What are you entitled to in a family law property settlement?

One of the most misunderstood aspects of divorce and separation is how a property settlement is calculated and assets divided between the parties under the Family Law Act.  There are many myths that are widespread in the community, with the most common being that parties are entitled to half each regardless of any other factors.  This is totally incorrect.  There is a set process outlined in the Family Law Act and followed by the courts which is used to divide assets between separating parties.

How is a property settlement calculated – Who gets What

There is no specific formula that the court use to calculate who gets what in a property settlement.  A court, or a lawyer, cannot enter in the data into a formula and then produce an answer.  Because everyone situation is different the court weighs up all of the relevant factors in a relationship to come to a decision.  We, as solicitors, follow the same process that a court does in deciding what each party could be entitled to. 

As there is no set formula the best that a lawyer can do is provide a range of outcomes that we believe a court could order in your matter.  Because every couple’s circumstances are so different, a judge has a great deal if discretion in deciding what is an appropriate property settlement. One judge may look at a set of facts may decide one figure for a settlement, while another judge looking at the same set of facts may come up with a different decision.  In family law both decisions would be right because of the need to try and weigh up all of the factors that have to be considered. For example, a lawyer may advise that the range is somewhere between 50 and 60% of the pool to one party.  Any result which is in that range would be correct.

There are five steps that a court follows in order to decide what is an appropriate division of property between parties.  Those steps are:-

1. Asking the initial question of whether it is it just and equitable to have a property settlement?  This is normally answered with a yes because parties share assets which now have to be divided because they are separating.
2. Identifying the extent of the matrimonial asset pool (i.e.. total assets less total liabilities) This includes all of the assets that the parties hold together, individually, or with third parties;
3. Assessing the contributions the parties have made to the acquisition, conservation and improvement of those assets.  This includes contributions as breadwinner, homemaker, family gifts and inheritances, etc, the court will look at each party’s contributions at the start of the relationship and balance those against what has occurred during the relationship.  The longer the relationship the less important the initial contributions become. 
   
   Be aware also that the court will not undertake an accounting exercise.  Looking at how much each party has earned compared to the other, who has done the washing, who has done the housework et cetera are not generally matters a court is concerned about.  The court basically takes the view that both parties have worked to the best of their ability to improve the property pool through financial and non-financial contributions. 
   
   In extreme cases one party’s contributions financially and all non-financially may be greater than the other for example when one party refuses to work for long periods during the relationship.  In that case the court would take that fact into account in assessing the contributions of each to the property pool.
4. Assessing adjustment factors which are listed under Section 75(2) of the Family Law Act.  These adjustments are for factors which will impact either party in the future.  This includes making adjustments to take into account earning capacity and prospects of work, commitments to care for children or others, financial resources, etc. 
   
   For example, a party to the relationship may not have been able to gain qualifications and skills as a result of having to care for the children.  Because of this their income earning ability may be less than the other spouse who was able to continue in the workforce. In such circumstances an adjustment can be awarded to the stay at home parent to compensate them for their inability to earn a higher income in the future. Alternatively, an adjustments can be provided to that party to allow them to return to study and gain needed qualifications;
5. This step involves weighing up whether the property settlement arrived at after assessing each party’s contributions, and adjustments, is just and equitable.  This step also involves deciding what orders are “proper” in order to apportion specific assets between the parties.  For example, what amounts of cash versus superannuation are to be given to each party or whether the family home will need to be sold or not so that a property settlement may take place.

How to formalize your property settlement

The next step is the most essential with regards to a property settlement. The property settlement must be legally binding. A legally binding property settlement draws a line under the relationship, and financially separates the parties from each other.  They each retain the assets agreed to under the formalized property settlement and no longer have any claim against the other party’s assets. 

There are only three ways to obtain a legally binding property settlement:

Binding Financial Agreements

1. Binding financial agreement which has the effect of a contract between the two parties.  Each party is required to obtain legal advice and have a solicitor sign off on this advice to say that has been received.  The parties are able to formalise any proper settlement division that they can agree on.  The court does not review or stamp the agreement. 
   
   Under a financial agreement parties can deal with property and spousal maintenance.  Spousal maintenance is financial support paid to the other party in order provide for their needs.  Spousal maintenance can be paid when two conditions are satisfied:
   1. Firstly one of the parties must demonstrate a need (for example they are ill or unable to work for a particular reason) and
   2. The other party must have the capacity to pay financial support (which means that after paying for all of their normal expenses they have funds left over which could be used to support the other party).

It should also be noted that spousal maintenance can only be finalised in a financial agreement if the party receiving the maintenance is not in receipt of a Centrelink benefit.

