FAMILY LAW
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How The Courts Determine a Matrimonial Property Settlement
Following the breakdown of a relationship, the next step is usually to consider the division of property and assets of the relationship.
The courts require that the parties first try and attempt to reach financial agreements and property settlement by agreement themselves. If the parties cannot reach an agreement, then an application for a property settlement is to be filed in the courts for the court to decide on how the property of the relationship is to be divided. It is important to seek legal advice in relation to making an application, as strict time limits apply in making the application to the courts.
Family law act: The Four-Step Process in the family court
Once a de facto application is made to the family law act, the family court must consider all relevant circumstances of the de facto relationship to determine a fair property settlement. The court follows what is known as a “4-Step” process when determining an application, which is set out below.
It is also important for parties to a property settlement to consider this process when negotiating a property settlement, as even a property settlement by agreement must still be considered fair in accordance with the law.
Step 1 – Identifying and valuing the assets, liabilities and financial resources of the parties
This first step involves identifying and valuing the assets, liabilities and non-financial contributions of the parties. This includes all assets, liabilities and financial resources that either party holds an interest in, regardless of whether they are held solely, jointly or by another entity. It includes assets, liabilities and financial resources held overseas. The property includes assets of either or both parties. This includes almost anything of value such as real estate, shares, motor vehicles, jewelry, funds in bank accounts, superannuation, furniture and personal effects.
If agreement as to the values of the asset cannot be reached between the parties, experts usually need to be retained, such as values or forensic accountants, to value those assets to determine the values.
All assets, liabilities and financial resources of the parties are then referred to as the “property pool”.
Once the value of the property pool is determined, the parties may then proceed to Step 2.
Step 2 – Assessment of the contributions made by the parties
The second step involves the assessment of the contributions made by the parties during a de facto relationship. These include:
- Financial contributions to the property pool;
- Non-financial contributions to the property pool;
- Contributions to the welfare of the family, including contributions in the capacity of the homemaker or parent.
The Court will often form the view that the parties have contributed equally to the property pool in long-term relationships. However, the court may find that some circumstances cause contributions to be other than equal, such as:
- Where there are no children and the relationship is a short-term relationship. In these circumstances, the court will generally be more concerned about the direct financial contributions made by each of the parties;
- Where one of the parties has made a substantial contribution by way of a family gift, compensation claim or inheritance;
- Where one of the parties had assets at the beginning of the relationship that was considerably more than the other party; or
- Where the court considers that there was deliberate or reckless conduct of one of the parties that caused a loss to the property pool.
Step 3 – Assessing the future needs of each of the parties
The third step in the family law application involves assessing the future needs of each of the parties. The Court must consider such things as:
- Age of the parties;
- The health of the parties;
- Personal loans;
- Personal debts;
- parties property interests;
- net asset pool;
- indirect financial contributions;
- All the property. (Property owned, property acquired, property orders, and other property matters);
- parties respective contributions;
- Future earning capacity of the parties, future financial capacity, or future financial needs;
- The property division and financial agreement of each of the parties;
- Who has the care of any child of the relationship;
- The financial circumstances of any new relationship;
- The commitments the parties have to support themselves or another person that they are required to maintain;
- The eligibility of either party for a pension.
The court will consider some or all of the fifteen largely prospective factors when deciding whether there should be any adjustment in the division of the property pool in favour of a party to compensate for any difference in their future circumstances.
Step 4 – Is the proposed division of property fair to both parties?
After considering steps 1 to 3 above, the Court must then determine whether the proposed division of the property pool is just and equitable to each of the parties. There is no automatic percentage or outcome when it comes to determining a fair outcome. Each assessment is done by examining the circumstances of each individual case.
It is important for the parties to also seek advice from the outset as to what a just and equitable outcome may look like in their particular circumstance so that the parties enter the proceedings with realistic attitudes and are able to make fully informed decisions which can often lead to the matter resolving before, during a court proceeding, or before the final hearing. This often occurs and can often save costs, time and stress for the parties involved.
Conclusion
It’s important to consider the Four Step process that Courts use to determine a matrimonial proposed property settlement even if you are planning to obtain a settlement agreement before commencing court proceedings. This is because the Court still has the final say on the settlement, and they will use the principles of the Four Step process to determine that the final settlement is fair to both parties. Understanding the Four Step process before commencing property settlements can help align expectations to reasonable outcomes. Always consult a qualified lawyer when working through a property settlement to ensure your best interests are looked after. If you need any assistance at all, our team can help.
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