It’s a commonly quoted factoid that half of all marriages end in divorce. It’s probably more around 33% for first timers but the rate goes up considerably for second and third marriages and that’s likely where the inflated figure comes from. By extrapolating the official number of marriages to divorces over the past 20 years, the figure is probably around 44%.

But that doesn’t include those in de facto relationships, with research showing cohabitating relationships are far more likely to end in separation than marriages. Safe to say, relationship breakdown has become part of the social fabric, but that doesn’t make it any less difficult.

When partners separate, there are invariably hard decisions to be made, including settling financial matters. Sadly, financial issues rate as one of the most common reasons for divorce in the first place. Anyone who’s been through a separation will tell you there are good and bad ways to deal with settling finances. Here’s a guide to help you through the process:

Why is divorce so expensive?

First up, divorce and financial settlement are two different processes. As at May 2024, filing for divorce can be done online at a cost of $1,060, or $350 for those eligible for reduced court fees. As such, getting a divorce is not particularly expensive in itself. But you can be divorced, or separated for de facto couples, and not have done a property or financial settlement.

This is often where the costs associated with divorce can mount, largely in legal fees and court costs - if it gets to that stage. Generally, the more a couple has to divide, or the longer they’ve been together, the more costly a divorce can be – although it doesn’t have to be that way. To a large extent, if you can try to work with each other through the process, both parties can save themselves significant financial scars.

What is a property settlement in divorce?

In basic terms, a property or financial settlement is an agreement on how to divide the assets (and debts) of a marriage, or partnership, as well as any ongoing financial arrangements, including child or spousal support. In legal terms, parenting agreements are separate to property agreements. (This article with deal specifically with property and financial agreements.)

It is also worth noting here there are two family court systems operating in Australia. The Federal Circuit and Family Court of Australia has jurisdiction over all Australian states and territories, except for Western Australia. In WA, the Family Court of Western Australia is a state court that deals with family law. Both provide comprehensive information about financial and property matters on their websites. Both courts also strongly advise couples to reach their own agreements, noting it will save both parties considerable money, time, and stress. The family courts are definitely not after your business. So, let’s start at the beginning.

Deciding to separate

Everyone’s reasons for divorcing or separating are unique. Firstly, you both need to be sure it’s the path you want to go down. The federally funded Relationships Australia offers counselling to support individuals and couples going through relationship difficulties. Its services are available in every Australian state and territory for a fee, with reduced costs for concession card holders.

Financial advice director of 24kWealth Russell Mann is a specialist in divorce settlement analysis. Although he is a numbers man, he agrees a therapist or counsellor is invaluable to anyone going through divorce.

“It's a big thing to speak out,” Mr Mann told Savings.com.au. “You’ve got to look after yourself, you’ve got to do number one. That’s the emotional side of it. What is your best asset coming through a divorce? That would be your health and your mental state.”

Looking after yourself emotionally can also help you make better decisions for what’s ahead.

First steps

If you and your partner decide to separate, try to agree on immediate practical matters, even if it's just for the short term. Try to decide together:

  • who will stay in the home

  • how debt and bill arrangements may need to change

  • what will happen to any joint bank accounts

  • living and support arrangements for children, if you have any

Get your paperwork in order

Start gathering documents and statements of your joint and personal finances. The federal government’s Family Relationships Online recommends making a list of your property which includes all assets and debts owned by both people, whether it is in both names or just one person’s name. Property can include the following:

  • home

  • bank accounts

  • businesses

  • family trusts

  • inheritances

  • debts including mortgages, other loans, credit cards, and personal debts

  • investments

  • insurance policies

  • superannuation

  • shares

  • vehicles

  • cash

  • jewellery

It is imperative both partners understand the full financial picture before embarking on any discussions about who gets what. Ideally, this should be happening throughout the relationship, according to Mr Mann.

“It’s important both parties have joint decision making over financial matters in a normal situation,” he said. “The finances need to be fully understood by both parties, irrespective of whether one's more savvy and controls the day-to-day finances, the other one needs to understand it.”

For some parties, this may mean a crash course in what the financial situation actually is. Make sure you both have access to documents, statements, and all the information that will need to be taken into consideration.

Family Relationships recommends property and financial settlement discussions begin as soon as possible after a couple has separated. At this stage, many couples turn to lawyers to advise them through the process. That may not always be a bad move but there are some less costly alternatives that may be worth considering first:

Financial advisor

Some separating couples can choose to start with a financial advisor, their own or one specialising in divorce and separation. Mr Mann says he has worked with couples who take their information to a financial planner for analysis first up.

