Property Rights of Couples

Table Of Contents

What controls the rights of couples?

The Family Law Act 1975 (Cth) controls the property affairs of legally married couples and generally controls the property affairs of unmarried (“de facto”) couples.  

Are de facto relationships covered?

A de facto relationship is a relationship where two people, who are not married or related by family, are as a couple living together on a ‘genuine domestic basis’.

A de facto relationship can exist between either 2 people of the opposite sex or 2 people of the same sex.

All of the circumstances of the relationship will determine whether a couple is in a de facto relationship. These include:

  • the duration of their relationship;
  • the nature and extent of their common residence;
  • whether a sexual relationship exists;
  • the degree of financial dependence or interdependence, and any arrangements for financial support, between them;
  • the ownership, use and acquisition of their property;
  • their degree of mutual commitment to a shared life;
  • whether the relationship has been registered, in a State or Territory with laws for the registration of relationships;
  • the care and support of children; and
  • the reputation and public aspects of their relationship.

The Federal Circuit and Family Court of Australia can make orders for de facto couples if:

  • the period (or the total of the periods) of the de facto relationship is at least 2 years; or
  • there is a child of the de facto relationship; or
  • one of the partners made substantial financial or non-financial contributions to their property or substantial contributions as a homemaker or parent and serious injustice to that partner would result if an order was not made; or
  • the de facto relationship has been registered in a State or Territory with laws for the registration of relationships.

For the Family Law Act to apply to de facto couples

  • they must have a geographical connection with New South Wales, Victoria, Queensland, Tasmania, the Australian Capital Territory, the Northern Territory or Norfolk Island; and
  • the relationship must have broken down on or after 1 March 2009.

State or Territory laws continue to apply to couples whose relationship broke down before 1 March 2009, although they can choose to apply the new laws.

What are the advantages of agreed property settlements?

Most couples resolve their property affairs by agreement without a Court hearing.

An agreed property settlement is likely to bring a cheaper and quicker resolution than a Court hearing. 

Couples who can agree on how their financial matters will be dealt with in the event of separation:

  • can tailor the settlement to the individual needs of themselves and their partners;
  • can often reach a settlement quicker and more cheaply than going to Court;
  • avoid adversarial Court process and escalating levels of confrontation and legal expenses; and
  • may find it easier to maintain a civil relationship.

How do you reach agreement on a property settlement?

The likely resolution by the Court under the Family Law Act may still be a useful reference for negotiations.

The Federal Circuit and Family Court makes a decision on what is fair in the circumstances, based on a list of relevant factors and a generally followed process discussed in detail below.

In any property settlement, both parties must make full and frank disclosure about their respective financial circumstances. With disclosure, both parties are fully informed of the assets and liabilities before executing the settlement.

A failure to make proper disclosure of a relevant matter can have very serious consequences and prejudice enforceability of the settlement. If disclosure requirements have not been met, either party can apply to the Court to set aside the settlement.

If a party is not willing to complete full and frank disclosure, there is no point in drafting the settlement. 

Start with making a complete list of your assets, income streams and your liability.

Consider your circumstances carefully and work out the key issues for a fair settlement.

Apply your own sense of what is fair but focus on the factors that are legally relevant under the Family Law Act.

You have the right to ignore what might be a court assessed and imposed division under the Family Law Act, but do not act capriciously.

Negotiate with your spouse directly as far as appropriate.

Avoid negotiations distorted by emotion, frustrations, guilt or bitterness.

Where necessary, consider using a third party to chair or mediate discussion of the proposed settlement; this may be a trusted family friend or adviser or perhaps a specialist mediator.

Parties should receive independent legal advice and perhaps also independent accounting advice before signing any settlement. 

Avoid formal or informal settlements or undertakings until you have assessed your entitlements under the Family Law Act.

Lawyers bring to the preparation of the contract expertise and experience. Without representation the settlement is more likely to be subject to attack on the basis that one party had unfair influence over the other. Sometimes both parties initially discuss the issues generally with one lawyer who then acts for only one of them. That lawyer will typically then draft a settlement for consideration by the parties and then each party takes separate legal advice.

How does the Federal Circuit and Family Court go about determining property settlements?

Judges in the Federal Circuit and Family Court have often used a four-step process to determine property settlements by assessing:

  1. the pool of assets;
  • the parties’ contributions;
  • the relevant factors affecting the parties circumstances; and
  • a just and equitable result.

