Property Settlements Among Spouses
Property settlement is an important consideration for separating couples. Naturally, those involved will have various questions and concerns that are both general and situation specific. While the questions and answers are unique to each case, we have identified some common questions that are often raised by spouses, based on our vast experience in the field. The comments below are general in nature to help determine the best pathway to an advantageous property settlement.
Entering into a Prenuptial Agreement during a marriage or before marriage or Defacto relationship can often prove to be extremely useful, should the couple decide to separate in the future. Generally, Prenuptial Agreements can reduce the need for a property battle between spouses and allow for a more amicable outcome. The agreement is intended to protect the property rights of both spouses.
However, if there is no Prenuptial Agreement, the most common and stress-free pathway is to enter a property settlement through Consensus.
If parties can reach a settlement through negotiation, the law affords two pathways to formalise such outcomes. Parties can choose to either submit consent orders to the Federal Circuit Court or enter into a Binding Financial Agreement (BFA).
You can work out the details of a property settlement no sooner you are separated. Married couples do not have to wait for the divorce, but de facto couples have two years from the date of separation to work out their property settlement.
It is always prudent to have a property settlement agreed or application for property settlement made to court before applying for a divorce as there is a strict time limit for property settlement after divorce. Once you are divorced, you have only 12 months to resolve property settlements or to start court proceedings for property orders.
Prenuptial Agreements are covered under s.90B in the Family Law Act 1975 (The Act) and are a form of Binding Financial Agreement (BFA). Parties entering a marriage or a de facto relationship can establish a prenuptial agreement which determines how the financial resources of the couple will be divided in the event of a breakdown of the relationship. A prenuptial can also be entered into during the marriage.
These agreements are usually drafted by lawyers with each party requiring Independent Legal Advice prior to its execution. These agreements will stipulate the division of the marital assets and provide for the maintenance of either spouse if necessary.
Generally, a prenuptial agreement is binding and has an element of finality except when the court annuls such agreement on very exceptional grounds. These can include unconscionable conduct by one party and the undue influence of one spouse over the other at the time of execution.
Prenuptial Agreements have multiple advantages. Both spouses are aware of their precise position, unlike a post separation settlement which always has uncertainty. Further, these agreements often reduce unnecessary stress during a very volatile period and allow them to focus on more important factors such as children, during a separation. Another advantage is that a prenup gives a peace of mind on how future arrangements could be made. Unlike litigations, prenups are private and only the parties and their lawyers get involved in working out the agreement, which means there is complete privacy between the parties. Prenups are also less time consuming and less costly compared to a court settlement or a court battle over the property. Transactions that are done in accordance with a BFA have same benefits as court orders. There is stamp duty and Capital Gains Tax relief for transactions entered pursuant to a BFA.
No. In the Australian legal system, property settlements can be formalised without applying for divorce. Divorce and property settlements are two different legal processes, and couples are encouraged to reach a property settlement as soon as possible.
Q6. What is the guiding principle for the court in deciding a property settlement among former spouses?
If the parties are unable to reach a property settlement by consent, they may apply to the court to hear the application for property settlement. The guiding principle for the courts is to achieve a settlement that is just and equitable for both parties based on the facts of each individual case. The court starts with all properties (held individually or jointly by spouses) in a common asset pool, and then considers factors for adjustments such as contributions, maintenance and future capacity
Q7. What type of family properties and assets can the Family Court consider in settling the matters?
The Act defines “property” very broadly, which include all property in relation to the parties to a marriage or either of them is entitled to. 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 maternal property. These will all become part of an asset pool which is then divided between the parties.
An asset pool includes all assets including initial contributions by parties to the marriage or relationship.
It is difficult to give an exhaustive list, but it generally includes the following:
- All assets owned by either party prior to the formal marriage or entering of the de facto relationship
- All assets accumulated during the marriage or de facto relationship, and
- At the court’s discretion, all assets acquired post-separation (but before a final property settlement)
In the context of Australian family law, the following assets (not a complete list) have generally formed the common assets:
- Matrimonial home (family home)
- Investment properties
- Vehicles such as motor cars
- Savings of every description
- Stocks and shares
- Business interests including investments
- Household items such as furniture
- Personal property/belongings of value such as gems, jewellery, paintings
The liabilities are considered in the valuation of the property asset pool.
This means what each party brings into the relationship, be it a significant asset such as real estate, liquid assets, or any other asset. There is no specific formula that a court can apply in assessing the contributions made by parties.
In a short relationship, the initial financial contributions may be regarded as more substantial in favour of the contributing party, as it is less likely that there has been a total merger of lives and assets. Further, there is less likelihood that there are substantial joint contributions.
However, in a long relationship, the initial contributions are given less weight as the relationship has allowed for the merger of all financial and non-financial contributions. It is important to note that the weight given to different contributions is heavily dependent on the facts of each case.
The Australian Family Courts have express 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 in Australian courts. 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 the following in mind –
- 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.
The Family Law Act 1975 as well as the Family Law Rules 2004, obliges the spouses seeking property settlement in Australia to make full and frank disclosure of all assets, liabilities and financial resources wherever situated, without any exception. This enables the opposing spouse to be aware of all assets in your individual name or in joint names and the value of those assets. Both partners must disclose to each other property/assets in which they have a financial interest.
There are serious consequences for failing to disclose the required information. If the non-disclosure is brought to the notice of the court after court proceedings are finalised, the non-disclosure may be grounds for setting aside the previous property order and making a new order.
As pointed out in Question 4, the Court will ultimately decide whether the division is just and equitable in the circumstances of the case. The court will however use several steps to determine this, 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.
In a contested case, this is often a contentious matter. However, the process of assessing the future needs of each party is 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.
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.
In some jurisdictions, divorce will automatically render your Will revoked. In others, divorce will simply revoke your former spouse as your executor, or any gift left them. Separation from the spouse does not have any impact on the terms of the Will. Divorce requires at least 12 months of separation, which may be a matter of concern for some spouses and partners. If you fail to update your Will post separation, pending divorce and the partner dies, in effect, your former spouse will be entitled to gifts distributed from your Will or subject to the intestacy laws. For this reason, when a spouse separates, it is always advisable to review and update the Will without waiting for divorce or property settlement
Another aspect to remember is that when you become legally married, any previous wills that you had made are automatically cancelled.
A property can be registered by two or more persons, which is called joint tenancy. If one of the registered proprietors (a joint tenant) dies, then the property is automatically transferred to surviving registered proprietor/s. There is different ownership model called “tenants in common” which means each registered proprietor owns a share in the property. On the death of a registered proprietor, his/her share does not transfer to the surviving registered proprietors. The will of the deceased determines the outcome of his/her share in property. A tenancy in common permits each owner to pass their share of the property to any person they select.
Pending property settlement in separation, parties may consider severing the joint tenancy. To sever the joint tenancy a spouse or de facto partner does not need the consent of the other partner, as it only converts the property to being held as Tenants in Common.