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Section 1: What Is Complex Parenting Litigation?

What is Complex Parenting Litigation?

Complex parenting litigation refers to court proceedings in the Federal Circuit and Family Court of Australia which involve competing applications, usually made by parents, seeking the court’s assistance with determining who should have the power to make decisions relating to a child or children, where the children live and who the children spend time with. The complexity often comes about due to factors such as allegations of sexual or physical abuse, parental incarceration, parental mental ill health or substance abuse issues, and children with significant physical or mental ill health.  You can read more about the Federal Circuit and Family Court and how they manage parenting litigation here: https://www.fcfcoa.gov.au/fl/children/overview. 

How is Complex Parenting Litigation different from a regular parenting dispute?

Regular parenting disputes are often negotiated and resolved within therapeutic settings such as mediation or family therapy, where parties can remain child-focused and work together for the best interests of their children; in fact, only about 3% of separated parents use court to resolve parenting matters.  On the other hand, complex parenting litigation requires a Judge to determine the matter because risk or other factors often render it impossible for the parties to negotiate and reach an outcome together. 

What issues and circumstances cause a parenting matter to become complex?

Parenting matters typically become complex when there are allegations of sexual abuse or serious physical abuse, or when a child or parent has a mental or physical health condition that puts the child at risk. Data from the Federal Circuit and Family Court shows that 40% of parenting matters before the court allege mental ill health has caused or poses a risk to a child and 54% allege child abuse.

What does “the best interests of the child” mean under Australian law, and how does a court determine what that looks like in practice?

The best interests of the child is the paramount consideration the court must adopt when making orders about children. In practice, the court is required to consider the following when determining what arrangements reflect a particular child’s best interests:

• What arrangements will promote the safety of the child and those who care for the child.
• What views the child has expressed about their care arrangements and those who care for them.
• What developmental, psychological, emotional and cultural needs the particular child has.
• The capacity each person who is seeking to care for the child has to provide for the child’s needs. 
• The benefit to the child of having a relationship with their parents or other carers.
• Any other circumstance that is relevant to the child in question.

The Family Law Act was significantly amended in May 2024. What changed, and what does that mean for parents in dispute today? 

In 2024, the Family Law Act changed how the courts considered the best interests of children by including specific reference to promoting safety. This shifted the lens to place the consideration of safety of arrangements above all other aspects. Further, the Act was amended to remove the “equal shared parental responsibility” which previously assumed that all children benefit from both parents making long-term decisions, save in some cases. This presumption no longer exists, and instead decision-making relating to long-term aspects impacting a child is considered on a case-by-case basis, in terms of how joint decision-making will promote the safety of the child in question.

What are the most common and consequential mistakes parents make before obtaining legal advice? 

When parents act from a position that lacks education or advice, they often act from a place of fear. They might believe that children must spend equal time with each parent as a starting point or that they are compelled to facilitate a time with a parent even when there are serious allegations of risk. This can mean parents agree to arrangements that do not promote the safety of their children due to a lack of legal advice and an understanding of how risks can be mitigated and safety promoted. 

Section 2: Interstate Parenting – When Parents Live in Different States

How does the family court approach parenting arrangements when parents live in different Australian states?

The Family Law Act 1975 is federal legislation which means that it applies across all Australian states and territories. Therefore, even where parents live in different states, the same law applies to their parenting situation. Research indicates that around 10 – 12% of children in separated families live 500 km or more from their non-resident parent (https://aifs.gov.au/media/news/family-law-reforms-put-childrens-best-interests-front-and-centre). It is therefore not unusual for the court to consider orders for children when one parent lives many hours away, sometimes in another state.

Where this is a factor, the court will need to consider what arrangements will reflect the best interests of that particular child. This means the court will consider the proposed time-sharing arrangements and how they will affect the child’s travel between the parents, whether the arrangements will require the child to miss school or other activities, the child’s age, and any other relevant circumstances.

If one parent wants to move to another state with the children and the other parent objects, what is the legal process for resolving that dispute? 

Moving a child away from one parent to a location that makes time more difficult requires the consent of the other parent or a court order. Failing to obtain these can result in an urgent court application such as a “recovery” order by the other parent who opposes the move. If a parent wants to relocate with the children to another state, they should first seek consent either by lawyer negotiation or mediation. 

If agreement cannot be reached in this way, then an application can be made to the court for an order to relocate. Here the court will then hear the competing evidence and decide whether the relocation reflects the best interests of the children and what time the other parent should have if the move occurs.  

What factors does the court weigh when deciding whether to permit or refuse an interstate relocation with children? 

Relocation matters are very difficult matters for Judges to decide. Often these matters involve loving, engaged parents who would otherwise not be before the court, and both provide the children with stable, happy homes. In these cases, the court must still place the best interests of the children as the paramount consideration, but the exercise of this can be extremely complex. 

The key takeaway in these matters from case law is that parties seeking to relocate do not need to demonstrate compelling reasons for the move, although in most cases they can and do. Further relocations are likely more successful where the children are older and have a well-established relationship with both parents; younger children, however, may find it difficult to develop a relationship where they move away and have less time and cannot enjoy the benefits of modern communication methods like video calls.  

What are the practical and emotional consequences for children in long-distance parenting arrangements, and how should those be addressed in a parenting order?

Children who move away after a relocation is permitted will need to adjust to a new home, school, friends, and a new timetable for spending time with their other parent. The court is required to ensure arrangements reflect the best interests of the child and will consider orders that facilitate the ongoing relationship with the other parent such as:

• Spending more time during school holiday periods.
• Spending one or two weekends during school terms.
• Allowing time to occur in the child’s new home state at any time the other parent chooses to travel there.
• Making orders for phone, video and written communication between the children and other parent. 

Orders such as this can result in children maintaining a strong, loving connection with both parents despite the relocation. 

Section 3: Magellan Matters – Serious Abuse Allegations in the Family Court

What is the Magellan List, and what kinds of cases does it deal with? 

The Magellan List is a specialist court list in Division 1 of the Federal Circuit and Family Court of Australia, managed by a multidisciplinary team of Court Child Experts, Judges, and other Registrars. The list deals with the most vulnerable children where allegations of sexual abuse and serious physical abuse exist.

How does a parenting matter end up in the Magellan List, and what does the process look like once it is listed there? 

Parenting matters transferred into the Magellan List will generally involve notifications or allegations of child sexual abuse, serious physical abuse of a child, fresh allegations of historical abuse that had not been raised before or where a parent or step-parent poses a risk of sexual abuse or they are alleged, charged or convicted of having engaged in the production, possession or distribution of child exploitation material. 

What is a Notice of Child Abuse, Family Violence or Risk, and what happens after one is filed? 

Notice of Child Abuse, Family Violence or Risk is a mandatory form that is completed and filed with the court when commencing proceedings relating to parenting matters. The form is intended to ensure the court is made aware of allegations of abuse or risk as early as possible so the court can report such matters to child welfare authorities and, if necessary, list the matter in a specialised list.   

What role does the Independent Children’s Lawyer play in a Magellan matter, and how does their involvement affect the proceedings? 

