How are assets divided in a divorce in Australia?

Introduction

If you and your partner or spouse separate, it is important you understand how your assets, debts, and superannuation are divided in a property settlement. This will typically apply to anybody in a de-facto relationship or a marriage.

There is a common misconception that couples have a right to a “50/50” split in the event of separation. This is often not the case. Instead, there are a multitude of factors that must be taken into consideration when determining a party’s entitlement in a property settlement.

What is defined as “property”?

Firstly, it is important to define what property is before we can work out who is entitled to them.

In Section 4 of the Family Law Act 1975 (Cth)(‘the Act’), “property” is defined as “…property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion”.

Section s79(3)(a)(ii) of the Act (and 90SM(3)(a)(ii) for de-facto relationships) requires “…the existing legal and equitable rights and interests in any property of the parties” to be identified.

When applying this rather legalese definition, the Court has considerably clarified the definition of property, as district from income and financial resources. The definition has been ‘read down’ and is ‘limited’ (Tomaras & Tomaras [2021] FedCFamC1A 82).

Identifying assets is always a discretionary exercise based on the relevant circumstances. Property can include assets such as:

• Real property (houses, apartments, commercial buildings).

• Vehicles (cars, motorbikes, boats, jet skis).

• Personal effects (clothes, jewelry, tools, computers, white goods).

• Shares.

• Businesses (private companies [i.e., “Pty Ltd”], partnerships, or sole traders).

• Bank accounts.

• Cash.

• Gametes (e.g. frozen sperm, frozen ovum).

• Loyalty points (e.g. Qantas Frequent Flyer points).

• Pets.

Property can also include superannuation such as:

• Industry super funds or ‘accumulation’ funds, like Mine Super, First State, Sun Super etc.

• Defined benefit or pension schemes, often seen among members of the Defence Force or Police.

• Self-managed super funds.

Finally, liabilities will also be considered within the property settlement (sections 79(3)(a)(ii) and 90SM(3)(a)(ii) of the Act):

• Mortgages.

• Loans (personal, business, car, or HELP/HECS loans).

• Credit cards.

• Hire purchase/lease arrangements.

• Tax liabilities (unpaid income tax, capital gains tax, stamp duty); and

• Legal fees

How is property divided after separation in Australia?

The High Court of Australia decision of Stanford & Stanford [2012] HCA 52 outlined a four (4) step approach that could be taken when determining a party’s entitlement to property following a separation. Whilst the approach is merely “…a shorthand distillation of the words of a statute which has but one ultimate requirement, namely, not to make an order unless it is just and equitable to do so…” (Bevan & Bevan [2013] FamCAFC 116), it is nonetheless a useful guide.

First Step – Identify and assess the value of all property

The first step is to identify and assess the value of all the property in the ‘pool’ for division.

This is usually done by an exchange of financial disclosure documents, including tax returns, bank statements, payslips, and superannuation statements.

There is a require under the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (‘the Rules’) as well as the Act (section 71B) that the parties undertake “full and frank” financial disclosure. This means that you must be honest and transparent about your financial circumstances when dealing with your former spouse/partner or their lawyer.

If parties remain in disagreement about the value of assets after exchanging financial disclosure, expert valuations may be required.

Second step – Assessment of contributions

The third step is to assess the contributions each party has made (sections 79(4) and 90SM(4) of the Act). There are a variety of categories of contributions, but the main examples are:

• The assets that each party brought into the relationship, if any.

• What each party did during the relationship, i.e. did they work in paid employment, were they the primary care of children, did they receive an inheritance or funds from a third party, did they renovate a property in the pool?

• What did each party do after separation, i.e. were they the primary carer of children, did they have the use of the family home, did they save money?

Another way to categorise contributions is as follows:

• Financial contributions

• Non-financial contributions, e.g. contributions that improve the value of the property pool but are not ‘financial’ in nature.

• Homemaker/parent contributions.

Third Step – Current and future circumstances

Next, the Court must assess whether an adjustment ought to be made based on what each of the parties’ current circumstances are, as well as what their future circumstances may be (sections 79(5) and 90SM (5) of the Act). The following are common factors taken into consideration:

• The age and state of health of each of the parties.

• The income, property, and financial resources of each of the parties, and the physical and mental capacity of each of them for; appropriate gainful employment’.

• Whether either party has the care or control of a child to the relationship.

• Commitments of each of the parties that are necessary to enable the party to support themself and a child or other person that the party has a duty to maintain.

• A standard of living that in all the circumstances is reasonable.

Fourth Step – “just and equitable”

Occasionally, the Court may consider that this step should also be duplicated ahead of the first step; it is dependent upon the circumstances of each relationship.

At this step, the Court will essentially examine the outcome arrived at resulting from steps one to three and consider whether this outcome is just and equitable; indeed, “the Court must not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order” (sections 79(2) and 90SM(2) of the Act).

What am I entitled to in a property settlement?

There is no “one size fits all” approach to a property settlement in Australia. The amount you may be entitled to will depend on how the approach the Court takes is applied to the unique circumstances of you and your relationship.

This is one of the many reasons why it is important to obtain independent legal advice, tailored to your specific circumstances. 

Do you have to go to court?

No. The vast majority of property settlements are resolved without any sort of contentious legal proceedings being started.

Court is a last resort, which is why there are various pre-action procedures that the Court requires parties undertake to try and resolve the dispute. It will almost always be cheaper, faster, and less stressful to resolve disputes before Court.

Having said this, it is important to consider formalising your property settlement, which may involve seeking Court approval of an agreement you and your former partner or spouse have reached.

Methods of settling your matter without the need for the court’s intervention are:

• Negotiation, either formally through solicitors, or informally in direct discussion with your former partner or spouse;

• Mediation; a process that may or may not involve legal representation, in which you and your former partner or spouse retain a qualified mediator to facilitate a discussion and negotiation in relation to your property and finances; and

•  Arbitration; a less-common process in which you and your former spouse or partner retain an arbitrator (usually an experienced barrister or retired judge) to ‘hear’ the dispute and make a decision in relation to the property and finances. It may help to think of arbitrators as ‘private judges’, with their decisions usually being binding on the parties.

Conclusion

In Australia, the way in which property and finances are divided after a separation differs considerably from case to case. The court has a broad range of discretion to make orders that are “just and equitable” to ensure that you and your former partner or spouse receive a fair outcome.

At Turnbull Hill Lawyers, we have a team of trusted family law experts who can provide you with advice and representation to ensure you receive a just and equitable division of your property after separation. We act for clients in Newcastle, Central Coast, Sydney, and across the rest of New South Wales.

Call us today and let us help you get through this difficult phase of your life.