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. Understanding your entitlements is essential to ensuring your interests are protected.
This article will discuss how to approach a divorce property settlement and common misconceptions to avoid.
Key takeaways
- 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.
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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.
Frequently, the financially disadvantaged party is the wife. Patriarchal standards often require women to give up a career to focus on homemaking after marriage. This time out of the workforce can lead to decreased future earning capacity.
For these reasons, the Court considers various factors to recognise both spouses’ contributions and future needs. The Court must follow a four-step property settlement process set out in the Family Law Act 1975.
4-step process of divorce property settlement
Step 1:
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 actual value. Some of the assets that may be included are:
- Bank accounts
- Stock portfolios
- Real estate
- Personal effects
- Superannuation interests
- Personal debts.
There is a risk that assets may be hidden during this step. Parties can tamper with assets in various ways. A forensic accountant can help identify inconsistencies.
Step 2:
The second step is to weigh each partner’s contributions. There are many ways to contribute to a marriage. People often think financial contributions are the primary 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.
There are several ways to contribute to a marriage or de facto relationship.
- Direct financial contributions. These contributions include assets like property brought into the relationship and wages and salary earnings.
- Indirect financial contributions. This covers property such as gifts and inheritances a party received from family members.
- Non-financial contributions. These include child care, housework, managing investments and home renovations.
Step 3:
The Court will consider each party’s future needs in the third step. 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.
Step 4:
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.
If the Court decides the order isn’t equitable, further adjustments may be necessary.
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 only be accepted if the proposal satisfies 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.
A financial agreement can be entered into at any time. You may create one before, during, or after a relationship break. Court orders for property can only be sought after separation.
Divorce property settlement misconceptions
Certain misconceptions and missteps can prevent people from receiving their rightful entitlements. 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 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. The increasing importance of superannuation as an asset should be addressed.
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.
What red flags should you avoid during a divorce property settlement?
Whether in a divorce or ending a de facto relationship, finalising a property settlement is one of the most complex issues you will face. As such, people make many mistakes when entering into one.
The family law courts treat de facto couples in much the same way as a married couple. Regardless of your relationship status, you will want to avoid these pitfalls.
1. Not getting legal advice before a negotiation
You may not feel that you need the advice of a family lawyer when discussing property matters with your former partner. After all, if you can agree on your own, it probably seems like an unnecessary expense. However, property rights under the Family Law Act can be a tricky area to handle.
Consider this: financial assets go beyond the cash in your bank accounts. Both parties likely have superannuation interests. If so, superannuation splitting laws may be relevant. If you have set up a self-managed super fund, disentangling your respective interests becomes even more complicated.
Can you determine what will become of the family home?
You may think that if only one spouse’s name is on the title, it belongs to them. But this couldn’t be further from the truth. Neither party can be forced to leave the marital home without a court order.
You should always seek legal advice before reaching a financial agreement to protect your rights and interests. We should point out that seeking legal advice doesn’t always mean expensive legal fees.
Many law firms will work with their clients to create a financial plan that suits their financial position.
- Check this out: What Are the Risks of DIY Vs Hiring Professional Family Lawyers?
2. Not knowing the value of the asset pool
To come to a fair and reasonable agreement for both of you, you must understand the value of the property pool you’re dealing with. That doesn’t just include adding all the property you both own. You also need to evaluate the debts and liabilities associated with the relationship to find the net asset pool.
Intangible assets also need to be considered.
For example, if you own a business, does it have significant goodwill, and how will it be calculated? Nowadays, newly conceived asset types like cryptocurrencies must also be accounted for and calculating their wildly fluctuating value can be extremely difficult.
Hidden assets can also make asset pool valuation challenging. Some ways that parties can interfere with assets include:
- Transferring Assets to Third Parties. Temporarily transferring assets to friends, family members, or business associates.
- Buying Expensive Items. Purchasing expensive items that could be overlooked or undervalued during asset assessment (like art, antiques, or collector’s items).
- Keeping Offshore Bank Accounts. Money may be hidden in offshore accounts where legal access is difficult.
- Delaying Income. Arranging to receive bonuses, commissions, or other forms of income after the divorce is finalised.
- Using Cryptocurrency. Cryptocurrencies can be challenging to trace and are sometimes used to hide money because they aren’t as easily trackable as traditional bank accounts.
- Creating Fake Expenses. Paying for non-existent goods or services to get the money back after the divorce is finalised.
- Underreporting Income. Underreporting income on financial statements and tax returns to make their financial situation appear less robust than it is.
- Overstating Debts. Claiming to have more debt than they do.
