Saturday, October 16, 2010

DIVIDING PROPERTY AT THE END OF A RELATIONSHIP

PROPERTY SETTLEMENT AT END OF A RELATIONSHIP

It is a basic, sad fact of life that relationships (either marraige or de facto) sometimes come to an end. When this happens, the parties to that relationship, may need to figure out how they are to divide up their property.

To do this legally, either by agreement or by order from the Family Court - is known as a "financial settlement". A financial settlement means the division of a married (or defacto) couple’s financial resources on separation.

The Family Law Act 1975 sets down the applicable law in relation to the division of property or liabilities (debts) of people who have been married. However, if you have never been married, the appropriate laws which govern your financial situation are the laws of the State where you live.

A: The meaning of property

Property can include your home, any other real estate, funds in banks, building societies, credit unions of other financial institutions, investments, life insurance policies, an interest in a business, household contents, any other personal property and Superannuation.

“Property” means the property to which a party to a marriage is entitled whether in “possession” (which means entitled to it now) or “reversion” (which means entitled to it at some later time).

IMPORTANT: It makes no difference in whose name property is held. Property held by either party to a marriage comes within the definition of matrimonial property and will be taken into account by the Court. It may be relevant however whether the property is question was acquired before during or after the period of the marriage (see below).

B: The powers of the Family Court

The Family Court has wide powers (eg. under s 79(4) and s 75(2) to make orders altering the interests of parties of a marriage to property of the parties to a marriage. This will determine how your property, financial resources and debts should be shared between you.

The basis of the Court’s decision regarding division of property

Section 79(4) and of the Family Law Act sets out the matters which the Court must take into account in deciding whether to make any orders altering property interests which can be summarised as follows:

1.The financial contribution made by each party to the marriage or a child of the marriage, to the acquisition, conservation or improvement of any of the property of the parties to the marriage or to property that used to be owned by both/either party of the marriage;

2.The contribution (other than a financial contribution) made by a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or to property that used to be owned by both/either party of the marriage;



3.The contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent;

4.The effect of any proposed order upon the earning capacity of either party to the marriage;

5.The matters referred to in subsection 75(2) so far as they are relevant (see below); and

6.Any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide or might be liable to provide in the future, for a child of the marriage.

The factors listed in section 75(2) relate both to property settlement (where relevant) and to the issue of spousal maintenance (discussed in the next chapter).These factors can be summarised as follows:

•The age and health of the parties;
•The income, property and financial resources of each party;
•Whether either party has the care of any children under 18;
•The commitments necessary to support each party and any children or other people;
•Any responsibilities to support children or other people;
•Eligibility of either party for a pension, allowance or benefit;
•Reasonable standard of living where parties have separated or marriage dissolved;
•Duration of marriage and extent to which it has affected the earning capacity of a party seeking maintenance;
•The need to protect the party who wishes to continue as a parent;
•If either party is co-habiting, the financial circumstances of that;
•Any child support assessment.

The aims of the Court in reaching a decision

The Court will reach a decision based on what is just and equitable on the
unique facts of your case. The Court will aim as far as possible to make orders which will finally determine the financial relationship between parties.

C: Who can make an application?

The applicant (that is the person applying) and the respondent (that is the other party) must be parties to the marriage. That means they must be married, be separated or be divorced. It also includes parties to a marriage that has been declared void. At least one of the parties to the proceedings must be present in Australia when the application is filed, or at that time be an Australian citizen or resident.

The Family Law Act provides that a creditor or any other person who may be aversely affected by the making of a financial settlement can also be a party to proceedings. This could include any children to the marriage.

D: The timing of the application

Applications for financial orders can be made at any time following separation. There is no requirement to wait until 12 months have elapsed. However, once an application for divorce has been made and a decree absolute dissolving the marriage ordered, parties have only 12 months within which to make an application for property settlement and/or spousal maintenance (the subject of the following section). In limited circumstances, the Court may give you permission to apply outside this time limit but you would need to supply an affidavit (sworn statement) setting out reasons why the application was made late. You should not assume that this permission would be granted. This 12 month time limit also applies to orders made by Consent.

