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Importance of Financial Separation Agreements – Do’s and Don’ts

Your assets may be lawfully claimed by someone you separated from for up to 24 months following a de facto separation or 12 months following a divorce. A Financial Separation Agreement might help you protect yourself and restore financial independence. These agreements detail both parties’ assets and liabilities and how they will be divided. In […]

Importance of Financial Separation Agreements – Do’s and Don’ts

Importance of Financial Separation Agreements – Do’s and Don’ts

Your assets may be lawfully claimed by someone you separated from for up to 24 months following a de facto separation or 12 months following a divorce. A Financial Separation Agreement might help you protect yourself and restore financial independence. These agreements detail both parties’ assets and liabilities and how they will be divided. In Australia, they are called a Binding Financial Agreement.

Without an agreement to protect you, an argument over assets can result in prolonged, painful Family Court hearings that cost you tens of thousands of dollars. Ultimately, the court will likely order a divide that no one likes. The easiest route is to sit down and create a Financial Agreement, even though communicating with the other party can be a little stressful. 

What is the definition of a financial separation agreement in Australia?

A financial separation agreement, also known as a binding financial agreement, is a contract between two people who have ended their marriage or de facto partnership. This agreement demands a complete inventory of each person’s assets and liabilities, even if they are in their name.

The Financial Separation Agreement must provide detailed directions for dividing these assets and liabilities. This will include who transfers ownership, sells assets, and makes ongoing payments. 

A financial separation agreement must also include recitals (agreed-upon facts regarding the relationship and separation), spousal maintenance terms, and several other parts to be legally binding in Australia. 

A Financial Separation Agreement often includes the following mentioned assets:

  1. Residential property, including investments. 
  2. Savings accounts, shares, bonds, and superannuation.
  3. Vehicles, furniture, and other household goods.
  4. Jewellery and other valuables.
  5. Either party owns the business. 

A person’s liabilities include all of their debts, including continuing payments. Common liabilities are:

  • Mortgage, personal loans, and credit cards.
  • Rates and utilities.
  • Individual liability for business loans.
  • Unpaid tax bills.
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What’s Mentioned in the Family Law Act?

After the court grants a divorce order, the parties to a prior marriage write a formal agreement covering the items below, which becomes a financial separation agreement. The Family Law Act of 1975 states this in Section 90D.

The parties to the former marriage were not spouses to any other binding arrangement at the time the agreement was made.

The topics that the parties must cover in the separation financial agreement include the following:

  1. Distribution of property and financial resources accumulated during the previous marriage.
  2. Maintenance of either spouse.
  3. Incidental or ancillary matters.
  4. Other matters.

A separation financial agreement may terminate a previous one if all of the former agreement’s parties are also parties to the new deal. 

Difference Between Legal Separation And Divorce

In Australia, separation and divorce are distinct legal processes. While both break down a partnership or marriage, separation differs from divorce because it need not involve a legal proceeding. Separation allows spouses to legally terminate their marriage without going through the divorce procedure. Separation will enable couples to live apart until they decide to reconnect. However, you must file a divorce application and attend a court hearing if you wish to divorce. 

 

Why is a Financial Separation Agreement Important?

A Financial Separation Agreement is Important for both parties in the following ways:

  • Clarity and certainty: It is essential to clarify how assets and liabilities would be allocated financially during a divorce or separation. This can help avert disputes and conflicts while reducing the time and cost of legal proceedings.
  • Why is a Financial Separation Agreement ImportantAsset protection: To aid  in protecting assets obtained before the relationship and those inherited or gifted during the relationship. It can also protect business owners or individuals with a high net worth.
  • Flexibility: This agreement can be tailored to meet each party’s needs and circumstances. It may, for example, provide for spousal maintenance or child support and address future financial circumstances such as inheritance or lottery winnings.
  • Protection of privacy: Unlike court processes, a financial agreement is between the parties and their attorneys. This might help to maintain confidentiality and secure sensitive financial information.
  • Cost-effective: It can be a less expensive alternative to handle financial issues during separation or divorce, as it avoids costly and time-consuming court proceedings.

How is a financial separation calculation made?

Property is usually divided fairly after a divorce. The exact method used to calculate a financial separation can vary. The property to be divided consists of all assets and debts owned by both parties, whether in your name, their name, or both names. Your property settlement must detail how you divide your home, bank accounts, investments, superannuation, vehicles, jewellery, mortgages, and credit card debt. 

