Property division following the breakdown of a relationship is often one of the most complex and emotionally charged aspects of family law in Australia. Whether you’re going through a divorce, ending a de facto relationship, or separating from a same-sex partner, understanding how assets may be divided is crucial for planning your financial future.

In Australia, property settlements are governed by the Family Law Act 1975 (Cth), which provides a framework aimed at achieving just and equitable outcomes for both parties. Unlike some jurisdictions, Australian family law does not automatically presume a 50-50 split of assets. Instead, each case is assessed individually based on its unique circumstances and a range of specific factors.

This article explores the key considerations that property settlement lawyers and/or mediators at Mediations Australia take into account when dividing assets in Australia, providing insights into how the law balances competing interests to achieve fair outcomes.

The Legal Framework for Property Division in Australia

The cornerstone of property division in Australian family law is the Family Law Act 1975 (Cth), particularly Section 79, which grants courts broad powers to make orders altering property interests between parties to a marriage. For de facto relationships (including same-sex relationships), similar provisions exist under Section 90SM of the Act.

The overarching principle that guides all property settlements is the need for a “just and equitable” outcome. This principle was reinforced in the landmark High Court decision of Stanford v Stanford [2012] HCA 52, which emphasized that the court must first be satisfied that it is just and equitable to make any order altering property interests before proceeding with the division.

The Four-Step Process Under Section 79

When determining how to divide property, Australian courts typically follow a well-established four-step process:

Step 1: Identify and Value the Asset Pool

The first step involves identifying all assets, liabilities, and financial resources of both parties, regardless of when they were acquired or whose name they are in. This includes:

• Real estate (family home, investment properties)
• Financial assets (cash, bank accounts, shares, investments)
• Superannuation entitlements
• Business interests
• Personal property (vehicles, furniture, artwork)
• Liabilities (mortgages, personal loans, credit card debts)
• Future financial resources (such as potential inheritances)

These assets and liabilities must then be valued as at the date of the property settlement, not the date of separation. This often requires professional valuations, particularly for complex assets like businesses or investment portfolios.

Step 2: Assess Contributions

The second step involves assessing the direct and indirect contributions made by each party to the acquisition, conservation, and improvement of the property. Contributions are broadly categorized as:

• Financial contributions (income, savings, property brought into the relationship)
• Non-financial contributions (renovations, improvements to assets)
• Contributions as homemaker and parent

Importantly, Australian family law recognizes that non-financial contributions, such as caring for children and maintaining the household, can be just as valuable as financial contributions. This is particularly significant in cases where one party has foregone career opportunities to take on family responsibilities.

Step 3: Consider Future Needs

The third step requires consideration of the future needs of each party. Section 75(2) of the Family Law Act outlines various factors to be taken into account, including:

• Age and health of each party
• Income, property, and financial resources
• Care and support of children
• Earning capacity and ability to find employment
• Duration of the marriage and its effect on earning capacity
• Standard of living
• Child support obligations

This step may result in an adjustment of the division determined at step 2, to account for disparities in the parties’ future circumstances.

Step 4: Just and Equitable Check

The final step is to consider whether the proposed division is just and equitable in all the circumstances. This allows the court to step back and assess whether the outcome is fair, taking into account all relevant factors and the specific circumstances of the case.

Binding Financial Agreements as an Alternative

Not all property settlements need to be determined by a court. The Family Law Act also provides for Binding Financial Agreements (BFAs) under Sections 90B-90KA, which allow couples to make their own arrangements regarding property division.

BFAs can be entered into:

• Before a marriage or de facto relationship (prenuptial agreements)
• During a relationship
• After separation or divorce

For a BFA to be legally binding and enforceable, it must:

• Be in writing and signed by both parties
• Contain a statement that each party received independent legal advice
• Include certificates signed by the legal practitioners who provided that advice
• Not have been set aside or terminated

BFAs can provide certainty and control over asset division, potentially avoiding the costs and stress of litigation. However, they must be carefully drafted to ensure they are valid and achieve the intended outcomes.

