Family Property & Financial Settlements

The first step in any family law financial settlement is to determine what assets are available for distribution between the parties.

In some circumstances, the court recognises that that this may involve including items which no longer exist, but which, in order to do justice and equity to the parties, needs to be notionally ‘added back’ to determine each party’s fair share of the existing pool of assets.

It seems reasonable that any waste, destruction or dissipation of assets and financial resources should be taken into account against a party who caused this to occur. The Family Law Act 1975 enables the court to consider destructive action which has financial consequences.

However, as a starting point, the court applies the general principle that, financial losses incurred by parties or either of them in the course of the marriage, whether the losses are from sole or joint liabilities, should be shared (although not necessarily equally). The exceptions to this are:

• where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets; or
• where one of the parties has acted “recklessly, negligently or wantonly” with matrimonial assets, the overall effect of which has reduced or minimised their value.

However, even if one of the exceptions applies, a court is unlikely to require a party to provide a precise audit of every item of their expenditure. It is not the Court’s function (nor do they have the resources) to conduct an audit of the marital/relationship finances.

This was explained in the case of Mayne and Mayne [2011] FamCAFC 192 as follows: “It seems that human experience (and common sense) shows that while parties are together, each might, from time to time and with the consent of the other, either express or implied, apply or appropriate assets or funds to his or her own purposes. When the relationship is good, no-one is likely to care — let alone keep records. Individual amounts may stand out…but many small transactions in combination may exceed, in total value, one large transaction.

The parties’ remedies for resolving disputes about expenditure while they are together are centred on them and them alone. Choosing one transaction from many prior to separation for different treatments, specifically ‘to be added-back’ or notionally included in the pool of property may make doing justice and equity between the parties difficult...”

In summary, orders for notional property and ‘add-backs’ to be included as assets to be divided between the parties are rare and difficult to obtain. This is particularly the case if the expenditure sought to be added back occurred during the ordinary course of the relationship (or occurred post-separation) and/or was with the knowledge/consent of the other party.

Some examples of where the Court has determined that it was appropriate to notionally ‘add-back’ property are as follows:

• where one party was found to have dissipated a significant amount of money/assets due to gambling, drug and alcohol addictions and had not sought treatment for their addition;
• where one party permitted a prospective purchaser (who in fact did not finally purchase the property) to occupy the matrimonial home free of rent or contribution for approximately one year;
• where one party was found to have substantially damaged the former matrimonial home during the period that they resided in it after the separation, thereby decreasing the overall value of the property.

However, even if the court is satisfied that an exception applies, rather than ‘adding’ the amount back into the pool, the Court may instead simply consider adjusting the percentage outcome overall to the actual value of all the assets (rather than notionally adding the value of the asset or money spent back into the pool). This adjustment may not reflect the actual amount of the add-back sought.

As orders that allow add-backs are difficult to obtain and circumstances justifying an add-back are difficult to prove such applications often result in a considerable cost to the party seeking to prove the unjust dissipation of assets. Such orders should be sought both sparingly and cautiously.

The date of separation, and therefore, the timing of a contribution to an asset made post-separation by one party, can be very relevant. A ‘post-separation contribution’ is a contribution made by either one or both parties to the assets, liabilities or superannuation of the parties, or to the care and welfare of the children of the parties, between the date of separation and the current date (or the date of the trial). The court must take into account this type of contribution given that between the date of separation and the relevant date the parties the value of assets of the parties may increase or decrease (in some cases, significantly), and in the interest of fairness and equity, a court must examine this change carefully. A change in the value of the assets may be attributable to a number of different factors including but not limited to:

• The activity (or lack of activity) by either one or both of the parties – good or poor management of an asset or liability;
• Savings by one party from income earned from their employment;
• Market forces;
• Disproportionate contributions to an asset or liability by one or both of the parties;
• The special skill of one or both of the parties;
• Good fortune.

However, post-separation contributions can also come in the form of:

• Having the sole and/or primary care or control of the children of the marriage;
• Financial contributions (or lack thereof) to the maintenance of those children.

