Should you finalise your financial separation sooner rather than later?

It is no secret those that come out of family law unscathed are those that reached a mutual agreement and formally documented that agreement early.

Many separating couples are amicable at some point and agree on things without lawyers. However, it’s at that exact point separating couples need to inject some law into the agreement and formalise it. The timing is of the essence.

The cost of financial separation overtime

The below graph demonstrates what all family lawyers know, that over time parties tend to enter into higher levels of conflict.

Those higher levels of conflict result in higher legal fees.

Even with no level of conflict legal fees will be around $5,000.00, these fees will mostly be in finalising and formalising agreements so parties are out of conflict sooner.

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Demonstrative purposes only

Finalise your separation sooner when you have assets, rather than later when anything can happen

If you don’t quickly formalise your financial separation, their debts could be your debts and your assets could be their assets…. Yes, that’s true, as it is not the date of separation that the court uses to calculate the relationships net worth but at the date, the final order is made.

For eg. Joe leaves Jane, Jane gets a $100,000 credit card to move out. When they are negotiating the property settlement it’s possible for that $100,000 credit card debt to be included and taken away from the assets. What if the assets are $50,000, will Joe have to be partially liable for the credit card? We’ll write more about that soon.

Scary isn’t?

What about if there is a sudden recession and downturn? What if by the time you go to do a property settlement there is nothing left? Amicable or not amicable why are you delaying getting control of your share, so you can do with it what you want?

Safety and security for your future and for your soul

While we tend to avoid telling people that finalising there property settlement will make it all feel okay (it might not). And we don’t like to dress the practice of law up in some kind of airy-fairy notion of giving people wellness and happiness. Pragmatically if you don’t know what your future liabilities will be, how can you adequately plan? If you can’t adequately plan for the future how can you truly be happy and well?

So let’s talk about why you are thinking about delaying financial separation.

Here are the common reasons people give for delaying

Reason 1: We can’t agree

What we say

You and your former spouse for whatever reason can’t agree to parenting or property. So you fight it out for a long time, spend a lot of money on legal fees and eventually one of you compromises, both of you compromises or neither of you compromise and you end up in court.

There can be delays in the Court process and there are numerous avenues available to you to avoid going to court. Their avenues are highly recommended, with lawyers usually leaving court proceedings as the last resort.

If you can’t agree with your spouse you can get a lawyer to negotiate for you or you can negotiate yourself. Don’t try to negotiate yourself without first getting advice on what you are actually entitled to so you know where to start.

Reason 2: We can’t afford lawyers. Lawyers are expensive, the property pool isn’t that much and I’ve heard people spending $80,000 with lawyers.

What we say

Firstly lawyers aren’t that expensive, yes it can cost a lot of money if you and your spouse aren’t reasonable. But it won’t likely cost that much, for eg consent orders are $5,000-$12,000. Not $80,000.

Tip: If you can’t afford a lawyer for now, many lawyers offer a deferred fee which means you can pay the invoice once the matteris finalised.

Reason 3: We completely agree, and trust each other’s word as bond, we don’t need Consent Orders

What we say

Most people stick to their word, sometimes though people forget what that word actually was. People aren’t bad they just see things differently. We remember things differently all the time. We each have a different version of events, yours, theirs and the truth.

One thing is certain though and that’s for you to move on than you need certainty to move on. Are you 100% certain about what you agreed on? Are they? Have you written it all down and signed it? Great. Read on.

Tip: Ask your former spouse if they would consider formalising things or even just writing down what was agreed on, if your former spouse pushes back, maybe that agreement you’ve come to isn’t that clear at all. If you can get it all written out now and boundaries made clear now, the future will be clearer but it won’t be certain. For your future to be certain the agreement needs to be done properly.  

Reason 4. We bought/ found a legal agreement online and executed it in accordance with law so it’s rock solid.