The issue of hiding or intentionally dissipating assets is often overlooked. Still, it can play a significant role in denying you your rightful share of the assets. It can be challenging to uncover these activities. But with the help of a forensic accountant, you can significantly increase your standing in property settlements.
Work with your lawyer and a forensic accountant if you suspect your former partner of hiding assets.
When you don’t grasp the marital asset pool’s value, it is difficult, if not impossible, to reasonably expect to recover your fair share. Getting independent legal advice from a lawyer experienced in family law, and a good accountant can make this much more manageable.
3. Not understanding what assets are included
De facto relationship
Some people believe that assets acquired before entering a de facto relationship or marriage are not subject to a property settlement when they are. Any assets owned by you or the other party will count towards the overall asset pool, whether you came into possession of them before or during the relationship.
It is even the case that the property you acquired after separation will be up for grabs. Only once a final divorce order is granted will new assets be beyond the scope of a property settlement.
In the case of a de facto relationship, a settlement can be sought up to two years after separation if:
- The relationship itself lasted at least two years;
- You have children together;
- The claimant made significant contributions to the property of the other party.
4. Not drawing up a contract properly
It is a big mistake not to have any written agreement. An oral agreement may seem more straightforward, but written agreements give you a much firmer understanding of the terms to which you agree. A written document’s benefit over an oral understanding is it provides certainty to both parties regarding what they agree to and allows you to turn it into a binding financial agreement.
Without legal formalisation, any disputes that arise in the future will likely need to be resolved through court proceedings.
Once the Family Court steps in to hand down property orders, you may be in a much less favourable position. However, with a suitable contract that satisfies the Family Court, you can have greater control over what you receive in the settlement.
Depending on how you handle the property settlement, a contract detailing its terms may need to adhere to strict rules regarding what information is included and what language is used. When you seek consent orders, the court will apply a four-step process to ensure that the settlement is equitable to both parties.
When the court feels your proposed property settlement fails to meet these criteria, your application for a consent order will be rejected.
5. Accepting less than what is just and equitable
Non-financial contributions
It’s not uncommon for a party to a property settlement to jeopardise their financial circumstances by agreeing to a grossly unfair property division. This can happen for several reasons, including:
- Not receiving legal advice to understand your rights properly and whether a property settlement is in your best interests (refer to point 1);
- Not having taken the time to accurately assess the value of the property being dealt with (refer to point 2);
- They don’t want to have to deal with the legalities of removing themselves from a relationship and want the whole thing to be over, and so accept the bare minimum;
- They are unaware of assets being hidden by their former partner;
- Not confronting their ex-spouse about asset wastage;
- Not fully appreciating factors such as non-financial contributions to a relationship.
Here are some tips to approach property settlements to protect your interests.
- Get Professional Appraisals. For real estate, businesses, and valuable personal property, it’s advisable to get professional appraisals to establish fair market values. This ensures that decisions are based on the most accurate information available.
- Employ a Neutral Mediator. A mediator can help facilitate discussions and offer solutions that work for both parties. This could avoid lengthy and costly court battles.
- Document Everything. Keep detailed records of all communications and agreements. These documents can be crucial if disputes arise later or the Court’s intervention becomes necessary.
- Negotiate in Good Faith. It would be best if you approached negotiations with honesty and openness. Aiming for a fair compromise rather than a win-at-all-costs attitude can lead to better outcomes for both parties.
- Consider financial support. Spousal maintenance can be included in property settlements. If the divorce will leave you financially vulnerable, bring it up in negotiations.
While we understand that going through a divorce is already emotionally traumatic, you will eventually regret not standing up for what is rightfully yours. So, it is well worth investing in a family lawyer to provide legal advice so you know where you stand legally and financially and can divide property fairly.
6. Not thinking long-term about life after divorce
When children are involved, financial agreements can be even more complicated. Many things need to be thought about concerning the future needs of a child under the age of 18, including:
- Education;
- medical needs;
- Basic living expenses;
- Extra-curricular activities.
Please consider the long-term consequences of these concerns when organising matters related to child support. You can apply for child support any time before your child turns 18. However, managing it and your property settlement at the same time is often easier.
It is then necessary to consider child custody arrangements when entering a financial agreement. So, as you know, child support can’t be arranged with a property settlement. There’s a separate process for assessing and formalising child support agreements.
Depending on your and your ex-partner’s financial resources and earning capacity, you may need to pay spousal maintenance if they’re your child’s primary carer. Your equal parental responsibility doesn’t end when you get divorced, and supporting your partner in their role as the primary caregiver will be expected.
Extra Property Settlement Learning Resources
Conclusion
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 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.
If you need help with family law matters, contact us for a free discovery call.