The weight that is to be given to post-separation contributions is a difficult question for the courts and a contentious issue for the parties involved. This can be made even more difficult when the post-separation contributions that are being considered are the financial contributions of one party verses the contribution as homemaker and parent of the other party. In order for a post-separation contribution to be taken into consideration by the court, parties should be aware that:

• There is an ongoing duty of disclosure that continues post-separation. The values of assets will continue to be revised up until the time your matter settles (or in some cases, the time of the trial);
• The net property pool includes all assets, liabilities and superannuation at the time of separation and any growth in those values post-separation;
• It is necessary to keep records of all contributions made, and, if the date of separation is in dispute, all records or evidence supporting the date of separation;
• Assets acquired post-separation are not ‘quarantined’ or removed from the matrimonial asset pool – rather, there is an assessment of each of the parties’ contributions to those assets;
• In some cases, the courts will adopt an asset-by-asset approach to assess each parties contribution to a particular asset; and
• Contributions as homemaker and parent will be very relevant and can offset other financial contributions (whether made pre or post-separation)

This depends on whether that money from your parents is a loan or a gift. Whether money given to the parties or one of them during the relationship is a loan or a gift will often only become contentious once they have separated.

A common example of this is where there is a debt that is allegedly owed to a family member. It is often the case that upon separation, one party will claim that the ‘loan’ was intended as a gift, with no expectation of repayment, while the other party will claim that the ‘loan’ was genuine and required to be repaid.

Often times, loans from family members are:

• undocumented and legally unenforceable;
• made on unclear or uncertain terms; and
• given with little or no expectation of repayment.

In these circumstances, the Court will often disregard or discount the liability from the property pool but will instead treat the loan as a financial contribution that has been made on behalf of the party whose relative provided the money. In this sense, the loan is not ignored and appropriate adjustments to the division of assets will be made in favour of that party. It would then be up to that party to repay the ‘loan’ on their own.

There are of course many circumstances in which the Court will include a loan from a family member. In order to ensure that a genuine family loan is included in the asset pool, it is imperative that appropriate evidence be put before the Court to prove that there is an expectation of repayment.

Evidence of this nature can include but is not limited to:

• a formal loan agreement and registered mortgage over property owned by the parties;
• evidence (in Affidavit form) of the lenders/borrowers as to the terms agreed, intentions and time-frames for repayment, etc;
• evidence of repayments being made;
• evidence of previous loans by the same family members being repaid by the parties.

Parties wishing to document how their finances will be divided in the event that they separate at some point down the track, can enter into what is known as a Financial Agreement. In fact, a Financial Agreement can be entered into at any point before or during marriage or cohabitation.

One of the more appealing features of this type of Financial Agreement is that it can cover property of the parties that has not yet been acquired or come into existence.

However, there are a number of very strict requirements that must be met by the agreement in order for it to be considered binding. For example, both parties must have independent legal advice on the effect of the agreement, the advantages and disadvantages of entering the agreement and their likely entitlements under the Family Law Act 1975. This must be done before the agreement can be signed and in order for the agreement to become binding.

A Financial Agreement that is not binding does not remove the jurisdiction of the Court to make property adjustment Orders and only can be relied upon as evidence of the parties' intention to do so. Further, a Financial Agreement that is not binding will not likely result in a division of property in accordance with its terms.

It is therefore extremely important that both parties comply with the requirements strictly before they intend to rely on any part of the agreement.

Financial Agreements should only be prepared by Accredited Specialists in Family Law.

'Spousal Maintenance' is money paid by one spouse (the paying spouse) to the other (the receiving spouse) in circumstances where the receiving spouse is unable to support themselves 'adequately' following separation. In determining whether or not spousal maintenance is appropriate, the Court will consider the following:  

1. Whether the “threshold” is met (i.e. that there is a 'need' for one of the parties to be financially supported by the other);
2. The capacity by the other party to support the first party for a period of time.
3. The matters in Section 75(2) of the Family Law Act 1975.
4. The extent of support required (what is 'adequate' in the circumstances) and the amount of time maintenance is required to be paid for.

What must be remembered, however, is that the Court is not required to ensure that either party has the same standard of living that they had before separation.  It only has to be reasonable in all the circumstances.

Usually parties involved in family law proceedings are required to bear their own costs associated with the proceedings. However, there are certain circumstances where costs Orders may be granted between parties. These include (but are not limited to):

• Hopeless applications (applications made without merit or hope of success);
• Recovery orders for children where there was no merit in the child being withheld;
• Appeals (where the other party is wholly unsuccessful);
• Where a trial doesn’t proceed due to the other party being underprepared; or
• Where an offer is served on the other party during negotiations, and trial proceeds (the other party must obtain a less desirable result than exchanged during the final negotiation).

