How are assets split on divorce – who gets what?

The Family Law Act does not provide a formula or other clear guidance as to how much of the family assets each party receives. The best guidance comes from the experience of seeing how the courts actually decide property settlement cases.

For convenience, this article refers to married couples. However, the same rules apply to de facto couples who have been together for over 2 years, including same-sex couples.

Who decides division of property?

Well over 90% of all property disputes are determined by agreement between the parties. However, agreements for property settlement are reached in the context of the parties anticipating what the Court will decide if they do not settle. Accordingly, it is essential to know how the Court decides property cases.

The Family and Circuit Court of Australia, the successor to the Family Court of Australia (“the Court”) is the court which decides almost all contested property settlement cases.

The pool of assets

Over the years, the approach of the Courts has changed. The courts now generally look at the total pool of matrimonial assets, rather than considering the entitlement of the parties asset by asset.

The pool is made up of all of the assets of the parties, no matter whose name they are in. The pool even includes assets of the parties acquired before the commencement of the relationship and even includes windfalls, such as inheritances, although the source of the assets is relevant to how the pool is split, as discussed below.

How is the pool split?

Once the value of the matrimonial pool of assets is determined, the next question is to determine the percentage of each party’s entitlement to that pool.

In the years following the introduction of the Family Law Act in 1976, the Family Court developed a number of rules of thumb to assist parties in predicting the orders that the Court would make. However, the High Court has stated that each case should be decided on its merits, without reference to predetermined rules.

Despite this, the approach of the Court in deciding how to split the pool comes from experience of the way the Court actually decides property settlement cases.

Equality

It has been said that equality is the starting point. Accordingly, if the parties have approximately the same earning capacity, have made similar contributions to the assets, and there are no children, a 50-50 property split would obviously be likely.

60/40 Split?

Not long after the Family Law Act came into force in the 1970s, there was a typical case involving a couple whose only substantial asset was their home, with a couple of children living with the wife. The court gave the wife 60% of the value of the home.

In a large number of subsequent cases, the Court followed that precedent, and provided for a 60/40 split. However, as stated above, the High Court has said that preconceived rules like that do not apply. Accordingly, although there are still many cases that result in a 60/40 division of assets, there is no rule requiring this.

Assets already owned by a party

If one party already owned a substantial asset before the commencement of the relationship, it forms part of the calculation of the matrimonial pool of assets. However, the fact that a party brought that asset into the relationship is relevant in increasing that party’s percentage split of the pool.

As time goes by, the importance of such contributions diminishes. For example, in a 20 year marriage, the fact that one party brought assets into the marriage would probably have little importance.

Financial and non-financial contributions

Assets acquired by either party during the course of the relationship are generally considered to constitute equal contributions.

For example, if one party has a higher earning capacity than the other, that is generally not taken into account in splitting the matrimonial pool of assets. Similarly, the Court does not wish to hear evidence about whether a party was a good or bad housekeeper or parent.

Accordingly, in most cases, assets acquired during the relationship are treated as if the parties contributed to them equally. This applies throughout the time that the parties were living together, and is not limited to the period during which they were married.

The role of a parent

In many marriages, one party, usually the wife, takes time out of the workforce to look after the children. Any superior earnings of the other party during that period do not give that party any additional entitlement to property settlement. The Court considers that in this very normal situation, the financial contributions of the main breadwinner are no more important than the non-financial contributions of the person caring for the children.

Superannuation

A substantial asset in many marriages is superannuation, and the value of the super of each party is often very different. The fact that super generally cannot be accessed until the parties reached a preservation age does not stop the Court from including it in the pool of matrimonial assets to be split, at least to calculate the value of each party’s share to the pool of assets. Once the split is determined, the Court has several ways of transferring superannuation benefits between the parties, even though the parties cannot access those benefits at that time.

Companies and Trusts

Often, valuable assets are held in companies or trusts controlled by a party. Legally, those assets are owned by the company will or trust, not by the person in control.

However, this does not get in the way of the Court bringing the value of assets held by companies or trusts into the calculation of the matrimonial pool of assets. Once the split of the pool of assets is determined, the courts have various ways of transferring the benefit of companies or trusts from one party to another.

How does the court determine the percentage split?

The court takes into account all relevant factors, including those outlined above and decides on how far to move away from a 50-50 split.

In many cases, there will be a wife with an earning capacity diminished by her role in bringing up the children, while the husband has a superior earning capacity. This would result in the wife receiving more than a 50-50 split other things being equal. Depending on the size of the pool of assets and all the other factors, including those listed above, she may receive between 55% and 70% of the value of the pool of the assets.

What happens to the family home?

Once the value of the pool of assets is determined, and the percentage split is determined, the court determines which assets should go to each party. In most cases, the most valuable asset is the family home. If neither party can afford to buy out the interest of the other then there is little alternative but to order the parties to sell it, and split the proceeds in accordance with the determination of the court.

For some years, the courts would make orders whereby a parent, usually the mother, could remain living in the matrimonial home until the children grew up, after which the home would be sold and the proceeds split. However, this led to so many problems that the courts abandoned that practice. The preference now is that a property settlement should allow each party to go their own way, without any shared assets.

Division of other assets

If the parties have several valuable assets, such as a home, an investment unit or share portfolio, the property settlement may involve the assets being divided between the parties without being sold, possibly subject to a financial adjustment between them.

How does this apply to you?

It is hoped that this article has been helpful to understand your rights to property settlement. However, there is no substitute for sitting down with an experienced family law expert to discuss your particular case. We offer a service of a meeting of up to one hour with one of our family law specialists to discuss your particular case, and advise you as to your entitlement to property settlement. Cost is $280 excluding GST. To arrange an appointment, please telephone 9923 2321 or email us at enquiries@somervillelegal.com.au

For more information contact Family Law Specialist Alison Brown or phone us on (02) 9923 2321.