Everyone going through a separation wants a fair property settlement. The problems arise when your idea of what’s fair and that of your ex-partner are very different, or when one party wants to use property settlement as a means of punishment for past hurts.
In this episode, Heather McKinnon, one of Australia’s foremost family lawyers, shares her top tips for getting a fair deal.
Tips discussed include:
FAQs Property Settlement: This FAQ document answers frequently asked questions about property settlement.
These resources will help you to estimate the value of your assets.
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Benjamin: Welcome to The Family Matters podcast where we answer the tough questions about divorce and separation. Empowering you to make better decisions for yourself and your family.
Benjamin: Hi everyone thanks for listening in to episode two of the new Family Matters Show podcast. I’m your host Benjamin Bryant from Bryant McKinnon lawyers and I’m here with my partner Heather McKinnon. Hi Heather.
Heather: Hi Ben. It’s good to be back. I can’t believe how many people watched, well listened, to the first podcast.
Benjamin: I know it’s just amazing isn’t it? And it’s just the two of us today. Back to just the two of us.
Benjamin: Last month we spoke to forensic psychologist Dr Ian Nisbet about helping children to cope with the trauma of divorce. So if you have children and you missed that episode I recommend you go back and listen. You can access the episode on our website or wherever you get your podcasts.
Heather: Yeah. Ian was really good. He gave very down to earth advice that all parents who are going through the process should listen to.
Benjamin: Absolutely and I think his advice was really valuable so we encourage people to go back and listen to that podcast.
Benjamin: Today we’re going to discuss the other elephant in the room when it comes to separation or divorce. And, of course, that is the property settlement. As family lawyers what we want most is for people to come away from the process of separation and divorce feeling good about themselves and able to move forward with their lives. To do that it’s really important that our clients feel that they’ve achieved a fair outcome. Pretty much everyone who comes in to see us wants a fair property settlement. The problems arise when your idea of what’s fair and that of your partner are very different or when one party wants to use property settlement as a means of punishment for past hurts. So today my partner Heather McKinnon has agreed to share her top tips for getting a fair deal for those who may not know. Heather McKinnon has been working in family law for over 30 years and she’s one of the leading family law authorities in the country. She’s also one of the most honest and frank people I know so I’m pretty excited to hear what Heather has to say today. Are you ready Heather. What is your first tip?
Heather: Well Ben, I think the one that I would want everyone to focus on first is: what are the assets and liabilities that the partnership has really got management of? People often think that things have to be in joint names for them to be considered as an asset of the parties but actually what you need to do at the beginning is work out everything under either of your control. So, there’s lots of categories of assets. So real estate, cash investments, shares, business and contents: vehicles, farm machinery, anything that has come into existence during the lifetime of the parties actually needs to be put down on a sheet.
Benjamin:And I find Heather that when parties come to see us for the first time, or clients come to see us for the first time. When you are going through what we call step one which is identify the asset pool. That is what are the assets available for distribution and what are the liabilities. When you’re going through that exercise with clients, it’s the first time that they’re doing it and I find especially with mothers or wives where, if you believe in the traditional roles whereby the mother’s the primary carer for the children but also working these days, I find it more so for them that it’s the first time because sometimes the husband has just produced the income along the way and the parties are a bit acquiescent or not quite involved in the finances and it’s not until you have to start separating the two can you start realising what you guys were doing or some instances it’s “Wow, we didn’t know that was in existence! Where did that come from? I thought that was something else.” Or it might even be, “Where did all the money go?”
Heather: And it’s you know that’s one of the privileges of the job. When you sit down and you start the exercise with you client, you learn a lot about human nature, don’t you. I mean that task division. I certainly I think that it’s still very common in lots of relationships that one party manages the money and the other party does something else in the relationship. So you shouldn’t feel strange about not being right across the finances.
Benjamin: Or stupid or shameful.
Heather: No. It’s a very common task division and as it should be. I mean, if everyone tried to do everything, they’d be exhausted. So really all you’re going to be asked by a family lawyer at the beginning is, “Well what do you know that you own and what do you know that you know that you owe?” Often there will be big gaps in your knowledge, but part of the role of any family lawyer that’s helping you is to use search tools of public records to help fill in the gaps.
Heather: For example we can do a name search at the Land and Property Information Service in Sydney that can tell us who owns what property. Just by putting their name into a computer.
Benjamin: And not only now but historical searches as well, to see what they have had and perhaps they have disposed of property or acquired assets either during the relationship or post separation. And I think one thing we haven’t discussed Heather, and this is very common I feel that people don’t think about it because it’s just on the backburner: is superannuation.
