Understanding the division of assets in divorce or ending a de facto relationship is critical. You can protect your entitlements to the asset pool and possibly financial support. This article will review the common concerns and solutions when dividing assets.
In This Article
- What is the role of the Family Law Act?
- What can a property settlement include?
- What is a binding financial agreement?
- What is a financial consent order?
- What is a financial order?
- What is an informal property agreement?
What Is the Role of the Family Law Act?
The Family Law Act 1975 establishes the rules for legally binding financial arrangements. The law sets the time limit for dealing with financial matters. It states that married couples must finalise financial proceedings within a year of divorcing. De facto couples must create a settlement within two years of separation.
The Family Law Act also defines the role of the Family Court, particularly in creating financial orders.
What Can Be Included in the Division of Assets in Divorce?
Property settlements can include all the assets and liabilities in a relationship. These may include:
- Personal debts;
- Personal property such as jewellery;
- Furniture;
- Bank accounts;
- Stock portfolios;
- Real estate.
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What Is a Binding Financial Agreement?
A binding financial agreement (BFA) is a private legal document between a couple. It stipulates how their property and financial resources will be divided after a relationship breakdown. It can also cover spousal maintenance.
Following a 2009 amendment to the Family Law Act, BFAs can now cover separating de facto couples.
Common concerns
Clients may have several concerns when entering a BFA. Some common concerns include:
- Validity and Enforceability. One of the main concerns is whether the agreement will be upheld in Court. A BFA must comply with specific legal requirements under the Family Law Act 1975 for it to be legally binding. The Court may set aside the agreement if these requirements are unmet.
- Full and Frank Disclosure. Both parties must fully disclose their financial circumstances. Failure to do so can lead to the agreement being set aside.
- Duress, Undue Influence, or Unconscionability. If one party is pressured into signing the agreement or if the terms are highly unfair to one party, the agreement may be considered void.
- Complexity and Cost. Drafting a BFA can be complex and costly. It requires specialised legal advice and potentially leads to lengthy negotiations.
Solutions
Here are ways you can approach these issues:
- Ensure Legal Compliance. Engage a competent family lawyer to draft or review the agreement to ensure it meets all legal requirements.
- Honest Disclosure. Both parties should fully disclose financial documents, including assets, liabilities, and income. If you suspect your former partner is hiding assets, a forensic accountant can help track them down.
- Mediation and Negotiation. Consider mediation or negotiation to resolve issues without court intervention if disputes arise.
- Simpler and more affordable solutions. If you cannot afford the cost of a BFA, a consent order is generally more straightforward and cheaper.
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What Is a Financial Consent Order?
Financial Consent Orders are orders made by the Court. They have the same legal effect a judge makes after a court hearing. However, they are based on the mutual agreement of both parties. This means consent orders can be granted without needing to attend court.
A four-step process in the Family Law Act governs consent orders.
- Identify and value the net marital asset pool;
- Assess the contributions of each party;
- Consider the future needs of each party;
- Ensure the settlement is just and equitable.
Common concerns
Many misconceptions about financial consent orders can cause concern for many people. Some common issues people have include:
- Misconception about Contribution-Based Entitlements. A common concern is the belief that if one party didn’t make direct financial contributions (for example, not working or earning less), they will receive a lesser share.
- Underestimating Future Needs. People often overlook the importance of future needs, such as the care of children, health issues, or the capacity to earn income. These considerations can significantly impact the settlement.
- Cost and Complexity. Obtaining a Financial Consent Order can be seen as costly and complex. This can deter some from pursuing it.
Solutions
- Understanding types of contributions. The Court doesn’t only consider financial contributions. Non-financial contributions are also critical. These can include homemaking, child care and home improvements.
- Communicating your future needs. The Court will take a holistic view of your current and future financial situation. Ensure the Court understands issues like your future earning capacity, caring responsibilities, and health-related concerns.
- Cost and complexity. Many people believe involving the Court will lead to increased costs and case complexity. However, streamlined application processes generally decrease costs. Simplified application forms also make the process easier to complete.
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What Is a Financial Order?
Financial orders may be necessary if you and your ex-partner can’t agree on how to divide your assets. The court’s involvement and decision-making are essential in these cases. Property orders can be more adversarial and involve more extensive court proceedings.
Common concerns
- Time-Consuming. Court proceedings can take significant time, often months or years, to resolve. This can prolong the stress and uncertainty for the parties involved.
- Stress and Emotional Toll. Litigation can be emotionally draining and stressful, particularly in matters related to personal relationships and finances.
- Lack of Control. When a matter goes to Court, the decision is in the hands of a judge. This can result in unpredictable outcomes that may not align with either party’s expectations or desires.
Solutions
- Legal Representation. Engaging a skilled family law attorney can help navigate the complexities of the legal process. They provide advice on likely outcomes and represent interests effectively in Court.
- Preparation and Organisation. Being well-prepared and organised with all necessary documentation can streamline the process and reduce costs.
- Settlement-Oriented Approach. Even in Court, being open to settlement can lead to a more controlled and satisfactory resolution for both parties.
- Emotional Support. Counselling or support groups can help manage the emotional stress associated with court proceedings.
What Is an Informal Property Agreement?
Property can be divided in a divorce informally. These agreements are outside the scope of the Family Law Act. This arrangement may seem attractive for several reasons. It offers more flexibility than a legally binding option. There’s no strict time limit for creating the agreement. It’s also initially cheaper to organise a financial settlement without the supervision of a lawyer or the Family Court.
Common concerns
- Lack of Legal Enforceability. Informal agreements are not legally binding. This can be a problem if one party does not adhere to the agreed terms.
- Inadequate Asset and Debt Division. Without legal guidance, parties might not divide assets and debts fairly or in a way that considers future needs and changes in circumstances.
- No Protection from Future Claims. Since the agreement is not legally binding, either party can make future financial claims against the other. This potentially leads to ongoing legal disputes.
Solutions
- Legalisation of the Agreement. Convert the informal agreement into a binding financial agreement or consent order. This provides legal enforceability and clarity.
- Professional Asset Valuation. Engage professionals to accurately value assets, including real estate, businesses, and superannuation funds.
- Written and Detailed Agreement. Ensure the agreement is detailed and in writing. Outline all aspects of the asset division, responsibilities, and other relevant factors.
Conclusion
The legal processes behind dividing property are vital parts of divorce. Several options are available for the division of assets in divorce and ending a financial relationship. Each has legal requirements and applies to various stages of a relationship.
It’s vital to seek legal advice before entering any legal proceeding.
