements together or to use other resources to avoid having to go through Court proceedings. However, while the system allows for this, it’s not always possible to come to agreements, and in matters that involve complex property and assets, like a business, Court intervention may be necessary.

          In this scenario, the parties apply to the Federal Circuit and Family Court of Australia for a property division. The Court will use the same 4-step process we outlined earlier to determine an appropriate split of assets and liabilities, including the business. It’s important to note that the Court may require that an independent valuation of the business takes place where the parties cannot agree on the value.

          As a property settlement is meant to be a way to finalise the financial relationship or sever the financial ties of the former spouses, the Court will be likely to make a decision where one person may receive the business while the other receives other assets that equate to their share of the assets and property, or if this is not possible, the Court may order that the business is to be sold. The aim will be to not only finalise the financial relationship but also to ensure that the property settlement is just and equitable.

          Can you protect a business?

          Protecting a business from being impacted by a relationship breakdown is possible, however, it is highly recommended that a lawyer is engaged.

          Whether you’re considering marriage or in a relationship and own a business, or you’re considering starting a business while in a relationship or marriage, there are various options available to you. A binding financial agreement that outlines how assets are managed in the event of a relationship breakdown is one of these options.

          As many unique factors are at play with relationships and businesses, we highly recommend seeking legal advice if you wish to protect your business or any other asset.

          Talk to our property settlement family lawyers

          If you’ve separated and are having difficulties in determining a property settlement agreement or you’re wanting to protect your assets, talk to our property settlement family lawyers today.

          Our experienced legal team is here to offer advice, guidance and representation for all types of family law matters, including complex property settlements.

          Call us today on 02 9929 8840 or book a no obligation consultation here.

            Multiple Jurisdictions 1024 683 Dorter

            Multiple Jurisdictions

            Litigation of issues across multiple jurisdictions involving the same subject matter and parties is becoming increasingly common, particularly in family law. It will often involve a careful analysis of which jurisdiction or Court is preferred and consideration of whether the issues or proceedings can be transferred or consolidated.

            In a family law context it is becoming more common to see third parties, such as Mum or Dad or grandparents, seek repayment of monies they may have advanced to one or both parties or an argument that real estate is held “on trust” for a third party following separation. In these situations a third party may assert certain legal rights to pursue repayment of monies or declarations that the third party is the beneficial owner (real owner) of real estate. What follows is that multiple jurisdictions (or Courts) may have the jurisdiction to decide the issue e.g. Federal Circuit and Family Court of Australia and Supreme Court of New South Wales. Our previous article on “Accrued Jurisdiction” provides an overview on such jurisdiction existing between different Courts and can be found here – What is Jurisdiction and Accrued Jurisdiction?.

            In these circumstances it is necessary to seek specialist advice about:

              1. Which jurisdiction (or Court) may be preferred to determine the issue;

              2. Whether the issue can be cross-vested, or transferred, between jurisdictions (or Courts);

              3. When and how to apply for a transfer of proceedings;

              4. How to deal with different Judicial Officers in different Courts; and

              5. What to do if the transfer does not succeed.

            Dorter Family Lawyers and Mediators specialises in family law disputes that involve multiple areas of jurisdiction and/or multiple Courts. If you require any assistance with the above we can assist.

            This post is an overview only and should not be considered as legal advice.  If there are any matters that you would like us to advise you on, then please contact us on (02) 9929 8840.

            Andrew Johnson
            Partner

            Rebekah Dorter
            Principal

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              The Duty of Disclosure 1024 575 Dorter

              The Duty of Disclosure

              Do I have to Disclose?

              The answer is… Yes!

              We are often asked by our clients what they must disclose in their family law matter after they have separated from their partner and what their former partner is obligated to disclose.

              Both parties to a marriage or de-facto relationship are required to provide full and frank disclosure of information relevant to their financial circumstances. This means parties must provide each other with all information relevant to an issue in their case, including information recorded in a paper document or stored by some other means such as a computer storage device and also includes documents that the other party may not know about.

              This duty of disclosure is a positive duty imposed by the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 and is quite different to the obligations parties may have in a commercial dispute.

              What does disclosure involve?

              As part of your disclosure obligations, common documents required are those that evidence the following: –

              1. All income or earnings (whether paid directly to the party or not);
              2. Any interests in any ‘property’ or entity fully or partially owned or controlled by the party;
              3. All financial resources, including interests in a trust;
              4. Any disposal by the party that may affect, defeat or deplete a party’s claim; and
              5. All liabilities of the party or of any relevant entity.

              ‘Property’ for the purpose of a family law settlement is not just real property but is a much broader concept and means all assets, including superannuation.

              When does your duty to disclose begin?

              Your duty to disclose begins once you separate (with the pre-action procedures) which means before a case starts, and this duty continues until the case is finished. The duty of disclosure is an ongoing obligation and extends to all documents in your possession, power or control.

              Your duty to disclose continues until your matter is finalised which means that you must continue to provide such information as your circumstances change or more documents are created or come into your possession, power or control.

              What happens if a party to a case does not disclose?

              There are a number of consequences which may follow if a party to a case fails to disclose, including but not limited to cost orders, and if a matter has been finalised the settlement may be re-opened if the non-disclosure resulted in a detriment to the other party.

              It is important to provide disclosure in a timely matter, and to be honest and forthcoming with your disclosure documents. Non-disclosure contributes to significant delays in resolving a family law matter and significantly increases costs.

              We can help you

              Dorter Family Lawyers and Mediators offer specialist family law advice in Milsons Point on Sydney’s Lower North Shore, and are available to assist you with any questions you may have about child support.  Please get in touch with us on (02) 9929 8840 or online here.