Heather: Yes super is one of those live issues that’s become one of the most important issues in family law. I can remember when I came into practice in the early 80s, superannuation was something that nobody knew anything about. And it was only towards the end of the 80s that Qantas pilots’ marriages started to end and there were a series of cases investigating the superannuation of those pilots, which was the first really good scheme in Australia.
Heather: And it seems amazing now to think that for a generation many, mostly blokes, walked out of their marriages and got all the super and it was never divided.
Benjamin: Yeah, perhaps the largest asset.
Heather: Well definitely.
Benjamin: Perhaps the largest asset and people, when they’re in my office, when I’m speaking with them, they’re like, “But I don’t want half of his super. It’s his super.” You know, “It’s his job.” But you know you also have to explain the indirect contribution to another party’s super. If it wasn’t for that party staying at home with the children and taking responsibility for the homemaker duties, they wouldn’t be able to work so much, they wouldn’t get that promotion, they wouldn’t be able to contribute to the superannuation as they have done.
Heather: And I think that’s the big message. When you’re identifying property, it’s a shared partnership over, it might be only a couple of years or it might be decades. Don’t worry about who gets what. Initially, you’ve just got to work out who’s got what under their control.
Benjamin: And extending from that, so that was essentially the asset pool, the assets and liabilities, that is what is up for grabs essentially. The next step…your next tip is to do your due diligence. So to make sure you’re aware of the other party’s financial position. So that might be perhaps more than just assets that are available now or debts that you need to divide now, that might be something like earning capacity or perhaps something like inheritance or something like that.
Heather: Yeah. Certainly, it’s to really think about what were the major financial events. So, about half the people we see say that they got married or they got together as the typical penniless couple. They just started out in their early 20s with a bomb car and some contents. The other half of relationships are different to that, in that they’re either later in life relationships, where one or both parties already comes to the relationship with a lot of capital, or as you just indicated, during the relationship something happens where a windfall, of sometimes hundreds of thousands of dollars, turns up by way of an inheritance or a gift.
Heather: So we’re going to ask questions about the financial events if you like, right from the beginning of your relationship through to now, and we’ll be sifting around to explore whether this is a what we would call a house and garden case, where you start out with nothing, nothing unusual happens and you’ve just got the pot to divide or whether it’s a more complex situation where some unusual events have happened either at the beginning or during that mean that the balance isn’t going to be something other than an equal division.
Benjamin: That’s right, because a lot of people you know they say there’s a presumption of 50/50 that.. aren’t we supposed to be working towards 50:50 notwithstanding that perhaps there were some unequal initial contribution or perhaps even moving forward that there being a disparity in each party’s financial position? So, it’s a common misconception out there about the 50/50 presumption.
Benjamin: Heather, your third tip is that if you can’t agree on an asset value at least agree to get a valuer.
Heather: Yeah look, once you’ve got the items on the balance sheet, the next typical conflict occurs over people trying to be valuers themselves. So, for example, you’ll have items like caravans, Harley motorcycles, antique furniture, artwork, real estate and everyone will have a bid at what they think they’re worth. And sometimes the variation between the spouses will be massive on a particular asset. Just don’t even go there guys. If that happens and you’ve got an asset that’s in dispute, just agree to pay half the costs of getting a decent valuer to value it. That removes the argument.
Heather: And I find people, they get a bit lost in the valuation process, because some people are using market value, some people are using Gumtree value, some an insured value or replacement value. And they can spend a lot of time, and sometimes a lot of money, arguing about things that end up not being worth much. So, I think it’s really important to front load that question: do we need a valuer? Do we know what we’re talking about? Are we comparing apples with apples?
Heather: Yeah and that removes half the fights. I mean it’ll be interesting – I’d like to see in a few months’ time that we actually interview a valuer on the podcast. Valuation of real estate and companies is conducted by tertiary educated professionals. They spend their whole life in that field and until you come up against this sort of thing like a property settlement, you would never know they exist. It’s a whole profession. So, it is important to remember that if the first balance sheet comes through from your spouse and that has values that you don’t agree on, don’t get sucked into the vortex of conflict. But look at how you might appoint a valuer and agree on who that will be, so that asset can be put in the sheet at a decent price with expert input. Not just be an excuse for the fight to continue.
