Separation, divorce and property settlements – these can be some of the most trying times in our lives. For couples who were already experiencing relationship problems prior to the COVID-19 outbreak, the pandemic may only have intensified negative relationships by enforcing lengthy periods of close contact. Attwood Marshall Lawyers Family Law Senior Associate Hayley Condon, discusses divorce and what couples can expect if they make the decision to go their separate ways.
We are nearing what is referred to as “divorce month”. During the festive season, couples tend to put their relationship under the microscope. They are spending more time at home, reflecting on the year that has passed – and in the case of 2020, it has had significant challenges for everyone.
Stressors impact relationships – and the current pandemic has only amplified the dissatisfaction many couples have in their relationship. If you add financial hardship, loss of employment and self-isolation to pre-existing simmering problems, separation may be imminent. Many couples try to battle through Christmas for the sake of their children, only to make the decision to go their separate ways in January.
Attwood Marshall Lawyers historically observes a significant spike in the rate of marriage separations as the new year rolls in. In this article we look at what you can expect when going through the separation process.
What is a divorce?
A divorce is simply the process of dissolving a marriage. It is a separate matter to property settlement. To apply for divorce, spouses need to be separated for 12 months.
For spouses who have been living separately in the same home for 12 months, they are still able to apply for a divorce, however as part of the divorce process they will need to put evidence before the Court to satisfy the Court that during that 12-month period they were not living together as a couple in the home.
What’s the difference between divorce and property settlement?
Property settlement is the division of assets after a separation, whereas a divorce is dissolving the marriage. They involve two separate processes.
You do not have to wait until you are divorced before you can apply for a property settlement; you can seek a property settlement straight after separation which can help you move on with your life without having to wait for a divorce to be finalised.
What does a property settlement achieve?
A property settlement achieves financial separation. It involves spouses dividing up their assets so they can move on with their lives individually. In terms of the process for a property settlement, it really comes down to the parties in each case. If the parties separate and remain amicable, they could reach their own agreement, or through solicitors negotiate an agreement which is formalised in a legally binding way to protect them. If, however, there is a lot of acrimony between the parties after the breakdown of their marriage, the matter may need to be resolved by way of litigation.
Even if it’s amicable, do you still need an agreement in place?
It is important that parties formalise any settlement they reach in a legally binding way under the Family Law Act. If this is not done, what can happen is your spouse could pursue you again down the track, before the statutory limitation period expires, for a further settlement (so another bite of the cherry).
By formalising the settlement, you are protecting yourself against this risk and you will also receive tax advantages such as the benefit of stamp duty exemptions where property is being transferred between spouses as part of the terms of the settlement.
Compromise can be key to settling matters quickly
If parties want to resolve property settlement matters without engaging in costly, lengthy and stressful litigation then it requires compromise on both sides.
It may be the case that one party may be prepared to compromise more than the other in order to achieve a settlement. There are a variety of reasons for this, such as when children are involved and the parties want to try and maintain a workable co-parenting relationship for the future. Occasionally one party may be more inclined to compromise as they have the hope of a reconciliation in the future, which sadly is often misguided.
Don’t ‘Do-It-Yourself’ when it comes to property settlements and divorce
Just like a Will, couples can go online and download an Application for Consent Orders form from the Family Court website and can also find Binding Financial Agreement precedents online. However, it is not recommended that anyone try and formalise property settlement agreements on their own.
Family law can be a very complicated area when formalising agreements especially when it comes to the drafting of the settlement provisions when you are dealing with the transfer of property or tax issues. If you get it wrong, you could end up spending more money trying to fix the problems that arise compared to what you would have spent in the first place, having a lawyer prepare the documentation for you correctly.
Settlement agreements under the Family Law Act can be formalised by way of an Application for Consent Orders filed with the Family Court or a Binding Financial Agreement which does not involve the Court.
What assets does a property settlement include?
Settlement agreements reached between separating spouses are specific to each case based upon the property that makes up their asset pool.
The property that forms part of an asset pool includes:
- assets and financial resources jointly owned by the spouses;
- any assets or financial resources owned by the spouses individually;
- if a spouse owns an asset with a third party, such as a parent or other family member, then the spouse’s interest in that asset would form part of the asset pool.
How do you determine who keeps items of sentimental value?
Sentimental items can be very difficult to deal with in separations, especially where one party is aware that it is important to the other spouse and the item does not have a great monetary value.
Such items can be used as a tool of negotiation in property settlements. As the value of the item is generally not significant, it is not financially viable for a party to pursue the issue by protracted negotiation or litigation. If you are going through a separation which is acrimonious or looks like it will end up that way, you should strongly consider removing sentimental items from the home, if you are vacating the home, otherwise they may disappear.
How does superannuation get factored into property settlements?
Superannuation is included as part of the asset pool in a property settlement. There is a common misconception with superannuation that if a party brings an amount of superannuation into the relationship that this amount will be excluded from the pool if the parties separate in the future. This is not correct. The full value of the party’s superannuation will be included in the asset pool. However, when a Court considers how the property, and in particular how the superannuation is to be divided, the value of the pre-relationship superannuation brought in by the relevant party will be taken into account.
How do courts decide who gets what in property settlements?
Judges have a wide discretion when making property settlement orders. Firstly, the Court must be satisfied that it is just and equitable to make an Order. If it is not, then the Court does not have to make an Order. After this the Court applies a 4-step approach when determining what property orders to make. These steps include:
- Step 1 – Identifying the asset pool and its value;
- Step 2 – Considering the contributions made by the parties over the length of the relationship and post separation (including financial contributions, homemaking and parenting contributions and non-financial contributions) and ascribing a percentage value to those contributions;
- Step 3 – Considering the future needs of the spouses and whether a percentage adjustment should be made in favour of one party (i.e. due to one spouse having a greater income earning capacity or a spouse being the primary carer of young children);
- Step 4 – Consider whether the percentage division reached under the preceding 3 steps is just and equitable or whether any further adjustment should be made in favour of a party. A further adjustment at this step is rare.
Once the Court decides how the asset pool will be divided between the parties in terms of a percentage division, it then has the power to make Orders detailing what specific assets each party is to retain as part of their property settlement.
What other legal documents should be considered when going through a divorce?
After a separation, parties should turn their mind to any other legal documents that they have in place such as their Will, Powers of Attorney, Appointments of Enduring Guardian or Binding Death Benefit Nominations for superannuation accounts.
It is not unusual when parties are married or in a de facto relationship that they put these documents in place while they are together. Couples commonly appoint each other in the roles of Executor and Attorney and nominate each other to receive the benefit of superannuation entitlements upon death.
It is therefore important that after a separation parties update these documents to remove their spouse. If this does not happen and a party passes away, their estranged spouse could end up with their estate under their Will and/or their superannuation death benefits.
This risk also applies to Powers of Attorney/Appointments of Enduring Guardian. If you do not change your documents after a separation your estranged spouse will still have power under those documents to make decisions for you.
These outcomes ordinarily do not reflect the wishes of separating spouses but is often a step which is forgotten after a separation as the focus is on the breakdown of the relationship.
How can Attwood Marshall Lawyers help?
At Attwood Marshall Lawyers in the first meeting we discuss the issues that need to be resolved arising from the breakdown of your relationship including property settlement, parenting matters and divorce. We will also deal with your estate planning issues so that you can take steps to prevent the undesirable outcomes from happening.