Property & Financial Settlements

OVERVIEW

Most separated couples need a property and financial settlement following the breakdown of their relationship. That settlement will set out the division of their assets, liabilities and superannuation. It is important for that settlement to be legally documented.

OUR EXPERTISE AND APPROACH

The law about property and financial settlements is complex, and the outcome in every case will be dependent on the history of that couples’ relationship. We are experts in providing accurate and up to date advice to our clients about their property settlement entitlements. Wherever possible, we are able to achieve a negotiated outcome, that avoids the need for court action.

Hidden First Field

Property & Businesses

A property settlement is often more complicated if one or both of the parties have interests in a business or businesses.   The most common area of dispute is its value.

Valuing businesses

In determining an appropriate property settlement, the assets of the parties must be identified and valued.  A business or an interest in a business may be hard to value. For example:

  • A share in a family company might have limited market value to an independent purchaser, but the “real” value of the interest to the owner may be significant
  • A business may have minimal assets, but might generate considerable income
  • How is goodwill valued?
  • How are company loans treated?

If parties cannot agree on the value of a business or an interest in a business, an expert is usually engaged to value it.  The valuation method used depends on the type of business.

Injunctions

The court has the power to grant an injunction to stop a party dealing with business assets pending the resolution of a family law dispute. For example, a court can order that a party be restrained from taking action to dispose of business assets outside the ordinary course of business, pending the resolution of the family law dispute.

The court has the power, subject to various limitations, to make orders that are directly binding on third parties, such as companies or business partners of a party to a marriage or relationship. For more information about orders affecting third parties, see our Third Parties and Property Disputes page.

Tax consequences

The division of property, particularly if businesses, companies and trusts are involved, can have significant taxation consequences.  Expert advice is important to ensure the tax consequences there are known and the settlement is structured in the most tax effective way.

We can help to identify the taxation consequences of a proposed settlement and work with your accountants and tax advisers to structure a tax effective property settlement.

Duty of Disclosure

An essential aspect of family law matters is early, full and frank disclosure of all information and documents relevant to the issues in dispute. The duty of disclosure commences at the outset of your matter and continue until your case is finalised (either by agreement or by final hearing before a judge). This means that you must continue to provide information and documents as circumstances change, or more documents are created or come into your possession, power and/or control.

The consequences of failing to disclose all relevant documents may include:

  1. The court refusing to allow you to use previously undisclosed documents at trial;
  2. A costs order being made against you;
  3. A criminal penalty (such as a fine or imprisonment) being imposed for contempt of court; or
  4. The orders or agreement being set aside.

Financial Agreements

Most family law disputes about property and maintenance are finalised with consent orders. The other option, if the parties agree, is a financial agreement.

Financial agreements can deal with:

  • all of the property of the marriage or relationship
  • just one aspect, such as superannuation or inherited property
  • only maintenance
  • property and maintenance
  • child support

We can advise you whether a financial agreement is appropriate for you.

Prenuptial agreements

Prenuptial agreements are becoming more common. A prenuptial agreement sets out how the property of you and your intended spouse is divided if you separate at some time in the future. It can also deal with rights to maintenance, usually by the parties agreeing that neither party can claim it.

Prenuptial agreements are most useful if one or both parties:

  • have significant assets at the start of the relationship and want to ensure that those assets are protected from any claim in the event of separation
  • have business interests they want to protect from a family law claim
  • have received or are likely to receive an inheritance
  • have been through an earlier divorce, and want to isolate the assets they received from an earlier property settlement
  • have children from a previous relationship, and want to preserve their assets for those children

A prenuptial agreement must be drafted very carefully as it tries to deal with circumstances that might arise in the future, such as the birth of children or a party’s ill health.

A couple who are entering into a de facto relationship can also make this kind of financial agreement.

Financial agreements after separation

If you and your former partner reach an agreement about how to divide your property and/or maintenance after separation, you can use a financial agreement, Consent Orders, or a combination of both. We can advise you which option is best in your particular circumstances.

Requirements to make a financial agreement binding

A financial agreement will only be binding if:

  • it is signed by all parties to the agreement
  • before signing the agreement, each party is provided with independent legal advice
  • each legal practitioner signs a statement confirming that the required legal advice has been given
  • the signed statements of independent legal advice are exchanged between the parties
  • the agreement has not been terminated or set aside by a court

Can a financial agreement be set aside?

In certain circumstances, a court can set aside a financial agreement.  Details of the grounds upon which an application can be set aside are in our Setting Aside Financial Agreements fact sheet.

Property Settlements: The Law

How is property divided?

There is no fixed formula for working out how property is divided after the breakdown of a marriage or relationship. The Family Law Act 1975 sets out the factors that need to be taken into account. We can advise you about how the law will apply in your case and the range of results you can expect.

How does it work?

The process followed to determine how property should be divided is:

1: Identify all of the existing interests of the couple (“the parties”), together and individually, in all assets, liabilities and financial resources and work out the “net asset pool” available to be divided. If you cannot agree with your former spouse or partner about the value of an asset an expert may be appointed to value it.

2: Determine if it is just & equitable (fair) to make an adjustment to the property that each party owns (and accordingly order a property settlement), or whether they should just keep what they already have.

