In the best-case scenarios, separating couples are able to agree on how to separate their assets. When they do so, we are often asked the question, “If we already agree, do we need to formalise our property settlement.”
When a Court adjusts assets between separating spouses, it will do so at the date of a hearing, not at the separation date. This can often lead to scenarios where a couple will agree on an outcome, not formalise those arrangements, and find out some time later that assets they have accumulated individually and after separation are still open to division between them and their former spouse.
If you do not formalise your property settlement, the limitation period (or ‘when you are in the clear’) expires:
- 12 months after the date your divorce is finalised for a married couple;
- 2 years after the date of separation for a defacto couple.
There are exceptions to this, for example if a party has a reasonable excuse for a delay or if there would be hardship if a party was not able to formalise the arrangements for a property settlement out of time.
The period following separation can be one of great uncertainty around the treatment of assets an individual may have. In particular, parenting arrangements may change, your assets may grow as a consequence of hard work post separation, you could receive an inheritance or even (if you are super lucky) win the lottery.
This may mean that if one party reneges from the deal reached post separation and not yet formalised, you may find yourself with a legal entitlement that is significantly different from what you anticipated in an earlier deal that was not properly documented.
There are other, less risky, reasons to formalise your property settlement as soon as you are able to. This can include:
- Receiving tax concessions on the transfer of assets between separated spouses such as stamp duty exemptions on the transfer of real property;
- Being able to divide superannuation entitlements between spouses;
- Being able to reach agreements as to how tax implications such as a Capital Gains Tax liability will be factored into the division of assets so that one spouse doesn’t wear an uneven responsibility for those expenses.
Often, the cost of legally formalising an agreement with the help of a lawyer is far less than the costs of litigation in the event the deal falls over.