The law regulating property division, otherwise known as property settlement, is contained in the Family Law Act 1975 (Cth). All references in this section are to this Act unless otherwise stated.
The law sets out how separated couples, whether they were married or de facto (see De facto relationships, Two year time requirement – property disputes), can go about dividing their property.
The purpose of a property settlement is to bring to an end the financial relationship between the parties [see s 81 for married relationships and s 90ST for de facto relationships]. A property settlement should therefore cover all of the property (both assets and liabilities) between the parties and should take into account the whole financial situation of each.
The Court has the power to make property settlement orders which alter the interests of each of the parties to the property between them [see s 79 for married relationships and s 90SM for de facto relationships]. However, before making any orders, whether by consent between the parties or following a trial, there are four main steps that the Court will follow.
For information about how to work towards an agreement, with these steps in mind, please see Coming to an agreement.
See also the publication by Relationships Australia, A fair share: Negotiating your property settlement
Identifying and valuing the property between the parties
This is the logical first step. Unless the property between the parties is identified and valued it cannot be divided in such a way as to end their financial relationship in a just and equitable manner.
Property includes both assets and liabilities. Commonly assets may include a family home or investment property, land, household goods, vehicles, money and superannuation, but it is worth bearing in mind other items, such as intellectual property, debts due to either of the parties, shareholdings, partnership interests, redundancy payouts or long service leave entitlements already received at the date of property settlement, entitlements as beneficiaries of a trust or a will etc. One thing that is not regarded as property is the ability to borrow, so one party will not be entitled to a larger share of the property on the basis that the other has greater borrowing power, but see the discussion of how differing future needs may be taken into account below. Liabilities may include a mortgage, credit card debts, overdrafts, personal loans etc.
Property (that is, assets and liabilities) belonging to a party before the relationship is still that party’s afterwards. There is no law that it must be automatically transferred into joint (both) names. The same applies to property acquired in only one party’s sole name after the relationship has ended. However, when it comes time for property settlement the law will look behind the legal title of all items of property then between the parties and ownership may be changed, notwithstanding whose name an item of property is in.
It is a good idea for parties who are separating to put together a list of all of the assets and liabilities between them (and record against the list in whose current ownership or control each asset or liability is in). ASIC's MoneySmart Asset Stocktake Calculatormay be useful in this process. You can enter all of your assets (including their value and anything owing against them) and liabilities to work out your net assets and email the results to yourself or someone else.
The net pool of property and its value is usually considered at the date of property settlement (whether by consent or at a hearing), even though this may be some months or even years after separation.
It is usually necessary to access and gather relevant documentation and/or independent market valuations to put together an accurate list, but estimates may be used in the meantime. To aid in negotiations, the parties may obtain drive-by valuations from real estate agents in relation to their family home or other investment property and use Red Book car valuations from www.redbook.com.au, but for the purposes of a court hearing, unless agreed, they will probably need to obtain direct expert evidence.
Consider the contributions of each of the parties
Next the Court would consider the contributions each party has made towards the property between them [see s 79(4)(a)-(c) for married relationships and s 90SM(4)(a)-(c) for de facto relationships].
The contributions up for consideration are not only those made during the relationship, but also those made at the very beginning of the relationship and those made after the relationship came to an end.
Contributions towards the acquisition, conservation or improvement of the property between the parties may be both direct or indirect and financial or non-financial.
Financial contributions may include:
An indirect financial contribution towards the property may include money spent on household goods, groceries and utilities so that the other party could put money towards the purchase price, loan or mortgage.
Non-financial contributions may include:
An indirect non-financial contribution towards the property may include acting in the capacity of homemaker or parent to allow the other party to go out and earn money.
Both indirect contributions mentioned above may also, and therefore rather, be considered as contributions towards the welfare of the family. Contributions towards the welfare of the family include those made in the capacity of homemaker or parent. A homemaker or parent can be entitled to a share of the property even though they have not earned any income or directly contributed any money towards the property during the relationship. In many instances, the contributions of the homemaker or parent are considered equal to direct financial contributions made by the income earner. This may not be the case where the direct financial contributions of the other party were large and/or the relationship was short.
Consider the future needs of each of the parties
After identifying and valuing the property between the parties and considering the contribution of each party towards that property and towards the welfare of the family, the Court would then consider the future needs of each of the parties and whether an adjustment should be made in favour of a party to take into account greater future needs [see ss 79(4)(e) and 75(2) for married relationships and ss 90SM(4)(e) and 90SF(3) for de facto relationships].
It would look at matters such as:
This is a highly complex area of law upon which legal advice should be sought.
