Property settlement - understanding how to divide the assets
a couple that divorces or a de facto couple that separates can divide their property without court involvement. in many cases, however, particularly when a property is owned jointly or after a long marriage or de facto relationship, it is best to negotiate a property settlement.
A negotiated property settlement can be made enforceable by entering into a binding financial agreement or by applying to the court for a consent order. When divorcing spouses or separating domestic partners cannot agree upon a property settlement, they may need to apply to a Family Law Court for a property order.
Financial Issues to Consider in a Property Settlement
When divorcing spouses or separating partners discuss a property settlement, they will need to consider:
How to divide property that has a title (such as a home or vehicle). Will title be transferred to just one party’s name in exchange for a “buy out” of the other party’s interest or will it be necessary to sell the property and divide the proceeds?
- How to divide cash in bank accounts, stocks, and other investments.
- How to divide property that is not held in either party’s name (like furniture, jewelry, and bicycles).
- How a business that is owned or co-owned by one of the parties will be valued and divided.
- How to split superannuation interests.
- How to divide personal property that has sentimental value to each party (such as pictures of the children).
- How other financial issues (such as spousal maintenance and child support) affect the property settlement.
When these issues are complex, it may be necessary to seek the assistance of lawyers and mediators to untangle the parties’ ownership of assets.
Putting a Property Settlement agreement into writing
A financial agreement made before marriage is known as a pre-nuptial agreement. Financial agreements can also be made during or after marriage. A primary purpose (although not always the only purpose) of a financial agreement is to put a negotiated property settlement into writing.
Most people obtain a divorce order before they enter into a property settlement, although they often begin negotiations before the divorce is finalised. After a divorce order is entered, if you are able to negotiate a property settlement, you can make that agreement enforceable by entering into a binding financial agreement.
Financial agreements after a divorce are governed by section 90D of the Family Law Act 1975. That section of the law permits divorced parties to make an agreement that:
- Deals with the property that either or both of them owned or acquired during the marriage, and
- Provides for the maintenance of either spouse (or gives up the claim to maintenance).
- Section 90G of the Family Law Act 1975 provides that a Family Law Court will regard a financial agreement as binding if all of the following are true:
- The agreement is in writing and signed by the parties.
- Before signing the agreement, each party obtained independent legal advice from a lawyer who explained the effect of the agreement on that party’s rights and the advantages and disadvantages of entering into the agreement.
- Each party received a signed statement from that party’s lawyer certifying that the advice described above was provided.
- The parties gave each other a copy of the certification that they received from their lawyers.
- No court has terminated or set aside the agreement.
Assuming all of those conditions are met, a court will enforce the agreement under most circumstances, even if the court might have made a different property settlement or if the court questions the fairness of the agreement. In unusual circumstances (such as an agreement procured by fraud), the court can set aside the agreement, but in typical cases, the court must respect and enforce an agreement that the parties have made binding.
Property Settlement Agreement via Consent Orders
One way to make a negotiated property settlement enforceable is to enter into a binding financial agreement. Another option is to apply for a consent order.
Parties who agree upon a property settlement can place that agreement in writing and ask the court to enter a property order that incorporates the terms of the agreement. If the court agrees to do so, the consent order is just enforceable as an order that is entered after a trial.
It is not necessary to appear in court when applying for a consent order. Assuming the application is in proper form and the court is satisfied that the proposed order is fair and reasonable, the court will enter the consent order.
A consent order gives parties the benefit of an enforceable agreement without the formalities that are required to make a binding financial order. On the other hand, a binding financial agreement will usually be enforced even if the court questions the fairness of the agreement. A binding financial agreement might, therefore, be preferable to a consent order when the parties suspect that the court might not agree to incorporate their agreement into a consent order.
Before you file – Pre-Action Procedure for Financial Cases
Before you can ask a Family Law Court to enter a property or financial order, you must make a good faith effort to resolve your dispute without court involvement (Rule 1.05 and Schedule 1 of the Family Law Rules 2004). The Rule requires divorcing or separating parties to take these steps before they apply for a financial order:
- Invite the other party to participate in a dispute resolution process (mediation, family counseling, conciliation, or arbitration).