Key Factors Considered in Property Settlements

While the four-step process provides a framework, property settlement lawyers must consider numerous specific factors when advising clients and advocating for fair outcomes. Let’s explore these factors in more detail.

Financial and Non-Financial Contributions

Australian family law takes a holistic view of contributions to the relationship, recognizing both direct financial contributions and indirect non-financial contributions.

Financial Contributions

These include:

• Initial assets brought into the relationship
• Income earned during the relationship
• Inheritances and gifts received
• Financial windfalls (lottery wins, compensation payments)
• Contributions to mortgage repayments and household expenses

Non-Financial Contributions

Equally important are non-financial contributions such as:

• Homemaking and parenting responsibilities
• Property maintenance and improvements
• Support of the other spouse’s career or business
• Care for elderly family members

In the case of Waters & Waters [2016] FamCAFC 178, the Full Court emphasized that there is no presumption that financial and non-financial contributions should be given equal weight. Each case must be assessed on its merits, with the court having discretion to determine the relative significance of different types of contributions.

Future Needs of Each Party

Assessment of future needs is a forward-looking exercise that considers how the parties will fare financially after separation. Factors that may lead to an adjustment in favor of one party include:

Age and Health Disparities

A significant age gap or health issues affecting one party’s ability to work and earn income may justify a greater share of the property pool. For example, a spouse in their 60s with chronic health problems will generally have less opportunity to rebuild their financial position than a healthy spouse in their 40s.

Income and Earning Capacity Discrepancies

Where there is a substantial difference in income or earning potential between the parties, the court may adjust the division to reflect this disparity. This is particularly relevant where one spouse has limited their career advancement to support the family, resulting in reduced earning capacity post-separation.

Care of Children

The primary caregiver of children will often have additional expenses and constraints on their ability to work full-time, which may justify a larger share of the property pool. The courts recognize that caring responsibilities can significantly impact financial independence and security.

Financial Resources

Access to financial resources beyond the identified asset pool, such as support from family members, anticipated inheritances, or interests in discretionary trusts, may also be relevant to assessing future needs.

Length of the Relationship

The duration of the relationship is a significant factor that can influence how contributions are weighed and how the property is ultimately divided.

Short Relationships

In shorter relationships (typically less than 5 years), especially without children, there is often greater emphasis on the initial contributions of each party. The court may be more inclined to return parties to their approximate financial positions prior to the relationship, with adjustments for any significant changes during the relationship.

In Fielding & Nichol [2014] FCCA 2 (a case involving a 3-year relationship), the court recognized that the parties largely maintained separate finances throughout their brief marriage and gave significant weight to initial contributions when dividing property.

Long-Term Relationships

In longer relationships, particularly those spanning decades, initial contributions tend to be given less weight as they become “merged” into the shared financial history of the couple. Non-financial contributions as homemaker and parent are typically given greater recognition in long-term relationships.

The case of Murphy & Murphy [2007] FamCA 795 involved a 35-year marriage where the wife had been the primary caregiver and homemaker. Despite the husband making greater financial contributions, the court awarded the wife 60% of the asset pool in recognition of her significant non-financial contributions and her more limited future earning capacity.

Care and Welfare of Children

The ongoing care of children is a paramount consideration in property settlements. This factor overlaps with both the assessment of contributions (recognizing past parenting) and future needs (addressing ongoing parenting responsibilities).

Courts consider:

• The additional costs associated with being the primary caregiver
• The impact of parenting responsibilities on work capacity
• The need for suitable accommodation for children
• Special needs of children that may require additional resources

In the case of Kennon & Kennon [1997] FamCA 27, the court emphasized that property settlements must ensure that the primary caregiver has sufficient resources to provide appropriately for children, including suitable housing and the capacity to meet ongoing expenses.

Applying the Law to Real-Life Scenarios

To better understand how these factors interact in practice, let’s examine how they might apply in different scenarios.