Benjamin: And I think the valuer that most people will come across as a real property valuer or a valuer for houses. And I know that a lot of people, when they’re doing their property settlement, would prefer to use appraisals by real estate agents. The benefit of that is, of course, that they can be quick and they’re free mostly. But of course the appraisal can sometimes give a big range. And when you use different agents the range can be quite significant and it mightn’t assist at all. You might be getting three appraisals each and you just simply take the midpoint. Whether that’s a good process or not that’s really what the parties agree and managing the risks. The valuer of course is a bit more involved process and it does come at a cost but once it’s valued, it’s valued. And I know recently at the end of last year Heather we had a matter where I think the parties had four real estate appraisals for a particular property and the range was big and so they ended up getting a real property valuer out there and I think it was off by something like two hundred thousand dollars or something. It’s quite significant. So in that sense the small cost of the valuer or the valuer fees really paid for itself.
Heather: And I think the other warning is in this economic environment it’s critical to understand what is happening in the property market. So, agents at the moment are being very optimistic. They earn their living through the market, but valuers are predicting according to the analysis of the economic data.
Heather: What is happening, and I’ll give the example I’m going to Sydney next week to do a mediation where six weeks ago we valued a property in Sydney and the valuation came in at $1.2M and we sent the valuer out again last week and there’s $150,000 decline in that property. So, it’s critical in a time where the market is changing that people do understand that valuations may have to be obtained to get a really accurate idea of what something’s worth.
Benjamin: And your fourth tip Heather is about not getting emotionally attached to particular objects. We’re talking about the house, it can be the first home together, it can be the the matrimonial home or where the kids were raised. It can be a lot of emotional attachment there, but we also see some interesting things in our matters where people get emotionally attached. We’ve seen gifts from grandparents, we’ve seen I think a veggie spiraliser even enter the mix at some point, pot plants have been mentioned.
Heather: Baking dishes from Grandma. We had one of those in the kitchen in our office for ages.
Benjamin: Yeah. So, I think that tip kind of speaks for itself. Again, what I noted before is that you can spend a lot of time and a lot of money arguing over the value of certain contents but what’s your tip in terms of contents or objects or assets that have a sentimental value rather than a market value.
Heather: Well I’ve now been doing this job for 37 years; I’ve never seen a judge have to determine a contents division. Most people at the end of the day, even if they spend a lot of money to get there, work it out. The way that judges suggest that people work out division of household contents, which is where a lot of emotion is, is for one party to prepare two roughly equal lists. And then the other party picks one of the lists. It’s the same technique you use with kids. The alternative version is what we call pick a pile method, which in my experience is the one that most couples choose to use, where you get a clipboard, you meet at the house, sometimes with friends who can keep you calm and you go through each room: you pick first, you pick second. So you go through the house until everything in it is divided and then the truck comes. So the reason that is such a hard task and in fact many clients tell us the hardest, is it does represent the end of the home. And you need to go into that process understanding that’s the rawest emotion. When you’re actually dividing things like CD collections, photographs, gifts that you received from friends and family during your marriage including for your wedding, it really does sign the sign the death knell, if you like, of the relationship. And so be very aware of those emotions. And then once you’ve got awareness of the emotion you can use your mind to help you do a logical process.
Benjamin: That’s right, step through it.
Heather: Yeah. Have a way of doing something that is not emotional in order to counter the impact of those emotions.
Benjamin: And I think what we also, when people come and see us, is we talk through with them some practical tips about particular items of property and one of those is, of course, that when parties resolve the matter (and I say resolution, they resolve the matter by consent mostly), but even if it was a court order there’s normally a catch or clause at the end of the orders or the agreement reached which says that the property stays where it is. So if the grandma’s vase or the spiraliser was in your care or possession then it remains yours, you are declared owner. And so, a lot of people I think need to be very conscious of when they do leave the former matrimonial home that they do take the things of sentimental value, the things that matter, with them. And that launches us into your next tip. That is to get preliminary advice early on.
Heather: I mean certainly when you’re in the throes of separation how you leave the house, how get sentimental assets out, how you work out who pays the power bill, the electricity bill, the mortgage, the insurance pending a sale or a buyout, are all the things that tend to stop people separating because they become overwhelmed with all of the decisions that have to be made. If you get some preliminary advice by a decent family lawyer you’ll get some structure and some steps on what to do first. And that really does help ease that overwhelming feeling that I’m just not going to be able to sort this all out. Because of our experience over years of helping people, we can sort of say okay do this first, this second.
Benjamin: And a help prioritise.
Heather: Yes. And it contains the anxiety because then you can just follow through those steps without feeling that you’ve got to do everything at once. Certainly in terms of the division of contents at separation, when one person decides they’re going to be the one to go and rent while you work out how to do the settlement, then it is important to try and have that discussion about, can I take the things with me that mean something to me.
