Category

Family Law

Granny Flat

What to Consider Before Moving into the Granny Flat

By | Family Law

It’s part of being a family that parents, children, siblings and other relatives willingly accommodate each other’s needs as life changes. Parents allow adult children to move back home after the loss of a job; brothers and sisters open their homes to one another when someone needs a place to stay after a job relocation. Children concerned about their ageing parents make room in their homes in a ‘granny flat’ arrangement.

The only trouble is that many of these accommodations are reached through informal agreements, leaving plenty of room for disputes, misunderstandings and wrecked relationships.

This is why it’s so important to consult a lawyer, whenever possible, before making these accommodations. We can help you draft agreements that everyone understands and agrees upon. Or, at the very least, we can give you the information you need to make an informed decision about the issue at hand.

With that being stated, here are a few things that older parents should consider before moving into a granny flat.

The legal classification of a granny flat

To have even a basic grasp of this topic, it is important to understand the legal classification of a granny flat.

For the purposes of a granny flat agreement, a granny flat is broadly defined as “a designated room or area that allows for a parent’s exclusive occupancy” created in accordance with a relevant agreement. This means it may be anything from a separate dwelling on an adult child’s property to a flat incorporated within an existing home. It could even be a loft room, duplex, or a room in an existing apartment.

What is a granny flat agreement?

A granny flat agreement is made when an adult child allows one or both of his or her parents to move into the adult child’s home.

The adult child generally makes this provision in return for some type of payment. Depending on the circumstances, this may include the transfer of the parent’s residence. In other cases, however, the parent/parents will provide funds for the construction of a granny flat at the adult child’s home. Because an older parent’s care requirements often prompt the consideration of a granny flat, provisions for such care may also be included in the agreement.

Although terms are predicated on individual circumstances and vary accordingly, a granny flat agreement must create a ‘granny flat interest’. In other words, there is a legal obligation for the transfer of assets or money to the person (adult child) who owns the property where his or her parent will live, in return for a life tenancy or interest in such property.

Specific considerations with regards to care provisions

As we have just noted, many granny flat agreements include provisions for an ageing parent’s care. However, such provisions are not mandatory.

Legally, a granny flat agreement can include simple provisions for the older parent’s accommodation without provisions for care. But if you are considering this option, you should be aware that it can cause long-term complications. This can happen if the parent/parents are still fairly spry when they first move in, but their health declines suddenly. Such an unanticipated turn of events can then create significant financial and emotional stress for everyone in the household.

Accordingly, everyone in the household should be informed about the provisions being considered and potential repercussions. In the interest of fairness and transparency, the adult child’s brothers and sisters should also be advised, even if they are living elsewhere. By consulting his/her other siblings, the adult child involved in the granny flat agreement can dispel any misconceptions about favoritism.

Within this context, lawyers often suggest that their clients allow all relevant family members to read and consent to the agreement. By doing so, they say, the adult child who is directly involved in the agreement can lessen the chances of future misunderstandings.

What about Centrelink?

Another issue that must be taken into account is how a granny flat agreement affects any Centrelink benefits, particularly where the elderly parent is on a pension. This is because the agency has a specific set of (complicated) rules pertaining to these arrangements.

Compliance with these rules ensures that there are no adverse effects on someone’s pension. But because lack of compliance or even a simple mistake can have serious consequences, it is important to get the proper legal and financial advice before entering into a granny flat agreement.

It is also important to consult Centrelink about relevant rules, especially if you have questions or need clarification. For example, there are some circumstances in which the gifting of assets or money may violate the gifting or deprivation provisions of the Social Security Act 1991 (Cth). But there are also some circumstances in which this is not the case.

A case where there’s no violation

There is no violation of the deprivation rules if payment for the granny flat interest is:

  • A transfer of title of the parent’s home;
  • covers the cost of the construction and fit-out of the granny flat;
  • a property purchased in someone else’s name.

