Property Division Property Settlements

Property Division – The Basics

Whether you were party to a valid marriage or a de facto relationship, you are entitled to property division. While the courts maintain broad discretion with regard to property division, they strictly adhere to the following four-step process to determine who gets what.

  1. Identify/value the property – includes all assets and liabilities
  2. Consider contributions of the parties – includes financial and non-financial contributions
  3. Consider relevant factors – including but not limited to age, health, income, an standard of living of the parties
  4. Ensure order is just and equitable – the order must be fair

Generally, the courts will look to split the net asset pool of the parties equally, unless while applying steps one through four it is apparent that an unequal split of the assets would be just and equitable.

The goal of property division is to both to allow parties to finalise their economic relationship, and also to recognise contributions to property. However, while the goal is to allow the parties to reach economic independence, a valid property order may in fact be varied under certain circumstances.

Property Division Property Settlements

Property Division – The Details

The Family Law Act provides for property division for both formerly married couples, as well as de facto couples. There are two main goals when it comes to property division. First, this should be a step towards finalizing the economic relationship between the parties. This “clean break” principal is supported by the requirement that courts make orders that will end the financial relationship of the parties as far as practicable. Second, this process recognizes contributions to property, both financial and non-financial.

An action for property division must be brought timely. For instance, if you were formerly married you must bring any property proceedings within 12 months of when your divorce order became absolute. Alternatively, if you were in a de facto relationship, you must seek property division prior to two years after the end of the relationship

Broad Discretion

The court maintains broad discretion when it comes to making property orders. For instance, should the parties disagree as to the ownership of property, the court has the discretion to make a declaration regarding the property in question.

Even the language in the Family Law Act speaks to this notion that the court has an abundance of discretion; the exact language expresses that the court may make “such order as it considers appropriate.” This broad discretion is subject to seven restrictions/considerations the court must contemplate. These considerations listed below are enumerated in the

Family Law Act.

  • the direct and indirect financial contributions of the parties
  • the non-financial contributions of the parties
  • contributions to the welfare of the family, including contributions as homemaker or parent
  • the effect of any order on the parties’ income earning capacity
  • the list of considerations in s 75(2) and 90SF(3) of the Family Law Act
  • any other order made under the Family Law Act affecting a party or child of the marriage or de facto relationship
  • any child support payable, or likely to be paid in the future

Finally, the last bit of guidance that the Family Law Act offers to the court, is that the court shall not make an order unless the circumstances indicate that it is both just and equitable to make the order.

Because the Family Law Act fails to provide strict guidelines with regard to property division, and the courts are given such broad discretion, the courts have adopted a four-step process to apply to property orders. First, the court must identify and value the property, then consider contributions of the parties, then consider the factors listed above, and finally consider whether the order is just and equitable.

Step One: Identify and Value Property

The court must identify and value a rather encompassing pool of property, which includes real property, assets, liabilities, financial resources, property presently possessed and property expected, as well as property disposed of. The court must also identify and value business interests, licenses, permits and professional qualifications, inheritances, insurance policies, among many other types of property. As you can see, the type of property is pretty much anything – the list is rather extensive.

Both the nature of the property as well as the value must be determined as of the date of the decision, rather than the date of separation or divorce. When determining the value of the property, the court will begin by considering the fair market value of the property. Fair market value generally refers to the amount that a willing (not anxious) purchaser who is adequately informed would pay a willing (not anxious) seller of the property. In some instances where there is a dispute as to the value of property, and the court cannot make a determination of the value, the court may order the property be sold.

Once the property has been identified and value, a simple formula is used to determine the net asset pool of the parties. The total assets minus the total liabilities will result in the net asset pool used by the court.

Step Two: Contributions

The court will consider financial contributions, non-financial contributions, contributions to the care and welfare of the family, and contributions in the capacity of homemaker or parent. Financial contributions are any monetary contribution related to acquisition, conservation, and improvement of the property and refers to contributions made before the marriage, during the marriage, and after separation. On the other hand, an example of a non-financial contribution would be where one party performs maintenance or renovations of any family asset.

Often, especially when considering long relationships, the court will make a determination that the parties contributed equally. However, each situation is unique, and may not call for a determination of equal contribution. The court can make necessary adjustments to account for your unique circumstances.

One situation that is given special attention with regard to contribution is violence. If violence during the marriage or relationship had an adverse impact on a party’s contributions to the marriage, the judge will consider this when assessing the respective contributions of the parties.

