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Understanding financial settlements

Every divorce is different, so there isn’t a standard 'rule of thumb' when calculating how you split assets.

June 2021 – 16 minute read

Key takeaways from this article:

  • What to include in a financial settlement
  • How settlements are calculated 
  • Seeking legal advice
  • Helpful support organisations

Financial settlements - what do you include and how is it calculated?

At some point after the relationship ends, a settlement of financial matters and assets needs to be arranged. Financial settlements and any claim on property have to occur within 12 months of the divorce order for married couples, within 24 months from break-up for de facto couples or an Application for Orders by Consent outside of the time period.

Some people try to delay a financial settlement hoping that a property or business will increase in value. However, the opposite may also occur. Any debt accrued during separation is likely to be included in the settlement calculation.

There are four factors considered in the calculation of a financial settlement:

1. The asset pool. This refers to the assets or liabilities that you have. Your assets and financial resources may include cash, investments, real estate, cars, jewellery, artworks, shares, trusts, interest in companies and trusts, superannuation and cryptocurrencies. Liabilities include (and is not limited to) loans, credit cards, mortgages, tax debt and all other personal obligations.

2. Assessment of Contributions. This refers to the consideration given to each individual’s contribution to the acquisition, conservation and/or improvement of the assets owned by the parties in their joint and/or sole names. It includes assessment of issues such as initial contribution and inheritances and/or windfalls either party may have received during the course of the marriage or relationship. An assessment of contribution isn’t only financial, but also looks at the non-financial contributions and their parenting and home maker contributions. The non-financial efforts are considered

3. Consideration of a Section 75(2) adjustment under the Family Law Act, namely a Future needs and adjustments.

a. Considerations for future needs include:

i. The age and health of each person

ii. Duration of marriage

iii. Need to protect one individual

iv. The income, property and financial resources

v. The capacity for each person to seek and hold gainful employment and the difference in earning capacity

vi. The care and support of a child from the union under 18 years of age

vii. Current financial commitments to support either themselves or another person with whom they have a duty of care

viii. Whether either person qualifies for a pension or government benefit

ix. Whether separation affects the standard of living

4. A fair and equitable settlement. Consideration is given to whether the financial agreement is just and feasible for both individuals and their circumstances.

The four factors above are collated and used to create a Balance Sheet. This document sets out all assets, liabilities and financial resources for each person and is commonplace to exchange all relevant financial material such as bank statements, tax returns, valuations and company documents as listed on the Balance Sheet. Sharing these documents offers ‘proof’ and transparency to each person and justifies the figures nominated. Then the couple create one joint Balance Sheet that they will use to negotiate a financial settlement.

Financial disclosure is required as part of the Property Settlement process. Referred to as “full and frank disclosure,” each individual is expected to share all material that is relevant to their current financial position. This is done to ensure transparency when considering and reviewing each person’s financial position. Failing to disclose financial assets offer accurate information could have an unfavourable outcome for your case.

For more information on financial settlements and accessing relevant forms, visit the Family Court of Australia or Family Court of Western Australia

How and where to seek legal advice

It can be difficult to know your rights, especially when you aren’t a family lawyer. There are many options available to individuals to seek legal advice and they vary depending on your personal financial circumstances and the level of involvement that you seek from a lawyer.

First and foremost, not all lawyers are the same.

Just as doctors have their areas of speciality, family law is a specialised field. You can choose to have a commercial or estate lawyer represent you, however, they are not as familiar with the nuances within family law, the courts and proceedings. It is preferable to seek the assistance if you can of an accredited family lawyer.

Other options for legal advice include:

1. Legal Aid. A government funded, free or minimal contribution legal service. There is an application process to assess the suitability of your case and whether you meet the stringent criteria for Legal Aid.

2. Community, women’s and indigenous legal groups. These not-for-profit groups are designed to offer legal assistance to economically, culturally or socially disadvantaged and people with special needs, however the assistance you can obtain is generally limited

3. Paid professional family Lawyer. Seeking legal advice is strongly encouraged to ensure that you understand your rights and obligations throughout the family law process. Depending on your circumstances, you may like to take advantage of ‘first free consultations’, fixed-fee legal representation, limited scope representation or full-service representation. It is important that when you meet with a family lawyer that you discuss and review the cost agreement, your budget and ability to fund your lawyer. Some lawyers may allow delayed payment out of the financial settlement, request for fees to be paid upfront or for fees to be paid as accounts are rendered each month

Did you know…? Declaring bankruptcy may clear much of your debt but it does not remove any debt owed to Child Support. It is important to understand that being declared bankrupt places many restrictions on you for the following 3 years and 1 day from the date that you file for bankruptcy. These restrictions include not being a director of any company, not owning a vehicle or tools over a set amount. It may also affect your income, employment opportunities, overseas travel and credit rating. Declaring bankruptcy is a serious matter and should you consider becoming bankrupt seek independent, professional advice first.

