Are you going through a separation or divorce? Are you worried about your property? Did you bring property or an item of value into your relationship or marriage and want to keep it?
This area of divorce law is complex!
The complexity arises because the Court does not use a specific mathematical formula to work out whether you or your ex will keep the property or how adjustments are made in the overall split of your assets.
This area of law is discretionary.
This article aims to provide an insight into how the Australian Courts divide assets between couples that have either separated or divorced.
Just and equitable division
Pursuant to the Family Law Act 1975, the court has the discretionary power to make an order with respect to the division of property between parties going through divorce or separation. However, the Court is only permitted to make such an order provided the Court is satisfied that it is just and equitable to do so.
How does the court determine a just and equitable division of property?
The Court generally adopts a four-step approach when considering making an order for the division of property
The four-step approach includes:
- Identifying a net asset pool;
- Consider the parties contributions to the net asset pool;
- Consider the future needs of each party; and
- Determine whether the proposed settlement between the parties is just and equitable;
Step 1 – Identify the Asset Pool
The first step the Court considers when making a property adjustment order is that first identifies and values both parties’ assets, liabilities and financial resources.
All assets are considered irrespective of when the asset was acquired by either party, that is, whether it was acquired, before or during the relation and even after separation.
All assets are considered when determine a net asset pool. This includes but is not limited to the following:
- Real property (such as houses and apartments);
- Interest in any companies;
- Savings in a bank accounts.
- Motor vehicles and boats.
- Investments in shares;
- Jewellery; and
- Furniture and other household contents.
All liabilities are also taken into account when determining a net asset pool. This includes but is not limited to the following:
- Personal loans;
- Credit card debts;
- Taxation liabilities;
- Finance owed on a vehicle; and
- HECS debts.
The financial resources that are taken into account when determining a net asset pool includes but is not limited to the following:
- An interest in any trust; and
- An anticipated inheritance.
As you can see, the assets and liabilities that are included in the net asset pool include both personal and business assets.
The court will take into account all property, regardless of how the asset was acquired by either party.
This step can either be straightforward, or complex, and will depend on the parties making full and frank financial disclosure. If the parties cannot agree on a particular value of an asset, it is common for the parties to jointly appoint an independent expert valuer to assist in valuing the asset.
Step 2 – Contributions Towards the Net Asset
The second step the Court is required to do, is to assess and identify the contributions of the parties to the net asset pool.
The concept of the term ‘contributions’ in family law is quite broad and considers three types of contributions made by the parties, to the acquisition, conservation and improvement of the property pool. These contributions include:
- Financial contributions (direct and indirect);
- Non-financial contributions (direct and indirect); and
- Homemaker and welfare contributions.
What are Financial Contributions
Financial contributions can either be made directly or indirectly by both parties to the acquisition, conservation, or improvement of any property of the parties.
Direct financial contributions for example, if you have paid the deposit towards the purchase of the family home or any investment property, that is a direct financial contribution.
On the other hand, indirect financial contributions are contributions that have been made by one party, whereby that specific indirect contributions allows the other party to directly financially contributes toward the acquisition, conservation or improvement of any property.
For example, a party can been seen to have indirectly contributed to the total property pool where one party, whether it is a husband or a wife, decides to give up their job so that they can stay and home and raise any children of the marriage, which then enables the other party to have more time to financially contribute to the build-up of assets, while the other purchases the groceries so that the other party is able to meet the mortgage repayments on the family home.
What are Non-financial Contributions
Non-financial contributions are generally contributions that were made by one party, that have increased the size of the total net asset pool. They must also be related to the acquisition, conservation or improvement of the final pool of property.
For example, non-financial contributions can include contributions through either spouses own labour as opposed to hiring tradesman or labourers to do the work. These contributions include for example renovations and maintenance of the matrimonial home (such as painting and landscaping).
What are Homemaker Contributions
Not only does the court consider the financial and non-financial contributions made by the parties, it also considers the homemaker contributions, that is, it recognising the domestic duties that is performed by a party to a marriage or de facto relationships.
This includes for example, where a husband or wife stays at home, as was responsible for all of the domestic duties such as the cooking, cleaning, washing and ironing etc whilst the other party was working. The significance of a parties’ homemaker contributions will depend on whether such duties were performed by one party on a full time basis, or whether there were any housekeepers and cleaners involved.
Where there are children involved, it also includes the time that parent has taken to look after the children, such as the responsibility of feeding and bathing.
The court also considers the initial contributions made by the parties, that is, what assets did each party bring into the relationship, as well as the contributions made after separation.
A lot of clients tend to think that, if they made more financial contributions than the other party, then that outweighs any other non-financial contributions or homemaker contributions that the other party has made to the asset pool.
However, that is not the case. There is no one type of contributions that is more significant than the other two types of contributions. The court assesses how all of the contributions were made and the impact any of those contributions has on the total net asset pool.
Once the court has identified and assess the contributions of the parties, the Court will then convert this as a percentage of the total net asset pool.
This means that the Judge after hearing all the evidence in your matter about the initial property contributions, contributions during the relationship, contributions after separation and future needs, has a discretion to determine what the property split ought to be within a range. Therefore, predicting a specific outcome is difficult.
Step 3 – Future Needs and Adjustments
Once a percentage range has been established, the court then considers any future needs either party may have, so that the court can make a further adjustment in contemplation of that parties future needs.
When making an adjustment for property, the court takes into account the factors such as:
- The age and health of the parties;
- The capacity to earn an income and whether there is a disparity in earning capacity;
- The property of each party;
- Whether either party has the care or control of a child of the marriage;
- The commitments of the parties to that are necessary to establish that that party is able to support himself or herself.
Step 4 – Just and Equitable Settlement
The final step is at the Courts discretion, and it is to determine whether any order for a property settlement is just and equitable in the circumstances. This discretion however is not at large, and the Court must nonetheless take into consideration all of the contributions made by the parties.
When considering whether an Order for property settlement is just and equitable, the court must consider the practical effect of the Order.
Notwithstanding the above, the length of the relationship will also have an impact on how the court approaches the matter when assessing the contributions that each party has made to the acquisition, conservation and maintenance of the property pool.
The information provided herein is not legal advice. It is intended as general information only. For more information contact us at firstname.lastname@example.org or 02 8999 1800.