Step Three: Additional Factors

This step helps the courts in addressing the future needs of the parties. The court will consider all relevant factors, including but not limited to:

  • the age and state of health of each party,
  • the income, property and financial resources of each party and their physical and mental capacity for achieving gainful employment,
  • responsibility for a child of the marriage who is less than18 years old,
  • commitments necessary for a party to support themselves or to support any other person that the party has a duty towards,
  • eligibility for a pension, allowance or benefit,
  • the standard of living which is reasonable in the circumstances,
  • whether the relationship has affected the earning capacity of a party and to what extent,
  • if either party is living with someone else, the financial circumstances arising from cohabitating with another person,
  • the terms of any Orders made in relation to the property of the parties and the terms of any binding financial agreement.

Step Four: “Just and Equitable” 

The last step in the property division scheme requires to court to ensure that the proposed order is both just and equitable. This step is intended to allow the court to take a step back from the proceedings, and a whole, determine if the order is appropriate. The order should only be finalised if it is fair for each party. What is fair for one couple may not be fair for another couple, and thus determining fairness is wholly dependent on the circumstances of each individual case.

Variations of Property Orders

Despite the objective of ending the economic ties between the parties, property orders may in fact be varied after they have been issued. Variations are only permissible under certain circumstances. The Family Law Act only allows for reconsideration of a property order where both parties have consented, or where one party makes an application and the court is satisfied that at least one of the following is applicable:

  • there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence, etc.
  • circumstances have arisen since the order was made that has rendered it impracticable for all or part of the order to be carried out
  • a person has defaulted in carrying out an obligation imposed by the order, and as a result it is just and equitable to vary or set aside the order
  • circumstances have arisen since the order relating to a child or the marriage or relationship, and hardship will occur if the order is not set aside or varied
  • a proceeds of crime order concerning property of the marriage or relationship, or such an order has been made against a party to the marriage or relationship.

Should you be in a situation where you anticipate property division, the best thing for you and your former partner to do is to work through steps one through four before bringing property proceedings. This will often help you avoid having to go through litigation to arrange for your property division.

Property Division Property Settlements

How will the court divide our property?

The court uses a four-step process to determine how property is divided between partners.

  1. Identify and value all of the assets and liabilities.  This requires both partners to be forthcoming and disclose all of the necessary documents and certificates regarding property.  A court will look unfavorably upon someone who is not honest at this stage.
  2. Evaluate the contributions each partner made to the asset pool.  This includes both financial contributions, such as salary and wages and indirect financial contributions, like gifts or property, like a home, acquired through an inheritance.   The court will also consider non-financial contributions, such as taking care of the home and the children.
  3. Consider the future needs of each partner.   The court will take into consideration the health, age, education and earning capacity of each partner.  One partner may have stayed at home to care for the children for the last 10 years, enabling the other partner to develop professionally and earn a higher income.   These factors need to be considered when deciding who gets which property.
  4. Provide a “just and equitable” division of the property.  The law does not require that the distribution of property be equal, only that it be fair.  For example, the court may determine that since the mother will be taking care of the couple’s five young children, she should keep the marital home.
Property Division Property Settlements

How is the property split?

Depending on the length of the relationship, how the parties have organised their finances and their circumstances, a property settlement can be quite simple or involve complex negotiations.

Both financial and non-financial contributions are taken into account when deciding a property settlement. It is important to understand that the Family Law Act takes into account various items and factors that you may not be aware of. These include compensation payments for personal injury, ill health or disability of each party, superannuation, future needs, the future earning capacity of each party, the health of any children and the financial resources of each party such as expected future inheritances.

It is important to find out what your legal entitlements are before you sign anything.

If you are negotiating an agreement yourself, gaining knowledge on your legal entitlements will help you to make an informed decision.

Property Division Property Settlements

Property Division – Field & Basson

Field & Basson – [2013] FamCAFC 32

This is an appeal on the division of the property made by the courts between a husband and wife following their divorce.

The wife, aged 47 and the husband, aged 48, were married in 1994 and separated in 2009.  The wife brought assets amounting to $373,471 to the marriage, including five properties, furniture, a car and cash.  The husband brought to the marriage assets amounting to $45,000, including a car, cash and one property plus a superannuation of over $2,000.  Both worked at the time of the marriage and the wife had additional income from her investment properties.

The couple developed a business together and as it grew, the husband resigned from his employment and received his superannuation, which had a gross value of almost $107,000.  The husband and wife both worked in the business and the husband helped maintain and renovate the wife’s properties.  They also took out a loan on the business, and the loans were secured through mortgages on two of the wife’s properties.  The business was not successful and in 2011 the husband found employment elsewhere and only the wife remained working at the business.  In December 2011, the wife suddenly shut down the business.

