Four steps to consider when looking at property contributions …
The pressing question for most people when looking at separating their property at the end of a relationship is
- What is mine and
- What do they keep?
- What is fair?
The Short Answer
To summarise how the court and legislation looks at the question of what is a fair and equitable division of the relationship property, we must establish and answer each element of a four step process.
- Define the net property pool (global (everything) or a two pool approach for short term relationships)
- Define the contributions each party has made or not made to the relationship, financially and non-financially. (disclosure of each parties financial position is a mandatory requirement placed on each party)
- The future needs of each party,
- The effect of any order for the division of assets, must be just and equitable in light of all the facts and circumstances unique to that relationship and each party.
Only after the four step process has been undertaken can you establish what you are correctly and rightly entitled to by law.
IMPORTANT POINTS YOU MUST CONSIDER
Please note that the legislation imposes time limits to finalise the property between you. If you are not divorced, your property continues to grow or demise together after separation, until such time as you have been granted a Divorce, at that time you have twelve months to finalise your property for a just and equitable outcome.
If you are in a de facto relationship, as defined by section 4AA of the Family Law Act, different time limits apply as there is a period of two years granted after the date of separation to formalise the division of assets.
Just to note, another common mistake that a lot of people make is the belief that once they have separated from the other party, married or de facto, the value of the relationship assets has crystallised at the date of separation, it has not.
The only clear division to exclude your assets from the other is by way of a formal agreement made pursuant to the Family Law Act.
If you would like would like more specific advice as to your rights and the advantages and disadvantages to any proposal you may have been offered by the other party, or you are thinking of offering the other party, don’t hesitate to call and be informed as to the appropriateness of your presumption as to what you are entitled to, as you may not have taken into consideration the four stage process on determining what is just and fair.
However to help you understand the Four Step Process in determining what is a just and equitable split we have summarised below to assist answering some of your questions.
The First Step
The first assumption that we find people have is that property is consists of a home, bricks and mortar or equivalent structure. The Family Law Act s79 (4) (a) refers to property as ‘any property of the parties to the relationship or either of them. This means that if any asset, held in your name or your partners name solely, must be considered when looking at the assets. This includes superannuation.
Therefore when asked the above questions, our first response is what constitutes the entirety of the property pool, including superannuation, share portfolios, cars, investment properties and debts, credit cards, personal loans, mortgages and any other debt incurred by either of you.
The Second Step
Once we have established an estimate of your gross assets and liabilities, a net position is used to assist in answering the next question. What were the parties’ contributions to the relationship?
This is where we look at the contributions of the parties to the acquisition and conservation of the net property pool. This is also where we find the second most common assumption is made, that contributions are assessed on a dollar by dollar basis. It is not.
What the legislation and the cases define as contributions is on a comparative basis and takes into consideration the length of the relationship. Each and every relationship is unique in the specifics of the actual contributions each party has made and their individual needs. Broadly speaking there often appears to be very similar circumstances between you and your friend; this is how incorrect assumptions can be made when comparing a property division with a friend’s or family member’s recent relationship breakdown.
The uniqueness that needs to be established for a just and equitable division of the assets is the extent of the contributions both parties gave financially and non-financially. A non-financial contribution are the homemaker obligations to maintain the yard and domestic duties as well as parenting, if you have children or step children.
Extraordinary skills by one party to further the financial position of the relationship to the benefit of both parties is also assessed.
However, if one party has made a significant financial contribution, at the contribution or during the relationship, this “stepping stone” that assisted the growth or acquisition of assets must be taken into consideration.
In a short term relationship (usually 2 – 5 years), and medium length relationships, (usually 5 – 10 years) the financial position of the parties at the commencement of the relationship is also taken into consideration. As the party with the larger contribution has provided a starting platform to the benefit of both parties, which the other party would not necessarily had the benefit of if the relied on their own financial position.
In a short term relationship a two pool approach may be a more appropriate in ensuring that a just and equitable outcome is achieved and another party in not unjustly enriched, or in other words one party benefits without need, from the other parties hard work and efforts.
The Third Step
The next steps to assessing the divisions of assets is the mandatory requirement to look at the future needs of each party.
The third step is contained in the Family Law Act at section 75(2) for married couples and section 90SM for de facto couples. These sections of the legislation set out 16 provisions that must be considered, including but not limited to the:
- Health and age of each party;
- the disparity of income and ability to retain or find gainful employment,
- if one party requires a pension to exist;
- the previous lifestyle or the parties and the ability of each party to maintain that lifestyle;
- the ability of one party to service any of the martial debts retained to the exclusion of the other;
- the financial resources each party has to assist their future;
- as well as the need to look after children; or
- care for others.
These futures needs are not limited due to the inclusion of section 75(2)(o) and s90SM(o), which asks the Court to consider any other factor that is relevant to the parties, whether they are married or de facto. These provisions allow for the other needs that make each family unique from the other, the things that you don’t broadly share with friends and family.
The Fourth Step
Upon consideration of the above contribution and future need factors for both parties, the case law has now clearly defined that the fourth step, of justice and equity must be applied at each assessment of the above steps. The question that must be asked at each stage is that is the decisions made at each step just and equitable for both parties.
Other Property Rights and Agreements
Other factors not discussed above that also must be taken into consideration, which there may also be a need for, are:
- Spouse maintenance.
- A Binding or Limited Child Support agreements for the payment above a child support assessment for the expense of school fees and uniforms as well as extracurricular activities, such as music sport and tutoring. Including out of pocket medical expenses such as orthodontic, optical and special needs.
- Divorce to formally end the marriage between two people.
Should you require legal assistance today, please do not hesitate to contact our office on (07) 5679 8016 for a free 15 minute consultation with one of our solicitors.