How to divide assets in a divorce or de facto separation
How to divide assets in a divorce or upon the end of a de facto relationship
When a relationship ends, the financial side of it can feel overwhelming. To feel confident and clear about how to divide assets in a divorce or a de facto relationship asset split, we’re going to break it down for you in simple language.
If you are looking for information specifically about the very early days, you may want to read this article first: Who pays what? Managing finances & expenses upon separation.
Here, in simple language we will answer these common queries:
- How to divide assets in a divorce or de facto separation
- What is a property settlement agreement?
- What is the process we should follow?
- What is required to formalise and finalise everything?
- How soon should we start the financial separation process after separating?
- What should I know to help us get to an agreement?
Financial separation language to know
Before unpacking the financial separation process, it is helpful for you to become familiar with the common terms you will hear, some of which are interchangeable. Let’s clear them up for you…
Property pool
Property pool is a term for the combined property available for division between the separated parties. You may also hear the property pool referred to as the:
- Asset pool
- Combined asset pool
- Matrimonial property pool
- Balance sheet
What is a property settlement?
Property settlement is the umbrella term for the process of dividing assets and liabilities. This applies to the process of financially separating whether you have been in a de facto relationship or marriage. You may also hear a property settlement be referred to as:
- Divorce settlement
- De facto property settlement
- Financial settlement
What is a Property Settlement Agreement?
Property Settlement Agreement is an umbrella term for the details of the agreement reached between the separated parties about how to divide assets and liabilities. Property Settlement Agreement is alternatively referred to as a:
- Settlement Agreement
- Financial Agreement
A property agreement is colloquially referred to as the agreement however unless the agreement is filed with the Court and issued as Consent Orders, it is not legally enforceable.
What are Consent Orders?
When an Agreement is reached between the separated parties that satisfies the Court, an application is made to formalise it into Court Orders. These are also referred to as Property Orders and once they become Orders, both parties are legally bound to the terms.
What are Court Orders?
When an Agreement cannot be reached and the involvement of the Court is required. The Court determines the terms which are then formalised into Court Orders. Both parties are required to adhere to the terms in the Court Orders.
What is financial disclosure?
Financial disclosure is the legal requirement for both parties of the relationship to provide full and honest financial information to assist in determining the property pool.
What is a property split?
When talking about the division of the property pool, you will hear the final outcome expressed as a percentage. For example, 50:50 or 70/30.
What are adjustments?
An adjustment in a property settlement is when the property split is increased for one party due to certain factors. The types of contributions and current and future considerations are unpacked in detail within the property settlement process, as explained below.
The Process: How to divide assets in a divorce or de facto separation
The law and the Court have an overarching requirement of any property settlement and that is to ensure that there is a “just and equitable” division. This takes into account various factors as will be explained below.
Step 1: Determine whether a property settlement should take place
This is where the matter is assessed, at the preliminary stage, to work out whether a property settlement is required. Usually factors such as children of the relationship and co-mingling finances, will mean that a property settlement should take place.
Sometimes there are factors which make this assessment murky, or otherwise lead to a position that a property settlement should not take place.
Step 2: Determine the property pool
This is where both parties provide the other with financial disclosure.
Each party provides a list of the current value of all assets, liabilities and financial resources.
Assets include income, superannuation balances, property, investments, machinery, boats, jewellery, art, savings and term deposits.
Liabilities include mortgages, credit cards, tax debts, loans etc
Financial Resources include imminent inheritance, redundancy, money lent to a third party that is yet to be repaid, either party as a beneficiary of a trust, cryptocurrency, and other income potential from earnings sitting within a business or trust structure.
Step 3: Assess both parties contributions
This is where both parties document each of their contributions to the relationship. These are broadly categorised as:
- Financial contributions; and
- Non-financial contributions
Financial contributions
Direct or indirect financial contributions include, but are not limited to:
- Personal income;
- Savings;
- Inheritances;
- Other payouts such as redundancies;
- Funds spent to maintain and/or repair a property;
- Any other financial contributions/support provided by a third party; and
- Any other sources of income.
Non-financial contributions
Non financial contributions are actions that have financial value, even if unpaid. Examples of non-financial contributions to a relationship include, but are not limited to:
- Homemaking activities – parenting, management & organisation of the family and home;
- Supporting spouse/partner in their career by taking on larger share of domestic responsibilities;
- Improvements to properties; or
- Management of any businesses &/or investments.
Evidence will be required such as bank statements, receipts, payments etc. Your family lawyer will provide guidance on the best way to approach collating this information, based on the types of contributions made and your unique circumstances.
Step 4: Consideration of current and future circumstances
How the property pool is divided needs to take into account the current circumstances and future factors.
Consideration of current and future circumstances requires documentation of the following:
- Experiences of family/domestic violence between the parties or children.
- Age and health of both parties – considerations of each parties age and physical or mental health (e.g. document illnesses, disabilities or conditions)
- Access to existing assets and financial resources.
- Current income and future earning capacity of each party.