What we say

Sorry, but writing it all down and singing it is basically useless. It helps make things clear but not certain. The thing is you can’t just have a private agreement without fulfilling a bunch of legal requirements. By legal requirements, we aren’t talking about normal legal requirements we are talking about family law legal requirements. And under family law you can’t bypass the family law act easily.

The family law act basically says that unless there is a private agreement done in accordance with the laws of the family law act (also known as a binding financial agreement) or a consent order, nothing you and your spouse write and agree to really count, it is just not enforceable in any court of law. 

For a private agreement to count under the family law act a bucket load of requirements have to be met. The agreement has to be drafted in a particular way, care needs to be given to consider all of the circumstances and of cause you and your former are spouse must get …independent legal advice. More or less two different lawyers must sign off on the agreement. Which you can imagine is expensive. A properly written Binding Financial Agreement where both parties get independent legal advice is more expensive and less ‘rock solid’ than a consent order. A proper binding financial agreement can set you back anywhere from $6,000 – $12,000 depending on the complexity of your assets. And the kicker? It’s not even necessarily rock solid.

Reason 5: We don’t need an agreement we get it, we just want to transfer the house into/out of mine/their name and move on with our lives

What we say

The government has this annoying thing called stamp duty. It sucks. The moment you try to transfer that house, the government charges something called ‘stamp duty’. You might remember it when you bought your house, it’s calculated differently in each state and depends on what the value of the property is. It’s a tax placed on a property based on it’s value. It doesn’t matter if you’re mortgaged up to 100% or 10%, the tax doesn’t is based on the value. On a $500,000 property the stamp duty payable is roughly $8,750.00. With a consent order that stamp duty is nil.

Tip: work out how much you will pay in stamp duty, is it more or is it less than having a consent order? Now weigh that cost against also not having any certainty about that transfer… can they take it back? Will they change their mind? Isn’t it smart to pay less and get certainty? Yes. It’s a no-brainer.

Reason 5 we don’t even have a house, just a few things nothing much to write about, it’s only really debts

Did you know that property, i.e your assets and debts and their assets and debts is still considered joint until you formally have a property settlement done? So, if you’re partner has a $100,000 debt incurred after separation, it could be included in the property pool and considered your debt too.

Reason 6 I will just cut them out of my will and super and life insurance it’s fine. So what if we don’t do a settlement, I will just cut them off on everything.

What we say

Well until you are legally financially separated, your spouse remains your spouse.

The main impact is what can happen when you die. If you pass away and don’t have a Will, your estranged spouse may still be considered to be your spouse for the purpose of succession law. This means that they may be eligible to receive some form of entitlement upon your death. If you don’t have a Will and want to ensure that your former partner does not receive any entitlement, then a family law property settlement will need to be completed as soon as reasonably possible.

If you have a Will, brilliant! This is important – and even more important to update your Will after you separate from your former partner. But, even if you do have a Will, until your financial separation is complete, your former spouse may still be able to make a claim under the family provision legislation, as if they were still you spouse. What does this mean? It essentially means that they can contest your will and may be treated by the courts as if you and your former spouse were still together.

Reason 7 Don’t I have to wait until I am divorced to do a family law property settlement?

What we say

Some individuals believe that they cannot do their property settlement until they have finalised their divorce. However, this is not the case – you can actually do it as soon as you like. Time limits do apply after you are divorced. Contrary to some beliefs (albeit incorrect), your assets are not divided at the date of separation. Your assets are divided at the date that orders are made.

This means, if you manage to negotiate a settlement with your ex, then all of the assets would have to be disclosed in the documents to legally formalise your agreement. As such, these assets that you have at the date are those that the consent orders are being signed. For example, if you won the lotto or purchased a property prior to the consent orders being signed, these can be included.

If you can’t reach a resolution and your matter does go to court, you could be waiting two to three years for a trial date, however, the judge will still use the values of your assets and liabilities at the date that the matter is being heard in court. Examples in which this may become a particular problem include an increase in value of an asset and whether one party is likely to receive a big inheritance in the future. In short, it is best to get the ball rolling on your property settlement as soon as you can after separation.