Heather: The reason I also think that’s important is that when you set up your first home after you separate, you still need to have around to those things that give you comfort. And when you’ve got children involved it’s really important for them to get a sense that everything’s calm and we are going to have two houses, but there are things that we’re familiar with at both houses. It’s not like all the familiar things stay in one place and we go to a totally strange world. So it takes a bit of work, but I think in the main people sort it through eventually.
Benjamin: And Heather something that you just said reminded me of something or struck with me and that was with people making a lot of decisions early on and I know that I did a radio interview late last week with Liz Keen from the ABC and she asked me how taxing it is on us lawyers to hear people go through this process over and over and over again and help them make these little decisions and things like that. And my response to Liz was that in fact this is what we do it for. This is what excites me at least is that we have context. Our clients come to us, this is usually or hopefully the first time that they’ve gone through it, and they’ve got so much to navigate in a very emotional time. But of course, with our context we’ve seen it all before. Do you know what I mean? We see it every day and I’m excited, what I love about my job is helping people on the journey and helping them navigate and helping them make those decisions. And I think it’s really important that people do get advice, particularly legal advice, early on. Because you’ve seen a lawyer doesn’t mean to say you are going to court or you have to ask for 100% of the pool or anything…you know lawyers get a bad rap. It’s about essentially the intention of this podcast: is to get information out there, obtain information so you can make some informed decision, because these decisions will likely have a long-term impact on your life.
Heather: And I think one of the tips that I’ve always given people is, don’t go into the major stuff until you’re through that first three to six months. I mean you can sort out, we’re going to have two houses, one’s going to rent and we’ve done a rough division of the furniture. We know how we’re going to pay the joint bills for the next three months. Then down tools and recover. Don’t go back into negotiation until you’ve licked your wounds and you’ve got through that initial grief phase, which the psychs train us is six weeks of really serious stuff. Don’t make decisions in that period of time.
Benjamin: Who else can parties who are separated or have recently separated speak to apart from a lawyer.
Heather: So the trusted adviser as I call them is often very valuable. And so for people who’ve been together for a long time who have significant resources, maybe a business, the accountant is often a good person to start with, because they can objectively help people work out what are the immediate financial decisions that need to be made as opposed to the long ones. So, if you have an accountant that has worked with you both, my experience is they’re pretty good at helping parties go through this.
Heather: The financial advisors are really important because if you have, in that balance sheet the identified, 10 or 12 different categories of assets, it might not be clear the best way to divide them. For example, you might think “oh we’re just going to go down and we’re going to divide each asset in half. Divide the super, the house, the shares, we’re going to sell the business, we’re going to do the cash.” Once you bring a financial planner in they can explore creative solutions where you can divide the capital in its entirety but it might mean that one party holds all of the super and the other party takes real estate. It’s not clear initially how you should divide an empire, and financial planners are really good at giving you a lot of creative options to look at if you’ve got the wherewithal to get that help at the beginning. And we often will work with them we’ll say, “Look take these notes go to the financial planner we’re happy to talk to them and see what they recommend.”.
Benjamin: And financial advice is really important in some circumstances to help you identify the asset pool. So, going back to your first tip understanding the assets and liabilities, because there’s no point reaching an agreement that the assets and liabilities be divided 50:50 or 60:40 or whatever the case may be, if you don’t know what you’re dividing. The question is 50:50 of what? So I think it’s really important to get financial advice and also they can explore other things, like if you have extended liabilities or a portfolio structure or a family company or something like that, there may be some personal guarantees or some caveats on the property or some insurance products or something that you need to navigate as well. So sometimes even though the intention can be quite simple and parties can see what you’re trying to achieve (people who are assisting you can see what you’re trying to achieve), sometimes it’s not that simple to achieve that intention.
Heather: And I think in this credit climate, which is one of the most restrictive we’ve seen for decades, the parties can come up with something and then when they go to the bank, the bank says, “sorry guys not enough security” or “we’re not giving you the money”. So, you’ve got that added problem that what the parties want to achieve may not be able to be achieved because the banks won’t support the way they want to divide the assets. So, you’ve got all those interplays to look at. And in this climate unfortunately a lot of people are having to look at selling an asset where they might have liked to buy their spouse out because the banks are not coming to the party.
Benjamin: And before I mentioned that most parties reach resolution or an agreement by consent between themselves (actually don’t need a judge or third person to come in and make a decision), most people do this after participating in a mediation. One of your tips Heather is to participate in the mediation after you’ve identified the assets and liabilities not before. Why is that.
Heather: So when you enter into a mediation you’re really at the end of the process. You’ve separated. You’ve now got to the stage where you want to move on. If you start going into mediation before you’ve got agreement on values, what the assets are or liabilities are, the mediator really is stuck and can’t help you because solutions are only able to be identified once you know what you’re carving up.
