Property settlement

Property settlement is the division of capital assets following the breakdown of a marriage or de facto relationship.

Simply and broadly put, the legal steps involved in calculating the appropriate division of the assets are the same whether you were married or in a de facto relationship.

Under the Family Law Act, a court has very broad powers to make orders dividing the property of the parties to the de facto relationship or marriage.  The court’s power can be exercised over any property that exists at the time that a court is considering the appropriate settlement. For example, this means that any property that one spouse owned before the commencement of the de facto relationship or marriage is included in the assets that a court can divide. There is also no “rule” that only the property that exists at the time of separation can be divided by a court. So if you acquire more property after your separation then a court can divide those assets with your former spouse or partner if it regards that as a just and equitable result.

A court’s power to redistribute property is not governed by specific rules of law but rather the court is given a discretionary power to make whatever orders are appropriate in the particular circumstances of the case.  There is no one “right” answer to what the property settlement ought to be. There can be a range of answers available on the same facts that would all be legally correct and the approach of the lawyers and judges involved can have an impact on how the property settlement is arrived at. The Family Law Act contains a number of provisions that guide a court in the exercise of its discretion which may be summarised as the following 4 step process.

• 1. Identify, according to ordinary common law and equitable principals, the existing legal and equitable property interests of the parties to the marriage or de facto relationship.

Determining whether property or financial resources are yours and whether they should be “in” or “out” for the purpose of calculating a settlement to your former spouse or partner can be complex.  Even if an asset is “in” it is important that is valued on the right basis so any settlement is accurate and fair. 

As noted above, the general rule is that all property must be taken into account, whether the property is acquired before or during the de facto relationship or marriage including after the separation. This step requires each of the parties to make a full and frank disclosure of their respective financial circumstances at the commencement of their cohabitation and at the date of their final property settlement. A failure to make proper disclosure of a relevant matter can have very serious consequences.

The definition of "property" is very wide. It includes almost everything of value to which a party is entitled, over which a party has control or which a party has the power to obtain. "Property" includes assets of either or both the parties, such as real estate, shares (including in private companies), cars, jewellery, savings, furniture and effects. Superannuation is treated differently and, depending on the type and value of fund, it may be divided (split) at the time that a property settlement order is made.

The court must also consider the “financial resources” of the parties. These can be funds or assets over which a party has influence or control or (in certain circumstances) prospective entitlements. However, they can also include funds or assets that a spouse or partner does not have control over such as a Trust established by one of the parents of the spouse or partner. Importantly, the court has no power to redistribute financial resources between separating spouses as the court can only redistribute property between separating spouses.

• 2. Determine whether it is just and equitable to make an order altering the property interests of the parties to the marriage or de facto relationship and, if so, identify the relevant contributions of the parties and assess those contributions.

There is no automatic presumption of 50/50 in dividing the property that exists after the end of a de facto relationship or marriage. It is also not the case that because one person earned the money and the other person looked after the children then the person who has earned the money has made a greater contribution.

This step in a court’s process requires a court to look backwards and assess the contributions made on behalf of each party to the relevant de facto relationship or marriage.  Contributions are defined under the Family Law Act. They include financial and non-financial contributions to the property plus also contributions as a homemaker and/or parent.

Assessing contributions is not a mathematical exercise.  In many de facto relationships or marriages contributions are viewed as being equal even where there was a difference in earnings during the relationship.  Assets that either partner or spouse had before the de facto relationship or marriage began can be important initial contributions that they should receive credit for in determining a fair property settlement. If one partner or spouse received an inheritance or gift during the course of the relationship then they also should receive credit for this in determining contributions. 

After assessing the contributions a court will award each person to the marriage or de facto relationship a percentage share of the assets for their contributions to the de facto relationship or marriage.

• 3. Determine whether it is just and equitable to make an order altering the property interests of the parties to the marriage or de facto relationship and, if so, consider relevant matters of the “future needs” of the parties.

After assessing contributions the next step in calculating a property settlement is for a court to look into the future and assess the future needs of both parties to the marriage or de facto relationship. In assessing the future needs a court will taking into account a range of matters concerning each of the people to the marriage or de facto relationship that is broken down including:

• their age;
• their health;
• their income and income earning capacity;
• how one of the people to the marriage or de facto relationship has contributed to the income earning capacity of the other person;
• their overall property and assets;
• whether the person has the care or support of any children including arrangements that may be in place for the payment of child support;
• whether the person has the duty to care or support any other adult;
• the commitments of each person to care for themselves;
• the financial circumstances of any new relationship that either of the people to the former marriage or de facto relationship may be in;
• the standard of living that is reasonable in the circumstances (there is no automatic right or guarantee to maintaining the standard of living that people enjoyed in the past during the relationship – its about what is “reasonable”).

If as part of the consideration of the future needs a court is of the view that an adjustment should be made in favour of one of the people to the marriage or de facto relationship that has broken down then a court can award that person an additional share of the assets.

It has often been said that the most important resource which a person to a marriage or de facto relationship that has broken down will retain is their capacity to earn income into the future and typically an adjustment can be made on account of this future income. For example, if the court has assessed contributions to the property as being 50/50 but is of the view that because the husband earns more income than the wife a court can give the wife an additional share of the property on account of this and the overall outcome could be 65/35 in the favour of the wife.

• 4. Determine what order adjusting the property interests of each party is just and equitable.

The final and fourth step of the property settlement process is to consider the practical effect of any proposed property settlement in order to achieve a result which is just and equitable in all of the circumstances. Typically this step will include a consideration of the appropriate blend of any assets between the two people to a marriage or de facto relationship that has broken down. This can be important where one person has a need for immediately available assets (such as the equity in the house) but there are other deferred but important benefits such as superannuation.