The Federal Magistrate

The Federal Magistrate gave orders for a property settlement in March 2012.  The judge calculated the assets and liabilities of the couple, including the business, their debts and all of the properties.  The Federal Magistrate took into consideration each partner’s contribution – both financial and nonfinancial – to the asset pool.  He also adjusted the wife’s contributions since she had the greater responsibility for child care and the husband earned more money.   He concluded that the wife should receive 87.5% of the net assets and the husband should receive 12.5% of the assets.

The wife made it clear that she did not want to sell any of the property in order to pay off the debts.  In order to end the joint property relationship, the judge ordered that all of the business stock as well as the jeep should be transferred to the husband, and the wife retains her property and the debt.

Husband appeals – division of property not weighted correctly

The husband claimed on appeal that the judge erred by giving more weight to the wife’s contributions than to the husband’s.   The appeals court began it’s response by explaining that they cannot interfere with the discretion of a lower court judge unless the decision was “plainly wrong”.   It is not enough to say that the appellate court would have come to a different decision in order to overturn the lower court decision.

The appeals court rejected the husband’s first claim on appeal that too much weight was given to the wife’s initial contributions.  The Federal Magistrate clearly stated in his decision that both parties contributed equally but the wife brought in “significantly greater initial contributions”.   The husband never articulated the basis of his claim, other than to bring several other cases, which he then asked the judge to ignore.

The appeals court also rejected the husband’s claim that a weighting of 25% to the wife was incorrect and that more weight should have been given to his non-financial contributions.  The husband provided no information that would demonstrate that the Federal Magistrate, who detailed how he came to his assessment, was “plainly wrong” in the conclusions he reached.   The appeals court cited earlier cases which also translated the “qualitative” contribution of an asset to a “quantitative” number.   The appeals court found that the judge described his reasoning and used his discretion appropriately.

Finally, the appeals court rejected the father’s claim that the Federal Magistrate assumed first that all sides contributed equally and only then made adjustments.  The Federal Magistrate clearly delineated the contributions from each side and the weight of these contributions and only than concluded that they were equal (other than the wife’s significantly greater initial contributions).

Property Division Property Settlements

The four step process to family law property settlements

When you apply for a property settlement, the Court uses a ‘4-step’ process to determine the application as follows:

Step 1: Identification and valuation of assets

This step involves identifying and valuing the assets, liabilities and financial resources of the parties.

Property includes all possible interests of the parties whenever and however acquired. It includes both property presently possessed and property expected (for example an inheritance.)  It may also include assets and liabilities disposed of in the past.

Property and financial resources are recognised separately. Property can be sold or transferred today, whereas a financial resource (for example superannuation or a damages claim) cannot be separated from a person.

Property must be identified at the date of settlement, not at the date of separation. When identifying assets full and frank disclosure should be demonstrated.

This is a simple step in many cases, but for some cases, particularly those involving businesses, the valuation exercise can be quite complex and require the assistance of experts.

How are liabilities treated in a family law property settlement?

Liabilities are given similar importance to the property of both parties. The net asset pool is commonly determined by calculating total assets and then subtracting total liabilities as follows:

Net Asset Pool = Total Assets – Total Liabilities

Liabilities are deducted from assets regardless of which party is responsible for incurring or paying them. The net asset pool is then shared between the parties on the basis of the contribution of each party and consideration of the additional factors/‘future needs’.

Liabilities to deduct from the asset pool include:

  • mortgages,
  • credit card debts,
  • tax liabilities,
  • overdrafts and
  • personal loans.

Debts are usually shared, unless one party has wasted assets of the marriage (for example, gambling or efforts to deliberately decrease the asset pool). These debts are not deducted from assets as liabilities normally would be.

Debt might not be included where a family member has lent money. The reason for excluding this type of debt is that there is often a possibility that this debt will not be collected. This type of debt may arise in various situations and may be owed to people other than family members.

Full and frank disclosure must be demonstrated when identifying and declaring assets. Otherwise, the Court has the option of favoring the other party due to dishonesty/lack of credibility on the part of the non-disclosing party.

Click here to calculate your asset pool using the Matthews Family Law Asset Pool Calculator.

Step 2: Contributions of each party

The contributions made by each party to a marriage fall into the following categories:

  • financial contributions,
  • non-financial contributions,
  • contributions to the care and welfare of the family and
  • contributions in the capacity of home-maker or parent.