An Independent Children’s Lawyer is a lawyer appointed by the court to assist the court determine what arrangements reflect the best interests of the particular child. Although they will speak with the children, they do not act for the children and instead form their own view on what orders should be made. They will often arrange expert evidence from family report writers and assist self-represented parties to negotiate.

Glossary of Family Law Legal Terms

The Family Law legal process has its own language. Read this handy Glossary of Terms on the Family Court website for some of the most common terms used.

Child Support

• Child Support Agency
• Child Support Calculator
• Child Support Guide

Family Law Courts

• Federal Circuit and Family Court of Australia

Government Family Law Resources

• Family Law Online
• International Child Abduction
• Victoria Legal Aid – families and separation

Legislation

• Family Law Act 1975
• Child Support (Assessment) Act 1989
• Child Support (Registration and Collection) Act 1988
• Family Violence Protection Act Vic 2008

Relationship Resources

• Family Relationships Online
• Domestic Violence Resource Centre Victoria
• Family Violence Intervention Orders

Professional bodies

• Law Institute of Victoria
• Collaborative Professionals Victoria
• Family Law Section, Law Council Australia
• Australian Institute of Family Studies

In family law we draw on experts that go far beyond your family lawyer alone.

During your family law journey other experts may be relied upon to assist in your matter, the following provides a basic explanation of those experts and how they work within family law matters.

• Barristers – in Victoria and within the Family Court barristers appear at most hearings for clients but particularly at interim and final hearings, mediations and arbitrations. Barristers are instructed to appear by your lawyer and are experts in advocacy, evidence and cross examination. Barristers also provide advice to lawyers and clients on complex matters, this can be written advice and in conference. Barristers range from junior to senior counsel (called silks or SC and KC).
• Forensic accountants – often in property matters we need to appoint forensic accountants as single experts or shadow experts to consider business and trust valuations. These accountants prepare valuation reports and appear in court under cross examination to explain their valuation methodology and conclusion.
• Property valuers – most clients will own real estate and obtaining valuations for family law purposes is an essential step in negotiations and litigation. Often these values will be updated at various intervals throughout the family law process.
• Family report writers – in parenting matters family report writers are often appointed to prepare a “family report” which provides recommendations about parenting arrangements for the children involved. Family report writers are often psychologist, social workers or counsellors who have specific experience in the field.

In addition to the above other experts are often called upon to provide evidence to the court to assist in the determination of the matter.

In family law matters each party bears their own costs and expenses except where there is agreement in other terms or where a court orders otherwise. Fees can range from around $10,000 where agreement is reached without lengthy negotiations to in excess of $100,000 where court proceedings are required. Our clients are invoiced at regular intervals and have full transparency of the estimated costs and actual costs as their matter progresses. In order to assist clients meet their legal fees we are proud to be accredited with Just Fund which offer legal finance options to clients to ensure access to superior legal representation. You can learn more about Just Fund here.

An unfortunate reality of the separation process is that you incur potentially significant legal fees along the way. That is especially the case if you and your ex are unable to find a negotiated outcome, and as a result your separation requires you to go all the way through litigation.

Many people might have the view that if you “win” in litigation, your costs will be covered by the other party.

However, costs in family law proceedings don’t necessarily work that way.

In this article we’ll give you a rundown on how a Court is going to approach the question of costs in a variety of circumstances, and some of the basic principles about how legal costs work in family law proceedings.

The General Rule on Costs in Family Law Proceedings

Can you make your ex pay for your legal costs in family law proceedings?

Not usually.

The starting point for legal costs is that each party to a family law proceeding is going to bear their own costs. That means you pay your own lawyers, your ex pays their lawyers, and nobody contributes towards the other’s fees. This general rule applies to any Court proceeding under the Family Law Act.

Deviating from that general rule requires circumstances that justify doing so.

Exceptions to the Rule

So what are the kinds of circumstances where a Court could consider making a costs order against your ex?

As you’d expect, the Court can consider any matter it considers relevant. The Court has a wide discretion to look at anything it wants to in deciding whether to make a costs order against a party.

There are, however, a list of specific things that the Court will look at.

None of these factors will absolutely determine the outcome, but each will be weighed and taken into account as being either for, against, or irrelevant to the making of a costs order in a specific situation:

1. The financial circumstances of the parties (including whether one or both parties are receiving assistance from legal aid and the nature of that aid). So, for example, if a party simply cannot pay a costs order then that might weigh against making one. It is not, however, the case that simply because a costs order would be a financial burden a party can avoid having one made against them (especially if the other factors weigh heavily in favour of making one);
2. How the parties have conducted themselves. This includes looking at a party’s conduct in relation to each step of the proceedings. A party that is consistently difficult, argumentative, non-compliant, or unreasonably increases the complexity and cost of a proceeding will not be viewed positively by the court. So, for example, if a party denied a series of allegations that were clearly true and should have been admitted (and in doing so lengthened the trial by an entire day), that might be relevant. Similarly if a party failed to disclose material information or documents until they were forced to, that would be relevant too;
3. Whether the proceedings themselves only exist because a party breached previous orders of the Court. If you need to apply to the Court only because your ex has failed to comply with previous orders (for example, has failed to make a payment or transfer property in accordance with a property settlement), the Court could well adopt a position that you should not be significantly disadvantaged in the legal costs you incurred to enforce that order;
4. Whether either party has been “wholly unsuccessful” in the proceedings. “Wholly unsuccessful” is a high bar to meet, and in the context of family law proceedings is not particularly common. However, it does happen. If, for example, your ex has applied for maintenance orders and fails to satisfy a Court that they are entitled to maintenance of any kind, that would be “wholly unsuccessful”. This is different from, for example, only obtaining some of the orders that were sought, but not all of them; and
5. Whether offers of compromise have been made (more on this below).

What you’ll notice is that almost all these items are variations on a particular theme – the conduct of the parties. So the best way to think about this topic at a big picture level is that the Court is going to consider whether a party’s position, or conduct, was significantly unreasonable in the circumstances. If it was, then that could flow through to a potential costs order against them.

Understanding The Court Scale and Indemnity Costs

Many people mistakenly believe that if they get a “costs order” from a Court, then it will cover their legal fees in full.

This is not generally true.

Sometimes the Court will make an order for costs in a fixed amount. This is more common in smaller, simpler applications where a Court can be satisfied that a particular amount is appropriate to order.

Otherwise, the typical costs order a Court will give is for costs on a “standard” basis. This means that the amount of costs payable by the other party will be calculated using a table (called the “scale” of costs). The table is specifically designed to be lower than the actual costs you have probably incurred.

In rare circumstances, the Court might make an order for “indemnity” costs. This is a costs order that is calculated by reference to what you have actually spent with your lawyers, and will come much closer to fully compensating you for your legal fees. It is, however, a very uncommon order and generally only made if the Court considers a party’s conduct to be particularly unacceptable, or a party makes a strong case following an offer to settle (see below).

The Power of Offers to Settle

One of the things you will inevitably explore with your family lawyers in the separation process is whether, and when, you might make an offer to resolve the matter on certain terms.

You might, for example, make multiple offers to resolve the matter as part of a mediation.

Outside mediation, however, you could also send specific written proposal to resolve the outstanding issues.

