Property Settlement After Divorce
Property settlements are a vital part of the divorce process. For many people, retaining their fair share of the marital asset pool is crucial to their future prosperity. It is essential to understand your entitlements to ensure your interests are protected.
This article will discuss how to approach a divorce property settlement and common misconceptions to avoid.
- The Court doesn’t assume a 50/50 split of assets is preferable.
- The Court uses a four-step process to assess a property settlement.
- Court orders and binding financial agreements have different advantages and disadvantages.
- Certain misconceptions about property settlements may prevent them from getting the best division possible.
The myth of the 50/50 split
A common belief among clients is that the Court prefers a 50/50 split in a family law property settlement. While this is untrue, it’s not entirely unreasonable. The Court aims to ensure each party receives a ‘just and equitable’ division. This distinction may seem subtle. After all, what’s fairer than an equal split of the property?
The problem is that an equal distribution is a simplistic approach that doesn’t acknowledge the reality of people’s lives. Spouses rarely leave a marriage on equal footing. Often, a 50/50 split will leave one party worse off after the divorce.
The Court considers various factors to recognise both spouses’ contributions and future needs. There is a four-step property settlement process set out in the Family Law Act 1975 that the Court must follow.
The first step is for the Court to ascertain the net asset pool. This step requires both parties to disclose their finances fully. The Court must factor in liabilities such as credit card debts to find the asset pool’s true value.
The second step is to weigh the contributions of each partner. There are many ways to contribute to a marriage. People often think financial contributions are the main determinant of the share you will receive. Shouldn’t you get a bigger slice if you were the primary breadwinner and purchased most of the assets? Not according to the Family Court.
Non-financial contributions such as child care and house maintenance are also valued.
In the third step, the Court will consider the future needs of each party. This is critical to ensuring a just settlement. As mentioned above, spouses rarely leave a marriage on equal terms. Women are often left disadvantaged due to factors like time out of the workforce in favour of domestic responsibilities. Relinquishing an income frequently results in women having limited financial independence. These issues make considering non-financial contributions and future needs adjustments essential.
Assessing someone’s future needs involves considerations such as:
- Future earning capacity;
- Future employment prospects;
- Health and age;
- Parental responsibilities;
- Income and financial resources;
- Eligibility for a government allowance or benefit;
- Any existing property orders or financial agreements.
The final step is for the Court to determine whether the proposed settlement is fair for both parties in light of the previous steps. At this stage, the Court will consider the best way to implement the settlement and the long-term impact on both parties.
A court order or a binding financial agreement
If the parties agree, there are two ways to create a legally enforceable property settlement. They can apply to the Court for a consent order or make a binding financial agreement through a family lawyer.
One significant difference between these two options is their level of flexibility. Applying for a court order means the proposed settlement will be subject to the Court’s four-step process. The application will be rejected if the proposal doesn’t satisfy the Court’s standard for a just and equitable division. A binding financial agreement is not held to that standard.
Both parties must obtain independent legal advice to enter into a financial agreement. The parties must also sign the agreement certifying that they understand how it affects their interests. The advantage of this arrangement is that the settlement is not required to be equitable. The parties can agree to any division, no matter how imbalanced.
Divorce property settlement misconceptions
Certain misconceptions and missteps can prevent people from receiving their rightful entitlement. For example, many people don’t realise what assets are included in property settlements. Assets brought into the marriage are eligible for inclusion. Property purchased after separation but before filing for divorce is fair game as well.
Incorporating superannuation into a property settlement can be complex; many couples leave it out. However, superannuation splitting laws exist to permit its inclusion. With the increasing importance of superannuation as an asset, it shouldn’t be ignored.
Some people disregard their obligation to fully and frankly disclose their financial position by hiding assets. Hidden assets are a severe issue that may be difficult to identify. A forensic accountant who can analyse financial records for inconsistencies can discover false financial declarations. If you suspect your ex partner may be hiding assets, seek legal advice immediately.
Property settlements can sometimes be complex and challenging to navigate. Sound legal advice is critical for understanding your rights and approaching property matters.
If you are in the process of a divorce, it’s best to commence property settlement proceedings as soon as possible. You must finalise a property settlement within 12 months of divorce or two years after a de facto relationship breakdown. The Family Law Courts may grant a property order after this time, but only in exceptional circumstances.