In this podcast, Tax Specialist and Director Craig Meade from DPM Financial Services will be discussing the topic of managing the financial impact of divorce or separation in the medical profession, including things to look out for, updating your legal documents, what happens to jointly owned investments, child support payments and more.
This podcast is brought to you by DPM Financial Services, DPM is a specialist medical financial advice firm that aims to educate doctors of Australia to make the right financial decisions and achieve their financial goals. DPM Financial Services is all about you getting the right advice that suits your personal and professional needs and making sure you have confidence in your financial future. You can get in touch with DPM at hello@dpm.com.au or by calling 1800 031 039
- Transcript
Please note this is a machine generated transcription and may contain some errors.
*As always, all in this PODMD podcast is intended for health professionals and the comments are of a general nature. Information given is not intended as specific medical advice pertaining to any given patient. If you have a clinical issue with one of your patients please seek appropriate advice from a colleague with expertise in the area.
The financial journey of a doctor is unique and complex. DPM Financial Services is a specialist medical financial advice firm that aims to educate doctors of Australia to make the right financial decisions and achieve their financial goals.
DPM Financial Services is all about you getting the right advice that suits your personal and professional needs and making sure you have confidence in your financial future.
Today, I’d like to welcome to the PodMd studio Craig Meade Tax Specialist and Director from DPM Financial Services.
*We do hope you enjoy this podcast but please remember that the here is of a general nature and is not intended to serve as advice. The views and opinions expressed in this podcast are those of DPM and Fletcher Clarendon, not PodMD.
Legal services are offered by DPM in partnership with Fletcher Clarendon Lawyers. DPM Financial Services recommends you obtain medical financial advice or legal advice concerning specific matters before making a decision.Craig thanks for talking with us on PodMD today.
Craig: Thank you for having me.
Question 1
The topic of today’s discussion is ‘Managing financial impact of divorce or separation in the medical profession’.
For our listeners’ benefit, can you let us know a few divorce taxation issues that you need to be aware of and think about that will make your life easier in this highly stressful time?Craig: Yeah, look, there’s a few things that you need to consider, and it’s not all taxation related. You need to make sure that you’ve got fair value for your assets and those valuations need to be current and very appropriate to your circumstances. There are a lot of people who believe that a specialist practice like a neurologist or an orthopaedic surgeon, has a large goodwill component and that just simply isn’t the case because generally the practitioner is the goodwill and it doesn’t have any intrinsic value.
General practices or larger groups may have some goodwill, but it’s certainly not like it was in days gone by, by any stretch. We, as the accountants are often the first to know regarding a separation, so it’s important to make sure that you do take advice if you are in the position where you are separating, and you need to know your position and you need to ensure that you are well informed before making any decisions. And that includes having accounting advice or legal advice and knowing what you’re entitled to.
The other thing is that you would segregate the kids from any decisions, take them out of the equation. Both parties love the kids and if you take them out of the equation then it’s a lot easier to deal with the matrimonial pool. The matrimonial pool will need to be established and this is done through a legal process known as discovery. You have to be open, honest and transparent, with your assets and what you have. If you are not open and honest and transparent with regard to your assets that you have, then that is not going to be looked upon favourably by a mediator or the courts, if you happen to get there. So you have to be very, very upfront with what you have.
It’s important to remember it’s neither party’s fault that this situation has occurred and at the end of the day you would want to avoid costly legal and accounting bills wherever possible. It’s fundamentally for what we say to a lot of clients is, it’s really the kids inheritance that you’re spending, that’s going to the lawyers. So try and keep it as amicable as possible and just be aware that there is going to be a split. That’s what the law dictates, and the sooner you can accept that, the better. And that’s the best for all parties. The other thing is that it’s important, especially where children involved, that both parties have a good, genuine quality of life, and that means that they’re able to be comfortable with the children raising the children. And it’s not a case of effectively seeing them to the wall.
Question 2
Can you explain further about updating your legal documents (wills etc)?Craig: If you’re separating, then we would certainly suggest that it is important to update your will. Your powers of attorney, your life insurance and also the beneficiary clauses on your superannuation. The trustees of superannuation funds have to pay in accordance with what has been dictated to them by the member. So that is vital that you update the superannuation. Don’t leave these things to chance. An executor of will needs to be considered and the trustees that you have, if you have family trust or investment trusts, needs to be reviewed. It’s something that should be done sooner rather than later, and we would be an advocate to getting those things looked at and take advice on those issues.
