Divorce – untying the knot September 2010 Tim Sanderson

This presentation is given by a representative of Colonial First State Investments Limited AFS Licence , ABN (Colonial First State). Colonial First State Investments Limited ABN , AFS Licence (Colonial First State) is the issuer of interests in FirstChoice Personal Super, FirstChoice Wholesale Personal Super, FirstChoice Pension, FirstChoice Wholesale Pension and FirstChoice Employer Super from the Colonial First State FirstChoice Superannuation Trust ABN and interests in the Rollover & Superannuation Fund and the Personal Pension Plan from the Colonial First State Rollover & Superannuation Fund ABN and interests in the Colonial First State Pooled Superannuation Trust ABN The presenter does not receive specific payments or commissions for any advice given in this presentation. The presenter, other employees and directors of Colonial First State receive salaries, bonuses and other benefits from it. Colonial First State receives fees for investments in its products. For further detail please read our Financial Services Guide (FSG) available at colonialfirststate.com.au or by contacting our Investor Service Centre on All products are issued by Colonial First State Investments Limited. Product Disclosure Statements (PDSs) describing the products are available from Colonial First State. The relevant PDS should be considered before making a decision about any product. Stocks referred to in this presentation are not a recommendation of any securities. The information is taken from sources which are believed to be accurate but Colonial First State accepts no liability of any kind to any person who relies on the information contained in the presentation. This presentation is for adviser training purposes only and must not be made available to any client. This presentation cannot be used or copied in whole or part without our express written consent. © Colonial First State Investments Limited Disclaimer

Agenda Who is affected by family law property settlements? Options / tools for splitting assets Identifying and valuing assets Dealing with superannuation settlements Tax and preservation issues

Who is affected? The facts Will affect many clients Around 1/3 of married people A large proportion of the 2 Million people in a de facto relationship Median age at time of divorce 41.3 for females 44.2 for males Married for an average of 9 years But will take 3.5 years on average to divorce

De facto relationships now included Of at least 2 years duration OR… where there is a child OR OR…registered under state law OR OR…where one member has made a substantial contribution AND…anywhere but SA* or WA* * Separate state laws

Options for splitting assets

1. Binding financial agreement Written agreement for splitting assets if relationship ends Legally binding on the spouses if: Both have a copy Both have received independent legal advice Both have signed Has not been terminated Has not been set aside by the Court Can only be set aside by the Count due to fraud, non- disclosure or unconscionable conduct Beware of non-binding ‘friendly’ agreements

When can they be made? After a relationship has ended Most common Used instead of going to court for a property settlement Before entering into a relationship As a pre-nuptial agreement Sets out how assets will be split when the relationship ends Often used by those with children from previous relationships During a relationship Similar to pre-nup, but made during relationship Good for protecting assets acquired / inherited during a relationship

2. Court orders Require leave of court if not brought about within: 12 months from divorce 2 years from the end of a de facto relationship Consent order Agreement between spouses, then approved by Court Must be just and equitable Financial order Contested settlement where court makes a decision Must be just and equitable Court orders are binding on the couple Legal advice can held smooth the process

Powers of the Family Court Power to obtain information - identify existence & ownership of assets Power over prior transactions - can overturn transactions aimed to defeat Family Court Power to declare who owns what property - decide what property will be part of the settlement Power to alter interests in the property - make the property settlement FAMILY COURT Family Law Act Power to determine when a de facto relationship exists and for how long

What does the Court consider? Present FuturePast - Financial & non- financial contributions to property - Contributions to family welfare - Earning capacity - Spouse maintenance - Child support - Assets and financial resources available to split Court must use this method Appropriate for use in agreements

Identifying and valuing assets

Generally included... Shares & managed funds Superannuation Interest in an estate Foreign assets Artwork Jewellery Cars Collections Bank accounts & term deposits Investment property / Holiday house ALL PROPERTY OF THE RELATIONSHIP

