The 4-step process for property settlement

The Family Law Courts use a 4-step process to assess what each party would likely receive from the relationship asset pool.

Property settlement negotiations are usually considered in percentage terms that will be adjusted throughout the 4-step process. The objective of the 4-step process is to ascertain what the courts would consider a ‘just and equitable’ division of your asset pool following separation.

So, lets start with step one:

Your asset pool is the foundation for all negotiations in property settlement and consists of the following:

1. Assets – whether it is held in joint names, your sole name or on behalf of another person such us a child;
2. Liabilities – again, your liabilities form part of the asset pool irrespective of whose name the liability is held; and
3. Superannuation – following recent legislative changes, non-vested superannuation is now treated as ‘property’ in the context of property settlement.

The simplest and most reliable way to ascertain your joint asset pool after separation is through the process of financial disclosure whereby; both parties exchange their financial documentation. This can include but is not limited to bank statements, tax returns and valuations.

Disclosure extends beyond you or your spouses interests in ‘property’ and can include information about your respective incomes, financial resources and trust connections.

Full and frank disclosure is an obligation under the Family Law Rules 2004 (Chapter 13). Upon receipt of disclosure you or your legal adviser should be able to ascertain your spouses direct and indirect financial circumstances.

In other words, how did you contribute to your asset pool throughout the relationship? The court will consider you and your spouse’s financial and non-financial contributions to the acquisition, improvement and conservation of your property and the welfare of your family. Financial and non-financial contributions during the relationship are generally considered in the same manner and can be allocated equal weight when negotiating a property settlement.

Your financial contributions to your asset pool will largely be generated through your income and how this was applied during the relationship. However, your financial contributions can also consist of gifts or inheritances obtained throughout the course of the relationship. The objective is to ascertain how these monies were applied and whether they are still present in your asset pool.

Your non-financial contributions throughout the relationship are equally as important. For example, care of a child or children, cooking and cleaning and management of the household finances can all constitute a contribution. Whilst non-financial contributions cannot be attributed a monetary value in your asset pool often one person undertakes these responsibilities so the other can work and contribute financially to the household. Accordingly, non-financial contributions are given equal merit in a property settlement.

Following separation, it is likely that one party is going to have greater needs in the future than the other. Your future needs can depend on a number of factors such as your health, your age, who has primary care of a child or children and your income, among other things. For a full list of the factors the court must take into consideration when determining future needs see section 75 (2) of the Family Law Act 1975.

Lets work through two examples:

1. There are two children under the age of 12 who will likely remain in the primary care of the mother following separation. The mother will be considered the primary carer of the children, which may impede of her ability to work and her income. Consequently, the court will need to consider this as a future need of the mother.

2. The husband is employed full-time as a doctor earning some $100,000 per annum whilst the wife is employed as a teacher earning approximately $50,000 per annum. The court will likely conclude that the greatest asset the Wife can take is her income.

Ultimately, it is at the discretion of the court to determine what a future need is and how this is dealt with as part of your property settlement.

The legal phrase is ‘just and equitable’. In real terms and having worked through steps 1 to 3, this means is the distribution of the asset pool including liabilities and superannuation fair?

Often what you or your spouse consider ‘fair’ isn’t necessarily what the court would consider ‘just and equitable’. A common misconception is that a 50/50 split of your asset pool is fair. The court has an obligation to ensure that the contributions both financial and non-financial and the future needs of both parties are taken into consideration in the context of your relationship. Having considered all these factors in light of the circumstances of your relationship the court will make adjustments accordingly resulting in divisions such as 55/45 or 60/40 as an example.

Like with most things in family law, the 4-step process isn’t full proof and ultimately your outcome will depend on the individual circumstances of your relationship. It is crucial that you obtain independent legal advice at the outset of your separation to ensure you are not led astray in property settlement negotiations. We often find that clients will come to our firm a few months or even years after separation with a ‘dogs breakfast’ that they have created having not had the benefit of even the most basic legal advice.

You should at least have a basic idea of your entitlement having worked through the 4-step process with your legal adviser before embarking on any property settlement negotiations. Your legal adviser should then be able to give you options as to how to formalize your property settlement in the most efficient and cost-effective way possible.