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The Basics of What Your Exs Company is Worth: The Balance Sheet

One way to determine what you or your former spouse’s company is worth is to instruct your divorce lawyer to engage a single expert valuer to put a dollar figure to the value of the business. Your divorce lawyer will then instruct the valuer to analyse the company’s financial statements among other things to determine the value for the purpose of your family property proceedings.

A company’s financial statements are made up of the following:

  1. Balance Sheet
  2. Profit and Loss Statements (Or Income Statement)
  3. Cash Flow Statement

 

The Balance Sheet

The balance sheet is a snap shot of a company’s accounts. It provides at a glance what the company owns and is owed. It can give an indication of the financial position of the company at a single point in time.

The balance sheet depicts a company’s assets, liabilities and owner’s equity (net worth). Assets include cash, office equipment eg chairs and desks, all inventory and accounts receivable which refers to people who have bought from the company but have not yet paid.  Non-current assets are also listed under assets which include the building and land, goodwill, patents and copyright.

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Property Pool under $500,000 – Resolving Your Family Property Dispute Quickly

On 7 February 2020 the Family Court published a Practice Direction on Case Management of property pools under $500,000, known as PPP500 cases. The purpose of the practice direction is to assist your divorce lawyer to help you achieve a just, efficient and timely resolution of your matter.

Who Does the PPP500 Direction Apply to?

The practice direction applies to family law applications for property settlements filed by your divorce lawyer in Brisbane, Parramatta, Adelaide and Melbourne registries of the Federal Circuit Court of Australia.

A PPP500 case is where the value of the combined property of the parties including superannuation is under $500,000. Further, neither party can own, or be in effective control of an entity such as a trust, company or self-managed super fund that might require a valuation.

The Court also has the power to declare the case as a PPP500 case.

A PPP500 case does not apply to cases where parenting orders are sought, child support cases, contravention applications and enforcement applications.

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Can You DIY Your Prenup?

In an effort to save money on their property settlement, some couples have sought to DIY their prenup. But is it a good idea?

The Family Law Act states that for a prenup to be valid and enforceable, one requirement is that both parties need to obtain independent legal advice. This legal advice has three components:

  1. Firstly, the legal advice must be given before signing the agreement and must cover the effect of the agreement on the rights of that spouse and about the advantages and disadvantages of the agreement.
  2. Secondly, either before or after signing the agreement, each spouse must be provided with a signed statement by the legal practitioner stating that the advice was provided to that party.
  3. Thirdly, a copy of the statement must be provided to the other spouse or legal practitioner for the other party.

Take for instance the scenario of Mark and Sally. Mark and Sally would both like a prenup before they marry next year to protect their respective financial interests. According to Australian law, both Mark and Sally must seek separate legal advice. That is, two separate lawyers that are independent of each other need to be engaged in the process. Prior to signing the agreement, Lawyer A gives their advice to Mark, while Lawyer B gives their advice to Sally. Before or after signing the prenup, Mark’s lawyer needs to provide a signed statement that declares the said legal advice was given to Mark. Then, a copy of that statement needs to be given to Sally or her lawyer. Sally also needs to do the same.

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Reaching a Property Settlement Agreement through Family Law Arbitration

There are numerous methods aside from traditional Court determinations which parties can utilise when seeking to reach a property settlement agreement. Section 10L of the Family Law Act 1975 defines arbitration as “a process (other than the judicial process) in which parties to a dispute present arguments and evidence to an arbitrator, who makes a determination to resolve the dispute.”

How do Arbitrations operate?

Arbitrations are available for property and financial matters and are voluntary. A matter may also be referred by a court order. They can take place before, during or after proceedings have commenced.

Arbitrations may either determine entire financial or property disputes, or alternatively they can focus on specific aspects of the dispute.

The parties have flexibility in preparing a written arbitration agreement before the arbitration commences to determine the constraints and process of the arbitration.

Are Arbitral determinations final?

Once arbitration has finalised, the arbitrator will make an arbitral award. An arbitral award is final and upon registration, it has the same impact and enforceability as an order of the Court.

