What is the divorce law in Australia? How are assets split? » Pearsons Lawyers

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What is the divorce law in Australia? How are assets split?

It is a common misconception amongst Australians that a system of “divorce law” exists. Indeed, there are laws on divorce, but these are a small assembly of laws amongst other laws as to the range of matters contained in the Family Law Act 1975 (Cth) (“the Act”). Laws governing marriage, divorce, de facto relationships, property division, guardianship, adoption, and the care of children (not being children subject to the intervention of the State child protection system), are contained in the Act. Here we find a jurisdictional basis for that law which we colloquially call “Family Law”. For the purposes of this article, we will focus on, and distinguish between, the processes involved in making an application for divorce, and those involved in reaching a property settlement with or without the need for judicial determination.

A) Divorce

In 1975, the Act established a principle of “no-fault divorce” in Australian Law for the first time. The only ground for divorce is irretrievable breakdown of marriage, evidenced by a twelve-month separation immediately preceding the date of the filing of an application for divorce. In other words, a court does not consider why the marriage ended, but only whether 1) the marriage has broken down for a continuous period of not less than 12 months; and 2) there is no reasonable likelihood that the parties will get back together.

The second limb of the “divorce test” is somewhat ad hoc. The reality is that if one of the parties to the marriage has announced by virtue of making an application for divorce that they don’t want to be in a relationship with the other party, a court will not step in and decide otherwise, so long as separation has been proven.

It follows that “separation”, as defined by the Act, is paramount insofar that it operates as a prerequisite for divorce.

Of course, separation is often not clear cut; “on and off again” relationships are common, which can create confusion as to when separation occurred and when it ended. The Act recognises this if parties separate and if there is a resumption of cohabitation of three months or less, then separation occurs again, those two periods of separation may be aggregated into one single period. So, if a married couple separate for 2 months, then reconcile for 3 months, and then separate for 10 months, the 12 month qualification period has been satisfied within that total period of 15 months.

Where the question of separation is in issue between the parties to a marriage such that one party opposes the making of a divorce order, it is necessary to consider whether the parties continued to live together as a couple or not in the relevant 12 month period. To answer this, the follows factors are relevant:

I. Were the parties sharing a bedroom?

II. Was there a sexual relationship?

III. Was one or both of the parties performing domestic tasks for the other?

IV. Were the parties sharing finances?

V. Were there elements of financial dependency?

VI. Did one party inform the other that they considered the married relationship over?

VII. Was the separation made public to family and friends?

VIII. Did the parties make contact with Centrelink, the Child Support Agency or any other government agency, notifying that agency of the parties’ separation for the purposes of financial assistance?

The Act also recognises the unfortunate situation some find themselves in having separated but not having the means to “move out” of the matrimonial home. It is not a requirement that parties to a marriage no longer reside together for separation to take effect. So long as the parties are no longer living together as a couple, taking into consideration the factors referred to above, they are deemed to have separated. Accordingly, “separation under one roof”, as it is commonly called, is possible for the purposes of effecting separation. Generally, some form of corroborative evidence will be required to establish the separation.

Once the two limbs of the “divorce test” are satisfied, a party to a marriage can make an application for divorce in the Federal Circuit Court of Australia. If a divorce order is made, the divorce takes effect and is finalised one month and one day from the date the order was made. A party can seek a shortening of this time period, in special circumstances, such that a divorce order can take effect on the day it is made but it is best to avoid that scenario. The parties can then remarry but of course will need to give the usual one month notice of intention to marry.

To find out more about whether you are eligible to apply for a divorce; how to apply for a divorce; how much it is going to cost you; whether you can oppose an application for divorce; and what happens on the day of the divorce hearing, or if you wish to seek further advice relating to the contents of this article, drop into our office for a free 30 minute consultation with one of our experienced solicitors.

B) Property settlement

It is important to note that a divorce and property settlement are two different legal processes. A divorce is the legal termination of the marriage. A property settlement is the formal division of property following a couple separating. Discussion regarding the division of assets can occur whilst parties are living together and be finalised before their divorce is finalised and even whilst they continue to live together (though very rarely in practical terms).

Australia is an equitable distribution country, meaning that on the divorce or death of a spouse, net wealth is not split evenly (i.e. 50/50) as “community property”. Property adjustment in Australia is calculated using a four step process which is referable to section 79 of the Act.

First, the assets, liabilities and financial resources of the couple are identified and valued, irrespective of whether they are acquired before or during the marriage or after separation.

Assets can include anything of value such as real estate, cars, savings, shares, inheritances, compensations, redundancy packages, lottery wins, jewellery and other property real/ and or personal.

The parties’ respective superannuation benefits are included in the pool of assets and classified as an asset, unless one of the parties has superannuation benefits overseas, in which case it is classified as a financial resource. Nevertheless, superannuation is often pushed aside from other assets and considered separately. It is often equalised between the parties and any necessary adjustment as a consequence, seen in the division of real property and readily available assets.

Liabilities include anything one or both of the parties are financially accountable for, such as debts, mortgages, personal, bank or business loans, personal guarantees, taxation liabilities and other liabilities.

Financial resources can be thought of as something which is not property included in the asset pool, but is something of a future financial benefit to one or both parties, such as a future pension entitlement, an interest in a fixed or discretionary trust, an anticipated inheritance, long service leave (if likely to be in the form of cash), tax losses, flight points and more.

Once the total net pool is identified and valued, the financial and non-financial contributions of the parties coming into the relationship, during the relationship and past the relationship are assessed and adjustments made to the pool accordingly on a percentage basis. In a short marriage with no children it is often the pre-cohabitation contribution that is critical.

Financial contributions include and direct or non-direct contributions to the acquisition, conservation or improvement of any of the property of the parties or either of them, and can include real estate, cars, income, gifts, inheritances, redundancy packages, compensation, dividend payments and more.

Non-financial contributions include any direct or non-direct contributions made to the acquisition, conservation or improvement of any of the property of the parties or either of them and / or to the welfare of the family, and can include homemaking, parenting, improvement and conservation of the matrimonial home through one’s own labour (such as repainting, landscaping or renovations) and more.

It is important to note that the above described contributions can be also to property which is no longer in the control and/ or ownership of the parties or either of them.

If one of the parties to the proceedings has “wasted” assets rather than “contributed” as described above, for example, a significant amount of matrimonial funds on gambling, adjustments can be made consequently and in favour of the other party, so long as such “wastage” is in context significant, and can be proven.

The third step is to calculate the “future needs” of the parties. This involves taking into account a range of factors such as age, health, income and earning capacity, care and support of children, financial circumstances of any new relationship, financial resources of each of the parties and other matters. At this stage, the Court considers whether any further adjustments should be made to the pool considering the parties’ future needs. At this stage, often % adjustments are made in circumstances where the care and support of young children impact a parent’s income and capacity to earn income.

The final step is to consider the practical effect on the proposed property settlement. This involves the Court, if the matter proceeds to Court, sitting back and turning its mind to whether the effect of the above three steps is just and equitable in all the circumstances.

Most property proceedings result in a division of 55-65% in favour of the economically weaker spouse, historically the wife, before payment of legal fees. Nevertheless, the outcome of your property settlement will depend upon your practical circumstances, judicial determination in this field being discretionary.

To find out more about where you stand in a prospective property division from your estranged spouse, and of next steps, come into our office for a free 30 minutes consultation with one of our experienced solicitors.