Case Study 1: Long-Term Marriage with Unequal Financial Contributions

Scenario: Maria and John have been married for 25 years and have two adult children. John has worked full-time throughout the marriage as a financial advisor, earning a substantial income. Maria worked part-time in retail for the first five years of marriage before becoming a full-time homemaker and primary caregiver to their children. Their asset pool consists of:

• Family home worth $1.2 million (mortgage-free)
• John’s superannuation of $800,000
• Maria’s superannuation of $120,000
• Investment property worth $500,000 (with a $200,000 mortgage)
• Savings and shares worth $300,000

Application of Factors:

1. Asset Pool Identification: The total net asset pool is $2.72 million.
2. Contributions Assessment:
   • John made greater direct financial contributions through his income and superannuation.
   • Maria made significant non-financial contributions as the primary homemaker and parent for 20 years.
   • The court would likely recognize that Maria’s domestic contributions enabled John to focus on his career and build his earning capacity.
   • Given the length of the marriage, initial contributions have less relevance.
3. Future Needs Considerations:
   • At age 52, Maria has limited work experience and earning capacity.
   • John, at 54, continues to earn a substantial income and has strong future earning potential.
   • Maria has significantly less superannuation, affecting her retirement security.
4. Just and Equitable Outcome: In this scenario, a court might determine a division of approximately 55-60% to Maria and 40-45% to John would be just and equitable, recognizing both Maria’s substantial non-financial contributions and her significantly greater future needs.

Case Study 2: Short-Term Relationship with Equal Contributions

Scenario: Alex and Sam were in a de facto relationship for four years with no children. Both worked full-time in professional roles with similar incomes. They purchased a property together during the relationship, with Sam contributing slightly more to the deposit from savings accumulated before the relationship. Their asset pool consists of:

• Jointly owned property worth $750,000 (with a $500,000 mortgage)
• Sam’s superannuation of $180,000 (including $120,000 accumulated before the relationship)
• Alex’s superannuation of $150,000 (including $70,000 accumulated before the relationship)
• Joint savings of $50,000
• Vehicle owned by Sam worth $40,000 (purchased during the relationship)
• Vehicle owned by Alex worth $30,000 (purchased during the relationship)

Application of Factors:

1. Asset Pool Identification: The total net asset pool is $700,000.
2. Contributions Assessment:
   • Both made similar financial contributions during the relationship through income.
   • Sam contributed more to the property deposit from pre-relationship savings.
   • Both shared household responsibilities fairly equally.
   • Given the short duration, pre-relationship assets remain significant.
3. Future Needs Considerations:
   • Both have similar ages, health status, and earning capacities.
   • Neither has caring responsibilities affecting future employment.
   • Both have comparable opportunities to rebuild financially.
4. Just and Equitable Outcome: In this scenario, a court might determine that returning pre-relationship assets (superannuation) to each party and then dividing the jointly accumulated assets roughly equally would be just and equitable. This might result in a division closer to 52% to Sam and 48% to Alex, reflecting Sam’s slightly higher initial contribution to the property purchase.

The Impact of Binding Financial Agreements

If either couple in the above scenarios had entered into a valid BFA, the assessment process would be fundamentally different.

Scenario with BFA: Consider if Maria and John from Case Study 1 had signed a BFA at the beginning of their marriage stating that each would retain their individual superannuation entitlements and that the family home would be divided 70/30 in favor of John in the event of separation.

If this BFA meets all the formal requirements and has not been set aside by a court, it would typically determine the division of these assets regardless of the contributions and future needs factors that would otherwise apply. However, there are exceptions:

• If the BFA was signed under duress or undue influence
• If there was fraud or non-disclosure of material information
• If the BFA is unconscionable or impracticable to carry out
• If there has been a material change in circumstances relating to the care of a child, causing hardship

In Thorne v Kennedy [2017] HCA 49, the High Court set aside a BFA signed by a financially vulnerable spouse days before the wedding, emphasizing that BFAs must be entered into fairly and with genuine informed consent to be enforceable.