Exceptions to the rules

Exceptions are made when Centrelink values the granny flat interest differently. This happens when the agency makes a determination based on ‘the reasonableness test’. In this method, the value is assessed at a different amount to what is actually paid for the life interest. It is typically used in the following circumstances:

  • When the home and additional assets are transferred;
  • when payment is made for construction and fit-out of premises and there is a transfer of additional assets;
  • someone is using the granny flat rules to enhance their social security benefits.

Tax implications

Tax implications must also be taken into account when considering a granny flat agreement. Why? Because some of these agreements may be subject to capital gains tax in accordance with an Australian Taxation Office ruling no 2006/14.  This is most likely to happen when you, as a parent, pay your son or daughter a specific amount in exchange for the right to live in the latter’s home or to construct a separate granny  flat there.

This may seem counter intuitive since our principal place of residence is usually exempt from any taxation implications, especially capital gains tax. Because this issue tends to generate so much confusion, we must reiterate how crucial it is for all parties involved in a granny flat agreement to seek advice from qualified professionals prior to finalising the agreement.

In summary

For adult children, providing a safe place for their elderly parents to live is a way of returning the love and care their parents have always provided. While it may seem simpler to make these accommodations without a formal agreement, doing so can often open the door for future family disputes. On the other hand, a granny flat agreement allows for specific provisions that everyone can agree upon.

As we have detailed, however, these agreements are not without complexities. If you are considering a granny flat agreement, we can help. Contact our Central Coast family lawyers at Felicio Law Firm on (02) 4365 4249 to learn how, today.

Family Law Relationships Assets

Relationship Stability Vs Assets Security

By | Family Law

Today, it is more common than not for couples to live together prior to getting married.

In fact, in Australia alone, about 80% of couples conduct this, potentially being able to ‘try before they buy’.

However, financial consequences regularly arise from this, as couples who have lived together longer than two years become susceptible to the possibility of their assets being claimable, as if they were already married. A recent article by the Daily Telegraph on 19 June 2017 ‘Reason at Romance’s Heart’, pronounces this very idea as it involves the co­mingling of you and your partner’s money which can easily result in a loss of assets. Due to this, preparation is key, as all individuals need to consider their options on the possibility their relationships may fall apart.

To protect your assets, lawyers suggest that it’s best to develop a thorough and effective asset protection strategy long before the possible need for it. This will enable you to have a safety net to fall back on if anything goes wrong within your relationship for the future. This can be implemented by a few tips and tricks outlined by the following.

Protecting your assets:

In any relationship, the ultimate way in protecting your assets that you bring to the table should always begin with a record keeping and valuation at the time your relationship begins. This forms as a base level to be financially secure and provide protection of your and your partner’s individual assets. Co-habitation agreements are a common way to outline a relationship, property rights and liabilities between a couple. They act as a basic pre-nuptial promise for couples to create in an effort to protect each party’s distinct assets.

Housekeeping expenses:

Budgeting financial housekeeping can also maintain independence within a relationship. Household budgets are vital when living with your partner, particularly if separate bank accounts are to be upheld. This will reflect each partner’s responsibility and can act as a common test for compatibility, as you will not be bound by each other’s expenses. Finding out that your partner is a compulsive gambler if you are a savvy shopper could lead you to decide to end the relationship and having kept your finances separate, you have a better chance to keep your assets.

Property pathways:

Owning a property and the decisions relating to this are extremely important in any relationship. The two distinct types for couples involve ‘tenancy in common’ or ‘joint tenancy’ and the difference could potentially impact you and your relationship. These two choices provide entirely different outcomes if a relationship, unfortunately, breaks down and therefore, can impact on your assets and financial protection. ‘Tenancy in common’ allocates each partner the direct ownership of a designated portion of the property, where each individual will be accountable for their own mortgage and own share of the property. On the other hand, ‘Joint Tenancy’ involves the agreement that a couple is jointly and severally responsible for the entirety of the property and mortgage. When renting, by adding your name to the lease you gain equal possession of the space and opportunity allowing for a better financial position if it comes down to the event of a break-up. If your name is not on the lease and the unfortunate event of a breakup unfolds, the person with their name on the lease has an upgraded position to continue possession of the rental property.

