Somewhat stating the obvious, large accounting firms are predicting significant underperformance for many businesses reliant upon consistent cash flow and liquidity during this current economic crisis. Relationships, too, require cash flow and liquidity, and it will not surprise us if there is a larger volume of work in family law as a consequence of underperforming relationships.
And if we can extend the metaphor a little further, Ernst & Young are advising businesses during these times to:
communicate, communicate, communicate;
be flexible with your expectations;
don’t let problems fester – work on them early; and
critically assess your strengths and weaknesses.
How also true of relationships.
Assuming, however, the bubble has burst. What impact does the “credit crunch” have on property settlements and property orders? Since cases like Rosati [1998] Fam CA 38, and probably well before, property settlements and submissions made before courts had to consider the financial ramifications of the “result,” particularly if that involved realisation of assets to satisfy the result – such as tax and realisation costs. It could easily be argued that stage 4 of the determination process – whether or not the “result” is just and equitable – means that other future consequences need to be examined carefully. Rosati was a case concerning the effects of contingent taxation liabilities and realisation costs on the property pool for determination. We have attached a link should you wish to read the case. http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FamCA/1998/38.html
Assuming that the current crisis means that credit is not as easily or cheaply available, even with interest rates relatively low, but share prices are increasingly uncertain, then we think the following also needs to be considered when achieving a “result” in property matters:
Have valuations been obtained, particularly for businesses, which consider reductions in turnover?
If one party seeks greater liquidity in their post-result financial position, can the other party claim the non-liquidity as a factor to be considered pursuant to section 75(2)(o) of the Family Law Act 1975 (and the counterpart in the Property Law Act 1975 for de facto relationships)?
Given that there has (usually) been a continuing devaluation of superannuation interests as a result of share prices falling, should base interests for splitting be better described in percentage terms, and not a dollar value?
Will greater pressure be placed on parties to liquefy assets to relieve either or both parties’ burdonsome credit arrangements?
How can each party manage their post-result credit?
If additional credit is required to satisfy any result, is that credit available? And on what basis?
What are the taxation consequences, including CGT and GST, of the need to liquefy assets, particularly assets held by businesses of the parties?
What are the taxation consequences, including CGT and GST, of the need to liquefy assets, particularly assets held by businesses of the parties?
Have parties each received financial planning advice regarding their likely positions post-result?
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Tags: Adam Cooper, Barry & Nilsson Lawyers, Barry Nilsson, Family Law