As the composition of the Australian family continues to evolve and the number of blended families continues to rise, individuals exiting one relationship and entering another should not underestimate the importance of first finalising their financial relationship with their former partners.
For many people, the breakdown of a marriage or de facto relationship involves significant emotional upheaval and the process surrounding the division of assets can often feel intractable. Additional unnecessary complications can flow from the commencement of cohabitation before the finalisation of the property/financial matters with a former spouse or the former spouse of your new de facto partner.
Under the Family Law Act 1975 a Court must identify and value the assets available for division. This is done at the time the Orders are made (or agreement is reached), not at the time of separation. Where one party has or both of the parties have entered into a new de facto relationship and their financial affairs have been intermingled (for example by sharing bank accounts or jointly purchasing property), it is possible for these shared assets to form part of the asset pool and/or for the financial circumstances of their new de facto to be taken into account.
For those embarking on a new relationship following a separation, or with a person who has themselves suffered a relationship breakdown, proper consideration must be paid as to whether a property settlement has in fact been finalised to ensure the protection of assets. In Australia, parties are required to bring applications to finalise property matters within one year of a divorce becoming final or within 2 years from the date of separation in the case of a de facto relationship. However, even in circumstances where the time limit for an application to the Court for a property settlement has expired, an individual can still seek leave of the Court to commence proceedings out of time, in circumstances where failing to do so would result in hardship.
Once the Court is satisfied as to the constitution of the asset pool, the Court is then required to consider whether either of the parties are cohabitating with a new partner and consider the financial circumstances surrounding that cohabitation in its assessment of the parties’ respective future needs. In order to avoid the Court delving into the financial circumstances of the new relationship, it is therefore preferable for all involved that steps are taken to finalise property arrangements, prior to commencing cohabitation with a new partner.
If an agreement is capable of being reached outside of the Court process, an Application for Consent Orders may be made to the Court or a Financial Agreement under the Family Law Act 1975 can be prepared and executed to legally formalise a property settlement. Alternatively, proceedings in either the Family Court of Australia or the Federal Circuit Court of Australia will need to be initiated to effect a property settlement by way of judicial determination.
Once a property settlement has been legally formalised, those embarking on a new relationship should also consider the advantages of executing a Financial Agreement (sometimes referred to as pre-nuptial or cohabitation agreements) with their new partner. Financial Agreements can ensure the protection of pre-existing assets, particularly where there may be children from the previous relationship(s), and can avoid the cost (financial and emotional) associated with the property settlement process, and also in certain circumstances avoid a later spousal support claim, in the unfortunate event of a subsequent relationship breakdown.
Additionally, while divorce will render void any bequest to a former spouse in a Will, separation has no such effect. If a person passes away while separated but not yet divorced, his or her pre-separation Will remains valid. As it is most common for a person by their Will to leave their entire estate to their spouse in the first instance, this could have the unintended result of their financial legacy being received by an ex-partner. For this reason, it is vitally important for a new Will to be prepared following a separation, and for that Will to be reviewed and potentially revised or updated after the divorce takes place.
It is equally important to have decision making documents reviewed (i.e. enduring powers of attorney and guardianship) following a separation, as these documents typically appoint a spouse or partner to be in control of the donor’s financial, personal and/or medical affairs, including in the event of the donor’s incapacity.
In circumstances where superannuation is now often a significant pool of wealth, binding death benefit nominations should also be revised following a separation, particularly as a former spouse will no longer be considered a dependant, potentially rendering an existing nomination entirely invalid.
Life insurance policies which favour a former spouse or partner, should likewise be reviewed.
Jodylee Bartal, Partner, Family & Relationship Law
Lauren Gasparini, Lawyer, Family & Relationship Law
Pauline Romeo, Associate, Private Clients
James Birnie, Lawyer, Private Clients