The 5-Step Approach of the Family Court to Property Settlement Entitlements: Further Considerations During COVID-19

When separating parties are unable to come to an agreement on how to divide their property, they can apply to the court for a property settlement determination. The court will make an order on their behalf. In doing so, the court follows a five-step process to decide how to split the couple’s property fairly.

The Family Law Act 1975 (Cth) governs the division of assets, liabilities and superannuation following separation, whether it is in respect of a marriage or a de facto relationship. The court has wide discretion under the Act in determining the entitlements of each party based on the specific circumstances and facts of each case. Considerations of what is ‘just and equitable’ bookend the process.

1. Is it just and equitable to make an order?

The first step involves determining whether or not it is just and equitable to adjust the parties’ interests in property. It may not be considered right to alter their interests when the relationship has been short, and the parties have primarily maintained separate finances. If the court finds that it is right to adjust the respective interests, it proceeds with the next steps.

2. Determining the property pool to be divided

The property pool requiring division consists of the assets and liabilities of the parties, whether held in sole or joint names. Examples include ‘real’ property such as houses, land or investment properties. Other assets can include vehicles, shares, cash at bank and superannuation and liabilities can comprise of loans, mortgages, credit card debts and any outstanding tax due.

It is typically considered best to determine a settlement as quickly as possible, before either party purchases or disposes of any property. If a party wishes to prevent disposal of assets, an application can be made to the court for an injunction if it can be shown that disposals are imminent or possible.

A superannuation entitlement may not usually be thought of as ‘property’, but it is nonetheless taken into account in respect of the ‘pool’ and can generally be split between the parties.

3. Determining the financial and non-financial contributions of each party

There are several aspects of contributions. Initial financial contributions refer to the contribution each party brought into the relationship.

 

Contributions made during the relationship include, for example, earnings, payments towards a mortgage and living expenses.

Post-separation contributions include expenses paid such as credit card repayments, mortgage payments, and costs paid for children such as school fees.

Non-financial contributions include evaluation of work done in the home and as a parent, raising the children.

The timing of the contributions is, therefore, essential. Depending on the circumstances of these contributions, the length of the relationship and other factors, they can be treated differently to those made during the relationship.

4. Do adjustments need to be made to reflect the future needs of each party?

Consideration must be given to the future needs of the parties. Any commitments that are necessary for each party to support themselves, or any other person, need to be taken into account.

This is assessed with reference to, for example, the age, the state of physical and mental health of each party, as well as any disparity between the earning capacities of the parties and the differing responsibilities for the care of any children.

5. Is it ‘just and equitable’ for a property settlement to take place?

The final step is to consider the practical effect of the proposed division of assets and whether it is just and equitable for a property settlement to occur. In ascertaining whether the proposed orders are just and equitable, the court will also have regard to the “clean break” principle. Where possible, orders should bring to a conclusion the financial relationship between the parties and create certainty for the future.

Although in most cases the court will find that a settlement is just and equitable, in some circumstances, the court may determine that it is not right to do so. If this happens, each party leaves the relationship with the assets and liabilities in their sole name or possession.

REMEMBER - time limits can apply to the property determinations after a de facto relationship or marriage ends. It is, therefore, important to get independent legal advice about your property matter as soon as possible.

Factors for consideration in property settlements during the COVID-19 pandemic

Where parties have previously finalised settlements, the terms may no longer be possible to meet because, for example, there has been a loss of employment or changes in the value of assets.

Value of assets

As mentioned, a key step is putting a value on the assets owned. However, the value of many assets has been impacted by the pandemic, although the full effect may not be realised for some time. There is the need to consider whether, for example, business valuations at present are appropriate and what the long-term effects on the value of the business might be.

Loss of employment

Income is important, as well as the value of assets. Loss of income can have an impact, given part of the process involves considering the future needs of each party. A person’s capacity to continue to pay existing spousal maintenance payments or child support payments may be affected by cash flow issues that a sudden loss of income can bring.

Impact on investments

In terms of superannuation splitting orders, the potential negative impact on investments by the pandemic might reduce superannuation balances. It may be better to express a proposed split in percentage terms rather than monetary terms.

In these difficult circumstances, professional advice regarding the situation is particularly important.

Contact our Family Lawyers, Sydney, NSW

If you require advice or assistance with a property settlement in NSW, or for assistance with any other family law matter, contact the family law specialists at Szabo & Associates Solicitors. Please call us on 02 9281 5088 or fill in the online form.