How are Divorce Property Settlements Determined?

As recent research highlights the long term financial impact of divorce on separating couples, it is timely to revisit the relevant factors used by the Courts in determining property settlements, writes Adelaide family and divorce lawyer Jane Miller.

In Australia, property settlement for divorcing couples is calculated using a four step process.  Firstly, the assets, liabilities and financial resources of the couple are identified and valued.  Secondly, the financial and non-financial (such as the homemaker role) contributions are assessed.  Thirdly, the future needs of the parties are considered, as detailed below.  And finally, the Court turns its mind to whether the effect of the above three steps is just and equitable in all the circumstances.

The third step, which is colloquially known as “the future needs factors” is applied by reference to section 75(2) of the Family Law Act. That section lists the future needs factors the court must consider, such as the ages and health of the parties, whether either of them have the care of a child of the marriage, their mental and physical capacities for employment and their potential earnings.  Once these factors are considered, the court may give the person with the lower earning capacity an additional loading of the matrimonial property.  This is especially the case if that person has a high cost of living, such as can come from the care of children from the relationship. This will often mean that a person in that situation will receive more than 50% of the parties’ property.

Whilst a layperson might think it unfair that a person receive more than 50% of the matrimonial property, it is important to remember that having a sound and reliable earning capacity might be the most valuable “thing” you retain after divorce.  Justice Fogarty of the Family Court put it well in the case of Waters and Jurek in 1995;

“In most marriages there is a division of roles, duties and responsibilities between the parties… On separation, the partnership and the division of roles and responsibilities which it produced come to an end, and individually the parties are left largely in the personal situation that the marriage had assigned to them. However, the world outside the marriage does not recognise some of the activities that within the marriage used to be regarded as valuable contributions…. Post separation the party who had assumed the less financially rewarded responsibility of the marriage is at an immediate disadvantage. Yet that party often cannot simply turn to more financially rewarding activities.  Often, opportunities to do so are no longer open, or, if they are, time is required before they can be assessed and acted upon”.

Of course, trying to predict the respective future needs of the parties at the time of divorce is difficult without a crystal ball.  The Court and the advising lawyers can only do the best with the information that is known to them at that time.  Unforeseen events may unfold at a later date, like changes in the care of a child or loss of employment or re-partnering with an affluent person.  Such unpredicted events may with hindsight suggest that one party to the property settlement was unfairly disadvantaged. However, by that time it is usually too late to reconsider how the matrimonial assets should be divided.

Taking these things into account, the best steps a person can take to ensure their financial future is as strong as possible is to get legal advice at separation about their entitlements, and make sure factors such as an income disparity are reflected in the division of property at the time of divorce.  If these factors are not properly considered at that time, then years later when the real financial crunch of divorce comes it will probably be too late to rectify.

TGB is South Australia’s largest family and divorce law firm. For advice about property settlements or family law advice contact your nearest TGB office.