This is not just a good idea because if could help end proceeding early, but it can also offer some strategic benefit.

Specifically for this article, a properly considered offer to settle the matter can increase your chances of getting a successful costs order.

While there are many things to think about in an offer to settle, the fundamentals are:

1. Ensure that your offer to settle contains some element of compromise – that is, while you might believe you are entitled to X, a true offer to settle might mean you are prepared to accept something less than X to resolve the matter early;
2. Discuss with your lawyers the most likely outcomes if the matter goes to trial. Ideally an offer to settle should be something less than you think the likely outcome is going to be, to the extent that’s possible to assess.
3. Consider the timing. What the parties know at the time of the offer is relevant to considering whether the other party was unreasonable in rejecting the offer.

Of course during some matters there might be a number of different offers to settle a proceeding. Some might be for “costs protection”, and others might not. Generally speaking your family lawyers will discuss with you the possibility of making an offer to settle the matter at multiple key points along the way in any separation proceedings.

Costs are an Important Part of your Separation Outcome

Of course, costs orders are not typically the most important thing that you’ll be concerned about during separation – your focus will be on finalising your former relationship and moving on with a clean start.

That said, because legal costs can be significant, it’s a good idea to consider (with your family lawyers) ways to improve your chances of securing a costs order and minimising the risks of getting one against you.

That will be relevant to what things you contest in the proceedings, what offers (if any) you might make to try and resolve the matter before a trial, and what position you take on various issues throughout the separation process.

Give us a call today if you need help on this, of any other, issue with your separation.

Separating when you and your ex have children inevitably involves challenging decisions to be made about how those children should be cared for going forward.

Here we have another person involved so the factors to take into account about future parenting matters are quite different from those involved in property.

Specifically, when the Court is asked to make or change parenting orders, it must consider the “best interests of the child”. It must regard those best interests are “paramount” in making such an order.

In this article we’ll run through the times the best interests of the child are relevant and the factors the Court must take into account.

When Will the Court Be Concerned with the Best Interests of the Child?

The Family Law Act requires the Court to treat the best interests of the child as the “paramount” consideration when deciding whether to make a “parenting order”.

So what is a parenting order?

A parenting order is a Court order that deals with one or more of these topics:

1. the person/s with whom a child is to live;
2. the time a child is to spend with someone;
3. allocation of parental responsibility for a child and the way in which that responsibility should be exercised;
4. the communication a child is to have with someone;
5. child maintenance;
6. any aspect of the “care, welfare or development” of a child or in relation to parental responsibility;
7. any process that must be followed to try and vary any orders about the above, or disputes that might arise about them.

So in essence, the best interests of the child must be considered in essentially any Court orders relating to children of a relationship.

Changes to “Best Interests of a Child” in May 2024

For a long time there were 12 factors in the Family Law Act the Court had to take into account.

However, in May 2024 changes came in which try to simplify that list down to 6 (with 2 more for indigenous children).

This article deals with the current factors going forward from May 2024, not the historical ones.

What are the Factors the Court Must Consider when Assessing the Best Interests of a Child?

Of course, the Court can take into account any factors it thinks are relevant in determining the best interests of a child (you’ll see the last point in our list below covers this).

However, the Court must consider these 6 topics in making its decision.

Most of these are fairly self-explanatory, but we’ll offer a brief discussion of each in turn.

1. Promoting Safety

The Court must consider “what arrangements would promote the safety … of the child and each person who has care of the child”.

In this context, “safety” includes being subjected or exposed to family violence, abuse, neglect or other harm.

This is therefore a very broad consideration, covering anything that might possibly be considered unsafe.

It’s worth noticing that this is not just consideration of the child’s safety, but also the person who has care of the child.

So, for example, if a child has exhibited violent tendencies towards a parent then that would be a relevant consideration in how they should spend time together.

2. The Child’s Views

As part of Australia’s commitment to the Convention on the Rights of the Child, if a child is old enough to express their views then the Court must take those into account.

But this begs the question: how would a child express their views? Do they have to swear an affidavit, give evidence in Court, or can something less formal be considered?

As you might expect, the Court is going to be sceptical about evidence of the Child’s views being given by either parent in a situation where parenting matters are being determined (eg a parent swearing an affidavit saying that the child expressed a desire to stay with them). So what are the other options?

Provided it follows any applicable Court Rules, the Court can inform itself about the child’s  views in whatever way it considers appropriate.

However, there are two common ways the Court is going to pursue to find out the child’s views on a topic:

1. By directing a family consultant to give the Court a report on the matters in question; or
2. By making an order that the child have an independent lawyer appointed on their behalf.

3. Developmental, Psychological, Emotional and Cultural Needs

Naturally the Court is concerned with ensuring that any parenting orders fundamentally result in positive outcomes for the child, not simply an absence of harm.

As a result, the Court considers the impact that any proposed orders might have on a child’s development and future needs in a broad range of areas beyond just basic physical needs.

4. Parenting Capacity

Having considered the needs in (3) above, the Court then must turn its consideration to the actual capacity of the parents to provide for those needs.

So, for example, a parent who has a significant mental illness that adversely affects their ability to provide love and support may have difficulty providing some of the psychological or emotional needs of their child.

There are, of course, a broad range of factors that will go into considering one or both parents’ capacity to provide for the non-physical needs of a child.

5. Relationship with Parents

The Court must consider the “benefit to the child of being able to have a relationship with the child’s parents, where it is safe to do so”.

Here you can see a presumption: that there is a benefit to a child in being able to have a relationship with their parents.

The caveat, of course, is safety (which the Court is already considering as part of an earlier point).

So fundamentally the system accepts that a child benefits from having both parents in their lives.

This does not mean, however, that there is some kind of automatic 50/50 assumption that the Court is going to make. It only means that the Court must consider the benefit as part of its process.

The practical effect of this is that a Court will be cautious before making orders that entirely eliminate any possibility of one parent having contact with their child, or that significantly limits that contact.

6. Anything Else

As we mentioned at the start, the Court can consider any facts that are relevant to the circumstances of the child, irrespective of whether it falls strictly into one of the categories above.

Two Factors only for Indigenous Children

Beyond the 6 primary points above, there are two additional factors that the Court must consider if the child is Aboriginal or Torres Strait Islander.

Those are:

• The child’s right to enjoy the relevant culture by having support, opportunity and encouragement to:
  • Connect with any maintain connection with family and community;
  • Explore the full extent of that culture; and
  • Develop a positive appreciation of that culture.
• The likelihood of any proposed parenting order impacting on those rights.

This is effectively a slightly expanded version of the “cultural” consideration from (3) above.

What about Consent Orders?

If all the parties to a Court proceeding consent to the proposed parenting orders, the Court can still consider the factors we’ve set out above, but it does not have to.

Many Factors Inform the Decision

Given the long list of potentially relevant things the Court is going to enquire about, deciding on what orders are in the best interests of the child (especially if there are competing positions) is always challenging.

Often the evidence might not be entirely one-directional. Some factors might be in favour of one order, and others against.

Ultimately the Court has to weigh up the strength of the various elements for or against and land on a decision based on the evidence before it.

