This is the first part of our series on “How does the Family Court resolve a property settlement?” Part 2 goes into detail about “Future Needs” adjustments.
What is the “Four Step Process?”
The Family Court may only make orders for the alteration of property interests if it is “just and equitable” to do so.
This principle has existed for decades pursuant to the Family Law Act 1975 (Cth). However, it was significantly strengthened by the High Court of Australia’s landmark decision in Stanford & Stanford. This crucial principle is often overlooked by those who automatically assume that:
- a couple’s property rights are, or should be, different from the the legal and equitable title that exists, or
- that the Family Court should start at, or even consider, an equal 50 / 50 split of property interests.
If the Family Court finds it is just and equitable to intervene – it must follow the following Four Step Process to resolve the issue at hand:
- Identify and value the assets, liabilities and resources of the parties;
- Consider the contributions of the parties made throughout the relationship;
- Consider the future needs of each party; and
- Determine whether the proposed settlement is just and equitable.
1. Identify and value the assets, liabilities and resources of the parties
Step 1 of the Four Step Process is to identify and value all of the property of the parties. The Family Court will take into account the assets, liabilities and resources of the parties at the time of trial. This forms the “property pool” that is available for division.
- Assets can include tangible property such as real estate, furniture, boats, antiques or intangible property such as the good will of a business.
- Liabilities can include the outstanding mortgage on the family home, credit card debt or finance owed on a vehicle.
- Resources can include property with actual or anticipated value such as royalties, a beneficial interest in a trust or an anticipated inheritance.
- (How do pets fit into this?)
“Full and frank financial disclosure” assists the parties to vouch and value the assets, liabilities and resources that form the property pool. If a particular value cannot be agreed, it is common for the parties to appoint a qualified valuer to produce independent evidence attesting to a value.
2. Consider the contributions the parties made throughout the relationship
The second step of the Four Step Process involves Family Court considering three types of contributions made by the parties to the acquisition, conservation and improvement of the property pool:
- Financial contributions;
- Non-Financial contributions; and
- Homemaker and welfare contributions.
No one type of contribution is more important than the other two types. However, what is important is the time that the contribution was made and its impact on the property pool.
For example, one party may come into the relationship owning a unencumbered property . This property’s equity is then used as collateral in the purchase of another property. This initial contribution is significant too, as it would advance the overall wealth of the property pool.
Negative contributions and post-separation contributions may also be on the table for consideration. Overall, the Family Court can adjust the amount either party receives, based on the parties’ respective contributions.
3. Consider the future needs of the parties
The Family Court may make a further adjustment in contemplation of the parties’ future needs. This involves taking into account their respective financial commitments and resources.
4. Determine whether the proposed property settlement is just and equitable
In the last step of the Four Step Process, the Family Court considers whether the proposed settlement is just and equitable. This includes consideration of how the settlement should be carried out and the longer term effects of this on each party.
This does not encompass who is at fault for the breakdown of the marriage.