Property settlement order step 3: Needs and resources

The court doesn’t only examine the past and present needs of the parties involved in a separation case.

In this article, we’ll look at how future needs and resources play a role.Needs and resources factors and maintenance -The court's procedure in deciding property settlement order

The court looks at what you and your former partner or spouse may need in the future. They have two separate purposes: estimating how each member of the couple will fare in the future and things to be kept in mind when considering maintenance.

In this next section, we’ll look at how Step 3 plays a role.  After the assets have been divided based on past contributions, the court looks at needs and resources to discover whether any more adjustments are necessary.

Needs and resources include things like your health and age, capacity to work, taking care of a child or anyone else you’re required to support financially, how the relationship affected your ability to earn money, child support and more.

Age and health - The court's procedure in deciding property settlement order

If you are young, healthy, and have many years of work ahead of you, you will likely have less future needs than someone older and in ill health. Relevant considerations can include bad health and the way it affects your ability to earn, care for children and maintain your lifestyle.

Income and earning capacity - The court's procedure in deciding property settlement order

How much you and your former partner can be expected to earn post-relationship is a huge consideration.

The money that you’re earned is affected by several things, including where you live, whether you choose to work, and whether you have assets that help you earn an income.

Property and financial resources - The court's procedure in deciding property settlement order

Various financial resources are assessed thanks to the requirements of the Family Law Act, including long service leave pay and future inheritance.

If you’re entitled to long service leave in the future, it may be included as a financial resource even if you don’t get a lump sum payment. If you’re going to continue to work while being paid long service leave, this may also be included as a financial resource.

If you take time off without working elsewhere, it may not be regarded as a future resource. In order for a future inheritance to qualify, it must be certain with the death of the person who made the will imminent.

Responsibility for the care of children - The court's procedure in deciding property settlement order

Some parents who already made child support payments find themselves frustrated that the cost of child-raising comes at their expense in the property settlement process in Step 3. However, payment of child support cannot fairly compensate the other parent’s loss of career opportunity, constraints in terms of moving up in their jobs, and the general lifestyle restrictions that come with single-handedly raising children.

In this step, the effect of the children in the property settlement process is considered. The Act recognises that the cost to the parent raising children may warrant an increased share of the property pool from what they might receive based solely on their contributions.

The settlement process considers the impact that raising children can have on lifestyle and earning potential; thus, the needs and ages of the children are relevant factors.

Self-support and supporting others - The court's procedure in deciding property settlement order

Your responsibility to support anyone and pay for their accommodation, food and other reasonable expenses is also considered.

A reasonable standard of living - The court's procedure in deciding property settlement order

You’re entitled to a reasonable standard of living post-separation. The standard of living during your marriage will be considered when the court makes this determination.

Living with a new partner - The court's procedure in deciding property settlement order

The income of your new partner may apply if you live with them or plan to live with them soon.

Child Support

If you have child support obligations, those are also considered. The court looks at how much has been paid, how long the payments will last and the payment history.

Even if you or your partner haven’t paid child support regularly in the past, the court doesn’t take that as an indication that you won’t pay in the future. However, the party who lagged on payments may be affected negatively during the Step 3 assessment.

“Any other relevant fact or circumstance.”

The Family Law Act which allows the discretion to consider anything else that may apply, including other cases that have established rules and relevant factors that haven’t previously been discussed in Australian law.

Other relationships -  The court's procedure in deciding property settlement order

New factors inserted into the 2008 amendments to the Family Law Act include the need to pay attention to property settlement orders in relation to a previous marriage or de facto relationship.

Binding financial agreements - The court's procedure in deciding property settlement order

The court also looks at binding financial agreements and how they affect the couple. Even if you and your partner don’t have any binding financial agreements, any agreements with a former or current spouse or de facto partner are taken into consideration.

Other needs and resources factors - The court's procedure in deciding property settlement order

Some other factors the court looks at include:

• how a proposed order affects the earning capacity of you or your former partner; this applies especially when a major asset in the settlement relates to the ability to earn a living (see sections 79(4)(d) and 90SM(4)(d) of the Family Law Act)
• any order that affects child of the marriage or you or your former partner (see sections 79(4)(f) and 90SM(4)(f) of the Family Law Act)
• child support liability (see sections 79(4)(g) and 90SM(4)(g) of the Family Law Act)

How the factors are assessed

Unlike the contributions from Step 2 of the process, which may be assessed on an asset-by-asset basis, needs and resources are almost always looked at as a group. After the assessment, the percentage split reached in Step 2 is usually adjusted.

At Step 3, the court must assess each person’s long-term financial outlook, then adjust the settlement to provide for any significant disparity not assessed in Step 2. The court isn’t required to identify financial need, but it is relevant in most post-separation cases.

You can look at each of the factors on your own to get an idea of how the court will assess your future finances. Since the estimation is basically fortune-telling, it won’t be exact.

The real money effect - The court's procedure in deciding property settlement order

Future needs are usually expressed in percentages, although Clauson and Clauson (1995) found that a dollar estimate should be attempted.

However, the court won’t seek to repay each dollar that the poorer party would’ve benefited from if the relationship didn’t end. Most settlements aren’t big enough to solve lifetime disparity –– it is the court’s acknowledgment of individual circumstances.

After the Family Law Act was established, needs and resources awards were usually in the 5 to 10 per cent range. In recent times, the 10 to 20 % range is the norm, although it’s not a fixed range and can vary.

In Clauson (1995), the court gave one-fourth of the settlement for needs and resources to a woman with four kids and a lesser earning capacity compared to her husband who worked in business.

Because many relationships now involve parents having the children for 50 % of the time, the court may end up closer to the 5–10 % range in the future.

With a small property pool, it’s likely that future requirements will be in dollars rather than percentages.

A court exercises discretion during the entire property settlement process, but this is particularly apparent when looking at future needs. The results can be unpredictable.

The court is able to make legal decisions without any possibility of appeal. This can involve many thousands of dollars. If you’re told that you are negotiating within the range of the court’s discretion, you should settle sooner instead of waiting.

The relationship between maintenance and property settlement

When you apply for a property settlement order, you also have the option to apply for maintenance. The types of applications are very similar, as they both deal with future needs and resources.

Here’s the difference between them in plain language: The maintenance process involves short-term financial needs, while the Step 3 process involves long-term financial needs.

Difference in purposes - The court's procedure in deciding property settlement order

During Step 3 assessments of a property settlement, the court attempts to adjust the division found in Step 2 and make it fairer.

By contrast, maintenance orders focus on needs and resources to determine whether you are able to support yourself (and whether your former partner has the ability to help).

Difference in timing - The court's procedure in deciding property settlement order

The court looks at existing property orders when considering whether a person can support himself or herself. This help gives context to the financial backgrounds of the parties involved.

A final maintenance order can only be determined after property orders are settled, although urgent maintenance orders may be an option under special circumstances.

Property settlement and maintenance - The court's procedure in deciding property settlement order

There is some overlap between property settlement and maintenance. A later application for maintenance may simply be an attempt to obtain more money. It can also be hard to comprehend why a separate maintenance application is necessary when Step 3

It can also be hard to grasp why income differences can’t be dealt with in Step 3 of the settlement process and why a separate maintenance application is required.