In many cases, particularly where there has been a long relationship, the determination will be that the parties have contributed equally. The contribution of the parties may be viewed as something other than equal, where:

  • the relationship is short and there are no children, here the main concern will be about direct financial made by each of the parties;
  • a partner has brought considerably more assets to the relationship than the other party;
  • one of the parties contributed substantially via an inheritance, gift or personal injury settlement;
  • a partner has special skills or has made outstanding efforts which have brought substantial wealth into the relationship; or
  • a partner behaved in a deliberate or reckless manner resulting in a loss to the parties.

Assets are usually split half-half and then any necessary adjustments are made, taking into account all other factors including contributions.

If there has been violence in the relationship, this can affect the division of property. This is due to the possibility that the effects of violence may have limited the ability of a party to contribute.

Financial contributions

Financial contributions are any monetary contributions made to the marriage either:

  • before the marriage,
  • during the marriage or
  • after separation.

The financial contributions made by each party make up the asset pool.

Career assets are also financial contributions. They include contributions such as income, long-service leave and redundancy payment.

Notional assets are included as financial contributions. Notional property can be items such as legal costs and money spent individual pursuits such as gambling.

Financial contributions made before the marriage

Sometimes a party brings property to the marriage. Deciding how this property is shared depends on how the property is used and how the other spouse contributes to the property. The interest of the spouse bringing the property may be eroded by the passage of time and by the other party’s contribution to it and the asset will then be added to the asset pool.

Financial contributions made during the marriage

Financial contributions can be made towards purchasing, maintaining and improving property. They can be made either directly by a spouse or on behalf of the spouse.

A lottery win would be a financial contribution made during the marriage if the ticket is purchased during the marriage using joint funds. The winnings would be a ‘joint contribution’ and would be shared as such.

The beneficiary spouse of an inheritance may be allocated the assets of the estate, in circumstances where there is a substantial quantity of assets in the asset pool. Otherwise the inheritance is divided. The timing of the inheritance will be an important consideration.

A compensation payout is usually seen to have had both spouses contributing. The entitlement of the injured spouse is based on suffering and the entitlement of the other spouse is based on the contribution of caring for the injured spouse.

Financial contributions after separation

There are two methods of considering entitlements to property acquired after separation.

The first method considers how the property is used and how the other spouse contributes to the property. The interest of the spouse owning the property may be balanced by the other party’s contribution to it and the asset will then be added to the asset pool.

The second method looks at contributions after separation made by the non-owner spouse towards all matters concerning both parties.

Case: Husband wins $5M in lottery after separation

In Farmer and Bramley, the husband acquired a winning lottery ticket 20 months after separation. The prize money was $5,000,000. Until the win, the parties had no property after a relationship of 12 years. There was one child of the marriage who lived with the mother. The wife was entitled to $750,000 as she cared for the child after the separation and also cared for the husband during the marriage, nursing him through a heroin addiction.

Career assets in a family law property settlement

Sometimes one spouse obtains a valuable qualification whilst accumulating minimal property, meanwhile the other spouse takes additional responsibility for financial and family support. In these circumstances, the career assets of the qualification earning spouse are brought into the asset pool as a financial resource. The spouse without the qualification can be awarded payments for the extra responsibilities accepted and carried out.

Career assets can be difficult to value, as different qualifications take different amounts of time and effort to complete and may or may not lead to employment.

A partnership interest in a business is property, however such interests are often considered to be personal and not transferable to a third party such as a spouse.

Prospective long service leave and redundancy payment entitlements will only be regarded as property if payments have been received.

If a spouse is a company director, shares owned by the director in this company will form part of the asset pool, however assets owned by the company will not. Any shares held in public or private companies can be included as property in the asset pool.

Notional assets in a family law property settlement

Financial resources may include legal costs paid, property disposed of for the benefit of only one of the parties, expected inheritances and gifts from parents. These financial resources are calculated and allocated by the court or according to agreement between the parties.

Income is usually not included as a financial asset and is not considered property for the purposes of a property settlement. However, it can be taken into account as an additional factor. A party with little in terms of financial assets may be awarded more property assets to compensate, this is in the interests of ensuring a just and equitable result.

Money earned after separation is usually not ‘added back’ into the asset pool. However there are some exceptions, for instance if the funds arise from selling a business asset after separation where the business operated during the course of the marriage, then the funds may be included in the asset pool.

Case: Taxi license sold after separation

Usually funds accumulated post-separation are not added back into the asset pool, however, in some cases they can be. In the case of Townsend and Townsend, the money earned from a selling a taxi licence was included in the asset pool. The reason for including the money was that the licence had value during the marriage and therefore the other party was entitled to a proportion of the proceeds from the sale.

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