Don’t wait for death or divorce…Knowing how to handle your finances is a necessity

Don’t leave your spouse or partner to manage your family finances. Whatever your role, stay home parent or CFO of a top 200 company you need to have some control over your family finances.

Despite the fact that women hold more than half of the country’s private wealth and make the majority of a household’s purchasing decisions, they tend to push financial decisions to the side, often relying on a spouse or a parent to handle them.

My drive to encourage women to have some control comes from client and personal experiences. When I first met one client she was under a great deal of stress because she had just found out that her husband was having an affair and was about to go through a separation. Her only request was “are you able to help me work out what we have?” She had no idea of their financial position – not an uncommon scenario. She was married to a wealthy executive and had been the parent at home raising her 3 daughters for the past 16 years. From the time her children were born, she let go of any control over the family finances leaving it to her husband to take care of. The extent of her involvement was to sign the documents her husband placed in front of her from time to time. She was content just having access to cash when she needed and credit cards that were paid off by her husband. When he offered a lump sum of cash as a settlement that didn’t really tally even close to the value of some of the assets, she knew that she needed help.

The good news was that she recognised that she needed help. We were able to piece together the family’s financial position that resulted in her settlement being 3 times that offered to her initially by her husband.

A more recent experience involved the death of one my elderly male clients. I had always dealt with him and despite many requests for the wife to join us for meetings it was always “that’s his area, I don’t need to know”.  When the client unexpectedly passed away, the first call with the wife involved a very distressed discussion around “what do I do? Can I keep taking cash out? How do I pay the bills”. Even worse in this example was that the client had not documented many things and had most of their personal information in his head, including the location of his will. While we were able to work with the client to sort out the various concerns, it took unnecessary stress and time.

I also grew up in a household where my mother was the stay home parent while my father handled all the finances. My mother didn’t have access to any of their accounts or credit cards. She relied on a weekly allowance from my father to cover the household costs. When they divorced after 15 years of marriage, my mother walked away with 3 children and no assets. My father had no assets in his name at the time, as he had managed to transfer them to his siblings to manage.

Don’t think it won’t be you. Research shows that 9 out of 10 women will be solely responsible for finances at some point in their lives.

Some simple tips you can follow:

  • Get involved in managing the family’s finances. Understand what is going on with the investments and debt. Review all bank and investment statements monthly. Know where your money is. Keep organised records.
  • Have your own bank account and credit cards. If not at least make sure all the cash and savings accounts are in joint names.
  • Make sure your home is in joint names. This is a must to ensure that the home transfers to you automatically on death.
  • Make sure you have a copy of both wills. It’s important to understand how the assets will flow on death.

Fortunately events like this break down the barriers and encourage women to take the helm. A key part of getting on top of one’s finances, is considering how to handle both immediate, and future, finance.

National Wealth Advisory Accolade

John Manuel, Director of Financial Services has recently been named as one of five national finalists in the 2013 Australian Private Banking and Wealth Awards under the category Outstanding Wealth/Investment Adviser.

The awards are hosted by the Australian Private Banking Council with the aim to recognise individuals within private banking and wealth services who are excelling in their profession.

As a tremendous personal accolade, John was the only adviser from a non institutional firm to reach the finals in any category.

The process involved in reaching the final was an extensive one. All nominees were asked to prepare a paper on a multi layered case study provided by the Council. Nominees were also asked to provide examples of strategic solutions implemented over the last 12 months to assist clients in meeting both short and longer term financial goals. Finally, John attended a searching interview with the judging panel comprised of some of the industry’s most experienced thought leaders. Outstanding service, understanding of individual client needs and relationship management were key criteria considered.

At Prosperity we pride ourselves on providing best of breed strategic advice to our clients and it gives us great pleasure to see John recognised by his peers at a national level.


Super tax to be doubled for high income earners

If the Government raises the super contribution tax to 30% for high income earners in the budget next week, will you be affected?The Government announced to the major media over the weekend that Wayne Swan is going to double the 15% tax on concessional superannuation contributions to 30% for those with adjusted income over $300,000 per annum in his budget speech on 8th May 2012.  


For these purposes, adjusted income is expected to include taxable income, concessional superannuation contributions, adjusted fringe benefits, total net investment loss, some foreign income, tax-free pensions and benefits, less child support.

As a result of the adjusted income definition, a taxpayer with salary income of say $250,000 but with significant negative gearing into property or shares might still be caught by these measures.

The start date for this change is expected to be 1 July 2012 (although it is conceivable that this could be brought forward to budget night – 8 May 2012 – if budget surplus pressures are strong enough).

The 30% tax rate will apply to all concessional superannuation contributions with one exception.  The exception is where the adjusted income threshold of $300,000 is breached by an amount less than your concessional superannuation contributions amount.  In that case, the 30% tax rate will only apply to the concessional superannuation contributions that exceeds the adjusted income threshold.

Whilst it is said this change will affect just 128,000 people nationwide, it is clearly something that, if it impacts you, you may want to consider preparing for now.

Under certain circumstances, those who may not ordinarily have an adjusted income of $300,000 or more may have to be alert to this change.  For example, this could impact investors selling assets such as property or shares which might throw their adjusted income above the threshold (in the year they enter contracts to sell).