- Participate in the dispute resolution process in good faith, making a genuine effort to resolve differences.
- If no agreement is reached, provide the other party with a written notice of your intent to start a court case, including a statement of the issues in dispute, the orders that you will be requested, a settlement offer, and a deadline (at least 14 days) for replying.
- A person who receives a notice of claim must respond with his or her statement of disputed issues, a genuine counter-offer, and a deadline for replying.
If the process outlined above does not produce a settlement or if the other party does not respond to a notice of claim, the pre-action procedures are deemed completed, and a request for a property order may be filed. If you only apply to a Family Law Court for a divorce order but not for a financial or property order, you do not need to comply with the pre-action procedures.
The Court may accept that it is not possible or appropriate for the pre-action procedures to be followed in cases:
- the application involving divorce only
- involving emergency
- involving allegations of family violence
- involving allegations of fraud
- where one person refuses to negotiate
- where a person would be unduly prejudiced or adversely affected if another person became aware of the intention to start a case
- where a time limitation is close to expiring
- where there has been a previous application about the same issue or subject in the last 12 months, and
- where there is a genuine dispute about either the existence of a de facto relationship, or whether a party’s choice to agree to the jurisdiction of the Family Law Act 1975 in relation to the property or maintenance of a party to a de facto relationship should be set aside.
If you and your former spouse or partner cannot resolve your differences, you can ask a Family Law Court to make a property settlement by applying for a property order after you comply with pre-action procedures. The application can be made either to the Family Court of Australia or the Federal Circuit Court of Australia (formerly known as the Federal Magistrate’s Court of Australia). A lawyer can advise you as to which court is best suited to hear your case.
Unless you are eligible for an exemption, you will need to pay a filing fee when you apply for a property order. The amount of the fee will depend upon whether you are only seeking a final property order. The fee is higher is you are also seeking interim orders, financial orders, or parenting orders. A lawyer can help you understand the orders you may need in your case.
In most cases, you must apply for a financial order within 12 months after your divorce order becomes final. You can apply even before your divorce order is entered, provided that you comply with the pre-action procedures discussed above, although a court may hesitate to enter a final order until a divorce has been finalised.
If you were in a de facto relationship, you must apply for a property order within two years after the relationship breaks down.
In some circumstances, you may be able to apply for a property order after the applicable deadline has expired, but it is wise to file before you reach that time limit to avoid the risk that the court will not accept your application.
How do Courts decide Property Division – The 4 Steps
A Family Law Court uses a four-step analysis to resolve property settlement disputes.
1. Define and Value the Net Asset Pool
The asset pool includes all property owned or acquired by the parties before, during and after the marriage or de facto relationship. Based on evidence presented during the trial, the court will determine the value of each item of property. When value might vary over time, the court will usually determine an asset’s value as of the date of divorce. The court will also determine what debts each party owed on the date of divorce. Subtracting total debts from total asset value results in the net value of the asset pool that is subject to division.
2. Assessing Each Party’s Financial and NonFinancial Contributions
The court will consider both financial and non-financial contributions that each party made to the marriage or relationship. Financial contributions include income earned and property brought into the marriage. Non-financial contributions include child-raising and homemaker contributions. The longer the marriage (particularly in the case of a first marriage), the more likely the court will be to view each party’s contributions as equal. When contributions are equal, step two would suggest that the net asset pool should be divided equally. Read about non- financial contributions. Read about financial contributions
The court will take a number of additional factors that affect future needs into account, including:
- the age, health and income earning capacity of each party
- whether either party is responsible for the care of the children or other family members
- the financial circumstances of a new relationship if any
The court can account for future needs by awarding spousal maintenance, or it can adjust the division of property to assure that a party will have sufficient assets to meet those needs. Read more information about future needs
This is the final and most important step. The court will not issue a property order unless it is satisfied that the property settlement is fair to both parties.