Since the best interests of the child are paramount in making parenting orders, the Court’s decision on this topic is going to be critical to the outcome sought by either parent.

As a result, it’s important to ensure you have expert family lawyers to help you put your evidence together.

If you need help with your parenting matter, get in touch today.

In our guide on binding financial agreements, we have set out the various elements that need to be in place for a financial agreement to be valid and enforceable.

One question that comes up from time to time is about what happens if one person was “forced” to sign a prenup. Is the binding financial agreement still enforceable? Do you have any options to get out of it?

Well, as you might expect – it depends…

Setting Aside a Binding Financial Agreement for Duress

If a Court is satisfied that one party to a binding financial agreement did so under “duress”, the Court will likely be prepared to set aside the agreement.

So the short answer is yes – if you were “forced” to sign the agreement, there is a chance you might be able to set aside the agreement.

That then begs the question: what counts as “duress”, and what factors is the Court going to take into account to try and determine whether you were truly under duress of the type that might warrant setting aside the agreement?

What is “Duress”?

The Courts have recognised the concept of duress in a variety of different areas over many years.

Duress captures the idea that someone is under some kind of unconscionable compulsion by the conduct of another person to do something that they otherwise would not have done.

We’re going to unpack that in a bit more detail in this article, but from the outset we can identify a few things to be aware of.

First, duress is something more than just a slight feeling of pressure.

Next, the conduct of the other person is inherently related to the question.

Finally, lots of factors are going to contribute to the question of whether duress was involved in a decision to sign a binding financial agreement.

A Case Study in Duress, Sort Of…

Of course, we could look at fanciful and unlikely examples of duress like threat of physical violence, but the best way to illustrate a real-life circumstance of duress is to look at an actual situation.

Here, Ms Thorne (36) and Mr Kennedy (67) (not their real names) met online. Mr Kennedy was really wealthy (assets over $18m or thereabouts), and Ms Thorne was really not (she had no substantial assets). Shortly after they first met online, Mr Kennedy told Ms Thorne that if they married she would “have to sign paper” and that his money was for his children.

Ms Thorne lived overseas at the time, but later flew to Australia intending to marry Mr Kennedy.

About 11 days before the wedding, Mr Kennedy arranged for Ms Thorne to see solicitors to sign an agreement, telling her that if she did not sign it then the wedding would not go ahead.

An independent solicitor told Ms Thorne in no uncertain terms that the agreement was completely one-sided and that she shouldn’t sign it.

Ms Thorne understood the advice, but signed the agreement anyway around 4 days before their wedding.

Ms Thorne and Mr Kennedy subsequently separated, and Ms Thorne sought orders from the Court setting aside the agreement (as an aside, there were actually two agreements, but we’re just simplifying things for this summary).

After a series of decisions and appeals (during which time Mr Kennedy passed away), the High Court found:

1. The agreement should be set aside for “undue influence” – a connected but slightly different thing from duress;
2. Because of (1), the Court didn’t strictly need to make a decision about duress.

So, with that short summary in tow we can now make a few observations about how the Court might go about assessing whether to set aside a financial agreement.

Duress and Its Cousins

As you might have seen from our summary above, the circumstances opened up a number of related, but slightly different, legal pathways to set aside a financial agreement. Those are:

1. duress;
2. unconscionable conduct; and
3. undue influence.

Strictly these are slightly different things. However, they tend to come up together, because they could all come out of the same facts. For example, in our Thorne v Kennedy summary above, the first judge found “duress” but the final court found “undue influence”.

As a result, we’ll essentially just treat them together here.

Major Considerations

As you’d expect, a Court is going to consider any relevant facts or circumstances that it thinks are relevant in deciding whether duress, undue influence or unconscionable conduct have occurred.

There are, however, some factors that will reliably come up.

Timing

Presenting a binding financial agreement for someone to “think about” mere days before a wedding will inevitably cause a large amount of pressure. That is compounded further by the delivery being accompanied with a comment that the wedding won’t go ahead if you don’t sign.

By that time, planning has been completed, guests are invited or already travelling, and the imminence of the wedding day is going to add enormous pressure to the person being asked to sign.

Terms

The Kennedy agreement was entirely one-sided. Of course, had the terms themselves been more evenly balanced the application to set the agreement aside might not have been brought in the first place.

Beyond that though, most people will not sign a completely unreasonable and unfair document unless there is some kind of significant pressure to do so.

Here, Ms Thorne understood the agreement was bad (and had advice confirming that for her), but believed she had no choice but to enter the agreement, nonetheless.

Disparity of Bargaining Power

Ms Thorne was entirely dependant on Mr Kennedy. She had left her home country and flown to Australia to be with him, had no significant assets or ability to look after herself.

Mr Kennedy was a wealthy experienced business person.

The significant difference in their situations offered weight to the idea that Ms Thorne was unduly influenced.

It’s common in questions of undue influence to look at not just the facts of one person, but the dynamic between them. Substantial differences in education, money or experience will all contribute to a perception that there was some kind of undue influence.

Negotiations

The Court will often enquire about how the binding financial agreement was prepared.

Was it drawn up entirely by one party and then simply presented as a “take it or leave it”, or was there a collaborative process?

Coercive Behaviour

Anything like threats, coercion, manipulation or conduct that makes one person feel like that don’t really have any choice but to sign the agreement will be taken into account.

Things that Didn’t Shift the Outcome

There are a couple of interesting things in our case study that are worth mentioning.

The first is the fact that Mr Kennedy actually told Ms Thorne right from the beginning that if they married he didn’t want her to get access to his wealth.

The next is that Ms Thorne did, in fact, receive appropriate independent legal advice about the agreement (of course if she hadn’t the agreement wouldn’t have been binding because it didn’t meet the formal requirements).

Ultimately, however, these factors did not weigh heavily enough against the others to change the outcome.

We mention this because some people think that getting independent legal advice eliminates the possibility that you might sign an agreement under undue influence or duress. Here we see that’s not the case, and that even with independent advice a person can still be inappropriately forced to sign up to a binding financial agreement.

Need to Set Aside a Financial Agreement?

If you are concerned that you signed up to a binding financial agreement under duress, undue influence or unconscionable conduct then get in touch with us to get advice on your options.

The headline of this article probably doesn’t come as a surprise to everyone. However, with social media being a dominant and largely public form of sharing our thoughts and experiences, the importance of managing your social media use during (and arguably before and after) separation can’t be understated.

In this article we’ll set out some fundamental dos and don’ts of social media use in separation, as well as a few potential consequences if things go awry.

The Golden Rule of Social Media in Separation

If you remember only one thing about this article, make this it.

Expect that anything you post on social media might be read aloud in Court, shown to you in a public setting, or given to a Judge in an affidavit.

If you wouldn’t be comfortable with that occurring for any reason of any kind, then don’t post it.

Of course, as family lawyers we’d really prefer that our clients going through separation just stayed off social media completely. But assuming you can’t or won’t do that, let’s dig in a bit more to some big picture guidance about what is or isn’t a good idea.

Check your Privacy Settings

First and foremost: understand who can see what you post online.

Many people don’t stop to check whether their posts are available to the public at large, a select group of friends, or some other group entirely.