              Rebekah Dorter
              Principal

              This post is an overview only and should not be considered as legal advice.  If there are any matters that you would like us to advise you on, then please contact us.

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                Binding Financial Agreements and How to Set them Aside 1024 684 Dorter

                Binding Financial Agreements and How to Set them Aside

                Have you entered into a Binding Financial Agreement (BFA) that is outdated or is unfair?

                In certain circumstances, the laws in Australia may enable a party to receive a just and equitable property settlement, if permitted by the Court.

                Recent Decision

                In October 2019, in the decision of Westacott & Dunwoody (No. 2) [2019] FAMCA 719, Dorter Family Lawyers and Mediators successfully set aside a BFA on the grounds that it would have been unjust and inequitable to not uphold the Termination Agreement the parties had entered into on separation. Dorter Family Lawyers represented the Husband who is now able to seek a property division that will be just and equitable under the Family Law.

                The Husband sought to set aside a BFA entered into by both the Husband and the Wife in 2005. In 2018, the parties entered into a Termination Agreement which enabled the parties to enter into Consent Orders for a final property settlement with terms different to their original BFA.

                The Wife later sought for the Termination Agreement to be set aside, and to uphold the BFA on the grounds that the Husband did not obtain the required independent legal advice when entering into the Termination Agreement.

                The Court found that since the making of the BFA, the Wife had made various payments to the Husband which were consistent with the Termination Agreement and inconsistent with the BFA. Accordingly, the Court found that it would be unjust and inequitable for the Termination Agreement to not be upheld and therefore, declared the Termination Agreement binding, which effectively terminated the BFA.

                What is a BFA?

                A BFA, or commonly known as a ‘Prenup,’ is an agreement entered into by two parties to a relationship which sets out how, in the event of a relationship breakdown, the parties’ financial affairs and property will be dealt with. You can enter into a BFA prior to being married or engaged, during a de facto relationship or marriage, or after a divorce.

                Provided that all the legal requirements are satisfied when entering into the BFA, you and your partner will be bound by the terms of the agreement. As a result, you do not need to approach the Court for a final determination of your property settlement in the event your relationship breaks down.

                Is your BFA Binding?

                Before you consider setting aside your BFA, the Court will consider whether your BFA is binding.

                Under the Family Law Act 1975 (Cth) (“the Act”), a financial agreement is only binding if you and your partner each satisfy the following:

                1. The agreement is signed by each party;
                2. Before signing the agreement, independent legal advice is obtained by each party in relation to the effect of the agreement and the advantages and disadvantages of the agreement;
                3. Each party obtains a statement signed by their legal practitioner stating that this advice was provided; and
                4. Neither party has terminated the agreement and the agreement has not been set aside by the Court.

                If one or more of the above has not been satisfied, you may not be bound by your BFA. You may then be entitled to seek a property settlement that would be considered just and equitable under the Family Law.

                Terminating the BFA

                If both you and your partner no longer wish to be bound by your BFA, you may terminate the agreement by entering into a further BFA terminating the first agreement, or by entering into a ‘Termination Agreement’. These are the only two options available to terminate the agreement in accordance with the Act and you should obtain legal advice about how to do this.

                Before signing a Termination Agreement, each party must obtain independent legal advice to understand their rights and to understand the advantages and disadvantages of making the Termination Agreement.

                Setting aside the BFA

                If the parties have not terminated their BFA and a party wishes to set aside the BFA, the Court must be satisfied of one of the following grounds:

                1. The agreement was obtained by fraud;
                2. The purpose of the agreement was to defraud or defeat a creditor or the other party;
                3. The agreement was made with reckless disregard to creditors or the other party;
                4. The purpose of the agreement was to defeat an interest of the other party;
                5. The agreement is void, voidable or unenforceable;
                6. Circumstances have arisen to make the agreement impracticable to be carried out;
                7. Since the making of the agreement, there has been material changes which involve the care, welfare and development of a child and the party who is responsible for the child will suffer hardship if the BFA is not set aside; or
                8. A party engaged in unconscionable conduct when making the agreement.

                Application of Rules of Contract

                A BFA, being a contract, is subject to the laws of contract and legal advice should be obtained to ensure your BFA also complies with the laws of contracts.

                Simplifying the laws of contract, the BFA may be voidable or unenforceable if:

                1. One party repudiates the contract by showing that they no longer wish to be bound by the contract and the other party chooses to rescind the contract; or
                2. One party intentionally waives their right to enforce the contract or abandons the contract by acting in a way that is totally inconsistent with the contract.

                FAQs

                1. Do I have to go to Court to set the BFA aside?

                Unfortunately, to set a BFA aside, you will need an order of the Court if the other party does not agree to mediate and reach agreement. If both parties agree to not be bound by a BFA, a Termination Agreement should be completed in accordance with the Family Law Act.

                2. What if the BFA does not deal with all of the property in the event of separation or divorce?

                Part or all of the BFA may become uncertain and therefore unenforceable. This will depend on the terms of the clause considered in the context of the BFA entirely.

                3. Can the BFA include a parenting agreement?

                These clauses will not be binding and cannot be enforced. The best way to deal with parenting is through Consent Parenting Orders.

                4. Can the BFA include a spousal maintenance? 

                The Court will still have jurisdiction to deal with spouse maintenance in accordance with the Family Law.

                Do You Need Legal Support for Binding Agreements?

                Each party’s circumstances are unique and legal advice should be obtained from a family lawyer who specialises in such agreements if you seek to rely upon or set aside a BFA.

                If you require assistance, please contact Dorter Family Lawyers and Mediators on (02) 9929 8840 or via email.