Fiona Caulley, Director and Accredited Family Law Specialist at Phillips Family Law, discusses her Top Five essential areas which every accountant working in family law should be aware of.
Accountants and family lawyers regularly work together to assist people they advise and guide when an accountant is called upon to provide information about one or more individual’s finances upon separation. As a trusted advisor, an accountant is often one of the first professionals a person speaks to when facing relationship breakdown.
In my work with accountants and other professionals, such as financial planners, there are some common misconceptions about how family law works and what needs to happen when a relationship ends and a financial arrangement needs to be determined.
Below are five family law areas for accountants to be aware of:
1. The 12-month rule
There is a widely-held misconception that a couple needs to be separated for 12 months before a property settlement can be arranged. This is incorrect as explained in ‘Why you don’t need to wait 12 months – the processes in divorce’. The 12 month time frame commonly referred to only applies to the granting of a divorce. At any point after separation a property settlement can start and be finalised.
Another misconception relates to decisions made about the division of the asset pool. Many believe that the division of assets is based on the asset pool at the point of separation. This is not the case. Instead, the asset pool is looked at as and when the separating couple finalise the settlement. This is particularly important for both parties as the asset pool can significantly change between the date of separation and the finalisation of a financial agreement. Often there is a greater advantage or disadvantage to one party of delay so getting early advice from a family lawyer as to the best strategy to adopt is key.
2. Tools family lawyers use
As family lawyers there are many tools we use to pre-empt managing a relationship breakdown proactively. One such tool is through a Financial Agreement. A Financial Agreement can be made before marriage or a de facto relationship (often referred to as prenuptial agreements) or during a marriage or defacto relationship.
A Financial Agreement prior to marriage or defacto relationship allows people to commence negotiations about what would happen in the event of a separation and exclude certain categories of assets from consideration that would otherwise be included. Assets that are often excluded in these types of agreements include inheritances, gifts or loans from family members.
When accountants are involved in estate planning with their clients – not only for the couple involved but also when acting for the parents, who may wish to assist their adult children, accountants will ideally identify a need to consider how that financial assistance or inheritance should best occur to avoid issues down the line. For example, should this occur via a gift or a loan, which is documented. These considerations may involve consulting with a family lawyer about how this is likely to be approached if a relationship between spouses breakdown and the best approach to adopt.
Parents who, for example, are looking to assist their adult children enter the property market or leave their children large amounts of money are likely to want to protect those assets in the event of their child separating from their partner. A Financial Agreement can help to protect the significant contribution they have made to ensure it will be for the benefit of their child primarily, rather than part of the former couple’s combined asset pool and available for division.
3. Disclosure Obligations
When an accountant is faced with assisting a person or someone associated with a person that is going through a family law matter, they may be called on to assist in collating information and assisting their client, along with their lawyer, to help identify the pool of assets, liabilities and superannuation or to meet disclosure obligations as part of negotiations or court proceedings.
There is a wide duty of disclosure about the financial circumstances of those involved in negotiating a property settlement. Lawyers need to work closely with accountants to marshall and collate information about their client’s financial circumstances.
Accountants will be called upon to assist their own client and work with the lawyer assisting them to meet those obligations. This duty of disclosure can feel quite onerous at times. Particularly when, for example, they may act on behalf of a couple but have only ever dealt with one person in that relationship. When suddenly the other party is asking for information (that theoretically they have had access to previously), but has not had contact or been involved until that point, often accountants can be confused about why it must be provided or frustrated that these requests for information are being made.
People have different levels of understanding in how they have operated their finances. Often one person is up to speed on the financial circumstances of the business and the other is less aware. It is for this reason that an accountant will need to go through the motions of educating one person, or their lawyer (or both), in order to assist their clients to get to a solution in their family law situation. This regularly arises where there are family businesses involved.
There are categories of documents that are outlined in the Family Law Act and in the Court rules, and when operating businesses, there are obligations to continually update financial information. When an accountant is acting for a business owner who is associated with someone else going through a separation – for instance, in a business where a partner in the business is going through a separation – there will be additional considerations. In the event of the business needing to be valued or identification of the level of financial interest that person has in the business needs to be clarified, other directors or shareholders may be unhappy or uncomfortable with this. The need to disclose certain information can require accountants to educate themselves (or potentially get separate legal advice for their client) about whether they should provide these documents.
