Property Settlements: The “Four” Step Approach

The Full Court of the Family Court has adopted an approach which is applied during Court proceedings involving property matters. Lawyers giving advice about reasonable outcomes in a property matter use this process as a guide to advise client about what they are entitled to.

Step 1: What is the property pool?

The Court must first know what comprises the assets and liabilities of each of you and your former partner or spouse. This includes:

  • Assets (such as real property, interests in businesses, motor vehicles, shares, savings, personal effects);
  • Liabilities (such as mortgages, personal loans, credit card debts and taxation liabilities); and
  • Superannuation entitlements.

Step 2: How have each of you contributed to the relationship?

The Court does not only consider the financial contributions by each of you during the relationship, but also the non-financial contributions.

For example, if one of you have been the primary income earner whilst the other has maintained a role as the primary carer of children and homemaker, the person who has been earning an income is not taken to have provided the greater contribution because it can be quantified by a dollar value.

The Court will consider:

1. Financial contributions, other than income, such as:

  • Inheritances;
  • Compensation payments;
  • Redundancy payments;
  • Gifts;
  • Property owned prior to the relationship.

2. Non-financial

  • Which of your were the children's primary carer;
  • Which of you performed the maintenance or up-keep of the home;
  • Renovations or improvements to the property;
  • Cooking and cleaning; or
  • Loss of income/impact on your carer or earning capacity.

Step 3: What are your 'future needs'?

Section 75 (2) of the Family Law Act 1975 sets our the considerations which the Court is guided by in making an assessment as to: which party will require a greater portion of the property pool to sustain them into the future or to put them back on a "level playing field".

To name a few, 'future needs' considerations include:

  • What are your respective ages? How near or far from retirement are you/
  • Are you both in good health? Are there any medical conditions or illnesses suffered by either of you that may affect your capacity to earn an income?
  • Do either of you have any financial resources that you can rely upon in the future? (such as a defined benefit pension, or if you are about to receive an inheritance or a compensation payment)
  • Do you have any children under the age of 18? If not both of you, which if you will have the primary care of that child/children going forward?

Step 4: Is the outcome just and equitable?

This step operates to ensure that the overall outcome is fair and equitable to both parties.

This step requires an overall assessment of Steps 1, 2 and 3, and consideration as to whether that would result in an outcome that is overly beneficial to one party, which places the other party at a disadvantage.

The above exercise is not a precise formula, however family lawyers can provide advice as to what the likely range of outcomes may be if your matter were to be litigated. It is important to obtain such advice, even before attempting mediation or negotiating with your former partner about a property settlement to ensure that you can make an informed decision.

The "fifth step": Should there be any adjustment to the respective property interests of the parties?

A prominent High Court decision, Stanford v Stanford [2012] HCA 52, has reminded family lawyers to take into account an important further step in this process.

This step requires the Court to consider whether, having regard to Steps 1 to 4, it is appropriate to make any adjustment in the property interests of each of the parties. Generally, it is almost always the case that it is necessary for there to be an adjustment of property interests.