Episode 4: Financial Settlements
If you go through a process of separation or divorce, do you have to have a financial settlement?
You don't have to have a financial settlement, however you leave yourself at risk of a claim in the future by your spouse or partner if you do not, particularly if you don't get divorced or if you still have assets with the other person.
We have had situations where a person believed they had some type of agreement in place but it was not a legally binding agreement. Therefore, the other party could come back later and claim an entitlement to assets they would not be entitled to had a financial settlement taken place.
The other risk is that there is just no finality to your relationship. The purpose of a finalised legally binding agreement is that it will end the financial dealings between the parties.
Is it a 50/50 split, typically?
Generally, no it’s not. The reason for that is that there is actually a five-step process that has to be taken into account to determine a property and/or financial settlement.
STEP 1 – Determining the relationship
There are some questions that need to be considered:
• Was there was actually a relationship, and therefore is it just and equitable to have a property settlement?
• Have you actually separated?
If the answer to those questions is yes, you can generally move to the next step.
STEP 2 – Determining the assets and liabilities of the relationship
This step sounds simple but it can actually be quite complex. You have to go through a period of discovery to work out what each of you actually have. You take into account all assets, whether it is the family home, bank accounts, cars, investments, superannuation, interest in companies that you might have, family trusts. All of these things are considered in determining what actually you have.
STEP 3 – Determining the contributions each party made to the relationship
Consider the following questions:
• What did the parties have at the beginning of the relationship?
• What did they have at the end of the relationship?
• What do they have now?
Particularly if there’s been a long distance between the separation and now, there can be quite a difference in the assets they have.
Then you look at things like:
• Who did the cooking and cleaning?
• Who did the home maintenance?
• Who earned the income?
• Who cared for the children?
• Who picked them up from school?
You also look at:
• Did the parties have a windfall of money?
• Did they get an inheritance?
• Was there a personal injury claim?
• Did they win tattslotto?
• Does someone have a special gift that enabled them to increase their assets?
STEP 4 – Determining future needs
• Who will the children live with?
• What are the medical needs of the parties?
• What is going to happen in the future and should adjustments be made for those?
They’re often called the Section 75 (ii) factors, which determine someone’s requirement to pay spousal maintenance.
STEP 5 – Determining if the settlement is just and equitable
A Judge can make adjustments here to create a just and equitable settlement.
And the burning question is: who gets the house?
This really depends upon who wants it, and also who has the ability to buy the other person out.
There have been cases where the parties have agreed that one of the parents and the children might stay in the house until the children finish school. These agreements are few and far between, however they can happen. It was a situation where the parties agreed several years before that, when the children finished school, things would be split and this is what the split would be and that was included in the agreement.
Most of the time these types of agreements are not achievable, and there needs to be a final settlement between the parties now, as the parties both need money to re-establish their lives. It is really important that people get really good advice about their entitlements because, no matter what the person in the car park at school tells you, it does not necessarily mean that that is going to take place in your situation.
Any advice given in this Q&A series is of a general nature only and is not intended to represent or replace legal advice tailored to your personal circumstances.
If you want to seek advice about your situation, call Lewis Holdway Lawyers on 03 9629 9629.