Understanding Property Settlement in Divorce.
Divorce is often an emotionally charged and complex process, particularly when it comes to property settlement. Dividing assets fairly between separating spouses can be challenging, and without proper legal guidance, one party may risk financial hardship. In Australia, family law property settlement is governed by the Family Law Act 1975, which outlines how property and assets should be divided after the breakdown of a marriage or de facto relationship.
If you are going through a divorce settlement, understanding your legal property rights and obligations is crucial to ensuring a fair division of assets. While legal representation is not mandatory, obtaining professional legal advice is highly recommended. Property settlement is a complex process, and understanding your rights and obligations can be challenging without expert guidance. A lawyer can assist in negotiating a fair settlement, preparing legally binding documents, and representing your interests if the matter proceeds to court. Additionally, they can advise on alternative dispute resolution methods, such as mediation, which can save time and money while promoting amicable agreements.
What Is Property Settlement?
Property settlement refers to the legal process of dividing assets, liabilities, and financial resources between separated or divorced parties. It applies to both married and de facto couples, including same-sex relationships, under Australian family law. Unlike a divorce, which is simply the legal dissolution of marriage, financial separation deals specifically with how assets and debts are distributed.
Do We Need to Go Through Property Settlement?
While property settlement is not legally mandatory, it is highly recommended. Without a legally formalised property settlement, either party can make claims against the other’s property in the future, even years after separation. This uncertainty can make it difficult to move forward financially and emotionally. Finalising the settlement through a Consent Order or a Binding Financial Agreement (BFA) provides legal protection and ensures the agreement is enforceable.
What Assets Are Included in Property Settlement?
A property settlement encompasses all types of assets, whether acquired before or during the relationship, or even after separation in some cases. These assets include:
- Real estate (family home, investment properties).
- Bank accounts and cash savings.
- Superannuation funds.
- Shares and investments.
- Business interests.
- Vehicles, boats, and luxury assets.
- Debts and liabilities (mortgages, loans, credit card debt).
- Inheritance and gifts received during the marriage.
In determining a divorce settlement, the court considers all assets and liabilities, regardless of whose name they are in. This means that even if one party solely owns an asset, it may still be subject to division.
Legal Framework for Property Settlement in Australia.
The division of property in an Australian divorce follows a four-step process established under the Family Law Act 1975:
Step 1: Identifying and Valuing Assets and Liabilities.
Both parties must disclose all financial assets, including property, superannuation, and liabilities. A failure to disclose assets can result in serious legal consequences.
Step 2: Assessing Contributions by Each Party.
The court considers both financial and non-financial contributions, including:
- Financial contributions: Income, property purchased, mortgage payments.
- Non-financial contributions: Homemaking, raising children, renovations.
- Indirect contributions: Supporting a spouse’s career or business.
Step 3: Considering Future Needs and Adjustments.
Factors such as age, health, earning capacity, care of children, and financial resources are considered when determining if adjustments should be made in dividing assets in divorce.
Step 4: Ensuring a Just and Equitable Outcome
The court assesses whether the proposed division is fair and reasonable. If not, adjustments will be made to achieve a just outcome.
Common Disputes in Property Settlement.
Property settlement disputes often arise due to disagreements over asset valuation, hidden assets, or contributions made by each party. Some of the most common issues include:
1. Who Gets the Family Home?
The family home is often one of the most significant assets in a property settlement, and decisions about its future can be emotionally charged. There are several options for dealing with the family home. One partner may choose to buy out the other’s share, allowing them to retain the property. Alternatively, the property may be sold, with the proceeds divided between the parties. In some cases, the property may be transferred to one partner as part of the settlement, particularly if it is in the best interests of the children for them to remain in the home. The decision ultimately depends on the financial circumstances of the parties and their ability to maintain the property.
The court may decide to:
- Order one party to buy out the other’s share.
- Sell the home and divide the proceeds.
- Transfer the home to the primary caregiver of the children.
2. Superannuation Splitting.
Superannuation is treated as property under Australian law, meaning it can be divided between spouses. However, it remains in the fund and cannot be accessed until retirement. This can make it a complex asset to divide, requiring careful consideration of its value and implications for both parties ’future financial security. Joint debts, such as mortgages and credit card balances, are also part of the settlement. While these debts may be divided between the parties, it’s important to note that creditors can still hold both parties liable for repayment, regardless of the settlement terms.
Superannuation splitting is a complex process requiring court approval or a formal agreement. Seeking legal advice is essential to navigate these issues effectively.
3. Business and Trust Interests.
If one or both spouses own a business, determining its value and future ownership can be challenging. Courts consider how much each party contributed to the business and whether one spouse should retain full ownership.
4. Hidden Assets and Non-Disclosure.
A party who attempts to hide or underreport assets risks having their settlement overturned. Courts take financial disclosure obligations seriously and can impose penalties for dishonesty.
Legal Precedents in Property Settlement
Several Australian cases highlight how courts approach dividing assets in divorce:
Kennon v Kennon (1997) – The case of Kennon v Kennon [1997] contemplated whether family violence could influence the outcome of a property settlement. It was held that sections 75 and 79 of the Act empowered the Court to assess the financial consequences of family violence upon satisfaction of three elements:
- A course of violent conduct must be established;
- The violent conduct must have a discernible impact on the victim; and,
- The victim’s contributions to the relationship must be made significantly more arduous as a result of the violent conduct.
Stanford v Stanford (2012) 247 CLR 108 – Emphasized the principle that courts must first consider whether a property settlement is necessary before making any orders.
In Benson & Drury [2020] FamCAFC, the Full Court of the Family Court of Australia examined the application of the Kennon rule in an appeal by the de facto husband. The question raised by the husband was, “How should a Court assess the contributions of a party which are made more arduous because of the other party’s conduct?”.
It was held that a correct interpretation of the Kennon argument involves an assessment of the contributions which have been made more arduous against all other contributions, whether direct, indirect, financial, or non-financial.
Reaching a Property Settlement Agreement.
There are several ways to finalize a property settlement:
1. Negotiation and Mediation.
Parties can negotiate directly or with the assistance of their lawyers. Mediation is an effective alternative to court litigation, helping couples reach an agreement amicably.
2. Binding Financial Agreements (BFAs).
A Binding Financial Agreement (BFA) is a legally enforceable contract that outlines how assets will be divided. BFAs can be entered into before, during, or after a marriage or de facto relationship.
3. Consent Orders.
If both parties agree on a settlement, they can apply for Consent Orders through the Family Court. This formalizes the agreement, making it legally binding.
4. Court Orders.
If no agreement is reached, a party may apply to the Family Court or Federal Circuit Court for a decision on family law property settlement. Court proceedings can be time-consuming and costly, so they should be considered a last resort.
Conclusion: Protecting Your Financial Future.
Navigating a property settlement can be challenging, but understanding your legal property rights is crucial in ensuring a fair division of assets. Seeking professional legal advice can help you protect your assets and secure a just outcome. Understanding your rights and obligations in a divorce settlement is the first step toward financial security and a stable future.
