The financial settlements to get on top of when a relationship ends

Striking a fair financial settlement when a relationship ends can ease the pain of separation – and help everyone move on with their lives.

No-one enters a relationship expecting to break up or divorce. But with one in three marriages in Australia officially ending in divorce, and de facto relationship breakdowns unaccounted for, many couples will face this reality. 

Not all of those relationship break-ups end in friendly circumstances either, and there are no hard-and-fast rules on how the situation might affect you. Bitter arguments over assets and finances are common, with the courts often left to sort it out.

The settlement of a couple’s assets and liabilities is an essential part of leaving a relationship, says Anna Hacker, National Manager Estate Planning at Australian Unity. Whether through a pre-negotiated Binding Financial Agreement, mediation, or trial, a settlement must happen.

Preparing for the worst-case scenario: Binding Financial Agreements (BFA)

If you’ve decided to get married, or you take on a big financial commitment with your partner – for example, a mortgage or business – putting a BFA in place before things have the opportunity to go awry can help you safeguard your financial future. If you never have to use it, that’s a good outcome too.

“It’s easier if it is amicable, and easiest if there is a BFA in place,” says Anna.

“A BFA sets out how, in the event of the breakdown of the relationship, all or any of the property, financial resources and liabilities of either or both of the parties in the relationship are divided; it can be negotiated before, during and even after a relationship. A good settlement will flow from a well-constructed BFA, but every situation is different.”

What a financial settlement covers

The major role of a financial settlement is to determine how a couple’s assets and liabilities are apportioned, but it is also able to be tailored to individual circumstances.

As Anna explains: “The settlement can cover as much or as little as people want – it can be specifically related to an individual item, for example. It might be that someone just wants to say, ‘We’ve come into this relationship, this is what I had, I just want to make sure that if we break up, I get back everything that I started with’.”

The settlement can cover some non-financial things, she says, but arrangements for children are covered in a separate settlement. “Sometimes you can deal with all of these things at the same time, and parts of the agreement are in different documents. Again, that is ideal, but not always achievable,” says Anna.

The basis of calculation for a settlement is the financial input of each party: 

  • What each person came into the relationship with.
  • What each contributed during the relationship.
  • Potentially, what was contributed after the relationship.

“There can be adjustments made for the couple’s individual circumstances, but the longer the relationship then the premise is generally going to be a fifty-fifty split– unless, of course, the couple has a BFA that has been properly prepared that sets out their own personal agreement.” says Anna.

The couple’s liabilities position is also very important, she says. “This causes the biggest confusion. A lot of people assume that it’s only assets that are covered. People say that they have a house worth $1 million, but that house may have a mortgage, so really, you only have the equity, and you are also potentially taking on the debt. The mortgage might need to be refinanced. It’s yet another reason why there is no set outcome that covers all cases – they’re all different.”

Settlement processes

A couple that cannot reach agreement on a settlement has the option of a formal mediation process – before a Court hearing becomes necessary.

“The easiest process is consent, where everyone agrees, and the lawyers’ role is simply to prepare the agreement and assist with the court application,” says Anna.

Do what’s best for you

The end of a relationship is fraught on many levels, but the process of reaching a financial settlement shouldn’t add to the heartache. Even if you don’t have a financial agreement that covers apportioning your assets, there are structures to help you negotiate, and keep you out of the courts. Get advice and do what is best for your individual situation.

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