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:
- 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 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.
Legal costs are usually