DIVIDING MARITAL ASSETS IN A DIVORCE – HOW IT WORKS
Couples who have been in a genuine de facto relationship for at least 2 years, or couples who have been married, can apply to the Family Court or the Federal Circuit Court to have financial matters between them decided following the breakdown of their marriage.
Couples who separate and who are unable to agree on the division of assets must in most cases mediate their dispute before they are permitted to make application to the Courts. Mediation can be done at little cost through the not-for-profit group Relationships Australia, but if couples have significant assets in dispute they will often prefer to mediate privately through their own lawyers, who will engage a professional mediator and a barrister to represent each party. If couples are prepared to be pragmatic and aren’t wanting to punish or torment their former partner, mediation is often the time that matters can be resolved, without the need for recourse to the courts.
Human nature being what it is, unfortunately many couples see property disputes following the breakdown of a relationship as a time to seek retribution, and so take anything but a conciliatory or pragmatic approach to the division of assets. Good lawyers will not be afraid to stand up to their clients when they need to, to prevent this sort of behaviour, as it is ultimately not likely to be beneficial to either party, nor for any children of the relationship. The ultimate action a lawyer can bring to bare is ceasing to act, which may be necessary if for example a client is refusing to disclose their financial affairs to the other party.
Mediation where one party has failed to adequately disclose their financial affairs is highly unlikely to result in resolution, as the lawyer acting for the party who has not received adequate disclosure will not be able to advise their client if any proposed settlement offer is fair and reasonable.
If mediation fails to resolve the matters in dispute, either party may apply to the Federal Circuit Court or Family Court for property orders. At this stage, the party initiating proceedings may also include orders sought for parenting matters, if there are children involved.
When parties initiate and respond to proceedings, they are required to file and swear a financial statement setting out their financial positions. They are also required to set out the orders that they are seeking the Court make. The Court documents must be served on the other party to the marriage.
A Case Directions Hearing will then be listed by the Court, which is designed to give the parties a formal opportunity to request discovery of documents and any other interim orders they may require before the matter can be set down for hearing. The Court has the power to send the parties off to mediate discreet issues if it determines that would be beneficial. Often applications in the matter will be made by either party prior to the hearing date as situations change, for example in regard to access to bank accounts, or in regard to residency in the family home.
Sometimes parties may seek to conceal or minimise the assets available to be included in the matrimonial asset pool and divided, and sometimes one party knows less about the asset situation than the other. For this reason, the Court imposes a continuing duty on the parties to make disclosure, which continues to be in place until the matter is resolved and final orders are reached.
While parties may enter into consent orders at any time, any orders entered into which are entered into while the other party does not have a clear picture of the asset position are liable to be set aside if the other party later discovers that they have been misled. For this reason, lawyers have to warn their clients that if they don’t accurately disclose their financial position that any settlement reached may be set aside in future.
Once the matter is in the Court system, the possibility of hiding or diminishing assets becomes much more difficult. Sworn valuations of property may be sought by the parties or ordered by the Court, or the parties may agree on values based on, for example, appraisals by real estate agents. Where there is a business involved, a suitably experienced accounting practice will need to be retained to undertake a formal valuation of the corporate entity or entities. Often both parties will get their own valuations done early on, and if they cannot agree on a value by reference to such valuations, the Court may appoint an independent expert to undertake an independent valuation to assist the Court.
Some couples elect to enter Binding Financial Agreements post separation, particularly if they do not want the Courts looking into their affairs. When entering a Binding Financial Agreement, both parties are required to seek independent legal advice on the agreement they are proposing to enter. For couples who may have tax problems or other reasons to not want their property dispute before the Courts, negotiating a Binding Financial Agreement can be the preferred option, providing they are getting along well enough to be able to reach agreement. Family lawyers will advise their client on the pro’s and cons of entering into such an agreement with reference to what they could expect the Courts to do if they ran the matter to trial, and with reference to the particular circumstances faced by that client.
Factors the Court will look to when resolving the division of marital assets
The Family Law Act 1975 sets out the general principles the court considers when deciding financial disputes following the breakdown of a marriage. For married couples, the relevant sections of the Act are Section 79(4) and Section 75(2).
For de facto couples, the relevant sections of the Act are section 90SM(4) and section 90SF(3).
Whether you are married or in a genuine de facto relationship, the general principles that will guide the Court in reaching a decision on the division of assets are the same, based on:
- Assessing the actual asset pool available for distribution, taking into account assets and liabilities;
- Assessing the direct financial contributions each party to the marriage or de facto relationship has made to the asset position, such as wage, salary earnings, or business earnings;
- Assessing indirect financial contributions by each party, such as gifts and inheritances from their families;
- Assessing the non-financial contributions to the marriage or de facto relationship, such as caring for children and homemaking, or work done by that party to maintain or improve the family home;
- Assessing future needs – a court will consider factors including age, health, financial resources (including whether one party is beneficiary to a family trust), responsibilities for the care of children, and future earning capacity.
Given the factors that a court must consider to reach a decision on property division, each case will usually be slightly different to decisions made for comparable cases. The Courts have full discretion as to how to divide the assets of your marriage, so it is important to seek the advice of an experienced family lawyer rather than to compare your situation to people you might have heard about.
With small asset pools, the Courts often face an invidious choice to leave one party living in much reduced circumstances, as there may not be enough money available for two people to live the lifestyle that they lived together. The Court must still reach a decision based on the factors referred to previously, including future needs, health, earning ability and contributions both financial and otherwise during the marriage. Over recent years, there have also been adjustments made in favour of parties who have suffered from long term family violence.
One factor to keep in mind is that there is a 12-month time limit following divorce in which you can apply for a property adjustment. For de facto couples, your application for property adjustment must be made within 2 years of the breakdown of your de facto relationship.
If you fail to apply to the Court within these time limits, you will have to seek special leave of the Court to do so and provide good reasons why you did not apply within the time allowed. Such leave is not always granted by the Courts.
Each case (like each relationship) is different, so if you are thinking of separating from your partner it is best to seek legal advice well before you need to act, to get an understanding of the likely outcome, and your options and what steps you should take to protect your interests and those of your children.
Please contact Matthies Lawyers for an obligation free consultation:
Matthies Lawyers | Level 3, 44 Caroline Street, South Yarra 3141
T: +61 3 8692 2517