The measure will increase the tax on a standard $25,000 contribution by $3,750 per person in a move that is estimated to bring in more than $1 billion in revenue over the period forecast in the budget.
What can you do?  What should you do? 

If you are unsure whether you might be impacted by these measures, contact your Prosperity Adviser for advice, or speak to one of our leading wealth advisers, John Manuel or Gavin Fernando, who work across our Newcastle, Sydney and Brisbane offices.

If you would be affected by these measures, you should consider:

  • Maximising your concessional superannuation contributions for the 2012 year whilst the tax rate is still 15% (if possible, it would be ideal if this could be done prior to the budget announcement on 8 May 2012 in case the expected start date is brought forward); and
  • Other ways to build wealth in superannuation, including property ownership in a self managed superannuation fund.

Lessons From Rinehart

As published on

Regardless of where fault lies, you have to feel for the Rinehart family.  All families have conflict from time to time behind the privacy of closed doors.  Wealth creates a platform that allows individuals to “shout louder” through the courts and the media. 

The Rinehart family dispute reminds us that we are in the early days of the largest generational wealth transfer in Australian history.  Here are some sobering facts history offers.  Only 30% of businesses make it to the second generation (3% profitable by the third). In wealth terms, the second generation loses 65% of family wealth, increasing to 90% by the third.  Wealthy families often manage inheritance badly.

Here are 5 things that could have assisted in preventing the conflict we have seen played out in the courts and on the public stage.

(1)    Prevent vesting by using perpetual structures

“Bankrupting” tax liabilities when a trust ends or “vests” makes for great headlines, but this is serious news for anyone with a trust.  Most family trusts have a lifecycle of about 80 years, sometimes less.  The consequences of vesting are appalling.  On a good run, a family loses about 24% of the growth in its wealth as tax.  Unmanaged, I have seen rescue missions to prevent liabilities of more than 60%.  Either you sell the asset to pay the tax or if the asset is illiquid, the family is placed in significant debt.  Neither option appeals.   Yet the tragedy is that is possible to set up perpetual structures which remove the issue.

(2)    Split assets into separated structures

Arguments between adult children can destroy family unity for generations annihilating not only wealth, but a family legacy.  As unbelievable as it might sound, I regularly see battle lines drawn by adult children around who was the favoured child and who has the higher “entitlement”.

At an adult level, these conversations manifest themselves as disputes over who gets the low yield second tier commercial property assets and who gets the high yield blue chip growth stocks.  Put 3 adult children in control of a single pool of assets in a structure and voting can be used by two against one, or one attempts to dominate.  The simple solution is to progressively separate assets into separate structures.  Choose which asset goes to who.  Perhaps get the adult children involved in the choice.  This leaves children with nothing to dispute and removes a key obstacle to family unity

(3)    Choose the right assets to pass to future generations

It is extremely difficult to leave management of an active business to adult children but put ownership of part of the equity in a structure for the benefit of grandchildren.  If the business comes to a substantial “fork in the road” (a certainty across the span of 2-3 generations) and the children choose one path, it is always possible to use the benefit of hindsight to say that the better decision for the grandchildren would have been to take the other path.  Personal, business and lifestyle needs of the adult children may be in complete conflict with the objective of growing equity for the grandchildren.  One solution can be to change the nature of the grandchildren’s interest to a non-equity interest.  For example, using a secured loan into the business which can be repaid to the grandchildren’s structure if the business is sold, merged or restructured without dispute over the “value”.

(4)    Address independence and control issues up-front

Where control of assets and the intended beneficiaries are not in complete alignment, conflict occurs.  A classic example is where grandchildren are due to inherit at a certain age, but parents who have control defer this inheritance due to concerns about “readiness”.

Time poor parents may confront an affluenza affliction that often faces the younger generations in wealthy families – heirs lacking a purposeful pursuit in life develop personal character issues such as a false sense of entitlement, a desire for instant gratification – fast cars, boats and big houses – without the self control to moderate consumption.

You can remove conflict and control issues by putting clear and unambiguous rules in place from the outset.  Involvement of independent and experienced professionals in the management of the asset base and the resolution of issues such as suitability to inherit, can take the heat out of family dispute.  The art of doing this is another article in itself on governance.

(5)    Build character, teach and live enduring family values

If your parent is the richest person in Australia, how do you develop a sense of achievement and identity that is not dwarfed by them?  This may seem to be an impossible challenge without the right support structures.

To be a member of a Family means something, whether it is written or unwritten.  Big Families are a big business.  The controllers of wealth can often be so busy in the management of the family business that they lack the time to coach the next generations.  Transfer of values from parent to child to grandchild can be difficult if contact is limited. Clear communication of what the family is, what it stands for, and what conventions of behaviour are appropriate is critical.  Engaging family members in business with aligned leaders and can deepen engagement.  Philanthropy can be another mechanism which teaches key skills.  How families use tools like family constitutions and governance structures will be the subject of another article.

Universal principles

Most people would say “all of this does not apply to me and my family, I’m too small to care”.  But I disagree.  The legacy of any family is worth preserving.  The steps outlined above are as relevant to a family with $1.5 million in assets to pass to the next generation as they are to a family with $1.5 billion.  Disputes still arise.  Things may be much less complex to manage but the principles have broad application.