Recently I met with a client to commence the process of mediation. She has separated from her husband after he moved from the family home about eleven months ago. They have subsequently sold their family home and the proceeds are being held in a two-to-sign account.
He wants to get a divorce but continue with their joint financial arrangements. She sees no point in this and would like to agree on the property settlement before getting a divorce.
It's a question I am often asked, "Does getting a divorce before property settlement make a difference?"
Divorce and Property Settlement are two separate legal processes
Getting divorced and formalising a property agreement are two separate legal processes within the Family Court. The applications can be filed in any order, or at the same time.
Some couples divorce and never formalise a property agreement. Others formally split their assets and never get around to filing for divorce. Whilst these arrangements work for some, they are not recommended because of the risk of future unforeseen implications.
In order to file a Divorce Application, a married couple must have been living separately for one year. There is no such waiting period to commence property negotiations, reach a settlement agreement and apply for Consent Orders.
When a couple does divorce, two things happen; each person is free to remarry and the Decree Absolute (Divorce Orders) sets in motion a time limit for an application to the court to have a property settlement dispute resolved.
Time limit differences for de facto and married couples
For de facto couples who call it quits, there is no requirement to divorce. The property settlement can be negotiated any time after separation. However, if an agreement can't be reached, there is a time limit of 2 years from the date of separation in which to initiate a property settlement application with the court. The time taken for negotiations or court processes to reach a conclusion may run over the 2-year limit, but an application for property orders must be initiated within the 2-year time limit.
For a couple who married, the property settlement can be agreed at any time after separation and there is no requirement to wait until after a divorce is granted.
There is also a time limit for married couples on filing an application for property settlement or spousal maintenance with the court. For couples who were married, the Property Orders application must be filed within one year of the date of the Divorce Order being made.
Again, negotiation and court processing time may exceed the 1-year time limit.
It is possible in both de facto and marriage breakups to file for property settlement outside the respective time limits but 'leave', or permission of the court, is required and this is not always granted.
Sometimes, leave is granted many years later which may have a negative impact on a party who has significantly increased their wealth since separation.
Danielle Hadida, Lawyer with Kott Gunning, advises her clients to "complete the property settlement before getting divorced" because once a divorce is finalised and the 12-month time limit comes into effect, there are filing and attendance requirements with the court if the couple can't reach an agreement, which can be avoided if the couple is not divorced.
Are asset values considered at the time of separation, divorce or settlement?
The basis of a property settlement regardless of when it is negotiated is the current valuation of the asset pool.
If you are unable to reach an agreement with your ex-partner on the property settlement, forcing you to eventually approach the court for a ruling, Stephen Page, Partner at Harrington Family Lawyers advises that the values used are those “at the time of trial”.
If there are circumstances where one party has made a financial or non-financial contribution, let’s say, renovating a property, and in doing so has added significant value to a property, the court “takes into account what has happened to the pool since separation,” says Mr Page.
The contribution of each partner post separation is likely to be reflected some degree in the split of assets. However, the cost of proving and bringing it to the court’s attention is often counterproductive.
Is it beneficial to delay a property settlement?
There may be cases when at least one party feels that splitting the assets too soon would result in financial suicide for the couple. For example, where a couple has an investment that is only due to pay dividends in the future and to sell or divest would incur penalties or loss of otherwise guaranteed income.
This type of scenario should not preclude reaching an agreement. A Family Lawyer can draw up Consent Orders that order the treatment of transactions to occur at a date in the future.
In an effort to preserve as much of your hard-earned wealth as possible split between both parties, I personally feel in most situations, separating couples would be wise to seek financial advice before seeking family law advice.
When is divorce a priority?
Once a divorce is granted, you are each free to remarry. If this is a consideration for one or both parties, divorce may take priority over a property settlement and either party may file for divorce to be granted after one year of separation.
Similarly, where one or both parties have re-partnered, it’s often best to hasten the property negotiations and divorce.
Things get messy when money from the joint pool has the potential to be funnelled out into a new life with another partner or it is at least perceived to have been syphoned off.
If your partner is stalling on a property settlement, filing for divorce may actually force the issue as once it is granted, the time limit of one year will start to tick away.
If you are anticipating cultivating your future finances in such a way that your hard work or application of your own funds is likely to reap rewards, being divorced may offer some protection against having to add your future finances into the marital pot to split with your ex-partner. You should seek family law advice on this matter if it is likely to apply to your situation.
So, Divorce or Property Settlement first?
While there are occasions when it may be financially prudent to delay the sale of assets or alter investment strategies, my personal view is that this could be incorporated into a property agreement as a separate order and it is, in most cases, wiser to reach an agreement around all of your property issues sooner rather than later.
Many of the complex property matters that go to a full trial in court are those that have been delayed for long periods of time, and often, once they reach court, there is a lot less to split than there would have been had the matter been agreed earlier.
Once you have a property agreement in place, why not file an application for divorce at the same time?
It will come down to the timing of your personal circumstances, your emotional state and any leverage you think you may gain over an obstructive ex-partner as to the order in which you proceed with divorce and property settlement.
I recommended you take professional advice and I recommend focussing your search for a lawyer, counsellor or financial expert trained in the practice of collaborative law.
The information in this article is general in nature and should not be considered as professional advice.
You should seek the advice of a registered professional who will be able to appropriately assess your specific circumstances before offering their expert opinion.
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