How Are Assets Divided in a Divorce Australia?
Understanding how to organise a financial settlement after divorce is critical. There are many options for couples dividing assets in a divorce settlement. Do you want the flexibility of an informal arrangement? Are you seeking a legally binding agreement? It’s important to note that couples in a de facto relationship have the same choices when dividing assets.
This article will explore the avenues available and the step-by-step guide to using them.
Family Law Act 1975
The Family Law Act is Australian law’s primary legislation governing property division. The Family Court regulates all legal property considerations through the Family Law Act’s provisions. This includes all aspects of financial consent orders and binding financial agreements.
What are my options?
You have four options when deciding how to handle the division of assets after divorce.
Informal agreement
Here are the key characteristics of an informal financial agreement.
Non-binding
Informal agreements are not legally binding. This means that if one party does not adhere to the agreement, the other party may not have strong legal remedies to enforce it. Courts may consider the agreement as evidence of the parties’ intentions but are not obligated to uphold it.
Flexibility
Informal agreements offer flexibility. They do not have to adhere to the strict legal requirements of legally binding options. Parties can negotiate and agree on various financial matters. These can include property division, spousal maintenance, and child support without the formalities of a binding agreement or consent order. Couples can also change an informal agreement easily whenever they feel it’s necessary.
Less legal involvement
Informal agreements typically do not require lawyers or legal advice. Parties can negotiate and draft the agreement, reducing legal costs. Despite this, legal advice is still recommended.
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How do I organise an effective informal financial agreement?
To ensure your informal financial agreement meets your needs, there are specific steps you should follow.
Step 1: open communication
Start by having an open conversation with your partner about your financial circumstances and your needs.
Step 2: identify assets and liabilities
Make a comprehensive list of all your assets and liabilities. This may include:
- Bank accounts
- Share portfolios
- Real estate
- Credit card debts
- Outstanding loans.
Both parties must fully divulge their financial position. Don’t forget to account for debts and produce vital financial documents.
Step 3: Agree on terms
Determine the fairest property division once you’ve identified the net asset pool. It may not be best to divide assets based on who purchased them or brought them into the relationship. This can often unduly disadvantage one partner. Consider your future needs based on factors like earning capacity and access to financial resources.
Step 4: Write down and sign the agreement
While informal, it’s essential to document your agreement in writing. Both parties should sign and date the document.
Step 5: Keep Records
Maintain records of the agreement, including any supporting documents and correspondence related to the agreement. This ensures clarity and accessibility in the future if needed.
Binding financial agreement
A binding financial agreement (BFA) is a legal document governed by the Family Law Act 1975. They provide divorcing couples a way to legally resolve their financial matters without involving the Family Court. Here are the key characteristics of BFAs.
Voluntary agreement
Parties enter into a BFA voluntarily. It must be signed willingly and without any undue pressure or coercion.
Legal Requirements
To be legally binding, a BFA must meet specific legal requirements:
- The agreement must be in writing.
- Both parties must receive independent legal advice before signing.
- Each party’s lawyer must sign a certificate confirming that they provided legal advice.
- The agreement must not be obtained by fraud or under duress.
- Full financial disclosure must occur. Both parties must provide complete and accurate information about their financial situation.
Legal Enforceability
A BFA is legally enforceable in Australian courts if properly drafted and executed. Courts will generally uphold the terms of a BFA unless there are valid reasons to set it aside. Such reasons may include fraud, coercion, or unconscionable conduct.
How do I organise a BFA?
Step 1: Seek legal advice
Both parties must independently consult with their family lawyers. Each lawyer will provide advice on the BFA’s implications and consequences.
Step 2: Disclose financial information
Both parties must fully disclose their financial situations, including assets, liabilities, income, and superannuation, to each other and their lawyers.
Step 3: Negotiate terms
With the guidance of their lawyers, the parties negotiate and agree on the terms of the BFA. This can include how property will be divided and any provisions for financial support like spousal maintenance.
Step 4: Draft the agreement
The lawyers will draft the BFA document based on the agreed-upon terms. It’s essential that the document accurately reflects the intentions of both parties.
Step 5: Exchange drafts
Each party’s lawyer exchanges draft copies of the BFA for review. This allows for any necessary revisions or clarifications to be made.
Step 6: Sign the agreement
Once both parties are satisfied with the terms and the document’s accuracy, they sign the BFA. Each party’s lawyer must also sign a certificate confirming they provided legal advice.
Step 7: Review and update
Periodically review the BFA to ensure it remains relevant and reflects your current circumstances. The parties can amend or terminate the agreement by mutual consent following the legal procedures.
- Check this out: What Are the Risks of DIY Vs Hiring Professional Family Lawyers?
Consent orders
If a couple wishes to apply to the Court for financial consent orders, they must submit an Application for consent orders. It is highly recommended to seek legal advice before filling out the application.
The Family Court assesses financial consent orders with a four-step process.
Step 1: Identify the asset pool
The Family Court will define the marital asset pool by identifying and valuing the couple’s assets and liabilities.
- All assets owned by both parties, jointly or individually, are listed. This includes real estate, bank accounts, investments, superannuation, and personal property like cars and jewellery.
- All debts and liabilities, such as mortgages, loans, credit card debts, and other financial obligations, are identified.
- The current market value of these assets and liabilities is determined to reflect the financial situation accurately.
Step 2: Assess the contributions of each party
In this step, the Court considers the contributions made by each party to the marriage or relationship. This step assesses how each party contributed to the accumulation, conservation, or improvement of the marital or relationship assets. There are different types of contributions:
- Financial Contributions. This includes money brought into the relationship, income earned, and contributions to the acquisition or improvement of assets.
- Non-Financial Contributions. These are contributions that do not have a direct financial value. These may include renovations or maintenance work on a property, domestic work, and child-rearing.
Step 3: Future needs
The third step involves evaluating the future needs of each party. This step ensures that the division of assets considers both individuals’ future requirements and circumstances. Key considerations include:
- Age and Health. Assessing the impact of each party’s age and health on their future earning capacity and needs.
- Income and Financial Resources. Evaluating each party’s current and potential future income, property, and financial resources.
- Ability to Gain Employment. Considering the likelihood of each party to obtain meaningful employment. This may be influenced by age, health, and time out of the workforce.
- Care of Children. Taking into account the responsibilities of each party for the care and support of children.
- Standard of Living. Considering what standard of living is reasonable and whether either party’s standard of living will decrease significantly post-separation.
- Support of Others. Assessing whether either party is responsible for supporting other people, such as elderly parents.
Step 4: Deciding if the orders are ‘just and equitable’
Finally, the Family Court considers whether the overall asset division is just and equitable. This step is a holistic assessment of the entire situation. It takes into account the outcomes of the previous three steps. In this step, the Court will:
- Review the Proposed Division. The Court looks at how the assets and liabilities would be divided based on the findings from the first three steps.
- Consider Fairness. It evaluates whether the proposed division is fair to both parties, given their respective contributions, future needs, and other relevant circumstances.
- Adjust if Necessary. The Court makes any necessary adjustments to ensure that the division of assets and liabilities is just and equitable.
Organise your property settlement today
There are several ways to settle financial matters after a marriage or de facto relationship ends. Informal arrangements are flexible but may be difficult to enforce. Binding financial agreements and consent orders offer enforceability but have strict requirements that align with the guidelines on how assets are divided in a divorce in Australia. However, you wish to handle your affairs, it’s crucial to have access to adequate legal counsel.
If you need help with family law matters, contact us for a free discovery call.
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