How to Financially Separate From a Spouse or Partner – Do’s and Don’ts

How To Financially Separate from a Spouse or Partner – The DO’s

1. Do Get Specialist Tax, Financial Planning & Estate Planning Advice

As early as possible after separation, seek professional advice, not only from a family lawyer – but from accountants, financial planners and estate lawyers. It is one of the most valuable exercises that you should do as early as possible, to avoid nasty surprises later on. 

Getting advice from an accountant is important – particularly if you or your former partner have interests in trusts and companies that you may not wish to unwind due the end of the relationship or that you want to transfer money or assets out of. There may be tax implications to the proposal you decide to make (such as transferring a company vehicle or making distributions) which you should be aware of before entering into negotiations. Seeking tax advice, financial planning and estate planning advice, in conjunction with your family lawyer, is an incredibly beneficial place to start, before you commence any negotiations about who gets what.

Financial planners can be a great resource to assist you in working out what type of settlement might suit you depending on your financial circumstances. For example, if you have a lower income and need to live off the property settlement you receive – a financial planner can help you identify what type of assets you might want to retain, and help provide clarity about how to best support yourself in the future. 

This advice is particularly helpful in identifying how the property settlement should be structured. For example, balancing the considerations of retaining a former matrimonial home versus having cash to invest and generate an additional income.  How a property pool is divided is not a case of one-size-fits-all. 

2. Do Start Compiling Financial Information Early

Part of the process is compiling the “property pool” of everything you and your former spouse or partner own. A good first step is writing down all of the assets, liabilities and superannuation of you and your former spouse or partner. This includes:

• Every bank account – including in sole and joint names
• The real property you both own – i.e. your home, investment properties etc – even if they are owned with someone else like a sibling or a business partner
• Companies and entities you or your partner have an interest in such as trusts
• Shares and investments 
• Motor vehicles 
• Boats, caravans, motorbikes 
• Jewellery
• Loans – including mortgages, personal loans, vehicle finance, lines of credit 
• Credit cards or other debts
• Superannuation

Compiling this list when you separate will help identify the property pool. It is also useful to know what the balances were at the time of separation so you can keep an eye on any changes. There are often many assets that people overlook early on that need to be considered. So begin by creating the list and add to it or update it as you go. This will be helpful when you go to get advice and also helpful in monitoring whether assets are maintained, missing or depleted.

3. Do be Vigilant of your Finances and Assets

Even if you have a very amicable separation, it is important to keep an eye on your assets and liabilities – particularly in the early days of a separation.

If you have large sums of money accessible in bank accounts, in some instances you may want to consider putting joint signatories on the accounts or setting a limit on the amount that can be withdrawn. For example, if you have an offset account it may be in your interests to consider putting a limit on how much can be withdrawn from the account. This is because the property pool to be divided is based on what is available at the time you resolve your property settlement. If assets are sold or debts incurred post separation – there could be a significantly diminished pool available for division by the time you resolve your property settlement.

Getting joint signatories and setting restrictions or limits may not be practical for everyone – especially if you need access to the accounts or bills need to be paid from those accounts – however, vigilance is important. You should ensure that the other person is not doing anything inappropriate with those funds or assets – such as withdrawing large sums relative to your overall situation, without a reason or selling assets and not telling you where the funds have gone.

Regular monitoring will help you minimise the risk of assets being disposed of inappropriately. This is particularly important for the more big-ticket items. If you have large sums of cash, loans, business interests, or there is a property in only one person’s name, keep an eye on it and make sure the property isn’t being listed for sale.

Keeping vigilant about what the asset pool is composed of now that you’ve separated, and making sure it doesn’t substantially change by the time you go to seek advice is the goal. It’s a lot harder to try to claw back money later. Getting advice early is key. 

4. Do Aim to be Amicable and Transparent

Keeping your separation amicable (where possible) and  taking a commercial approach where you can rather than making decisions based on emotion, can be easier said than done but is often very helpful in achieving the best possible outcome in a property settlement. 

In our work as family lawyers we see that the people who are transparent and amicable, however challenging that is at times, usually have the best opportunity to minimise costs, stress and avoid ending up in drawn out Court battles.  Being transparent about your finances and assets is critical in order to comply with your duty of disclosure and assists to narrow the issues early. 

It is a case of picking your battles, with the benefit of legal advice, rather than making emotional decisions about particular issues. This will usually serve you well and allow your time and resources to be focused on the issues that will make a difference in the negotiations. 

5. Do Change your Passwords

Ensure that you change your passwords for everything. The very first passwords to change should include:

• Your computer access password or PIN
• Phone and tablet PINs
• Your online banking login details
• Email account passwords

We have written an in-depth guide that covers all of the access and security considerations that anyone separating should read. You can find it here.

When you do this, ensure you don’t change the password to a simple or duplicate password or anything else you’ve used previously.  Remember that even the most amicable of separations can and do turn sour, so doing this early on protects you for the longer term.

