FAQs: Property and Financial Settlements

After you separate from your partner, it will be necessary to divide up all your assets and liabilities by way of a property settlement.  See below for some frequently asked questions on the division of assets after the end of a partnership.

What is a property or financial settlement?
What is a property or financial settlement?

A property settlement is the division of all assets, liabilities and/or financial resources which parties to a marriage or de facto relationship have acquired either before, during or after the relationship.

The notions of fault and blame as to why the relationship broke down are not relevant when determining a settlement.

What is the difference between a financial resource and an asset?
What is the difference between a financial resource and an asset?

Financial resources include superannuation, pension interests and interests in a trust.

An asset or “property” has a very wide definition. 
It will generally include anything of value.  Examples include:

  • Real estate.
  • Cars.
  • Jewellery.
  • Shares.
  • Cash.
  • Bank accounts.
  • Joint owned property.
  • Property owned in one person’s name.
  • Business interests.
  • Prospective entitlements.
What is a prenuptial agreement or a “prenup”?
What is a prenuptial agreement or a “prenup”?

A prenuptial agreement or “prenup” is known as a financial agreement in Australia. 

A financial agreement is a binding legal agreement about the financial arrangements should a marriage or de facto relationship break down.

When you enter into a binding financial agreement you and the other party are essentially agreeing to contract out of the laws contained in the Family Law Act 1975 (for married couples) and the Family Court Act 1997 (for de facto couples).

If you and your partner want to control your financial affairs without any intervention from the Family Court you need to ensure that the binding financial agreement is properly drafted so that it is ‘binding’.  There are very strict legal requirements when creating a binding financial agreement and the agreement can be set aside by the Family Court if it does not comply with the legislation.

Can property or financial settlements be dealt with out of court?
Can property or financial settlements be dealt with out of court?

Yes.  You can reach an agreement for a fair property settlement by direct negotiation or by attending other forms of dispute resolution such as mediation or arbitration. 

Reaching an agreement with the other party offers many advantages, such as:

  • you make your own decisions.
  • you greatly reduce the financial and emotional costs of legal proceedings.
  • your continuing relationship as parents, if you have children, is likely to work better.
  • you are able to move forward and make a new life for yourself. 
  • you may improve communication with your former partner and be better able to resolve disputes in the future.

An agreement can be formally reflected by way of consent orders (known as a Form 11) made by the Family Court or by way of a Binding Financial Agreement.

When should I make a financial agreement?
When should I make a financial agreement?

You can make a financial agreement before, during or after a marriage or de facto relationship.

What can I do if my ex-partner and I cannot come to an agreement?
What can I do if my ex-partner and I cannot come to an agreement?

If you cannot come to an agreement with your ex-partner, the Family Court has the power to make orders for property and financial settlements.  The Family Court encourages parties to try and come to an agreement.

If you and your former partner are unable to resolve your property or financial settlement by way of agreement then the Family Court can determine the division of assets and liabilities after hearing evidence from both parties.  However, going to the Family Court should be the last option.

How are property and financial settlement determined by the Family Court?
How are property and financial settlement determined by the Family Court?

There is no formula used by the Family Court to divide property and no one can tell you exactly what orders a judicial officer will make as every case is unique and different.  The Family Court has a wide discretion in making orders that may alter the interest of parties in property.  Courts must first and foremost determine what is ‘just and equitable’. 

The Family Law Act 1975 sets out the general principles the court considers when deciding financial disputes after the breakdown of a marriage.

The Family Court’s decision is based on:

  • working out what you've got and what you owe; that is your assets and liabilities and what they are worth.
  • looking at the direct financial contributions by each party to the marriage or de facto relationship such as wage and salary earnings, and how they’ve been applied through the course of the relationship.
  • looking at indirect financial contributions by each party such as gifts and inheritances from families.
  • looking at the non-financial contributions to the marriage or de facto relationship such as caring for children and homemaking.
  • future requirements – a court will take into account things like age, health, financial resources, care of children and ability to earn.

The way your assets and debts will be divided between you will depend on the individual circumstances of your family.  

Do I have to reveal everything I own and how much money I make?
Do I have to reveal everything I own and how much money I make?

Each party has an obligation to fully disclose his or her financial position to the Family Court and the other party.  Full and frank disclosure is expected from the outset and is an ongoing obligation.

When can I bring an application for a property or financial settlement?
When can I bring an application for a property or financial settlement?

Applications for property or financial settlement can be commenced at any time up until 12 months after a divorce becomes final. 

If you were in a de facto relationship, your applications for property or financial settlement must be made within 2 years of the breakdown of your relationship.

How does the law treat superannuation?
How does the law treat superannuation?

For parties who were married, the law treats the splitting of superannuation as a different type of property.  It allows couples that are separating to value their superannuation and split superannuation payments, although this is not mandatory.  Splitting does not convert it into a cash asset – it is still subject to superannuation laws.

For parties who were in a de facto relationship, superannuation is not included in the asset pool.  Instead it is treated like a financial resource.

Can a property or financial settlement impact on spousal maintenance?
Can a property or financial settlement impact on spousal maintenance?

Financial agreements can be used after separation to oust the jurisdiction of the Court to deal with spousal maintenance.  Sometimes property matters will be dealt with separately in court orders and at other times the financial agreement will deal with both property and spousal maintenance.

Will any future inheritances be included in the property settlement?
Will any future inheritances be included in the property settlement?

In a marriage or a de facto relationship it is not uncommon for one of the spouses to receive an inheritance.  It may also be the situation that a parent may have a provision in a Will for one of the spouses to receive a large inheritance, creating a prospective inheritance.

Whether a prospective inheritance will be included in the property settlement will depend on certain factors.

The starting point is to determine whether the payment was intended to benefit both of the spouses or, only the child of the parent.

Secondly, if the parent of a spouse has a provision for an entitlement in their Will – but they are not deceased then the provision cannot form part of the “property pool” for division, but the “entitlement” is relevant in determining what the percentage apportionment of the existing “property” will be.

The determination of each spouses “percentage entitlement” involves a careful consideration of all of their respective “contributions”, as well as their “future needs”.  It is in the context of “future needs” that any “prospective inheritance” becomes relevant.

Will any tax liabilities (such as CGT) be included in the property settlement?
Will any tax liabilities (such as CGT) be included in the property settlement?

Tax liabilities can be complicated in a property settlement.

As a general rule, capital gains tax is payable on the net profit made on the sale, transfer or disposal of property to another person.

However, the family home is exempt provided it has been used for the whole period of the combined ownership by its owners and provided its owners were the spouses themselves.

For assets other than the family home, special rules apply to the transfer from one spouse to the other when the transfer is pursuant to an order, financial agreement or arbitration award under the Family Law Act.  These rules apply to automatically defer the liability to pay capital gains tax until such time as the asset is sold.  This means that the spouse to whom the asset was transferred will be liable to pay the tax on any gain made on a subsequent sale of the asset.

Transfers of a spouse’s entitlement in a superannuation fund to another spouse are disregarded for capital gains tax purposes provided the transfer is pursuant to a court order or binding financial agreement.

How can Lavan's family law team help me?
How can Lavan's family law team help me?

At Lavan, our family lawyers are well versed at analysing property issues, including complex financial arrangements, and are able to advise on the optimum presentation of property applications.  They can also advise you on the likely outcome of the case if it proceeds to Court.  Our aim is to provide you with realistic advice and to see matters properly finalised.