The best time to organise a family law property settlement, if you have separated, is now. Many couples who separate put this important step to the side for a variety of reasons. These range from “It is too hard”, or their partner is aggressive or difficult to deal with, they hope it will just go away or they believe that there is plenty of time do sort it out.
Many couples who do separate agree to divide their assets on an informal basis. This means that they sit down together, agree on a division of assets and may or may not even set out this agreement in writing. They do not use lawyers or involve the courts.
The problem with an informal agreement however is that it is not legally binding. As it is not legally binding, either party in the relationship can later apply to a court for a property settlement. This could be one year, two years or several years later depending on the circumstances. Such a settlement several years after separation can cause significant problems, particularly as parties have moved on, reorganised their lives, perhaps purchased a new house or started a new business. They may have also received an inheritance or other gifts.
A legally binding property settlement (whether by agreement, or by a court) divides the property that the parties have at the time of settlement, not when they separated. If a legally binding settlement is not made until several years after separation then it will include all of the assets that either party has gathered in that time. Potentially the situation could arise where an informal settlement is agreed at separation, one party spends or loses their share, and then asks the court for a property settlement of the remaining assets which are in the hands of their former partner.
Under the Family Law Act the most important reason for having a family law property settlement is to sever or cut all financial ties between the parties so that neither party has any further claim on the property of the other. They are able to move on with their lives with certainty.
The Family Law Act provides for two ways in which couples in agreement can formalise a property settlement. They are:
A financial agreement is similar to a contract between the parties and can be used to settle property matters between de facto or married couples. A financial agreement allows for the parties to decide on whatever distribution of property they choose. A financial agreement can be entered into at the start, during or at the end of a relationship or marriage. A financial agreement can also cover other matters such as spousal maintenance if this is required.
Financial Agreements do not require the approval of a court about whether it is fair nor not. Because the court does not approve the settlement, financial agreements must comply with a number of requirements under the Family Law Act in order to be legally binding. The most important requirement is that both parties must have separate independent legal advice on the advantages and disadvantages of the agreement and how it will affect their rights.
The other way that couples who are in agreement can legally finalise a property settlement is by making an application to the court for Consent Orders. The application includes the orders that the parties have agreed on to split their property, and a form which details all of their financial circumstances.
The court’s role is to assess the proposed settlement against the principles contained in the Family Law Act and previous court decisions. If the proposed settlement is within the range that a court would order, then the court approves the orders made and returns them to the parties for implementation.
Parties do not require legal advice in relation to an Application for Consent Orders, unlike a financial agreement. However, it is highly advisable that advice is sought so that parties are aware of what property split they are entitled to under the Family Law Act. Also, the orders required to split property between the parties can be complicated and technical particularly if there is the transfer of property, a superannuation split or trusts and businesses involved. Any errors made in the orders can be expensive and time consuming to correct.
It should be noted that parties do not have to be divorced before they can have a property settlement. They only need be separated. Divorce is a separate legal process. It is highly advisable to take steps to have a legally binding property settlement as soon after separation as possible for the reasons outlined above.
A divorce cannot be obtained until parties have been separated for a 12-month period (except under limited exceptions). Once parties have been obtained a divorce, they have a further twelve months in which to arrange a legally binding property settlement. If they do not do so within that time frame then their right to a property settlement can be affected. If you are approaching the end of that 12 month time period and do not have a property settlement, you should urgently seek legal advice.
De facto couples are in a similar position to married couples when it comes to a property settlement. A settlement should be formalised as soon as possible after separation. The difference between de facto couples and married couples is that de factos have 2 years from the date of separation in which to obtain a legally binding property settlement. After the end of that two-year period the automatic right to a property settlement expires. Again, if you are approaching that two-year deadline and do not have a settlement, you should urgently seek legal advice.
If you have separated and have not yet put in place a legally binding property settlement, through either a financial agreement or an Application for Consent Orders, all of the assets that you have in your possession are potentially at risk of a claim by your former partner. At ReesLaw our family lawyers can provide you with advice and guide you through this very important step in starting your new life. Call now and don’t delay.
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