Consider whether the proposed property settlement is just and equitable
The fourth and final step that the Court would take is to consider whether it is just and equitable in all the circumstances to make any property settlement orders and the particular property settlement orders that are proposed [see s 79(2) for marital relationships and s 90SM(2) for de facto relationships].
For more information, seeApplying for property settlement.
Wherever possible, parties should attempt to reach their own agreement about the division of their property. This saves the expense, delay and worry of lengthy property proceedings which may take two or three years and cost thousands of dollars. They should, however, still seek legal advice upon separation and before entering into negotiations and finalising any agreement to protect their interests, to ensure that the agreement is fair, has the effect that they intend and will stand the test of time.
Parties to a separating relationship should seek independent legal advice upon separation, before entering into negotiations and finalising any property agreement .
Family Dispute Resolution may be available from some providers, such as Relationships Australia, to assist with the negotiation of property settlements. Please see the Relationships Australia publication, A fair share: Negotiating your property settlement for more information about Family Dispute Resolution (FDR) for the purposes of property settlement, and the procedures and steps involved.
If parties would like their agreement to be final and binding (so there is no reopening of the matter by either party), they will need to either:
Consent Orders or Binding Financial Agreement
The Family Court has information about how to apply for consent orders on its website, How do I apply for consent orders? as well as an Application for Consent Orders Kit and a proposed orders template. In dealing with consent orders, the Family Court may make the consent orders, require a party to file additional information or dismiss the application [see Family Law Rules 2004 (Cth) r 10.17]. The Court must be satisfied as to why the consent orders should be made.
Binding Financial Agreements can set out how the parties would like their property to be dealt with in the event of or following their separation and can be entered into either:
This may be appropriate when both parties have obtained independent legal advice and where the property is fairly simple, for example, where the only property of substance is the principal residence, vehicles and household goods. Where the property is more complex, for example where superannuation entitlements are to be split, where a company or business is involved, where a guarantee has been given or where capital gains tax liabilities may arise, it is desirable that each party have both independent legal and financial advice before finalising any agreement.
Where the parties cannot agree, either party can apply to the Court (either the Federal Circuit Court or the Family Court, see Which court?) for the division of their property. Time limits apply.
Either party to a marriage or de facto relationship can apply to the Federal Circuit Court or the Family Court for property settlement. The Federal Circuit Court hears most matters. Whilst applications for property settlement can be lodged in either the Family Court or the Federal Circuit Court, most matters, unless complex, are heard in the Federal Circuit Court.
There are no restrictions on the amount of the value of the property in dispute.
In limited circumstances, residents in country areas can make an application to the local state Magistrates Court for property up to the value of $20 000 [see Family Law Act 1975 (Cth) s 46].
Before making an application to the Family Court to start a case for property settlement, certain pre-action procedures must be complied with, unless an exemption to this requirement applies. These pre-action procedures do not apply to matters held in the Federal Circuit Court.
To fulfil the pre-action procedures, parties need to be asking themselves whether they have made a genuine effort to resolve their dispute before making the application, and in particular whether they have complied with the duty of disclosure, attempted to resolve the dispute by other means such as counselling or negotiation, and whether they have informed each other of their intention to make an application and explored options for settlement.
The pre-action procedures and exemptions are set out in the Family Law Rules 2004 (Cth) sch 1. There are exemptions for reasons such as urgency, family violence, fraud and genuinely intractable disputes.
For more information, see the Family Courts' brochure Before you file - pre-action procedures for financial cases.
An application for property settlement must generally be made:
Married couples may have more time to make the application if they separate and do not apply for divorce as soon as they are able (i.e. 12 months after separation), see Divorce. Former married couples also have the option of both consenting to the application being made out of time [s 44(3)], whereas former de facto couples do not [s 44(5)].
In special circumstances, the Court may allow a person to apply beyond the relevant time limit; this is called granting leave to apply out of time. The Court must be satisfied that hardship would be caused to the party or a child if leave were not granted [s 44(4) for married couples and s 44 (6) for former de facto couples]. Case law has given consideration to more factors than hardship alone, such as whether:
No one can be guaranteed that the court will grant this leave. In practice, extensions are not difficult to get, but this should never be relied on.
Parties to a case in the Family Court similarly have a duty to make full and frank disclosure of all information relevant to the issues in dispute in a timely manner. This duty starts at the pre-action procedure stage in the Family Court before the case commences and continues until the case is finalised [See Family Law Rules 2004 (Cth) r 13.01].
Any documents that have been disclosed can only be used for the purpose of resolving the dispute for which they were disclosed [r 13.07A].
