Calculating a Property Settlement
When considering how to calculate a property settlement after divorce, the assumption that a “50/50 split” is fair is an urban myth, writes TGB's Jane Miller.
When considering how to calculate a property settlement after divorce, the assumption that a “50/50 split” is fair is an urban myth, writes TGB’s Jane Miller.
People facing a property settlement at the end of a marriage or de facto relationship often assume that it is “fair” that each party to the relationship receive 50 percent of the assets, debts and superannuation. In fact, people facing divorce sometimes enter into negotiations with their ex relying upon this assumption, or worse still, may even lock themselves into a property settlement for a 50/50 split without ever discovering their true entitlements.
The Family Law Act sets out the legal framework for calculating a divorce settlement. However, no where in the Act is there a presumption of a 50 percent split to each party of the relationship. What’s more, the Family Court has routinely acknowledged in its judgments that equality does not necessarily result in equity to the parties – in other words, an equal division of the matrimonial assets is not necessarily fair. So the assumption that a 50/50 split is “fair” is in fact an urban myth.
Calculating a divorce settlement under the Family Law Act is far more intricate than most people would realise. It involves a detailed consideration of the relevant law, as well as the precedents which have been set by the Family Court over almost 40 years. A lawyer that specialises in family law must stay up to date with how the Court calculates divorce settlements.
Firstly, the assets and the debts of the relationship must be correctly identified and valued. This can be complex if there are businesses involved, self managed superannuation funds, family trusts or deceit or non-disclosure by one party.
Secondly, consideration must be given to the contributions made by each party to achieve and maintain those assets. For example, did one party own more assets at the start of the relationship than the other, or receive lump sums during the relationship such as inheritances or personal injury payouts? As the Family Court said in the case of Ferraro in 1993, “The Court must evaluate the contributions in each individual case … against an evolving social and legislative background”.
Thirdly, the calculation must take into account the future needs of each person. Things like earning capacities, primary care of the children, and health considerations will impact the calculation. For example, as the Court said in its 1995 judgment in Clauson, “… it has long been recognised that in most cases the most valuable “asset” which a party can take out of the marriage is a substantial, reliable income earning capacity”.
Finally, under the Act, the calculation must arrive at a point which is “just and equitable” in all of the circumstances. In other words, the final division of the assets must be fair to both parties taking into account the first three considerations.
A comprehensive examination of these factors may result in a settlement of 50/50 as per the urban myth. However, for most people, undertaking the calculation using these four steps will result in one person receiving more of the assets than the other. For these people, 50/50 is not “fair”.
To understand how these four steps apply in your own divorce settlement calculation, and to make sure you don’t settle for less than what is fair, it is important to get good advice as early as possible. Before starting to negotiate with your ex, make the investment of speaking to a family law expert about your situation. Armed with the right advice about the strengths and weaknesses of your case, you can then negotiate with your ex with confidence that the outcome will be fair.