If you find yourself in financial difficulty, talking to the bank can make a huge difference to your financial situation. There are many options for support and assistance available through your bank. Receiving assistance tailored to your circumstances starts with talking to your local banker or calling Customer Assist on 1800 067 497.

What to bring with you to your first appointment with your lawyer

Often, your first appointment with a family lawyer is more of an ‘information gathering’ appointment unless there are urgent and pressing issues that require immediate attention. There are some relevant documents that your new lawyer might like to see or keep a copy of.

To make it as straight forward as possible, your lawyer will want to know:

1. Details of all people involved in the family law matter (you, your ex-spouse, children)

2. Details of your union (the date you met, moved in together, became married, the date that the relationship ended)

3. Basic information regarding assets, liabilities and contributions. It can be helpful to have itemised lists of what assets each of you held at the time you met and commenced living together, assets that you accrued during the relationship and if either of you received an inheritance and/or windfall (such as a gift from a parent or family member).

4. Major concerns and events that occurred during the relationship and after the break-down of the relationship

5. What you understand you and your partner's financial situation to be,

6. An idea of what you would like from the end of your relationship (parenting and financial) Go to your lawyer with a list of questions that you would like to have addressed. Remember to take a pen and paper with you so that you can write notes if needed.

Options for reaching a settlement or agreement

There are mounting pressures on the Family Court and Federal Circuit Court to determine Family Law Matters and consequently delays are rife. However, you don’t have to delay and wait for court for your final agreement and you have options for greater control over the outcome by trying to reach a settlement by consent. There are many options available to you to support you through the decision making and settlement creating process. They include:

1. Settlement by consent. This is the fastest and cheapest option is that you and your ex-partner are able to reach an agreement and formalise it in writing. It involves setting out your financial and/or parenting agreement in a document and seeking the approval of that settlement by the Family Court which makes the agreement an Order. Alternatively, the financial agreement reached can be set out in a Binding Financial Agreement which requires each of you to obtain independent legal advice.

2. Mediation. A confidential, no judgement and ‘without prejudice’ opportunity to discuss and ideally create an agreement with a view for formalising it as Consent Orders and/or Binding Financial Agreement. The mediation can occur in an informal setting by either a friend or family member or in a more formal situation with a professional mediator. In some cases, mediations can be attended and supported by legal representation for each individual

3. Family Dispute Resolution (FDR). FDR is a specialised form of mediation for separated couples to reach an agreement. Again, this process is confidential and without prejudice.

4. Collaborative Law. In Collaborative Law, both individuals engage independent lawyers to discuss, ‘trouble shoot’ and negotiate a settlement, and both individuals must be willing and open to reaching an agreement for a successful outcome. Experts may be included and many emotional issues can be addressed. Prior to engaging in this process, you and your lawyers sign a document confirming that you do not intend to proceed to Court. Should the Collaborative Law avenue fail and the individuals choose to go to court, then the lawyers are disqualified from any further involvement in the case and each individual has to find new legal representation. This is a faster process at a fraction of the cost of seeking settlement in the Court.

5. Arbitration. Arbitration is a legally binding process whereby each party has legal representation, present arguments, provide evidence, experts, affidavits and attend a hearing in the presence of a qualified arbitrator. It is very similar to a court process but provides a faster option of obtaining finality. You can only enter into Arbitration if both individuals agree. When the Arbitrator reaches a decision, the judgement is final, binding and lodged as a Court Order. This process is often completed within a few months and there are additional costs are associated with this option as you need to pay for the arbitrator as well as your lawyer.

6. Court. This is the most costly and lengthy option for individuals to pursue. The Court tries to encourage all couples to explore alternative avenues to reach an agreement before offering a Final Hearing date which further delays finalising matters.

