Financial Settlement: The Four Step Process
The division of your assets, liabilities, superannuation and pretty much anything else with any value after your separation is known as ‘property settlement.’ A property settlement can be done at any time after separation and in the case of married couples, you don’t have to wait until you are divorced.
When dealing with property settlements, it is common (and understandable) for parties to become quite fixated on achieving a particular percentage outcome, even where there may be good sentiment between former partners. Many well-intentioned friends and family (or ‘ambitious’ lawyers) can make a party feel they have ‘lost out’ if they don’t fight for more or go to court.
To achieve an amicable property settlement, parties need to make the decision to collaborate and commit to not resorting to use of the courts to force an outcome. It is important parties also focus on the value of the settlement and the impact certain assets may have on your life moving forward, rather than focus on the percentage of the pool. If parties are unreasonable and are unable to reach agreement together, the arduous, expensive and lengthy court process becomes the only option.
The process of appearing before and receiving an outcome from the Family Court typically takes at least 18 months (and often longer). This kind of timeframe and the legal fees that accrue are often more than $50,000 and only further drains the financial resources of both parties and lessens the assets that can eventually be divided, not to mention the psychological toll.
In deciding to be amicable in your separation and focus on reaching a property settlement that is just and equitable, there is a 4-step process used along with independent legal advice and alternative dispute resolution methods that can help guide you and your former partner to make fully informed decisions and reach agreement.
The 4-step process:
Determining the ‘Net Asset Pool’
This includes assets, liabilities, and superannuation e.g.: home, cars, shares, savings, furniture, investments, mortgages, credit cards, etc
Consider the ‘Contributions’
This relates to how both parties created the assets, liabilities, superannuation, and financial resources that you have e.g.: income, gifts, inheritances, etc. This also includes contributions at the start of the relationship and post-separation. Non-financial contributions, such as renovations and the role of ‘homemaker and primary carer’ is also considered as part of the calculation.
Determining ‘Future Needs’
This step relates to considering the financial futures of both parties. Factors for consideration include the age and health of both parties, children and how they will be cared for, earning capacity and a series of other factors.
Is it ‘Just and Equitable?’
When it comes to family law matters, property division is allocated at the discretion of the judge. This means a given case appearing before four or five different judges could result in just as many different outcomes. It is this discretionary element that makes it difficult for legal practitioners to provide specific advice. As such, rather than focus on potential quantities in a settlement, it is more productive, efficient, and beneficial overall to focus instead on the quality of the settlement.
If parties are reasonable, negotiable, follow independent legal advice, fair process, and are committed to having an amicable separation, there is no reason parties can’t achieve an out-of-court settlement. By attempting to hide assets (not providing full and frank disclosure), sending hostile legal letters, and fixating on percentages, the likelihood that the matter could end up in court is drastically increased, with detrimental and long-lasting financial and emotional implications.
*****It is important to note that as far as the law is concerned in Australia, both married and de facto relationships are treated as identical in most states. However, there are important limitations to be aware of in relation to property settlement. If you are married, you have until 12 months from the date of your divorce to finalise your property settlement. For de-facto relationships, you have two years from the date of your final separation to formalise your property division*****
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