To make these processes more streamlined it is ideal to ensure there is open communication with all advisors who are assisting a client and a complementary approach is adopted. Additionally, it is wise for accountants to seek to understand the extensive duty in these matters – why particular information is required to be presented.
4. Potential involvement of third parties in family law issues
Often when a relationship breaks down issues may extend to other people associated with the separating spouse. For example, companies, trusts, business partners, creditors or family members, who are interrelated financially may be drawn into the issues.
We regularly assist third parties by providing independent family law advice about specific issues relating to a settlement or representation in proceedings.
5. Working collaboratively & keeping to our roles
In situations where a couple who have been in business together are now separating, it is important for accountants to work with their family lawyers and undertake these changes carefully, in conjunction with the family law settlement process. Adopting a complementary approach will assist to ensure the most tax and cost-effective methods are adopted as part of the financial settlement and it is formalised to ensure a ‘clean break’ and no further claims can be made. Working with each person’s family lawyer to achieve the best outcome for one or both of them is the best approach.
Often an accountant is one of the first people that a business owner or client may speak to about a separation. Where an accountant has a close working relationship with both parties often we see them facilitate conversations between husband and wife in the very early stages, about the impacts on their business, particularly when those people are actively involved in operating businesses. Despite the best of intentions, this can result in setting expectations that cannot be achieved in a legal sense or don’t have ‘stick-ability’.
This may arise because one or both parties haven’t sought independent legal advice about where they stand and how this might be approached in a family law context before the discussions occur. It is in these moments that it is important to be mindful of the implications this may have. Referring early and often (sometimes even prior to a separation occurring) is key so that your client is educated about where they stand before those discussions occur.
Managing a relationship breakdown
In family law there can be lots of thorny issues that arise because either a client, a business partner or a family member that your client is financially linked with, is going through separation.
The complexity of these working relationships and the nature of the separation means that accountants are best to encourage clients to seek early independent legal advice if they have not previously and, if there is concerns about a conflict of interest, to consider the role they may play moving forward and whether they can continue to advise and guide one or both parties.
I encourage accountants to keep open lines of communication, be willing to creating various options to benefit both parties and to see family lawyers as collaborators working in the best interests of your mutual clients and the law.
Fiona Caulley is an empathetic family lawyer who provides legal advice, care and guidance to people experiencing relationship breakdown or those seeking advice prior to or during a relationship, including as to prenuptial and financial agreements. Fiona is well appraised of the court processes and cases as an Accredited Family Law Specialist, recognised by the Queensland Law Society and having worked exclusively in family law for fifteen years. She has been recognised as a Leading Queensland Family and Divorce Lawyer in the peer reviewed Doyle’s Guide. Fiona is experienced in property matters, including where there are complex company and trust structures and where there are third party interests. Fiona has a particular interest and expertise in parenting matters, including those involving interstate or international relocation, having previously been appointed to the panel of Independent Children’s Lawyer – working to represent the interests of children, and collaborative law – working with clients to avoid costly litigation where possible. In 2018 Fiona’s expertise in this area was recognised by her peers as a leading Queensland lawyer advising in parenting matters.
A key characteristic of Fiona’s approach is sensitive communication with her clients, allowing her to quickly develop a genuine rapport whilst providing high level legal advice and adopting a holistic approach to the management of their family law issues. Enjoying positive working relationships with other lawyers and professional colleagues including accountants, valuers, counsellors, psychologists and psychiatrists allows Fiona to assist clients to achieve the best possible outcomes, both in a legal and personal sense. Fiona has a strong commitment to learning and constant improvement of her skills and those of her colleagues, which is fostered by her role as the current Immediate Past President of the Family Law Practitioners’ Association of Queensland (FLPA), having held the role of President from November 2016 until November 2018. Prior to this, Fiona had been elected to FLPA’s Executive Committee each year since 2009, by its members. Previously a Consultant Author for CCH, Fiona regularly writes articles relating to family law on her blog. Contact Fiona at Fiona.Caulley@pflaw.com.au or connect via LinkedIn, Facebook or Twitter.