Parties to a case in the Family Court should, as soon as practicable on learning of the dispute, exchange a schedule of assets, income and liabilities; a list of documents in their possession relevant to the dispute; and a copy of any document required by the other party. Schedule 1, Part 1, 4(5) of the Family Law Rules 2004 (Cth) lists the types of documents it is appropriate to disclose.
The list includes recent tax returns and assessments, superannuation information, relevant business statements and market valuations (if they are necessary).
Rules 4.15, 12.05 and 13.04 also give a guide to the sorts of documents and information to disclose. Rule 13.12 indicates the documents a party does not have to disclose.
If they haven't already, parties should endeavour to exchange documents at least 2 days before the first court date [r 12.02].
Federal Circuit Court
Parties to a case in the Federal Circuit Court have a duty to make full and frank disclosure of their financial circumstances in their financial statement and/or affidavit they file with the Court [see Federal Circuit Court Rules 2001 (Cth) r 24.03]. If there is a significant change in circumstances, the party must file an amended affidavit and/or financial statement as soon as reasonably practicable [see r 24.06].
Rule 24.04 sets out a list of documents that need to be exchanged within 14 days after the first court date. It includes recent tax returns and assessments, superannuation information and relevant business statements.
Where pre-action procedures have been complied with and agreement cannot be reached, or where the matter is exempt from pre-action procedures, the documents needed to apply are the Initiating Application, and a Financial Statementwith details of all financial circumstances.
Filing fees apply to both an Initiating Application and a Response to Initiating Application.
For cases in the Family Court, a case assessment conference will be held as near as practicable to 28 days after the application was filed [Family Law Rules 2004 (Cth ) r 4.03 (b)]. The conference may be conducted by a mediator, but must be held in the presence of a Registrar [r 12.03]. The purpose of the conference is to enable the conference convenor to assess the case and make any recommendations about the future conduct of the case, and to attempt to resolve the case or any part of the case by agreement.
If appropriate, the case may be referred to a conciliation conference [r 12.07]. Rule 12.05 sets out the documents that must be exchanged within 28 days of the case assessment conference and before the conciliation conference and rule 12.06 sets out requirements for the completion of a financial questionnaire and balance sheet. At the conciliation conference, parties must make a genuine effort to reach agreement.
Immediately following either the conciliation conference or the case assessment conference (if no conciliation conference is scheduled), the parties attend a procedural hearing [r 12.08]. At the procedural hearing, the Court again investigates the possibility of settlement of any issue, and what issues, if any, are still in dispute.The Court can make procedural orders, including for disclosure and compliance checks, and if necessary set a date for the matter to go before a Judge.
Cases in the Federal Circuit Court may similarly be referred to a conciliation conference [Federal Circuit Court Rules 2001 (Cth) r 10.05]. If the parties are able to reach agreement through conciliation or other means, they may either discontinue the application before the court or ask the Court to make consent orders [r 10.04].
If there is a risk that one spouse may deal with property to the detriment of the other, for example by dissipating, transferring, or encumbering it, the Court may grant an injunction under section 114 of the Family Law Act 1975 (Cth). For example, if a spouse is leaving a job and will be paid long service leave or will be entitled to take superannuation funds in cash, it may be necessary to seek orders preserving those funds.
If funds are frozen by injunction or otherwise, it is also possible to apply for release of some portion of those for urgent specific purposes, such as payment of medical or educational expenses for the children. However, the Court would seldom regard the application for property settlement in itself as urgent and normally those which cannot settle will be dealt with in the ordinary course of the trial list.
The Courts have very wide powers to divide the property in whatever way they think is fair. No two cases are the same and separating couples should get legal advice from a lawyer who specialises in family property law.
There is no rule that property will be divided 50/50, or that it will be divided according to any fixed proportion. Rather, the Court considers the circumstances of each family and tries to do what is fair. The marriage or de facto relationship is not regarded as a way of equalising the property between the parties, as it might in a 'community property' jurisdiction, and on separation the Court's aim is to leave each party with a fair share having regard to what they put in, and their needs and responsibilities post-relationship, to the extent that the available property permits this.
The Court goes through a four step process when it is making its decision; firstly, identifying and valuing the property between the parties; next, considering the respective contributions of each party towards the property and the welfare of the family; then considering the respective future needs of each party; before finally considering whether the making of orders proposed is just and equitable. These steps are set out in more detail at the beginning of this section under Dividing property.
Types of ownership
The main item of property which most people will own will be a house, or home unit or block of land. Ownership of a house and land will normally be in one of the following three forms:
Right of occupancy
Regardless of whose name the home is in, a party to a relationship is entitled to live there unless a court orders the person to leave. This applies to either party to the relationship.