Personal Budgets and their impacts:

Before you or any couple agrees to rent a house or apartment together, you should consider creating an individual budget for all monthly bills, utilities and individual expenses to be conducted whilst living together. Alongside this, by purchasing items separately you utilise your ownership and possession of certain items within the relationship, therefore, recognising who owns what particular piece of furniture etc. In doing this, both parties can understand and respect their own contributions and ownership of items, in the preparation for any unfortunate event.

Talk about it!

Lack of communication regarding any finances in a relationship may result in money problems and lead to breakdowns. It is encouraged that all couples allocate time to talk about money with their partners and understand each other’s goals, plans and monitoring of finances. This will consequently ensure both individuals are on the same page and allow issues to be raised for any discussion. Warning! Do not fall into the trap where one partner controls all finances and decisions in a relationship. This is the biggest NO NO in being able to protect your assets and individual security. Money matters should be a joint decision in any relationship, providing stability and security to your asset management.

Our team are here to help you with Financial Agreements (before, during and after marriage) contact our Central Coast family lawyers today.

 

Same Sex

What Does Same-Sex Marriage Mean For Property Proceedings?

By | Family Law

In more than two dozen countries including Australia, the legalisation of same-sex marriage represents a significant legal milestone.

Because the legislation has only been in effect in Australia since December 2017, a key question that remains largely unanswered is how the legal recognition of same-sex marriages in Australia will affect property proceedings.

This is important because the changes to Australian laws that permit same-sex marriage here also allow for the recognition of same-sex marriages that took place overseas. In other words, a gay or lesbian couple that wed in a country that had legalised same-sex marriage prior to 2017 and is now living in Australia will also be treated as a married couple under our laws. And depending on each couple’s situation, that can be complicated.

Let’s say, for example, that a couple married in a foreign country which legalised same-sex marriage 10 years ago. After living there for a couple of years, the couple returned to Australia but were never officially divorced, because their marriage was not legally recognised here at the time. If they were to now be married under Australian law, this would actually be a second marriage in the eyes of the law.

Under applicable laws, namely 88D(2) of the Marriage Act, the second marriage is voided once someone enters into a second valid marriage. This means that a couple in the circumstances detailed above may be forced to abide by the de-facto provisions of the Family Law Act instead of the marriage provisions.

Changes to the Family Law Act that took effect in 2008 authorised the Family Court to change property interests for same-sex couples who are in ‘de facto relationships’, effectively putting them on equal footing with heterosexual couples in the same legal classification.

Even so, initiating property proceedings is a little bit harder for these couples. This is because they have to meet a higher burden of proof to verify that they are, or were, in this type of relationship. For example, they must prove that they lived together (prior to separation) and had some degree of mutual financial dependence. On the other hand, the existence of a valid marriage is the only evidence a court needs to find that a married couple shared joint property interests.

Another factor to consider is that married couples have one year (12 months) in which to initiate property proceedings in court after the issuance of a divorce order. Conversely, de-facto couples must initiate property proceedings in court within 24 months (two years) after they have legally separated.

Because they have generally separated without the Court’s help and without applying for an official divorce in the country in which they were married, stipulations pertaining to these deadlines may also affect same-sex couples. The good news, however, is that the Court already has a framework for addressing this dilemma. This is because it comes across similar issues when separated heterosexual couples have procrastinated before filing for divorce, and then make court applications for property settlements several years after their legal separation.

To date, the Court hasn’t had to decide how the recognition of past same-sex marriage will affect the implementation of these deadlines. However, it does have the authority to decide whether a case should be dealt with by a judge on an individual basis, based on its evaluation of whether Court intervention is fair and just.

If you are a gay or lesbian couple that wed in another country and you are now living in Australia, it is important that you fully understand how legal recognition of same-sex marriage affects you.

Felicio Law Firm can help you with this complex and still emerging area of the law, contact our Central Coast family lawyers today.