How do assets get spilt in a divorce?

All married couples who decide to separate need to make sure they do their due diligence and research their rights and entitlements. This will equip each party with the best knowledge to base their decisions on throughout what can often be a long and complex process.

One obvious area of concern when considering a divorce property settlement is how assets, financial resources and liabilities will be divided between the two separating parties. Here, we break down the processes and laws surrounding this aspect of separation, to give you an idea of what to expect …

What is a divorce?

Before we discuss the considerations that need to be made around how to split assets after separation, it’s important to clear up a prevailing misconception about what the term ‘divorce’ actually means …

Some people think divorce refers to the division of financial assets that were previously shared between the two separating parties. However, a divorce actually signifies the end or ‘termination’ of a marriage made legal through a court-issued ‘Divorce Order’. 

Remember, a divorce does not automatically resolve property matters. To properly sever financial ties with your spouse, you will need a legally binding Property Settlement. Keep in mind, the couple in question does not necessarily need to have been married to do this. Family law affects de facto couples in very similar ways to married couples.

To apply for a divorce in Australia, you’ll need to have been separated from your husband or wife for a minimum of 12 months. This separation can occur under the same roof, or be a physical separation which sees both parties reside at different addresses. 

Once a Divorce Order has become effective, the divorcing parties have one year in which to apply for property or spousal maintenance orders without first needing special permission from the court, which can obviously delay the process and result in extra costs. Keep in mind that special permission may be denied and you may find yourself unable to access legal relief.

What many couples don’t realise is that a Property Settlement can be finalised prior to applying for a divorce, meaning the separation of assets can be sorted out straight away, with the actual legal divorce happening later. 

It’s often in your best interests to resolve property matters in a legally binding way as soon as possible because assets acquired post-separation can still potentially be split with your ex-spouse. Such assets include but are not limited to savings, bonuses, increases in house value, superannuation, redundancy payments and inheritances. Similarly, debts accrued post-separation may potentially be included in the property split as well.

To kick-start the process of legally dividing your assets, you’ll need to either …

• agree with your former partner on what your division will look like, and finalise it via a Binding Financial Agreement, which does not need to be filed with the court. Your lawyer can advise on which type of documentation is most suitable for your situation; or
• apply directly to the court for the issuing of a Property Order, if an agreement cannot be reached between you and your formal partner.

What’s the difference between a Binding Financial Agreement and a Consent Order?

A Binding Financial Agreement takes the form of a written agreement which can be used to divide property or define the financial support one party will continue to receive from the other. The requirements for this are laid out under the Family Law Act 1975 and include:

• each party must have a separate, independent lawyer;
• full disclosure of assets and liabilities must be made; and
• each lawyer must provide independent advice on the advantages and disadvantages of the agreement, and must certify they have done so as part of the agreement itself.

When it comes to Consent Orders, there is no requirement for either party to obtain legal advice on their development – although this is strongly recommended to ensure there are no hidden traps. Once filed, the court will decide whether the terms are just and equitable, and the orders will be made if the court determines this to be the case.

Consent Orders can provide a preferable option for some divorcing couples, by virtue of the fact they are easier to enforce if one separating party fails to follow through on any of their outlined obligations.

Can my partner and I come to an agreement without having to involve the law?

Whichever type of documented agreement you decide on, the important thing is that you have some sort of legal documentation relating to the separation of your assets. This will protect both you and your former partner long into the future. There are significant risks associated with any decision not to legally document the agreement between yourself and your former spouse.

If the separating parties simply come to an agreement between themselves and fail to formalise that agreement, it is not legally binding, meaning it’s possible for the other person to change their mind and potentially seek a second settlement later. Sometimes temptation arises when one party comes into some money (for example, an inheritance), has repartnered, or has lost their job. The result is a total lack of certainty for either party, particularly when you consider a future claim on assets you believed to be yours post-separation could legitimately be made by your ex at any stage.

Therefore, for any agreement to be binding and enforceable, it must be drawn up into either a Binding Financial Agreement or Consent Order.

What happens if we can’t agree on who gets what?

In the event that the two divorcing parties cannot reach an agreement on how their assets are to be divided, a Property Order is required (which will ultimately be decided upon by the court).

You may hear or see the terms ‘Property Pool’ or ‘Asset Pool’ used during the separation process. This is a collective term for your total assets, liabilities, and financial resources. 

How quickly do we need to come to agreement over the division of our assets? 

Where couples fail to agree on how their pool will be divided and the matter is taken to the courts, an assessment will be conducted to determine what is included in the pool at the time the matter is presented to them, rather as it was on the date of your actual separation.

