When you’re separated or divorced, there may come a point where you need to work out a property settlement between you both.
Property settlement works by dividing a couple’s combined net assets, but it’s not as simple as it seems.
To ensure that all of your assets are divided and debts allocated fairly with your former partner or spouse, the Family Law Courts considers a range of factors – from identifying which among your assets are obtained during your marriage, all the way to determining each person’s likely needs in the future.
The Court provides 4 important steps to work out your property settlement entitlements:
- What is the net asset pool (assets less debts)?
- What have been the financial and non-financial contributions?
- What are each party’s “future needs”?
- Is the division of assets “just and equitable”?
Let’s discuss them more thoroughly.
Step 1 — What is your net asset pool (property pool)?
Property settlement begins with determining your asset pool.
You need to calculate the assets and debts that are to be divided between you and your former partner or spouse. When arranging a property settlement agreement, don’t forget to take note that:
- All assets are included – whether they are held in joint names, either person’s sole name or the name of a company, trust or other entity that either person has an interest in, or held by someone else on your behalf or held by you on behalf of another person, such as a child; all of these assets are included the asset pool
- The Court also has the power to make Orders concerning assets held overseas and requires that you disclose overseas assets, not just assets in Australia
- Assets purchased either before your relationship commenced (i.e. when you started living together, irrespective of if you later married) or after your separation are still included in the asset pool
- Property settlement in Australia takes into account the value of assets and debts considered at the time of the agreement, not the separation date
- Liabilities are included, irrespective of whose name they held in
- Superannuation is generally included, because superannuation accounts held by either person are usually considered as an asset and can be divided in a property settlement. However, there are some circumstances where superannuation is not an asset but instead considered a financial resource. You should seek legal advice if you are unsure if the superannuation of either yourself or your partner or spouse is considered an asset or a financial resource.
Here are some examples of assets and debts that may be taken into account in your property settlement:
- Savings/bank accounts or building society accounts
- Money that is owing to you
- Furniture/household contents and appliances
- Life insurance that can be cashed in before death – i.e., has a surrender value
- Line of credit
- Personal loan
- Credit card
- Business loan
- Motor vehicle loan
- Loan/monies owing to other third parties such as a family member or friend
- Taxation debts
- Centrelink debts
- HECS/HELP debts
- Selling costs on a property or other assets such as commission, brokerage fees, auctioneer’s costs and costs to prepare a property for sale
It’s possible that you may not know your former partner or spouse’s assets and debts.
In cases like this, you can directly ask the other person for information. If the value of an asset is not agreed to by both of you, you may need to jointly instruct a professional valuer to provide a valuation.
We can refer you to one of our trusted partners who can prepare a joint registered valuation should you require.
In this step 1 of t he property settlement process, keep in mind that you and your former partner or spouse have an obligation to provide what is referred to as financial disclosure – meaning all documents and information relevant to your assets and debts, financial resources, incomes and anything otherwise relevant to your financial circumstances should be stated and disclosed upon request.
Step 2 — What have been the financial and non-financial contributions?
It is wrong to assume that financial contributions are the only things that matter in a property settlement agreement.
In fact, the Court considers every financial and non-financial contribution to your household – including contributions made when you first started living together, during the relationship and after separation.
For financial contributions, the ones you and your former partner have each provided are broken down into initial contributions, contributions during the relationship and contributions after separation. These kinds of financial contributions can include:
- Assets already owned when you started living togther
- Earnings over the length of the relationship
Post-separation contributions, on the other hand, refer to any payment you or your former partner or spouse made after the relationship had ended. These could include things such as mortgage repayments, rates and water on the former matrimonial home.
For non-financial contributions, these day to day duties ensure the household runs smoothly and are given valuable merit in a property settlement agreement:
- Caring for children
- Doing renovations
- Managing finances
Step 3 — What are each party’s future needs?
Sometimes, one party may have greater needs in the future than the other. As such, the Court also considers this kind of situation when doing adjustments in the percentage split of properties.
How is this possible?
Either you or your former partner might need more support in the future due to the following reasons:
- Having to handle the primary care of a child or children
- Earning less income than the other
- Having health concerns that require ongoing treatment or needs
- Being at a much older age than the other (therefore, having less working life before retirement age to re-establish themselves)
Step 4 — Is the division of assets “just and equitable”?
The final step of property settlement evaluates if the proposed asset division is just and fair to your circumstances. However, it’s not entirely up to you to decide what’s fair or not – the Court holds that power.
The Court will begin by looking at the types of assets each party holds. Assets such as shares, properties, cars or bank accounts can be sold or converted into cash, whereas superannuation can only be accessed at retirement age. However, if you are close to retirement, your superannuation may be treated as a cash asset.
Your circumstances are unique, which is why the Court considers all important factors like contributions (both financial and non-financial) and future needs when managing the division of assets between you and your former partner.
If in doubt, always seek legal advice about property settlement.