19 September 2017
Some couples divide their assets between themselves and never go through a formal settlement process. Some parties record the terms of their agreement in a document they drafted themselves. You are not required to enter into a formal settlement agreement with your former partner. However, you may potentially be significantly disadvantaging yourself if you do not obtain a legally binding and enforceable agreement. The disadvantages include:
- An investment property can be transferred from one spouse to another in a divorce settlement without attracting stamp duty or capital gains tax if the transfer was done pursuant to a Binding Financial Agreement or a Court Order (including Consent Orders). However, the transfer must occur after the Order was made or after the Binding Financial Agreement was signed.
- If you do not have a legally enforceable agreement, your ex-spouse may potentially seek a further settlement from you in the future. The income you have earned and the assets you have accumulated since your first settlement will not necessarily be safe. Similarly, if your ex-spouse has accumulated credit card debts or other debts since then, those debts may now potentially form part of the property pool. If an asset you have retained has increased in value, that increase in value may be divisible with your ex-spouse. If you have re-partnered and purchased assets with your new spouse, those assets may not necessarily be safe either. To provide certainty and to “draw a line in a sand”, it is much more prudent to have a formal property settlement.
Unfortunately, a document drafted and signed by the parties recording the terms of their agreement is unlikely to be considered binding, even if it was witnessed. A statutory declaration is not considered a legally binding property settlement document.
A client of ours separated from his wife in 2001 and they formally divorced in 2003. They had an informal settlement around the time of divorce, unfortunately, they did not sever all of their financial ties. Each party re-partnered and had children with those new partners. Our client’s ex-wife issued legal proceedings against our client in 2016 seeking a second property settlement and, unfortunately, she was successful. This is of course an extreme example. However, there is still a lesson to be learned.
Disclaimer: The information provided in our Frequently Asked Questions, Blog pages and elsewhere on our website is for general informational purposes only and should not be considered legal advice tailored to your specific circumstances. You should obtain legal advice to ascertain your rights, entitlements and obligations with regard to the specific circumstances of your case. We will be able to provide you with comprehensive legal advice with regard to your circumstances at our initial consultation. To book an initial consultation, please contact us on (03) 9803 5673.