Divorce is a challenging and emotional time in anyone’s life, but it can be especially stressful when it comes to dividing your assets. In Australia, the division of property after a divorce is governed by the Family Law Act 1975. This law applies to married couples, as well as de facto couples who have lived together for at least two years.
When it comes to dividing assets during a divorce, there are several key factors that are taken into account, including:
- Period of the marriage
- Financial contributions of each party
- Non-financial contributions of either side (expenses for child-rearing, leisure, etc.)
- The future needs of each party (such as income, earning capacity, and health)
It’s important to understand that the law does not require a 50/50 split of assets. Rather, the aim is to achieve a fair and equitable division of property based on the individual circumstances of each case.
In this guide, we’ll explore some strategies for protecting your wealth during a divorce in Australia, and discuss the mechanics of dividing assets under Australian law.
Aussie Divorces by the Numbers
Before we delve further into strategies for protecting your wealth during a divorce, let’s take a look at some statistics about divorce.
According to Australian Bureau of Statistics data released in December 2022, the crude divorce rate in Australia stood at 2.4 divorces per 1,000 people, following an uptick to 2.7 in 2021. In 2022, there were 49,241 divorces granted, down from 56,244 in 2021. The average duration of marriage before divorce is 12.8 years, and the median age at divorce is 46.7 years for men and 43.7 years for women. It is not known how many children were affected in the 2022 divorces, although 26,879 of the 2021 divorces involved 48,432 children, including those from either partner’s previous relationships.
Step 1: Understand Your Financial Situation
The first step in protecting your wealth during a divorce is to understand your financial situation. This means taking stock of all your assets and liabilities, including:
- Bank accounts
- Investments
- Property (including the family home)
- Superannuation
- Business interests
- Standing debts (mortgage, credit card, and loans)
Ensure you maintain accurate and up-to-date records of all your financial assets, and consider seeking the advice of a financial planner or accountant to help you get a clear picture of your financial situation.
Step 2: Seek Legal Advice
When it comes to protecting your wealth during a divorce, it’s essential to seek legal advice from a family solicitor who specialises in divorce law. They can advise you on your rights and obligations under the Family Law Act, and can help you negotiate a fair settlement with your spouse.
Some of the key issues that a lawyer can help you with include:
- Assessing the value of your assets
- Understanding your entitlements under the Family Law Act
- Negotiating a property settlement with your spouse
- Drafting a Binding Financial Agreement (BFA) to protect your assets
A BFA is a legal document that sets out how your assets will be divided in the event of a divorce. It can be a useful tool for protecting your wealth, as it can provide certainty and clarity about your financial arrangements.
Step 3: Consider Mediation
Mediation can be a less adversarial way to settle a divorce, and can help protect your wealth by avoiding costly legal battles. Mediation involves both parties sitting down with a neutral third party (the mediator) to work out a settlement that is fair and reasonable.
Mediation can be particularly helpful in cases where there are complex financial arrangements, as it allows both parties to work together to find a solution that meets their needs.
Step 4: Understand the Division of Assets
Under Australian law, the division of assets during a divorce is based on a four-step process:
- Identify and assess all assets, liabilities, and financial resources of both parties.
- Assess the contributions made by each party, including financial and non-financial contributions. This includes contributions made during the marriage or de facto relationship, as well as contributions made after separation.
- Consider the future needs of each party, including income, earning capacity, and health. This includes factors such as age, education, and the care of children.
- Determine a fair and equitable division of assets based on the individual circumstances of each case.
It’s important to note that the law does not require a 50/50 split of assets. The court will consider all the factors listed above to determine a fair and equitable division of property. This means that it is possible for one party to keep more assets than the other, depending on the circumstances of the case.
Step 5: Draft a BFA
One way to protect your assets during a divorce is to enter into a Binding Financial Agreement (BFA) with your spouse. A BFA is a legally binding document that sets out how your assets will be divided in the event of a divorce.
A BFA can be entered into at any time during the marriage or de facto relationship, and can cover a wide range of financial matters, including property, superannuation, and spousal maintenance.
To be binding, a BFA must be in writing and signed by both parties, and each party must have received independent legal advice before signing the agreement. The agreement must also be certified by a lawyer as to its compliance with the Family Law Act.
A BFA can provide certainty and clarity about your financial arrangements, and can help protect your assets in the event of a divorce.
Step 6: Consider the Tax Implications
When dividing assets during a divorce, it’s important to consider the tax implications of any settlement. For example, transferring ownership of a property may trigger capital gains tax, and dividing superannuation may have tax consequences.
It’s important to seek the advice of a financial planner or accountant to help you understand the tax implications of any proposed settlement, and to structure the settlement in a way that minimises tax liabilities.
Step 7: Protect Your Credit Rating
Divorce can have a significant impact on your credit rating, particularly if joint debts are not paid or if you are unable to keep up with your repayments.
To protect your credit rating during a divorce, it’s important to:
- Close joint bank accounts and credit cards
- Notify your creditors of your change in circumstances
- Make arrangements to pay off any joint debts
- Regularly monitor your credit report to detect and act on errors or fraudulent activity
Protecting your credit rating is essential, as it can have a significant impact on your ability to access credit and secure loans in the future.
Conclusion
Divorce can be a challenging and emotional time, but by taking proactive steps to protect your wealth, you can achieve a fair and reasonable settlement with your spouse. By following these strategies, you can safeguard your assets after parting ways.
DISCLAIMER: This article is for informational purposes only and is not meant to replace or supersede official legal advice. 2 Ezi has no working relationships with any family law practice or government organisation. Please consult your solicitor and financial advisor for more comprehensive solutions.
