DIVORCE PROPERTY SETTLEMENT

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DIVORCE PROPERTY SETTLEMENT

Divorce Property Settlement, De facto Property Settlement, or Same Sex Couple Property Settlement

Financial issues arising from the breakdown in a relationship can be resolved at any time following the date of separation.  In family law this is known as a “property settlement”.

A divorce is dealt with in separate proceedings.

The requirement to obtain a divorce in Australia is that an ‘irretrievable breakdown’ of the marriage/relationship has occurred, in the case of a marriage a 12-month separation with no likelihood of reconciliation is required before an application for divorce can be made.

The fault that led to the marriage break down is not relevant. The divorce application will not resolve issues relating to children or property. These are dealt with in separate applications. The divorce application details arrangements for the care of dependent children.

Relationship Property Settlement

A property settlement includes dealing with and dividing all of the property of the relationship such as houses, cars, shares, superannuation, liabilities (mortgage, credit cards) and financial resources (eg. family trusts). The property, liabilities and financial resources of the relationship can be in joint names, your name only or your spouse’s name only.

The Court assesses all contributions financial or otherwise.  The Court is also required to consider the “future factors” which include amongst other things –

  • The age and state of health of each party
  • The physical and mental capacity of each party to obtain employment
  • Whether either party has the care of a child under the age of 18 years
  • Any child support that has been paid by a party
  • Any child support that a party may be liable to pay
  • The necessary financial commitments of each party that would enable that party to support themselves, a child or another person that the party has a duty to maintain.

You can reach your own agreement on how you intend to divide your asset pool. You can enter into Consent Orders or a Financial Agreement to make the agreement legally binding.

The relevant sections of the legislation in regard to Divorce Property Settlement are set in the Family Law Act 1975.

There are alternate means of resolution.  Mediation and collaborative practice may provide assistance with you to negotiate this settlement.

If by negotiation you cannot resolve the division of your assets then and application can be made to the Family or Federal Circuit Court to obtain a judgment on the division of such assets.

The Family Court has the power to deal with financial issues arising from a breakdown in a relationship Pursuant to Section 79 of the Family Law Act, a Court may make such orders as it considers appropriate, altering the interests of the parties to a relationship, including an order for settlement of property in substitution for any interest that a party may have in that property and may make an order for the benefit of either or both of the parties or a child of the relationship in such a manner as the Court determines is appropriate.

Divorce Property Settlement (including de facto and same-sex relationship) Court Orders

In considering what order, if any, should be made, the Court takes into account:

  1. the financial contributions made directly or indirectly by or in behalf of a party to a relationship or a child of that relationship, to the acquisition, conservation or improvement of any property of the parties to the relationship or either of them, or otherwise in relation to any other such property, whether or not the property since the making of the contribution ceased to be the property of the parties to the relationship;
  2. the contributions made by a party to the relationship to the welfare of the family including any contribution made in the capacity of homemaker or parent;
  3. the effect of any proposed order by the Court upon the earning capacity of either party;
  4. matters relating to the financial support of the parties.

When considering the nature of the well-being of a party to a relationship, the Court will take into account the age and state of health of the parties; the income, property and resources of the parties and their physical and mental capacity to maintain or obtain gainful employment, and whether a party to a relationship has the care or control of a child of the relationship.

The court will look at the commitments of each of the parties that are necessary to enable the party to support himself or herself, or a child of the relationship or some other person.

Party Eligibility

The court will take into account the eligibility of either party for a pension, for a Commonwealth pension, or benefit under any superannuation fund or scheme.

The court will look at the standard of living which in all the circumstances is reasonable for a party to the relationship.

The court will also determine what financial support should be provided to a party to enable that party to undertake a course of education or training, which would enable that party to financially establish himself or herself in a business or otherwise to enable that party to obtain an adequate income.

The court applies a 4-step approach in giving consideration to making orders in regard to the division of the net matrimonial assets of the parties to a relationship after eligibility is considered and approved.

The 4-step approach involves:

  1. identifying the value of the net property of the parties;

  2. considering the contributions of the parties, whether financial or otherwise;

  3. the future financial security of the parties; and

  4. whether any order proposed by the court is just and equitable.

In determining what is just and equitable, the court will consider whether the proposed orders to be made by the Court require adjustment for a fair and equitable division of the net matrimonial assets of the parties.

There are two approaches to property division of the net matrimonial assets:

  1. A global division, which involves the division of the parties’ assets on a global view of the total assets; and

  2. the asset-by-asset approach, which involves a determination of the parties’ interests in individual items of property.

The Global Approach

Most matters dealt with in the Family Courts are done on the global approach. This is considered when all the assets and liabilities (including superannuation) are grouped into a single pool and then split according to a Court ruling.

