Property Settlement

  • How are Property Settlements dealt with under the Family Law Act for married and de facto relationships?

    The Family Law Act contains provisions dealing with property settlements for both married couples and de facto couples, including same sex de facto couples.

    A de facto claim may be made if the parties have lived in a de facto relationship for a minimum of two years, or if not, they have made substantial contributions and it would result in a serious injustice if an order was not made, or if there is a child of the relationship, or, if it was a registered relationship.

    The parties also need to satisfy the geographical requirements so that the Family Law Act can apply.  If they commence property proceedings they must do so within two years of separation (see time limits above).

    Furthermore, for parties in New South Wales a de facto spouse cannot apply for orders under the Family Law Act if their relationship broke down before 1 March 2009.  For these couples the Property (Relationships) Act 1984 applies.  There are mechanisms to opt into the family law regime, however legal advice should be sought beforehand because it may not be prudent to do so.

    Married couples can apply for a settlement, and commonly do so, after they have separated as opposed to waiting until they are divorced.  If the parties are divorced, then the deadline for commencing property or spousal support applications is 12 months after the divorce order is in effect, unless the Court gives leave or permission to commence proceedings out of time.

    Before you file, unless there are extenuating or urgent circumstances, both parties should comply with their pre action procedures, including making disclosure of their situation to the other and exchanging settlement offers.

    Many couples are able to reach agreement without the need to commence litigation.

    Those couples can document their agreement in the form of a consent order, which order is made by the Family Court and which may be made by the Court in their absence provided it is appropriate for the orders to be made.

  • How are Property Settlements determined under the Family Law Act?

    The Court will make an order if it considers it is appropriate to alter the interests of the parties’ property of the marriage or de facto relationship. The Court will not make an order unless it is satisfied that in all the circumstances it is just and equitable to make the order.

    In most instances, it is appropriate for property orders to be made.

    When deciding how the assets will be divided, the Court considers financial contributions made directly or indirectly by or on behalf of a party towards acquiring, conserving, maintaining or improving the property, as well as non-financial contributions towards acquiring, conserving, improving and maintaining property.

    It also considers the contributions by a party to the welfare of the family, including homemaker and parenting roles.

    There is also consideration as to the effect of the proposed order upon the earning capacity of either party, for example if the proposed orders dealt with the disposal of income producing assets.

    Each party’s contribution is expressed as their contribution based entitlement and is expressed as a percentage of the net assets.

    Parties may be entitled to an adjustment, or an increase or decrease in their contribution based entitlement in accordance with the various factors identified in Section 75(2) for married couples and Section 90SF(3) for de facto couples.

    Some factors in Section 75(2) or Section 90SF(3) include:

    • the age and state of health of the parties;
    • income, property and financial resources of each party and their physical and mental capacity for appropriate employment;
    • whether the party has the care or control of a child of the marriage;
    • commitments of each party that are necessary to enable the party to support themselves or a child, or another person that the party has the duty to maintain;
    • the responsibilities of either party to support any other person;
    • eligibility of a party for a pension allowance, benefit or superannuation;
    • a standard of living that is in all the circumstances reasonable;
    • the extent to which payment of maintenance would increase the earning capacity of the applicant by enabling them to undertake a course of education or retrain themselves so as to obtain an adequate income;
    • the effect of a proposed order on the ability of a creditor of a party to recover the creditors debt so far as that is relevant;
    • the extent to which the applicant has contributed to the income, earning capacity, property and financial resources of the respondent;
    • the extent to which the duration of the marriage has effected the applicants earning capacity;
    • the need to protect the party who wishes to continue their role as a parent;
    • financial circumstances relating to cohabitation with another person;
    • the terms of any property order;
    • child support that a party is to provide, or might be liable to provide for in the future, for a child of the relationship;
    • factors or circumstances which in the opinion of the Court the justice of the case requires to be taken into account;
    • the terms of any financial agreement that is binding on the parties.
  • What is property?

    Commonly parties are mistaken as to what is property and what is not property. Property includes assets brought into the relationship that were acquired by one party beforehand. Property can also include assets acquired after separation. Property can include property overseas, property in a deceased estate, an inheritance as well as superannuation, household contents, real property, funds in bank accounts, shares, trust assets and royalties.

    Property may include property received in advance. An example is where, on separation a party removes funds from a bank account. The amount of those funds can be treated as an advance on that party’s property settlement and therefore form part of their overall settlement outcome.

    Liabilities are also considered and the fact that a party says that money is owing, does not necessarily mean that it will be treated as a debt of the relationship. Examples may include monies advanced by family members where there is uncertainty as to whether the money was gifted or lent and if lent, what the terms were of the loan and what amount was repayable.

    If the money is found not to be repayable then it may be a contribution on the party’s behalf if used towards acquiring, conserving, maintaining or improving an asset of the relationship.

    Many liabilities are straightforward, for example income tax, payment of credit cards, mortgage repayments and the like. Other liabilities may be vaguer or more uncertain, such as capital gains tax.

    Depending on the facts of the case and the evidence, capital gains tax may or may not be taken into account as a liability. If an investment was sold then the CGT liability is crystallised, and that liability would be taken into account.

    Sometimes one party may take an investment asset and there needs to be a consideration as to the potential likelihood of the property being sold in the near future, how that property would be used in the future, i.e. will it continue to be an investment or perhaps be used as that party’s home, and advice needs to be sought from your family law solicitor and an accountant/financial planner about capital gains tax and capital gains tax roll over relief.

    Some other potential liabilities such as stamp duty if assigning the family home between the spouse parties may not necessarily be a liability as it may attract the stamp duty exemption if the property is transferred between the spouse parties pursuant to family law orders or financial agreement.