“We sit down with them and we go through their assets and liabilities and then, essentially, we say for you to both achieve your objectives, you’ll need this figure, this percentage, and here’s how it should be structured,” Mr Mann says.

He says simply dividing assets often does not take into account the whole picture. A financial settlement also needs to consider what cash flow each person will have after they separate.

“It’s no good getting the family home that might be worth millions if you’re asset rich and cash poor and can’t live,” Mr Mann says.

In best case scenarios, a “half amicable” couple can go through a collaborative settlement process which, Mr Mann says, “really does work”. Their settlement agreement and related financial structure can then be sent to two independent family lawyers for legal assessment and feedback.

When both parties are satisfied, Mr Mann estimates it costs each person around $15,000 and that includes having their new financial structures in place so both are able to move forward independently. However, he admits, in his experience, couples taking such a collaborative path are in the minority.

Mediation

Mediation has become increasingly popular in resolving family law matters in Australia. Basically, mediation involves both parties sitting with a qualified independent mediator to nut out an agreement without going through the court system. Accredited mediators have some training in family law but cannot give legal advice. Their role is to support and guide couples in negotiating their own agreements.

Family mediation can be used to resolve both parenting and property settlement disputes and according to a study by the Australian Dispute Resolution Advisory Council, the overall success rate of mediation is around 80%. The Australian Institute of Family Studies has also found couples who used mediation in the divorce/separation process are more satisfied than those going through the court system.

Family dispute resolution practitioner Dianne Loveday of Melbourne-based Bayside Mediation told the Savings Tip Jar podcast the overwhelming benefit of mediation is that it can achieve the same outcome as engaging lawyers at a fraction of the cost.

“We have the skills, knowledge, and expertise to help people negotiate and come up with their own agreements and those agreements comply with the Family Law Act that we then can document and submit to the court,” she said.

“They then have an agreement that is legally binding but has a cost estimate about five percent of the cost of using a lawyer to reach exactly the same agreement and in a fraction of the time.”

 

Family mediation can be done in person, by telephone, or video. The mediation process is usually conducted over a few sessions and fees are levied according to the time taken. Community-based mediation services generally have lower fees and some charge according to the income of both parties. In some cases, mediation may be free to eligible people.

Other private mediation services set their own fees. Separating couples can negotiate the settlement themselves or have their respective lawyers in attendance, who will levy their own charges. Ms Loveday estimates the cost of an average mediation at her service, taking in both property and parental matters, at less than $5,000 which is shared between both parties.

Lawyers

Some divorcing or separating couples turn to lawyers from the outset. It should be clear lawyers have a different objective to mediators and act for just one party. They can provide legal advice on your rights and responsibilities according to the law and provide specialised advice on your individual circumstances.

This may be entirely necessary in some cases but engaging a lawyer may also set proceedings down an adversarial path. Some people may be more comfortable having a lawyer handle their mediation negotiations, but it pays to remember, if one or both sides are going to be paying legal fees, they will most likely be taken from the pot you are seeking to divide.

That said, good family lawyers can provide legal advice to guide you through an alternative dispute resolution process if you are not confident, or feel unable, to negotiate it yourself. Engaging a lawyer does not mean you automatically go down the path of the courts.

Principal solicitor of Holzworth Legal Kerri Tucker said the family court actively encourages lawyers to do all they can to avoid going to court. She agrees mediation is the best path to take.

“I say to people, with mediation, you have some control,” she told Savings.com.au. “You’re spending a day with a mediator; you’ve got a chance to tell your story and negotiate.

“Whereas if you’re in court, you lose control. You’re just a file number. When people say they want to go to court, I say, look, we can go to court and we might get you another $40,000 but you’ll be paying that to us and you’re not going to see it. It’s not going to help Johnny get through private school. That’s the big selling point of mediation, [avoiding the cost] and the control people can have over their own outcome.”

Ms Tucker often accompanies her clients to mediation which she says can cost up to $3,000 a day on top of the mediation charges. There are additional charges for preparing documentation to formalise an agreement through the family court in the form of consent orders (more on that below).

Arbitration

Arbitration is another, albeit less common, process to resolve financial (but not parental) disputes in divorced or separated couples. It can be useful if mediation fails to resolve settlement issues and is another way of diverting the dispute from the court system. Basically, both parties must agree on the process and the choice of an arbitrator, usually a senior member of the legal profession trained and accredited in arbitration.

