When you separate from your partner, finances can be a bone of contention, especially if you’ve been used to pooling all your income and paying bills and debts from one joint pot. Understanding how to organise your finances between separation and property settlement is crucial to save money and conflict now and in the future.
Ella Hickman from Hickman Family Lawyers in Perth answers this common question for us.
What Is A Property Settlement?
A property settlement is an agreement reached by two partners or a judgement ruled by the Court, detailing how assets will be split in a divorce or separation. Whether you are married or were in a de facto relationship, the same rules apply.
In the past, certain laws pertaining to the splitting of superannuation for de facto couples differed in WA, but since 28 September 2022, these laws have been brought into line with the rest of Australia.
A property settlement is formalised either by applying to the Court for a consent order, or by drawing up a Binding Financial Agreement.
Understanding this is the first step to managing finances between separation and property settlement.
What counts as property?
Anything of value owned by both partners will count as property. It includes cash in the bank and crypto currencies, the family home and any other properties, vehicles, household items, jewellery, artworks, businesses, investments, insurance policies, inheritances and superannuation.
Property is not just your assets, though – it also includes all debt, such as your mortgage, personal loans and credit card debt. All these can form part of the asset pool, regardless of whose name they are registered in.
Why do we need a property settlement?
Although there may not be an automatic right to a property settlement, except in rare cases where the relationship or marriage lasted for a very short time, in the vast majority of marriages or de facto relationships the law requires a property settlement to be reached when the relationship has ended.
The law urges couples to agree on how to split their assets on their own, without going to Family Court. Court procedures can be lengthy, costly and stressful for the entire family and may result in a judgment that neither partner is happy with.
The law demands that the property settlement be fair and just for both parties. That does not mean, however, that everything will be split straight down the middle. If the Court finds that the property settlement is not fair and just, it may reject it even if it was mutually agreed upon by both parties.
Partners can enter into negotiations on their property settlement when the mandatory 12-month separation period starts, or as soon as your de facto relationship ends. You do not have to wait until you are legally divorced before agreeing to a property settlement.
It is vital for a property settlement to be reached as soon as possible, as the law takes the value of the assets at the time of the proceedings and not at the time of separation. In real terms, this means that any future additional asset acquired by either partner after separation, can also be included in the asset pool.
How do we deal with our debts and assets between separation and property settlement?
The period of organising finances between separation and property settlement can be tricky for many divorcing or separating couples. They often find their finances stretched to the limit with rising living expenses by having to now support two separate households, while earnings remain the same or can even reduce as you cut back hours at work to deal with your life admin that comes with a divorce.
You both need to discuss and come to an arrangement on how you can access funds to meet your own living expenses. If you had joint bank accounts, the first thing you need to consider, is closing them and setting up individual bank accounts instead.
You would also need to agree on who pays for what expense or debt until the final property settlement is reached. If you cannot agree, there may be a need to apply to the Court for liabilities to be paid, or for spousal maintenance to be paid to one partner to cover their living expenses. Many people may not be aware that under Australian Family Law, both spouses/partners are legally obliged to support each other, if one party is unable to reasonably sustain themselves. The basic considerations here are the receiver’s needs and the payer’s ability to pay.
Another option of speeding up the property settlement agreement is to draw up a Binding Financial Agreement, which does not need the Court’s approval but both parties should obtain independent and separate legal advice when drawing up a BFA.
If you cannot agree on the terms of your property settlement, you will have to apply to the Court to make the final ruling.
I’m worried my ex will spend our money or sell our assets before we come to an agreement. What can I do?
Seek legal advice urgently. The longer the property settlement takes to be finalised the greater the risk becomes. Generally you would need to apply to the Court for an injunction to prevent your ex of disposing any asset before finalising your property settlement.
The splitting of assets can lead to many complications, particularly in a highly contested divorce or separation, so obtaining legal and financial advice can be very helpful and put your mind at ease when it comes to dealing with your assets between separation and property settlement.
Can we finalise our property settlement before we finalise our divorce?
Married couples can finalise their property settlements before finalising their divorce, while de facto couples have up to 24 months from the date of their separation to finalise their property settlement.
Many family lawyers will advise their clients to complete their property settlement as soon as possible following a separation, as this process is completely separate to the legal process of finalising your divorce.