Disputes about property settlement effectively uses the following approach:
The Threshold Test
The Court first considers whether or not it is just and equitable for the Court to make any orders at all. In most cases, this test is readily established (for example, when parties have joint assets accumulated over the course of a relationship that need to be divided to effect a settlement). Sometimes one party argues that it isn’t just and equitable for the Court to make any orders and that’s become a more significant issue since a 2012 High Court decision called Stanford. It must be satisfied now as a preliminary, ‘threshold’ style argument.
The Four Step Approach
If the answer to the question above is yes, then the next steps are to:
- Identify the property of the parties
- Assess the contributions made by each party
- Consider the future needs of each party
- Ensure the result is fair
Each of those steps presents a chance for disagreement between the parties.
1. Identify the property
The Court identifies the property of the parties or either of them, and determines the value of the property at the date of hearing. This includes superannuation. In a negotiated settlement the date of the agreement is the relevant date (importantly, not the date of separation).
This step is a bit like ‘defining the asset pool’. The two issues at this step are usually about:
- Ownership; or
- Value.
The starting point is that all property of either party is included at the date of a settlement (or a hearing), regardless of when and how it was acquired. This includes property held overseas and property jointly owned with any third party. If someone has disposed of property maliciously or inappropriately (for example the classic “sold my Ferrari to my brother for $50” trick) it can be ‘added back’ but add backs are pretty unpopular these days and the Court prefers approaching those kinds of situations using other remedial measures.
Disputes about ownership usually revolve around equitable claims or complex commercial structures. I could write a different article on those but our experience is that ownership for ‘family law purposes’ is often very different to ownership at law or ownership for tax purposes. You need to be very wary about relying on advice that trusts or companies are useful tools to protect your property against a claim by your spouse.
Disputes about value are determined a jointly appointed Single Expert or in some circumstances by competing expert evidence as to value. Valuing houses and cars is usually relatively straight forward but valuing commercial property or businesses can be very complicated.
2. Contributions
This is a retrospective analysis of the parties’ respective contributions. The question asked by the Court is overall in what proportions did these parties contribute to the acquisition, conservation and improvement of their property?
Day to day contributions are usually assessed as equal and not mathematically scrutinised. The Court does not undertake an accounting exercise to assess who paid for what on a day-to-day basis. Usually if one party was the one who mainly earned an income whilst the other cared primarily for the children and managed the household, their respective contributions are assessed as equal. There is no automatic or default approach to this but rarely does the Court say that one party’s contribution as an income earner is more valuable than the other party’s contribution as a homemaker, or vice versa. In a marriage or defacto relationship parties sign up to do those things together, albeit they may do them in wildly different proportions.
Windfall type contributions, such as lump sum gifts, inheritances and compensation payouts are treated differently. The weight attributed to these types of contributions depends on how much was received, when it was received, and the circumstances surrounding the receipt and application of the funds.
Each party’s contributions is usually expressed as an assessed percentage – for example contributions might be found overall as having been made 60% by one party and 40% by the other.
3. Future Needs
Once contributions are assessed, the Court considers whether or not there should be an adjustment to the percentages to account for the future.
The common factors that lead to adjustment are disparity in age, health, income, earning capacity, care arrangements for children, or a combination of one or more of those factors. There are other factors that can be relevant.
If two parties are both 40, healthy, earning a relatively high level of income, similarly positioned for career advancement and have equal time of children, then very probably no adjustment will be made by the Court.
On the other hand, if both parties are of similar ages and in good health, but Party A earns around $20,000 per annum (with low prospects of earning a higher level of income) and has nearly full time care of two young children whilst Party B earns around $150,000 per annum (with high prospects of continuing to earn a similar or higher level of income) with very limited time with the children, then it would be appropriate for the Court to adjust the percentages arrived at in Step 2 above to favour Party A, to account for the fact that Party A will have greater needs at least for the near future as compared to Party B. Put differently this step takes into account how each party exits the relationship and what the future holds for them.
The weight of any adjustment depends on the significance of the particular factor versus the size of the asset pool as well as the length of relationship. The rationale behind this is really to ensure neither party is significantly disadvantaged by the role that they undertook during the relationship (which usually is presumed to be a joint decision).
The percentage adjustment at this step is then applied to the percentages in Step 2. So for example if the parties’ respective contributions are assessed as 50:50 in Step 2, if an adjustment of 10% is warranted to Party A in this step, then the overall percentage will be 60% to Party A and 40% to Party B.
4. Just & Equitable
Once an outcome is concluded in percentage terms, the Court applies a sort of ‘check’ to see whether the overall outcome is fair. This rarely influences the ‘percentages’ but the Court can, at this step, change the outcome that would otherwise be determined so as to result in an outcome that is just and equitable.
Other Important Things
- The four step approach above can apply differently to superannuation as compared to non-superannuation assets. Some of the future needs factors may not attach as readily to superannuation assets.
- The factors and approach taken in each matter is nuanced and different based on the facts of each matter. No one case is the same as another.
- The Court does not undertake a mathematical approach in relation to the assessment of percentages, it is a discretionary approach and often times there is a range of percentages that is possible in each matter. There is a ‘range’ of ‘correct’ outcomes in most cases.
- Property settlement should be considered alongside other financial related matters such as child support, adult child maintenance and spouse maintenance so as to impose a proper and complete overall settlement.
Article By: Adam Bak
Director – Family Lawyer
Adam has a particular interest and expertise in cases involving businesses, corporate structures and valuation issues. He represents business owners and their spouses and knows all the strategies for both sides. He understands balance sheets and complex financial documents as well as the commercial realities of running a business.