Reaching an agreement in relation to the division of assets and liabilities between you and your former partner will reduce the costs and emotions involved; however, just agreeing to a division (or ‘split’) of assets is not legally binding. If you do not formalise the division of assets by way of an order of the Federal Circuit and Family Court of Australia (Court), either you or your former partner may make a claim against the other for a property settlement in the future.
In determining how you and your former partner will divide the matrimonial property following separation, it is necessary to:
- agree on the value of the assets and liabilities of the relationship or marriage;
- assess the financial and non-financial contributions of each party;
- assess any factors which will affect either of you in the future, such as the arrangements for children and your respective future incomes; and
- ensure that the overall outcome will be “just and equitable”.
It is therefore imperative that you and your former partner engage legal representatives as soon as possible after separation to assist you in formalising your property settlement. Negotiations between you and former partner can be made legally binding through either ‘Consent Orders’ or a ‘Binding Financial Agreement’.
Consent Orders
An Application for Consent Orders provides an overview of the parties’ assets and liabilities, and the proposed distribution of the same. Upon receipt of an Application for Consent Orders, the Court will make a determination as to whether the proposed division of property is ‘just and equitable’, and if so, will make those orders binding on the parties.
Binding Financial Agreement
A Binding Financial Agreement is a written agreement similar to Consent Orders, such that it details how your property will be divided. A Binding Financial Agreement may be entered into before, during or after a relationship or marriage has concluded, and will impose specific rights and responsibilities on the parties.
Binding Financial Agreements are complex documents which require significant work by each of the parties, and their solicitors, to complete. The benefit of a Binding Financial Agreement is that is does not need to be approved by the Court. Provided a Binding Financial Agreement is prepared in accordance with the applicable laws, and each party to the document has obtained independent legal advice in relation to the legal effect of the same, it will generally be enforceable in the Court.
Consent Orders or Binding Financial Agreements may make arrangements in respect of a broad range of legal matters as concern the division of assets and liabilities, including (but not limited to):
- the transfer or sale of property from one party to the other;
- the sale of real estate or other property to a third party, including terms regarding the appointment of an agent, method of valuation and distribution of surplus funds;
- the distribution of superannuation;
- requirements for paying out loans, credit cards and closing bank accounts;
- financial support of one party by the other; and
- any incidental issues.
It is important that you seek independent legal advice and have your financial affairs protected as soon as possible after separation, particularly as there are time limits within which you must formalise your property settlement. Importantly, a property settlement must be finalised within one (1) year from the date of a divorce order (if you and your former partner were married), or two (2) years from the date of separation (if you and your former partner were in a de facto relationship).
In formalising your property settlement, you should keep in mind the following matters:
- Stamp duty concessions
The transfer of certain property, particularly real property, is generally subject to the payment of stamp duty; however, certain exemptions apply for transactions that are documented in a Binding Financial Agreement or Consent Orders pursuant to the Family Law Act 1975 (Cth) (Act). An informal agreement does not meet the statutory requirements prescribed by State legislation, and so does not qualify you for a stamp duty exemption on the transfer of real property.
- Taxation implications
Understanding the tax implications of a proposed property settlement and structuring the division of assets accordingly can have a significant impact on the net result for both parties.
A potential future Capital Gains Tax (CGT) liability is an important consideration when negotiating a property settlement. CGT is the financial gain made on the disposal of an asset, which is assessable income and must be included in a tax return. The Income Tax Assessment Act 1997 (Cth) provides roll-over relief where disposal of an assets occurs pursuant to the terms of a Binding Financial Agreement or Consent Orders, in accordance with the Act. This means that any CGT liability is deferred until such time that the asset is later transferred by the party acquiring it, although the asset will remain subject to the same CGT conditions as it was before the transfer.
Care should also be taken when dealing with companies and trusts, where certain transactions could raise CGT issues.
Although family lawyers do not provide financial advice, we can identify potential tax issues, and where necessary, will recommend working with an accountant to ensure your property settlement delivers the most viable results and avoids, wherever possible, unexpected tax liabilities.
- Claims on post-separation assets
Not only is an informal property settlement insufficient to obtain relief from stamp duty or relevant tax exemptions, but the parties are also unprotected against a range of potential issues such as a subsequent claim by your former partner in relation to post-separation assets, income and inheritances.
The parties are also left vulnerable should one of them become bankrupt where the joint ownership of assets has not been severed. Similarly, the failure to formally discharge obligations under joint loan or guarantor arrangements may result in severe financial consequences.
It is important to recognise that until a formal property settlement, effected by order of the Court, has been completed, neither yourself nor your former partner are prevented from applying for a division of property through the Court at a later date.
We will ensure that you are fully aware of the implications of a proposed property settlement, raise potential taxation issues and address future matters that may not have been contemplated between the parties. The negotiations can then be recorded in a legally binding agreement in either form as addressed herein.
Precision Legal’s Family Law team has considerable experience helping clients with their property settlements. Please contact a member of our team for further information on how we can assist you.
(08) 8212 1115 or email [email protected].