Property includes any assets that have a monetary value, that you and your partner or spouse own jointly or individually. It is essential that you disclose all of your assets to ensure that proceedings are fair. If you hide or do not disclose your assets you may be found in contempt of court.
A simple way is to list all assets using an excel spreadsheet, under each item provide a brief description, your estimate value, your partner estimate value.
The following is a list of what is defined as an asset;
Real estate (family home or investment property)
Non-real estate assets
Superannuation, Bank accounts, Shares, business equity or business partnership, frequent flyers, long service leave, Cars, household goods, Paintings, Jewellery
Decisions whether to 'add back' property is made at the Court's discretion. It is not uncommon for one party in family court proceedings to allege that another person has disposed of or distributed assets, which would otherwise be included in the matrimonial asset pool available for distribution to both parties. Read full article on add back
The court takes superannuation into account when it makes a property settlement, but the process of splitting superannuation is handled separately from the property order the court enters. As it does with other property, the court must determine the value of each party’s superannuation interest before deciding how to split it. Superannuation interests are typically valued as of the date of the divorce.
Superannuation interests that have a relatively small value are deemed “unsplittable” and are not subject to Australia’s splitting laws. Current law defines unsplittable interests as superannuation interests with a withdrawal benefit of less than $5,000 and those that pay an annual annuity or pension of less than $2,000.
Nearly all other superannuation interests are subject to splitting, including those that were acquired before the marriage and after separation (but prior to divorce). The court’s decision to split a superannuation interest does not change the date on which a party is entitled to receive superannuation proceeds. If the plan makes funds available at retirement age, superannuation cannot be accessed until the owner of the plan reaches that age, regardless of how the court split the funds.
De facto couples in Western Australia are not subject to superannuation splitting laws. The law applies to de facto couples everywhere else in Australia if their relationship broke down after 2010.
A member or the spouse of a member of a superannuation fund is entitled to receive information about the fund in order to negotiate a property settlement or to present evidence in court. The nature of the information that will be provided will depend upon the nature of the interest that the member has in the fund (for example, a defined-benefit interest, an accumulation interest, a percentage-only interest, etc.).
Upon receipt of an appropriate application for information (and any fee the fund charges for complying with that application), the fund’s trustee must provide either the value of the member’s interest in the fund or information from which that value can be calculated. An application will typically consist of a Superannuation Information Request Form and a Declaration establishing the applicant’s entitlement to the requested information.
Determining the value of a superannuation interest is not always easy. You may need expert assistance to help you calculate the value.
You can split a superannuation interest in different ways. Some splitting agreements (and court orders) specify a percentage of the benefit that each party will receive. For example, if the order or agreement provides for a 50/50 split, the trustee will send each party one-half of the payment to which the member is entitled. In other words, instead of receiving the full superannuation payment each month, the fund’s trustee will pay half to the member and the other half will be paid to the other party.
Some agreements specify a base amount that a party will receive, plus an increase or decrease in that amount that reflects the fund’s performance. When negotiating a financial agreement that splits one or more superannuation agreements of significant value, it is best for each party to get advice from a financial expert.
Also, each party must obtain independent legal advice before entering into an agreement to split superannuation. Without a certification that each party obtained legal advice, the splitting agreement is not binding on the trustee.
Family Law Courts can join third parties in a family law proceeding to protect the interests of both divorcing parties and third parties.
A divorcing husband and wife, or separating de facto partners, are the most keenly interested parties in family law proceedings. There are times, however, when third parties also have an interest in the proceedings. Read full article
Most family trusts take the form of what are popularly known as discretionary trusts. This is not a wholly accurate description. First and foremost, the trustee is normally given powers, not trusts, to distribute income and capital. Sitting in the background, there are trusts in default of the exercise of the powers. Often these trusts are fixed, rather than discretionary. Usually, the trustee, most likely a company, has the principal beneficiaries as its directors and shareholders. The trustee is itself liable to appointment and removal by an appointor, usually the principal contributor or contributors to the trust fund (as distinct from the nominal settlor).Read more about family and discretionary trust