The Courts have confirmed this as a process, but the test is “what is just and equitable?”

Step 1: Identify the pool of assets – What have we got to divide?

This first step identifies and values the assets, liabilities and financial resources of the parties. This includes all assets, liabilities and financial resources, whenever and however acquired. In many cases this is a simple part of the process. However, in some cases, particularly those involving businesses, the valuation exercise can be quite complex and require the involvement of specialist experts.

The general rule is that all assets must be considered, whether they are acquired before or during the marriage, or after the separation.

The definition of “property” is very wide. It includes almost everything of value. “Property” includes assets of either or both the parties, such as real estate, shares, cars, jewellery, savings, furniture and effects. 

Superannuation, depending on the type and value of the fund, may be divided (split) at the time that a property order is made.

The Court must also consider the financial resources of the parties. These can be funds or assets over which a party has influence or control or (in certain circumstances) prospective entitlements.

Step 2: What are the parties’ contributions – Where did it come from?

The second step assesses the contributions made by the parties during their relationship. These include:

  • direct and indirect financial contributions to the property of the parties;
  • direct and indirect non-financial contributions to the property of the parties; and
  • contributions to the welfare of the family including contributions in the capacity of homemaker or parent.

Examples of inequality of contributions include:

  • where the relationship is short and there are no children, in which case the Court will be principally concerned about the direct financial contributions made by each of the parties;
  • where one of the parties has entered the relationship with considerably more assets than the other party;
  • where one of the parties has made a substantial contribution by way of an inheritance, gift from family or personal injury settlement;
  • where one of the parties has brought to the relationship special skills or has made outstanding efforts which have resulted in the accumulation of substantial wealth; or
  • where the deliberate or reckless conduct of one of the parties has resulted in a loss to the parties.

Initial contributions (such as what you bring into a relationship) can be relevant as well as gifts and inheritances and other “out of the ordinary” moneys received during the relationship.

A person who owned property before a relationship does not automatically have total rights to that property or its value when the relationship ends. The property owned before the relationship is counted as a contribution by its owner. The longer the relationship, then typically the less important pre-relationship contributions are in the final division of property.

A partner is not always entitled to keep gifts and inheritances from her or his family. Generally, there is little difference whether the gift was for one partner or both. In either case it will typically 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 relationship property and as the other partner contributes directly or indirectly to their maintenance or improvement. 

Recent gifts and inheritances are more likely to benefit the contributor.

Lump sums received many years previously may become insignificant in the complex fabric of the family finances. 

People who work hard during a relationship to build up a business may consider the other spouse is not entitled to a share of the business. They may claim the other partner 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 partner has answered the telephones, arranged work for the business, kept the books or entertained business associates, the Court will consider this as being a contribution to the success of the business.

A carer’s contribution may be an indirect contribution by freeing the other partner to put more time and effort into the business.

The business may not be shared equally between the parties. The Court often gives greater weight to the business party’s direct contributions.

Step 3: What are the relevant factors? Where are we now? Where are we heading?

This step assesses the circumstance of each of the parties.

The Court must consider such things as:

  • the age and state of health of each of the parties;
  • the income, property and financial resources of each of the parties and their capacity for employment;
  • who has the care of any child of the relationship under the age of 18 years;
  • commitments necessary to enable a party to support himself or herself or any other person that the party has a duty to maintain;
  • the eligibility of either party for a pension superannuation;
  • the standard of living that is reasonable in the circumstances;
  • the extent to which the earning capacity of a party has been affected by the relationship; and
  • if either party is living with somebody else, the financial circumstances of their household.
Step 4: Who gets what?

As well as assessing the other steps, the Court must decide a division of assets fair to each of the parties. This assessment is done by examining the circumstances of each case as a whole.

The Court considers the practical effect of any proposed settlement, to achieve a result which is just and equitable in all the circumstances.

The fourth step of the process will sometimes include a consideration of the appropriate blend of any settlement between immediately available assets and deferred but important benefits such as superannuation.

The Court has the power to split superannuation entitlements between separating spouses. 

It is useful to apply and then tally percentages to individual contributions, but a straight mathematical division of the asset pool can produce inappropriate results.

The ongoing needs and opportunities of both parties may call for a division outside the usual percentage splits. For example, one party might get the family home to continue to raise the children and the other party might keep a business and the blue-sky opportunities it offers, superannuation and investment shares. This addresses the parties’ needs at the point in time and might be an appropriate result even though one party is receiving more than a percentage analysis dictates.

