Solution Brief: How do you work out a family law ‘property settlement’?

A relationship breakdown can be stressful and emotional. The thought of working out who gets what can seem far too complicated – even working out where to start can be confusing. 

Fortunately, family law legislation and case law has developed a structured process to help you determine who gets what percentage of your family assets. 

The ‘global’ or ‘asset-by-asset’ approach

The division can be based on either an overall or ‘global’ percentage split (the global approach), or on a percentage split ‘per asset’ (the asset-by-asset approach). Obviously, if you add up each asset-by-asset percentage you will end up back with an average global percentage! 

The global approach is more commonly adopted by couples who have been married for a long time, or who have started a family together. In this scenario, it is less appropriate to consider who has made contribution to each individual asset – as there may not be evidence of this, and contributions to the family over the years may have taken many different financial and non-financial forms. 

The asset-by-asset approach is often applied where one or both parties have significant investment interests (including super), and those interests have been acquired before the couple lived together or after separation. It may also be applied where the parties have made different contributions to various assets. The asset-by-asset approach requires an evaluation of each party’s direct and indirect contributions to each of their assets. 

The four-step approach

Irrespective of whether you adopt the global approach or the asset-by-asset approach, if you end up in Court arguing over property the Court will apply four key steps which are detailed below. 

Our preference is to keep you out of Court but when advising you, we try to follow what the Court would do – so your time is not wasted. If the other side are not participating in the process, it may be necessary to begin Court proceedings. 

The first step – What is at stake?

First you need to know the nature and extent of your family assets, i.e. what are you arguing over? You can’t make an informed decision as to who gets what, without this key information. 

It is surprising how often our client receives an unsolicited ‘settlement offer’ from the other side – before the other side has made full disclosure of what the family assets are, and before we have had an opportunity to get them valued. This often happens when the other side is in control of a family business or family trust structure, and they are hopeful of being able to ‘do a deal’ before we can discover the full extent of what is at stake. 

As part of this process, you will need to make full disclosure of your assets to your former partner. So, the first step will be to make a comprehensive list of all your assets, financial resources and liabilities. You should also make a list of all the other family assets and liabilities that you are aware of, even if you are not a direct owner. 

The process of reaching a property settlement must always involve full and frank disclosure, which means you must put everything on the table. If you don’t, there is a real risk that the property settlement will be set aside or declared invalid at a future time, because your true financial position was misrepresented. 

The phrase ‘pool of assets’ is often used in family law. The term describes all the assets and liabilities of both you and your partner, (either solely or jointly owned). 

Determining your family’s pool of assets may not be as simple as it sounds. In many cases, we need to do some digging to locate family trusts, business interests and overseas assets. 

What is an asset?

Assets are items of property that have value, such as cash, interests in real estate, shareholdings, motor vehicles, jewellery, furniture and superannuation. An asset may also include a parties’ interest in a ‘family trust’. This will be the case if a party has some control over the trust and regularly benefits from the trust.  

Where a party does not have control over a trust (or an underlying asset), but is nevertheless receiving a benefit from it, that may be a financial resource of that party. For example, where a party is not in control of a trust but has regularly received benefits from it. We will deal with the distinction between an ‘asset’ and a ‘financial resource’ a little later.  

What is a liability?

A liability is a debt, expense or financial obligation incurred by either you or your partner (or both of you). If the liability has been incurred jointly, and applied towards a joint expense, it will fall into the category of a joint liability 

On the other hand, if the liability has been incurred by only one of you, and for that person’s sole benefit, it may be excluded from the pool of assets. In that case, the person who incurred the liability will be solely responsible for the debt from their own money. This is often the case when one party incurs a liability (such as a credit card debt or loan draw-down) immediately after a split, or in anticipation of leaving.  

What are they worth?

When you have determined your assets and liabilities, you must then determine their value. Once again, this may seem obvious and simple, but it is often not. Quite often a person involved in a family business will try and depress the value, and people often try and use historical or council valuations for real estate. 

If you and your former partner agree to a value, then the agreed value can be adopted. If you don’t, we recommend jointly engaging an independent valuer to provide a valuation. In more contentious matters, it may be necessary to engage more than one independent valuer, but ideally this can be avoided. 

A valuation report avoids unnecessary arguments and delays. However, this route can be too costly for some people, especially if there are businesses or investment entities to be valued. Sometimes your accountant can assist by providing an ‘informal indication’ of the value of a business, trust or company, based on financials. This can be a more affordable option, but you need to make sure that the accountant is not favouring one of the parties because of an ongoing relationship with them.  

If you are unable to agree the value of real estate, we suggest contacting two to three real estate agents to provide ‘appraisals’. You can then compare the appraisals to arrive at a median value figure, or to agree a reserve or sale price, if the property is to be sold.  

Be aware that valuation issues can be a complex, time-consuming, and expensive part of a property settlement. 

The second step – should we adjust these interests?

Just because you and your former partner have property in each of your names does not mean that a property settlement should follow – i.e. a transfer of interests from one person to the other.  

Before working out who gets what, the Court applies a ‘threshold test’ as to whether it is ‘just and equitable’ for there to be an adjustment of your respective property. In almost all cases the Court will quickly move through this step. However, sometimes the Court will order each person simply keeps what they already have. 

The third step – what contributions have been made?

In this step, weight is given to all types of ‘contributions’ made by the parties to the family’s asset pool. Contributions are generally considered under the broad categories of financial and non-financial 

Financial contributions are those made using money or other income or investments. For example, purchases or payments made from wages, bonuses, inheritances and gifts. 

Non-financial contributions are contributions made that increase the value of the parties’ property. For example, renovating a house or working in a family business without being paid, may be considered non-financial contributions. Also, a party who adopts the role of home-maker or parent is also considered to be contributing by way of a non-financial contribution.  

Determining contributions, particularly financial contributions, does not involve a precise mathematical calculation. The Court adopts a broad-brush and practical approach, which involves weighing up the various contributions and determining an overall percentage for each partner (using a total of 100% for the couple). The presumption is that each party has contributed equally to all assets, unless it can be shown otherwise. 

The fourth step – do you have a future need?

Finally, if one of the parties can demonstrate a future need that requires additional financial assistance, there will be a further percentage split adjustment in their favour. 

A future need can include:  

  • Poor health which limits a person’s ability to work;  
  • A discrepancy in the income one party can earn in comparison to the other;  
  • The care of children under the age of 18 which results in the inability to secure full-time and meaningful employment; and/or  
  • The need to support another person which restricts a party’s ability to work and earn an income for themselves.  

The ‘future need’ adjustment is considered ‘just and equitable’ by the Court because it is accommodating a party’s real disadvantage. For example, it is often the case that a primary carer of young children will pursue a future needs adjustment in their favour, because they will have limited ability to earn a good income until the children are older. Once again, this adjustment focuses on the needs of the party to the marriage, not the needs of the children (which is subject to separate child support considerations). 

Documenting the settlement

When you have agreed on an appropriate property split, it is important to legally document your agreement. The two main options for documenting a property settlement are Consent Orders or a Binding Financial Agreement. We can help you determine which is more suitable to your matter.  

For couples with superannuation, family trusts, property investments and family businesses, we can offer an integrated family law solution, that includes our recognized experience in business, commercial and taxation law. Put simply, we understand business and investment structures. 

What next?

Our aim is to assist you negotiate a fair resolution of your property matters, in a comprehensive and efficient way, so that you can move on with your life. If you would like to speak to someone about your property settlement, call us on 1300 654 590 or email us.

To download our solution brief, click here:

 

The information contained in this post is current at the date of editing – 26 May 2023.

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