Suppose you and your ex-partner agree on how to divide your property. In that case, you can make an informal agreement that is not legally binding. You can formalise your agreement by entering a binding financial agreement or requesting consent orders in the Family Court.

Suppose you and your ex-partner cannot agree on how to divide your property. In that case, you can seek financial orders from the court, which will decide how assets and debts are distributed based on evidence. Before seeking financial orders, you must make a serious effort to resolve the situation through family dispute resolution. These have the term pre-action procedures. 

Can’t the courts resolve this conflict? Why should I enter a binding financial agreement after separation?

Entering a BFA after separation can be beneficial for a variety of reasons. Working together can be incredibly advantageous in preserving an amicable relationship after separation. Obtaining a BFA can help couples regain control of their separation by allowing them to reach a mutual and legal agreement on their property settlement.

Excessive litigation and court costs are exhausting emotionally and financially. Entering a BFA effectively ‘contracts you out’ of the Family Court’s guidelines. This stops the courts from interfering and allows you and your ex-partner to reach an amicable and timely settlement. Importantly, without the courts, you and your partner can approach your separation based on your interests rather than your positions.

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An Ex-husband Delaying Property Settlement: What Can Happen?

Suppose you realise that your former spouse is attempting to postpone property settlement. In that case, you and your family members may be at risk of losing assets. This occurs when one person wastes or squanders money after separation, which can ultimately lower your property settlement.

Don’t take up your ex’s poor financial choices in any way. Because of this, you could demonstrate that needless living expenditures were incurred, which could be challenging if your former partner had secret bank accounts. 

Your ex-husband, ex-wife, or ex-spouse may not disclose any money or real estate held that must be included in the property pool, so you should constantly consider how it could affect your finances. Depending on the kinds of property or assets you both shared before your separation, any unexpected delays may result in needless expenses. 

Financial Settlement After Separation Australia: Related Finances

When partners separate in Australia, one of the most important topics they must resolve is financial settlement, which involves dividing assets and debts accrued during the relationship.

The goal is to achieve a fair and equitable allocation that benefits both parties’ futures after separation.

Separation can cause financial concerns owing to the probable loss of shared income, additional costs associated with maintaining separate houses, dealing with joint debts, and disrupted savings plans. You may even feel financially dependent, especially if your ex-partner bears most of your joint financial commitments. Here are three financial issues that you should be aware of after separation:

  1. Property Settlement

In the context of sharing funds after divorce, property includes all assets and obligations (debts) you and your ex-partner own. This holds whether they are under one or both names or appear separate from the relationship. Here are some examples of properties:

  • Real estate comprises your primary residence, investment properties, and any land you or your ex owns.
  • Financial Resources and Assets: This category includes cash in checking and savings accounts, investment accounts (stocks, bonds, mutual funds), and business ownership interests.
  • Superannuation: A retirement savings plan in Australia. It is considered property and may be divided at a settlement.
  • Valuable possessions: This includes jewellery, artwork, furniture, and vehicles.
  • Debts: Mortgages, personal loans, and credit card debt are all considered property and will be included in the division.
  1. Maintenance Payments (Spousal or Defacto Relationship)

This is another financial settlement following divorce in which one partner may need to pay financial assistance to the other. This, however, is not an automatic process. Spousal maintenance is awarded by the court using the following criteria:

  • Caring for Children Under 18: A parent who is the primary caregiver for their children may be eligible for maintenance.
  • Physical/Mental Incapacity: If a partner cannot work due to a disability, they may be eligible for support.
  • Other Adequate Reasons: In rare cases, different conditions, such as caring for an adult disabled child, may be sufficient to justify support.
  1. Child Support

Child support is a post-separation financial settlement that demands financial support for children. The Department of Human Services (DHS) calculates it with a formula that takes into account:

Number of Children: The more children, the greater the support amount.

Children’s Ages: Age-related costs are taken into account.

Parents’ Earnings: Parents with higher incomes often pay more.

Childcare Arrangements: The time each parent spends with their children may influence the quantity.

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Is a legal separation agreement necessary to get a divorce? 

Indeed, you do not need a Separation Agreement to file for divorce. Legal separation occurs when a married individual or a person in a de facto relationship announces to their spouse or partner that they no longer wish to continue in the marriage or relationship and that the marriage or relationship is ending.

However, in Australia, you have to be separated from your spouse for at least 12 months before applying for divorce. A Separation Agreement helps prove and confirm the length of your separation.