For instance the starting point might be a 50/50 division where the parties had few assets except for a car and personal possessions at the commencement of cohabitation and acquired the pool of assets whilst together by equal effort, but the parties might agree on a 60/40 split in favour of the party who has the responsibility for caring for the children and who has not, as a result, been able to advance a career.

What are the values?

Valuation is a critical part of making a division under the Family Law Act, whether Court intervention is required or not. The Court bases its assessment on market values.

Estate agents can provide useful appraisals of market values. Where there is no agreement on property values, a professional valuation is often clarifying. 

Capital Gains Tax

Take account of Capital Gains Tax liability when valuing assets.

An appropriately documented transfer of an asset to a spouse on relationship breakdown, defers any of the capital gain or capital loss by a “rollover” of the capital gain or capital status of the asset.

Is it fair?

Fairness, “what is just and equitable,” is the guide for a Court imposed resolution for division of property.

Try to find a result that is fair.

If the parties rush to claim what is best for them alone without regard to fairness, they are less likely to resolve the matter quickly and without costly dispute.

Often parties have an instinctive sense of a fair result and the majority of property settlements occur by agreement guided by the parties’ fair instinct.

Sometimes a party feeling guilty is excessively generous. Sometimes a party feeling wronged is grasping and wants a fight rather than a settlement.

A division of property, which both parties consider to be just and equitable, results in a reasonable ongoing relationship between them and their children. If either party is left with an abiding sense of unfairness and injustice, ongoing bitterness and resentment may follow.

How is a settlement documented?

Most people work through to an accord.

Your options to document your accord include:

  • A hearty handshake – and rely on trust that no one will change their mind or misunderstand what has been agreed.
  • An informal written summary of what is proposed – for instance, an exchange of letters.
  • A comprehensive agreement – that specifies and records in detail the resolution of your common property affairs, but without the formality required to avoid review if a party applies to the Family Court.
  • Financial Agreement under the Family Law Act or Consent Orders in the Federal Circuit and Family Court of Australia – a settlement with the benefit of and expense of the formality required to avoid general review by the Federal Circuit and Family Court.

How are settlements locked in?

The Family Law Act allows settlements between couples that are binding on the Courts before or during marriage or after separation, by either:

  • Financial Agreement under the Family Law Act; or
  • Consent Orders in the Federal Circuit and Family Court.

Property transfers in accordance with a Financial Agreement or Consent Orders under the Family Law Act are exempt from paying stamp duty and get special Capital Gains Tax Relief.

Without either Consent Orders or a binding Financial Agreement under the Family Law Act;

  • any settlement may be subject to later review by the Federal Circuit and Family Court;
  • the continuing owner may need to pay duty, (a state government transfer tax of 3% to 6% of the value of the interest transferred); and
  • may give rise to a Capital Gains Tax bill otherwise deferred.

How do Consent Orders work?

Consent Orders require summaries of the finances of the parties, details of the resolution as a formal court order and a fee to be lodged with the Federal Circuit and Family Court.

The Registrar of the Court reviews and makes the orders if what is lodged is in order and the settlement appears to be within the range of what can be ordered. If all is well, typically no court appearance is required.

Legal advice is prudent, but there is a DIY kit available on the Federal Circuit and Family Court website.

How to Financial Agreements work?

A binding Financial Agreement is often more flexible to install than Consent Orders.

Financial Agreements must be drawn to comply with the requirements set out in the Family Law Act to be binding on and enforceable against the parties.

The Agreement essentially takes effect as a contract.

Provided there is full and frank disclosure and a sufficient understanding of their rights, the parties may bind themselves to a different settlement than what would be a Court assessed and imposed division under the Family Law Act if the parties were to separate.

The Agreement need not necessarily be fair according to the criteria under the Family Law Act. In that sense the settlement recorded can “favour” one party over the other.

To be binding on the discretion of the Courts, each party to a Financial Agreement must seek legal advice on:

  • The effect of the Agreement on the rights of the party; and
  • The advantages and disadvantages, at the time of making the agreement.

A legal practitioner must certify that advice has been given on the Binding Financial Agreement.

Each party must have their own legal representation from separate lawyers from separate law firms, so there is no conflict of interest.

Once both parties are agreed on the form of the Agreement, they in turn each meet with their respective solicitor, for the solicitors to certify their legal advice and the parties to sign.

Both parties need to sign the one copy of the agreement. It is of no consequence which party signs the document first. One party keeps the original and the other gets a certified copy.

