Co-authored by Alexandra Coyle and Emily Molloy, Gold Coast based Senior Associate and Law Clerk in Family Law at Robbins Watson Solicitors, this article discusses the key considerations involved in reaching a reasonable property settlement through identifying and valuing marital assets and debts, determining the appropriate property division, and addressing potential complications with such division.
When you separate from your partner, irrespective of whether you were married or in a de facto relationship, navigating the complexities of property settlements can be overwhelming. Whether it is trying to deal with asset division, debt allocation or understanding family law principles, reaching an equitable distribution of marital property is crucial. This article will guide you through the essential steps to achieve a fair property settlement, from identifying assets and debts to handling complications such as superannuation and tax liabilities.
Understanding Property Settlements in Family Law
In Family Law, property settlement is the legal process of formalising the division of assets, property, and debts between separating partners. Commonly, people are of the belief that on separation each partner automatically receives a 50/50 split of the property – this is a common misconception. Rather, the Federal Circuit and Family Court of Australia (the “Family Court”) will consider various factors of the relationship to ensure an equitable distribution occurs that is reflective of each party’s contributions and future needs.
In Australia, property settlements can be achieved without Family Court intervention through mutual agreement i.e. negotiations or mediation. Even if no Court involvement occurs to formalise the property settlement, the considerations of the Family Court should still be considered to ensure that each party has a balanced financial future. The key objective is to reach a fair and reasonable outcome that considers the unique circumstances of both parties.
4-Step Property Settlement Process
The Family Court has a 4-step process to determine property settlement between ex-partners. Irrespective if your relationship was marriage or de facto the Family Court applies the same considerations. This 4-step process should be adopted by partners on separation to ensure that the division of the property is reasonable.
Step 1: Identifying and Valuing Marital Property, Assets, and Debts
The first step in any property settlement is to identify and value all marital property, assets, and debts. This includes everything acquired during the relationship, regardless of whose name it is under. Any item in your name, your partner’s name or your joint names that you have possession or control over are to be pooled. Key assets and liabilities typically include:
- Real estate: Family homes, investment properties, land.
- Vehicles: Cars, boats, motorcycles.
- Financial Assets: Bank accounts, shares, and other investments.
- Personal Property: Furniture, jewellery, electronics, collectables.
- Businesses: Any business interests or partnerships.
- Financial Resources: superannuation, trusts.
- Debts: Mortgages, personal loans, credit card debts, tax liabilities.
Valuation Process:
In financial settlements, it is crucial to have accurate valuations of all assets and debts. In the event that any real estate is to be retained by one party, it should be professionally valued. Other financial assets like shares, cash at bank, and superannuation need up-to-date values at the time of entering into the agreement – these can be provided assessments from financial advisors or the relevant financial institutions. Proper valuations help establish the total property pool for division, ensuring a fair property settlement is reached.
Step 2: Determining the Contributions to the Martial Property
After identifying and valuing all matrimonial property, the next step is determining how to equitably distribute these assets and debts. The Family Court uses a structured approach to decide on a reasonable division by considering the contributions of the parties.
Assessing Contributions
The Family Court looks at contributions that each party has made prior to the relationship, during the relationship and post-separation. These contributions are considered on three levels, being:
- Financial contributions: These are contributions that are made by either party either directly or indirectly or on their behalf as to acquire, conserve and/or improve any property. This includes earnings, property acquired (whether prior to the relationship or during), savings, and investments as well as loan repayments, motor vehicles and gifts received.
- Non-financial contributions: These are contributions that are made by either party either directly or indirectly or on their behalf as to conserve and/or improve any property, but these are contributions other than financial. This includes home renovations, whether they are “do-it-yourself” improvements or supervising professional tradespeople, gardening, managing finances, or maintaining assets.
- Parenting and homemaking contributions: These are contributions that are done for the welfare of the family. It may be the case that one parent attends to unassisted childcare to enable the other partner to further their career. Other contributions are attending to household duties such as cooking, cleaning, grocery shopping and so forth.
In family law, contributions are not limited to financial inputs; non-financial and homemaking contributions hold equal weight, especially in long-term relationships.
Step 3: Identifying Future Needs
The next step is for the Family Court to consider the future needs of each party. The Family Court notes the age of each party, their respective health, their income earning potential and caregiving responsibilities.
For instance, if one party has primary custody of children or limited earning capacity, they may receive a greater share of the property pool as to ensure a balanced financial future.
Step 4: Ensuring the Settlement is Just and Equitable
A critical part of the process is the last step, which, ensures that the proposed property settlement is just and equitable. This means that the practicality of the proposed division is reasonable for each party and accurately reflects their contributions and future needs.