A Separation Agreement also assists the court in making judgments about finances, property, and parenting plans. With one, you may be able to hire a lawyer and obtain court orders to negotiate a fair settlement on these matters.

70/30 Divorce Settlement Australia: The Key Points

In a 70/30 divorce or property settlement, one side receives 70% of the property pool while the other receives 30%.

  • No-fault divorce. Unlike many other countries, Australia uses a “no-fault” divorce system. This means you do not have to prove your spouse’s fault to get a divorce. You only need to show that you have been separated for at least 12 months.
  • Division of property and assets. Australian law requires that marital assets and obligations acquired during the marriage be shared equally, regardless of whose name they are registered under. This encompasses everything from the family house and automobiles to bank accounts, investments, and superannuation.

Critical Aspects of 70/30 Divorce Settlement in Australia

  • You must reach a formal agreement: The ultimate split of assets and obligations is formalised in a legal contract, sometimes known as a “consent order” or “binding financial agreement.” These agreements are legally binding and specify the terms of property settlements.
  • Engage in negotiation and mediation: In Australia, most couples attempt to get a 70/30 divorce settlement through negotiation or mediation. These methods require open conversation and compromise to reach an agreement that benefits both parties.
  • Seek legal representation: While legal representation is not needed, it is firmly advisable to seek the advice of an experienced family lawyer, mainly if the financial position is complicated or there are differences over the settlement.

Not Having a Financial Separation Agreement: The consequences

But what happens if you don’t create a separation financial arrangement after divorce? These could be the consequences:

  1. Time constraints: Within a year of your divorce, you must apply to the court for property orders if you still need to finalise your property agreements. After this time, you may need to request special permission from the court to file for property orders, which can be challenging to acquire.
  2. Legal fees: If you cannot agree on financial arrangements following your divorce, you may have to go to court, which can be expensive.
  3. Uncertainty: Without a financial agreement, it may be unclear how the parties would share their property and finances, which could lead to stress and anxiety.
  4. There is a risk of unfair division: Suppose you do not have a financial agreement. In that case, the court will determine how to divide your property and finances, which may not be by your intentions.
  5. Lack of control: With a financial agreement, you may have more control over the distribution of your property and finances, as the court will make the final determination.

Failing to reach a financial agreement following a divorce in Australia can result in legal and economic uncertainty, a loss of power over property, and a financial split. To minimise these repercussions, get legal advice and try to finalise your property settlement as soon as possible following your split.

Expert in Family Law Regarding Financial Agreements

Our family attorney can provide a range of services about settlements, such as:

  • Financial agreements are prepared for couples who want to formalise their informal property settlement arrangement.
  • Creating a separation agreement.
  • Lodgement of consent orders.
  • Customers considering making a financial arrangement can get independent legal advice on everything from the conditions necessary for the agreement to be enforceable under the law.
  • Negotiation is needed to settle the terms of the financial agreement with the opposite party or their attorney.
  • Post-nuptial agreement drafting.
  • Representation in the courts of family law.
  • Appraisal of assets, including family trusts, enterprises, and superannuation funds, to ensure the financial agreement accurately accounts for them.

As specialists in family law, Family Law Aylward Game Solicitors may provide a variety of legal services related to financial arrangements. Contact us right now.

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Frequently Asked Questions (FAQs)

Can you write your financial agreement in Australia?

You can write your own BFA in Australia. However, getting legal counsel to ensure that the agreement is legally binding and fulfils your personal needs and the Family Law Act requirements is critical. A binding financial agreement can be an extremely efficient approach to ensure that both parties are appropriately compensated in the case of a split. It can also help to prevent costly court battles.

Because this is not an informal agreement, you should be aware of the following:

  • The agreement must be in writing and signed by each party.
  • The agreement must be fair and reasonable, not favouring one party over another.
  • Additionally, it must be made without force or coercion.

In Australia, who can sign a binding financial agreement?

In Australia, both parties to a marriage or de facto relationship may enter into a legally binding financial arrangement. However, both parties must sign the agreement before sharing any property. Suppose one side does not sign the deal. In that case, the other party cannot receive any benefits specified in the contract.

Do binding financial agreements in Australia expire?

Binding financial agreements do not expire in Australia. They will remain binding until terminated or changed. This means both parties must follow the contract terms or face legal consequences. You should consult with a lawyer if you have any issues concerning your contractual financial agreement.