After a relationship has ended, the property of the relationship needs to be divided. It is understandable that you may wish to divide the property between you and your ex-partner as soon as possible and simply move on with your life. The idea of dividing property may seem deceptively simple. It is important to understand that there are likely hidden issues you could miss that will lead to complications or costs down the road.
There is no immediate rush to separate your property following separation and you should be careful not to be pressured into making quick decisions, particularly if you haven’t received any legal advice. The key timeframes to keep in mind are that property settlement proceedings have to be started, or a formal agreement reached within 12 months of your divorce order becoming final, or if you were de facto partners then within 2 years following your separation.
What is property?
‘Property’ includes a range of things and it is important to determine exactly what property needs to be divided. Property is not just any money, houses and possessions you and your ex-partner own, but can also include things like investments, entitlements, superannuation, businesses and trusts.
Property will also include any money you or your ex-partner owe, loans and tax obligations (these are called liabilities) and it will need to be decided how these will be repaid and / or who will be responsible for them.
How is property divided?
Property is either divided by agreement between you and your ex-partner, which can be done by negotiations with each other or through your lawyers. If you and your ex-partner cannot agree on the division of property after making a genuine attempt to do so, you may need to go to court for an order on how the property is to be divided.
There is no stock standard approach that the court takes when dividing property, rather the process is guided by different factors that are taken into consideration.
The legal framework
The legislative framework to be applied when the court determines your matter, where a lawyer is assisting you to negotiate your matter or if you are trying to work it out yourself is set out in Part 8 (married couples) and Part 8AB (defacto couples) of the Family Law Act along with the body of case law developed over the past 40 years. The law as it relates to married and defacto couples when working out their property settlement is essentially the same, with the same approach, steps and law, just set out in different sections of the Family Law Act.
While there is an initial legal obligation to consider whether dividing the property of the relationship is just and equitable, in practical terms there has long been a four step process to determining a property matter.
The four step exercise is as follows:
- The court should make findings as to the identity and value of property, liabilities and financial resources of the property as at the date of the hearing;
- The court should identify and assess the contributions of the parties and determine the contributions based entitlements of the parties expressed as a percentage of the net value of the property of the parties;
- The court should identify and assess relevant matters including earning capacity, child support and any other orders made as well as those factors in section 75(2) so far as they are relevant;
- The court should consider the effect of those findings and determination and resolve what order is just and equitable in all the circumstances of the case.
So what does this all mean? Breaking down the law into plain English.
First you need to work out what there is to divide between you. The timing of the value of the property is at the time of your negotiations, mediation, or court hearing – it is not as at the date of separation.
The second step relates to:
- who brought in what property to the relationship (if any);
- how both parties contributed to the property of the relationship whether owned before the relationship or not, during or after the relationship;
- whether the contribution was financial, a gift or a windfall from a damages claim or lotto winnings, whether parents provided money to give the couple a hand during the relationship and the like;
- whether the contribution was non-financial and improved or maintained the property – perhaps one party was a builder by trade and the parties saved money by the time and effort put in by that party to build or improve property that the parties owned; perhaps one party was responsible for the upkeep of the garden and the other for the inside tasks like ironing, cooking, cleaning; perhaps all of these tasks were shared;
- any contributions made to the property of the parties by the parties after separation;
- the contributions made by a party or both of them to raising the children or caring for the home.
After working through this second step an assessment in percentage terms is made of the parties respective contributions to the relationship. Some things to note:
- there is no starting point of equality;
- a contribution as homemaker is not recognised in a token way, but in a substantial way;
- there is no one size fits all assessment.
The third step involves an assessment of the ongoing needs of the parties and the effect that any orders made or agreement reached might have on them. Here you need to consider:
- whether any order made is going to effect the earning capacity of either party to the relationship;
- the matters set out in section 75(2) of the Family Law Act;
- whether there is any other agreement or orders in place which might impact this agreement or vise versa
- what the child support arrangements for the children are or should be.
Coming back to (b) above and section 75(2) – the Family Law Act establishes in this section a list of factors that should be considered to determine the ongoing needs of the parties. There are some factors which will apply to your matter and some that won’t. The main ones which come up from time to time as they relate to property settlement are:
- the age of the parties and whether they have any health issues that affect their ability to earn income;
- the income, property and financial resources that the parties have or will receive;
- the capacity of each party to earn an income in appropriate gainful employment and whether the length of the relationship or circumstances of the relationship have affected a parties ability to earn income;
- whether one or both of the parties has the care of children of the relationship;
- the commitments of each party to support themselves, a child or another person including any new marriage or defacto relationship of either party;
- whether one or both of the parties receive a pension, allowance or benefit from Centrelink or Superannuation fund;
- whether there is a pre-existing financial agreement (“prenup”) that deals with how property will be divided on separation.
After assessing those factors in this third step consideration is made as to whether there needs to be an adjustment of the percentage set after the second step, that is, should the percentage be adjusted in one person’s favour to take into account that their capacity to earn an income is far less than the other person, or that they have the greater care of the children.
The fourth and final step requires the court to stand back, have a look at the proposed orders and consider in all the circumstances whether the orders are just and equitable.
What about the law as it applies to you?
The circumstances on separation for each family are unique.
Whilst there are some things which could be seen to apply to lots of families, there is a huge body of law which has amassed in over 40 years since the establishment of the Family court, which means it is not possible in this forum to cover each and every scenario.
How can we help?
The emotional nature of many family law issues makes it all the more important to have an impartial person on your side. You will likely be feeling a range of emotions relating to your separation and it is in your best interests to not let these emotions affect the way you proceed. If you are feeling guilty about the relationship ending, you may agree to a division that you later regret. It is also important that you don’t do anything to hurt your own chances of a reasonable settlement. Spending excessive money to remove it from the property pool, destroying property or lying about what property you actually have will likely result in deductions against you in the settlement.
There are also legal principles and rules that guide the division of joint property and it isn’t always as simple as agreeing with your ex-spouse who takes what. This is why it is a good idea to seek legal advice early on, to make sure you know your rights and entitlements. Even if you intend to divide the joint property yourself, by way of agreement, it is a good idea to speak to a lawyer initially so that you are aware of the kinds of issues that can arise and what your rights are.
A lawyer will also be able to draft the agreements between you both, and ensure this accurately and legally represents what you have agreed to. It is important for you to understand that if you divide your property by informal agreement between you and your former partner, your ex-partner might later be able to make an action to get a further share from you. It is essential for you to make sure your property settlement is done in a legally binding way, so that you are able to move forwards without the possibility of further problems.
There may also be consequences regarding your tax or insurance that you need to address. Your lawyer will be able to advise you on any such issues that arise as well as what is the most beneficial approach to take in property divisions.
While separations can be messy and stressful times, it is important that you look out for yourself by getting advice from someone who fully understands the law you are dealing with.