Occasionally we’re asked, “what’s the hurry?” or even “why should I do a settlement at all?”
Good questions. It’s understandable that when you are going through a major life change, you might not be in a hurry to move to a financial settlement.
Maybe you’re the one sitting rather comfortably in the family home and are reluctant to face possible change. Or maybe you’re anxious that you might end up with an unfair deal. Or maybe you think that, frankly, no-one (and certainly not your ex!) should push you into anything.
The reality is, however, that you really do need to act, for several reasons:
Let’s explore these things in a little more in depth so that you can make the sort of smart choice that most other intelligent Australians make every week – settling.
Increases in value
The longer you delay, then generally the more the common assets grow in value. Even if some of these assets are held in your name, if you don’t reach a financial settlement quickly, then your ex is going to share in the increased value of those assets.
Think about an example like a house. You may be in the house, but if your ex stops contributing to the mortgage, then you’re going to be paying for your ex to eventually end up with a share of the growth in its value. Not too many people are thrilled about that.
It isn't over until it's over
Once you’re separated, you think that your hard work into the future will be for your benefit. But your earnings and bonuses and superannuation – and even windfalls like a lottery win or a gift or an inheritance – are all technically still part of your “relationship pool” if you haven’t reached a binding financial settlement.
Some people hear about a “rule” that your ex can’t claim on you more than 12 months after divorce. Indeed, there is such a rule, but a person can always apply for the court to waive that rule where it could be seen to be unjust. So, don’t rely on time taking care of things without a financial settlement.
There’s a famous British case in 2014 where a couple separated and some 22 years later the husband made a $30 million gain selling a company he built after separation. But the couple never had a formal financial settlement and the wife successfully applied to the court for a chunk of those gains.
What proportion of future gains your ex might end up with is uncertain, so most people quite sensibly want to put a “line in the sand” just so that can’t happen. Either you settle and pay some modest fees to formalise your deal, or you risk paying at least $100,000 in legal fees defending a future claim, and then paying your ex a fair share of what's left.
If you don't reach an agreement, then you're likely to end up in Court... (and Court is for dummies)
It used to be that a partner could take a punt on their ex not having enough money to take them to court.
But in recent times many “litigation funders” or law firms have become willing to delay payment for their work and take a share of the clients' pot at the end. These funders tend to be extremely aggressive... so it’s not a good idea to have your spouse decide that he or she might as well take you down that path. You’re almost certain to end up far worse off financially than if you’d settled early.
All sorts of nasty tactics are very common in litigation - using children as a bargaining tool and making baseless domestic violence allegations against each other (even just for yelling), then withdrawing them for a cash payout.
Divorce litigation is notorious for bringing out the worst in people - even you. And sadly, these sorts of unethical behaviours are all too common.
Courts are a mess
You need to be very cautious in assuming that if things went to court, your view of what’s “fair” is what the judge would decide. Your lawyer will tell you what your “best case” might be, but usually the outcome is never at the top end of your hopes.
Worse still, if your stance is seen to have been unreasonable (for example, if you hadn’t been willing to negotiate in good faith at all), it’s open for your ex to launch a “costs order” against you. If they win that, you can end up paying not only your lawyer’s fees but also your ex’s.
You end up with less
Risking being taken to court is almost always financial suicide. Going through litigation usually results in both of you ending up with significantly less than if you’d negotiated privately.
Why? Legal fees, which can easily eat up 8% to 30% of your wealth. Better that the two of you keep that wealth - and if you have kids, all the more reason.
If you don't settle, your life ends up being dominated by the divorce
Generally, the longer couples delay getting a settlement sorted out, the messier things get. And if there are kids involved (including adult kids), it almost always causing great distress for them too.
No-one is impressed by it remaining unresolved
Your family and friends almost certainly want you and your ex to wrap things up and move on.
You might find it amusing to delay a settlement, but you’re shooting yourself in the foot – and probably damaging your kids unnecessarily.
If your delay is denying their other parent a reasonable outcome, it’s likely to have a profound effect on your kids' psychological future.
Because of all the above factors, a fair deal is eventually going to happen anyway. Your best chance of protecting your future, reducing your stress and letting each other get on with life is to start a settlement negotiation early.
If you can work out a deal between yourselves, great. If you need some assistance, get in touch and we can show you the most economic and practical way to get there.