Frequently Asked Questions About Property Division

Is a 50-50 split the default in Australian property settlements?

No. Unlike some jurisdictions, Australian family law does not presume an equal division of assets. While a 50-50 split may be appropriate in some cases, particularly where contributions and future needs are relatively equal, each case is assessed individually based on its specific circumstances.

The case of Mallet v Mallet [1984] HCA 21 established that there is no presumption of equality in property settlements. The court must consider all relevant factors and determine what is just and equitable in each case.

Can inheritances and gifts be included in the asset pool for division?

Yes, but with nuance. Inheritances and gifts received during a relationship generally form part of the asset pool available for division. However, how they are treated depends on factors such as:

• Timing of the inheritance/gift (early in the relationship vs. near separation)
• Size of the inheritance/gift relative to the overall asset pool
• Whether it was intended to benefit both parties
• Whether it has been kept separate or intermingled with joint assets
• Length of the relationship after the inheritance/gift was received

In the case of Calvin & McTier [2017] FamCAFC 125, the Full Court upheld that an inheritance received by the wife shortly before separation should be included in the asset pool but acknowledged that the husband’s contribution to that inheritance was minimal, resulting in a division that effectively preserved most of the inheritance for the wife.

How do pre-existing assets owned before the relationship impact property division?

Pre-existing assets are generally included in the asset pool but are recognized as the sole contribution of the party who brought them into the relationship. The weight given to these initial contributions typically diminishes over time, particularly in longer relationships where assets have become intermingled and both parties have made ongoing contributions.

In shorter relationships, pre-existing assets often retain greater significance in the assessment. In the case of Pierce & Pierce [1998] FamCA 74, involving a short marriage, the court gave substantial weight to the husband’s initial contribution of a property, resulting in him retaining a larger percentage of the asset pool.

Factors that influence how pre-existing assets are treated include:

• Length of the relationship
• Whether the asset has been maintained or improved during the relationship
• Whether the asset has been used for the benefit of the family
• Whether the asset has been preserved separately or commingled with joint assets

Navigating Your Property Settlement: Key Takeaways and Next Steps

Property settlements in Australian family law are complex and highly individualized processes that require careful consideration of numerous factors. The key points to remember include:

1. Australian law aims for “just and equitable” outcomes rather than presuming equal division.
2. Both financial and non-financial contributions are recognized and valued.
3. Future needs, including disparities in earning capacity and care of children, can significantly influence property division.
4. The length of the relationship affects how contributions are weighed, with initial contributions becoming less significant over time.
5. Binding Financial Agreements can provide certainty but must meet strict requirements to be enforceable.
6. Each case is unique, and outcomes depend on the specific circumstances of the relationship and the parties involved.

If you’re facing a property settlement, consider these next steps:

Gather and Organize Financial Information Collect documents relating to all assets, liabilities, and financial resources, including bank statements, superannuation statements, property valuations, and loan documents. This provides a foundation for identifying the asset pool.

Seek Legal Advice Early Consulting an experienced family lawyer can help you understand your rights and obligations, evaluate the likely outcome of your case, and develop an appropriate strategy. Early advice can prevent costly mistakes and unrealistic expectations.

Consider Alternative Dispute Resolution Mediation and collaborative law processes can help you reach agreement without litigation, potentially saving time, money, and emotional stress. Family Dispute Resolution services are available through the Family Relationship Centres and private practitioners.

Be Realistic About Outcomes Understanding that property division is based on contributions and future needs rather than a presumption of equality can help you set realistic expectations and work toward pragmatic solutions.

Focus on Long-Term Financial Planning When negotiating a settlement, consider not just the immediate division but also the long-term financial implications, including tax consequences, superannuation splitting, and future financial security.

Property settlement is more than a legal process—it’s about establishing the financial foundation for your future after relationship breakdown. With informed advice and a clear understanding of the factors that influence outcomes, you can work toward a resolution that provides security and fairness for all parties involved.