Coming to a property settlement that meets the satisfaction of both parties is often the hardest part of a divorce.
While it’s a necessary process so that you can both move on with your lives, working out the ‘pool’ of assets that need to be divided can be a complex process. Is it only the assets you bought together? What happens where you held an asset in your name only throughout the period of the relationship? What about any assets accrued after the relationship broke down?
We’ll attempt to answer some of these questions in this article but if you have similar questions as you face the unfortunate prospect of divorce, seek the advice and guidance of Mediations Australia. We will help clarify the issues for you so that you enter the property settlement process understanding which assets from the relationship are part of the negotiations.
Working out the property pool
Dividing assets in a family law property settlement is governed by the Family Law Act 1975 (‘the Act’). The law makes clear that assets can be considered part of the total property pool including assets held by both parties to the marriage as well as those held in either party’s name. The assets to be considered are those held at the time of the separation unless one of these assets was also used to create a new asset after the parties separated.
Typical assets assessed during property settlement as a result of separation and divorce include the home the ex-couple lived in, any investment properties either or both owned, cars, share portfolios or other investments, savings accounts, debts and superannuation.
Superannuation: Superannuation can be treated in different ways by the Family Court as part of a property settlement. The party who has contributed to – and stands to benefit from – the fund might be allowed to retain that benefit but the amount their ex-spouse may have been entitled to in a split of the fund is recognised by an increased share of other assets (such as sale proceeds from the former matrimonial home).
In other situations, one party’s super fund may be the subject of a splitting order where its value is divided between the ex-partners at an agreed percentage or a ‘flagging order’ where the non-member spouse can access a share of the fund once eligible.
Trusts: If one party to the marriage held assets within a family trust, the Court has wide discretion as to whether these should be included in the property pool. The exercise of this discretion will be assessed on a number of factors, including the level of effective control one party has over distributions from the trust.
The court will consider a range of other factors, too, including:
- the terms of the trust;
- the identity of the trustees and beneficiaries;
- how assets within the trust were acquired and financed;
- historical transactions and distributions from the trust;
- income created from trust assets, and how this is distributed;
- income distributed since the separation.
Inheritances: Where one party to the marriage inherits money or other assets as a beneficiary from an estate when they receive the inheritance will usually be a determining factor as to whether it will be considered as marital property. If the inheritance is received during the marriage and spent on assets or other things such as home renovations that are shared by the couple, it will likely be regarded as a contribution to the marriage.
An inheritance received during the break-up of a marriage, however, or after separation, may not be considered as part of the property settlement but could still be accounted for in working out the future needs of each party because it is a financial resource available to the beneficiary of the inheritance.
While the Court generally favours a ‘global’ approach in working out the matrimonial property pool – taking account of all assets held jointly and separately by the parties to the marriage – it can in some cases adopt an asset-by-asset or ‘two pool’ approach. This may happen where inheritance is received by one spouse late in the marriage, or after separation; where the marriage is brief, or; where one partner has a significant amount of superannuation and the other does not. The asset-by-asset approach necessarily increases the complexity and time involved in reaching a settlement, which makes it a less preferred method.
What factors does the court consider in dividing the property pool?
Under the Act, the Court must determine what is fair and reasonable to both parties given all of the circumstances. This assessment proceeds by first working out the value of the total assets, minus any outstanding liabilities. The Court then considers:
- the direct financial contributions each party made to the marriage, such as wage and salary earnings;
- any indirect financial contributions by each party, such as gifts and inheritances;
- the non-financial contributions to the marriage, such as caring for children and homemaking, and;
- future requirements in light of each party’s age, health, financial resources, care of children and ability to earn (including the effect of a property settlement order on each party’s earning capacity).
Time limits and legal advice
Once a divorce is finalised the parties have 12 months in which to seek an order from the Court regarding property settlement, otherwise, they must seek the Court’s permission to bring an application.
You may, of course, reach an out-of-court agreement about the assets from the marriage with your ex-spouse via mediation or other means and have the Court make the agreement legally enforceable through consent orders.
Whichever course you prefer, a property settlement provides some finality and closure to the relationship, leading to the peace of mind to enter a new part of your life.
To reduce the time and stress involved in coming to a property settlement with your ex, consult with Mediations Australia and we will guide you to the best possible result in your circumstances.
Talk to us Family law Mediation today at Mediations Australia.