Attwood Marshall Lawyers Senior Associate and Family Lawyer, Hayley Condon, discusses the process of a property settlement when you separate from your partner and what can go wrong if you don’t formalise your property settlement in a legally binding way.
Divorce and property settlements are two very different things. Divorce is simply the process of dissolving a marriage. A property settlement is the process where parties divide their assets so that they can move on individually and financially separate into the future.
Separating from a partner is without a doubt an extremely emotional and stressful time. For those coming out of a relationship, it can be difficult to come to terms with how to properly settle financial matters in order to move forward separately. Couples may choose to quickly distribute their assets between themselves in an attempt to cut ties with their former spouse and move on with their lives without fuss. For others, the thought of dividing assets and determining who gets what can trigger a bitter battle over property and finances.
When can a property settlement happen?
For married couples who have separated, they can apply for, or negotiate, a property settlement with their estranged spouse immediately. They do not need to wait for their divorce to be finalised – and prior to divorce they are not restricted by any time limitations.
For parties who have divorced, but have not resolved property matters with their estranged spouse, it is important to be aware that if they intend to seek a property settlement, court proceedings need to be commenced within 12 months of the date of divorce (i.e. the date the divorce order takes effect).
The rights of a de facto couple when it comes to a property settlement are no different to married couples, so long as the relationship qualifies as a ‘de facto relationship’ under the Family Law Act and the couple have been together for a total period of at least 2 years, then parties in de facto relationships can commence Court proceedings for a property settlement from the time they separate until two years after separation.
For de facto couples who were not together for two years, there are still instances where a property claim can be made. These instances include if the couple have a child together, if their relationship was registered, or if one party made a substantial contribution, usually being financial, and the other party would suffer hardship if the Court did not make an Order in their favour.
These are all complex situations, and there are so many different scenarios, which is why it is important to seek legal advice as soon as possible following the break down of a relationship to determine your rights and entitlements and the best way to financially separate from your former partner.
What can happen when making a property settlement without engaging with a lawyer?
Family Law is a very complex area. People who are not familiar in the law tend to get it wrong. It is recommended to seek advice from an experienced family lawyer when finalising important matters such as property settlements, parenting agreements and divorce.
If you separate from your partner or spouse and simply put an informal agreement in place without obtaining legal advice, the odds are it is not going to be binding under the Family Law Act. This basically means that the agreement is not worth the piece of paper it is written on.
There are two ways to make a property settlement legally binding.
The first is to file an Application for Consent Orders with the Family Court of Australia. Alternatively, the second option is to enter into a Binding Financial Agreement which can only be done with lawyers independently advising both parties.
By formalising a property settlement in a legally binding way, it means that you bring your former partner or spouse’s property settlement rights to an end. You can have peace of mind that your former partner cannot come back in the future seeking further support or assets.
By formalising a property settlement under the Family Law Act in one of the ways mentioned above, tax benefits can arise for spouses transferring property to each other as part of the division of their asset pool.
Where one spouse transfers their interest in the family home or an investment property to the other pursuant to a Court Order or a Binding Financial Agreement the transfer will not trigger a Capital Gains Tax (CGT) event (i.e. CGT rollover relief will apply) and the transfer will be exempt from any state government stamp duty. If there are no Court Orders or a Binding Financial Agreement in place these tax benefits will not apply.
Some people may assume that given the property was their family home they will be entitled to the ‘main residence’ exemption. That is not always the case. With more and more people operating their own businesses from their home, this can mean the ‘main residence’ exemption will not apply or be limited, which could create a very nasty surprise down the track.
Superannuation and property settlements
Superannuation falls within the definition of ‘property’ under the Family Law Act 1975 (Cth). This means superannuation is also dealt with in the context of a property settlement.
Property settlements include any property or financial resources which are jointly owned or individually owned by the parties.
In some cases, one party may jointly own property with a third party, such as another family member. In these cases the entire property wouldn’t be included in the asset pool, only the share owned by the spouse.
There is a common misconception that when parties bring accrued superannuation into a new relationship, that upon a separation, the superannuation they brought in will be excluded from the asset pool. That is not the case – and all superannuation will be included in the pool. However, the Court will consider the superannuation each spouse brought into the relationship and the other contributions made by both parties when dividing up the asset pool.
Property or assets brought into the relationship
Just like superannuation, many people are under the assumption that what they owned when entering the relationship will be excluded from the asset pool when dividing property. This is not the case. When dividing the asset pool, the Court will take into account the initial contributions each party made, however these assets will not be excluded from a property settlement, except in limited circumstances.
Assets can include real property, money, business assets, shares and cars.
Money earned during separation
If one person receives a substantial amount of money during the separation period, this can become a hot issue when coming to a property settlement agreement.
For example, if somebody wins Gold Lotto, or receives an inheritance after they have separated from their spouse, but before the divorce is finalised, the question will be raised if these assets should also form part of the asset pool being divided.
It comes down to the factual circumstances of the case as to whether the Court is prepared to exclude any assets or money acquired after separation.
How can Attwood Marshall Lawyers help?
When a relationship breaks down, before taking any steps or making rash decisions, or offering grand gestures to try to settle the matter quickly, it’s best to seek legal advice from an experienced family lawyer who can determine your eligibility for a property settlement and potential range of entitlement.
Attwood Marshall Lawyers have a dedicated team who exclusively practice in family law. It is our intent to help families sort through the legal issues after separation so that all parties can move on with their lives. We understand that the stakes couldn’t be higher when it comes to family law matters.
We are of the view that no two cases are the same, no matter how similar or familiar they may seem. We are dedicated to listening to your needs, assessing your personal situation, setting goals and formulating a strategy to best achieve those goals.
We know that going through a relationship breakdown is an extremely sensitive and emotional time. Our team will guide you through the separation process to reduce tension between parties and help you move forward with your life.