Now is the time to do it. The more limited your post visibility is, the lower the risk of something going horribly wrong.

Similarly, check your “tagging” settings. Can others tag you in photos or in posts? You might want to consider turning off that feature where possible, to avoid being prominent in unexpected posts.

Of course this doesn’t stop someone who CAN see your post taking a screenshot and sharing it, but at the very least have a good understanding of the immediate reach anything you post is going to have.

Should you Update Your Relationship Status?

Many social media sites allow you to declare your relationships with others, including the person who is (or is about to become) your ex.

For many people, changing your relationship status “officially” online can bring a flood of communications, concerns, questions and emotions.

Bear in mind that you and your ex might be at different places in the emotional parts of your separation, and the simple act of clicking a button to declare your singleness could cause some significant ripple effects.

We’re not suggesting that your behaviour needs to second-guess your ex’s reaction at every step, but just to be aware that the public declaration of a relationship ending is probably going to have a broader impact than you might initially think.

Do a “Friend Sweep”

Many couples end up with a collection of overlapping friends on social media.

It can be a good idea to ask this difficult question: are the people in your list of contacts/friends on a given social media channel actually your friends?

Of course this isn’t that easy to figure out, and you don’t necessarily want to burn a bunch of friendships right out of the gate.

For that reason, it remains imperative to ensure that your posting habits are limited. There’s a good chance that some of your friends are still in contact with your ex, and innocently or otherwise may be sharing information with them.

Posting about your Ex

Posting anything that in any way could be interpreted as a dig at your ex is a terrible idea.

This includes even subtle things like “I’m finally getting to do XYZ that I’ve wanted to do for years” which could be interpreted as a criticism.

First, it will adversely affect any potential negotiations if your ex knows (or just thinks) you are publicly being critical of them.

Next, posts that are negative about your ex might be used to try and impugn your character or credibility in a Court context.

Consider this example: you post “Bruce never bought me anything nice in the 10 years we were together, so I picked up this [thing] for myself”.

Then, Bruce’s lawyers put together a list of 195 “nice” things that Bruce bought for you during your relationship.

The truth of your statement is now in question.

And then imagine that something similar happens for another post, and another, and another.

All of a sudden you look like someone who doesn’t tell the truth.

In truth, it’s best just to stay completely away from posting about your ex or your relationship at all while going through separation.

Posting about your Lifestyle

It’s the pinnacle of social media to post pictures of yourself having a good time being places or doing things, right?

Not necessarily if you’re going through separation. There are a couple of reasons.

First, if there is any chance that you might make an application for spousal maintenance, such pictures can be harmful to the outcome.

As an example: you want to argue that you’ll struggle to put food on the table for the kids without your ex’s contribution. Then, you post a picture of yourself purchasing a string of expensive designer items. That picture is not going to work in your favour, even if there is a rational explanation for it.

Next, if the lifestyle you present on social media is inconsistent with the financial disclosure you have made in the Court proceedings, then this is going to invite questions and scepticism. Perhaps you’re hiding a source of income, or more generally that you’ve failed to disclose your situation frankly.

Illegal Things to Post

There are some things that it’s just straight up unlawful to post about the other parties when a Family Court proceeding is on foot.

The basic idea is that you’re not supposed to disclose anything that might allow the identification of a party, child, witness or participant in a Family Law proceeding.

The kinds of information covered include:

1. names and addresses of the parties;
2. property ownership details;
3. relationships between the parties;
4. the physical descriptions of participants;
5. employment details of the parties;
6. interests or faith of the individuals involved.

As there’s a potential for up to 12 months imprisonment for a breach of this, make sure you understand what’s covered in discussion with your family lawyers.

Just Assume It’s All Public

Family Lawyers commonly use social media monitoring on other parties to a separation, for all the reasons we have set out above.

Just like we started: assume what you post will go public, and act accordingly.

But our best advice is this: have a conversation with your family lawyers very early about what you should be doing with social media. That way nobody gets any nasty surprises and your interests and wellbeing are protected.

Binding financial agreements (BFAs) are an important element for formalising property settlements under the Family Law Act.

In this guide we’ll work through the fundamental elements of a binding financial agreement so that you understand what they cover, how they work, and what things can go wrong if you don’t have the right procedures in place.

What is a Binding Financial Agreement?

A binding financial agreement is a contract between two people in (or about to be in) an intimate relationship or after separation in which they agree on the treatment of their assets and income after separation.

Unlike most normal contracts or business deals, however, binding financial agreements have specific rules and requirements that need to be complied with in order to be enforceable.

This is because the legal system acknowledges that agreements between couples come with certain risks, and therefore has sought to ensure that those making a binding financial agreement are doing so in a fully informed and voluntary way.

When can You Get a Binding Financial Agreement?

Realistically, you should consider a binding financial agreement at multiple relevant points during your relationship, in particular at any time where a newer relationship might become more serious or where a property settlement might become needed if you separate. That might include:

1. Before moving in together;
2. Before buying any significant property together;
3. Before marriage;
4. During marriage, especially if one of you may receive a large inheritance or similar windfall gain; and
5. If you are separating or divorcing.

Let’s now look at the three main timings that you can consider a binding financial agreement.

The Three Main Times to Consider a Financial Agreement

While there are a variety of life circumstances and events that might have you considering a binding financial agreement, they all fall within three main buckets:

1. Agreements made before marriage/relationship (pre-nup)
2. Agreements made during marriage/relationship (sometimes called a mid-nup)
3. Agreements made after separation (sometimes called a post-nup).

To save the word count a bit we’ll just refer to “marriage” however these comments apply equally to de facto relationships.

Let’s take a look at the characteristics of each. After that, we’ll cover some general principles that apply to all financial agreements irrespective of their timing.

Binding Financial Agreement Before Marriage

While not necessarily the most common, the “pre-nup” is probably the most well-known form of binding financial agreement.

After all, most spectacular celebrity separations or divorces tend to involve abundant discussion about whether there was a pre-nup, whether it is enforceable, and whether it will affect how much person X gets from person Y.

In Australia, the formal definition of a financial agreement before marriage is where you:

1. are contemplating entering into a marriage with each other;
2. are not a “spouse” party to any other binding agreement in relation to the same matters;
3. put the agreement in writing;
4. have the agreement deal with one or more defined topics around finances and property (more on this below); and
5. state that the agreement is made under the relevant section of the Family Law Act (this differs depending on the timing of the agreement and whether your relationship is moving towards marriage or de facto).

There are also formal requirements for the agreement to be binding, which we discuss more below.

The dominant purpose of a pre-nup is to provide clarity for both spouses about what is to happen financially in the event of separation.

Often they are used in circumstances where one person has significantly greater income or assets than the other at the commencement of the marriage. This offers that person some protection from the fear (whether justified or otherwise) that their partner will marry them and then swiftly seek separation only to claim a significant portion of their wealth.

On the other hand, for a spouse that might be giving up a career or coming to a relationship with limited ability to support themselves, a pre-nup can also offer comfort around the future possibility of financial maintenance in the event that they separate and are not able to support themselves.

