A divorce ends a married relationship and is done with a court order (a divorce order). Divorce is a separate event to separation and property settlement. You can have a property settlement and finalise your financial relationship with your ex-partner before you divorce. It is often advisable to do this before divorcing as once you have divorced you only have 12 months from the date of the divorce to make an application to the Court for a property settlement (the ‘limitation period’).
Usually after separation your assets will need to be divided. What assets are divided and how they are divided depend on a number of factors.
The assets can be divided by agreement between the parties or by Court order.
If the parties cannot agree on how to divide their assets and end up in Court, the Court will generally use a 5-step process to divide the assets.
- Define the asset pool.
In defining the ‘pool’ the Court will include all property such as: property acquired before, during and after the relationship. The Court will also include ‘beneficial’ interests that parties have in assets owned by companies and trusts.
- Assess whether it is ‘just and equitable’ to hear the application at all.
Depending on the circumstances, there are situations where the Court will assess that it is not ‘just and equitable’ to make any adjustments at all. For example, if some time has passed since separation and the parties no longer own any joint property together, it might not be just and equitable for the court to intervene at all.
- Assess the contributions of the parties to the asset pool and whether, based on the contributions, it is ‘just and equitable’ to adjust the ownership of the property.
This includes direct financial contributions as well as non-financial and homemaker contributions.
- Make any necessary adjustments in accordance with the factors listed in section 75(2) (aka future need factors).
This includes things like disparity of income earning capacity and wasting of assets.
- Re-assess whether the proposed orders (and adjustments) are just and equitable.
The Court can only make orders that are just and equitable. Sometimes after following the first four steps the proposed orders are not objectively just and equitable. The Court will look at the parties’ circumstances holistically and adjust the orders as necessary.
The Courts process for deciding property settlements is more of an art than a science and there is a lot of discretion left to the Court in deciding what will be just and equitable in the circumstances. For this reason, it is always preferable that the parties try to reach agreement themselves so that they have more certainty of outcome.
The Family Law and Courts go to great lengths to facilitate the parties reaching agreement themselves before hearing an application. Parties can make use of alternate dispute resolution services such as ‘family counselling’, ‘negotiation’, ‘mediation’ and ‘arbitration’ to increase the chances of reaching agreement.
If you would like to discuss anything in relation to assets in a divorce or any points above, please feel free to contact our team of experienced family lawyers.
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