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.
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 Federal Circuit and Family Court of Australia can make orders for de facto couples if:
For the Family Law Act to apply to de facto couples
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.
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:
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.
Judges in the Federal Circuit and Family Court have often used a four-step process to determine property settlements by assessing:
The Courts have confirmed this as a process, but the test is “what is just and equitable?”
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.
The second step assesses the contributions made by the parties during their relationship. These include:
Examples of inequality of contributions include:
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.
This step assesses the circumstance of each of the parties.
The Court must consider such things as:
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.
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.
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.
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.
Most people work through to an accord.
Your options to document your accord include:
The Family Law Act allows settlements between couples that are binding on the Courts before or during marriage or after separation, by either:
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;
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.
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:
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.
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:
The Court will not set aside an Agreement simply because it is “unfair”.
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 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.
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:
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.
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.
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.
A member of the separating couple can be bound to provide ongoing maintenance for their former partner if:
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.
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:
The Law in this area has changed dramatically many times over the years. It may change again.
Disputes and Courts can be time consuming, slow, risky and expensive.
The cost depends on factors beyond prediction and control, such as:
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.