In this article, we look at how assets are divided in a divorce in Australia.
Navigating the challenging path of divorce is difficult enough without the added worry of how assets will be divided, which can be a mystery for many. This crucial process, often marred by emotional turmoil and tension, is of immense importance as it can significantly impact the financial stability of each party involved.
In Australia, the law provides specific guidelines in essence on asset division in the event of divorce or de facto separation. It’s a fairly complex process, more complex than many think, steeped in legislation and legal intricacies, which mandates careful consideration of several factors.
This article aims to shed some light on these factors, helping you understand how assets are divided in a divorce in Australia, and provide you with the essential knowledge to navigate this path with clarity and confidence.
What are Assets in a Divorce?
Assets that you’ll need to consider when dividing assets in a divorce include (but are not limited to):
- The family home: Often the largest shared asset between partners.
- Vehicles: Cars and any other owned vehicles.
- Businesses/entities: Ran by one or both parties, or a business interest for example.
- Investment properties: Real estate properties acquired as a financial investment.
- Financial investments: This includes shares, stocks, mutual funds, and bonds.
- Family trusts: Established for various purposes such as tax planning or asset protection.
- Personal property: This can include items like jewellery and collectibles.
- Household items: Everyday items that may hold value.
- Savings: Monies accumulated over time.
Alongside assets, you also need to consider liabilities during divorce, for example:
- Personal or car loans: Any personal or motor vehicle loans taken out during the marriage.
- Business loans: Financial obligations tied to any business owned jointly or individually.
- Home mortgage: The outstanding debt on the family home or other properties.
- Credit card debt: Financial obligations from credit card usage during the marriage.
Superannuation and other financial resources also often need to be considered as part of the net assets available for distribution.
Now, let’s look at how to split these assets in a divorce.
How to Divide Assets in Divorce
There are a few common methods used to split assets during a divorce in Australia, including.
Common Methods Used to Split Assets
- Non-legal arrangement: This is often used in amicable divorces, where both parties mutually agree on the division of assets without the need for legal documentation. However, due to the lack of legal paperwork, it leaves room for potential disputes, as one party can later approach the court for financial orders as per the Family Law Act, for example. Due to this risk, it’s not commonly recommended by legal professionals.
- Binding financial agreement (BFA): A BFA is a legally binding document that can outline matters such as how the assets should be divided between the couple. It can be signed at any stage of the relationship – before, during, or at the end. A BFA stands unless there are exceptional circumstances that warrant it being set aside. It’s essential to engage a lawyer to draft and implement a BFA. It is a requirement that both parties have independent legal advice for a BFA to be binding and enforceable.
- Consent orders: Consent orders are a prevalent method used by couples finalising their financial affairs. Both parties agree on the division of assets and submit an application to the Federal Circuit and Family Court of Australia detailing their agreement. A Judicial Registrar reviews and approves these orders, making them legally binding.
- Litigation: This method is typically the last resort when former couples can’t agree on how to divide their assets. The Federal Circuit and Family Court of Australia (Division 1) and the Federal Circuit and Family Court of Australia (Division2) takes on the responsibility of deciding the division of assets, liabilities and financial resources in the event of dispute. The process can be lengthy (up to a year or more), costly, and requires regular Court attendance. It’s generally avoided unless absolutely necessary.
It’s important to remember that in the case of divorce in Australia, there is no fixed formula for asset division. It’s a misconception that assets are always divided equally; the actual division considers a variety of factors and is not a simple 50-50 split. The Court takes into account each party’s financial and non-financial contributions, the future needs of each party, and the justice and equity of the proposed division, for example. Understanding these issues can help individuals navigate the financial implications of divorce more effectively.
What to Consider When Dividing Your Assets In Divorce
In cases where negotiations fail and both parties cannot agree on property division, a Court-guided process is often necessary. It’s important to understand that divorce, which is the legal dissolution of a marriage, is a separate legal process from asset division and property settlement.
Property division can be finalised while the couple is still living together after separation or before the divorce is finalised. When the Court is involved, a five-step process is used to determine the division of assets. The substantive four steps are, briefly put:
- Valuing the assets: The initial step involves identifying and placing a value on the former couple’s assets, liabilities, and financial resources. This includes assets acquired before, during, and after the marriage. Assets can range from business interests, investments, vehicles, savings, and real estate, to even lottery winnings. Both parties’ superannuation benefits are also included in the asset pool.
- Analysing contributions: The court then evaluates the financial and non-financial contributions of both parties initially, during the course of the relationship, and after separation.
- Assessing future needs: The future needs of both parties are considered next. This involves evaluating factors such as age, health, income, earning capacity, as well as care of children of the relationship under the age of 18 years, as some examples. The Court determines if any adjustments need to be made to the contribution-based entitlement on the future needs of each party.
- The practical effect: The final step involves the Court considering the practical impact of the property settlement on both parties to ensure that the outcome is just and equitable.
Now, let’s look at a specific example.
Example of Asset Division in an Australian Divorce
Jack and Lily are a married couple who have decided to separate. They have been married for 12 years, during which time they both worked full-time and had roughly the same annual income. They have two children, aged 6 and 9, who will be primarily living with Lily post-separation.
Their assets include:
A family home valued at $1.3 million
Savings amounting to $80,000
Two cars worth a combined value of $50,000
Superannuation: Jack’s superannuation is $200,000 and Lily’s is $180,000
Their liabilities include:
Remaining mortgage on the family home of $500,000
Car loan of $20,000
Credit card debt of $10,000
By totalling all the assets and subtracting the liabilities, we determine the net asset pool:
Total assets: $1.3m (home) + $80,000 (savings) + $50,000 (cars) + $200,000 (Jack’s super) + $180,000 (Lily’s super) = $1,810,000
Total liabilities: $500,000 (mortgage) + $20,000 (car loan) + $10,000 (credit card debt) = $530,000
So, the total net asset pool is $1,280,000 ($1,810,000 – $530,000).
Jack and Lily made equal financial contributions, but Lily took on the role as primary carer for the children in addition. Lily may, in that scenario, receive a higher percentage in her favour on the contributions step.
Lily will continue to be the children’s primary carer, so Lily may also receive an uplift on the future needs factors.
For example, let’s assume the court decides on a 60%/40% division in Lily’s favour. Lily would then receive $768,000 (60% of $1,280,000), and Jack would receive $512,000 (40% of $1,280,000).
Please note that this is a simplified example and actual asset division can be complex, depending on a multitude of factors. It’s crucial to consult with professional legal counsel, such as the team at Daykin Family Law, for guidance tailored to your specific circumstances.
Contact Daykin Family Law if You Need Help with Your Divorce Today
If you’re facing a divorce in Brisbane or Wider Queensland and are unsure about the division of assets, don’t hesitate to contact our team at Daykin Family Law. We’re dedicated to providing you with pragmatic advice to solve your issues efficiently and help you move towards the next chapter of your life.