Separation, divorce and property settlement: 7 common myths

Separation, divorce and property settlement can be very difficult and challenging. It is no wonder then, that when faced with these situations, individuals often seek support, counsel and advice from family and friends. While family and friends provide a valuable support network, often their understanding of the family law system is incorrect and misinformed. Although family members and friends who have personally been through their own separation, divorce or property settlement are well intentioned in sharing their own experience and outcome, there is no one size fits all approach; rather, each separation, divorce and property settlement is different. It is therefore beneficial for anyone facing these situations to seek personalised legal advice from an expert family lawyer.

Set our below are some of the most common myths regarding these matters and some practical legal information and pointers.

1. We only need to divide the house

When our family lawyers meet with a client who has separated and is considering property settlement one of the first questions that we ask is what assets and liabilities are owned by each party to the relationship. We often hear clients respond with, “We have nothing, just the house with a mortgage.” Half an hour into the appointment, we typically identify several other assets, in addition to the family home.

In a property settlement, all assets and liabilities, either in sole or joint names are included for division, not just the family home and mortgage. These assets can include, but are not limited to:

• Furniture, jewellery and collectables;
• Cars, caravans, boats and motorbikes;
• Savings in bank accounts or term deposits;
• Shares;
• Life insurance policies; and

On the other hand liabilities can include, but are not limited to:

• Mortgages;
• Car loans;
• Personal loans and lines of credit;
• Credit cards; and
• Tax debts.

2. Each person takes out the same assets and liabilities as they brought into the relationship

When our lawyers first meet with a client they often hear the belief that each person should be placed in the same financial position at the end of the relationship as they were at the start and should therefore take out the same assets and liabilities that they brought into the relationship. This myth is attractive because of its simplicity, however, separation, divorce and property settlement is rarely this simple.

Over the course of a relationship, particularly long relationships, the initial assets that were brought into the relationship may be sold for a profit or loss, with the sale proceeds applied to purchase new assets. Additionally, original debts and loans may have been paid out or paid down or alternatively increased and new debts and loans may have been incurred. In fact, there are many things that can occur during a relationship that may result in a change in the makeup of the original assets and liabilities.

While there is no rule that each person takes out the same assets and liabilities as they brought into the relationship, there is a recognised legal principle that considers the contributions that each party has made to the assets, liabilities and the relationship generally. These contributions include initial contributions, contributions during the relationship and contributions following separation. The contributions may take the form of financial contributions but they can also take the form of non-financial contributions which include contributions in the role of homemaker and parent.

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3. My partner had an affair so they should get less of the property

There are times where separation or divorce occurs because of infidelity. In such situations, the aggrieved partner or spouse often believes that the property settlement is a means for holding their partner to account or punishing them for their behaviour.

Unlike the family law systems in some countries, Australia has a no-fault family law system. This means that moral considerations such as who decided to end the relationship or infidelity are not relevant and will not impact the division of assets and liabilities. The no fault family law system means that your property settlement will not resemble a controversial episode of the Jerry Springer Show with both parties airing their dirty laundry, instead focus is placed on the contributions that the parties have made to the relationship and also the future needs of the parties.

Although it can be difficult for an aggrieved spouse to learn that the property settlement process operates on a no-fault basis, accepting this reality will minimise the time, expense and stress of the process. In general, the most lengthy, expensive and stressful property settlements that we see are those where clients conduct their property settlement driven by emotion rather than logic and typically in these cases neither party to the relationship ever walks away satisfied.

4. Everything is split 50 / 50

Ever since we were children, we have always been told to share and our instincts seem to tell us that the fairest way to share is equally. A very common myth about property settlement is that assets and debts are automatically divided 50/50 following separation or divorce. While this may be the case for some relationships, it does not apply across the board. There is no legal presumption that the Court will equally divide the assets and liabilities of your relationship. Although there have been some interesting recent cases from the Courts regarding property settlement it is still generally accepted that when determining the division of assets and liabilities the following five step approach should be followed:

1. All the assets and liabilities held by the individuals to the relationship are identified and valued;
2. Consideration is given as to whether it is ‘just and equitable’ to make any adjustment to the existing property interests of the individuals
3. The contributions that each individual made to the assets and liabilities and to the relationship are considered. Contributions are defined broadly and include initial contributions, contributions during the relationship and contributions following separation. Contributions may take the form of financial and also non-financial contributions which include contributions in the role of homemaker and parent.

