DETERMINING PROPERTY ENTITLEMENTS
There is a five-step process involved in determining each party’s property entitlements following the breakdown of a marriage or de facto relationship, based on the principles set out in the Family Law Act.
Those steps are as follows:
- Determining whether it is “just and equitable” to make any adjustment to the parties’ interests in the property available for division;
- Identifying and valuing the property available for division. This includes all assets, liabilities and superannuation entitlements of both parties;
- Considering the financial and non-financial, direct and indirect, contributions made by each party to the acquisition, conservation and improvement of the property and to the relationship generally (including homemaker and parenting contributions) and then attributing a percentage to each party’s contributions, for example 50%:50% or 60%:40%;
- Considering whether there needs to be any adjustment to the property entitlements determined at step 3 to take account of the future needs of each party, including factors such as:
- The arrangements for the care of the children going forward;
- Each party’s age and state of health;
- The income, property and financial resources of each party;
- Each party’s physical and mental capacity for appropriate gainful employment;
- Any disparity in the incomes or earning capacities of the parties;
- Each party’s commitments to support him or herself and/or any other person;
- Either party’s entitlement to a pension, benefit or allowance;
- The standard of living that is reasonable for both parties;
- The length of the marriage and whether it has affected either party’s earning capacity;
- Whether either party is living with another person and how this affects his or her finances.
- Determining how the assets, liabilities and superannuation entitlements should be distributed between the parties to give effect to the property entitlements calculated, ensuring that the overall result is “just and equitable”.
Should any property adjustment orders be made?
The first issue which needs to be considered is whether any property orders need to be made. This requires a consideration of what property exists, who owns it and whether there should be any change to the way the property is held. In most cases, it will be obvious that there needs to be a reallocation of the parties’ property because it is impracticable for parties to continue to own property jointly if they have separated. However, in some exceptional circumstances, it might be the case that the way the parties hold their property is already just and equitable.
The assets, liabilities and superannuation interests of both parties must be identified and valued, even if an item was acquired before the relationship, after separation or received by way of inheritance. Issues relating to when or how an item of property was acquired are taken into account at the next step.
All items of property must be valued at the time the settlement is being undertaken, NOT at the date of separation. If there has been an increase or decrease in the value of an item of property since separation, the reasons for the change in value can be considered in the next step.
If parties cannot agree on the value of an item of property, they should jointly appoint an expert to value the item.
At this step, the roles adopted by the parties during their relationship and the contributions made by them in those roles, together with contributions made by others on their behalf are considered and compared. As assessment is made as to whether the parties’ contributions were equal, or one party contributed more than the other.
In long relationship of 15 years or more, where neither party came into the relationship with any assets of value and neither party received a gift, inheritance or compensation payment during the marriage, it is likely that the parties’ contributions will be assessed as equal. It is important to note that the contributions of a stay-at-home spouse and parent are treated as equal to the contributions of a full-time breadwinner.
Examples of situations where contributions might be considered unequal are where:
- One party came into the relationship with substantial assets and the other did not;
- During the relationship, one party received accident compensation for an injury;
- A party received a substantial inheritance during the relationship;
- One party’s contributions were made more difficult because he or she was subjected to family violence throughout the relationship;
- Due to illness or injury, one party was unable to contribute either financially or non-financially for part or all of the relationship.
After the parties’ contribution-based property entitlements have been assessed, factors relating to their current and future financial circumstances must be considered. Examples of factors likely to be relevant are listed above.
If either party has a diminished capacity to rebuild financially following the settlement, that party might need to receive an extra share of the property available to make up for this. For example, if one party has been the financial provider throughout the relationship and has a good job and income, whereas the other has stayed at home to raise the children and is only able to work part-time in less well-paid employment. In such circumstances, the first party would clearly have a greater capacity to recover financially. Therefore, the second party would need to receive an adjustment to their contribution-based property entitlements so he or she would not be unfairly disadvantaged due to his or her role during the relationship.
There are no hard and fast rules about the percentages awarded at the adjustment stage. The amount of any adjustment made at this step depends on the impact of the relevant factors in the circumstances of the specific case and the size of the property pool.
Just and equitable orders
The final step in determining property entitlements, is to apply the percentages to the value of the property pool to work out how much each person will get. For example, if the property pool is to be divided in the proportions of 60% to one party and 40% to the other and the total net value of the property pool is $1,000,000, the first party will receive property to the value of $600,000 and the second party property to the value of $400,000.
A decision then needs to be made about how each asset, debt and superannuation asset will be allocated between the parties so that they each receive the amount to which they are entitled.
Once this is done, the effect of the proposed property allocations must be considered to ensure that the overall outcome is just and equitable.
The assessment of property entitlements after the breakdown of a relationship is complex and highly discretionary. There are no “rules” about the value of types of contributions or what adjustment factors are worth. Every case must be considered on its own facts. Only with experience and involvement in many property settlement cases over several years, does a solicitor develop the skill to accurately assess what would be considered a fair settlement if the matter were decided by a court. Therefore, we recommend that before attempting to negotiate a settlement you consult an experienced family law accredited specialist, with a proven track record in the area of property division, for advice about your property entitlements.