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Separation Agreements and Property Settlement 101

Navigating the legal and/or practical aspects of a marital or defacto separation can be difficult, confusing and stressful. We've put together this guide of common FAQ's to make the process alittle bit easier.

Can you live in the same house and be legally separated?

When a couple separates it is not always possible for the partners to start living in separate houese immediately. There might be financial constraints, the practicalities of caring for children or they may be waiting to complete the financial or property settlement.

The Family Law Act and Family Court Act (covers de facto relationships in Western Australia) allows for this type of scenario and has set down specific rules for how a couple can live in the same house or "under the one roof" and still be legally separated.

It all comes down to the intention of the parties:

One or both of the parties must intend to sever the relationship, and the parties need to physically separate by living separately and apart.

If you’re both living in the same premises, physically separating usually means moving into separate bedrooms and disentangling finances, for example, by closing joint bank accounts.

The Family Law Act does allow couples to be considered separated even if they live under the same roof. Section 49 defines separation as;

"(1) The parties to a marriage may be held to have separated notwithstanding that the cohabitation was brought to an end by the action or conduct of one only of the parties.

(2) The parties to a marriage may be held to have separated and to have lived separately and apart notwithstanding that they have continued to reside in the same residence or that either party has rendered some household services to the other.” 

Watch the video to learn more or click here for another article that explains more about separating under one roof.



Divorce and separation

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If you are a married couple, you will need to wait at least one (1) year after separation before you can file an application for divorce in the Family Court. However you can determine how you will manage the property settlement anytime after separation.

Property settlement for de facto couples is dealt with in the same way as married couples. Both married and de facto couples can choose to enter a Binding Financial Agreement or apply to the Court for a property settlement.

Are there time limits to make a claim if separating?

When separating property, married couples have 12 months from the date of their divorce to apply to the court for property orders.  De facto couples have 24 months from the date of their separation to apply to the Court for property orders.

If parties do not comply with their statutory time limits they are required to seek the court’s permission to apply out of time.  This is not always granted.

Alternatively, where a couple agrees on how their property and financial resources should be divided, they can use a binding financial agreement as an alternative to court proceedings.  There is no time limit to make a financial agreement.

Can we delay the Property Settlement?

Whilst there are no time limits to making a financial agreement for the settlement of property matters; it's a bad idea to delay finalising the settlement, no matter how tempting it seems to stick your head in the sand about the legalities.

tempting to stick your head in the sand

If you do not finalise the settlement then your are still tied financially to your ex. This means that any financial gains or losses are still part of the joint property pool even after the official separation date.

So if you:

  • win lotto after you move out, your ex could make a claim.
  • if you inherit cash or property after separation, your ex could make a claim.
  • if your partner loses their job, or gets sick, this could affect your share of the property pool or leave you open to a spousal maintenance claim.

The point is that all these factors, whether wins or losses, can affect your joint property pool, and how the pool should be divided.

Another important factor is your duty to be honest and disclose all things of a material nature in a property settlement. More on that below. But if you think it's hard to talk to your partner now about money and property, what you each own and owe, imagine how much more difficult that conversation will be after you've lived apart.

If all the assets weren't disclosed when the Financial Agreement was made, signed and certified is it still legally binding?

The parties have a duty of disclosure to the court as well as each other. If one party tries to hide Assets or liabilities that effect the other party the party could go to court and argue to have the agreement set aside. It is important to note that a Financial Agreement is essentially a contract. All contracts can be set aside in certain circumstances, for example, where agreement has been obtained by fraudulent means.

Section 90K of the Family Law Act sets out the circumstances in which a Court may set aside a Financial Agreement; they are:

  • fraud, including material non-disclosure (eg. failure to disclose the existence of or the true value of an asset); or
  • a party to the agreement entered into the agreement for the purpose of defrauding or defeating a creditor or creditors of that party; or
  • the agreement is void, voidable or unenforceable (ie. the agreement must be prepared properly and in accordance with the legislation); or
  • circumstances have arisen since the agreement was made which make it impossible or impracticable for the agreement, or a part of the agreement, to be carried out; or
  • since the making of the agreement, a material change in circumstances has occurred that was not dealt with or foreshadowed in the agreement (relating to the care, welfare ad development of a child of the marriage) and, as a result of the change, a party to the agreement will suffer hardship if the Court does not set the agreement aside; or
  • a party’s conduct in the making of the agreement was, in all the circumstances, unconscionable;

Do you have to pay capital gains tax on property transfers in financial agreements?

If my husband and I separate and the house is transferred to one of us do we have to pay capital gains tax or transfer fees and the like?

CGT Tax

Answer: Capital gains tax, stamp duties and other charges will not apply to property that is transferred following breakdown of a relationship.

In order to secure this exemption, there must be formal documentation, such as a Binding Financial Agreement or Consent Orders, which specifically deals with the property being transferred. This document will need to be provided to the Office of State Revenue in order to secure the exemption, along with an exemption form.

You should check with the Office of State Revenue about the specific requirements in your State. Nominal fees will then apply (eg. $2.00) depending on your State. Registration fees may also apply to file the necessary forms with the Lands Registry in the vicinity of $60.00. Apart from that, the Act specifically exempts transactions from tax and stamp duty.

My wife and I are separating and we want to take care of the financial side of things. What are our options?

There are four options for finalising a property settlement, three of which are legally binding.

You can:

  • Make an informal agreement, either written or verbal which is not legally binding;
  • Make a binding financial Agreement;
  • Apply to the Court for Consent Orders;
  • Go to Court.