Heather: What I would say is that all good mediators have two roles to play. One of them is to help with that valuation process. So, we’ll have a pre mediation if you like. So the example you gave being you’ve got four house appraisals and you’ve got a big range but the parties can’t agree on how to appoint a real estate valuer. A mediator can help by getting that process under way. So it is my advice that if at the beginning you start the normal negotiations and it becomes clear that the other side is not going to play ball, that you may get them to the table with a mediation, but the mediation may be a preliminary one to work out a structure to gather all the information we’ve talked about before. And you soon see that. I mean if you correspond with another party and they won’t even give you their superannuation or bank statements you know you’re in for a big row, you know.
Benjamin: And I think from that communication is key whether it’s facilitated through a mediator or otherwise. So, I think it’s very important to keep the lines of communication open so you still have essentially a kitchen table to discuss things on. You’re not going to progress very far if you can’t put your ideas or your proposal forward and you can’t receive the other parties either.
Benjamin: And speaking of communication Heather, we have a question from one of our listeners. This is a question that is relevant to what we’ve spoken about today so we decided that would answer this question on today’s show. And I think next month we’re moving to question and answer where we take more questions from the public but this lucky person got theirs in today.
Benjamin: Our listener has agreed to a 60:40 split with her ex-partner. Now the partners lawyer is requesting 40% of her superannuation which she hadn’t expected. Her question is, does she need to pay 40% of the superannuation she has earned during the seven years of her marriage or 40% of her total superannuation.
Heather: So it’s a great question because it goes right back to what we said at the beginning. First step is what are the assets. So clearly when they negotiated the deal, they didn’t put super into the balance sheet and now it’s raised its head. The reason that we do need to know what the value of superannuation is at the time parties get together; is it could be one of the most valuable capital assets she brought to the relationship. So, this listener says that she was married for seven years but she may have been paying into super for 27 years. So what she actually brought to the marriage was 20 years’ worth of accumulated Super, which is going to change the whole way you look at the division. So, without knowing how they arrived at the 60:40 split, what she now needs to reflect on is, how much super did I have when I got with this person. And then look at what the division of the super should be on that percentage.
Heather: So if seven years ago they both started out with similar super, then you’ll probably be happy to do the division 60:40. But if, as I suspect, her superannuation had been accumulated for years before the marriage, then she’s going to have to go back to the negotiating table and say well one of the reasons I divided the pool that wasn’t super in this way was that I assumed I was keeping my super, because I accumulated a massive amount of that well before the relationship.
Benjamin: So if it’s taken into account at the end then it should be taken into account at the start.
Heather: As a contribution. And there’s a lot of lawyers even, who aren’t in the field every day, who get themselves into great deals of muddles over superannuation. The value on the piece of paper of your superannuation at the time you got together, doesn’t represent what that capital is worth now. So, for example, 27 years ago, if you were one of those people who kept your statements, you might have a super statement that said I had $10,000. But what you now need to understand is that that $10,000, 27 years later, may represent in the current super payout hundreds of thousand dollars through compounded interest.
Heather: So it’s quite a tricky field but for our listeners, what you need to really understand is: when did I start paying into super, how many years of accumulated super did I have before I started this relationship? And your lawyer will help you then work out what’s a fair deal in terms of that split.
Benjamin: And of course sometimes if you don’t have a usual industry accumulation superannuation fund and you’re not quite sure what it’s actually worth, for example it might be a defined benefit fund, again you get a valuer.
Heather: So we have to work with highly specialised superannuation experts who spend every day – geez it’d be a good job – calculating the ins and outs of every industry super scheme in Australia. They’re boffins but you need them.
Benjamin: \Absolutely. Well, thank you so much Heather for those tips. I’m sure they are going to help a lot of people manage their property settlements in a way that gets a fair outcome. And thank you to our listeners for joining us again. We are loving doing this show for you and we hope that you’re finding the information valuable. If you do, we’d really appreciate it if you could give us a review and also share the show with your friends. The more people that find out about the show the more people we can help.
Benjamin: Speaking of helping next month we’re going to dedicate an entire show to your questions. If you have any specific questions about divorce, children’s matters, property settlement, mediation or really any aspect of family law then send us your questions via Facebook messenger or by emailing familymatters@bryantmckinnon.com.au.
Benjamin: Goodbye for now. And I hope to have your ears again next month.
Benjamin: The information provided on this podcast is general in nature and not a substitute for personal legal advice. We recommend you consult an accredited family law specialist.