E: The importance of reaching agreement where possible

Parties are encouraged to reach agreement as to how divide their property and liabilities (if any) wherever possible. You will avoid costly legal bills and have some certainty about the outcome of your negotiations. This is a very complicated area of law and each case is different. It is difficult to predict with any degree of certainty the exact outcome of any application you may make. The Court is obliged to consider a number of factors in reaching a decision and can exercise a considerable amount of discretion in reaching a decision. You are likely to face a period of uncertainty whilst waiting for the decision of the Court. If you are unable to reach an agreement, the Court will be able to refer you to professional agencies who will be able to assist you in negotiating an agreement. If you are able to reach an agreement, it is possible to formalise that agreement and make it binding by applying to the Court for a Consent Order. The Court will need to be satisfied that the order is properly drafted and that the terms are “just and equitable”. If you do file an application, you will be required to demonstrate that you have followed the pre-action procedures described in previous chapters.

F: The need for legal advice

The decisions you make about property settlement are some of the most important financial decisions you can make. You may be under considerable emotional and financial stress when your marriage breaks down. If you try and negotiate a settlement without the benefit of legal advice you may find that your contributions to the marriage are not fully recognised and your welfare needs are not fully met. Parties can sometimes experience a drastic fall in living standards when they divorce. In practice single mothers and older women are particularly vulnerable.

This is a complicated area of law and it is important to be fully informed about your rights. Whilst it is difficult to predict the exact outcome at Court, an experienced solicitor will be able to give you some guidance about what to realistically expect. This is turn may assist you in negotiating an agreement, protecting your interests and avoiding the legal costs associated with a Court hearing.





G: Effect of a pre-nuptial agreement

Some couples decide to make a legally binding agreement about their financial arrangements in the event that the marriage breaks down. These agreements can be made before marriage, during marriage or after separation. The legal term for these agreements is ‘financial agreements’. To be legally binding, these agreements must be signed by both parties and both parties must have sought independent legal and financial advice. Courts can declare these agreements to be invalid if the conditions mentioned were not met, there is evidence of fraud, they were entered into for the purpose of defeating legitimate creditors, or the circumstances have changed making the agreement impracticable.

H: What to do if you believe that your spouse may be seeking to hide or sell property?

Parties have a duty to make full and frank disclosure about their financial situation. You should consult your solicitor if you believe that your spouse is not complying with this requirement. Any orders made by the Court may be set aside or varied in the event that parties fail to make full disclosure. If you believe that your spouse wishes to sell property, you can apply for an Interim Order prohibiting the sale of assets until a final settlement has been reached.

I: Superannuation Splitting Laws effective as of 28 December 2002

The Family Law Legislation Amendment (Superannuation) Act 2001 (FL Super Act) provides for the payment splitting of a superannuation interest. Under the superannuation splitting laws, superannuation interests are treated as property for the purposes of property settlement on marriage breakdown. This means that people are able to make an agreement - known as a superannuation agreement - about how any superannuation interests that either party has are to be split in the event of marriage breakdown.

A superannuation agreement is like a more general financial agreement in which people can agree about how property other than superannuation is to be divided on marriage breakdown. However, because superannuation interests are different to other property, there are special rules about what a superannuation agreement has to say.

Provided that a superannuation agreement complies with the legal requirements detailed in the superannuation splitting laws, the agreement is binding. If a superannuation agreement is binding, then:

•the trustee of a superannuation fund is required by law to implement it; and
•the Court is not able to make an order about the superannuation interest that is dealt with in the superannuation agreement.
If people are unable to agree, then:

•the Court is able to make an order, as part of a property settlement order, about how any superannuation interests are to be split; and
•the Court order is binding on the trustee of a superannuation fund, who has to comply with it, provided that the legal requirements have been complied with.

J: Do the superannuation splitting laws apply to me?

The superannuation splitting laws apply to people who were married and who have divorced. They also apply to people who are still married but who have separated and want to finalise arrangements about their property. They apply regardless of whether people have divorced or separated before the superannuation splitting laws commenced on 28 December 2002 - provided that final arrangements have not been made for their property settlement.

The superannuation splitting laws also allow people to enter agreements, either before or during marriage or after separation, about how, in the event of marriage breakdown, superannuation interests are to be split. People are able to enter into a superannuation agreement before they marry, but the agreement does not have any effect if the parties don't, in fact, get married. In these circumstances State law would apply.

If you have legally finalised your property arrangements before the superannuation splitting laws commenced on 28 December 2002 then, generally, the superannuation splitting laws won't apply to you. However, if there has been no formal legal arrangement about your property - perhaps because you have made an informal arrangement with your former partner, then the superannuation splitting laws do apply to you.

Also, if your property arrangements have been legally finalised but those legal arrangements were subsequently overturned after the superannuation splitting laws commenced, then the superannuation splitting laws apply to you.

K: Do I need to obtain legal advice?

