While the answer to this ‘Property Settlement’ question varies depending on your circumstances, there are some general principles that guide lawyers and courts in answering this question. In this post, we will explain each of these principles and provide examples of how these principles may apply to your set of circumstances.
Should there even be a property settlement?
The first question when assessing your entitlements in a property settlement is whether there should even be a property settlement. In legalese, we ask: “is it just and equitable to alter the parties’ property interests?”. As explained by the Court in the landmark Stanford case, the Court needs to first assess whether it is fair to even alter the property interests of the parties.
For example, the case may involve a married couple who never intermingled finances, had no children and save for their sexual relationship, were essentially living as roommates. Or it may, like in the Stanford case, involve an elderly couple who were involuntarily living separately (due to illness), but were not necessarily actually separated (as husband and wife). In these cases, the Court may consider it to be not fair to split the parties’ property.
Where a couple aren’t married, it’s also important to consider whether a de facto relationship existed. A de facto relationship means that a couple were living together on a “genuine domestic basis”. There are a range of factors considered when determining this, including but not limited to:
- Whether there is a mutual intention to share a life together;
- How long the couple has lived together;
- Whether the couple has a sexual relationship;
- The degree of financial intermingling and support;
- Whether they have joint assets or debts;
- How they have arranged their household duties and responsibilities;
- Whether they socialise together and how they hold themselves out to friends and family.
- Where the couple is not married, the existence of a de facto relationship must first be established before the Court has jurisdiction to make orders to divide their property and assets.
What’s in the property pool to be divided?
Once we establish that there should be some sort of property split, then the next question we ask is what is in the property pool to be divided? In this step, all of the assets and debts of both parties are considered. This includes all assets and debts, whether they are in sole or joint names, or whether they are in Australia or overseas.
This step is critical in determining someone’s entitlements in a property split. Often the main issue in dispute in a property settlement case is not what percentage figure each party should receive, but what is actually in the property pool to be divided. For example, even if you were to receive 70% of the property pool, if a significant asset is not counted as part of that pool, then you may be receiving a less than (say) 60% of a what would otherwise have been larger pool with that significant asset included.
There’s also a common misconception that just because an asset is in the sole name of one party, it means that the other party has no claim to the asset.
Until a separated couple have had a legally-binding property settlement, any assets or debts that they each have could potentially form part of a future property claim by the other party.
This is the reason why we would always advise clients that even if they don’t have a significant amount of assets at the time, to enter into a legally-binding property settlement. If they don’t, then any assets that they accumulate in the future, or any debts accumulated by the ex-partner, could form part of a property claim against them in the future.
What contributions have each of the parties made?
At this step, we look at what contributions each party has made and see those contributions warrant an adjustment in favour of either party. One common approach is to break down the contributions between:
- Initial contributions;
- Contributions during the relationship;
- Post-separation contributions.
Initial contributions
If one party came into the marriage/de facto relationship with significant assets, such as a house or a large amount of savings, but the other party didn’t, then they may well receive an adjustment in their favour for this initial contribution. However, it’s important to note that over a long relationship, the relative “value” of initial contributions may be diminished over time. This is because the longer a relationship lasts, the other party’s contributions is taken to have eroded their partner’s initial contributions.
Contributions during the relationship
Contributions made during the relationship include contributions made directly by the couple under ordinary circumstances and contributions of a “special nature”. For contributions made directly by a couple (e.g., via salary earned or caring for the children), the Court doesn’t usually go through the contributions with a fine-tooth comb to determine who made more contributions. The Court’s approach is usually one that considers the couple’s contributions as being equal, because the couple embarked on a joint venture together with agreed roles and responsibilities, and towards which both parties made contributions.
However, there may be contributions of a special nature that warrant an adjustment in favour of one party.
The most common type of special contributions are assets or funds received externally, such as an inheritance or where one party’s family gifts a significant asset or money to the parties.
It’s important to note that the party whose family provided these contributions usually does not receive that contribution back “dollar-for-dollar”. An assessment needs to be made in light of all other circumstances as to how much of an adjustment that party should receive due to these special contributions.
Less common is the argument of wastage or “negative contributions”. When a Court does find that one party has effectively wasted assets such that they should be solely responsible for the debt, it usually first needs to decide that that party intentionally, or at least recklessly, reduced the assets of the relationship/marriage. Examples of this include where one party allowed potential purchasers of a house to live in a property rent-free, or gambling.
In the case of a short relationship/marriage (i.e., a few years or less), especially one where the parties don’t have children together, the Court generally takes a different approach, where each party “keep what they came in with”. Unlike with long relationships, the Court is usually more willing to go through in detail, the quantum of contributions made by each party in a short relationship.
Post-separation contributions
Another common misconception is that once a couple are separated, any contributions they make are theirs to keep. This is often not the case, and post-separation contributions may well be treated in a way that is similar to contributions made during the relationship.
What are the parties’ future needs? (AKA. Section 75(2) Factors)
In this step, the Court considers a range of factors which could warrant an adjustment in favour of either party.
The two most common factors brought up are:
- Income earning capacity of the parties; and
- Amount of care that the parties have of any child/children of the relationship.
In relation to adjustments for income earning capacity, it’s important to note that what’s considered is usually not what income a party is earning any given time, but their capacity to earn an income.
Some people mistakenly think that if they quit their job when negotiating a settlement, that they will get more than if they had remained employed. Also, if one party earns an income through a business, it’s not simply a question of the reported income of the individual person, but how much profit their business makes. The question of income from a business can become particularly complex, for example, where expenses are put through the business such that a party’s income earning capacity is not apparent at face value.
As for adjustments for care of any children, the weight of this factor not only looks at the number of days and nights a child is cared for by each party, but also how old the child is, and whether they have any special needs. The younger the child/children are, the primary carer is likely to receive a higher adjustment than with a child who is almost an adult. This is because they will have greater responsibility for caring and providing for the child for many more years to come. Another related factor is what child support is being paid and is likely to be paid in the future.
A full list of the Section 75(2) adjustment factors can be found here: http://classic.austlii.edu.au/au/legis/cth/consol_act/fla1975114/s75.html
What is a just and equitable settlement?
After going through the above steps, we then ask: “what terms of settlement would be just and equitable in the circumstances?” Often this may be expressed as a percentage of the total property pool (for example, 50%/50% or 60%/40%). We have had clients who have said that someone they knew received 70% of their property pool, so why can’t they? As we’ve just explored, there are several steps, and within each of those steps, multiple factors to consider when we advise you on your entitlements in a property settlement. Each couple’s circumstance is different and so it’s important to obtain expert legal advice from an experienced family lawyer. Obtaining advice is important whether you just want to know your entitlements so that you can negotiate with your ex-partner directly, or whether communications with your ex-partner has broken down completely.
If you’d like to find out more about the process and your rights in a property settlement, please contact one of our expert family lawyers in Ringwood and Mount Waverley for an obligation-free chat on 0421 397 316 or jlok@oikosfamilylaw.com.au.
