How does the division of assets work after separation or divorce?

Dividing assets in the event of a separation or divorce can be a confusing and stressful experience. It is difficult to ascertain how much each person ‘deserves’ or is entitled to and this often leads to disagreement. The Family Court has set out a 4 step process that is used to determine the division of assets. This is as follows:

  1. Identification of the pool of assets;
  2. Assessment of the contributions of each party;
  3. Adjustment for future needs; and
  4. Determination of whether the division is just and equitable.

We use the guardrails set by the Court’s guidance to provide you with strategic legal advice on the division of assets following your separation or divorce. Below, we will delve into each of these steps in further detail.  

 

Identifying the pool of assets

The first step is to identify the asset pool. This includes everything that is owned by both parties, either jointly or individually and includes property, shares, businesses, cash, artwork, vehicles, jewellery and anything else of value.  Quite frequently, our clients are concerned that they do not hold any assets in their own name, however this is not an issue. Under the Family Law Act, it does not matter whose name the assets are held in. Any asset that is held by a party to the separation or divorce will become a part of the pool which is eventually split between the parties. This includes assets that are held within other legal entities such as companies or trusts.  

Once the value of all assets has been identified, the next step is to determine the value of all liabilities held by both parties, both jointly and individually. This amount will be deducted from the total value of all assets and the remaining amount will be considered the net pool available for division.  It should be noted that for the purposes of the division of assets, superannuation is treated as a different class of property and is not included in the asset pool.  

 

Assessing the contributions of each party

Step 2 involves assessing the contributions of each party during the course of the relationship. This is made up of: 

  • Direct financial contributions; 
  • Indirect financial contributions; 
  • Negative financial contributions; and 
  • Non-financial contributions. 

Direct financial contributions commonly include savings, wages, bonuses and proceeds of investments. Indirect financial contributions typically include inheritances or gifts received by either party. Negative financial contributions include financial losses where one party has recklessly or deliberately reduced the value of assets. For example, one party may have lost a significant amount of money due to excessive gambling or substance abuse. The value of this loss may be deducted from that party’s financial contribution. 

Non-financial contributions are the non-monetary contributions made by each party. This commonly includes undertaking domestic duties, raising children and other contributions such as planning and executing a renovation of property which has resulted in an increase in the value of the property. 

Financial and non-financial contributions are often considered equal in the Court. For example, one party may have worked full time to support the family financially while the other stayed at home to take care of the children. It is not uncommon for a court to consider these contributions as equal.  

More often than not, the longer the parties have been in the relationship, the less relevant the assets owned by each party prior to the relationship becomes.  As a general rule, once a couple has been together for 10 years, the assets that each party owned prior to the relationship becomes irrelevant to the assessment of contributions. However, for short term relationships, circumstances where one party already owned a property prior to entering into the relationship or brought a significant amount of money into a relationship may be considered.  

While this step is concerned with determining contributions of each party in the past, the next step will consider whether adjustments are required in order to fulfil future needs.  

 

Adjusting for future needs

The third step involves considering the future needs of each party and making adjustments accordingly. This step tends to have a significant impact on how the division of assets will occur as future needs are largely based on the capacity of each party to continue to fulfil their ongoing responsibilities and any special needs.  

Factors considered include earning capacity, age, health, ongoing care of children, ongoing care of other people (such as elderly parents), standard of living and ability to generate income. For ongoing care of children, we will need to consider who will hold primary custody of the children and what ongoing involvement the other party will have The number, age and any special needs of the children is also relevant as this dictates what their future needs will be. In terms of the ability to generate income, it is noted that in many situations, one party may have sacrificed their career in order for the other party to pursue theirs. In this case, we will be able to assist you in building a strong legal argument for a significant adjustment due to a weakened ability to generate income resulting from the loss of opportunity to pursue a career or education in the course of your relationship.  

At this stage, it is also important to consider the financial circumstances relating to any new relationship that either party has entered into, as well as any cohabitation arrangements.  

 

Determining whether the division is just and equitable

The final stage is to determine whether the division of assets is just and equitable. This comes down to whether a Court would consider the division to be fair. A common example is that one party may require more funds in the short term due to their earning capacity, while the other remains financially stable at the same time. In cases like this, it would be just and equitable to provide the proceeds from the sale of a property to the party with lower earning capacity, while awarding the other party the proceeds of assets that will be available at a later date.  

A note on superannuation 

As mentioned previously, superannuation is treated differently to other assets in a property settlement. While other assets can be sold so that the proceeds can be split, superannuation must be kept in a super fund until retirement age. This means that you may not receive any amount for a numbers of years.  At a high level, the process for splitting superannuation involves the following 4 steps: 

  1. Value your superannuation; 
  2. Come to an agreement on how the amount is to be split 
  3. Make an application with the Family Court; and 
  4. Provide a copy of the order to the trustee of your superannuation fund.  

We can provide you with further advice on the process for dividing superannuation, as well as guidance on what you may be entitled to.  

 

Conclusion

It is common for each of the parties to a divorce or separation to have different views on what each of the above steps entails. Parties will frequently disagree on contributions that they have made or on what forms part of the pool of assets. For this reason, obtaining expert legal advice is vital.

PCL Lawyers can provide you with practical guidance on what you are entitled to which, in turn will help you to reach an agreement sooner.  

Please note: The above is not intended to be legal advice. Every circumstance is different. Always seek legal advice in relation to your individual situation.

© PCL Lawyers 2020

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