If they are separated the court can order one person to hand over possession to the other, or that one person can continue living there. In deciding who should have the right to stay in the home, the court considers the needs of both people, including who is caring for the children. The court can allow one person to stay in the home even if the home is in the other person's name. However, the court can be reluctant to order a person to leave the home unless the needs of the other person clearly outweigh her or his right to occupy.
If a person is threatening to sell, give away or mortgage the home or any other property during the separation and before the final property order, the other person can seek a court order (called an injunction) to stop this. This only applies to a property in the sole name of the person threatening to dispose of it as a home in both names cannot be disposed of unless both agree or the court orders it sold.
Commonly, disputes revolve around the value of the home, and whether it should be sold or whether one party will buy out the other's interests. If there is enough other property, the court may give one person the home, especially if she or he is looking after the children. However, if there is no other way of giving each person their fair share, the court will order the sale of the home.
While a parent may wish to remain in the home, particularly if they consider that the children are attached to the home and wish to spare them disruption, this issue is often determined by economic considerations. Much will depend on how much the bank is willing to lend and whether the spouse buying the home can afford the mortgage. In some cases the court may postpone the sale and let the parent caring for the children stay in the house until the children grow up, if this is not too far off in the future.
Disputes over the value of the home may be resolved by a valuation, or indeed two valuations if necessary. If they differ, an average may be taken. Parties sometimes disagree over whether particular work that they may have done on the property has added value, and a valuer can appraise this. One common difficulty is that one person may spend more on their property than it is actually worth, so that they cannot get back money they have put in. There is often no remedy for this and that person may have to accept the loss of this money as the price paid for having the home the way they liked it. If there is little or no equity in the home, and no other substantial assets, it may not be possible for each party to get out what they put in.
There is no stamp duty payable where property is transferred between separated couples to comply with a court order (by agreement or as directed by the court). It therefore makes good financial sense to obtain a court order. However, if the only property involved is the family home and/or a motor vehicle, former couples can obtain an exemption from stamp duty payable on the transfer of these assets by lodging a statutory declaration with Revenue SA.
Note that while couples are still together there is also no stamp duty payable on transfer of an interest in the family home (for example, one of them may initially own the house they live in, and they may agree that the other person also be registered on the title as an owner), or the transfer of registration of a motor vehicle between them [Stamp Duties Act 1923 (SA) s 71CB]. In order to have the stamp duty waived on the transfer of the family home or motor vehicle in the above two situations, a special statutory declaration from Revenue SA (Stat Dec 71CB) must be completed.
Historically, if contributions were roughly equal, then there was a tendency to start from a 50/50 basis and to adjust this to allow more to a spouse who would be out of the workforce due to childcare responsibilities, or whose earning power was much less, resulting in distributions such as 60/40 or 55/45. However, where child support is to be paid, this approach may no longer be applicable as the child support may itself adjust for the extra expense of caring for children.
Deviations might occur where one party had made a significant separate contribution, such as using compensation monies or an inheritance to reduce the mortgage or purchase an investment property.
People should always get advice from a lawyer who is experienced in family property law.
Superannuation is included as property for the purposes of property settlement proceedings under section 79 of the Family Law Act 1975 (Cth) or when making a financial agreement.
First, the superannuation must be valued. The Family Law (Superannuation) Regulations 2001 (Cth) set out the methods of valuing most superannuation interests, and the information that trustees have to provide. It is advisable to seek assistance from an accountant and the relevant funds or schemes when valuing superannuation interests.
Once it has been valued, it must be decided how the superannuation can be dealt with to provide a just and equitable property settlement or financial agreement. Superannuation can be split, flagged, or off-set against other property.
When an interest is splittable, parties may make a superannuation agreement agreeing to split superannuation. A superannuation agreement is part of a financial agreement and therefore must meet the same requirements as a financial agreement in order to be valid (see 'If you agree about property and finance' on the Family Court's website).
A court may order that superannuation be split between the parties in whatever proportions it considers fair in all the circumstances.
Splitting superannuation does not change the rules about when the superannuation becomes available - it will still generally only be available upon reaching retirement age.
Not all superannuation interests are splittable. Under the Family Law (Superannuation) Regulations 2001 reg 11, some interests cannot be split. Under reg 12, some payments made to a member spouse cannot be split, for example payments made because of hardship, compassionate grounds or permanent incapacity. Under reg 13, some payments made to a child after the death of a member spouse cannot be split.
