What factors are considered in a property settlement?
When a couple separates, one of most difficult aspects can be the fair division of property and assets. In the case where parties cannot reach an agreement about the division of property, they may apply to the court to hear the application for property settlement and the Family Court will take various factors into consideration in order to decide upon a just and equitable settlement.
There are many commonly asked questions about what the court considers when settling matters and what factors they consider for adjustments. Here we aim to address some of these questions to help you better understand the property settlement process.
Q1. What type of family properties and assets can the Family Court consider in settling the matters?
The Family Law Act 1975 (the Act) defines “property” very broadly, which includes all property “in relation to the parties to a marriage or either of them” as “property to which those parties are…as the case may be, entitled”.
It is difficult to give an exhaustive list of properties that may be considered by court, but it generally includes all types of properties including real estate, financial assets, and material property. These will all become part of an asset pool which is then divided between the parties.
Q2. Can the courts consider property outside Australia?
The Australian Family Courts expressly have jurisdiction to make orders concerning international assets by virtue of s.31(2) of the Act, as the jurisdiction of the courts “may be exercised in relation to persons or things outside Australia”. However, court in another country may not enforce a settlement order made by an Australian court. Once the foreign assets are fully disclosed, the courts may take into account the interests of the parties, without exercising jurisdiction over such foreign assets. It is important for a spouse/partner to keep in mind that:
- Overseas superannuation interests are not considered superannuation for the purpose of family law proceedings in Australia.
- Overseas lands and other real property may be subject to specific laws in that country and it is always advisable to obtain independent valuation of such property including tax consequences.
- If a foreign asset is included in the asset pool as a property, it may be mostly likely to be treated as a financial resource, when adjusting property interests.
- It is a good idea to seek specific advice from a family law expert/lawyer of the relevant country to protect your assets from further legal proceedings, when those countries do not recognise the family law orders made by Australian courts.
There are also examples of Australian courts directing the parties to move back the funds transferred to another country.
Q3. What factors will the court consider when dividing matrimonial property or assets?
The Court will use several steps to determine a division that is just and equitable, including analysing the net asset pool of the couple, assessing financial and non-financial contributions of both parties and various other adjustments. Under s79(4), 75(2) or 90SM (4) or 90SF(3) of the Family Law Act 1975, the court considers the following factors in deciding the division of the asset pool:
- Working out what you have got and what you owe, that is your assets and debts and what they are worth;
- Looking at the direct financial contributions by each party to the marriage or de facto relationship such as wage and salary earnings;
- Looking at indirect financial contributions by each party such as gifts and inheritances from families;
- Looking at the non-financial contributions to the marriage or de facto relationship such as caring for children and homemaking; and
- Looking at the future requirements of each party – a court will consider things like age, health, financial resources, care of children and ability to earn.
Q4. What factors are considered in adjusting the division based on a party’s future needs?
In a contested case, this is often a contentious matter. However, the process of assessing the future needs of each party are regulated. The idea is to award a higher percentage for a party having a greater need in their future life. Under the Act, s.75(2) and s.90SF (3) outlines multiple facts the court will consider:
- Age & health income
- Financial resources
- Physical and mental capacity for gainful employment
- Care arrangements for children of the marriage under 18 years of age
- Each parties’ commitment to support themselves
- Eligibility of each party for a pension or other benefits of Commonwealth law, foreign law or state law, or superannuation schemes
- Reasonable standard of living
- Ability to increase earning capacity or establish a business
- Ability to recover debt by the creditors
- Contribution made by a party to the income
- Earning capacity, property and financial resources of other party
- Duration of the marriage and duration of which it has affected the earning capacity of other party
- Need of a party willing to continue as a parent
- Financial circumstance relating to any cohabitation with another parson
- The terms of any other property settlement order & terms of any binding financial agreements
- Child support arrangements for children of the marriage.
It is important to remember that what constitutes reasonableness will vary from case to case. There is no hard principal that pre-separation standard of living must be automatically awarded during a separation.
Q5. What adjustments are made in favor of the party parenting the children after separation?
Among the most common reasons for adjustments is the care of the children of marriage under 18 years of age. The party with the predominant care of the children post separation may be able to seek a higher percentage of the property settlement because they would have to bear a greater burden of the child’s household expenditure, educational expenditure, and day to day expenses.
Another factor is that the party’s future earning capacity maybe diminished when children have not reached school age or when a party wishes to give primary care to the children. Even when the primary care giver has started full time work, such party’s earning capacity may have been impacted by previous care responsibility and the court may consider it appropriate to make an adjustment for the disparity in income and earning capacity.