3: Assuming it is just & equitable (fair) (as in most cases) to make orders for a property settlement, look at the contributions each party made during the relationship and after separation, including:

  • Financial contributions made by each party or on behalf of each party. These include contributions made by a party at the start of the relationship.  For example, one party may have owned a house at the start of the relationship. Contributions which are particularly relevant include wages, gifts and inheritances.
  • Non-financial contributions made by each party or on behalf of each party. These include contributions as a home-maker or parent and home renovations.

4. Look at the circumstances of each party after separation and the ongoing needs of each party. Many factors can be taken into account at this step, including:

  • the age and health of each party
  • whether one party has the care of a child or children of the marriage or relationship
  • the incomes of each party
  • the future employment prospects and earning capacities of each party

These factors can have a significant impact upon how the property is divided.

5. The court checks that the outcome is “proper” or “appropriate”, taking into account all of the circumstances of the particular case. Whether there should be a split of superannuation and the proportions of any superannuation split may be an issue at this stage if not determined earlier.

What property is taken into account for division?

All types of property can be taken into account when negotiating a property settlement including:

  • interests in real estate
  • interests in businesses
  • interests in private companies, partnerships and trusts
  • shares in public companies
  • funds in bank accounts and other investments
  • superannuation
  • motor vehicles and boats
  • household goods and furniture
  • artworks and wine collections
  • overseas assets
  • debts

Property can be divided whether it is owned:

  • by both of the parties to the marriage or relationship
  • by one of the parties to the marriage or relationship
  • by one or both of the parties to the marriage or relationship together with a third party

In certain circumstances, property controlled (but not owned) by one party might also be divided, even if that party is not the legal owner of the property. Examples are assets held in a family trust or assets transferred to a third party.

An expected inheritance is usually not regarded as “property”. It may still be treated as a “financial resource” and taken into account in a general way in the overall settlement. Entitlements to long service leave may be treated in the same way. Such treatment will change upon receipt of inheritances and leave entitlements.

Property Settlements: Documenting your Agreement

Most separated couples reach an agreement about how to divide their property without going to court. We can help you to negotiate a settlement with your former spouse or partner and give you advice about how to achieve the best possible outcome.

It may not be possible for you to negotiate a fair agreement with your former spouse or partner about the division of property. You might need to apply to the court for a property settlement.

If you agree about how to divide your property, it is important that your agreement is properly documented so you avoid future claims against your assets.

There are three options for documenting the agreement about your property settlement:

  1. financial agreement
  2. consent orders
  3. financial agreement and consent orders

We can advise you which option is best suited to your case and prepare the necessary documents.

What property orders can be made?

Property can be dealt with in a number of ways.  For example: 

  • Property can be sold. The proceeds can be divided between the couple or retained by one of them
  • Interests in property can be transferred from one party to the other
  • Superannuation can be “split”. See our superannuation page for more information
  • Property can be retained by one party
  • Liabilities can be divided, repaid or retained by one party

Setting Aside Property Orders

A party can apply to the court to have a final property settlement order varied or set aside in certain limited circumstances. It does not matter if an order was made by consent or by a judge after a contested hearing.

Grounds for setting aside a property settlement order

A party can ask a court to set aside a final property order on limited grounds. It is not sufficient that a party is no longer happy with the order or disagrees with it. The grounds on which a court can set aside an order are:

  • there has been a miscarriage of  justice as a result of fraud, duress, suppression of evidence (including failure to disclose information), the giving of false evidence or similar circumstances
  • circumstances have arisen since the order was made which make it impracticable for all or part of the order to be carried out
  • circumstances “of an exceptional nature” have arisen in relation to the care, welfare and development of a child of the marriage or relationship and as a result the child or the person caring for the child will suffer hardship if the order is not set aside
  • a party has failed to comply with an order and as a result of the failure to comply it would be just and equitable to set the original order aside and make another order in substitution for it
  • a proceeds of crime order has been made against a party or the property of a party.

Even if the court finds that one or more of the above grounds exists, the court may not set aside or vary the orders. The court has a discretion to decide what is appropriate in the circumstances.

Consent to set aside order

Parties can consent to a final property order being varied or set aside by:

  • making an application to the court for a new order to be made by consent which varies or sets aside the previous order
  • From the conduct of the parties the court can infer that they consent to the order being set aside. For example, if the parties reconcile after the order is made and act in a way inconsistent with the final order.

Other ways in which a final property order might be varied or set aside

A final property order can also be varied or set aside if a party appeals the order made by the court. An appeal must be lodged within 28 days of the order being made.

There are only limited grounds on which an order can be appealed.  It is not sufficient that a party is unhappy with the court’s decision. A successful ground of appeal might exist if the trial judge made a factual error, made an error of law, failed to give adequate reasons for the decision, was prejudicial or if a party was denied procedural fairness.

Time Limits

Time limits on applications for property settlements or maintenance

For married couples:

  • Applications to a court for a property settlement or spousal maintenance must be started within 12 months of a divorce order becoming final.

For de facto (including same sex couples):

  • Applications to a court for a property settlement or maintenance must be started within two years of separation.

Unless the court grants leave for an application to be issued out of time, your right to apply for a property settlement or maintenance after these time periods have passed, is lost in most cases.