Have we convinced you yet? So how do you finalise a financial separation anyway?

In order for you to ‘formalise’ your financial separation you need these things called ‘Consent Orders’ or ‘Binding Financial Agreements’.

What is a consent order?

Consent orders are a LEGALLY BINDING document that formally ends the ties between you and your ex.

They are the formal legal end you’ve been waiting for and that fresh start you need, without the hassle.

Like magic and without having to have your very expensive ‘day in court’ you have the exact same thing – a formal court order that you and your ex agree on.

Yep, a consent order is just like a court order it has the exact same legal meaning and enforcement without the stress and cost of going to court. Just one order is by consent and the other is a very expensive, very stressful and very draining ‘court order’.

Consent orders are basically a written agreement, that you and your former spouse agree to and the court endorses. The court says ‘hey this is a legitimate agreement, I would have made this order myself’. You walk away with the same thing as a court order WITHOUT going to court.

You can have consent orders to cover what is happening to property, children, superannuation.

The other option: Binding Financial Agreements

Binding Financial Agreements are private agreements that allow parties to negotiate outside of the family court system. They are useful in some cases where Consent Orders aren’t the most ideal option. This might be because you want to structure settlements in ways that the courts might not generally approve of unless done very carefully. As mentioned above, a lot of boxes need to be ticked for a Binding Financial Agreement.

Okay but what if we can’t actually agree on is it time for court?

No not necessarily. There are 3 avenues that a lawyer may recommend attempting before making the decision to go through the court system. These three avenues are collaborative law, mediation and arbitration. These three avenues result in significantly decreased legal fees over going through court, but also means you can draw the line in the sand and inevitably move on to the next chapter. Below provides brief information about each avenue.

Collaborative law – this avenue offers the opportunity for you and your former spouse to negotiate an agreement respectfully, away from the courts, taking into account the interests and needs of all family members, including your children. You will both sign an agreement and commit to not going to court. The Collaborative process can resolve your family law property settlement in as little as three months, as such, costing significantly less than taking your family law matter straight to court. This avenue will most likely assist in you and your former partner have an amicable co-parenting relationship moving forward.

Mediation – this avenue is compulsory in family law parenting matters and is virtually compulsory in property matters. Even if you do file your property settlement in court, you will inevitably be required to do mediation by your judge after your first date in court. Due to this, it makes sense to mediate before you decide to file court proceedings, as it has an incredibly good success rate. It can also be held in good light, should the settlement be taken to court, to show that both you and your former spouse have taken all reasonable steps to get your settlement sorted prior to filing court proceedings. Depending on what needs to be undertaken in terms of any valuations and disclosure of documents, mediation can be arranged and held within a three-month period.

Arbitration – this is the final avenue that is offered before filing court proceedings. In short, arbitration is seen as “private judging”. With arbitration, you get to choose an experienced family lawyer and accredited arbitrator at a time of your choosing. With this avenue, you avoid the two to three-year delays in the Federal Circuit Court and Family Court of Australia, where you have no choice over which judge you will get. You are also able to design your own arbitration process and agree to conduct the matter in a way that you and the other party agree and flexibility, which is not available if you take your family law property settlement to court. This process can also have you concluding your matter within a period of three months.

Okay wow this is a lot to take in

In the end, a financial separation can be as complex or simple as you choose for it to be. The first step is getting it off the ground, and that doesn’t mean running straight to a lawyer, just try to have the conversation. Talk to your former spouse and see what they want, they might feel just as uneasy about the future as you.

Luke Cudmore

Principal Family Lawyer at Cudmore Legal Family Lawyers Brisbane Co. Luke is experienced in family law matters ranging from divorce to child custody. He is a skilled negotiator and strategist and fights zealously for his clients family law rights.