No matter which option you use, choose to be open, to communicate and negotiate. If you do, your family law settlement will be achieved more easily. Having a final settlement and agreement gives you a wonderful opportunity to plan your future without the stress of a settlement and associated uncertainty hanging over you.

What you need to know about superannuation splits

When superannuation is agreed to be split as a part of the financial settlement, the money from the super fund is still subject to the superannuation laws. This means that if you are not of retirement age, you will not receive the money as cash and the transfer is a super to super transaction. You must disclose all superannuation, even if you do not intend to split any superannuation. Superannuation is treated as an asset of the marriage. It is always preferable to consider obtaining your own independent professional advice.

Did you know…? if you transfer the title of a property or car with a Court Order then your transfer will be stamp duty exempt and you will receive CGT rollover relief. It is important however that before any agreement on the transfer of assets occurs particularly where interest in investment properties is taking or place or interest in companies is being varied, that you obtain accounting and tax advice as well as consulting your family lawyer.

Initiating or lodging a financial settlment as an order

Getting the process right the first time can save you lots of time and energy. If you are initiating a financial settlement or lodging a financial settlement at Court to be made an Order, the understanding and following these steps can be helpful:

1. Attending Family Dispute Resolution (FDR) is a compulsory pre-action for court

2. If you reach an agreement at Family Dispute Resolution or through mediation, you can apply to the court for Consent Orders using the Application for Consent Orders or by using your lawyer to create a Binding Financial Agreement

3. If you are unable to reach an agreement,

a. You (the applicant) will need to file an Initiating Application together with your Family Dispute Resolution certificate, Affidavit and Financial Statement

b. If there is a domestic violence or safety issue involved a Notice of Risk will also need to be submitted

c. If you are initiating at court, then your documentation will have to be served upon your ex-spouse in accordance with the nominated guidelines

d. Your ex-partner (the respondent) will file a Response to Initiating Application together with a Financial Statement and Affidavit

All of these forms are available under the forms and fees section of each Family Law website: Australia or Western Australia

Can property be sold without my knowledge

For many people, their property is the biggest asset that they have. Equally, it is a great concern that it may be sold without their prior knowledge or consent. There are lots of different property and mortgage arrangements which may mean that you feel more exposed or vulnerable or it could mean that you have a little more protection than your first thought.

If you are named on title and on the mortgage, the contract of sale and the mortgage discharge documents must be signed by you. Therefore, the property can’t be sold without your knowledge.

If you are not named on title and are named on the mortgage, the property can be listed for sale and contract of sale exchange made (deposit paid), however, the mortgage cannot be discharged at settlement without your signature. You should seek professional advice if this is your situation.

If you are not named on title, not on the mortgage and believe that you have a genuine claim on the property, there are some options available to you: you can either get a Court Order specifically stating that the property may not be sold (and the conditions noted) or place a caveat on the property. Should you believe that a caveat may be appropriate in your circumstances, it is recommended that you seek professional legal advice. If you do place a caveat on a property and do not have a genuine claim, you and your lawyer may face legal repercussions and penalties.

Many couples find that they have to sell their property because their financial situation changes. In this case, and by agreement, many couples choose to discharge their mortgage and place the proceeds of sale into a lawyer’s trust account until a Financial Settlement and ensuing Orders are made.

If you have any questions or concerns, please speak with your local banker and your family lawyer.

When a court order is made against a Westpac debt, loan, mortgage or property

At times, Orders are made by the Court directing one or both individuals and stating their financial responsibilities. Often, the Orders involves the bank and may relate to a bank account, credit card, loan or mortgage. In these instances, Westpac will do its best to comply with all orders.

To make the process smooth, here are some guidelines for you to follow:

1. Where possible, consult the bank to ensure that taking on sole responsibility of the debt is something that is financially feasible (especially if you are nominating yourself for the debt)

2. Once Orders have been granted by the court concerning an account or product with the bank, consult the bank and provide a copy of the relevant Orders

3. The Orders supplied to your local banker or Home Loan Specialist should be an original copy. Your banker can then take a copy of your original to place on file. In some instances, a certified copy (by a Lawyer or Justice of the Peace) may be sufficient, however, it is worthy of checking with the bank first

4. The bank will do its best to comply with the Orders provided that they are considered serviceable by the individual taking on the debt