Done right, a prenup should both offer protection and comfort for the interests of both parties. Most importantly though, it gives clarity at a time when the relationship is on solid footing and everyone is thinking in fair and reasonable terms (which is not always the case if a relationship breaks down).

Binding Financial Agreement During Marriage

A “mid-nup” is something that many people do not know about. It is a financial agreement prepared during the course of a marriage or de facto relationship.

The formal definition is essentially the same as that we set out above for a pre-nup, except that in this case you are not making the agreement in contemplation of marriage, but rather during marriage.

So the question is, if you and your spouse have already gotten together and avoided making a pre-nup, why might you consider putting a financial agreement in place during your relationship?

The first and most obvious possibility is that you simply didn’t think about it. With personal relationships, there is every chance that in the excitement nobody stopped and turned their mind to whether a financial agreement might be a good idea. Then, after a little while, perhaps your mind turned to such things and you started to think that having something in place is not a bad idea.

Next, perhaps you did not have a proper understanding of your partner’s financial situation. Many people are wary about being transparent about their financial position, and perhaps one or both of you just didn’t have all the details. Once you did, then it’s possible you realised that a financial agreement would bring the kind of protection or comfort we discussed above for a pre-nup.

It’s also possible that a de facto relationship kind of “snuck up on you”. Because of the nature of de facto relationships, it might be that you ended up in one and didn’t quite realise it for a little while because it was simply a steady progression of a growing relationship rather than the clarion wedding bells of a formal ceremony. Once you do realise you’re in a de facto relationship, you might decide to raise the topic of a financial agreement with your partner.

Finally, you might consider a mid-nup where one or both of you come into significant unexpected wealth. One common way this happens is through an inheritance, but it could also happen with investments, business ventures, or other unexpected windfalls for the benefit of one but not both partners.

So as you can see, just because you’ve put the ring on your finger it doesn’t mean that there aren’t still good times or reasons to consider getting a binding financial agreement in place.

Binding Financial Agreement After Separation

Many separations involve a binding financial agreement. Many people would not put these into the same category as first two because they happen after the relationship breaks down, but in legal terms there is little difference.

Similarly in practical terms, an agreement after separation deals with the same kinds of topics as those beforehand: distribution of property and wealth and the provision (if any) of maintenance by one spouse to the other, amongst other things.

For this guide, however, we will not deal in much detail with binding financial agreements after separation, because our separation process article and our property settlement article set out a lot more detail on this, so if you’re in that situation we recommend you have a read of those

What Topics Can/Should a Financial Agreement Deal With?

So now that we’ve looked in detail at timing and life events connected with binding financial agreements, it’s time to turn to what topics an agreement can (or should) actually deal with.

In big picture terms, a binding financial agreement can (and usually does) deal in some way with the appropriate distribution of property, future financial support, agreements in respect of children, and related issues in the event you separate.

In practical terms that means a binding financial agreement will commonly deal with things like:

1. what happens with wealth or property that one or both spouses had prior to the start of the relationship;
2. what happens with property acquired or income earned during the relationship;
3. what should happen with the family home, if there is one;
4. how should large receipts or inheritances be treated;
5. whether either spouse should receive maintenance payments after separation, and if so what they should be and how long they should be paid;
6. who is to contribute to the ongoing costs of raising children and in what proportions; and
7. how can family businesses, farms or other important heirloom-type property be preserved for future generations.

What are the Formal Requirements of a Binding Financial Agreement?

As we mentioned above, financial agreements between intimate partners aren’t treated the same as normal business contracts. They have specific requirements to ensure that each partner is appropriately protected and advised about the impact of the agreement.

A financial agreement will be “binding” if it meets the requirements set out in the Family Law Act. That means:

1. It must be in writing and signed by both parties;
2. The parties to it are married or in a de facto relationship (or contemplating being so), or have separated or divorced;
3. Each party must have received independent legal advice about their rights and the specific pros and cons of the agreement prior to signing, and the agreement must contain a statement to that effect;
4. Either before or when signing, the parties must have received statements from each lawyer that they gave the advice in (3); and
5. The parties need to have made full financial disclosure to each other.

What Information Do Your Family Lawyers Need to Prepare and Advise on a Binding Financial Agreement?

You can see from the above that you are going to need family lawyers involved in preparing a binding financial agreement, because at the very least they will need to give you proper advice about it before you sign.

More likely you will also involve your family lawyers in preparing or negotiating the agreement.

For us to help prepare and/or advise you about a binding financial agreement, what kinds of documents might we need to help? Generally, most of what is needed results from the requirement for “full financial disclosure” that we mention above. This ensures that the agreement covers all relevant topics and that the advice you receive is actually helpful. That might include things like:

1. Information about all income from all sources, including investments and property, superannuation, overseas holdings;
2. All debt information include loans, mortgages, HECS/HELP, investing loans or anything else;
3. Any indirect earnings such as trust distributions;
4. Details of any property that you have the benefit of but don’t necessarily own (eg a car owned by your business that you use for personal use);
5. Details about any significant property you have disposed of in the last year;
6. Both a list and estimated value of all assets you own at the time.

Ideally providing this information in the form of primary source material is best where possible – bank statements, mortgage statements, HECS documentation, superannuation reports and the like.

In addition though, information about the relationship in question is useful. For example, when did your relationship commence, when did you become “de facto” (or if you don’t know that, information about how your relationship developed to this point), whether you had any previous serious relationships, agreements or documents that might be relevant, whether you have any children of this or a previous relationship.

More likely than not, once we have received that information we will have questions for you to help flesh out our understanding of the relevant circumstances.

All of this helps us to gauge the advantages and disadvantages to you in the proposed binding financial agreement. It also helps us ensure that the agreement covers all the factors that are relevant to you now, and potentially into the future.

Can you Terminate or Set Aside a Binding Financial Agreement?

A binding financial agreement can be set aside in some circumstances, which mostly serve to highlight the importance of getting independent advice and making full disclosure to your spouse.

The most obvious time a BFA might be set aside is where the agreement was made in a way that did not comply with the formal requirements we have set out above. For example, if one party did not receive independent legal advice, then the agreement will not likely be enforced because it did not meet the basic requirements of the Family Law Act.

Agreements have been set aside in a number of other circumstances including:

1. If one party signed the agreement under duress;
2. If there was fraud or material non-disclosure of financial assets;
3. If there has been a material change in circumstances since the agreement was made, such that one party would suffer serious hardship if the BFA was enforced; and
4. If one party’s conduct in making the BFA is found to have been unconscionable.

Of course, every circumstance is unique and a Court is always going to look at all of the relevant factors before making a decision.

As a general principle, if you are considering signing a binding financial agreement you should assume it is going to be binding on you, treat the process seriously and ask any questions you need before signing.

How do you Get a Binding Financial Agreement?

In practical terms then, what is going to happen if you want to get a binding financial agreement in place with your relationship?

We have set out the process that Accessible Family Law goes through with our BFA clients on our “prenup lawyers” page here.

If you are looking at getting a binding financial agreement, get in touch today and we can get you started on the process.

In the separation process when it comes to parenting orders, there is no hard and fast rule about exactly how much time a child will, or should, spend with each parent. Of course, as a matter of practical outcomes (absent any distinguishing features), each parent’s time with and input into a child’s life may often be roughly equal.

