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 broad 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 "right" (ie, legally correct) but the approach of the lawyers and judge(s) involved can have an impact on how the property settlement is arrived at and the outcome you get.

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. 1. List and value the net property right now – what is there to divide?

   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. 2. Look backwards and assess contributions to the net property right now in percentage terms– how did you get what you have?

   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. 3. Look forwards and think about whether one party needs an extra percentage share of the net property because of their “future needs” – what does the future look like?

   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. 4. Determine what order adjusting the net property right now 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.

Under the Child Support (Assessment) Act, the primary carer of the child or children can make a claim for child support from the other parent.

The Child Support Agency is responsible for administering your child support arrangements, and assessing the amount of support which should be provided.

The decision is based on each parent's income, the number of children and their living arrangements.

Many people talk about "getting divorced". However, in a legal/technical sense divorce is only the legal end of the marriage contract/status.

Spouses are not required to be divorced as a pre-requisite for commencing any other proceedings or dealing with any other issues such as financial matters. Importantly in Australia, the divorce is legally separate from the division of capital assets (property settlement) and ongoing income support (maintenance for a former spouse or de facto partner). This is different to many countries in the world where the divorce (legal end of the marriage) is linked to the resolution or judicial determination of the money issues that may arise following the end of a marriage.

There is only one ground or basis for divorce in Australia – that there has been an "irretrievable breakdown" of marriage. This ground is satisfied if spouses separate and live apart for at least 12 months with the intention of bringing their marriage to an end. In some circumstances, spouses can live separately and apart under the one roof but still effect a separation. You can also reconcile with your spouse for specified and short periods of time without having to re-start the 12 months of separation. Both of these situations may well require additional documents (evidence) in order for the court to grant you a divorce in a timely manner.

Importantly, once spouses are divorced if either of them wishes to file an application for property settlement or spouse maintenance, then they must do so within 12 months from the date on which their divorce becomes final. If you have been divorced but not sorted out the money then important consequences can follow and important financial rights available to you could be lost or more complex.

It is a commonly held view that people are only in a de facto relationship after they have lived together in the same house for 2 years. These are important facts but they are not necessarily determinative of whether a de facto relationship exists and the legal requirements in the Family Law Act mean that it is possible to be in a de facto relationship even though you are not living in the same house and have been together for less than 2 years.

Whether you are in a de facto relationship or not will determine whether financial consequences such as property settlement and/or maintenance are applicable in the event your relationship breaks down. If you are not in a de facto relationship then you have no financial obligations following the breakdown of your relationship.

Two people will be in a de facto relationship if, having regard to all of their situation, they "…have a relationship as a couple living together on a genuine domestic basis…" and they are not married or related to each other. There is a non-exhaustive list of 9 factors in the Family Law Act that a court will look at in determining whether two people are in a de facto relationship. These factors include:

• the care and support of children;
• how long the relationship has been going on for;
• whether the people live in the one house;
• whether there is a sexual relationship between the two people;
• the degree of financial dependence or inter-dependence between the two people (i.e. is one of the people paying for expenses of the other person);
• the ownership and use of property (ie, do they own a house together?)
• the "degree of mutual commitment to a shared life";
• whether the relationship was registered under a State or Territory law; and
• the reputation and public aspects of the relationship (i.e. do you spend Christmas and birthdays together?)

You can be in a de facto relationship with more than one person at the one time. The Family Law Act is quite clear that you can be legally married to someone else and in a de facto relationship with another person (or persons). The gender of the people involved in the de facto relationship is irrelevant.

Parents who cannot agree on legal arrangements for their children are required to attend an accredited Family Dispute Resolution Practitioner (FDRP) before they can take their differences to a court.

There are some exceptions to this rule including where there is an urgent issue or there has been domestic/ family violence.

The Australian government Family Relationship Centres are designed to assist parents to prevent relationship breakdown, assist separating parents and grandparents with parenting arrangements and child support issues, and provide advice and mediation services.

Family Relationship Centres provide information for people dealing with separation. They provide individual sessions, group information sessions, seminars and referrals to other services. Joint sessions are available for up to three hours free of charge. Additional sessions may incur fees, depending on parents’ financial circumstances. Family lawyers cannot participate with their clients at Centre sessions but may provide advice to clients outside the Centre.

www.familyrelationships.gov.au

Many parents are considering ways that they financially assist their adult children but also ensure that they and their child are protected from a divorce of the child and his or her spouse. Unfortunately there is no one solution to this objective but thorough legal and financial planning can minimise the potential for claims and conflict in the event of the breakdown of a marriage or relationship. Further, you can ensure that your assets benefit who you intend.

Chief considerations are: ensuring loans from parent to child do not infringe the “presumption of advancement” that exists between a parent and child; planning for the passing of control of family companies and trusts; and estate planning by a parent including through the use of testamentary trusts.

People intending to marry or live in a de facto relationship can seek to arrange their finances in an agreed way in the event of the breakdown of their relationship. Popularly referred to as “pre nuptial” agreements these documents are, legally speaking, called Binding Financial Agreements being a form of contract under the Family Law Act.

It is a requirement of a Binding Financial Agreement before marriage or a de facto relationship that each person obtain independent legal advice in writing.

People intending to marry or live in a de facto relationship can take practical steps to collect information and/or arrange their finances in a way that seeks to minimise any dispute that may arise in the event of the breakdown of their relationship. Understanding the family law implications of financial and lifestyle choices can enable prudent planning to occur.

We have conducted family law planning sessions with one person to a relationship and we have also advised both people contemplating the relationship in order that they can hear the advice together and then have informed discussions with each other as to the decisions they wish to make.

Contested court outcomes are inherently unpredictable and expensive in terms of legal and professional fees but perhaps the greatest and underestimated cost is the “opportunity cost” of your time spent at court and/or instructing your lawyers. The alternatives to court are a compulsory part of the court process and ought to be given serious consideration as litigation is only a process of last resort where the situation warrants it.

Alternatives to court include:

• counselling with a suitably qualified professional capable of guiding parents on the best arrangements for children (lawyers would not be involved);
• mediation either with or without the presence of lawyers in relation to both financial and parenting issues where trained professional mediator(s) assist with determining an outcome that both people can accept;
• collaboration where the two people to the dispute agree not to go to court and use collaboratively trained lawyers to have a series of confidential meetings to determine the best solution for their dispute; or
• informed negotiations through the exchange of offer letters via lawyers.