State Taxes on Property Transactions – for Loved Up Couples and Those That Are Not So Loved Up

State tax on real estate transfers used to be called stamp duty- as the documents would be stamped.

Since 2008 state land transfer tax is called Duty under the Duties Act (WA).

What happens where an interest in property is transferred during a marriage or de-facto relationship by one of the parties to the marriage to the other party?

However, duty concessions can support happy families.  When, sadly, the relationship has ended and the couple is splitting up, duty relief may also be available.

PART 1: When the couple are settled and happy in their relationship

Duty that would otherwise be charged on land transactions where a couple has established a home together, is exempted by Section 97 of the Duties Act 2008 (WA).

For couples who are living together in a home that belongs to one of them, there is a saving if, after two years during which they live together in the home, the owner of the home wants to transfer half their interest to the other person, in that normal transfer duty is waived.

This law applies to all couples in de facto relationships.

The definition of a de facto relationship is Section 9 of the Duties Act that states that a de facto partner of 2 years means “a person who is living in a de facto relationship with the person and has lived on that basis with the person for at least 2 years”.

In the formal language of the Act:

Duty is not chargeable on a transfer or an agreement for the transfer of property that would otherwise ordinarily be subject to stamp duty where the person who is transferring the property is married to the one they are transferring the property to or are de facto partners of two years and the dutiable property (Section 97 (b) ) is a lot on which a residence is erected which, when the liability for duty on the transaction arises, was used solely or dominantly as the ordinary place of residence of the persons referred to in paragraph (a) (the married couple or de facto couple).

The waiver of duty otherwise normally payable, is only available if the person transferring the property is the sole owner of the property and where the result of the transaction will be that the dutiable property is owned by the parties as joint tenants or tenants in common in equal shares.

Instead of the usual duty the nominal amount only is paid, presently $20.  There will still be lodgement fees payable at Landgate and other expenses such are production fees if there is a mortgage.

So if the home is owned by George and Mary, (ie George’s ex partner) the stamp duty exemption doesn’t apply if Mary’s interest is going to Shane, George’s new partner, because George doesn’t own it outright, only half.

But if George is the sole owner of the property (perhaps after Mary has transferred it to him after their relationship breakdown, see below) then he can transfer half the property to Shane without there being the usual rate of stamp duty payable.

Section 133 sets out what evidence can be produced to establish that a couple is married or living in a de facto relationship.  It provides that a statutory declaration can relied upon to prove the relationship.

PART 2: When all is not good in paradise: a marriage like relationship ends

When a couple separates and they want to transfer property they own together between them, provided they obtain court orders or enter into a formal agreement arising from their relationship breakdown, under the relevant family law legislation, Section 129 of the Duties Act provides an exemption from duty that would otherwise be payable.

If George and Mary owned their home jointly, either of them can buy the other out and not have to pay stamp duty on the transaction.

To be entitled to the exemption the agreement reached about transferring the property needs to be part of the couples’ matrimonial settlement.  In a settlement all the assets and liabilities a couple has needs to be taken into account and considered.

Section 113 provides that duty is not chargeable on a dutiable transaction to the extent that it is affected by a matrimonial instrument mentioned in Section 129 (b) or (c) or a de facto relationship instrument mentioned in Section 130 (a).

Section 129 provides that a reference to a matrimonial instrument is to any of the following instruments to the extent that it does with matrimonial property:

(a)  A maintenance agreement registered under the Family Law Act……

(b)  A financial agreement made under the Family Law Act..

(c)  A splitting agreement;

(d) An order of the Court under the Family Law.

Section 130 relates to de facto relationship instruments and refers to the Family Court Act Section 205T or an order of the Court made under that Act or the law of the Commonwealth or another State that substantially corresponds with Family Court Act Part 5A.

Section 131 provides that transactions effected by or in accordance with matrimonial instrument or de facto relationship instruments are subject to nominal duty if the parties are separated or divorced from one another and the property is to be transferred to (Section 131 No. 1 (d) )

(i)         either or both of parties to the marriage;  or

(ii)        a child or children of either of the parties to the marriage; or

(iii)       a trustee of such a child or children; or

(v)        the trustee of a superannuation fund.

