How Is A Property Settlement Determined?
The Family Law Act 1975 (Cth) (“the Act”) and case law provides that the Court follow a particular approach when determining a property settlement between parties to a marriage or de facto relationship, following separation.
Even if your matter never goes to Court, the same steps are followed.
The Court may first consider whether or not it is “just and equitable” to make any adjustment to the parties’ interests in the property available for division.
Thereafter, the 4 steps are as follows:
- Identify and value all of the property that is available for division, referred to as the net assets. This includes all assets, liabilities and superannuation of each spouse, whether held solely, jointly with each other, or jointly with any other person, or in a legal entity;
- Consider the financial, non-financial, direct and indirect, contributions made by and on behalf of each of you to the acquisition, conservation or improvement of property. These contributions include homemaker and parenting contributions. The Court will generally assign a percentage to each party’s contributions, for example, 50% / 50%;
- Consider the future needs of each party as defined under section 75(2) of the Act and including:
- Whether either party has the care of a child of the relationship;
- The age and state of health of each of you;
- The income, property and financial resources of each of you;
- The physical and mental capacity of each of you for appropriate gainful employment;
- The disparity in the income earning capacities of each of you;
- Instances of family and/or domestic violence; and
- Commitments that are necessary for each of you to support yourself or any other person.
- To consider whether, in all the circumstances of the case, the proposed Order is “just and equitable”.
IS IT “JUST AND EQUITABLE” TO MAKE ANY ALTERATION OF THE PARTIES’ PROPERTY INTERESTS
In Mallet & Mallet the words “just and equitable” were described as the “overriding requirement” to determine whether it is just and equitable to make an order at all and if an order is made, what that order should be. In determining whether the order is just and equitable, the Court must consider not just the underlying percentage distribution of the assets but also the justice and equity of the outcome (being the actual order).
The main purpose of section 79(2) of the Act, is to ensure that the Court:
- Alters the parties’ property interests only if justice requires it to do so; and
- If the court decides it is just and equitable to make any order, the court is satisfied that the alteration of property goes no further than the justice of the matter demands.
Generally, where parties have been in a long-term relationship, have children or have intermingled their assets, the Court has no difficulty in finding that an alteration of property interests between the parties is necessary.
STEP 1: VALUING THE TOTAL NET ASSETS
The first stage centres around information gathering. The purpose of this step is to determine and value all the property of your relationship, including assets, liabilities and superannuation, held by you and your former partner, either solely, jointly with each other, jointly with any other person, or in a legal entity.
This is achieved by:
- The exchange of financial documents
- Valuations – it is usual for each party to provide an estimate of the values of their property interests, if the exact amount is not known. There are different types of values, including fair market value and value to the owner, and different ways a property item’s value may be determined when in dispute. This is important, as sometimes you and your ex-partner may not agree on the value of a property item.
- Creating a Balance Sheet – this sets out the total net assets available for division between you, also known as a ‘property pool’.
Did you know?
The Court considers the balance sheet at the date of the order / trial, not at the date of separation.
STEP 2: CONSIDERING THE CONTRIBUTIONS
How will our contributions during the relationship be assessed?
The second step focuses on the contributions of each party to the relationship. The contributions of each party from the beginning of the relationship, during, and after its end, are assessed to determine an appropriate division of the property between the parties, typically expressed as a percentage.
The Court considers more than just direct financial contributions and reviews the relationship wholistically. Contributions may include your:
- Direct and indirect financial contributions;
- Non-financial contributions;
- Contributions to the welfare of the relationship, including contributions as a homemaker or a parent.
The timing of when the contribution was made, and its value are usually considered alongside the length of the relationship to determine whether either party should receive an adjustment of the property interests for greater contributions.
STEP 3: CONSIDERING FUTURE NEEDS
The third step considers the future resources of each party and whether an adjustment to the division determined in step 2 is needed based on their ‘future needs’. It assesses whether one party has been disadvantaged by the relationship ending, by looking at each party’s long-term financial position after separation, with an adjustment of the parties’ property interests to potentially be made to the disadvantaged party. Factors considered for both parties include:
- Health and age;
- Income, financial resources, and property;
- Physical and mental capacity;
- Financial commitments;
- Eligibility for a pension or superannuation;
- Care and control of any children of the relationship and the ages of the children; and
- Child support commitments.
Did you know?
The impact of the relationship’s length on a party’s earning capacity is also considered, such as where a party has not worked for a number of years to be a full-time parent and homemaker.
STEP 4: ENSURING THE DIVISION JUST AND EQUITABLE
During the last stage, the Court determines whether the proposed division is just and equitable, by assessing the impact of the practical effect of the proposed settlement and whether there are any additional relevant factors for consideration.
For example, at this step a Court is unlikely to consider that one party retaining superannuation (which they are unlikely to be able to access until retirement) and the other party retaining the real property/ies and cash assets, is just and equitable as it is not a good ‘mix’ of assets that each party is retaining.
CONTACT US
We recommend seeking the advice of an experienced family lawyer to help you understand how your contributions may impact your property settlement. Contact our family law team today for personalised advice on your matter.
