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Doctors and Divorce – Understand the legal journey and divorce process ahead

— 10 min read

When a doctor or medical professional separates or divorces, the divorce process ahead can often be a tough, long and emotional journey.

Divorce

It is a common misconception that a formal ‘divorce’ relates to a division of assets following a separation. This is incorrect as a divorce concludes the marriage partnership, but does not formalise asset division. The formal divorce allows parties to remarry.

Married couples may seek a divorce once they have been separated for a period of at least 12 months. That period can include time where the couple has separated, but remained living under the one roof.

An application for a divorce can be made by parties jointly or solely. The nature of the divorce application determines whether other formalities need to be observed.

Generally speaking, the divorce process itself is fairly straight forward. Complications can occur, however, where there are disputes regarding when separation occurred. It is important that separation be communicated unequivocally from one spouse to another.

It is important for married couples to be aware that a divorce order triggers a 12 month timeframe in which a final financial settlement must be completed. It can therefore be beneficial for couples to finalise the terms of such a settlement before formalising their divorce.

Division of Assets

Unlike a formal divorce, married couples and de facto partners may formalise a division of their assets (commonly known as a ‘property settlement’) at any time following separation. A property settlement can be formalised by a written contract (known as a financial agreement) or a court order (which can be obtained administratively or via litigation).

A mathematical formula is not used to arrive at a fair property settlement. Rather, a number of relevant factors such as each spouse’s contributions and needs factors are considered and weighed.

There are a number of misconceptions relating to property settlement. By way of some examples:

  • Assets and liabilities acquired post-separation are irrelevant. This is incorrect. All assets and liabilities acquired prior to a formal property settlement are relevant and must be disclosed. This includes international and domestic assets and liabilities.
  • Assets and liabilities are to be valued as at the date of separation. This is incorrect. Unless otherwise agreed, the value of the assets and liabilities will usually be considered as at the date of the hearing or settlement, or a close as possible to it.
  • Trust / corporate / business assets are quarantined from a property settlement. This is also incorrect. Courts in the family law space exercise considerable discretion to include and value such assets during a property settlement, including where third parties, such as business partners, are (or will) be affected.

The above matters highlight the importance of formalising and documenting a property settlement properly. Doing so ensures certainty and finality for the individuals involved, avoids crystallising unnecessary taxation consequences and provides the parties with the benefit of roll over relief (where applicable).

Spousal Maintenance

In Australia, one spouse may be required to provide financial support to the other spouse in addition to, or pending, a property settlement. This is known as ‘spousal maintenance.’ Spousal maintenance is distinct from property settlement and child support.

As with the concept of property settlement, a mathematical formula is not used to determine what amount of spousal maintenance (if any) is proper. Rather, a number of relevant considerations such as the respective financial positions of the parties are assessed.

Spousal maintenance may require periodic or lump sum payments. However, it is important to note that a periodic spouse maintenance liability:

  • is generally made for a defined period and are not made forever;
  • rises and falls with the need of the person to be maintained and the financial capacity of the person paying the maintenance; and
  • are not intended to last forever and are generally only made for very defined periods of time.

Child Support

Child support is distinct from both property settlement and spousal maintenance. It relates to periodic and non-periodic payments made for the benefit of children.

In first instance, the Department of Human Services (Child Support) governs the payment of child support in Australia. However, unlike property settlement and spousal maintenance, the Department of Human Services (Child Support) applies a mathematical formula to determine the appropriate level of child support payable.

To obtain an estimate of an assessment this online calculator can be used:

The Department of Human Services (Child Support) assessment is generally considered to calculate ‘minimum’ child support obligations. It is often considered inadequate to meet children’s private school education, extra-curricular activities and out-of-pocket medical expenses.

Should parties wish to provide for increased child support they can enter into child support agreements. These are private agreements between the parties in the form of a contract.

Child support agreements can also provide for the creation of child maintenance trusts. These vehicles facilitate the payment of child support in tax effective ways.

De Facto Relationships

In the last decade, changes were made to Australian family law such that de facto couples have essentially equivalent legal rights to married couples following separation. This means that a de facto couple can, and often should, formalise a final financial settlement following the breakdown of their relationship.

The type of relationship that satisfies the definition of ‘de facto’ is not clear cut in Australia. Generally speaking, a couple must be living together on a genuine domestic basis for at least two years. However:

  • There are exceptions to this two year timeframe such that a couple may be characterised as de facto well prior to two years.
  • Living together on a genuine domestic does not necessarily require cohabitation. A de facto relationship can exist despite the couple spending, as an example only, three to four nights together per week.

Financial Agreements

Financial agreements may be entered into by individuals contemplating entering into a de facto relationship or who are engaged, those already in a de facto relationship or married and those who have separated.

For those individuals contemplating entering into a de facto relationship or who are engaged or those already in a de facto relationship or married, financial agreements can be used to determine, ahead of time, a final financial settlement. They can therefore be used as an asset / wealth protection tool and provide certainty for the couples and other interested parties (such as business partners or parents whom have advanced money).

In relation to those couples (married or de facto) whom have separated, financial agreements can be used to, among other things, formalise a final financial settlement without requiring a court’s approval. This can expedite the process of formalisation.

To be binding, a financial agreement must be drafted carefully to ensure that it meets the very specific legal requirements. Provided those legal requirements are met, financial agreements are binding and enforceable.

Parenting

Parenting arrangements between separated couples can (and do) impact upon the financial positions of the spouses post separation. Such arrangements are highly relevant to each of property settlement, spousal maintenance and child support.

It is imperative that children’s best interests are advanced following separation. This includes ensuring that the children are financially certain where at all possible. It is important that these considerations form part of asset planning both during accumulation phase, and following a separation.

If you wish to have a conversation with an expert lawyer about your circumstances or have any question, please request a call back here.

Author: Will Stidston, Accredited Specialist (Family Law) and Principal at Barry Nilsson Lawyers.

 

You may be interested to read other articles on this topic:

Doctors and Divorce – Managing the financial impact of divorce in the medical profession
Doctors and Divorce – A medical accountant’s guide to separation
Doctors and Divorce – Think current AND future financial position

Disclaimer: * This article was outsourced to a Family Law Specialist and provides general information on the legal process of divorce / dissolution of relationship. The information is general and is not intended to serve as advice. DPM Financial Services Group recommends you obtain advice concerning specific matters before making a decision.