This means if you accumulate additional assets or wealth between the time of your separation and the time you appeal for a Property Order, your former partner might have a legal entitlement over this. The simple fact these assets were acquired following your separation does not necessarily mean they will be exempt from being considered by the court as your joint, matrimonial property.

Similarly, if one person accumulates debt post-separation, that debt could potentially be brought into the matrimonial asset pool to be divided.

Furthermore (and for added complexity!), in the instance that your former partner remarries or enters into a new de facto relationship following your separation, your former spouse’s new partner could have an entitlement to your assets, in the event a legally binding agreement has not already been legally finalised. A timely Binding Financial Agreement, Consent Order or Property Order is therefore all the more important!

Another thing to consider when a property settlement is left open for a long period or is never made legally binding is what will happen if one of the separating parties passes away. Again, this has the potential to put property you believed to be yours at risk of being given to somebody else. For instance, if you and your former partner both remain legal owners of a house in the eyes of the law, their new spouse may be automatically entitled to inherit the deceased’s portion of property once they pass away.

Divorce in Australia: Who gets what?

Where legal intervention is required by means of a court order, the question of which assets will be received by which party is decided based on four factors, as laid out in section 79 of the Family Law Act 1975.

1. Assets, liabilities and financial resources

In the majority of matters, all the divorcing couple’s assets, liabilities and financial resources need to be identified. If the value of an asset is not agreed, that asset will need to be professionally valued, regardless of when it was acquired. Even assets accumulated before the parties married or after the parties separated would ordinarily be considered by a court when deciding how to divide the asset pool.

What are assets?

In this context assets are considered to be anything of value owned by the separating couple, including real estate, vehicles, jewellery, furniture, savings, shares, inheritance, compensation, superannuation held in Australia, redundancy packages and even windfalls such as lottery wins!

What are liabilities?

In this context, liabilities are classed as anything that one or both of the separating parties are considered financially accountable for. This might include debts, loans, mortgages and taxation liabilities.

What are financial resources?

In this context financial resources are considered to be anything either party owns that may yield a financial benefit at any stage in the future, for example pension entitlements, trust distributions, some types of inheritance, and even airline mileage points!

2. Contributions of each party

Once the total pool has been given a value, both the financial and non-financial contributions of each party needs to be assessed. Contributions made on entering the relationship, during the relationship, and post-separation will all be considered at this stage, and appropriate adjustments will be made to the pool in light of this.

All contributions made to the acquisition, conservation, or improvement of either party’s assets will be considered, alongside contributions made towards improving the home environment, including parenting, manual labour such as decorating, landscaping and renovations, as well as general day-to-day homemaking. 

However, if one of the separating parties is found to have significantly ‘wasted’ or been in some way detrimental to the value of the couple’s shared asset pool, as opposed to having ‘contributed’ towards it, this may also be factored into the assessment. For instance, loss of funds through gambling could result in adjustments being made in favour of the other party.

3. Adjustments

Once any appropriate adjustments have been made to the pool based on the contributions of each party, the next stage is when the ‘future needs’ of both parties will be considered and calculated. Here, a range of extra factors come into play, including available financial resources, income, future earning capacity, decisions and responsibilities around the care and support of any shared dependent children, age, general health, and any new relationships that may have started. Sometimes, if one party has unilaterally and inappropriately dissipated assets, the court might make an adjustment against that party.

After these factors have all been given due consideration by the court, decisions will be made around whether any additional adjustments need to be made to the pool to allow for fare division of assets that align with the anticipated future needs of each party.

4. The practical effect

Finally, the court will consider the practical effect the proposed property settlement will have on both separating parties. The court will need to ask itself whether adjustments made in light of the first three steps in the process can be considered ‘just and equitable’ for everyone involved. 

The judicial determination in this process is entirely discretionary, and the outcome of any property settlement is guided by the unique practical circumstances that surround any divorce. This means outcomes can vary wildly from case-to-case.

How can we help?

If you have any questions relating to divorce, the process, how your assets are likely to be divided up, or you’re wondering, “How much does a divorce cost in Australia?”, it’s advisable to seek expert guidance.

Rayner Song Family Lawyers is adept at expertly handling divorces in all manner of circumstances. In fact, our team includes some of the best family lawyers Glen Waverley has to offer.

If you’re considering applying for a divorce or would like to access advice on any other legal family matter, get in touch with us on (03) 9803 5673 to organise an initial consultation.