Sunday, 28 June 2009

The 4 steps of property settlement

I am constantly amazed when clients come to see me to either get a second opinion or because they are dissatisfied with their former solicitor, and when I ask the clients if their solicitor told them about the 4 steps to property settlement, too often the clients look at me gobsmacked, as if I have asked them for train timetables in Rajasthan.

The 4 steps are quite simple conceptually, and form the basis for property orders under the Family Law Act (and in Queensland for de facto couples under the Property Law Act).

Here I must digress. The Family Law Act applies to proeprty settlements for married couples. It also applies to de facto couples if:
  • one or both of them are outside South Australia or Western Australia
  • they separated on or after 1 March, 2009, or have both consented to the Family Law Act applying to them.

Now on with the show. Here are the four steps:

Step 1: Identify and Value the Property Pool

This is pretty simple. If you're going to slice up the cake, how big is it and who owns what? Usually if this element can be sorted out, then it is easier to settle. This is the one where there are usually logjams to settlement: people either dispute that they own something (or owe something), or more commonly there is a dispute about value.

Step 2: Assess the Financial and Non-financial Contributions

What have each of the parties brought to the relationship? Did one of them work and the other care for the children? Were there any windfall gains? Were there any initial contributions? Have there been any post-separation contributions? There are many factors that may need to be weighed up and balanced, if necessary by the court.

Step 3: Consider future factors

This is a requirement of section 75(2) of the Family Law Act. Essentially, the court looks to see if there needs to be provision for future factors. In a traditional marriage, for example, where the husband works and the wife stays at home and cares for the children, there might be an adjustment in favour of the wife in light of her lesser earning capacity and the ongoing care of the children.

Section 75(2) [and similarly section 90SF(3) for de facto couples] contains the following list of factors:

(a) the age and state of health of each of the parties;

(b) the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment;

(c) whether either party has the care or control of a child of the marriage who has not attained the age of 18 years;

(d) commitments of each of the parties that are necessary to enable the party to support:
(i) himself or herself; and
(ii) a child or another person that the party has a duty to maintain;

(e) the responsibilities of either party to support any other person;

(f) subject to subsection (3), the eligibility of either party for a pension, allowance or benefit under:
(i) any law of the Commonwealth, of a State or Territory or of another country; or
(ii) any superannuation fund or scheme, whether the fund or scheme was established, or operates, within or outside Australia;
and the rate of any such pension, allowance or benefit being paid to either party;

(g) where the parties have separated or divorced, a standard of living that in all the circumstances is reasonable;

(h) the extent to which the payment of maintenance to the party whose maintenance is under consideration would increase the earning capacity of that party by enabling that party to undertake a course of education or training or to establish himself or herself in a business or otherwise to obtain an adequate income;

(ha) the effect of any proposed order on the ability of a creditor of a party to recover the creditor's debt, so far as that effect is relevant;

(j) the extent to which the party whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other party;

(k) the duration of the marriage and the extent to which it has affected the earning capacity of the party whose maintenance is under consideration;

(l) the need to protect a party who wishes to continue that party's role as a parent;

(m) if either party is cohabiting with another person--the financial circumstances relating to the cohabitation;

(n) the terms of any order made or proposed to be made under section 79 in relation to:
(i) the property of the parties; or
(ii) vested bankruptcy property in relation to a bankrupt party;

(naa) the terms of any order or declaration made, or proposed to be made, under Part VIIIAB in relation to:
(i) a party to the marriage; or
(ii) a person who is a party to a de facto relationship with a party to the marriage; or
(iii) the property of a person covered by subparagraph (i) and of a person covered by subparagraph (ii), or of either of them; or
(iv) vested bankruptcy property in relation to a person covered by subparagraph (i) or (ii);

(na) any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage;

(o) any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account;

(p) the terms of any financial agreement that is binding on the parties to the marriage;

(q) the terms of any Part VIIIAB financial agreement that is binding on a party to the marriage.

Step 4: Come up with a fair result

The legislation requires the court to come up with a fair result, or in the words of the Family Law Act, a "just and equitable" result.

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