Have you and your partner come to an agreement as to how you’re going to split your assets and liabilities? If you have, congratulations, you’ve worked through what some couples find to be the hardest part – the negotiations.
Now you need to finalise your property settlement in a legal binding document. This document will provide for all relevant sales and transfers and indemnify each of you from any further claims that might be made later on by your former spouse.
At Resolve Divorce Lawyers, we often hear from clients who have separated without finalising their property settlement. Many years may have passed and they have encountered a number of difficulties along the way, which have ultimately caused them more anxiety and expenses than had they formalised their property settlement.
There are considerable risks involved if you choose not to document the agreement reached between you and your former spouse.
Firstly, it is important to be aware that there are time limits for filing proceedings for property settlement or spousal maintenance with the Court. For married couples it is one year from the date of divorce and for de facto couples it is two years from the date of separation. This means that if you stay married to your former spouse, then they can apply to the Court for property settlement or spousal maintenance many years after the date that you separated.
There are also a number of other risks associated with not documenting your property settlement.
Someone might change their mind
The best time for you and your former spouse to agree to finalise your property settlement and make it binding and enforceable is when you have both decided on how the property will be divided and when you are still on reasonable terms.
A risk of not taking advantage of opportune times such as these is that someone might change their mind. People hear from others that they “should have got more” or are entitled to more. Financial circumstances change and people sometimes feel that they deserve or need more money or property. An “informal” property settlement, or “gentleman’s agreement” is not enforceable. This means that if someone changes their mind, the agreement you reached is at risk and may fall apart.
The asset pool might change
The law is very clear that the property pool (your assets, liabilities and superannuation) will be assessed at the time of any court hearing or trial, as opposed to the date of separation. This means that if you don’t finalise your property settlement and you accumulate more wealth, that wealth might be up for grabs. This means that if either you or your former spouse has accumulated significant assets post separation either by way of business opportunities, inheritance, lottery wins or simply by good money management and saving and investment, those assets will be available for division with the other party. The fact that property was acquired after separation will not necessarily save it from being considered by the Court as matrimonial property and therefore “up for grabs” by your former spouse.
It is worth remembering that the more time that passes following separation, the more the state of your respective financial affairs will have changed. This may increase the number of issues for negotiation (or if negotiation fails, to contest in Court).
Stamp duty and CGT relief
If you decide to transfer any property to your former spouse, you will avoid paying stamp duty if the transfer is pursuant to either a Consent Order or Binding Financial Agreement.
Similarly, with capital gains tax, if a property is transferred to a spouse through a court order or binding financial agreement, the transfer may attract a “rollover relief” which will postpone the payment of CGT, or exempt the party from payment. Transfers of shares for example will generally be subject to CGT unless the transfer is done by way of court order or binding financial agreement.
Someone may re-partner
If either you or your former spouse re-partner and that relationship is considered to be a de facto relationship (which means that you have been living together on a genuine domestic basis for more than two years) then either your former spouse’s new partner, or your new partner might be entitled to any asset held by you (and vice versa). Not only does this add complexity to your case, but it increases issues that require attention in any future negotiations which can cost you more money and more time.
In the event of a death
When property settlements are left open for long periods of time, there is always a possibility that either you or your former spouse may die before your property settlement is finalised. This means that the assets of the party who has passed away will be distributed in accordance with their Will. Also of importance is that any asset that is owned as joint tenants will be automatically transferred to the other joint tenant. This is regardless of what is stated in the Will.
How do we Assist You to Document Your Property Settlement?
At Resolve Divorce Lawyers, we strongly recommend that you document your property settlement.
It is a pretty straightforward process and a worthwhile investment. You can either execute it by way of Application for Consent Orders filed with the Family Court of Australia, or by way of Binding Financial Agreement.
We can offer you a fixed fee for preparing the necessary documents and we can do it as quickly as you may need it done.
If you and your former spouse have reached an agreement, contact one of our lawyers and we can assist you to finalise your agreement in legally binding documents protecting you against the many pitfalls we have described.