How Are Assets Divided in a Divorce?
When a marriage breaks down, former spouses decide how their assets, liabilities and financial resources will be divided. This process is known as a property settlement. It can involve the family home, investment properties, savings, superannuation, businesses, vehicles and debts accumulated during the relationship.
Australian family law does not provide for an automatic 50/50 split. Instead, the Court considers a range of factors, including the financial and non-financial contributions made by each party, their respective future needs, and whether the proposed division is fair in all the circumstances.
There Is No Automatic 50/50 Split
A common misconception is that all assets are divided equally. In practice, Australian family law rarely commences from a presumption of a 50/50 division.
The Court considers a range of factors, including:
- The assets, liabilities and financial resources of both parties;
- Financial contributions made during the relationship;
- Non-financial contributions;
- Contributions as a homemaker and parent; and
- The future needs of each party.
The outcome will depend on the specific facts of each case.
Step 1: Identifying the Asset Pool
The first step in determining how assets are divided is identifying the total property pool. This generally includes:
- The family home;
- Investment properties;
- Bank accounts;
- Shares and investments;
- Superannuation;
- Motor vehicles;
- Businesses;
- Personal valuables; and
- Debts and liabilities.
Both parties are required to provide full and frank financial disclosure. Failing to disclose assets can have serious legal consequences and may affect the final settlement.
Step 2: Assessing Contributions
The Court then examines the contributions each party has made throughout the relationship. These contributions may include:
Financial Contributions
Examples include:
- Income and wages;
- Savings brought into the relationship;
- Inheritances;
- Gifts received from family members; and
- Contributions towards property purchases.
Non-Financial Contributions
The Court also recognises efforts such as:
- Renovating a home;
- Managing a family business;
- Performing unpaid work that increases the value of assets; and
- Parenting contributions.
Caring for children and maintaining the household are recognised as significant contributions under Australian family law. A spouse who has spent years raising children may receive equal recognition for those efforts.
Step 3: Considering Future Needs
After assessing contributions, the Court considers the future circumstances of each party. Relevant factors may include:
- Age and health;
- Income and earning capacity;
- Care of children;
- Financial resources available to each party; and
- Ability to obtain employment.
For example, a parent who has primary care of young children may receive a larger share of the asset pool if their future financial needs are greater.
Step 4: Is the Outcome Just and Equitable?
The final step is determining whether the proposed division is fair in all the circumstances. The Court will review the overall outcome to ensure it is just and equitable before making property settlement orders.
Does Divorce Have to Be Finalised First?
No. Property settlement and divorce are separate legal processes.
Many people negotiate and finalise their property settlement before applying for divorce. However, once a divorce becomes final, strict time limits apply. Generally, married couples have 12 months from the date of divorce to commence property settlement proceedings if an agreement has not been reached. Different time limits apply for de facto relationships.
Most property settlements are resolved through negotiation, mediation or family dispute resolution rather than a final Court hearing. Once an agreement is reached, it can be formalised through:
- Consent Orders filed with the Court; or
- A Binding Financial Agreement in appropriate circumstances.
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Related Blog – Can You Sell Property Before Divorce & Property Settlement?