My wife and I both have super funds, the difference between balances is 60K so she wants 30K of mine – however she wants that as cash payment and then nothing deducted from my super.  Can you do this in an agreement?  I will be paying her $200K for the house and would need to borrow another $30K to do this.

Certainly you can pay a cash amount in leu of splitting your super.

Couples often opt to pay a cash amount rather than go through the hassle of formally splitting one party's super because a cash amount can be used now. Whereas a transfer of a super interest must be preserved until retirement age which may or may not be helpful depending upon your circumstances. You will however need to consider the interest you would be paying on any amount borrowed to compensate for the super split.

If you elect to split your super you will need to include provisions in your binding financial agreement which provide instructions for your superannuation fund trustee. Learn more about Superannuation Splitting Separation Agreements.

Do I need to pay my partner Spousal Support or Maintenance?

spousal support or maintenance

Spousal maintenance is a support payment made to a partner who is unable to support themselves after a separation or divorce.

A couple has an obligation to maintain each other, even after their relationship breaks down. 

The likelihood of spousal maintenance being paid, and the extent of the payments, will vary depending on various factors – firstly, whether one party can actually afford to support the other, and to what extent.

The Family Law Act sets out a list of items that should be considered when assessing whether spousal maintenance should be paid.  It is not a “one rule fits all” scenario, but rather, a set of guidelines to assist in determining whether spousal maintenance payments would be appropriate.

Section 75 of the Family Law act lists the factors which should be considered when assessing spousal maintenance provisions see the full article here

How much detail is needed when we fill out the Schedules - Asset and Liability Statements. I don't feel comfortable about listing all my private banking details.

Answer: Financial agreements can be set aside for fraud (which essentially means non-disclosure of something that matters). Full and frank disclosure is fundamental if a financial agreement is to survive a legal challenge.

When completing a financial agreement - see our kits here, you will need to list your assets and liabilities in the Schedules. There is one for each partner and a joint schedule.

When you document your assets, mention how long you‘ve had them, who paid for them (or if both parties paid, then in what proportions). If you can‘t agree on the value, try at least to agree on how the value might be arbitrated. Putting a value on an asset is tricky and your agreement should say how the value of assets will be worked out if actual values are not specified.

For real property, provide title particulars. Addresses, folio numbers or other identifiers to facilitate clear identification and transfer of property. If the parties have agreed on a value for the property this can be included in a schedule.

If there are mortgages over real estate include details of the mortgagee, the reference to title to the mortgage and any particular terms which may be necessary for an understanding of the financial position of the relevant spouse party.

Market value, purchase price, insurance or replacement values may be appropriate for particular types of property, such as cars but probably not for shares or land. For land, valuation may be by a specified person such as an agreed real estate agent or accountant, shares and managed funds may be valued at a certain date or at an average over a certain period, say three years.

For bank accounts there is no need to disclose all details but you should provide enough so that the account can be identified eg Name of Institution, Type of account, location of branch and the last few digits of the account number.

For household effects you don't need to list everything to the nth degree, a total is fine. That being said if you do own items that have sentimental or high value that you want to allocate to either party then list those specifically.

If there are companies involved where one or both of the parties are members and/or actively involved, the optional recital referred to previously should set out details of the companies, including the company names, the names of the directors, and  the ACN (or ABN) of each of the companies.

A solicitor can only advise you properly if accurate financial information is available. Full disclosure of your earnings, assets and liabilities is the best way to ensure you receive accurate legal advice to minimise the risk to you of a future claim.

If you choose not to disclose certain facts, the other party can always challenge the agreement in which case the Family Court may intervene and completely overturn it.

Instructions for completing the Schedules

Particulars of the assets and financial circumstances of each of the parties as well as assets already owned jointly by the parties should be set out in separate schedules.We have provided sample Shedules below.

Click to see larger Image

Click to see larger image

Click to see larger sample

Why do I need to get Legal Advice for a Separation Agreement?

The Family Law Act requires each party to the agreement to receive a certificate of independent legal advice as to the advantages and disadvantages of entering into the Agreement.

Before your financial agreement becomes legally binding it must contain:

  • A statement in the body of the agreement by the parties to the effect that they have received legal advice independent of each other and
  • A certificate from the legal adviser that the advice has been provided.

This prevents either party from arguing that, when signing the agreement, they did not understand what they were signing or the consequences thereof.

With this in mind we have negotiated a reduced rate for our customers with several independent, nationally licensed lawyers who can provide the required advice by telephone and e-mail.

Is a phone briefing for the legal advice valid?

Question: Just a bit concerned that a phone or email legal briefing for both partners would not be viewed as legitimate a process as a face to face with lawyers in the event of any future legal dispute. Can you please advise on this aspect of the process?

Good question and one that we (RP Emery and our Associate lawyers) have contemplated since we first started in 2009, but I think you are the first customer to email this question.

The conventional wisdom is that lawyers provide advice over the phone or via skype to clients everyday. It is a common and accepted part of the legal industry.

Since 2009 we have conducted literally thousands of reviews in this manner and we are yet to have an agreement challenged in court on any grounds, let alone the quality of the legal advice.

As part of the process most of the lawyers will seek proof of identity (some don't). After the consultation each lawyer will issue a Letter of Advice. The letter of advice is a detailed written expression and record of the consultation and what was discussed. Each party to the agreement must sign their letter of advice as an acknowledgement that they have read the letter, understood the advice and they do not require any further changes to the agreement.

Once returned to the lawyer (email is fine), the lawyer will then issue the Certificate of Legal Advice.

The next step is to have your agreement signed in front of a credible witness, we recommend using a JP because a JP must identify you. And that is it finalised, legal and binding.

Watch this Video to learn more about Sepation Agreements and finalising your settlement peacefully


 


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