Your ex-partner proposes a property settlement to you, but you can’t help but wonder … is this really a fair agreement in the eyes of the law?
Separated families are often baffled when it comes to dividing their assets. Some may ask themselves, “Is this a fair division of assets?” “Am I getting what I am entitled to?” “Will our agreement ultimately stand in Court?” While these questions are reasonable, the answer is not always straightforward.
The reason being is that although the Family Court is guided by principles in the Family Law Act 1975 Cth (“the Act”), they also have a discretion to consider what makes a “just and equitable” property settlement based on the unique circumstances of each case.
Before we delve into the principles used by the Family Court, it is important to be aware that there are certain pre-requisites to meet before separated families can commence Court proceedings for a property settlement.
For married couples, this means meeting the following criteria at the time of making a property application:
- being present in Australia;
- being ordinarily a resident in Australia; or
- being an Australian Resident.
For de-facto couples, the test is slightly different. Firstly, a separated partner will need to establish that their relationship is considered a de-facto relationship pursuant to the Act. In particular, section 4AA of the Act states that a person is in a de-facto relationship with another person if:
- the persons are not legally married to each other;
- the persons are not related by family; and
- having regard to all the circumstances of their relationship, they have a relationship as a couple living together on a genuine domestic basis.
Once a de-facto relationship is established, the de-facto couple must also satisfy certain pre-requisites at the time of making a property application, that:
- relationship existed for a minimum of 2 years;
- there is a child of the relationship;
- substantial contributions were made to property; or
- the relationship is registered.
In addition to the above pre-requisites, de-facto couples are required to meet a geographical requirement pursuant to section 90SK of the Act.
IS THERE A TIME LIMITATION?
It is important to be aware that the Act places time restraints for making an application for property settlement (or spousal maintenance) orders. The main time restraints include:
- for married couples, the deadline to apply for a property (or spousal maintenance) application is 12 months after a divorce order has taken effect; and
- for de-facto couples, the deadline to apply for a property (or spousal maintenance) application is 2 years after the breakdown of a de-facto relationship.
There are very limited circumstances where you can apply for property orders (or spousal maintenance) outside these deadlines. You are also required to obtain the Court’s permission if you are applying for property orders outside the required time-frame.
THE COURTS 4-STEP PROCESS
In determining an appropriate property split, the Family Court is generally guided by a 4-Step process as follows:
- Identify and value the property, liabilities and financial resources of the parties;
- Assess the financial, non-financial and welfare contributions of the parties (otherwise known as “Contributions”);
- Assess the factors pursuant to sections 75(2) or 90SF(3) of the Act (otherwise known as “future needs”); and
- Assess the effect of those findings and consider what orders would be “just and equitable” in the circumstances.
FIRST STEP – IDENTIFY AND VALUE THE PROPERTY, LIABILITIES AND FINANCIAL RESOURCES OF THE PARTIES
The initial step in any property settlement is to determine the property pool of the relationship. To achieve this, each partner is required to provide the other with full and frank disclosure of their financial circumstances (for example, exchanging tax returns and bank statements). This is an important step in order to determine the net property equity of the relationship.
Once the financial documents are exchanged, parties are able to create a table of assets, liabilities and financial resources that is reflective of their current financial stance.
Some examples of assets that are included in an asset pool table are real estate, motor vehicles, shares, bank accounts and interests in any business. In addition to these assets, there may be other items that are difficult to categorise as property and which may require further information, such as a redundancy payment or lottery win available for division in the property pool. In these latter cases, it is best to seek legal advice.
In circumstances where the parties are at odds in valuing an asset, it is generally accepted that the next step is to seek an expert opinion (for example, a sworn valuation).
SECOND STEP – CONTRIBUTIONS
The second step is to assess the contributions of the parties in relation to acquiring, conserving and improving any of the property held by the parties.
These contributions can be financial (for example, a redundancy payment or payment of a deposit) or non-financial (for example, contributions as a homemaker or parent). Contributions can also further categorised as direct or indirect (for example, a partner’s parent providing rent-free accommodation to the parties during their relationship).
The Court will then consider the contributions made by each party and will apply an appropriate percentage from the property pool to each party. However, this does not conclude the Court’s analysis.
THIRD STEP – FUTURE NEEDS
The third step is to assess how each partner will be able to financially move forward with their lives after separation and whether there are any particular future needs that may require adjustment to be made to the proposed property settlement.
Section 75(2) of the Act provides a detailed checklist to guide the Family Courts. Some examples include analysing each partner’s age, state of health, disparity in income, whether a party has the care of a child and any needs of the child.
After a consideration of all the factors in section 75(2), the Court may adjust the contributions percentage (in step 2 above), by a further percentage to take into consideration the section 75(2) factors.
FOURTH STEP – JUST AND EQUITABLE STEP
The fourth step is for the Court to assess whether the overall percentage split and proposed settlement is in fact just and equitable in the particular circumstances of that case.
Under the Act, the Court has a broad discretion to consider any other fact or circumstance they believe should be taken into account to effect a just settlement.
FINALISING PROPERTY DIVISION
Once the separated partners are able to agree on an asset pool and the percentage split, then what remains is simply formalising the agreement by way of a Binding Financial Agreement or Consent Orders.
A Binding Financial Agreement is an agreement made between the separated partners in relation to property matters whilst Consent Orders involves the Court’s input on the agreement. It is best to seek further legal advice on these options.
We recommend the following brochures on the Family Court website if you require further information on property matters:
- “Marriage, Families and Separation.”
- “Before you file – pre-action procedure for financial cases.”
- “Family law and superannuation.”
- “Applying to the Court for Orders.”
NEED LEGAL ADVICE?
If you would like legal advice on your Family Law matter, you are welcome to book a free first appointment with our Solicitors by contacting our head office on (03) 9306 0044.