Even where the above examples apply, it is at the discretion of the Court as to whether to make a Costs Order against another party.  In considering whether to do so, the Court will give consideration to the other party’s means to pay the costs ordered, and whether there is a likelihood of recovering the costs from the other party.  

In many cases and for a variety of reasons, couples who have separated may let some time pass before they take steps to finalise their property settlement. This is not without risk.

Identifying the assets that are `matrimonial’ or `relationship’ and so available for distribution between a separating couple is an important and sometimes complex step in a property settlement. If you and your spouse or de facto partner cannot agree as to what assets are matrimonial or relationship, the court will have to decide this.

If some time has passed since separation occurred, one of the most commonly arising questions become “what value do we use for these assets? The value when we separated? Or the current day value?” This can cause some tension and be either a cause of concern or an unexpected bonus, depending on the circumstances.

From the outset, it is important to understand that the usual approach by the court in this regard is to value the matrimonial/relationship assets as at the date of trial and not as at the time of separation.

By the time of Trial, which depending on circumstances may be 18 – 24 months after proceedings have been commenced it is not uncommon for the value of assets to rise or fall, sometimes significantly.

While the Court will consider the changes carefully and, if appropriate, attribute such changes as being a contribution, positive or negative by a party (which may increase or decrease their overall entitlement), the value of the asset will be taken as at the date of the trial.

This approach does not mean a party can “dispose” of an asset prior to settlement, in an attempt to remove it from the pool of assets without consequence. If a party wrongly disposes of an asset following separation, the court will carefully consider the factual circumstances and may decide to notionally “add back” the asset and its value, treating that asset as part of the matrimonial/relationship and will be taken by the person who dealt with t as part of their share. This is a complex area of law and cases surrounding it are developing the law regularly.

Aside from implications from a change in your matrimonial/relationship assets following separation, prior to property settlement it is important to be aware of statutorily imposed time limitations. If you were married, applications for property orders must be made within 12 months of your divorce becoming final. If you were in a de facto relationship, your applications for property orders must be made within 2 years of the breakdown of your de facto relationship.

The simple answer is, yes. Superannuation is treated as property under the Family Law Act 1975 (“the Act”) and Part VIIIB of the Act gives a court the power to make orders so as to distribute superannuation interests between the parties (known as “splitting orders”). Splitting orders apply to all types of superannuation funds.

However, the way in which superannuation is treated may differ from other types of property because superannuation is held in a trust. Apart from hardship, illness or disability it is not possible to access superannuation benefits until a person reaches preservation age or they commence a transition to retirement pension while working.

Superannuation can be split between parties either by (1) a Superannuation Agreement, entered in to between the parties setting out the way in which the superannuation interests are to be divided between the parties, or (2) an Order made by the Federal Circuit and Family Court of Australia. The Family Law (Superannuation) Regulations 2001 set out the steps for valuing and implementing a splitting order. The methods of valuation differ depending upon the type of interest held in the superannuation fund (For example, the method for valuing an accumulation interest will differ from the method for valuing a defined benefit).

A superannuation splitting order generally allows the court to take the superannuation interests of one party and add it to the superannuation fund of the other party. A splitting order generally takes effect upon a payment from a superannuation interest becoming payable to the member spouse. At this time a certain amount (either a set amount or percentage) will be paid to the non-member spouse and the remainder will be paid to the member spouse. There is also an option available to the non-member spouse to roll out the payment to them from their superannuation spit) to their own or another superannuation fund.

Determining the value of the matrimonial assets is an essential step to resolving family law property matters. However, this can often cause a significant dispute between parties to family court proceedings. Some categories of property for which the value is often contentious are:

• Real property;
• Business interests;
• Motor vehicles; and
• Furniture & Jewellery.

So how then are parties able to resolve these conflicts and accurately determine the value of these items?

Real Property (Land/Houses and Buildings)

Quite often any real property owned by parties will be the ‘big ticket’ item/s of their assets. Because most of the value is generally tied up in these assets, it is important to make sure that you get the value right. In some cases parties are able to agree to a value for real property through the use of appraisals obtained from real estate agents. While this can be a quick and inexpensive alternative, it has the danger of being imprecise. The most common approach to determining the value of real property is through an independent valuation by an expert engaged jointly by the parties. While this comes at a cost, the real value is in the precision of the report. This is the approach the Court expects parties to take in the event that there is a dispute about the value of a real property.

