Property settlements, as set out in the Family Law Act 1975, involve a four-step process. We walk you through the steps here to find out everything you need to know about how to split assets after a separation.
1. First of four steps is to identify what you and the other spouse own. If a spouse owns it then it can be split. Does fairness require a changeof ownership or can it just be left where it is? It almost always needs a change.
2. Secondly, value the assets on today’s date and the debts. Deal with the net assets over liabilities usually.
3. Thirdly, consider how the assets came to belong to the parties. Who contributed to them and when? Who contributed to the whole relationship in non-financial ways as well? Apply a percentage to the contribution. Theoretically at first, divide the assets up on the basis of the contribution before the next step.
4. Fourthly, consider what family law solicitors call “future needs”. Make an adjustment from the contribution percentage to give a “poorer” or “needier” ex-spouse to try to make it more fair in the future.
Each of these steps to split assets after a separation has its own challenges. Here are a few common issues.
Identifying assets and liabilities
Identifying assets and liabilities is usually easy but we family law solicitors see a lot of disputes. Examples include:
- Is the parent’s loan actually a gift;
- Does a house that was put in a relatives name really belong to the couple;
- The family business is run by the husband alone but still in his elderly father’s name;
- A family trust owns an asset and perhaps the couple don’t actually own it.
Valuing assets
It’s often not realised that assets are valued at today’s date, not separation date. The parties contributions might stop at separation but assets keep rising (hopefully) in value and debts may rise or fall depending on payment. This is a good rule of thumb for houses, shares and superannuation. An exception is bank cash, which if you have taken it and spent it, should usually be valued as the amount you have taken.
Professional valuers are usually engaged for houses and businesses. We try to agree on both parties sharing the cost of one reputable valuer, and doing it early to make this a cheaper non-issue. For a big asset, especially a business, sometimes there is a lot to be gained from contesting a valuation.
Assessing contributions
It’s important to know that contributions are not just financial. Husbands and wives often contribute in unique but equal methods. Usually a homemaker will get the same credit as the income earner. Inheritances are a classic case of a one sided contribution. Long marriages tend towards 50/50 contributions and short marriages without children tend towards “keep what you brought in”. Sadly, we see cases of negative contributions through gambling, alcohol and violence.
Future needs – s. 75(2) of the Family Law Act
Technically it’s not all about the future but mostly so, and it is all set out in section 75(2) of the Family Law Act. The two most common adjustments are for:
- Different income earning capacity; and
- Majority care of dependant children;
but there are many more.
For example these factors may often see a 10-20% shift from what would be 50/50 to say 65/35 (even to 100/0). It’s usually this factor that sees the over simple observation that “the women always get the house”. Often such a wife has left work to raise children and will continue to need to do so for quite awhile, by which time she has missed promotions or lost past skills. The Husband meanwhile has risen up the ranks, working full time, to earn more.
Get it in writing
Once it is sorted out the agreement will generally be put in writing; not putting your agreement in writing is risky. We would only recommend that if the asset pool is very small, or if the deal you have accepted is a bad deal and it’s you that is likely to change your mind. Unfortunately, we see a lot of amicable handshake deals go wrong, usually after the new partner comes on the scene.
The two proper methods to split assets after a separation are a court consent order, or a binding financial agreement (BFA).
A consent order is best if possible. It needs the court’s approval and thus must be “fair”. It’s difficult but it doesn’t technically need solicitors. A BFA however needs a solicitor, each, but not the court’s approval. The process of a BFA must be fair but the outcome doesn’t need to be “fair” as a court would see it.
Discretion, judgment and experience
Looking at both contributions and future needs it is quite discretionary. Experience of many different cases and a team of lawyers to workshop the scenarios helps to know what the likely outcome is. Family Law solicitors term these cases as “assessment cases” and the experienced divorce lawyers can compromise these issues and keep you out of court. By the time a judge tells you what the assessment is, it’s too late, you been through a stressful and expensive process. An experienced family law solicitor save you time, stress and money by can telling you earlier and persuading the other side earlier.