Often, when clients separate from their spouse, their ‘automatic’ next step is seeking guidance from a family law solicitor. In our initial appointments, we are sometimes asked:
“Do we have to document our property settlement formally, even if we already agree?”
The simple answer – no. If both of you decide not to formalise your property settlement, the law won’t make you.
However, this blog post aims to explain why you and your partner should unmingle your finances when you separate, and why you should formalise your agreement.
Severing Financial Ties: The Importance of Formal Agreements
A property settlement allows couples to reach a firm conclusion on how all their assets, liabilities, and superannuation will be divided. It also helps answer some of the practical issues such as who pays the mortgage after separation, as well as other expenses such as credit cards, car loans, and health insurance.
Without a formal agreement in place, either party can come back later seeking a property settlement. This can leave people open to unnecessary risk, as a property settlement is not calculated from your net assets at the date of separation – it also can consider assets and debts that you (or your ex-spouse) may have purchased after separation.
Saving Money with Stamp Duty Exemptions
Separating can be expensive, and it can be one reason spouses delay formalising their property settlement. However, completing a property settlement can make you eligible for stamp duty exemptions or concessions when you transfer property between you and your former spouse. By taking advantage of these exemptions, you can save a significant amount of money that would otherwise be spent on stamp duty fees. It helps reduce the financial burden associated with transferring property and makes the process smoother for both parties involved.
The Impact of Re-partnering on Property Settlements
If you have re-partnered, it’s important to consider documenting your property settlement with your former partner before making any significant joint purchases with your current partner. Unless this is done, there is a risk that those newly acquired assets will be included when calculating property settlement with your former partner. Another crucial factor to consider is the “future needs” aspect, which includes whether you have started a new relationship or are currently living with a new partner.
Practically speaking, entering a new partnership can provide financial security for your future. If you have already entered a new partnership before finalising the property settlement, it’s worth noting that your spouse may be entitled to adjustments due to a reduced financial capacity, while you benefit from a joint income.
Estate Planning and Family Law: Protecting Your Future
In the long term, formalising your property settlement can also protect your assets when it comes to distributing your estate after you pass away. In the ACT, your partner, even where not listed as a beneficiary to your estate, is an eligible person to contest your will. This may include an ex-spouse. While formalising your property settlement cannot formally exclude your partner from making a family provision claim against your estate, it can provide evidence to the court of your intention to sever your financial ties at the conclusion of your property settlement.
In a nutshell, formalising your property settlement is a smart move. It helps you untangle your finances, save money on stamp duty, and safeguard your assets for the long haul.