The similar provision applies for de factos except that a superannuation fund is not referred to, there being no provision in Western Australia for superannuation splitting in favour of de factos.

What Does This Mean For Me?

A couple still in their relationship can take advantage of exemptions to transfer their home from one owner’s name into their joint names.  They can obtain that relief with the assistance of a settlement agent or lawyer to prepare the land transfer and assist with preparation of the statutory declaration required to be produced to the State Revenue Office.

A couple separating and wanting to take advantage of the stamp duty concessions will require legal assistance to obtain the court orders or formal agreement required to be produced to the State Revenue office to obtain an exemption on a transfer of property between them.

The individuals in a separating couple should be separately advised about their entitlements.  Advice obtained that enables access to duty relief may be cost effective in that the costs of preparation of the court documents and or agreement can be partly at least defrayed by the duty savings obtained on the property transfer.

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The Cost of Separation – Certainty of Mind and Certainty of Legal Fees

Along with the disruption and uncertainty surrounding a marriage breakdown separating couples have to also consider whether or not they need to engage a lawyer.

Although there are many services available for couples, in particular through the Family Relationship Centre system, in most cases it becomes very obvious that both parties need to have some legal advice.

The Process of Separation
There is always one party who knows they are going to be leaving the relationship before the other. That often causes great distress when a party realises that the other one has ceased contributing to their relationship and is out the door, or wants you to leave.

The law does not give any pathway for separation. Parties enter a relationship voluntarily and entirely without any government intervention. It is entirely their personal decision.

It is always advisable for legal advice to be obtained before the physical separation, particularly if there are children involved.

While separation is a personal decision, it may have immediate legal consequences. So the first service that lawyers can offer a person when they separate is to give them initial advice.

Mediation
Mediation can be held before Court proceedings commence. If a mediation is successful, in that the parties come to an agreement about the matters in dispute, a couple can avoid Court altogether. The couples must however prepare and lodge a Form 11 Application for Consent Orders with the Court.

Mediation can also take place during Court proceedings as part of the Court’s programming of cases to ensure that, before a case is programmed towards a trial, the parties have had the opportunity of considering an agreement.

Issuing Court Proceedings
If the mediation processes have failed or there is something urgent that needs to be attended to, Court documents will be required to set out properly what your case is about with the kind of information that the Court requires (that will not necessarily be what you would like to talk to the Court about).

Court documents have been prepared to make it possible for people to fill in the forms themselves without legal support. However, most people find the forms daunting and unfamiliar.

There is no substitute for having a competent family lawyer assist with the preparation of your Court documents. That process will also identify the orders you want the Court to make and will enable you to be advised and tutored about what to expect in your Court case and how you can assist in your case.

Once The Court Documents Have Been Lodged, What Happens Next?
Once Court documents have been filed in the Court, parties face considerable delays before their case finally comes to trial. Many cases, especially those involving children, require assistance from the Court in the early stages of the proceedings in settling urgent interim issues.

Once parties have obtained some interim orders and assistance from the Court often a case does not have to progress past that point and in many instances mediation at this stage will be successful.

Where financial matters are involved parties have to take steps to establish valuation of assets and to consider what the issues in their case are that may require accounting and legal assistance.

Readiness Hearing and Trial
A readiness hearing is a date the Court allocates by which time parties need to have prepared their trial documents, issued all necessary subpoenas, and generally be ready for a trial. A great deal of work needs to be done at this time and a Fixed Fee can be offered for this stage of the proceedings and for the trial.

The majority of cases filed in the Family Court end by agreement before a trial actually commences.

Costs of Getting Legal Advice
Many lawyers provide Family Law services on a time cost basis, meaning that when you engage them, they will work for you from the beginning of your matter until the end, sending usually monthly accounts, charging you for every 6 minutes of time spent on your matter. This includes every email, telephone call, letter and meetings. Lawyers are obliged to advise clients you at regular points in the service period what is the estimate of the legal costs of the service will be. However, this is not a quote and does not bind the lawyer if the services turn out to cost more than the estimate given by the Lawyer.

At Bowen Buchbinder Vilensky we provide Fixed Price services. This involves an assessment of what work is required at various stages of your matter and providing a fixed fee for that service. The fixed fee is agreed to in advance before any work commences which provides certainty and peace of mind.