Businesses Interests

If one or both of the parties own a business this can also often constitute a significant portion of the value of their assets. Parties should be cautious about reaching agreement in respect of the value of businesses interests. It can be dangerous and incorrect to agree to a value (even where provided by the company accountant) without some guidance from an independent expert. To obtain a valuation for a business, parties again, jointly instruct an independent expert who is a specialist accountant. The specialist accountant will assess the nature of the business and determine the appropriate methodology to apply to determine value. In some cases, the value of the business will simply be the value of its assets minus its liabilities.

Motor Vehicles

If there is a dispute about the value of a motor vehicle there are a number of websites such as Redbook and Carsales which can provide some guidance. These websites will generally provide a value range. If the issue remains in dispute the parties can appoint a joint expert to obtain a valuation of the motor vehicle.

Furniture & Jewellery

When placing a value upon items like jewellery and furniture, the family law courts tend to adopt a conservative approach. The value they adopt will be the second-hand sale value of the items, not the insured or replacement value. If there is a dispute, parties are able to retain independent experts to value furniture and jewellery at a cost. In some cases, it is hard to justify the expense of obtaining a valuation for household items as they often have little second-hand value

There are many ways to find out what your spouse owned or currently owns in a financial settlement matter.

At the outset, it is the obligation of each party, pursuant to the Family Law Act 1975 and the Federal Circuit and Family Court of Australia (Family Law) Rules 2021, to provide “full and frank disclosure” of all of their assets, liabilities, superannuation interests and financial resources.

The disclosure of information required extends to paper documents (e.g. bank statements and tax returns), information stored on a computer device or any information which the other party may not know about. Disclosure must be made in relation to the parties current direct and indirect financial matters. This means that information relating to earnings, interest, property and income must also be disclosed. Any property that has been disposed of by way of sale, transfer or gift immediately prior to separation or after separation must also be disclosed, so as not to deplete any claim.

In the event of non-disclosure, we are also able to conduct Property Searches and Company Searches (should your spouse be involved in a company) to determine ownership or involvement. The Property Searches are governed by each State. This means we are able to locate any property currently held, or previously held, by your spouse in each state of Australia. The Company Searches are provided by the Australian Securities Investment Commission (ASIC) and can produce information relating to the company’s Directors, shareholders and assets since the inception of the Company.

Alternatively, if your spouse has not complied with the disclosure obligations, and we are unable to locate property by way of a Property or Company Search, it is possible, once court proceedings have been initiated, to issue a subpoena for the production of documents (e.g. to a bank), a subpoena to give evidence (e.g. from an accountant with knowledge of the relevant party’s financial circumstances) or both.

Contrary to popular belief, the process that the Court uses to determine a family law property settlement, is not a mathematical one. Given that each relationship and each family is different and that the Court has a wide discretion in making property settlement orders, outcomes can vary considerably. In practice, the Court generally follows a process involving a number of steps in determining the entitlement of each party to a relationship.

These steps are as follows:

1. The Court must decide if it would be just and equitable to adjust or change the parties' current legal ownership of assets.
2. To make a list of all of the current assets, liabilities and superannuation of each of the parties and arriving at a net figure, or what becomes known as the "net property pool".
3. To assess the contributions of each of the parties throughout the relationship, to the net property pool and to the welfare of the family. Contributions can be direct (eg. made by one of the parties' to the relationship) or indirect (eg. made by one of the parties' family members), financial (eg. earning an income) or non-financial (eg. renovations or improvements to a property done by one of the parties) or made as homemaker or parent. Each party's contribution is assessed as a percentage or a range of percentages.
4. To assess the current and future circumstances of each of the parties and make adjustments to the percentage arrived at in step 3. The list of factors in Section 75(2) of the Family Law Act 1975 must be considered. An example of some of the more common factors are:
   • the age and state of health of each of the parties;
   • the income earning capacity or discrepancy between the parties;
   • the length of the relationship and its effect on each of the parties earning capacities; and
   • who will have the primary care of the children into the future.
5. For the Court to “step back” and assess whether the percentage or division achieved by application of the above 4 steps is appropriate or "just and equitable" in the circumstances.