Arbitration is much faster than the court system, around three to six months for smaller matters or six to nine months for larger matters. It comes with the added benefit of couples being able to choose an arbitrator with experience in areas relevant to them, such as family businesses or farming. Arbitration can consider whole settlements or just aspects that are sticking points, such as spousal maintenance. Couples can provide documents for the arbitrator to examine or, if the matter has escalated, legal representatives can present oral arguments and examine witnesses, just as in a trial.

Arbitrators' decisions are binding and have much the same effect as court orders but come with some limitations. So-called ‘arbitral awards’ can be harder to appeal than court orders and they do not bind third parties.

Family court

The option of last resort is the Federal Circuit and Family Court of Australia, or the Family Court of Western Australia in the west. Before matters proceed to court, the courts expect both parties to have made genuine attempts to engage in dispute resolution. Escalating matters to the family courts is strongly discouraged, particularly by the courts themselves.

If you go down this path, you will need a lawyer and maybe even a barrister. Be warned, your matter may take some time to be resolved - two to three years depending on circumstances of your case - and you could be looking at legal costs from $50,000 up to the $100,000 mark, again depending on the circumstances. Think again about whether to give mediation another shot.

OK, so we have an agreement, what next?

Once the two parties have reached agreement on property and financial matters outside of the court system, there are several options:

Informal agreement

This can work when both parties arrive at their property and financial settlement amicably and generally have no ongoing financial involvement with the other (e.g. shared property or spousal support).

Binding financial agreement

These can be drawn-up at any time, including before (known as pre-nuptial agreements), during, or after a relationship. Binding financial agreements essentially see both parties sign a financial agreement under normal contractual conditions. However, they are not always ‘watertight’ in the legal sense and can be challenged and overturned.

Consent orders

Consent orders are essentially formalised agreements that have been stamped and sealed by the Family Court and, as a result, are legally binding. If the agreement, the consent order, is breached in some way, the court has the power to enforce them. These are the best way to ensure ongoing parental and spousal financial arrangements are met.

If you come to a financial agreement with your former partner without lawyers involved, the Family Court recommends seeking independent legal advice before applying for consent orders. The Family Court will consider whether the agreement is “just and equitable”. Ms Tucker agrees it is advisable for a lawyer to look over any agreement to ensure that it is.

“It’s always a good idea if a lawyer looks over any proposal,” Ms Tucker said. “Mediation remorse is a real thing. I see people come away from mediation and text you all night saying I shouldn't have signed that. Mediation can be very draining. You're in that situation, usually all day, without a lawyer and there’s the things that get brought out.

“A lawyer can check that the agreement is equitable.”

There are also some tax benefits that come with consent orders. If you or your former partner have to transfer ownership of property or shares as part of your financial settlement, transactions covered by a consent order can be exempt from stamp duty or capital gains tax. The federal Attorney-General’s department provides an extensive guide on consent orders.

Consent order documents can be prepared by your mediation service as part of their fee or for an additional charge (depending on the service) or be drawn up by a lawyer. Costs can vary according to their complexity. Lawyers fees for drafting or reviewing standard consent orders generally range between $2,000 up to $6,000. However, they are relatively inexpensive to file with the court - $195 in both jurisdictions as at May 2024. As a general rule, consent orders can be processed and obtained around six to eight weeks after being lodged.

Beware the time limit

If you wish to formalise your property settlement through the courts, different time limits apply for making an application for financial orders, depending on your individual situation.

  • If you were married, applications for property adjustment must be made within 12 months of your divorce becoming final.

  • If you were in a de facto relationship, applications for property adjustment must be made within two years of the breakdown of the relationship.

If you wish to start proceedings out of those times, you have to ask the court for special permission to do so. This is not always granted. It’s another reason to begin earnest negotiations on settling financial and property matters as soon as possible after you separate.

(Note: The time limits apply to financial and property matters only. They do not apply to child support and child maintenance matters.)

Savings.com.au’s two cents

Going through separation or divorce can be a tumultuous process, even in relatively amicable cases. It’s important you look after yourself and keep the channels of communication open. Try to put other issues aside and work with your former partner as best you can to reach a fair and equitable agreement on your financial settlement. This can save considerable expense, stress, and time.

Whether you turn to a financial advisor, a mediator, a lawyer, or the services of all three, being organised can help you keep your costs to a minimum. Collate your records and documentation yourself including financial documents, property valuations, tax returns, and other necessary information and have it ready when it’s called upon.

There are many excellent services that can help and support you through what lies ahead. Above all, do what you can to avoid going through the family court system. Keep in mind the courts themselves don’t want to see you there. Negotiate in good faith with the best intentions of reaching an agreement so you can both get on with the next phase of your lives and remember the high road can sometimes get you there faster.


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