In some cases, however, one parent might feel strongly that their ex should not be permitted to spend any time with their child. In such a case, they might want to apply for a “no access” parenting order (sometimes called a “no contact” order).

In this article we will discuss some of the circumstances in which a Court might consider making such an order.

The Overarching Principles

In separation matters involving children, the Court’s dominant purpose is to try and determine the outcome for parenting arrangements that is in the best interests of the child.

It does so by considering all of the available and relevant principles and evidence, and then weighing them in order to decide on an outcome.

One thing the Court is required to consider, however, under section 60CC(2) of the Family Law Act is:

“The benefit of the child having a meaningful relationship with both the child’s parents”.

Of course, the immediate next thing the Court must consider is:

“…the need to protect the child from physical or psychological harm from being subjected to, or exposed to, abuse, neglect or family violence”.

So when it comes to children, the starting position is that the Court will adopt a stance which accepts and acknowledges the general benefit that a child will receive by having contact with, and a “meaningful relationship” with, both of that child’s parents.

At the same time, however, the Court also accepts that children must be protected from harm and will consider such situations accordingly.

Applying for a “no access” order, where one parent can have no relationship with the child, is asking the Court to make an order against the first general principle. As a result, the circumstances in which a Court might grant those orders needs to be sufficiently serious and well proven in order to displace the starting position.

The Unacceptable Risk Test

So, we understand that the circumstances have to be pretty serious for a Court to make a “no access” order. But just how serious do they need to be, and what is the threshold by which the Court might consider granting such an order?

The usual way the test is phrase is something like this: after giving real and substantial consideration to the facts of the case, the judge is to decide “whether or not, and why or why not, those facts could be said to raise an unacceptable risk of harm to the child”.

This is commonly called the “unacceptable risk” test.

What Might be “Unacceptable Risk”?

The most common scenarios of unacceptable risk are things like a history of violence, serious mental health concerns, drug or alcohol abuse.

The situations are not necessarily limited to those, but they tend to be the most common.

The question though is not just “what is the risk” but, rather, “what evidence is there to persuade a Court of the likelihood and seriousness of the risk”?

For example, putting forward evidence that your spouse enjoys a glass of wine on a Friday night whereas you do not drink – without any history of drunken, violent or otherwise concerning behaviour – is not likely to convince a Court that there is an “unacceptable risk”.

Similarly, unpleasant or even recalcitrant behaviour (for example, a parent who was distant from their child due to work) by itself will not necessarily be sufficient. In the same vein, mental health issues are not all the same – some might carry unacceptable risk, and others might not.

On the other hand, a history of drunken behaviour from your ex, accompanied by violence towards your child while intoxicated, together with indications that the behaviour is continuing, would be a more compelling situation to consider seeking a “no access” order.

Evidence for “No Access” Orders

Because “no access” orders are commonly sought in fairly serious situations, it is extremely important to discuss with your family lawyers the type and extent of the evidence that should be gathered to support your application.

That might include, for example:

1. Evidence of previous incidents, including witness statements, footage, social media posts, or police reports;
2. Evidence of continuation of the behaviour (as opposed to isolated incidents);
3. Expert evidence regarding the relevant behaviour, including potentially an assessment of the likelihood of the risk of it either improving or getting worse;
4. Evidence about the desires of the child, especially if they are over 10 years old;
5. Evidence from other relationships with your ex, to the extent they exhibited a similar pattern of behaviour.

There are a wide range of potential areas to discuss for evidence, and no one case is the same, so running through all the potential scenarios with your lawyers is the best plan.

Conditional Access vs No Access

There may be times where, based on evidence, the Court decides there is an unacceptable risk but that it can be mitigated by imposing conditions on the other parent or the nature of contact with the child.

For example, is the unacceptable risk is a result of a drug addiction, the Court might order that the other parent attend a drug rehabilitation program and that visits with children are conditional on a clean drug screen immediately prior to the visit.

Other conditions might include things like visits being supervised, the child not being exposed to some activities or individuals, or that your ex must not consume alcohol when the child is present.

It could also be that some contact might be maintained using technology, if a physical visit was not possible or desirable for some reason.

If the Court is satisfied (again – based on the evidence) that a condition will mitigate the otherwise unacceptable risk, it might consider that the best interest of the child are served by making a conditional access order rather than a no access order.

Do you Need to Apply for a No Access Order?

Applying for a no access order is a serious and difficult situation. Contact our family lawyers today to ensure that you have experts in your corner to help you at each step and ensure that your interests and those of your children are protected.

Does placing assets inside some kind of family trust mean that they can be ignored when seeking a property settlement during separation?

Many people believe that having significant assets held in a family trust will mean that those assets are not part of the property pool, and therefore will survive separation without being considered by the Court. But is that really the case?

What is a Family Trust?

A family trust is a common vehicle used to protect assets, gain flexibility with income and, sometimes, to get certain taxation advantages.

Basically:

• The assets or income are held by the legal owner, called the “trustee”. This person or company technically owns the property. In a family trust this is often a company set up by the family, or the parents of the family.
• The trustee, however, owns the property for the benefit of others called the “beneficiaries”. These might be particular named individuals (most relevantly the family members), charities or classes of people. In a family trust it is ordinarily members of the same family who are the beneficiaries.
• The beneficiaries get the benefit of the income of the trust. So, the trustee can distribute income from the assets (e.g. rent from an investment property) to those beneficiaries to use, even though they are not the legal owners.

Let’s say Joe and Mary set up a family trust. The trustee is Marjo Pty Ltd – a company of which they are directors.  Strictly, neither Joe nor Mary own the assets. The trustee can, at its discretion, distribute income or property to either or both of them (which is why it is called a discretionary trust).

So do those assets still get captured by the separation process? If not, what about the potential future income?

What Does the Family Law Act Say about Property?

When you are separating, the Family Law Act applies to govern what property needs to be part of any property settlement that might occur.

That Act says that “property” is any asset that a person has entitlement to, whether “in possession or reversion”.

Ignoring the technical language, this is designed to ensure that if you are a beneficiary of a family trust, your interests in that trust will potentially be captured by the property settlement process.

So placing assets inside a trust that you can benefit from does not necessarily protect it from the separation process, in that your interest in the trust can certainly be counted as “property”.

Nor, however, does it mean that all trust assets will automatically be included in the property pool.

Are Assets in the Family Trust part of the Property Pool?

While trust assets might be counted as “property”, there is no hard and fast rule that they will be included in the property pool. The Court is going to look at all the circumstances of the trust and the individual’s connection with it.

Specifically, the Court is going to look at substance over form, especially relating to the issue of control. That is, who really controls the trust?

This is because there are two main kinds of ways that a spouse might relate to a family trust:

1. A simple beneficiary; or
2. Someone who has significant control over the trust (who may also be a beneficiary).

Take, for example, the daughter of a wealthy family. If she is a beneficiary of her parents’ family trust, it would not be fair nor just to make all the assets of that trust available part of the property pool (and therefore available for distribution to her ex) simply because of her role as a beneficiary. The wealth, ultimately, is more her parents than her own. She normally has no real control over distributions nor any automatic entitlement to income.