4. The future needs of both individuals to the relationship are then considered, such as the age of the parties, the health of the parties, the income and earning capacity of the parties and care arrangements for any children of the relationship.
5. The outcome is then further considered and if necessary adjusted to ensure that it is fair and just.

After following this approach the entitlement of each party to the assets and liabilities can be ascertained.

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5. We can write an agreement between ourselves to formalise property settlement

Sometimes, couples decide to separate or divorce on mutual terms and remain cordial. While this is easier than the alternative, it does not mean that a property settlement should then become a D-I-Y project. An agreement regarding property settlement must comply with the requirements of the Family Law Act in order to be binding and enforceable. Most often, agreements that are written by the parties themselves do not meet the requirements of the Family Law Act and are not binding, even if they have been signed by both parties and witnessed by a Justice of the Peace.

When an agreement does not meet the requirements of the Family Law Act, and is not binding, the effectiveness of the agreement is based solely on the ongoing good faith of both parties. If one party subsequently decides that they are no longer satisfied with the agreement they can simply ignore the agreement and make an application to the Court for alternative property settlement arrangements. Many people have learned the hard way that the agreement that they reached with their former partner or spouse was not worth the paper it was written on. It can be particularly stressful for someone to learn that an agreement is not binding and that their partner or spouse may have a claim on assets attained post separation, for example, an inheritance from a family member, a redundancy payout or a personal injury claim.

The Family Law Act provides two pathways for separated or divorced parties who have agreed about property settlement to formalise their agreement. The first option is Consent Orders, which involves the parties making an application to the Court to have their agreement made into a court order. This process is done administratively by submitting paperwork to the Court and no one is required to go to Court. The second option is a Binding Financial Agreement, which is essentially a private contract between the parties.

6. We can just transfer the property title between ourselves to resolve property settlement

There is nothing to prevent parties who have separated or divorced from transferring the names on the title deed of a property between themselves following the breakdown of the relationship. However, the mere act of transferring the title of the property between themselves does not meet the requirements of the Family Law Act and therefore does not constitute a binding and enforceable property settlement arrangement. If an agreement is not recognised under the Family Law Act then the agreement is based solely on the goodwill of both parties and at any time either party can ignore the agreement and make an application to the Court for alternative property settlement arrangements.

There are also further reasons why parties to a relationship shouldn’t simply transfer the property title between themselves by way of property settlement. Individuals who transfer property title between themselves will be faced with having to pay stamp duty on the transfer of the property. However, if the parties enter into a recognised property settlement arrangement under the Family Law Act, the transfer of the property would then be subject to a stamp duty exemption and no stamp duty would be payable. The cost of having a family lawyer prepare a property settlement arrangement by way of consent orders or a binding financial agreement is almost always much less than paying the stamp duty on the transfer of title of a property.

7. I need to be separated for 12 months before I can do a property settlement

A lot of people think that they have to wait until they have been separated for 12 months before they can take any steps toward property settlement. This is incorrect – there is no waiting period that must run before starting the property settlement process. Property settlement can in fact be started as soon as separation occurs.

There are however some deadlines to be aware of for the completion of property settlement. For individuals who were in a de facto relationship the deadline for completing property settlement is two years from the date of separation. For couples who were married the deadline is twelve months from the date of divorce. If property settlement has not been finalized by these deadlines it may be necessary to make an application to the Court for property settlement. It is critical that this deadline is not missed as although permission may be granted by the Court for an application to be made out of time there is no guarantee that permission will be granted and the costs associated with making an application out of time are much higher than making an application within the required time frame.

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Disclaimer
The above information is intended as general legal information only for people living in Queensland and is not a substitute for individual legal advice.