A guide to financial separation in Australia

When a marriage or de-facto relationship comes to an end, one of the most significant challenges couples face is untangling their shared finances.

Financial separation by way of property settlement allows both parties to establish their individual financial identities and protect their assets.

In Australia, this process is governed by a set of legal procedures and considerations, which are designed to ensure a fair and equitable division of assets and liabilities.

Understanding financial settlement / property settlement

settlement is the process of dividing property and finances between spouses or partners. It can be achieved and formalised through a Financial Agreement or court orders. The primary goal of formalising a financial settlement is to protect both parties from undesirable situations that could arise if they remain financially entangled.

Legal distinctions: separation vs. divorce

It’s important to understand the legal distinction between separation and divorce. Separation is a legal process that allows couples to live apart without formally ending the marriage. It does not require a formal procedure and can be a precursor to divorce.

On the other hand, divorce is the legal termination of a marriage, requiring a formal application and court hearing. In Australia, divorce is based on the principle of “no-fault divorce” meaning the only ground for divorce is the irretrievable breakdown of the marriage, evidenced by a 12-month separation period.

Steps to financial separation by way of property settlement

1. Valuing assets and liabilities: The first step when determining a property settlement is to identify and value all assets, liabilities, and financial resources. This includes, for example, real estate, vehicles, savings, investments, superannuation, debts and loans (secured by way of mortgage).

2. Assessing contributions: The next step is to evaluate the financial contributions, non-financial contributions and homemaker/parenting contributions of each party during the relationship.

3. Determining future needs: It’s crucial to consider the future needs of both parties, including, for example age, health, income, and the care of any children. This information impacts the determination of how to divide the property of the parties.

4.Reaching an agreement: There are several options for reaching an agreement about the division of property:

• • Financial Agreement (often colloquially referred to as a “Binding Financial Agreement’ or “BFA”): A legal document that outlines the terms of the division of assets, liabilities and resources. It requires solicitors and cannot be overruled by the court unless in exceptional circumstances.
  • Consent orders: When both parties agree on the division of property, they can apply to the Family Court of Western Australia or the Federal Circuit and Family Court of Australia. A Registrar or Magistrate reviews the proposed Orders, and if they determine the Orders are just and equitable, they will issue sealed Orders.
  • Litigation: If an agreement cannot be reached, the matter then can be determined by the Court after a final trial where a judge decides on the division of assets, liabilities and resources.

Financial advice and support

Navigating the complexities of financial separation can be overwhelming, but there are various resources available to help couples through this process.
Government and community services:

• Family Relationship Advice Line: Provides information and referrals to government-funded services for financial issues post-separation.
• Services Australia: Offers advice on family payments, child support, and financial information services.
• ASIC’s MoneySmart: Provides financial guidance, calculators, budget tools, and access to financial counsellors.

Professional advice:

• Financial advisers/accountants: financial advisers/ accountants can offer personalised advice on managing finances post-separation.
• Legal advice: Seeking legal advice is crucial for understanding rights and responsibilities.

Contact us now to speak to our family law experts about your financial settlement after divorce.