Once the Agreement is in place, consequential action like any property transfers can be arranged.

If both parties so agree, they can later vary the Agreement subject to following the same formality as the initial Agreement.

Can the Court set aside Financial Agreements?

Ordinarily the Court will not review Financial Agreements.

However, under the Family Law Act, the Court may set aside the Financial Agreements on the basis of:

  • fraud, including material non-disclosure (e.g. failure to disclose the existence of or the true value of an asset);
  • a party to the Agreement entered into the Agreement for the purpose of defrauding or defeating a creditor or creditors of that party;
  • the Agreement is void, voidable or unenforceable (i.e. the Agreement must be prepared properly and in accordance with the legislation);
  • circumstances since the Agreement which make it impossible or impracticable for the Agreement, or a part of the Agreement, to be carried out;
  • a material change in circumstances,  since the Agreement was made, not dealt with or foreshadowed in the Agreement relating to the care, welfare and development of a child of the marriage and, as a result of the change, a party to the Agreement will suffer hardship if the Court does not set the Agreement aside;
  • a party’s conduct in the making of the Agreement was, in all the circumstances, unconscionable; or
  • particular difficulties with superannuation interests covered by the Agreement.

The Court will not set aside an Agreement simply because it is “unfair”.

How does the Court review less formal settlements?

Settlements not documented as a Financial Agreement under the Family Law Act or as Consent Orders in the Federal Circuit and Family Court will not bind the Court.

These less formal settlements may still be influential to determine what is fair. The Court takes account of the intentions of the parties and the evidence of those intentions recorded within a less formal settlement may be vital. Even if the Court does not apply the less formal settlement entirely, the Court may decide it is just to apply the settlement in part.

The Court is more likely to regard the parties’ settlement as the just and equitable solution and apply that settlement if:

  • The settlement is clear and certain;
  • The parties were in fair bargaining positions at the time the settlement was made;
  • There have been no super intervening events since the settlement was made, such as a financial disaster or windfall, or perhaps an unforeseen birth or death;
  • The settlement appears generally fair to the parties;
  • The parties have themselves followed the spirit of the settlement; and
  • The parties were properly and separately advised at the time the settlement was made.

What if you do not agree?

The tensions of separation and pursuit of self-interest may cloud fair instincts.

In the absence of a ready settlement, the parties need to undertake a more careful analysis of their position with supplemental advice.

In the absence of a ready settlement, isolate and, as far as possible, resolve variables and unknowns.

Often where the asset pool and contributions are clear and undisputed, an experienced lawyer may be able to advise on the approximate order the Court might make to assist the client when considering offers of settlement. Such an independent review can be a worthwhile reality check.

Variables and unknowns such as valuation variations, the client not accounting for a significant contribution by the other side or failing to account for assets when completing financial disclosure can significantly affect the final result.

Mediated discussions with the parties’ separate lawyers or with a third-party independent mediator may assist. 

In the absence of an accord, common guidance can come from applying the Federal Circuit and Family Court four step process to determine property settlements.

If the parties still cannot agree, they can apply to the Court under the Family Law Act for resolution of their property affairs. There are time limits in which you can apply to the Court for a property settlement so make sure you act promptly. De Facto couples can apply within 2 years from the date of separation and married couples can apply up to 1 year after the date of divorce. It is possible to apply to the Court beyond these time limits, however you will need the Court’s permission to do so.

What are the rules for a Court determined property settlement?

The overriding principle under the Family Law Act for property settlements between couples is what is “just and equitable” as defined by the Court. 

The Court will not intervene to adjust the right of parties if it is not just and equitable to do so.

The Court in assessing “what is just and equitable” must consider:

  • The financial contributions made by the parties;
  • Non-financial contributions made by the parties;
  • Contributions to the welfare of the family, including contributions as homemaker or parent;
  • The effect of the settlement on the earning capacity of the parties;
  • The parties’ positions, including;
  • Their age and state of health;
  • Their income, property and financial resources;
  • Their physical and mental capacity for employment;
  • Who has care and control of the children;
  • Commitments of the parties for support of themselves and others; 
  • Eligibility for pensions, benefits or superannuation;
  • The standard of living of the parties and all the circumstances reasonable;
  • The opportunity of the parties to undertake education or establish themselves in business or otherwise obtain income;
  • The duration of the marriage and the effect of it on the earning capacity of a party;
  • The need to protect the role of parent;
  • The financial circumstances of people co-habiting with parties;
  • Other orders made by the Court;
  • Child support arrangements; and
  • Generally, any fact or circumstance that, in the opinion of the Court, justice requires to be taken into account.

