Introduction: Understanding Financial Settlements in Divorce.
Divorce is never just an emotional journey, it also comes with serious legal and financial decisions. One of the biggest challenges is working out a financial settlement, including how assets, debts, and financial responsibilities will be divided. But here’s the truth: many people assume property division means a simple 50/50 split, when in reality, Australian family law focuses on what’s fair, not just equal.
Under the Family Law Act 1975 (Cth), financial settlements must be “just and equitable,” considering factors like contributions, future needs, and financial disparities between the parties. Understanding how property division, financial agreements, asset division, and spousal support work is essential to protecting your financial future.
A family lawyer can guide you through the process, ensuring your rights are protected and helping you negotiate a fair outcome, whether through mediation, agreements, or court proceedings. In this article, we’ll break down the legal principles, key considerations, and steps involved in securing a financial settlement after divorce. Let’s explore how you can safeguard your financial future.
How the Law Handles Financial Settlements in Divorce.
Key Legal Provisions for Property Division.
The Family Law Act 1975 (Cth) provides the legal framework for financial settlements in both marriages and de facto relationships.
- For married couples: Property division is governed by Section 79 of the Act.
- For de facto couples: The relevant provision is Section 90SM, provided the relationship meets legal criteria (such as lasting two years or involving a child).
The Difference Between Informal and Formal Financial Settlements.
While some couples reach private agreements, informal arrangements are risky. Unless a financial agreement is legally formalized, one party may later make further claims.
The two legally recognized ways to formalize a divorce settlement are:
- Consent Orders – Approved by the court, ensuring a fair division of assets.
- Binding Financial Agreements (BFAs) – Legally binding private contracts that outline how assets will be divided.
The case Thorne v Kennedy demonstrated that BFAs must be fair and made without coercion; otherwise, courts may set them aside.
What Assets Are Included in a Financial Settlement?
A financial settlement includes all assets and liabilities, such as:
- Real estate – Family homes, investment properties, and land.
- Bank accounts and savings – Both joint and individual accounts.
- Superannuation – Subject to superannuation splitting laws.
- Shares and investments – Stocks, bonds, and other financial assets.
- Businesses – Including company shares and self-employment income.
- Vehicles and personal assets – Cars, jewelry, and valuables.
- Debts and liabilities – Mortgages, loans, and credit card debt.
A landmark case, Stanford v Stanford (2012), highlighted that the court must assess the full asset pool before making decisions about property division.
The Court’s Four-Step Approach to Financial Settlements.
When courts determine property division, they follow a structured four-step approach:
1. Identifying and Valuing the Asset Pool.
Each spouse must fully disclose their financial assets and debts. If one party tries to hide assets, the court can penalize them and adjust the settlement.
Commonly hidden assets include offshore accounts, cryptocurrency, and undervalued business interests. Legal tools such as forensic accounting can uncover undisclosed assets.
2. Assessing Contributions by Each Party.
The court considers:
- Financial contributions – Salary, savings, and property purchases.
- Non-financial contributions – Homemaking, childcare, and unpaid work in a family business.
- Initial contributions – Assets owned before the relationship.
- Post-separation contributions – Payments made after separation, such as mortgage repayments.
In Mallet v Mallet (1984), the High Court ruled that non-financial contributions should not be undervalued.
3. Considering Future Needs.
Under Section 75(2) of the Family Law Act, courts consider:
- Age and health of both parties.
- Differences in income and earning potential.
- Who will have primary custody of children.
- Any disabilities or long-term health conditions.
4. Ensuring a Just and Equitable Outcome.
The final step ensures that the financial settlement is fair, considering the unique circumstances of both parties.
Superannuation and Divorce Settlements.
Superannuation is an important part of financial settlements and can be split but not accessed until retirement.
Key Considerations for Superannuation Splitting.
- Superannuation is property under family law and can be divided.
- It must be split through a court order or financial agreement to be legally enforceable.
- Different funds may have different rules for splitting.
The Family Law (Superannuation) Regulations 2001 set out the rules for superannuation division.
Spousal Maintenance: Who Can Claim It?
Spousal support, or spousal maintenance, is financial assistance paid by one spouse to another if they cannot support themselves.
Legal Basis for Spousal Maintenance.
Under Section 72 of the Family Law Act, the court considers:
- The financial needs of the lower-earning spouse.
- The ability of the higher-earning spouse to pay.
- The length of the marriage and the roles played.
The High Court case Hall v Hall (2016) HCA 23 confirmed that spousal maintenance is only granted when necessary.
There are two types of spousal maintenance:
- Interim maintenance – Temporary support before final orders.
- Long-term maintenance – Ongoing payments, often for elderly or disabled spouses.
Alternatives to Court-Ordered Financial Settlements.
Negotiation and Mediation.
Many couples choose mediation to reach an agreement instead of going to court. Mediation allows a neutral third party to help resolve disputes.
The Family Law Act encourages mediation before litigation, as it is often faster, less costly, and less stressful.
Binding Financial Agreements (BFAs).
A BFA is a legal contract outlining financial settlements. However, courts can set aside a BFA if it is unfair or if there was undue pressure to sign it.
Time Limits for Making a Financial Settlement Claim.
- Married couples: Must apply within 12 months of divorce finalization.
- De facto couples: Must apply within 2 years of separation.
Failure to file within these time limits may result in losing the right to a divorce settlement, unless special court permission is granted.
Common Mistakes to Avoid in Financial Settlements.
1. Hiding Assets.
Hiding assets can lead to legal consequences. Courts can reopen cases if hidden assets are discovered later.
2. Accepting an Unfair Settlement.
Many individuals accept unfair financial settlements due to lack of legal advice. It is crucial to seek legal counsel.
3. Ignoring Tax Implications.
Certain asset transfers may have tax consequences. A lawyer or financial advisor can help assess potential tax liabilities.
4. Not Formalizing Agreements Legally.
Informal agreements can be challenged in court. A Consent Order or Binding Financial Agreement provides legal protection.
Conclusion: Protecting Your Financial Future After Divorce
A financial settlement is a crucial step in securing financial stability after a divorce. Understanding property division, asset division, financial agreements, and spousal support ensures individuals make informed decisions.
Whether through negotiation, mediation, or court proceedings, seeking legal advice ensures your rights are protected and helps you secure the best possible outcome in a divorce settlement.