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Collectables and your property settlement agreement

Whether you collect postage stamps, designer handbags, books, art or cars, don’t underestimate the value of your little hobby when it comes to a property settlement agreement.

In the recent case of Isaacson [2019], Judge Wilson considered a property settlement agreement dispute between a former husband and wife, as to the value of the husband’s book collection. The husband alleged the book collection to be worth $183,905.00 and the Wife believed it to be worth $384,421.00.

Both parties sought to rely on their own “expert” evidence as to the apparent value of the book collection.  This is where the case highlighted the importance of seeking legal advice when intending to use expert evidence to ascertain the value of collectables in a property settlement agreement.

The Husband’s “expert” provided the Court with a 97 page affidavit pertaining to his opinion as to the value of the book collection. The affidavit of the Husbands “expert” failed to address the elements of his training, study or experience which are required to be satisfied in order to deem a witness to be qualified as an expert. The Court consequently found the Husbands alleged expert evidence to be deemed inadmissible.

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Property Settlement Agreement – Can the Court Split Employment Bonuses?

What is Property?

When negotiating a property settlement agreement, one of the first steps to be considered is what property you and your former spouse have or own. This step is important as only property can be subject to a property settlement agreement. The Family Law Act defines property as “any property in the possession of either party, either vested or in remainder.”  Property of the relationship generally includes:

  • All assets that are owned, g. the family home, motor vehicles, personal items
  • All assets under your control, e.g. a business, superannuation, shares and funds at bank
  • All liabilities, e.g. mortgages, credit cards, hire purchase agreements

Are Employment Bonuses Property?

In the case of Ilannello & Ilannello (No 3) [2018] FCCA 3752 (19 December 2018) the Court considered the question of whether the wife’s future employment bonus payments could be the subject of a property order.

Facts of the Case

In this case, the husband had suffered a workplace accident and had been unemployed since 2013. The husband was living on a permanent disability payment from his super fund. While he owned about $78,000 in shares, he claimed that his legal fees were equally as much. On the other hand, his wife had a base salary of $190,000 per year plus employment bonuses. In the previous year, the wife received $54,000 in bonuses.

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Judicial Mediation: A New Option To Resolve Your Dispute

As of 1 January 2019, parties to a family law dispute and their marriage lawyer, in appropriate cases, may now have the option of Judicial Mediation in the Federal Circuit Court of Australia. Judicial Mediation is not intended to replace or substitute private mediation. Rather, the court expects that parties to a family law dispute exhaust all mediation alternatives, such as private mediation with a private mediator, prior to Judicial Mediation.

The Judicial Mediator

The Judicial Mediator may not be the Judge that would ordinarily determine the family law dispute. This Judge is referred to as the Docket Judge. Where both Judges consent, the Docket Judge may refer the proceeding for Judicial Mediation to another Judge.

How to Initiate Judicial Mediation

Judicial Mediation can be initiated in two ways. Firstly, you or your marriage lawyer can make an oral application in court. Alternatively, you or your marriage lawyer may apply for judicial mediation in writing to the Docket Judge. The written application must include a brief summary in bullet point format addressing why the matter is suitable for Judicial Mediation.

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Quick Questions Answered: Property Settlement Agreement

  1. What is a Property Settlement Agreement?

A Property Settlement Agreement contains the agreed terms to divide property between you and your former partner following separation. This includes assets, liabilities and superannuation.

  1. When Can I Get A Property Settlement Agreement?

You can finalise a property settlement agreement as soon as you and your former partner have decided to separate i.e. end your relationship.

  1. What if we are still living under the same roof?

You can be living under the same roof but still be considered ‘legally separated’. You do not need to be living in separate households; however, your relationship does need to have ended.

  1. What are the deadlines for obtaining a Property Settlement Agreement?

The Family Law Act 1975 (Cth) provides some “deadline dates” depending on whether you were married or in a de facto relationship. There are some exceptions however, the general rule is:

For married couples: You have 12 months from the date your divorce* comes into effect to make an application for a Property Settlement.

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