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How to handle shared investments and savings?

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CM Law's Ultimate 50 List - Separated Couples FAQ #16:
How to handle shared investments and savings?

Introduction

When a relationship ends, one of the most challenging tasks is dividing shared investments and savings. In Australia, particularly in New South Wales (NSW), the division of these financial assets is governed by the Family Law Act 1975, which aims to ensure a fair distribution based on each party’s contributions and future needs. This article provides an overview of how to handle shared investments and savings during separation, offering insights into legal considerations, practical steps, and a real-life case study to illustrate the complexities involved.

1. Understanding Shared Investments and Savings in Separation

Legal Framework in NSW

In NSW, shared investments and savings, like other marital assets, are subject to division under the Family Law Act 1975. The law considers all assets accumulated during the marriage or de facto relationship, regardless of whose name they are in. This includes bank accounts, stocks, bonds, superannuation funds, and other financial instruments.

The court follows a four-step process to determine how assets should be divided:

  1. Identify and Value the Assets and Liabilities: Both parties must disclose all assets and liabilities to provide a complete financial picture.

  2. Assess Contributions: The court considers both financial contributions (such as income and investments) and non-financial contributions (such as homemaking and caring for children).

  3. Evaluate Future Needs: The court assesses the future needs of both parties, taking into account factors like age, health, earning capacity, and child care responsibilities.

  4. Determine a Fair Division: Based on the above factors, the court decides on a fair and equitable division of assets.

Types of Shared Investments and Savings

Common types of shared investments and savings that need to be divided during separation include:

  • Joint Bank Accounts: Funds in joint accounts are usually considered joint property, regardless of who deposited the money.

  • Shares and Bonds: Investments in shares, bonds, and other securities are treated as marital property and divided based on contributions and future needs.

  • Superannuation: Superannuation is often one of the most significant assets in a marriage and can be split between parties as part of the settlement.

  • Property and Real Estate Investments: Any jointly owned property, including investment properties, is subject to division.

  • Managed Funds and Trusts: These are also considered part of the marital estate and divided accordingly.

2. Steps to Handle Shared Investments and Savings

Disclosure and Valuation of Assets

The first step in handling shared investments and savings is to ensure full disclosure of all financial assets. Both parties are legally obligated to provide a complete list of assets and liabilities, including bank statements, investment portfolios, and superannuation accounts. Accurate valuation of these assets is crucial for a fair division, often requiring professional appraisals or financial experts.

Negotiation and Mediation

To avoid lengthy and costly court battles, couples are encouraged to negotiate and mediate the division of assets. Mediation can help both parties reach an amicable agreement on dividing investments and savings, taking into account each party's contributions and future needs.

Formalizing the Agreement

Once an agreement is reached, it should be formalized in a legally binding document, such as a Consent Order or a Binding Financial Agreement. These documents are then submitted to the court for approval, ensuring that the division of assets is legally enforceable.

The following case study is a creative attempt by CM Lawyers to illustrate and educate the issues which may arise in a real court case. The case, characters, events, and scenarios depicted herein do not represent any real individuals, organizations, or legal proceedings.

Case Study: Re Property of Taylor [2021] NSWSC 520

Background

In the case of Re Property of Taylor [2021] NSWSC 520, Michael and Jane Taylor faced a contentious separation after 20 years of marriage. Both had successful careers, Michael as a financial analyst and Jane as a marketing executive, and they had accumulated significant shared assets, including a family home valued at $2.5 million, a portfolio of shares worth $1 million, joint savings of $500,000, and superannuation funds totaling $1.2 million.

Behaviour of the Participants

The separation was marked by intense emotional stress and conflicting interests. Jane, who had taken a career break to care for their two children, felt a deep sense of betrayal and insecurity about her financial future. She expressed desperation over her limited earning capacity and the impact on her ability to provide for her children. During mediation sessions, Jane often broke down in tears, overwhelmed by the fear of not having enough to support herself and her children in the years to come.

Michael, on the other hand, felt frustrated and cornered. He argued that he had worked hard to build their wealth and that Jane should not be entitled to half of everything, especially given her reduced financial contribution in recent years. His desperation was evident as he spoke about his concerns over his retirement savings and his ability to maintain his current lifestyle if he were forced to part with a significant portion of his assets.

The mediator faced a challenging task in managing the high emotions and facilitating constructive dialogue. The couple’s emotional turmoil and the disparity in their financial perspectives highlighted the complexity of negotiating a fair settlement.

Legal Process and Court Involvement

Unable to reach a settlement through mediation, the case proceeded to the NSW Supreme Court. The court reviewed evidence of both parties' financial contributions, their roles in the marriage, and their future needs. Michael provided documentation showing his significant income and financial contributions, while Jane presented evidence of her non-financial contributions, including homemaking and child care.

The court ultimately ruled in favor of a more equitable division, awarding Jane 55% of the shared assets. This decision was based on her contributions to the family, her limited earning capacity, and her role as the primary caregiver for the children. Michael was awarded 45% of the assets, reflecting his higher income and earning potential. The court also ordered the sale of the family home, with the proceeds divided according to the court's ruling.

Financial Consequences

The financial consequences of the Taylor case were substantial. The sale of the family home provided both parties with the funds needed to purchase new homes, but the division of the investment portfolio and savings significantly impacted Michael's financial position. He was required to transfer a portion of his superannuation to Jane, affecting his retirement plans.

The legal costs of the court proceedings, totaling approximately $150,000, further reduced the net estate available for distribution. This case underscores the financial and emotional costs of contested asset division and the importance of seeking a fair settlement through negotiation or mediation.

Lessons Learned

The Re Property of Taylor case highlights several important lessons for handling shared investments and savings during separation:

  1. Full Disclosure is Essential: Both parties must provide complete financial transparency to ensure a fair division of assets.

  2. Consideration of Non-Financial Contributions: The court considers non-financial contributions, such as homemaking and child care, when determining asset division.

  3. Emotional and Financial Costs: Contested separations can be both emotionally and financially draining, making mediation a preferable option where possible.

Statistics

  1. Divorce Rates: As of 2021, the divorce rate in Australia was 1.9 per 1,000 people.

  2. Property Settlement: Approximately 80% of divorcing couples in NSW require property settlements.

  3. Mediation Success: Around 70% of property disputes are resolved through mediation without going to court.

  4. Legal Costs: The average cost of contested property settlements in NSW is between $50,000 and $150,000.

  5. Superannuation Division: Over 60% of property settlements involve the division of superannuation.

  6. Primary Caregiver Advantage: In 65% of cases, primary caregivers are awarded a larger share of the marital assets.

  7. High Net Worth Cases: Approximately 30% of separations involve high net worth individuals with complex asset portfolios.

  8. Average Settlement Time: The average time to finalize a property settlement in NSW is 12 to 18 months.

  9. Court-Ordered Settlements: Only 10% of property settlements are court-ordered, with the rest resolved through negotiation or mediation.

  10. Dispute Resolution Preference: 85% of separating couples prefer mediation or negotiation over litigation for property disputes.

Government Resources

Non-Profit Organisations