How To Financially Separate from a Spouse or Partner – The DON’Ts

1. Don’t Delay the Property Settlement Process

There is a common misconception that the assets you divide in a property settlement are to be based on what you had at the date of separation. 

This is (in most cases) incorrect. The assets you divide will be based on the assets you both have on the date your property settlement agreement is finalised. This includes any post-separation earnings, including increased superannuation, gifts, new purchases such as property, inheritances, and lottery wins. And, as we’ve discussed before, if money or assets have been spent or diminished in some other way, that is generally what will be available for division. In rare cases funds are notionally “added back” to the property pool – but that is the exception rather than the rule. 

It is not uncommon for one person to provide financial support to another person post separation – such as paying for the mortgage for a year while they are in the home and you are not. 

While we see this often in circumstances where people want to help minimise disruption for the children or as a way to keep the family home and maintain their credit rating, this can create other issues if you cannot continue to make those repayments ongoing.

It is best to get advice as soon as possible so you know what you can afford from the start, rather than having to step back from responsibilities later on and cause issues in the property settlement. Once you’ve shown that you have the capacity to maintain expenses like these for a period of time, the harder it is to stop making the payments into the future. 

2. Don’t Attempt to Hide or Transfer Any Assets

Hiding assets or transferring assets into another person’s name never ends well. With most assets of monetary value – there is a paper trail that shows where that asset has been transferred or disposed of. The jurisdiction of the Family Court is incredibly wide and the Court has significant powers to undo transactions, if it can be established that it was to defeat a property settlement claim.

For anyone who tries to hide or transfer assets to another person, there are often additional consequences. This may have a significant impact on your settlement prospects, having to pay for the legal costs of the other party and losing credibility with the Court. 

If, for example, someone were to sell a property and not disclose where the proceeds were deposited or how they were spent, where the Court is not satisfied about what has happened to the proceeds, the Court has the power to notionally “add back” the funds to the property pool as being received by that party already. This means that the non-disclosing party receives less of the remaining assets on account of the “added-back” funds that they have already had the benefit of.  

3. Don’t Go It Alone

Do not create your own informal agreements without advice or formal documentation. We see many situations where people agree to certain steps, for example, putting the house on the market and splitting the proceeds, which they do and then just before the time limit is up, one person comes back for a second slice of the property pool. 

This can arise because one person needs additional funds, their health has changed since the sale, they realise they should have negotiated differently or they see the other person doing financially well and wish to have access to that wealth.

Often people try to keep the lawyers out of it, believing that they will be financially better off with their  verbal or written agreement. But informal arrangements without advice, can result in some very dangerous outcomes as they do not provide the finality required. 

Obtaining legal advice and formalising an agreement in a legally binding way, in a Consent Order or a Financial Agreement,  is usually the best course of action. Do it right the first time to avoid having to revisit the whole process again.

4. Don’t Vent in the Wrong Places

Separation often creates significant worry and stress. The process of negotiation can be challenging from both sides. It’s incredibly important to be mindful of where you vent your frustration.

As we’ve explored in detail in this article, how you communicate with your ex, particularly more likely if you have children together, must be carefully considered. Equally important is how you talk about your ex indirectly. If there is any chance any record of your venting could be presented to a Court, then choose your words very carefully, or don’t vent it at all. 

Email communications, text messages and social media posts can be captured and shared easily so what you put in public, on paper, or online in any way, could potentially be used against you. As always, we encourage our clients to seek the support of professionals who specialise in helping people through the separation and divorce process.

5. Don’t Pay Money or Transfer Assets Informally Without Advice

It’s not uncommon for people to start the process of dividing cash and transferring property without having sought professional advice. 

Where people have taken funds out of trusts and companies to give to the other person, this can trigger Division 7A implications, which can result in additional taxation liabilities. 

We also see people transferring cars into other people’s names and other steps that can create a number of consequences that take more time, effort and money to iron out later on. 

Both you and your former spouse or partner should seek independent advice to check if your agreement causes any additional taxation issues. 

Next Steps in How to Financially Separate from a Spouse or Partner

Seeking professional advice doesn’t mean you can’t be amicable, don’t want to do a good deal or you want to try to take advantage of your former spouse or partner. Getting professional advice means you get to know the options available and insights into the pitfalls that can occur, specific to your circumstances. 

The pitfalls and issues that can arise are different for everyone. It could be in relation to a property that is not in your name, a business that you don’t have much visibility over, or money that has been taken post-separation. Even if these issues have occurred inadvertently or they are honest or accidental mistakes, you want it picked up regardless. Your advisors are the people who can help manage any potential risks and make sure that you can make an informed decision about your options. 

Separation and divorce is an emotional process and you may not always be thinking clearly. While an offer to sell something and split the proceeds may sound like a good, and sensible idea at the time, you may not be aware of how it may impact the property settlement later.

Getting specialist advice from a family lawyer, along with tax, financial planning and estate planning advice where appropriate, allows you to make all of your decisions, from a far more informed position.