Question 3
OK, now what about Capital Gains Tax, should medical professionals be considering this?Craig: Most definitely. With this regard, it presents an opportunity. Because under a court order, you’re able to move assets around and there is a capital gains tax exemption, so you can move the cost base of various assets to either party. However, don’t run out and just move assets willy nilly. It has to be done under a court order, we stress that it must be done under a court order and this is called a binding financial agreement. Whether you like it or not, you’re going to, no matter how easy the separation is, you’re going to both have to go to a lawyer, take advice, and get a binding financial agreement, and that will have to be effectively stamped with the court and it’s under that document that you’re able to have this capital gains tax exemption.
Question 4
And what about jointly owned investments? This may be particularly worrying separated people.Craig: There will be a division of assets and a division of liabilities whether you like it or not, and that has to be agreed to by the parties, and if they can’t agree, it will be agreed by the courts. You need to be aware also of within trusts there can be unpaid trust entitlements. The lawyers look for these things in trust balance sheets, however, we believe it’s a moot point because if it’s an if it’s an asset to one party, it’s a liability in the matrimonial pool, so it really is a nil all draw.
But you need to be aware of those things. Loans and banking will need attention. Who has access to what. There are horror stories about accounts being cleaned out and all sorts of things. However, at the end of the day, there is a date of separation, and if somebody takes all the money out of a bank account, that still gets included as part of the matrimonial pool and that would be part of what they get. So ,it’s a case of just t be cautious, be open, transparent, and try and work through it as best you can with your with your partner.
Question 5
When should someone be planning for child support payments?Craig: Yes, there is a court formula of what gets paid and it’s based upon your taxable income. However, our experience is that most parties will set that aside because they’ll come up with another agreed amount of ongoing support. This is going to be centred around school fees, medical, and also extracurricular activities, so generally speaking the minimum that will be paid is set by the courts, but most parties come up with and agreed amount that they will contribute towards child support and child education, those sorts of things.
There is also the potential for spousal maintenance. Now that’s an ongoing payment, because if one person has been the homemaker and their skills need to be refreshed to re-enter the workforce, etc, then you can have an ongoing payment. Sometimes what happens is that you might get a larger percentage of the matrimonial pool, and not pay spousal maintenance so it’s a negotiated outcome, but it is very, very important to be aware of it and this is part of making sure that you know what you’re entitled to and taking advice from the appropriate lawyers, accountants, etc.
Question 6
Thanks Craig, that all makes sense. Can you also explain the attention needed for loans and banks?Craig: Our advice would be to be totally upfront with the banks and the financial institutions. They will really want to just simply work with you. You will then need to have your own bank account. If you don’t have one and you obviously will be the sole person that will have access to that. If the situation is acrimonious, you should consider changing PIN numbers and security questions and all those types of things. Once again, to work through it in a negotiated manner with your partner is the best avenue.
Concluding question
Thank you for your time here today in the Pod MD studio to sum up for us, could you please identify the main key take home messages from today’s podcast on Managing financial impact of divorce or separation in the medical profession.Craig: I think you need to make sure that you consider your financial management post-divorce. Have a plan, do a budget, know where you’re going and have a strategic plan for the rest of your financial future. Create your own personal financial plan. Also identify all government and tax benefits that may be available to you. There will also potentially be an opportunity to revisit superannuation account balances.
What can happen is that under a matrimonial dispute there might be one partner may have a large amount of superannuation because one part the other partner’s been th homemaker and looking after the children etcetera, there does exist an opportunity that the superannuation balances can be transferred. But you need to consider that it’s a very, very important aspect, and it’s a one off opportunity that you that you do have. With regards to custody, there will be a primary caregiver and a secondary caregiver. I can tell you from personal experience, don’t get hung up on that. There always is a primary and a secondary, so if you are the secondary caregiver, you might consider yourself the primary caregiver. It’s just that for Social Security purposes, there has to be a primary and a secondary.
You should also seek if you re partner post separation. You should also seek advice regarding prenuptial agreements. It is very, very important. At the end of the day, you don’t want to end up in another 10 years if you go through another separation, you want to guard yourself against that and also protect yourself and also your children. In conclusion, we can tell you many, many horror stories about lawyers and forensic accountants getting involved, if you’re reasonable and rational, and sometimes that’s hard to be. But if you are reasonable and rational, it can be sorted out in a very considered manner.
Thank you for your time and the insights you have provided
Craig: Pleasure