The Asset-By-Asset Approach

The court may decide a matter on an asset-by-asset approach when:

  1. the relationship was of a short duration, and during the relationship, the parties strictly divided and kept their own assets separate from each other;
  2. assets were divided informally at separation, and there is a long delay between separation and proceedings, particularly where one or both parties have built up significant assets after separation;
  3. a party is receiving a pension in the payment phase of that party’s entitlement in a superannuation fund where the pension could not be converted into a lump sum entitlement.

When making a decision and delivering the judgement in relation to financial matters, the Court has, under section 81 of the Family Law Act, a duty to end the financial relationships between the parties.

What is property to be divided under the Family Law Act?

The property is defined as being property of the parties to a relationship, which the parties or a party is entitled to, whether held in possession or reversion.

Property has always been given a very wide meaning by the Courts. The following matters are relevant:

  1. a capacity to borrow is not property;
  2. an order for property may give rise to an interest in property which is defeasible on assignment or transfer to a third party or upon the occurrence of a certain event;
  3. the right of action of a party to claim damages for personal injuries. The award for damages for personal injuries that a party may ultimately receive may not be considered property, although it may be given consideration under section 75(2) of the Act at providing financial security for that party;
  4. the interest of a party in a partnership may be considered or the value of such interest.

 Valuation of property to determine its value for the purpose of a financial division of the net matrimonial assets.

The parties can normally determine the value of a certain property, being the property of the net matrimonial pool. However, where the valuations cannot be agreed, the Court will require that valuations be obtained on each item of property by registered valuers or persons qualified to give such valuations.

Where business, corporations or partnership values are required, there are a number of methods of carrying out such valuations. Normally accountants are engaged for this purpose.

In certain circumstances, monies may be set aside for the benefit of other family members – for example, children’s loan accounts are the vested property of the children and are legitimate accounting entities that are unassailable by the parties in a property settlement.  Loan accounts are payable at call and can be called upon by the children when he/she obtains adulthood. Further, the custodian of the child can call for payment during the child’s minority. In such circumstances, the court will not treat the children’s loan accounts as part of the matrimonial assets to be divided between the parties.

In other circumstances, a party may not have a realisable value in an investment. For example, a party’s minority interest in a corporate entity such that the party’s lack of control in such entity may mean that his or her shareholding in that entity has no value.

Divorce Property Settlement (including se facto and same sex property) Financial Contributions

The court has a duty to assess the contributions of the parties during the relationship.

This includes:

  1. direct financial contribution by the parties to the acquisition or improvement to the property of the party;
  2. this includes all assets, including the matrimonial home, but also investment properties, businesses, motor cars, boats and so forth.

The direct financial contribution to the purchase of a property may be offset by other factors such as care of children and the duration of the relationship. Financial contributions to the acquisition of a property are given greater importance to other contributions in short relationships.

Initial financial contributions by the parties at the commencement or beginning of their relationship.

The Courts will initially make a determination of the division of the net matrimonial assets taking into account the initial financial contributions made by the parties prior to or at the commencement of their relationship. The longer the duration of the marriage, depending on the quality and extent of the initial financial contribution, the more proportionality the original contribution is eroded. The erosion of the value of the initial financial contribution is not by the passage of time, but by the offsetting contributions of the other party.

The time at which a financial contribution is made is very relevant. For example, if it is made at the commencement of a long relationship, it is likely to be treated differently than if made near the end of the long relationship. The value of the contribution is more significant if made towards the end of the long relationship.

Financial contributions in a short relationship (for example, a relationship less than five years) are given great considerations by the Court. If there has not been an intermingling of the assets and the ownership of such assets by the parties in a short relationship, then the Courts would normally determine that the parties retain the assets they brought into the relationship, including their superannuation entitlements, and also if there was limited joint ownership of property acquired during the relationship, then such property would be divided in accordance with the parties’ actual financial contributions to the acquisition of such property.

Post-separation contributions.

Post-separation contributions, either financial or otherwise, are taken into account by the Court when determining the parties’ respective interests in the net matrimonial assets. For example, an inheritance received after separation may be excluded from the matrimonial asset pool, in which case, the party who did not make such contribution would have no interest in such asset. Adjustments will be made by the Court to reflect the value of the post-separation contributions made by the parties.

Contributions to the welfare of the family.

The Court takes into account the contributions made directly or indirectly by a party to a relationship, including the contribution by way of homemaker or parent. Such contributions may offset the financial contribution made by a party by way of being the income earner in the relationship.

The future financial positions of the parties and their standard of living.

The court, when determining the division of the net matrimonial assets, takes into account the future financial positions of the parties and makes judgements accordingly. The relevant provisions are set out in section 75(2) of the Family Law Act. There are equivalent provisions in the de facto legislation. The considerations to be given by the court are set out previously.

The court will make appropriate adjustments to the division of the net matrimonial assets taking these factors into account.

Just and equitable division.

After taking all of the above-mentioned matters into consideration, the court can make a further adjustment to the division of the net matrimonial assets to ensure a just and equitable division of the assets in all the circumstances.

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