 

PLEASE CONTACT

Contact Rhonda Griffiths at [email protected] if you wish to discuss this matter or your estate planning objectives further.

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Before Taking the Plunge: What are Pre-action Procedures?

Googling Pre-action Procedures will bring up formal documents that have been published by the government relating to Family Law called “Before you File” (the link to the Family Court of Western Australia version is at the end of this article).

Pre-action Procedures set out what couples are directed to do by the law to avoid going to court about their settlement, if possible.  Couples are expected to engage in family dispute resolution.

If a person doesn’t take part in the processes described in the Pre-action Procedures documents, there are consequences that range from having a legal fight when they should have been able to avoid it, to having to pay legal costs for the other party’s lawyer.

Many couples have it clear in their minds that they don’t want to go to court but are not sure how to avoid that process.

This article is about three steps to set you on the way to a successful settlement.

Your particular case: which process to use?

The first step is to provide my client with a clear picture of the processes that can be considered in their particular case.

There will be discussion about the options of mediation and collaboration and negotiation outside of those processes.  These are different approaches to a negotiated settlement.  Both mediation and collaboration is designed to empower the parties with the skills of their professional advisors and in mediation, the mediator.  Negotiation (without mediation or collaboration) is a less formal process.

The ethical approach of the professionals, the lawyers and other experts, provides support for what can be a difficult process to be as smooth and comfortable as possible.

For some couples, some water needs to go under the bridge before they can deal with issues.  Often one partner will become frustrated at the speed at which the other wants to proceed.

Often legal advice is required urgently to deal with immediate practical problems or issues, even though it may be some time before settlement can be contemplated.

The first step towards a successful settlement is assessment of the best approach to take.

Time lines: how much time should be spent?

The second step is to establish the time line that is going to suit the situation and circumstances.  Before the settlement process can properly get underway there has to be “disclosure”. The Pre-action Procedures document lists what paperwork each party has to provide to the other.

It may seem odd to be giving your ex documents that they may already have or have seen, and confronting to give over documents to the other party that they have never seen before.

Disclosure is about ensuring that there is a level playing field for the couple.  One spouse or partner is usually across the financial details more than the other.

Until there is proper disclosure and the opportunity for reflection and advice about the disclosure, a person shouldn’t be asked, confronted or challenged to say what they want.

In a successful settlement process, it is not so much about what a person wants, as having the opportunity to find out and understand what is reasonable and fair in the particular circumstances and to explore all the options that are available.

Couples who have an out of court settlement can generate options that may not be available to parties in contested litigation.

For whatever reason, a time line necessity may require fast tracking of Pre-action Procedures and a limited time for settlement negotiations before litigation, while a last resort, has to be considered.

Disclosure and Resources

The third step in preparation for settlement is to achieve disclosure and to access relevant resources.

Disclosure usually takes some time and can be complex and time consuming.  Valuations are usually needed. Consideration may be given to instructing financial advisors to assist in establishing the asset pool.

There are services and resources that can assist in preparation of a couple for engagement in their negotiation and settlement processes.

As part of the preparation to be able to engage properly, I encourage my clients to access relevant services and often to seek counselling support, having in mind that most people go through a difficult adjustment during this time.

Finally

Any person in the circumstance of considering a separation from their partner should access legal advice even if they are still uncertain about the future of their relationship.  As lawyers we are duty bound to assist you to consider whether marriage and relationship counselling might help you.

We can also reality test your circumstances with you and talk about what might happen, without you making any final decisions.  Because separation is a complex and difficult step, advice about the way to separate can be of great assistance.  It can support a process that will ultimately lead to a final settlement by agreement.

The Family Court of Western Australia website www.familycourt.wa.gov.au provides downloadable access to the brochures with the link as follows: www.familycourt.wa.gov.au/B/brochures.aspx

Brochure 2 in Children’s matters: Before you file- Pre-action procedures for Parenting Cases

Brochure 2 in Financial cases: Before you file-Pre-action procedures for Financial Cases

If you would like any further information in relation to this topic please feel free to contact the author to discuss the matter further.

PLEASE CONTACT

Contact Rhonda Griffiths at [email protected] if you wish to discuss this matter or your estate planning objectives further.

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