The five step approach in property settlement matters

While American sitcoms and movies regularly portray the idea that assets acquired during the marriage are split on a 50/50 basis, in Australia the 50/50 rule does not apply.

Instead, there are five inter-related steps that must be considered by the Court (either the Federal Circuit Court or the Family Court) when determining who gets what following the breakdown of a marriage or de-facto relationship. This is commonly referred to as a property settlement.

This article will explain these five essential steps.

1. Determine what assets are available for division

The first step is to identify the current ‘property’ of each party and whether it is held jointly with the former partner or individually.

‘Property’ generally refers to:

  • Real estate;
  • Vehicles;
  • Bank account funds;
  • Shares; and
  • Furniture.

This list, however, is not exhaustive.

In determining whether assets of a company and/or trust constitute ‘property’ and therefore form part of the main property pool, consideration must be given to the degree of control and interest exercised by each party with respect to the company and/or trust. 

2. Consider whether it is ‘just and equitable’ to make any adjustment

The High Court decision of Stanford v Stanford [2012] HCA 52 made it clear that the Court must consider whether it is just and equitable to make any adjustment of property before considering an assessment of contributions

For relationships involving joint property, it is common that the Court is required to assist parties in determining a ‘fair’ split. Where this is the case, we proceed to the next step in the process.

3. Identify and assess the respective contributions of the parties

The Court will consider the financial and non-financial contributions made by each of the parties at the commencement of cohabitation, during the relationship and post-separation.  As well as financial contributions, homemaking and parenting contributions are also taken into account. There is no presumption of ‘equality of contribution’.

Financial contributions can include:

  • Property brought into the relationship (assets owned at the commencement of cohabitation);
  • Property acquired during the relationship;
  • Income;
  • Inheritances; and
  • Gifts.

Non-financial contributions can include:

  • Renovations to real estate;
  • Gardening/landscaping; and
  • Unpaid work in a family business.

Contributions to the welfare of the family can include:

  • Work relating to role as a homemaker and/or parent/carer.

Inheritances are considered to be a ‘financial contribution’.  The Court takes into account a number of factors when looking at inheritances, one of which includes when it was received. There is no hard and fast rule for how inheritances are treated when dividing property and each case is looked at on its own merits.

4. Assess each party’s future needs

Having considered each party’s contributions, the Court now needs to determine whether one party should receive more than the other on account of their future needs.

Matters which need to be considered include:

  • The age and health of each of the parties;
  • The income, property and financial resources of both parties;
  • Whether either party has the primary care of a child of the relationship under the age of 18.

5. Consider again whether the proposed division is 'just and equitable'

Once the above steps have been followed, the Court will consider whether the proposed final percentage distribution and the division of assets is fair.  This final review could lead to a further adjustment. 

A word of warning about superannuation

Superannuation is treated as ‘property’ and when determining if and how to divide the parties’ superannuation, the same five step process is followed. The value of the superannuation account will usually determine how it is treated, whether as part of the main property pool, or as a separate asset.   

It is important to seek advice from an experienced family lawyer before you start discussing the division of assets with your former partner to ensure that you are taking into account all of the relevant factors and assets.

This article was written by Senior Associate, Selina Nikoloudakis.

 

Practice Area: Family Law

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