If the practicality of the proposed division is not reasonable, the Family Court can make a discretionary adjustment as to the division of the property as to ensure it is just and equitable for both parties.
Implementing the Settlement & Addressing Complications in Property Settlements
Once the division of property has been agreed upon or Family Court orders have been made the practical implementation of the settlement is carried out. This could involve the transfer of property, selling assets, or splitting superannuation. Professional guidance from a lawyer can help navigate this phase and ensure compliance with legal requirements.
Property settlements can be complicated by specific types of assets or liabilities and how they are to be divided on separation. Below are some common complications and how to handle them.
Superannuation and Pensions
Superannuation is a critical component of many property settlements and is subject to specific rules under family law. While superannuation is not an asset that is readily available to be utilised by the parties, this asset is factored into the property pool and can be divided in the proposed division.
Superannuation splitting laws allows superannuation to be divided between parties, but it is treated differently from other assets. Legal advice is essential to ensure the equitable distribution of superannuation balances. It is noted that while you can obtain superannuation from your spouse on separation, this asset is still treated the same as your superannuation, in that it is not readily available until the terms under your superannuation are met, most commonly being that you reach retirement age.
Tax Liabilities and Capital Gains Tax
Transferring or selling assets during financial separation can trigger tax implications, such as Capital Gains Tax (CGT). For example, selling an investment property to divide proceeds may result in CGT liabilities that need to be considered when negotiating the settlement. Working with financial advisors can help minimise tax impacts and ensure a fair distribution.
When determining whether to sell or retain investments during separation, financial advice should be sought to determine any tax implications of sale. Once the tax implications are known this can be factored into the division of property and ensures that the overall division accounts for the loss that is to be incurred on the sale, should the sale of the asset be a factor of the agreement.
Business Interests and Complex Financial Structures
If one or both parties own a business, determining its value and dividing it fairly can be challenging. This often requires a business valuation by a specialist and a strategic approach to either sell, continue jointly, or buy out one party’s interest. Properly addressing business assets ensures that both parties’ contributions are recognised in the settlement.
Similarly with trust structures, determining the value of the trust and ensuring that if one party is to be removed or if the trust is to be dissolved that each party’s contributions and future needs are recognised in the settlement.
At separation, the Family Court ideally likes to see the severance of all financial ties between separating couples. In this instance, it is often practical for one party to continue with the business or control of a trust then to continue jointly carrying on in separation. If one party does not have the financial means to continue the business or the parties cannot mutually decide on who should continue with the business or trust that financial resource may need to be sold or dissolved.
Reaching a Property Settlement: Mediation vs. Court
Many property settlements are resolved through negotiation and mediation, avoiding the need for costly court proceedings. Mediation is a preferred method as it allows both parties to discuss their needs and reach an amicable agreement with the help of a neutral third-party mediator.
If mediation fails, applying to the Family Court is the next step, where a judge will decide on the equitable distribution of marital property. This is often a more time-consuming and stressful process, so exploring alternative dispute resolution methods is recommended whenever possible.
Formalising the Property Settlement Agreement
Once a property settlement agreement is reached, it must be formalised to become legally binding. This can be done through either consent orders or a binding financial agreement.
Consent Orders
A legally binding court order that reflects the terms agreed upon by both parties.
Both parties apply to the Family Court with their proposed division of property. The Family Court considers the division considering the above 4-steps and seals the Orders if they are just and equitable.
While the Family Court is involved in formalising the agreement, neither party is required to attend Court. Once the Family Court seals the Orders the agreement is binding and enforceable on each party.
Binding Financial Agreements (BFA)
This is a private agreement between parties outlining how assets and debts will be divided.
There is no Family Court involvement with BFAs rather each party is to obtain their own independent legal advice prior to signing the agreement. Within the legal advice the parties’ respective legal representatives will advise on the agreement in relation to the Family Court’s 4-step process.
Once the final person and their legal representative sign the agreement, the BFA is binding and enforceable on each party.
Formalising the agreement ensures that the terms are enforceable and provides both parties with legal certainty, preventing future disputes over property.
Conclusion: Seek Professional Advice for Fair Property Settlements
Property settlements are a critical aspect of any separation, and achieving an equitable distribution requires careful consideration of all assets, contributions, and future needs. Engaging an experienced family lawyer in asset division is crucial to ensure a reasonable outcome.
If you’re facing a property settlement, our experienced family law team can provide you with tailored guidance and support as to protect your interests and navigate the complexities of family law. A well-structured settlement will not only address immediate financial concerns but also set a foundation for a secure and stable future post-separation.
Our family law team are experienced in property settlements and have extensive experience in this area, for assistance contact Alexandra Coyle by clicking here to discuss your situation. Alternatively, you can click here to get started independently on detailing your property matters.
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