23rd November, 2023

How do you split finances when separating?

two groups of wooden blocks for money bag icons on them

Starting your financial settlement in the right place matters. If you get it right you’ll spend a lot less money and you’ll reach the finish line far quicker.

But knowing where to start might not be obvious.

Lawyer or mediator?

I work as a mediator and a lawyer and I’ve been working in the family law system for nearly 25 years. Over that time I’ve seen a big shift in the professionals that people go to for help with parenting after separation. 25 years ago a lawyer was usually their first call. These days it is mostly a mediator.

But things haven’t changed in relation to sorting out finances. There seems to be a perception that financial settlements (or property settlements) need to be handled by lawyers. Mediators are often involved, but they’re usually brought in at the end of the process.

I’ve also observed that separated couples who engage with me early spend far less, and get their agreement finalised far quicker, than separated couples who negotiate through lawyers.

When early engagement with a lawyer is needed

There are some situations where early engagement with a lawyer is vital. If any of the following descriptions match your situation I would recommend reaching out to an experienced family lawyer as your first step.

  • If you are scared for your safety (or the safety of your children)
  • If you believe that your former partner has disposed of assets without your agreement, or might do so if given the chance
  • If your former partner didn’t share information with you about their financial situation during your relationship (or has stopped sharing information since you separated)
  • If all the major assets are in your former partner’s name

At Keogh Mediation the first step in the mediation process is a separate ‘pre-mediation appointment’ with each of you. One of the things I’ll be discussing with you in that first appointment is whether, and when, you will need a lawyer’s help.

How to choose a good mediator for your financial settlement

If you’re going to use a mediator to help you negotiate your financial separation you need to make sure that they have the right skill set.

If you’re working with a mediator without having lawyers assisting you, you need to make sure that the mediator really understands family law. That means they need to have legal qualifications and substantial experience working as a family lawyer.

You also need to make sure that they have substantial experience working as a mediator. Although many lawyers are also qualified as mediators the professional roles are very different. The best family law mediators have spent time honing the specialist communication skills that enable them to diffuse conflict and lead people to agreement.

Being clear about your short-term arrangements

The long term goal is an agreement about how all your assets, liabilities and superannuation entitlements will be divided. Making good decisions about this can take some time. But your financial lives can’t be paused so the first step in any financial separation is working out how to manage your finances in the short-term.

You’ll need to decide whether you will continue to operate joint bank accounts and, if so, what the expectations are about continued use of those accounts. Will you each have your full salary paid into joint accounts? What expenses will it be OK to pay without consultation? If one of you is moving out of your shared home you’ll need to work out what furniture and household goods they will take with them. If there are assets that are in one person’s sole name you’ll want to be on the same page about whether it is OK to sell them without discussion. If you have children you’ll need to decide how their expenses will be paid while you’re negotiating your long term arrangements.

Being clear about these arrangements is critical. Trust is very fragile after separation (and sometimes it is completely broken). Conflict can escalate quickly when someone uses money, or deals with assets, in ways that the other person wasn’t expecting.

Some separated couples have an amicable enough relationship that they can make these decisions together without professional assistance. If that is your situation then I recommend that you create a written record of what you decide. This will help you avoid misunderstandings. If your relationship isn’t amicable enough to do this without help you can engage a mediator to help you come up with a plan.

Negotiating a long term financial settlement

There are 3 key stages in negotiating a long-term financial settlement. The ultimate goal is to reach agreement about how to divide up your assets, liabilities and superannuation entitlements so that you are able to start living separate financial lives.

Stage 1 – Information sharing (also called disclosure)

The first step is to make sure that you both have all the information you need to make an informed decision. If you are working with lawyers they will probably refer to this as ‘disclosure’.

In broad terms you need to share and organise information about:

  • What assets, liabilities and superannuation entitlements you have (either jointly or individually)
  • The financial and non-financial contributions you have each made, during and after your relationship; and
  • What the future is likely to hold for each of you financially.

The law requires you to make ‘full and frank disclosure’. This means that you have to share all relevant information, and provide copies of any relevant documentation that the other person asks for.

If you use mediation to complete your information sharing you will have conversations about each of these issues. The mediator will guide you in these discussions, making sure you share all the relevant information. They will help you resolve disagreements when you see the facts differently and they will capture the information you share in an organised way. There are often agreements made to take particular steps (such as obtaining valuations or exchanging documents) to make sure the information is complete and accurate. These discussions usually happen in one joint mediation session.

If you are working with lawyers during the disclosure process there will be a series of letters exchanged between the lawyers in which they ask for and provide information and documentation about these topics. This process usually takes a few weeks to a few months.

Stage 2 – Decision-making

Once all the information is shared you will be ready to make some decisions about how to divide up your assets, liabilities and financial resources.

If you conduct the decision-making process with a mediator the mediator will help you each formulate proposals and then share and discuss those proposals until there is a proposal made that you can both say ‘yes’ to. When you get to ‘yes’ the mediator will write up a dot point record of what has been agreed. Most times this conversation happens in one joint mediation session.

If you are negotiating through lawyers the decision-making phase is likely to be conducted as another series of letters. In these letters the lawyers will set out the facts as they are understood by the person they represent, a proposal for division of the assets, liabilities and superannuation entitlements and an explanation of why that division is justified. Like the letter writing in the information gathering phase, this process typically takes a few weeks to a few months.

When working as a mediator I always recommend that people get legal advice prior to Stage 2. This is so that you will know what the alternative to an agreed settlement looks like.  The lawyer will give you advice about what a Judge would be likely to order, and the costs and time that would be involved in having a Court determine your property settlement.  Having this advice allows each of you to compare proposals that are made in mediation to the likely outcome if you were to litigate.

If you’re not able to reach an agreement then you will need to start the litigation process (that is, making an application to Court so that a Judge can make a decision). You will need lawyers to assist you with this process.

Stage 3 – Documenting your agreement

In a financial settlement it is very important that your agreement is formally documented. If you don’t do this it won’t be legally binding.

If you have been working with a mediator so far you will need to engage a lawyer to help you with drafting the necessary paperwork. The ethical rules which govern legal practice require that lawyers only act for one person. This means that you will need to ask one of your lawyers to draft the paperwork, and then the other person will get advice from their lawyer about whether the paperwork properly reflects the agreement that has been reached, and properly protects their interests. You will both have lawyer’s fees in relation to the documents, but the fees are likely to be higher for the person whose lawyer drafted the paperwork. Sometimes people agree to make an adjustment so that these costs are more evenly shared.

If you have used lawyers for the information sharing and decision-making stages then one of your lawyers will draft the paperwork and it will be reviewed by the other person’s lawyer.

Sometimes there are disagreements about the wording of the documents. If you are working with lawyers they will negotiate about this. If you have used a mediator for the information gathering and decision-making stages you will have the option to arrange another joint session with the mediator, to resolve the disagreements about wording. These are usually shorter appointments and they usually include the lawyers.

If you would like help with your financial settlement from a mediator who has exactly the right skill set reach out to Liz Keogh at Keogh Mediation