How are Assets Divided in a Divorce in Australia?
In this podcast, Accredited Family Law Specialist, Yvonne Cox discusses how assets are divided in a divorce in Australia.
You’re listening to a Harris Lieberman podcast, if you separated or are contemplating separation, it may well be likely that you’ve heard from someone that when it comes to a property settlement, invariably there is a 50/50 split.
And to find out whether or not this is true, I’m with Yvonne Cox of Harris Lieberman. Yvonne. Is this true?
The short answer is no, it’s not. In Australia, we don’t have a system where assets are automatically divided equally between spouses on separation that might occur in other countries. But it just doesn’t happen here in Australia, whilst an automatic division of assets might at first appear to be the most simple and therefore the best solution, an equal division may end up being really unfair to one party.
Because the court has to consider all the law, considers the property pool doesn’t and who’s put in what and that type of thing. That’s essentially how they consider it.
That’s right. And so in Australia, the central piece of legislation dealing with family law matters is the Family Law Act. And that sets out all the factors that we have to consider when we’re determining what isn’t an appropriate division of assets rather than taking a one size fits all approach.
So, well, we can look at those factors. But before we do that, it’s often helpful to just understand how a property law settlement works. As you said before, one of the first things you look at is what? The pool of assets. So we have to identify the assets, including superannuation and also the debts. The second stage is then to identify and assess each party’s contributions and then we evaluate the respective needs of the parties. And then the full stage is to consider what, if any, orders are just equitable.
Right. OK. And following that, what happens?
In the case of married couples, the relevant factors that are taken into account, set out in section 79, subsection four and 75, subsection two of the Family Law Act in the case of de facto couples. These factors are set out in relevant sections of the Family Law Act. But for the purpose of today’s discussion, I’ll just refer to the factors that were the sections utilized in the case of married couples.
So the matters that are taken out, taken into account and Section 79 favour include the direct and indirect financial and non-financial contributions made by or on behalf of a party to the marriage, to the acquisition, conservation or improvement of any of the property of the parties, even though that property might have ceased being the property of the parties. So, for example, a house that was either brought into the relationship or sold early on and doesn’t actually exist at the time or during a property settlement.
Some examples of direct financial contributions to the acquisition of property include compensation payments, putting money into the purchase of a property and mortgage payments and money, which is gifted to a party often by parents of a party which is then applied to the acquisition of an asset, is deemed to be a direct financial contribution made on behalf of a party to the marriage. So we’re looking at their not just contributions that each party to the marriage has made themselves, but contributions that have been made on behalf of them by the third party such as parents.
So paying for repairs and maintenance to a matrimonial property which preserves the value of the property such as roofing, gathering, plumbing and garden maintenance, is an example of a direct contribution to the conservation or improvement of the property. They may have indirect financial contributions, and they include things like payment of household expenses such as groceries, utilities and REITs.
They may go on to the non-financial contributions and these are a little bit tricky here.
But there are a couple of cases which have give some really good examples of these types of contributions.
There is a lot to consider, isn’t there? I mean, it’s certainly just not the 50/50 split.
Oh, no, absolutely. That’s right. And of course, we’ve just spoken about the direct and indirect financial contributions. But of course, there are other types of contributions that are really, really important when it comes to family law, property settlements, and absolutely cannot be overlooked. And they the contributions that a party or parties may make to the welfare of the family. So examples of these types of contributions include looking after children and or performing household chores such as cooking, cleaning, washing and ironing.
So they all types of contributions that are taken into account when assessing authority, when evaluating how the contributions should be assessed. And that’s not the end of the matter. And we then have to look at after there’s been an assessment of contributions, you have to look at whether there ought to be an adjustment in one person’s favour for factors such as income disparity, care of children under the age of 18 and the health of the parties. So that’s just another factor that gets taken into account.
And of course, if there’s a business, then that needs to be assessed amongst that property pool as well.
Yes, that’s right. And so when in that first stage, when we’re looking at what’s involved in a property. One of the very first things we need to do is to identify what the assets will consist of. So if there is a business, then that might need to be valued. Properties that are owed might need to be valued and superannuation entitlements need to be valued. So it’s only once that has been done that there can be an analysis of the respective contributions that we’ve just discussed.
And each party’s future needs to work out whether there ought to be a 50 50 division of the assets or whether it should be something quite different. So in some cases, it is appropriate for there to be an equal division of assets, but it’s certainly not a one size fits all. And in many cases, it is an unequal split of the asset pool. And that’s the most appropriate split for that particular family.
Now, while we’re dispelling some of these myths, the other myth, of course, is that you can’t consider a property settlement until post-divorce. But that’s not the case either, is it?
No, absolutely not. So you can apply for property orders and certainly commence negotiations for a property settlement as soon as separation occurs. In fact, in some limited circumstances, in the case of married couples, property orders can actually be made before separation. But, of course, that’s the exception rather than the rule. But it’s quite common for parties who have separated to want to come to an agreement in relation to the division of their assets fairly shortly after separation, rather than waiting until they get a divorce.
And in fact, under the Family Law Act, there is a requirement that parties need to have been separated for at least 12 months and one day before they can apply for a divorce. So most of the time, people will apply for their property settlement before the divorce. And there’s also a really good reason why people should do that rather than waiting too long, and that is that the asset pool can continue to grow after separation.
So if the matter goes to court, then the court will look at the asset pool that exists as of the date of hearing. And in some cases, that can be really different to what it was at the date of separation. So that can come as a shock to many people. Many people just assume that the assets that will be divided were the assets that existed at separation. There was a really good example of a case a few years ago involving a couple who didn’t formally divide their assets after separation.
They didn’t enter any in any orders under the Family Law Act, and they just essentially went their own way with their own ways. A couple of years after separation, the husband then won a significant Tatts Lotto win. And lo and behold, the wife made an application for a property order, which included seeking some of the lotto winnings that the husband had received. And in that case, the court made it very clear that those lotto earnings were part of the asset pool that they could do.
I know that’s a very good idea for people to get advice early on to try and resolve their property matters sooner rather than later because it can often get more complicated as time goes past.
It also probably minimizes the risk of perhaps one party doing some things with those assets they shouldn’t.
Yeah, that’s right. So whilst the asset pool might go up after separation, the reverse may be true. And in some cases, parties may seek to dispose of assets. There are some avenues that can be taken under the Family Law Act to try and claw back assets that have been disposed of after separation. But that’s not ideal. And you want to try to stop that from happening beforehand. In the best way to do that is to really finalize your property settlement sooner rather than later.
And there’s a lot of work to it. I mean, just given, you know, our conversation in my mind, I’m thinking, gosh, there’s an enormous amount of work that you really want to get this work started as early as possible rather than leaving it too late.
Correct! So the earlier you can seek advice, the better it. Can be a complicated process, obviously, and, you know, you try to keep things as simple as possible, but there is a lot to us to make sure that your client receives the A property settlement that is just and equitable and that is in line with the sorts of factors that we’ve spoken about under the Family Law Act, property settlements. Once they’ve done what they’ve been finalized, they’re very difficult to set aside.
So it’s really important that parties make sure that they have a property settlement which deals with all of the assets and appropriately reflects the contributions that each party have made and also their future needs.