Equal or equitable? How assets are divided in family law property matters

One thing we often hear from clients in family law property matters is a misconceived presumption that when a relationship breaks down, the property will simply be divided equally. Straight down the middle. 50/50. Right? Well, like many areas of the law it depends.

The Court’s test is not about all things being equal, but about what is just and equitable in all the circumstances.

How does the Court work out how divide assets and liabilities after separation?

The Court uses a four-step approach to determine how property should be divided post-separation.

Whether you have already agreed to a property settlement with your partner and just need a lawyer to document it or your property matter is more complex and needs to proceed to mediation or litigation, it’s always important to talk to a lawyer so that you have a better understanding of what you may be entitled to receive.

The four steps are:

1.     Determining the property pool by identifying all of the parties’ assets and liabilities;

2.     Considering the contributions each person made to the relationship;

3.     Considering the financial needs of each party; and

4.     Assessing whether the adjustments are just and equitable.

If any agreements have been made between the parties prior to or during the relationship, for example a binding financial agreement (sometimes referred to as a ‘pre-nup’), this should be disclosed to your lawyer early on in the process as that will likely impact the advice you are given and the pathway your matter takes.

1.     Determining the property pool

Before the Court can decide how to divide the property pool (also known as the matrimonial pool), it must know what assets and liabilities the parties have.

Each party to a family law property matter has a duty to disclose their financial information and documents to the other party. The parties must be transparent about any assets and liabilities they have so that the pool can be properly determined.

All assets of each party, including any assets they hold solely or jointly with another person or entity needs to be included, for example:

i.       Real estate;

ii.     Cash assets;

iii.    Investments, for example shares;

iv.    Superannuation;

v.     Motor vehicles, caravans, trailers, boats, motorcycles;

vi.    Details of any trusts or companies controlled by either party or in which either party has an interest;

vii.   Jewellery of any real value;

viii.  Household items.

This is a non-exhaustive list and the disclosure required will vary depending on your unique circumstances.

The parties also need to disclose to each other, details of any income they are receiving, such as a salary, director’s fees or other income from companies or businesses in which they have an interest.

It’s important to know that post-separation assets may also be included in the pool so getting advice soon after separation is crucial if you intend to acquire additional assets.

The parties also need to disclose to each other, information and documents about their liabilities, including:

i.       Mortgages;

ii.     Student loans or other education debts;

iii.    Personal loans;

iv.    Credit cards;

v.     Business loans;

vi.    Loans owing to family or friends.

The duty to disclose financial information is an ongoing duty up until the property matter is settled between the parties or decided by the Court. For this reason, any changes to one party’s assets or liabilities need to be disclosed to the other throughout the family law process. Once all the assets and liabilities are known, the net value of the matrimonial property pool can be determined. The Court can then move onto the next step which is to assess the contributions made by each party to the relationship.

2.     Assessing Contributions

In deciding how to divide the property pool between the parties, the Court must consider the contributions made by each party to the relationship and decide whether to make any adjustments to the division of the pool in favour of either party.

Relevant contributions are:

i.          Financial Contributions, for example:

a.     Did one party have more assets when the relationship began than the other?

b.     Who paid for what during the relationship?

c.      Did one party receive a lump sum from a compensation claim, inheritance, gift or redundancy and contribute those funds to the property pool or relationship?

d.     Did one party withdraw funds from their superannuation to increase the property pool?

The timing of contributions will also be important, for example in a long relationship, the weight given to early contributions may be less than contributions made closer to the end of the relationship.

ii.              Non-financial contributions. This might include where one party increases the value of an asset or assets by work they do, for example renovations or landscaping that they would have otherwise had to pay trades to do.

iii.             Homemaker and carer contributions, for example:

a.     Who looked after the children or another person, for example the other party or the other party’s parent or other relative;

b.     Which party cooked, cleaned and attended to other household and garden duties?

Once the respective contributions have been considered and appropriate adjustments to the pool allocated to either party in recognition of these contributions, the third step is to consider the future financial need of each party and whether any adjustment is required in favour of either party because of those needs.

3.     Future Financial Need

There are many factors that the Court must consider in determining whether any adjustments need to be made to the division of the property pool in favour of either party for their future financial need.

Some of the matters the Court will consider are:

1.     Whether either party has physical or mental health needs that require treatment in the future or will have an impact on their earning capacity;

2.     Whether one party is older than the other party and therefore might be closer to or at retirement age;

3.     Whether either party has access to financial resources that the other does not;

4.     Whether one party has a higher income earning capacity than the other;

5.     Whether one party is caring for the children of the relationship or for another person;

It is not uncommon for one party to have made more contributions to the relationship and the other to have greater future financial need. While there is no magical mathematical formula to working out who should receive what from the property pool, the Court must make appropriate adjustments for the various relevant contributions and future financial needs of each party to arrive at what should be a just and equitable outcome.   

4.     Is the outcome just and equitable?

Once the property pool has been determined and the contributions by each party and their future financial needs have been assessed and relevant adjustments have been made, the Court will have a fairly reasonable idea of what the distribution of assets and liabilities should be.

Often, by the end of step 3, the emerging outcome will seem reasonable, however if the proposed division of property does not seem reasonable, then the Court has some discretion to adjust the pool further to achieve a just and equitable outcome in all the circumstances.

The unfamiliar territory of navigating family law property matters can be daunting. Whether your goal is to reach an amicable settlement with your former partner or your situation is more likely to require intervention by way of mediation or litigation, it is always best to seek legal advice to better understand what might be a just and equitable division of the property pool in your particular case.

No matter how simple or complex, modest or significant your property pool, our experienced family law team is here to help. Contact us to speak to one of experienced and professional family law team or to arrange an appointment.