step 1: identify and value belongings and debts
You can consider any of the property belonging to both parties in settlement proceedings. This includes property held under the same or different names, as well as property controlled by (or benefiting) either or both parties. The settlement also factors in the debts of all parties.
All the belongings and debts combined are called the global (or property) pool. Every belonging in the pool is given a dollar value, and debts have a negative value. The total pool’s total value is calculated by adding the values of belongings and subtracting the debts.
People often assume that certain belongings (like businesses or inherited items) won’t be included in the global pool. This is not true – all property, financial capital, and financial commitments of both parties are eligible for discussion, though the court may handle some belongings differently. The court looks at the property and situations of the parties in context.
Identifying belongings and debts
Belongings and debts that can be placed in the global pool include:
- property the parties owned when they married or at the start of their de facto relationship
- money made from a party’s property before the marriage or de facto relationship;
- property acquired by a party while in the relationship;
- property acquired by a party after getting separated;
- goodwill and assets from a business;
- payment and damage reimbursement paid while in the relationship;
- lottery winnings;
- severance payouts;
- mortgages or other bonds; and
- some life insurance policies.
- Belongings held by other parties (such as a private business)
The court will respect a third party's rights unless the third party is proven as a fraud (a puppet of one of the parties). If a third party (another person, trust, company, or organisation) is significantly separate from the couple and has a legal right to a belonging, it may not be possible to include it in the global pool.
Under the Family Law Act, value in a business can be considered in a property settlement. This includes vehicles, instruments, or other belongings.
If someone controls part of a business, that proportion of the business is eligible property. If one of the parties controls a part of a business, that part of the business is eligible property for the settlement. While a partnership interest is normally eligible property as part of the Family Law Act, the expectation of future capital is not.
Businesses don’t necessarily have divisible value. For example, a carpenter, plumber, or any other kind of independent contractor might not have valuable belongings (aside from what can be made by selling the tools used on the job).
Trusts in Australia take many forms and serve a variety of purposes. The most usual form of family trust is the discretionary trust. Belongings from that are eligible property in family law cases if one of the parties has effective control, and has the ability to single-handedly sell the property of the trust to the relationship’s benefit.
If you have a secured liability (like a mortgage), it’ll likely be subtracted from the value of the asset involved (like a home) before being added to the global pool. Liabilities such as credit card debts, lease commitments, personal loans, and tax debts are deducted from the total asset value in the calculations as well. As such, the final property orders usually focus on the value after deducting debts.
Usually, the normal processes are applied. However, changes to the Family Law Act 13 years ago make it so that a party’s debt is “treated as property”. Because of this, court orders can not only determine the ownership of the belongings, but also change and assign responsibility for debts.
If your former partner’s parent loaned money to both of you when you were a couple and expects repayment, it’ll be looked at as debt. If repayment isn’t expected, it’ll be treated as a gift and viewed as a financial contribution.
Say you sold a property during your relationship and used the money for yourself (maybe to go on vacation or pay a debt). If that’s the case, the property’s value will be “added back” even though the property doesn’t belong to you.
This only comes into play when there’s been an imbalance in the relationship with assets and property.
In Omacini and Omacini (2005), it was found that this likely involves money spent on legal fees and solicitors, distributing the assets before the settlement or affecting the worth of the global pool by acting “recklessly, negligently or wantonly”.
Family Law Rule 13.04 instructs that you have to share the details of any property sale since separation (or within the year before the separation).
If you or your former partner intentionally reduces the value of an asset through poor investment decisions or otherwise, its value may still be included in the pool.
If gambling has impacted a marriage or de facto relationship significantly and the losses can be counted, they may be treated as a premature distribution of assets to the person who gambled and included when deciding a property order.
Additionally, legal fees paid to solicitors before the trial could also be considered an “add-back.”
It’s expected that you will support yourself (and your partner support himself or herself) using joint funds after you separate. No add-backs are usually added for this, as it’s considered a necessary expenditure.
If you or your former partner hide an asset with the intent of the other person not finding out about it, it can make things much harder. If there’s evidence that hidden assets exist, the value can be determined in court.
A future inheritance usually won’t matter in the beginning of a property settlement process, although it can be added in during the third step.
Workers compensation and similar payments won’t be counted in Step 1 of the process.
If future debt is likely and the court can figure out the amount involved, it can be taken away from the property pool. If you’re dealing with capital gains tax or something similar, it’s smart to talk to an accountant.
If you’re unsure about the exact amount of the liability, it won’t be included at Step 1 but could be added back when the court reaches Step 3.
If you took out a loan after separating, that likely won’t count as a debt that belongs to both you and your former partner. It could be looked at in Step 3 of the court’s process.
Legal costs that you’ve paid may be added back to the global pool, but unpaid legal costs will not count.
Negotiations may be fruitless if you disagree on how much your belongings are worth. Dividing by percentages is only useful when the value of the the whole pool is agreed upon. It is important to determine values before you begin any sort of negotiation.
It’s common to find it difficult to agree on values. Work towards agreeing on how to determine the value if you disagree about how much your vehicles and property are worth.
Putting the asset on the market is a way to determine how much it’s worth. You could agree to divide the profit from the sale and split it however you please. This is one way to determine value, but it can be high-risk – the market can be unreliable.
If you’re expecting a certain amount of money out of settling and you can’t agree on the worth of large assets, it may be best to not use the percentage-only method.
By the start of trial, you should have reasonable proof of how much each asset is worth.
If both members of the couple agree on values, not having firm evidence may not be a huge deal. If there’s a disagreement and the parties' judgments are significantly different from each other, the court will use its own methods to determine value. The court may ask the parties to put the asset on the market.
If the time between separation and trial is significant, the date for evaluation may be changed. Otherwise, the date used is the date of the trial.
The longer that litigation goes on, the more you have to consider how delays will affect real estate value and similar assets. Any method can be used to arrive at a final settlement. You should choose the method that best fits your case and your asset pool.
The court usually uses fair market value, which is also known as how much a knowledgeable buyer would pay to a seller who isn’t desperate to get rid of the asset.
Some examples of fair market value: the price at auction, from a secondhand dealer or a licensed valuer. It isn’t equal to what you paid or what you assume it’s worth.
If there are time concerns…
Sometimes, you’ll have to put an asset up for sale per the settlement. If this is the case, the value of the asset is how much you’ll get from it being sold quickly. (Because of the time constraints, this might be a lower value than if you were able to wait it out and find the perfect buyer.)
It’s recommended that you use a licensed valuer, especially one with experience in Australian family law. You can check the phonebook or the Internet to find professional valuers. (A real estate agent’s assessment is usually not considered reliable, so keep that in mind while looking.)
It’s important to hire professional valuers because the valuations must be impartial. The cost usually ranges from $600 to $1500. Many couples agree to split this cost or deduct it from the final settlement. A superannuation may not necessarily fit this, as there is a separate plan for valuing pension funds under the Family Law Act.
Although family companies are often valued on the basis of shares, valuers may also look at factors like revenue, capital, or garage-sale value, depending on which method fits the situation best. Actuaries, accountants, and solicitors are some professionals who can help with valuing a business.
Business valuation should be done by an actuary, accountant or other qualified professional.