At the conclusion of a de facto relationship or marriage, parties to the de factor relationship or marriage are entitled to redistribute their properties and assets in accordance with the rules of the Australian family law. This process， known as property settlement， is governed by the Family Law Act1975, the Family Law Regulations 1984, and the relevant Federal Circuit Court and Family Court Rules.
In our practice, we observe a lot of clients being confused by how the process works. However, this does not need to be the case. The property settlement process is, in fact, relatively straight forward extremely easy to understand process.
Generally, the process it’s split into four distinct steps:
- Determining whether it is just and equitable to redistribute the parties’ properties and assets.
- Ascertaining the net value of the divisible asset pool.
- Determining each party’s contribution by percentage.
- Adjusting the percentage based on the parties’ future needs.
Detailed Steps in the Property Division Process
The first step is to ascertain whether it is just and equitable to distribute to the parties assets and liabilities in the first place.
Contrary to popular belief, there is no presumption that property distribution must occur following the breakdown of relationships or marriage. The theory is that this would only occur if it is just and equitable to do so.
In our years of practice, we have most certainly encountered unique circumstances where the parties’ relationships were such that property redistribution was not just and equitable, and that the Courts did not order property redistribution.
However, it should be noted that in most cases, property distribution would occur.
The second step is to ascertain the net value of the parties’ divisible asset pool. This exercise involves tabulating the net value of the parties’ global assets, including:
- Assets owned by each party.
- Assets held by others for the parties’ benefit.
- Trust assets controlled by the parties.
- Financial resources the parties may have access to.
- Superannuation interests.
It is also important to note that during this step, debts and liabilities need to be accounted for in the calculation of the net value. For example, if the parties own a piece of land with a market value of $2 million, but the land is subject to a $1 million loan, the net asset pool will consist of only $1 million in equity arising from this piece of land.
Frequently, dispute arise from alleged family loans advanced to the parties by their respective family members. In these scenarios, the primary dispute at trial is the net value of the asset pool. Oftentimes and in these circumstances, these family member creditors would need to attend trial as witnesses, or commence proceedings as third-party creditors against the parties.
While this exercise is heavy on evidentiary requirements, the legal principle is relatively straightforward.
The third step is the determination of contributions by the parties.
Under the Family Law Act 1975, there are three types of contributions, namely financial contribution (or what we like to refer to as direct financial contributions), non-financial contributions (or what we like to refer to as indirect financial contributions), and finally, contributions to the welfare of the family.
By way of example, financial contribution or direct financial contribution are made when one party brings in actual monies or funds into the asset pool; non-financial contribution or indirect financial contribution are made when, for example, a party does not bring monies or funds into the asset pool, but is responsible for actively managing and growing existing monies or funds; contribution to the welfare of the family is, as the name suggests, domestic contribution through caring for children, attending to household chores etc
In practice, the Court views all three types of contributions equally. It is, of course, possible to prove through evidence that one party has made more contribution than the other party. There is no presumption of equal contribution. However, in the absence of such evidence, it is not unusual for a finding of equal contribution to be made.
The fourth and final step is the adjustment of the contribution-based division by reference to the parties’ future needs.
For example, the party who is the primary carer of an extremely young child with no serious health conditions may get up to approximately 10% adjustment in addition to their contribution percentage. Similarly, if the same person has no meaningful income, he or she may benefit from a further possible 5% adjustment. Another typical basis for future need adjustment is the parties’ health. Returning to example, the same person could possibly receive a further 5% adjustment if he or she suffers from a long-term medical conditions.
Practical Scenario
Let’s consider a practical scenario involving Tom and Mary. Assume Tom and Mary entered into a de facto relationship in 2010. At the commencement of their de facto relationship, Tom and Mary had no meaningful assets. They became separated in 2020, and their property settlement proceedings goes to trial in 2023.
During the relationship;
- Tom purchased a piece of land, which is worth $3 million at trial, subject to a $1.8 million loan.
- Tom’s superannuation at trial is $110,000, and Mary’s is $230,000.
- Mary operates a cattle business on the land with a $40,000 gift from her parents, while Tom borrowed $80,000 from his parents for investing in the land.
- They have two young children primarily cared for by Mary, with Tom having alternate weekend visits.
Applying the principles we have just discussed above:
- First, due to the parties’ significant contributions into the asset pool, and the fact that they each hold assets of significant value, it would be just an equitable for a property redistribution to occur.
- Secondly, we need to calculate the net asset pool. The net asset pool would need to account for the market value of the land at the time of the trial i.e. 2023 less the bank loan that is due and owing at the time of the trial i.e. 2023. (it is important to note that the net vale to be distributed is the value at trial, not separation or breakdown of the de facto relationship). The net asset pool must also account for Mary’s cattle business. The business would need to be professionally valued, unless the parties could agree to a value. The parties’ respective superannuation balances must also be included in the net value of the asset pool. The money Tom borrowed from his parents would need to be deducted from the asset pool as it is a liability. On the other hand, the money Mary’s parents put into her business is a gift to which the presumption of advancement applies. In these circumstances, money from Mary’s parents cannot be deducted from the value of the asset pool.
- Thirdly, the parties need to determine their contributions. In this set of scenarios, the parties’ contributions during the relationship is likely to be equal.
- As the final step, which is the future need adjustment, Mary who is the primary career of two very young children may be entitled to an approximately 10% adjustment. This means that her 50-50 split shall now in receive a 10% adjustment i.e. the 50-50 split now becomes 60-40.
If the above arguments are accepted by the Court, Mary will then be entitled to 60% of the net value of the asset, this means that Mary will become entitled to the value equivalence of 60% of the net value of hers and Tom’s asset pool.
If you are facing confusion or challenges regarding property settlement, or if you find yourself in an unfavorable position during the process, do not hesitate to contact the professional team at Brightstone Family Law. With decades of experience in family law cases in Australia, we successfully handle hundreds of divorce property settlement cases every year. We are committed to securing fair and just outcomes for every client, ensuring that your legal rights are upheld to the fullest extent in the property settlement process.
Frequently Asked Questions (FAQs)
Property settlement refers to the division of assets, liabilities, and property following the breakdown of a marriage or de facto relationship in accordance with Australian family law.
The timeline varies but typically takes several months, depending on the complexity of the case and whether parties reach an agreement or require court intervention.
Not necessarily. The court considers factors like contributions and future needs to determine a fair division, which may not always be equal.
Yes, superannuation is treated as property and included in the divisible asset pool.
Provide evidence of significant contributions (financial, non-financial, or family welfare) and demonstrate future needs (e.g., childcare or health conditions).