Who gets the Super?

Under the Family Law Act, superannuation is treated as property which can be divided or “split” on separation.

“Splitting” divides benefit and control between the parties without converting superannuation into a cash asset. The superannuation laws still apply so the funds only become usually available when a party reaches retirement age.

While the Federal Circuit and Family Courts consider superannuation as property, judges take account of its special nature. Often judges divide superannuation and other assets separately to achieve a just and equitable outcome in all the circumstances, noting the long term and limited availability of superannuation.

Will I lose my rights if I move out?

The person who leaves the common home does not automatically lose rights to a share of the property just because they leave the residence.

Each person in the course of the relationship has an interest in the matrimonial property, they do not lose this interest simply because they decide not to remain in the house or the relationship.

There may be a strategic advantage in keeping the use of the house but the person who stays is not an automatic winner.

Do men or women get the best deal?

The law requires a just settlement for both parties.

Some payments account for one parent having extra care responsibilities of the children.

A bread winner may have a greater income earning and borrowing capacity. Free of childcare responsibilities, a bread winner may be able to build quickly on their share of the property.

Account may be taken for parents with childcare responsibilities who may not wish or be able to secure full-time employment.

Long term carers may not have the equivalent skills to find a good job.

Are spouses bound to provide maintenance after separation?

A member of the separating couple can be bound to provide ongoing maintenance for their former partner if:

  • the former spouse is unable to adequately support himself or herself so that their reasonable needs are met; and
  • there is capacity to do so.

Issues surrounding spousal maintenance can be complicated and will often need to be considered as part of an overall settlement of financial matters. Seek legal advice if relevant.

What about children?

The Federal Circuit and Family Court deals with the care of children of both legally married and unmarried parents. 

The Child Support Agency deals with sharing the responsibility for maintenance of children.

The keystone of the law on the care and maintenance of children is that the Court has very broad discretion to act according to the best interest of the child. Agreements between the parties do not bind the Court.

Placing funds in trust for children sometimes allows the children to earn investment income without paying the top rate of tax that otherwise usually apply to unearned income of children. Such a trust arrangement is known as a “Child Maintenance Trust”. For the income of the trust to get the special tax treatment, a child maintenance trust:

  1. must be established by deed;
  2. the children named as the ‘primary beneficiaries’ of the trust must be younger than 18 at the time the trust is established;
  3. income must be derived by the investment of property transferred to the trustee of the trust for the benefit of the beneficiary/beneficiaries as a result of a ‘family breakdown’. The definition of a ‘family breakdown’ is relatively wide however reference should always be had on a case by case basis to the definition set out in the Tax Act; There is no set time frame in which a child maintenance trust must be established following the family breakdown;
  4. the children for whom the trust is established to benefit must ultimately receive all of the capital from the trust in equal shares;
  5. the potential income beneficiaries of the trust may include persons other than children of the relationship subject to the family breakdown; and
  6. the income of a child maintenance trust which results from non arm’s length transactions must be of equal value to that which would have been derived on an arm’s length basis.

Is the law certain to remain the same?

The Law in this area has changed dramatically many times over the years. It may change again.

What does it cost?

Disputes and Courts can be time consuming, slow, risky and expensive.

The cost depends on factors beyond prediction and control, such as:

  • the attitude of the parties,
  • their willingness to compromise,
  • the extent of investigations as to facts and law required, and
  • the duration of the matter.

Costs keep rising the longer the matter continues. Consider at each stage whether the amount involved justifies the expense.

Estimates of likely costs can only be broad range.

Quick simple property settlement are likely to have legal fees for each party of more than $1,500.00 and less than $4,000.00.

The first stage of the court proceedings would be for one party to issue court proceedings, the other then responds formally so that both parties lodge detailed paperwork with the Court. The initial costs per party, in addition to the figures above are likely to be $3,000.00 to $5,000.00, if the matter proceeds smoothly.

A formal mediation conference might typically follow, at an additional cost of between $2,000.00 to $6,000.00 per party.

Most matters are resolved without a Court hearing. If a full Court hearing was required, costs (in addition to those already mentioned) are likely to be more than $10,000.00 and could be measured in the tens of thousands of dollars for an extended dispute or extended hearing.

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