Identifying assets Property Takes its ordinary (and broad) meaning Covers every interest that a person holds Includes Superannuation Foreign assets Shares in a private company In a controlled trust Beneficial interest in a deceased estate Generally amounts received between separation and settlement (eg, compensation, lottery, inheritance)

Identifying assets Case: Brease January or April 1993: Co-habitation commenced March 1993: $473, won in Lotto Purchased by Mr Brease Using registered Lotto card in Mrs Brease’s name Proceeds used for various purposes January 1994: Married December 1994: Separated Mr Brease claimed lottery win was a joint contribution while Mrs Brease claimed it was her contribution Mrs Brease won

Also included... ‘Notional’ property Property owned at the time of separation but subject to unreasonable disposal Case: Townsend Wife having an affair went overseas with her ‘friend’ Husband vacated house and tried to sell it and his taxi $148,000 from sale of taxi, then stopped work $148,000 added back into property settlement Hidden or undisclosed assets? Court has general powers to require disclosure Can be included in property settlement

Not included Mere hopes or expectancies Eg, 5 carat diamond, Rolls Royce and $5 Million legacy Great Uncle Mortimer will leave you from his estate Assets in a discretionary trust where you’re only a beneficiary (ie, don’t control the trust) Assets of a trust not connected to the marriage or relationship Assets that are already protected by a previous binding financial agreement

Valuing assets to be split - general No precise mathematical calculations to determine gross value of non-super assets Value of assets to be split is gross value of assets, less value of encumbrances, less unsecured liabilities Reasonable to use market value Realisation costs (taxed, cost of sale, legal costs) Not automatically taken into account Adviser role – help to simplify the valuation process

When is an asset valued Generally valued at settlement Sometimes an exception can apply Case: Cozanitis 1972: Husband and wife purchase run-down milk bar 1973: Separated 1978: Property hearing. Husband has built up the milk bar through his own efforts Assets valued at time of separation

Superannuation family law splits

Valuing assets to be split - general Legal process Method Court Order Superannuation Agreement FlaggingSplitting Interest SplitPayment Split Pension payments Lump sum payments Puts ‘stop’ on withdrawals and rollovers prior to condition of release New account for non- member spouse Each payment is split as it is made

Evidence of relationship breakdown If divorcing, require: Court order or agreement Copy decree absolute or separation declaration If de facto and separating, require: Court order or agreement Copy decree absolute or separation declaration Adviser role – help ensure correct declaration made SeparatedLess than 12 mths12 mths or more Super value <= $160,000* Declaration : married/de facto but separated Declaration: Married/de facto but separated Super value > $160,000* Can’t split super until separated > 12 mths Declaration: Married/de facto but separated > 12 mths & living apart & won’t cohabitate

Splitting for non-member spouse Adviser role – advise on most appropriate new superannuation arrangement Create new interest Payment of lump sum If UNPB or condition of release Transfer to other fund Spouse Non-member spouse Non-member spouse

Tax and preservation Member benefits reduced by splitting payment Everything is proportional Tax components Preservation Any preserved amount transferred would remain so until the receiving spouse satisfies a condition of release If access to super is an issue for one spouse (eg, because of a difference in ages), this could be dealt with through a binding financial agreement

Example David (63) and Dianne (52) are separating David’s super balance is $300,000 $50,000 tax free component $25,000 unrestricted non-preserved Court order indicates Dianne to receive 70% Dianne will receive: $210,000 ($35,000 tax free component) Only $17,500 unrestricted non-preserved Dianne will need to meet a condition of release for remainder Alternatively, binding financial agreement David keeps $300,000 super Dianne receives $210,000 of non-super assets

Summary Understand divorce / separation process Ensure client’s actions are not in conflict with the Family Court Assist in identifying and valuing assets Provide post-settlement advice strategies Incorporate family law issues in initial and ongoing advice

  FirstTech team