- Current and future care needs of any children or dependent adult children and how care will be shared.
Other factors include the length of the relationship and ability for a party to become self-sufficient (e.g. employability).
Adjustments to the property pool split are made based on the consideration of the current circumstances and future circumstances of both parties. That is, a property split may start at 50:50 but upon consideration of the current and future factors (with evidence required) the split is adjusted to 70:30 or 60:40 to the “otherwise disadvantaged” party.
Step 5: Final review of property split
The last step is to do a final check over the property split to ensure it is “just and equitable”. That is, in consideration of all of the information and evidence compiled in steps 1 to 3, the property split outcome is fair, specific to the individual and unique circumstances of the relationship.
Formalising the Property Settlement Agreement
If you and your former spouse or partner have come to an agreement, there are some important next steps to ensure that you both “stick” to the terms agreed.
If you sign your own agreement about who gets what, without legal advice and filing it with the Court, know that it is not legally binding.
What happens more often than most people realise is that later on, commonly if money has depleted for one party and they become aware they are eligible to make a claim for additional funds, they have grounds to. This is because the initial agreement was informal, without independent legal advice and it was not filed with the Court and turned into Consent Orders.
The risks when this happens?
- A need to revisit the entire process again (not to mention additional stress, time and costs).
- Re-calculation of the property split – A property split is determined based on the asset pool at the time of finalising the agreement (formally). So, it will not be based on the value of the original property pool. It could be higher or significantly lower by the time the claim comes around.
- Interruptions to life and business – if you have a business, investments or other plans, those are often affected as the process needs to start over. Sometimes it means that intended activities planned for business or life need to go on hold until Property Orders are finalised (or in some cases shelved entirely).
When people believe their financial separation is finished, when a claim comes up, it is another significant upheaval to life.
To avoid this, ensure you seek advice from specialists in family law about your circumstances – ideally before you have agreed to any terms. An experienced family lawyer will unpack the options available to you, inform your decision making and finalise the terms of the Agreement, confident that this is behind you, for good.
When should you get started with the property settlement process?
There are defined time limits on when a property settlement must be completed in Australia:
If you have been in a de facto relationship, you have 2 years from the date of separation to finalise your property settlement.
If you are married, you have more time – one year from the date your Application for Divorce is granted. Note: A divorce can only be applied for any time from 1 year from the date of separation.
From our years of experience helping people navigate their property settlement matters, the answer is this: the earlier the better.
Why? Because, as we have explored above, the property pool is calculated at the point in time the Agreement is made.
As time passes the property pool may increase in value, organically or by the efforts of one or both people. Conversely, over time the asset pool may be depleted and subsequently, the remaining amount is what is available for division.
If you have business plans in the works or life goals in motion, they can often end up on hold due to the need to provide financial disclosure right up until the Agreement is finalised. If businesses need to be valued, or there are disputes that arise, this all adds to the timeline.
The sooner you discuss your circumstances with your family lawyer and the process of compiling the financial disclosure is started, the sooner the process can be finalised.
While it may be considered insensitive to be getting moving on the financial separation step early, it is often the most beneficial for both parties. A good family lawyer can provide you advice on how to manage this sensitively, get started and keep momentum.
Getting to an agreement how to divide assets in a divorce or de facto separation
The property settlement process can be complex and every property split is different, based on the unique circumstances of each relationship. While our team helps people of all kinds – with straightforward or simpler property splits through to the most complex financial matters – wherever you see yourself, both benefit from legal advice from a specialist family lawyer.
If you are in dispute about the terms of the agreement, this doesn’t mean that Court is the next step. Mediation is one of the avenues available to assist in getting to an Agreement without the intervention of the Court. There are also other avenues that may be better suited for your needs such as lawyer-assisted negotiation and arbitration.
We know it is common for people to hold off on engaging a family lawyer, believing that approach is the best way to come to an agreement they are both happy with, and not waste money. But know this….
Property settlement after separation is often more challenging when people make agreements between themselves. That is because most times, when they get legal advice later on to formalise the agreement, they learn why some terms of their agreement are problematic to them.
This is why family lawyers should be the first call you make. Just like early specialised advice is good with health challenges, so too are lawyers who specialise in family law matters every day. You might only need to have one or two appointments to get you well positioned for good longer-term decision making. We’re also here if you run into issues and need guidance to negotiate your agreement, get things in order and back on track, or if you require mediation, arbitration or Court representation later on.
We assist individuals with pre-separation and post-separation advice about how to approach financial matters in the short- and longer-term. Our family lawyers are highly experienced in assisting with the negotiation, drafting and reviewing of Property Settlement Agreements/ Financial Agreements, including partner/spousal maintenance. To make an appointment with one of our lawyers click here or to learn more about these services and related matters, visit this page.
Disclaimer: The information in this article is general in nature and is not a substitute for independent legal advice from a family lawyer.
This information is correct as of the date of publishing and is relevant for people in these states and territories of Australia – ACT, New South Wales, Queensland, Victoria, Tasmania, Northern Territory and South Australia.