Flagging a superannuation interest
A flag operates to stop the trustees of a superannuation fund or scheme from dealing with the superannuation interest. An interest can be flagged pursuant to an agreement between the parties or a court order. The flagged interest is preserved until dealt with under a financial agreement or court order. When a flagged interest becomes payable, the trustees have to notify the parties or the court.
Off-setting superannuation against other property
Instead of splitting superannuation, each party may keep the superannuation in their name, but, if one party's superannuation is greater than the other's, one party may receive a greater share of the other property. Similarly, if only one party has superannuation, they may retain their interest and the other party may receive a greater share of the other property. Off-setting can be done by agreement or by court order.
The Family Law Courts have jurisdiction in any matter arising out of a property settlement under the Family Law Act 1975 (Cth) where one of the parties is a bankrupt. This means that a trustee of a bankrupt can apply to become a party to proceedings in the Family Law Courts if they can show the Court that the creditors’ interests will be affected.
When this occurs the bankrupt party is not entitled to make any submissions to the Court about property already vested in the trustee, other than with the permission of the Court and this is only granted in exceptional circumstances.
No priority is given to the creditors of the bankrupt party over the non-bankrupt spouse and similarly, no priority is given to the non-bankrupt spouse over the creditors of the bankrupt party. In making any decision the Court must attempt to balance the interests of both parties.
Where property has been vested in the trustee for the bankrupt party, the Court has the power to order the transfer of this property to the non-bankrupt spouse. Once transferred the property is not available to creditors of the bankrupt party.
Property orders can also be changed if it is impractical for the orders to be carried out; if one person has defaulted in carrying out the terms of the order; or if circumstances concerning the children's welfare have changed and this is causing hardship to the children or the person looking after them [Family Law Act 1975 (Cth) s 79A].
Transactions which have been entered into to defeat claims under the Act can be set aside.
There are many mistaken beliefs about property and financial entitlements on the breakdown of a relationship. These cause confusion and often make it difficult to reach a fair and just settlement. Some of the most common misconceptions are:
I'll lose my rights if I leave
Many people believe that the person who leaves the family home will lose rights to a share of the property. Behind this is the idea that whoever abandons the marriage or de facto relationship deserves nothing. This is wrong. Each person in the course of the marriage or de facto relationship has earned a share in the property and does not lose it simply because they decide it is no longer possible or desirable to remain in the house or the relationship.
I owned it before marriage, so it's mine!
Just because one person owned a property before the marriage or de facto relationship does not mean she or he will automatically have total rights to that property or its value when the relationship ends. The property will be considered a contribution by its owner, but over time it is assumed that both contributed directly and/or indirectly to its maintenance or improvement. In other words, the longer the marriage or de facto relationship, the less important are pre-relationship contributions in the final division of property.
I can keep inheritances and gifts
A former spouse or partner is not always entitled to keep gifts and inheritances from family. Generally there is little difference whether the gift was for one of them or both. In either case it will be seen as a contribution made on behalf of the person whose family made the gift. As with pre-relationship assets, the importance of gifts and inheritances decreases as they become mixed with other property and as the other person contributes directly or indirectly to their maintenance or improvement. Where the gift or inheritance was received shortly before the separation, the person who received it will have a good argument for receiving its full value in the division of property.
I worked hard for this business and it's mine
People who work hard during a marriage or de facto relationship to build up a business may consider the other person is not entitled to a share of it. They claim that the other person never worked in the business or only worked as an ordinary employee and should only be paid the equivalent of wages. But where the other person has answered the telephones, arranged work for the business, kept the books or entertained business associates, the court will consider this a contribution to the success of the business. Even if the other person has never worked in the business but instead cared for the house and children, this will be regarded as an indirect contribution by freeing them to put more time and effort into the business. Often the other person will have worked in another job to provide family income at times when the business was not as profitable and this too will be regarded as a contribution.
This does not mean that the business will have to be shared equally between them. The court may still give greater weight to the person who made direct contributions to the business.
Women always get the best deal
What is not recognised by those who make this statement is that women will often continue to be the primary carer of children and the amount they receive often has to cover both themselves and their children. In the short term this may mean that the actual amount awarded to the women and children will be greater than the man, in these circumstances, may receive but studies here and overseas show that men do better in the long run. A man may have a greater income earning and borrowing capacity. Without children to care for he is able to build quickly on his share of the property. A woman with children may not wish or be able to secure full-time employment. If she has been involved in full-time child care during the relationship, she may not have the necessary skills to find a good job. A separated woman's capacity to support herself may be a long way below her former spouse or partner's and the court will often give women marginally more than men to compensate for this and to meet the greater needs of women with children. In the case of younger couples where women do have job skills or careers and where there are no children, women may not receive more than men in the division of property.