Alternatively, what about Joe and Mary from our example above? Let’s say that they are the directors of MarJo Pty Ltd, and the “default” beneficiaries under the trust. It’s much more likely that the trust assets will be counted as assets of the relationship in that instance, because they are really the controlling minds behind all of the decisions of the trust. In that case, it’s reasonably possible that the assets will form part of the relationship’s property pool.

The Alternative Treatment – Assets vs Financial Resources

If a trust asset is considered part of the property pool, then it will be part of the property settlement orders and considered as part of the distribution process.

However, even if the trust assets are not part of the property pool, they can still be considered as a “financial resource”.

Trusts are, typically, income generating. Therefore the access to, or non-access to, that resource in the future will regularly be factored in as part of the property settlement process. So for example, if a spouse will no longer have access to the share investment portfolio and its associated income stream, then that is a relevant factor in determining what a fair and equitable outcome is going forward.

So Are Family Trusts Protected from Property Settlements in Separation?

Sometimes, but not always.

If one or both spouses have significant control over the trust and the exercise of its discretion then the assets are more likely to be considered part of the property pool.

Even if not, however, trust assets might be treated as a financial resource, and therefore still be relevant factor in the final outcome of the property settlement.

Either way, it’s important that you discuss any involvement you might have with a family trust (whether as trustee, director of a trustee, or beneficiary) with your family lawyers to ensure that your financial disclosure is done properly, and so that they can consider how to argue for the most fair outcome for you.

A primary part of the separation process in Australia is the identification and distribution of the assets of the relationship.

With the increasing likelihood that cryptocurrency will form part of those assets, separating parties can face some unique challenges when it comes to dealing with crypto as part of a divorce. While Bitcoin is probably the most famous and popular, there are now millions of forms of crypto around the world, so there is an increasing likelihood of crypto coming up during divorce.

In this guide, we’ll set out the issues you need to be aware of if you’re going through separation with a spouse who has digital assets in the form of cryptocurrency.

What is Cryptocurrency?

To help us understand some of the complexities around cryptocurrency in divorce, it’s probably good to have a (very) brief primer on what cryptocurrency is and an understanding of the basics of how it works.

At its core, crypto is just a form of currency like Australian Dollars, US Dollars or any of the many others.

Where it differs from normal currency is that it (typically) has no need for a central controlling authority, such as a bank or government. Instead, it is usually entirely digital and de-centralised.

As a digital asset, crypto in the past faced the problem of being copyable. To address this issue and help determine cryptocurrency ownership, cryptocurrency ownership is tracked and validated through a series of blocks of information, each of which builds upon the last, which shows the relevant string of transactions that resulted in any given individual owning a given “coin” or “token”. This string of information is called a blockchain.

Relevantly for us, cryptocurrency does not get held in a bank or other central location, and it is not held in the individual’s name. This offers some unique challenges when it comes to cryptocurrency in divorce.

Disclosure of Cryptocurrency Assets in Divorce

While attempting to arrive at a property settlement with your ex, both you and they have a positive obligation to disclose all of their assets. Cryptocurrency is no exception and must be included in any disclosure.

However, because of its anonymity, some people may believe that they can get away with hiding cryptocurrency assets from the Court (or their spouse).

Because of the nature of the assets, they can be very difficult to track. There is nobody to subpoena or compel disclosure from such as a bank or stock exchange. This leads to challenges if you believe your spouse is hiding cryptocurrency assets.

This leads to a couple practical tips:

1. If you know your spouse invests in crypto, then take some time to understand how it works and the procedures they use to acquire it (of course, this is not likely to happen if you are already going through separation);
2. Sometimes, cryptocurrency is purchased using funds from a bank account, the details of which have been disclosed. It may be that looking through the transactions on a known account can reveal the existence of cryptocurrency assets;

If you can help your family lawyer understand the foundations of the currency that your ex invests in, then at least there might be some scope to investigate further or seek appropriate directions from the Court.

How (and When) Should Cryptocurrency Be Valued in Separation?

While the market value of ordinary shares and property can fluctuate, crypto is notorious for wild daily swings in value.

This leads to a challenging question: when should crypto be valued for the purposes of understanding its impact on the asset pool?

There is no one-size-fits-all answer to this question. There are, however, various factors that are going to influence the best approach.

First, you should ideally understand which crypto is held and how it has been valued by your ex. If the disclosure has been made but is inadequate (for example, no justification is given for the alleged value, or the type of digital currency is not stated), then further questions could be asked to ensure you can verify the information.

Next, armed (hopefully) with that information you can then monitor the value to see if, at any relevant time, the currency’s value is significantly different from its normal range, or the disclosed value. You should check this, if possible, close to any relevant decision-making time, whether that is a court hearing, a mediation, or the conclusion of a negotiated outcome.

Finally, if you are negotiating with your ex about terms of a settlement, it might be that the cryptocurrency will be viewed differently depending on whether or not it is to be sold, or kept, and if kept then by who. Someone who believes strongly that the crypto is a solid investment for the future might view it as “more valuable” in a real sense, even if a valuation on the given day is low.

Capital Gains Tax on Cryptocurrency

As with all types of investment, bear in mind that any settlement or outcome that requires the sale of cryptocurrency will likely trigger a capital gains tax event – that somebody will have to pay.

This means that disclosure of how much the crypto was bought for should be disclosed, as it is relevant to the calculation.

It also follows that you should get tax advice if you are contemplating a transfer or sale or cryptocurrency and the amount is significant.

This should also be a relevant factor for both parties when deciding whether the currency should be sold or not as part of the outcome.

Should Cryptocurrency be “Sold” or Kept in Separation?

Like any assets in separation, there are two options:

1. Sell the asset and distribute its proceeds in a particular way between the parties;
2. Let the current owner keep the asset and account for its value in the outcome.

Either option is perfectly legitimate for cryptocurrency, and which is right will depend on many of the things we have discussed above.

For example, if one party strongly believes that the currency will increase in value and the other does not, then that party could hold on to the asset in the outcome as they view it as more valuable than the other. This might be a reasonable position to take in negotiations.

If the sale of the currency is likely to trigger a major capital gains tax issue, then it might be that neither party wants to deal with that at the present time. In this case there is a solid argument to keep the cryptocurrency rather than sell it.

If, however, the value of the crypto is not clear and is a major point of contention, then liquidating the asset through sale and conversion into Australian Dollars will solve that dispute and allow a fair distribution.

In short, you should weigh up the pros and cons of each option with your family lawyers, depending on the currency in question and the way that you and your ex view it in terms of value and longevity.

Do Crypto “Staking” Rewards Count in Separation?

“Staking” is a way of using your cryptocurrency to generate passive income, also in the form of the currency itself.

It should be disclosed and treated in the same way as any other form of income in separation and is largely subject to the same considerations and concerns that we have set out above.

Need Help Working through a Crypto Issue?

With more and more people investing in cryptocurrency, it is important to have a basic understanding of how it works and the impact it could have during separation.

If you need help working through a property settlement with your ex (whether crypto is involved or otherwise) get in touch with our family lawyers, and we’ll help you through the entire process.