Yesterday I was sent a question by a woman who has separated from her husband and living in separate houses for around 6 months, having sold the family home. The sale proceeds from the house 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 free her portion of the sale proceeds to enable her to buy a property for herself. She wants to do the property settlement before getting a divorce.
Having not spoken to the husband, I have no idea as to his motives but I'll attempt to answer her question: 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 and must be applied for separately. The applications can be filed in any order, or at the same time.
Some couples divorce and never formalise a property agreement and others formally split their assets and never get around to filing for divorce. Whilst these arrangements work for some, they are not recommended.
When a couple does divorce, two things happen; each person is free to remarry and the Decree Absolute sets in motion a time limit for the application of a property settlement.
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 and there is a time limit of 2 years from the date of separation in which to initiate a property settlement. The time taken for negotiations to reach agreement may run over the 2-year limit but an application for property orders must be initiated within the 2-year timeframe.
For a couple who married, the property settlement can be agreed at any time after they separate. There is no requirement to wait until you are divorced.
There is also a time limit for married couples on filing an application for property settlement or spousal maintenance. It must be filed within one year of the date of the divorce order being made.
Again, negotiation time may exceed the 1-year time limit but the application must have been initiated.
Danielle Hadida, Lawyer with Kott Gunning, advises her clients to "complete the property settlement before getting divorced". 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 are not ecessary if the couple is not divorced, she explains.
It is possible in both instances 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, however, leave is granted many years later which can cause significant heartache for the party who has significantly increased their wealth since separation.
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 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 is likely to be reflected appropriately 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 feel 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 guaranteed income.
This should not preclude reaching an agreement. It is possible to draw up an agreement that takes into account orders instructing transactions to occur at a date in the future.
In an effort to preserve as much of your hard-earned wealth as possible to be split between both parties, I personally feel separating couples would be wise to seek financial advice before seeking family law advice.
Wrap it up and move on!
The whole process of divorce and property settlement can be exhausting and emotionally trying for all concerned so if your relationship has reached the point where you can no longer live together, why do you wish to hang on to any part of it? Isn’t it best just to cut your losses and move on? This includes managing your finances independently and getting divorced to free yourself from all legal ties to your former partner.
On the other hand, perhaps your partner has thrust the separation on you without warning, or you have escaped an abusive relationship and you are struggling to come to terms with your separation. You need time to prepare yourself mentally and emotionally, to accept your new realities and to familiarise yourself with the options that might be available to you. This is not the time to be rushing into hasty ill-founded agreements which you will live to regret.
I strongly urge you to seek professional counselling to help you to process your feelings and to get your head into a state where you are able to negotiate rationally for your future.
To familiarise yourself with the family law system in Australia, how you can expect to feel and tips on how to manage the first stages after separation and prepare for the practical aspects of arrangements for children and splitting property, download a copy of our e-book The First Steps through Separation and Divorce.
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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 in most cases to reach an agreement around all of your property issues sooner rather than later.
Many of the complex property matters that go to 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?
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.
Things get messy when money from the joint pool has the potential to being funnelled out into a new life with other people or 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.
There are pros and cons for doing the divorce followed by the property settlement and vice versa.
It will come down to your personal circumstances, your emotions and any leverage you think you may gain over an obstructive ex-partner.
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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