Divorce can be emotionally challenging, especially when it comes to dividing assets. Real estate, particularly the family home, is often the most significant asset in a divorce settlement.
For many couples, the family home may be the only significant ‘tangible’ item of property within the net asset pool, for example, if the remaining assets are superannuation or a business.
In high-net-worth cases, the family home may be one of the few personal assets without complex tax implications, making it a focal point in the division. Moreover, the emotional attachment to the home can complicate decisions regarding its future.
Whether or not the property is in your name, understanding how to protect your real estate interests is essential to securing your financial future after divorce.
How Does the Family Law Act in Australia Handle Property Division?
Under Australian law, property division is governed by the Family Law Act. The process involves several key steps to ensure a just and equitable settlement:
- Preliminary Step: Is it just and equitable for the parties’ legal interests in property to be adjusted? The majority of cases meet this threshold.
- Step 1: Determining the net asset pool available for distribution, which includes real property, superannuation, business interests, and anything held by the parties in sole or joint names.
- Step 2: Considering the respective contributions of each party including financial, non-financial, and to the welfare of the family.
- Step 3: Assessing each party’s future needs, including health, age, income earning capacity, and roles in caring for children.
- Step 4: Determining what outcome is just and equitable in all circumstances, including practical considerations such as whether one party can afford to retain the asset or if the property should be sold.
Taking a Proactive Approach to Protecting Real Estate Assets
When it comes to protecting your real estate assets, we recommend taking a proactive approach.
If assets are solely registered in the name of the other party, they may take unilateral actions, such as transferring, selling, or registering new security interests (like a mortgage). This could reduce the equity in the property.
Without taking steps to safeguard your interests, these actions could negatively affect your ability to receive your share of the net asset pool. A proactive approach is often more cost-effective than reacting to a situation once it escalates.
While reactive steps may involve legal proceedings for urgent injunctive relief or trying to reverse a property transaction, a proactive strategy could include measures like registering a caveat on the property or requesting an undertaking to prevent the other party from disposing of or registering new security interests against the asset.
To navigate these steps effectively, it’s essential to consult with both family law and property law specialists.
Options to Protect Your Real Estate Assets Before and During Divorce
Here are some paths you can take to protect your real estate assets during a divorce:
Register a Caveat
If there’s a risk the property could be sold or disposed of, registering a caveat can prevent further transactions without your consent. To register a caveat, you must have a caveatable interest in the property, which could arise from making financial or non-financial contributions.
Seek an Undertaking
An undertaking is a promise from the other party not to sell, dispose of, or register any new mortgages against the property and is an alternative option to registering a caveat. This helps safeguard the property’s equity from being reduced during the divorce process.
Sever Joint Tenancies
If you jointly own property, consider severing the joint tenancy. This ensures that your interest in the property is protected according to your estate planning wishes. In a joint tenancy, your interest in the property automatically passes to the other party upon death, but when a property is owned as tenants in common, your interest in the property is distributed according to your estate planning.
Ensure Insurance Coverage
Make sure the property is covered by a current insurance policy. If the existing policy is not maintained by you, consider taking out a new policy and ensuring premiums are paid on time to avoid lapses in coverage.
Property Settlement Outcomes and Jointly Owned Real Estate
In divorce, the most common outcomes for jointly owned property are:
- One Party Retaining the Property: The party who wishes to keep the property may need to refinance the mortgage into their sole name and pay the other party an agreed-upon amount.
- Sale of the Property: If neither party wishes to retain the property or cannot afford to retain the property, it may be sold, and the net proceeds divided according to the settlement.
In either case, formalising the outcome is necessary through a Consent Order or a Financial Agreement. These legal documents ensure the property settlement is enforceable.
Tax Implications of Transferring Real Estate
If the real estate is transferred as part of a property settlement, certain tax considerations may arise:
- Stamp Duty: If property is transferred under a Consent Order or Financial Agreement, parties may qualify for an exemption from the payment of stamp duty.
- Capital Gains Tax (CGT): If the property is an investment property, a sale may incur CGT. However, if the property is transferred as part of the settlement, rollover relief might apply, deferring the requirement to pay a CGT liability until the property is sold by the retaining party.
Frequently Asked Questions: How to Protect Your Real Estate Assets in Divorce
Below are a few commonly asked questions about divorce property settlements.
How Important Is It to Have Up-to-Date Valuations for Real Estate?
Accurate valuations are vital during property settlement negotiations. A valuation prepared for family law purposes helps to establish the current market value of the property, which is necessary for resolving disputes. Parties may want to retain the property at either the low or high end of a property’s value range and an up-to-date valuation ensures both parties are on the same page.
In cases where there are concerns about the dissipation or destruction of assets, a valuation can help identify any reduction in value, ensuring that any loss attributable to the conduct of one party is taken into account in the settlement.
What Role Does Financial Disclosure Play in Protecting Real Estate Assets?
In the context of divorce, full and frank financial disclosure ensures both parties are aware of all assets, liabilities, and income sources.
If the value or composition of the net asset pool is unknown, it can be difficult for a party to determine the steps required to be taken to protect their interests. In the context of a smaller net asset pool, the loss of a significant asset, such as real estate, can have a negative impact on their property settlement entitlements.
What Are the Risks of Not Protecting Real Estate Assets During Divorce?
Without proper safeguards, the property could be sold, encumbered with debt, or transferred without your knowledge or consent, potentially diminishing its value or leaving you with little equity to divide.
In some cases, if the property is not properly maintained or insured during the property settlement process, its value could be diminished. Taking steps to protect your property at an early stage ensures that your interests are preserved and help to minimise cost and conflict.
Conclusion: Protecting Your Real Estate Assets in a Divorce Property Settlement
Protecting real estate assets during a property settlement requires proactive measures. From registering caveats to severing joint tenancies, early action can prevent unnecessary complications and ensure that you receive a just and equitable property settlement outcome.
For those navigating these complex issues, we recommend you seek professional advice from a family lawyer.
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BGM Family Lawyers is a Specialist Family Law Firm on the Gold Coast. We’ve successfully guided hundreds of people through their separation & divorce matters as well as a range of other Family Law issues.
For legal advice relating to your specific matter contact our specialist family lawyers on 1300 246 529 or fill out our online enquiry form.
