Property Settlements In Family Law: How Do Courts Decide What’s Fair?

If you and your spouse have separated after being in a marriage or a de facto relationship, the thought of separating property can often be one of the main causes of concern, as you will need to address how to divide your property and financial resources. This process is commonly referred to as a property settlement.

Whilst property settlement can often be managed in a straightforward manner, many cases are complex and require assistance. Reaching out to a Lawyer about property settlement can help with understanding your current position and what the next steps are in your circumstances. In Victoria, property settlements are governed by the Family Law Act 1975 (Cth), along with the Family Law Amendment Act 2024 (Cth). These Acts are applicable to both married and de facto couples.

Many people believe that property will automatically be divided equally after separation, but this is not how Australian family law works. Instead of applying a strict formula, Courts aim to reach a “just and equitable” outcome based on the specific circumstances of the relationship, especially after the amendments.

If parties cannot reach an agreement, the matter may be determined by the Federal Circuit and Family Court of Australia.

What does the Court consider “property” to be during property settlement?

The term “property” can be confusing to these going through a separation and ultimately refers to all includes all assets, liabilities and financial resources belonging to both parties. This is often referred to as the property pool.

The Court usually includes the following property during settlement-

Assets:

• The family home;
• Bank accounts, cash and savings;
• Investments (including shares, bonds, etc.);
• Businesses or business interests;
• Vehicles and jewelry;
• Insurance policies;
• Superannuation;
• Inheritances; and
• Family Trusts.

Liabilities

• Mortgages;
• Loans;
• Credit cards; and
• Other financial debts.

Important: The property can be owned individually, jointly or through entities and third parties. It does not matter whose name the property is in it may still be considered by the Court while determining how property settlement has to be reached.

Can property matters be resolved without approaching the Court?

In many cases, separating couples are able to resolve property matters without Court proceedings, which can help save time, legal costs and emotional stress.

Couples may resolve property disputes by means of:

• Negotiation;
• Mediation or family dispute resolution; or
• Assistance from lawyers to draft and finalise various agreements.

If an agreement is reached, there are numerous ways to formalise it.

Formalising the agreement

An informal agreement may be made between the parties. However, this type of agreement is not legally enforceable.

Alternatively, couples may enter into a financial agreement called a Binding Financial Agreement, which is a written document outlining how property will be divided. Strict legal requirements apply to financial agreements, including the need for each party to receive independent legal advice.

Another option is to apply for consent orders, which is a agreement drafted by lawyers on behalf of the parties who are in agreement with how to distribute their property. This draft agreement is then filed to be approved by the Court. Once granted, consent orders have the same legal effect as orders made by a Judge after a hearing. If no agreement is reached, either party may apply to the Court to determine the property settlement.

Time limits for property settlement

Strict time limits apply when seeking property orders through the Court for most financial or property settlements. The time limits are impacted by the type of relationship between the parties

For married couples, applications for property settlement must generally be made within 12 months of divorce becoming final or the marriage being declared nullity otherwise known as annulled.

For de facto couples, applications must be made within two years from the breakdown of the relationship. .

Important: If an application is made outside these time limits, permission from the Courts is required to proceed. However, this permission is not always granted, so it is important to seek legal advice as early as possible when property settlement issues arise.

How Courts determine property settlements?

There is no fixed formula used by the Court when deciding property settlement cases.

The law does not automatically divide property equally between the parties, rather, the Court considers a wide array of factors to ascertain what outcome would be “just and equitable”, meaning fair according to the law.

The general principles used by the Court are set out in the Family Law Act 1975 (Cth), including sections 79 and 75(2) for married couples and sections 90SM and 90SF for de facto relationships.

When deciding property settlement cases, the Court considers several key factors, namely:

The assets and liabilities of each party

The Court first identifies all assets, liabilities and financial resources belonging to each party, whether they are held individually or jointly. This may include real estate, savings, investments, businesses, vehicles, superannuation and debts such as mortgages, loans and credit cards. Identifying the range of property, allows the Court then determine the overall value of the property pool to be divided.

Financial contributions

In order to achieve a property settlement, financial contributions must considered by the Court. Financial contributions are the monetary assets that are made by each before during and after the relationship, including but not limited to:

• Income earned during the relationship,
• Property owned by either party before the relationship began,
• Mortgage repayments or other financial investments,
• Money used to acquire or maintain assets.

It is necessary to provide a detailed explanation of the financial contributions of the parties jointly or separately as these contributions help the Court to assess the financial role each party played in building the property pool.

Indirect financial contributions

In addition to direct financial contributions, the Court will also take into consideration the parties indirect financial contributions. For example, financial assistance received from family members, such as gifts or inheritances, that may have helped the parties acquire or maintain property during the relationship.

Non-financial contributions

Not all contributions during a relationship are financial. The Court also recognises non-financial contributions, including but not limited too:

• Renovating or maintaining a home,
• Managing investment or finances,
• Assisting in a family business.

These contributions may significantly increase the value of assets even though they do not involve direct financial payments.

Contributions to the welfare of the family

Family Law in Australia also recognises the importance of contributions made to the overall welfare of the family, including:

• Caring for children;
• Managing household responsibilities; and
• Supporting a partner’s career or business.

For instance, a person who left their job to care for children will still be considered to have made substantial contributions to the relationship.

Under Australian Family Law, financial and non-financial contributions are typically given equal weight when being considered for the purpose of property settlement.

However, if one party made disproportionate contributions or one party entered the relationship with significantly larger assets, the property settlement may be impacted by these efforts.

The impact of family violence

Recent reforms introduced through the Family Law Amendment Act 2024 (Cth) clarify that Courts have clear consideration on the economic impact of family violence when assessing property settlements.

If family violence caused an impact on the party’s ability to make financial or non-financial contributions during the relationship, the Court may take this into account when determining just and fair outcome.

The law also recognises economic and financial abuse as forms of family violence that may affect property settlement decisions.

Each party’s future needs

The Court also takes into consideration the future circumstances of each party, including:

• Age and health;
• Income and earning capacity;
• Financial resources;
• Responsibility for caring for children;
• Housing needs; and
• The long-term financial impact of the relationship breakdown.

These factors help the Court determine whether the property division should be adjusted to ensure the final outcome is fair for both parties.

The Court’s final decision

After considering all of these factors, the Court will determine whether the proposed division of property is just and equitable in the circumstances.

Please Note: Property settlements that may seem similar on the surface can lead to different results depending on the contributions and future needs of each party.