When people facing separation elect to do their financial settlement without a lawyer, they are commonly motivated to save money and avoid the litigious process. Some of people can run into problems and they typically fall into one of two categories:
- People who do an agreement without lawyers and don’t formalise it; or
- People who formalise their financial settlement but do it themselves without advice or assistance from lawyers
It’s not uncommon for us to see people who later have an issue with their financial settlement who have taken one of these options. Often parties will realise that the settlement they agreed to take is below their entitlement; the other party has exhausted their share of the agreed settlement and come back seeking additional funds, or the other party hasn’t honoured the terms of their agreement.
Clients who say they have agreed on their financial settlement? A word of caution.
For many separating couples their key assets are their home, superannuation, vehicles and house contents. They will often make an agreement between themselves to sell the home to pay off the mortgage and then split the proceeds from the sale of the home. Each keeps their own super and cars and they divide the contents between them.
When people don’t seek legal advice this seemingly straightforward division can become problematic because the division may not really be appropriate based on their circumstances. One person may not be aware of what they are entitled to. A 50-50 split may seem fair initially but might not be adequate if, for example, one person has been at home raising children while the other has stayed in the workforce, developed their skills and increased their earning capacity.
A formalised financial agreement is either the drawing up of consent orders to be filed with the Court or a BFA – a binding financial agreement. On average we see about 90% of financial settlements formalised by consent orders and the balance by binding financial agreement.
If a separating couple haven’t formalised their settlement through either consent orders or a binding financial agreement – there is always the risk of one person coming back for what’s often referred to as ‘a second bite of the cherry’. This is where people elect to contest the financial settlement that had been agreed upon and often occurs when one person uses up their settlement and down the line returns seeking additional financial support.
It is not uncommon to see people that have remained separated for many years but are not divorced. If this is the case, if one party wishes to, they have the right to bring an application to the Court and contest the original informal settlement. In particular, we see many instances where people wish to revisit their informal financial settlements if they become aware that they may have been eligible for spousal maintenance.
What is spousal maintenance?
Spousal maintenance is a periodic (weekly or monthly) amount that is paid from one party to their former husband or wife in circumstances where that party is unable to maintain their existing costs of living, up until a financial agreement has been formalised.
By not tying things up formally people can discover that they have a situation where, after originally splitting up the proceeds from the house sale they later receive a letter from their former partners’ lawyer detailing reasonable weekly needs and requesting payment of periodic spousal maintenance.
When spousal maintenance is dealt during the settlement process, typically these payments continue t until there is a formalised financial settlement. If spousal maintenance is brought up later as something that should have been included, and the couple are not yet divorced, then spousal maintenance decided on by the Court can go on if not indefinitely then for much longer than anticipated.
There is always risk when people fail to formalise their financial agreements.
Formalising a financial settlement without a lawyer?
It is not uncommon for people to reach an agreement with one person having no legal representation or advice or sometimes with neither of them being represented
If people formalise their financial agreement but do not involve lawyers, their orders are easier to set aside. If, for example, one party gets legal advice and the other does not, in the absence of proper legal advice that person may be granted the opportunity to reopen the settlement process.
As financial advisors you will be aware of the additional costs that can be incurred as a result of the sale of an investment property. People can find themselves significantly out of pocket when they discover that the transfer of a property results in them needing to pay stamp duty and capital gains tax.
If there is no court order or no BFA, then there is no opportunity for rollover relief or stamp duty relief..
For financial planners and accountants who have clients who are intending to, or have already separated from their partner, the first step is to ensure each client is referred to a specialist in family law. It is most important that they seek advice from a lawyer who specialises in the complexities that exist in family law. Secondly, we recommend that as trusted advisors you insist that both parties document and formalise their financial settlement.
By not formalising a financial settlement, there is no finality. For those of your clients who have concerns about the cost of engaging a lawyer to negotiate a settlement, know that most times people seek advice at the front-end and the back-end of the process. First they seek advice about their situation and, once they’ve been to their former partner to negotiate, they bring the agreement back to us for consideration and review if needed. Then we take steps to formalise the financial settlement. That way together we can ensure it is final, binding and compliant.
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Phillips Family Law is an award winning Family Law practice serving clients across Australia and abroad. Regardless of where you are in your decision making process, we can make you aware of your options. To discuss your situation confidentially phone +61730079898 or secure a time by clicking here.