When a couple separate and end their marriage, they are curious to find out how much they will each receive in a divorce property settlement.

Under the Family Law Act 1975, the Courts have the power to make changes to parties’ property interests if it is satisfied that it is just and equitable to do so.

In divorce property settlements, the Courts take in to consideration each person’s respective contributions to the property and other factors such as their future needs.

The Courts will look at the financial and non-financial contributions made by each party to the property and home. The court will hold the welfare of children and the welfare of the family paramount when considering settlement. For this reason, a divorce property settlement can be difficult and challenging.

The financial contributions of each party is lengthy and time-consuming. However, if money contributions can easily be identified then calculating financial contributions is an easier task.

Non financial contributions are also considered by the Court. Non-financial contributions are a difficult task for the Court as it involves placing a monetary value on the non financial contributions made. When calculating a non-financial contribution, the Court will place the cost of the work as if another person had carried out the work.

For example, if you installed a new kitchen, then you should get a quote to estimate how money was saved, and also how much the new kitchen increased the value of the property.

Divorce property settlement FAQ What is a divorce settlement?

A divorce settlement is an agreement that is reached between a married couple as to how they will separate their finances after their divorce. It is the final legal statement between the married couple for documenting the terms of their divorce.

In Australia, how are assets divided in divorce?

If an agreement can not be reached, then mediation would be the next step. A mediation is whereby a mediator will try and resolve the question of how the assets are to be divided between you and your former partner and come to a resolution that both parties agree with. If an agreement can’t be reached between the parties, then the matter would need to go to a Family Court to have a judge determine how assets are to be divided in a divorce.

What is a financial agreement and how long does it take?

A financial agreement is a written agreement between two parties that sets out how the parties would like to divide their financial resources. A financial settlement can be finalised in as little as two weeks if the parties agree to the terms of the divorce settlement. If an agreement can not be reached, it will then escalate to the stage of mediation, a mediation may take a couple of months before an agreement is reached.

If mediation is unsuccessful then the matter will escalate to court, and may take up to 3 years for a financial settlement.

How is property in a divorce settlement determined in Australia?

All property of you and your former partner is considered “marital property.” This means even if property was brought into the marriage by one person at the beginning of the relationship, it becomes marital property that could potentially be split in a divorce settlement. However, it does not mean that each spouse will get one half of the property. There is a 4 step process to get an understanding of who gets what in a divorce settlement.

How is property settlement determined and calculated?

The court follows a 4 step approach when making a determination for a divorce property settlement between separated couples.

PART A – Establishing the asset pool

The first step of a divorce settlement is for both parties to go through their financial records and see how much they are worth and disclosing these to the other party. Disclosure means; disclosing what is in your individual bank accounts, the value of property owned, the value of shares owned, superannuation, and any interests you may have in a trust, business, or company.

You will also need to confirm the combined value of all of your debts or the money you owe to banks, the Government or any other person or entity.

PART B – What contributions were made during the relationship

The second step of a divorce settlement is to understand what contributions each of the parties made during the relationship.

This includes financial or non-financial contributions. Financial contributions can include wages, government payments, any gifts or inheritances received.

Non-financial contributions include doing housework, looking after the children of the relationship, and renovating the house.

It can include anything that helped maintain the house, the family, and the relationship.

PART C – What are the future needs of the parties

The third step of a divorce settlement is to gain an understanding as to what the future needs are of each party.

After deciding on the respective shares of property based on the above contributions, the court then makes what is called an ‘adjustment.’

The adjustment takes into account factors including the future needs of each of the parties.

The courts look at a variety of things here, including future earning capacity, the health of each person, the ages of each person, employment prospects and financial resources, responsibility for the care of children post-separation and divorce, the duration of the marriage and the extent to which it has affected the future earning capacity of the parties.

You may have different living requirements and need to have specific finances to maintain your health or a certain standard of living.

In all, there are fifteen largely prospective factors for consideration covering what each party is likely to need and what each is able to pay to support the other.

PART D – Is the decision fair & equitable?

The fourth step of the divorce settlement is when the court looks at whether or not their decision will be equitable and fair to both of you.

The court will decide who will keep certain assets.

Women who have dependent children are considerable disadvantaged compared to men in because of their financial circumstances and their income earning potential following marital dissolution. Single mothers and older women living alone post-divorce can experience a drastic fall in living standards, and this in particular is taken into consideration by the Court.

The court may decide that they have a higher adjustment in support of them, because they have significantly less earning capacity.

Example of a Divorce Property Settlement

The following example is a GUIDE ONLY:

For example parties have $1,000,000 between the two of them.

Jennifer and Michael have a total of $1,000,000 in their asset pool.

This asset pool includes all bank accounts, property, and debts.

This is their balance sheet:

Assets

· Matrimonial home worth $1.5 million

· 1 car (Mazda) is worth $30,000

· 1 car (Ford) is worth $20,000

· The Cash in bank is $50,000

Total: $1.6m

Liabilities

· Mortgage on house owing is $800,000

· Credit card debt owing is $30,000

Total: $830,000

Superannuation

· Jennifer’s superannuation $90,000

· Michael’s superannuation $140,000

Total: $230k

To work out the Net Worth of Asset Pool the following formula is used:

Net Total of Asset Pool = Assets – Liabilities + Superannuation = 1,600,000 – 830,000 + 230,000

In this divorce property settlement example, the Net asset pool is $1,000,000

Facts of the example case

Jennifer and Michael have been married for 10 years.

Jennifer owned a property in Sydney with $1 million dollars and had a mortgage of $600,000 on it before she met Michael.

Jennifer and Michael both had separate superannuation accounts.

Jennifer and Michael are employed and earn similar salaries.

From this relationship they have one child together, Thomas, who is 4 years old.

PART A – Identify the asset pool

$1,000,000

Part B – Identify the contributions of the parties

Jennifer and Michael have negotiated and have calculated what their contributions were to the relationship.

As the parties were married for 10 years, they will each identify their financial and non financial contributions, and see if there are any special circumstances that need to be considered which warrant an adjustment/s.

As Jennifer entered the relationship with an asset worth $400,000, she is significantly higher on financial contributions.

Jennifer and Michael have calculated that their contributions would be 75% to Jennifer and 25% to Michael, however, due to the length of the marriage, they have agreed that Michael will receive a 5% adjustment for his contributions to their matrimonial property.

Part C – What are the future needs of the parties?

As they have a child together Thomas, there will need to be an adjustment to the parent who is primarily looking after Thomas.

As a general rule for each child, an adjustment of between 2-5% is given per child. This means, if there were no children, there will be no adjustment to either parent.

Part D – Is this just and equitable?

This question asks whether the settlement appears (just and equitable) fair and just to both parties, and are both parties walking away with a significant proportion of the pool?

The outcome of the divorce property settlement example

The divorce property settlement split has decided to divide the property 70/30, meaning Jennifer will receive $650,000 and Michael will receive $350,000 As for who will keep the family home after separation, that is another consideration entirely. Ultimately it is up to the parties to make decisions as to how they would like to receive the funds and what they would be happy with. If the parties cannot make a decision the court will make it for them.