The risks of not documenting your property settlement

Following a separation when emotions are high, we can see how it might feel safer and easier to just walk away, having nothing more to do with your spouse.

The problem is, leaving loose ends on a divorce or de facto relationship can have long lasting consequences into the future.

We often hear from clients who have separated without finalising their property settlement, coming back years afterwards with problems greater and more costly than they were at the time of separation.  They describe encountering a number of difficulties along the way, which have ultimately caused them more anxiety and expense than had they formalised their property settlement at the time. Sometimes, they are dealing with an ex from years ago, claiming a share of the property they own now and they are struggling to see how that can be “fair”.

There are considerable risks involved if you choose not to document the agreement reached between you and your former spouse.

Time Limits

Firstly, it is important to be aware that there are time limits for filing proceedings for property settlement or spousal maintenance with the Court.  For married couples it is one year from the date of divorce and for de facto couples it is two years from the date of separation.  This means that if you stay married to your former spouse, then they can apply to the Court for property settlement or spousal maintenance many years after the date that you separated.

There are also a number of other risks associated with not documenting your property settlement.

1 Someone might change their mind

The best time for you and your former spouse to agree to finalise your property settlement and make it binding and enforceable is when you have both decided on how the property will be divided and when you are still on reasonable terms.

2 The asset pool might change

The law is very clear that the property pool (your assets, liabilities and superannuation) will be assessed at the time of any court hearing or trial, as opposed to the date of separation.  This means that if you don’t finalise your property settlement and you accumulate more wealth, that wealth might be up for grabs.  So, if either you or your former spouse have accumulated significant assets post separation either by way of business opportunities, inheritance, lottery wins or simply by good money management and saving and investment, those assets will be available for division with the other party. 

The fact that property was acquired after separation will not necessarily save it from being considered by the Court as matrimonial property and therefore “up for grabs” by your former spouse.

It is worth remembering that the more time that passes following separation, the more the state of your respective financial affairs will have changed.  This may increase the number of issues for negotiation (or if negotiation fails, to contest in Court).

3 Stamp duty and CGT relief

If you decide to transfer any property to your former spouse, you will avoid paying stamp duty if the transfer is pursuant to either a Consent Order or Binding Financial Agreement.

Similarly, with capital gains tax, if a property is transferred to a spouse through a court order or binding financial agreement, the transfer may attract a “rollover relief” which will postpone the payment of CGT, or exempt the party from payment. Transfers of shares for example will generally be subject to CGT unless the transfer is done by way of court order or binding financial agreement.

4 Someone may re-partner

If either you or your former spouse re-partner and that relationship is considered to be a de facto relationship (which means that you have been living together on a genuine domestic basis for more than two years) then either your former spouse’s new partner, or your new partner might be entitled to any asset held by you (and vice versa).  Not only does this add complexity to your case, but it increases issues that require attention in any future negotiations which can cost you more money and more time.

5 In the event of a death

When property settlements are left open for long periods of time, there is always a possibility that either you or your former spouse may die before your property settlement is finalised.  This means that the assets of the party who has passed away will be distributed in accordance with their Will. Also of importance is that any asset that is owned as joint tenants will be automatically transferred to the other joint tenant.  This is regardless of what is stated in the Will.

How do we Assist You to Document Your Property Settlement?

We strongly recommend that you document your property settlement as soon as possible following a separation. Your do not have to wait until 12 months has passed.

It is a pretty straightforward process and a worthwhile investment.  You can either execute it by way of Application for Consent Orders filed with the Family Court of Australia, or by way of Binding Financial Agreement.

The Divorce Bar offers you a fixed fee for preparing the necessary documents and we can do it as quickly as you may need it done.  If you are unsure, then please schedule a free 15 minute consultation with one of our friendly and experienced lawyers via this link.