Divorce changes everything. Often without realizing it has happened, most married people’s money management becomes intrinsically entwined with their spouse. When the relationship ends, that makes for a lot of unwinding. This article provides a brief introduction to the impact of divorce on your personal financial management – and in particular, how property settlements work.

If you are considering a divorce, or a divorce is happening, please get legal advice. This article is a guide only and should not be relied upon as an alternative to personal legal advice.

Property Settlements

To a large extent, couples are free to negotiate their own agreement regarding the financial response to a divorce. That sounds fine, but in practice it is often very difficult to negotiate effectively while going through a divorce. Divorce is stressful for most people, making it difficult to negotiate in a detached, cool-headed manner. That is why most people engage a legal representative to assist with their negotiation.

The way in which these negotiations take place is of course subject to the law. The main legislation regarding divorce is the Family Law Act. Amongst many other things, this Act gives power to the Federal Court to make ‘orders’ regarding the financial arrangements post-divorce. These orders are binding on all parties.

Court orders can be ‘consent orders.’ Consent orders are arrangements that are agreed by the parties before they come to Court. They simply seek the Court’s authority to make these arrangements legally binding on each party. If the parties cannot agree, then one or the other party can bring the case before the Court and ask the Court to adjudicate.

When the Court gives orders, those orders often require that property interests be ‘altered.’ For example, a couple may have a home that is registered as owned by one or the other person. As a starting point, the legal interest in this property belongs to the person in whose name the asset is held. However, the Court can order that this legal interest be altered so that each person has some legal interest in the property. It can even order that the interest be altered so that the other person has sole interest in the property. 

In simple terms, in practice this can mean that there is not really any such thing as ‘his or hers’ when it comes to financial assets and married couples. Just because an asset is held in one person’s name does not necessarily mean that the other person does not have any legal rights to that asset.

The way the Court alters these interests is quite controlled. The Federal Court website says the following about property settlements:

The Court cannot make orders for the alteration of property interests unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.

The general principles for a court to settle financial disputes under the Family Law Act 1975 are based on:

• Working out your assets and liabilities; that is, what you’ve got (including superannuation) and what you owe; and what they are worth. 
• Looking at the contributions made by both parties during the marriage or relationship including:
  • direct financial contributions to the acquisition, conservation or improvement of any of the property, such as wage and salary earnings
  • indirect financial contributions to the acquisition, conservation or improvement of any of the property, such as gifts and inheritance from families
  • direct and indirect non-financial contributions to the acquisition, conservation or improvement of any of the property.
  • contributions to the welfare of the family, including any contribution made in the capacity as parent and homemaker
• The future needs of the parties having regard to things such as age, health, care of children, income and financial resources of the parties

You can read the law which outlines these factors in Section 75 and Section 79 and Part VIIIAB of the Family Law Act 1975 (if you were married) or in Section 90SF and Section 90SM and PART VIIIAB of the Family Law Act 1975 (if you were in a de facto relationship).

In addition, the Court, as far as practicable, is to make orders which will finalise the financial relationship between the parties (Section 81 of the Family Law Act).

The first line on the Federal Court website states that the alteration to property interests (that is, the order from the Court as to ‘who should get what’ in the divorce) is made on “just and equitable” grounds. This means that the Court looks at all the facts of the case, including things like the amount and type of wealth a person had before the relationship, the kind of contribution (financial and non-financial) that they have made to the marriage (this is especially important if one or the other partner was a primary carer of children) and each person’s future needs.

In practice, there is now a large body of ‘case law,’ or ‘precedent decisions’ which guide how Court’s make their decisions. This means that experienced family lawyers can often be quite confident as to the likely decision of the Court in any particular case. Often, when each couple engages an experienced lawyer, this can assist a couple to reach an agreement before going to Court. When they get to Court all they seek is a ‘consent order’ formalizing their agreement.

Seeking anything other than a consent order is potentially very expensive. Avoiding conflict and coming to your own agreement (with the help of your own legal adviser) is always cheaper. That said, avoiding conflict can also mean that one partner does not receive a ‘fair’ settlement, so it is not simply a matter of ‘avoiding conflict at all costs.’ Some costs are worth paying.

The way in which assets are managed following a divorce can have a huge impact on the quality of life of each former partner. Once again, it is critical that you get quality legal advice if you are thinking of ending of a marriage.