Many couples separate on good terms. In fact, maintaining a respectful relationship after separation can make the transition easier, particularly when children are involved.
However, even if you and your former partner remain friends, it is still important to legally finalise your property settlement.
Some separated couples choose to make informal arrangements about how they will divide their assets and liabilities. While this may seem simple, failing to formally document your agreement can create significant risks in the future.
This is particularly important where you and your former partner own property, have joint debts, hold significant assets, or brought assets into the relationship.
A legally binding property settlement can provide certainty, protect both parties and help prevent future disputes.
This information is general only. You should obtain legal and financial advice that considers your individual circumstances.
Why Do You Need a Legal Property Settlement After Separation?
Even when separated couples agree on how they want to divide their assets, an informal agreement does not usually provide the same protection as a legally documented settlement.
A formal property settlement can help:
- Provide certainty about who owns which assets.
- Protect both parties from future claims.
- Allow access to certain stamp duty concessions.
- Address potential tax consequences.
- Finalise financial ties after separation.
Family law property settlements are governed by the Family Law Act 1975 (Cth), which sets out the legal framework for dividing property after separation.
What Happens If You Do Not Formalise Your Property Settlement?
An informal agreement between separated partners may not prevent future disputes.
Even if you have written down your agreement or both parties have agreed verbally, one person may still have the ability to make a future claim for a different property division.
Without a legally binding settlement, you may remain exposed to issues involving:
| Potential Issue | Why It Matters |
|---|---|
| Future property claims | Either party may attempt to seek a different division of assets in the future. |
| Joint debts | You may remain responsible for loans, mortgages or guarantees even after separation. |
| Future assets | Income, inheritances or assets acquired after separation may create disputes. |
| Bankruptcy risks | Jointly owned assets may remain exposed if one party experiences financial difficulties. |
Stamp Duty Benefits of a Formal Property Settlement
When transferring certain assets, including real estate, stamp duty may normally apply.
However, exemptions and concessions may apply when property transfers occur under legally recognised family law agreements, including:
- Financial agreements made under the Family Law Act.
- Consent orders approved by the Court.
An informal agreement generally does not satisfy the requirements for these concessions.
Depending on the circumstances and the property involved, obtaining a formal property settlement may result in significant savings.
For information about stamp duty and exemptions in NSW, you can refer to Revenue NSW.
Tax Considerations When Dividing Property After Separation
Tax consequences are an important consideration when negotiating a property settlement.
Capital Gains Tax (CGT) applies to certain gains made when disposing of assets. The Australian Taxation Office (ATO) provides guidance about CGT and how it may apply to different types of assets.
While the transfer of a former matrimonial home may often qualify for main residence exemptions, other assets may create potential CGT issues.
These assets may include:
- Investment properties.
- Shares and investments.
- Collectables.
- Certain personal assets.
- Business interests.
The Income Tax Assessment Act 1997 (Cth) may provide rollover relief for certain transfers made under qualifying family law agreements or court orders.
| Asset Type | Potential Consideration |
|---|---|
| Family home | Main residence exemptions may apply depending on the circumstances. |
| Investment property | Potential CGT consequences should be considered before transfer. |
| Business interests | Ownership structures may create additional tax issues. |
| Shares or investments | Future tax obligations may need to be considered. |
Family lawyers do not provide financial advice. However, they can identify potential tax issues and recommend that you obtain advice from an accountant or financial adviser.
Can My Former Partner Claim Assets Acquired After Separation?
An informal property settlement may not completely finalise your financial relationship.
This means one party may potentially make claims relating to assets, income or inheritances acquired after separation.
A legally binding settlement can help provide greater certainty by clearly documenting how your financial relationship has been finalised.
It is also important to consider joint loans and guarantees. If you remain connected to joint financial obligations, you may continue to face financial risks even after separation.
How Do You Legally Finalise a Property Settlement?
Once you and your former partner agree on how to divide your assets and liabilities, you can formalise the agreement through either:
- Consent orders; or
- A financial agreement.
Consent Orders
Consent orders are agreements approved by the Federal Circuit and Family Court of Australia.
The Court must be satisfied that the proposed property division is just and equitable before making the orders.
Parties generally do not need to attend Court for consent orders to be finalised.
Financial Agreements
A financial agreement is a contract between separated parties that sets out how their property and financial matters will be dealt with.
Each party must obtain independent legal advice before entering into a financial agreement.
| Consent Orders | Financial Agreement |
|---|---|
| Approved by the Court. | Private agreement between the parties. |
| Must satisfy legal requirements for approval. | Requires independent legal advice for each party. |
| Provides a legally binding property settlement. | Can document how financial matters will be managed. |
What Can Be Included in a Property Settlement?
A property settlement can address many financial matters, including:
- The transfer of property from one person to another.
- Payment of funds in exchange for transferring property.
- The sale of real estate and distribution of sale proceeds.
- Division of superannuation interests.
- Payment of loans, credit cards and other liabilities.
- Spousal maintenance arrangements.
- Other financial issues connected with the separation.
Why Obtain Legal Advice Even If You Are Still Friends?
A friendly separation does not remove the need for proper legal advice.
A family lawyer can help you understand the consequences of your proposed agreement, identify risks and ensure your settlement meets legal requirements.
Formalising your property settlement can provide peace of mind and allow both parties to move forward independently.
Speak With a Family Lawyer About Your Property Settlement
If you and your former partner have separated and need advice about dividing property, Cunningham & Adam Solicitors can help you understand your options.
Contact us on (02) 4987 3344 or email [email protected] to discuss your circumstances.