Family law: property divisions and the four step approach
Written by Nanki Kaur
The Family Law Act 1975 (Cth) (“the Act”) sets out the approach used in determining an appropriate property division.
Step 1: Identify and value the asset pool
The first step is to identify and value the parties’ property pool, which consists of both joint and solely acquired assets, liabilities and financial resources of the parties at present date.
You may not know what the other party has in relation to assets, liabilities, and financial resources. In that event, you should obtain such information by way of full and frank financial disclosure as prescribed under the Family Court Rules 2004.
Where parties dispute the value of assets experts or specialists opinion regarding the value are obtained.
It is recommended that you prepare a draft Balance sheet consisting of the parties’ joint and individual assets, liabilities and superannuation to obtain the nett property pool.
Step 2 – Assessment of contributions
The Act provides that the Court should consider contributions made by the parties to the “acquisition, conversation and improvement” of assets. This step takes into account the contributions of the parties during the relationship and post separation.
Ordinarily, the contributions considered are as follows:
1. Financial contributions - these are monetary in nature and categorised as direct or indirect.
A direct financial contribution includes money or property that one party brings to or acquires during the relationship or marriage.
An indirect contribution includes money that is used to acquire, maintain or improve the property of the relationship however, it is not contributed by a party directly. Gifts or inheritances are considered indirect contributions.
2. Non-Financial contributions – these are associated with the acquisition, conversation or improvement of the property but are not financial. For example where a party constructs the matrimonial house as an owner builder.
3. Contributions to the family welfare are identified where one party devotes time and effort to the welfare of the family whilst the other party works outside the home to support the family. In the Marriage of Aroney, it was held that the position of housewife by “her attention to the home and children” was such a contribution.
The adjustment of the parties’ interest is dependent on the type of factual matrix presented to the Court. It is recognised that where ‘jointly owned assets or assets which are acquired or build up by the joint efforts of the parties in a marriage which has lasted for a number of year, equality is.. at least the starting point’. Factors such as, the length of the marriage, and when the asset was acquired are relevant consideration at this stage. In practice, we weigh up the parties’ contributions with these factors to ascertain whether an alternation is required.
Step 3 – Adjustments
The parties future needs are considered at step three. The Court will examine factors set out at sections 75(2) and 90SM(3).
Each families future needs are different and this is where you should ask questions surrounding the following factors:
1. Who will have the ongoing care of the children?
2. What are the parties current earning capacities and whether one party has a greater earning capacity then the other due to their age, qualification or commitment.
3. The parties’ health, both psychical and mental.
4. Whether one party has greater property, income and financial resources compared to the other.
The Court would adjust the division of the property pool in percentages. At this step, It is important to consider the monetary impact of the purported adjustments on the parties.
Step 4 – Just and equitable outcome
This step involves assessing whether the division of property is “in all the circumstances,… just and equitable”. This means that the Court and practitioners must ensure that the division of the property is within the realm of the law.
The four step approach is used by the Court to assess what the appropriate division of the marital assets would be. In circumstances where the parties’ have an agreement that is reached, practitioners will assess the agreement in relation to the four—step process. If the agreement is not within the range as prescribed by the law, practitioners will provide you with the option of documenting the agreement as a Binding Financial Agreement. If the agreement is within the range and in accordance with the four-step process, we will urge client’s to file Consent Orders with the Family Court of Australia.
Where there is a dispute regarding the division of the property, the four-step approach is set in the Family Law Act which allows the Court and practitioners to advise as to the appropriate division of property in family law matters.