Yes. If you don't get legal advice the payment splitting agreement won't be binding on the trustee of the superannuation fund.

L: Steps taken by the Court

The Court must firstly identify what the assets of the parties are, what the liabilities of the parties are, and what their financial resources are. Financial resources, means people’s superannuation entitlements but can also mean other things.

Whether you are negotiating with the other party to try and reach an agreement as to how to divide your property between you, or if it has become necessary for you to commence proceedings in the


Family Court, you also need to go through the process of identifying both your and the other party’s assets, liabilities and financial resources.

It is sometimes necessary to take steps quite early in the property proceedings to ensure assets are not wasted, or the other party provides you with more information about their financial position. There are applications that can be made to the Court in relation to these matters.

After the financial position of the parties is clear, then essentially the Court engages in a two step process:

1.Identifying the respective contributions (both financial and non-financial) of the parties and allocating an appropriate percentage division of the total property.

2.Considering the matters under Section 75(2) and the other matters referred to in Section 79(4) of the Family Law Act and identifying what, if any, adjustments should be made to the percentage division after taking those factors into consideration.

M: Statistical Analysis – Division of Property

The following principles can be gleaned from an analysis of the statistics relating to the division of property following the breakdown of marriage. It should be stressed that the Courts have a considerable amount of discretion in this area and every case is different. The following general principles are provided as a guide to how the Courts seem to apply the law in this area, but it is important that you seek legal advice regarding your specific situation.

In practice, Courts draw a distinction between basic assets and non-basic assets.
Basic assets (meaning those that the majority of people have) include bank accounts, the marital home, furniture and other property. Non-basic assets include superannuation, life insurance policy, investments, business rights and inheritances.

An analysis of recent case history has revealed the following general observations:

•On average women who have custody of the child or children of the marriage receive two thirds of the basic assets and one fifth of the non-basic assets.
•Women from marriages with lower asset wealth tend to get a higher percentage of the marital assets on settlement.
•Women from marriages with higher value assets generally receive a lower percentage, but there is a much wider range of results.
•In terms of contribution, where parties have the majority of their assets as basic assets and the marriage has lasted for some time, the Court will usually regard the respective contributions to be equal.
•Courts do not usually assess contributions to be equal when considering non-basic assets such as private companies, major assets acquired prior to the marriage and inheritances.


N: Difficulties associated with asset division

Families with relatively low net assets are very limited in the extent to which they can address the respective needs of the parties because their primary asset is commonly the family home usually with a mortgage. Families in this position will typically have limited wealth in non-basic assets such as investments which are more easily disposable. In these circumstances, it is difficult to divide assets in a way that would assist parties with access to immediate financial resources whilst still securing the family home for the resident parent and children.

O: Difficulties associated with single-parent mothers

Traditionally women have played a greater role in home-making and providing the primary care for children. This role may often mean that they have made certain sacrifices in terms of their career development during the course of the marriage. This may lead to some disadvantage in the labour market particularly since their skills may be out of date. Traditionally women have been in a weaker position in the labour market and their earnings lower than men. Marital breakdown can lead to a drastic fall in living standards particularly for single parent mothers and older women.

The Court is obliged to take these factors into account. In terms of assessing contributions made during the marriage, non-financial contributions such as home-making and childcare are given equal consideration. The Court will then go on to make an adjustment to take into account the future financial needs of women and children taking into account career prospects and childcare responsibilities.

P: Factors to consider

Some of the matters to be considered when negotiating or making an application for property settlement are as follows:

•Superannuation - considerable changes have been introduced by the Federal Government as to how superannuation will be dealt with (see the sub-sections on Superannuation, above);
•Capital gains tax and stamp duty;
•Whether it is appropriate in your circumstances for the property proceedings to be adjourned;
•Cases which involve farms;
•If there have been inheritances;
•Unusual contributions;
•Contributions after separation;
•Where there are family trusts;
•Where parties have been involved in companies.




Q: Information to obtain

Make a list of what assets, liabilities and financial resources you and your spouse have in your name or which are held on your behalf. Try and obtain documents to prove the existence of those assets, liabilities and financial resources and what their values are now. This proof can be by way of a written, dated appraisal for real estate or other items such as motor vehicle insurance papers, bank statements, credit card statements and superannuation statements etc.

Ideally, you will want documents to show the value of those items:

•at the date that you started living with the other party;
•at the date that you separated; and
•at the time you negotiate the property settlement.

It may be difficult to obtain these documents. It may well be through the Court process that you can obtain this information and those documents from your partner as they are required to disclose all relevant material.

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