Financial agreements are quite expensive because they are complex legal documents. There are strict requirements which must be followed because the agreement is no approved by a court. As a result of these requirements Financial Agreement are often more expensive to produce in comparison to Consent Orders..

Consent Orders

• Consent orders.  This is where the parties agree on a property settlement and submit orders to the court.  The court reviews the orders and the parties’ situation in light of the four step process and if the settlement is within the range the court will stamp the orders making the property settlement legally binding.  Consent orders cannot contract out of spousal maintenance.  Consent orders are relatively cheap.  If parties are in agreement then they could possibly be finalised for say $1500.  I have had consent orders that have been finalised for less than this in others that have been finalised for more.  At $401.50 per hour it is quite easy for the figure to increase quite rapidly.

Court Ordered property settlement

• Court ordered proper settlement.  This is where the parties cannot agree on a property settlement.  One of the parties makes an Initiating application to the court and the other party provides a Response. The Initiating Application includes the orders that you are seeking in relation to property and is accompanied by an affidavit which sets out your story and why those orders are required. 

Parties also have to file a financial statement which provides details of their financial circumstances. The Response is similar, including the orders that the other party wants, an affidavit setting out why they want those particular orders and their financial statement.

The cost of preparing the initial documents can be approximately $3,000 to $5,000 depending on how complicated the matter is. Law firms normally would require funds in trust before this work was carried out.  Each party has to provide disclosure to the other of everything that is financially relevant to their case.  Parties cannot hide or underreport assets etc.  If you ask a lawyer to not disclose assets to the other side then they would have to refuse as we have an obligation as officers to the court not to mislead.  

Where there is disagreement on the value of assets, independent experts are appointed to provide their view of an asset’s value.  These reports can become quite expensive when the parties have to value a business entity. In some cases an accountant has to be appointed to provide a forensic report on how a business has been managed and whether there are ay assets or income which has not been disclosed.

During the court process, parties are also able to issue subpoenas to order third parties to provide documents in their possession which could be relevant to working out the property settlement.

After the parties have completed the gathering of evidence, the matter is then ready for a trial before a judge.  A judge weighs the evidence of both parties and  decides on what is an appropriate property settlement given the five step process.  A court ordered property settlement can be a very expensive proposition costing anywhere from $30,000 to $50,000 or even more.  It is not advisable to go to trial where the property pool is a relatively modest one.

What can happen if the property settlement is not formalized?

If you have been fortunate enough to reach agreement with your spouse on the terms of a property settlement it must be made legally binding in one of the above three ways. 

Many people make the mistake of missing out this step.  This can have serious consequences for either or both parties in the future.  Without a legally binding property settlement either party is able to make an application to the court for a property settlement regardless of what has happened to any of the parties’ assets since separation.

For example, if one party has purchased a house after separation, this house forms part of a property pool to be distributed.  If a party receives an inheritance after separation, this also forms part of the pool.  If a party commences a new relationship and purchases a house with their new partner, this assets will also form part of the property pool.  Even on just these examples, serious consequences can arise if parties do not formalise a property settlement after they have separated.

If a party losses part or all of their assets because of some misfortune or simply spends it, then whatever the other spouse owns forms the property pool to be divided between the parties.  The courts are only able to divide the property which exists at the time it decides the property settlement.

Until there is a legally binding property settlement all assets that are in either party’s sole name, held jointly with the other spouse, or held with a third party are part of the property pool to be potentially divided between the parties.  A legally binding property settlement provides security to each party that what they own once a settlement has been reached, is theirs and is no longer at risk of being shared with their former spouse.

Time limits for applying for a property settlement

There are time limits for a party to make an application to a court for a property settlement.  For de facto relationships the time limit is two years from the date of separation.  For divorced couples it is 1 year from the date that the divorce order became final.

If a party does not reach a legally binding property settlement with their spouse within these time limits, a court may reject an application by them for a property settlement which is out of time.

Applications for property settlements which are out of time are expensive and potentially can be rejected by the court, leaving parties with only those assets that they currently possess.  This could have significant financial repercussions for one or both parties. The better course of action for a party who has not yet reached a property settlement with their spouse, and with approaching time limits, is to file an application with the court in order to preserve their right to a property settlement.

Family law property settlements are complicated and require considerable experience and expertise to ensure that the outcome is what a party is entitled to.  Engaging a solicitor who is experienced in family law is the best way of protecting your rights and ensuring that you receive what you are entitled to in a property settlement. 

We at Reeslaw have been providing advice and representation to separated parties for over 30 years and are well qualified to assist in any family law property settlement issues that you may have.  Should you require advice or assistance with a property settlement, do not hesitate to contact our offices for an appointment today.