5. In instances where the bank believes that the court orders are not fair or serviceable for the individual ordered to take on the liability, the bank reserves the right to be heard by the court and will seek an amendment to the order

How to transfer an account, loan or mortgage without a court order

Sometimes a couple may choose to split assets, accounts or transfer mortgages or loans by agreement and without Court Orders due to a break-up or change of circumstances. Should this situation arise for you, you can:

1. Meet with your banker to discuss options, your ability to service the loan/debt

2. Discuss with your ex-partner options as financially available to you, understanding the limits of what the bank will allow for your situation

3. Before any loans or accounts are transferred, all co-owners, guarantors and named people on the account or loan must give their approval

4. Meet with your banker together to execute any transfer, change of ownership and establishment of new account or loans

Policies and products do change. Transferring an account or loan may mean that you have to start a new loan or account. Sometimes, the exact same product, rate or policy isn’t available when taken over by another person, even if they were previously named on the account or loan. Remaining open to your current options available will help your process proceed more smoothly.

Financial stress and your mortgage

Periodically and for many reasons, some individuals and couples are unable to meet their mortgage payments. Should you be feeling concerned about your repayments or your ability to meet the ongoing repayments, you have a number of options:

1. Speak with the bank if you feel you are facing difficulty to discuss ways we can help with the financial strain during this time. When the issue is smaller or in a shorter time frame, changes may be more easily made to create ease the financial stress

2. If you are ahead on your mortgage the bank may be able to pause payments for a period of time.

3. Create or review your budget

4. Discuss your options with any named people on the mortgage or the property about the future of the property and its mortgage. Perhaps it may be time to sell the property or rent it out

5. Seek professional legal and financial advice

Manage the mole-hill before it becomes a mountain. Before you get too behind in repayments, meet with your banker, be honest and open about your situation and you may be pleasantly surprised at the support that you will receive to help you get back onto a more positive financial track.

Child support

Child support is one form of financial support and is designed to be of benefit to any child you and your partner share. Understanding that the costs of raising a child is the responsibility of both parents, Child Support is a government calculated minimum contribution and is a mandatory payment. Child Support Australia is an organisation that coordinates the collection, distribution and calculation of Child Support.

It is based on a number of factors:

1. Each parent’s income (based on a joint figure)

2. A government nominated self-support amount which is deducted from the income

3. The number of nights care that each parent has with the child(ren)

It is important that you inform Child Support Australia if your circumstances change (especially if your income changes and frequency of care changes). You can use the Child Support Estimator as provided by the Department of Human Services to calculate your expected contributions and calculate potential adjustments when your circumstances change.

Parents and families living in a country associated with the Hague Convention are liable to pay or entitled to receive child support.

Spousal maintenance

Spousal maintenance is the additional financial support for an ex-partner or ex-spouse after the relationship ends. You may be ordered by the Court to make one-off (lump sum) or periodic payments for a set time to your ex-spouse to assist them with the cost of living. Spousal maintenance is only awarded if one person is not able to meet their financial needs and the other person has the ability to make the payments.

Spousal maintenance is a claim that needs to be made in a timely manner (shortly after separation or breaking up) and the need for spousal maintenance has to be proven.

Helpful support organisations

Support organisations are designed to help people in need. Should you feel you could benefit from additional support, there are a wide range of services nationally and locally. Having the right support and the right services surrounding you in a time of need can help boost your confidence and work through some of your challenges.

Should you have a domestic violence concern, please consult your local domestic violence police officer regarding your situation and for referrals to appropriate organisations that can assist you.

Financial Settlement FAQs

Assets in a divorce are usually divided in four steps.

  1. Assets and liabilities are valued
  2. Financial and non-financial contributions to the relationship are evaluated
  3. Future needs of each party are calculated (considering age, health, income, child support, etc.)
  4. Property is be settled in a way that is seen as fair by the court

The intention of the court in asset division is to be fair and equitable after considering the contributions and needs of each party.

You may find these useful

Separation checklist and links

Use our downloadable checklist to focus on what needs to be done at the outset.

Help with your finances

In the early stages of a separation it’s important to safe guard your finances, protect your privacy and ultimately regain your independence. Here are some ways we can help.

Planning for your future

A separation is a good time to review and update personal documents and accounts so they support your next step.

Things you should know

This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness for the information to your own circumstances and, if necessary, seek appropriate professional advice.

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