Asking the question ‘how are divorce settlements worked out?’ is one that most people see as a question relating specifically to the division of their finances and assets. In family law, this is a process known as a property settlement.
When people ask ‘how are divorce settlements worked out?’, they are typically referring to the division of finances and assets. However, it is important to highlight that there are three distinct processes that sit under the umbrella of a divorce:
- Property Settlement
- Parenting arrangements including child support
- Applying for a Divorce Order
In this article we’ll focus on the stages of the property settlement process, the considerations taken into account in family law, how long these processes take and why formalising agreements are so important.
Who Gets What In A Divorce Settlement?
Figuring out who gets what in a divorce settlement is rarely as black and white as splitting everything down the middle. Being informed about the process and objectives of a property settlement can help manage expectations from the start and minimise disputes and uncertainties.
Unlike a divorce application, property settlements can commence (and be finalised) at any point after separation. Delaying a settlement until after your Divorce Order application will not only cost you time, but may throw additional curveballs into negotiations (for example, one spouse may have received an inheritance during the separation period).
In family law, there are five distinct processes involved in the property settlement process:
- Whether it is ‘just and equitable’ to make a property settlement
- Identification of the property pool
- Assessing contributions
- Making future needs adjustments
- Finalisation of the property settlement practically
1. Is a division ‘just and equitable’
In most cases where the parties have either been married or in a de-facto relationship and the two spouses have separated, it would be considered fair to divide the property pool, so each party receives a property settlement.
The golden rule of property settlements is to provide a ‘just and equitable’ division of assets. To be just and equitable when dividing assets is not just about taking a principled stance – it is the key criteria that determines whether the property settlement can be finalised.
For this reason, every property settlement starts from a blank canvas, with negotiations revolving around the case’s unique circumstances. There is no starting presumption that either the wife or the husband will have to leave the family home, or that the wife should get a greater share than the husband.
2. Identifying the property pool
The first stage of any property settlement is identifying the property pool to be divided. Property includes houses, land, cars, bank accounts, stocks and shares, or any other type of asset. It also includes superannuation. The property pool does not only take into account for assets, but also the associated liabilities.
To accurately identify the current value of assets, you may be required to seek valuations if there is no agreement about the value.
Regardless of whether you have property in your name or your former partner or spouse’s, or in a company or Trust, all the assets are considered part of the collective ‘property pool’.
3. Assessing contributions
The next step is to identify the contributions of both parties to the relationship.
In family law, people in a relationship may have made:
- Financial contributions; or
- Non-financial contributions; or
- Contributions as a parent or homemaker.
Including the assessment of non-financial contributions recognises that although one person may not have brought in a monetary income, they may have contributed to the relationship in other ways such as unpaid work in the family business, being the primary carer of children, renovations on a property or the responsibility of running the family home.
4. Making future-needs adjustments
This is particularly relevant when children are involved or there is a significant difference in income and earning capacity.
For example, for someone who has been a stay-at-home parent for the past twenty years may not be able to return to the workforce straight away at the same level they were at before children.
Additionally, the circumstances of the relationship and the opportunity cost of any career sacrifices in taking on the care of children also needs to be considered. For this reason, the parent who took on primary care duties may need a larger settlement sum because they may have a lower income earning capacity.
Given that someone leaving a relationship who has made non-financial contributions may require time to find employment or undertake training to be able to attain employment, an adjustment may be required, taking into account the consideration of the future-needs of that person, and the role they will hold into the future, as well as the reasonable standard of living for both former spouses.
The type of questions that we, as family lawyers, are looking to answer to determine the future needs of both spouses, include:
- What are the parenting arrangements for the children moving forward?
- Is future education or training required to increase one spouse’s earning capacity?
- Does one partner have the earning and borrowing capacity to buy another property and realistically support themselves?
- If one member of the former couple is living with a new partner, does this change financial circumstances?
In addition to the property settlement, there are some limited circumstances where applying for spousal or de facto maintenance on a final basis may also be appropriate if only one spouse is working. Spousal maintenance is usually short term and helps support an individual until they can generate their own income.
Gender stereotypes about perceived economic advantage or disadvantage simply don’t hold when it comes to dividing the assets of a relationship. Anecdotally, you may have heard things about the wife always keeping X, Y, Z and the husband keeping A, B, C, and you might think to yourself, ‘If that happened to them, then it will surely happen to me.’
Fortunately, or unfortunately, depending on their outcome, that is not the way property is divided in family law. Every situation is different, and your negotiations will be different depending on the unique needs of you and your former spouse or partner.
5. Dividing property and finalising the terms of the agreement
This stage involves the practical division of property (including the sale of property if required), and the finalisation of the agreement by Consent Orders or through a Binding Financial Agreement (BFA).
Because your divorce is as unique as your family, your property settlement process or outcome will not be the same as a friend who has seemingly similar circumstances. Unfortunately, there are a number of issues that can and do arise during this process, so it is wise to seek legal advice before agreeing to any arrangements. An experienced family lawyer will weigh up your needs and advise you of the most appropriate terms, as well as formalise your agreement with Consent Orders or a Binding Financial Agreement.
How Long Does A Divorce Settlement Take?
Unfortunately, this is like asking, ‘How long is a piece of string?’ There are a whole host of variables that can impact the timeline of your property settlement and divorce. Even though parenting and property negotiations can commence as soon as you have separated, that doesn’t necessarily mean the process will be smooth-running or fast. You may need to get valuations on a family business, or unforeseen circumstances may mean you might need to commence Court proceedings.
Factors that can prolong or expedite a divorce include:
- The nature of the property pool (simple or more complex)
- If there is a mediation, how that process unfolds and how willing each party is to participate and make concessions to find a solution
- If a family report is required and, again, how that process unfolds and how willing each party is to participate
- If you need a Court to make a decision
- Third-party influences or delays
- Agreeing to terms that does not fall within the range of likely outcomes (i.e. in keeping with the five steps outlined above)
- The condition of the relationship (whether it is amicable or not, and if it remains that way)
For one person, the relationship breakdown may take longer to process. When one person has been thinking about separating for some time, this needs to be taken into account as they are sometimes more willing to negotiate early on where the other person may not be as they are still processing the loss of the relationship. This needs to be taken into account. Timing the conversations and the steps involved in the property settlement process must be considered carefully.
While as family lawyers we know the law best, you know your former partner or spouse better than anyone. Providing your family lawyer with insights about likely friction points can help avoid triggering an aggravated response or derail the process.
Although you now know the answer to the question ‘How are divorce settlements worked out?’, and the factors that can prolong and expedite them, there is one important element that is often overlooked. Whether you have sought legal assistance from the outset or have negotiated the terms independently with your former partner or spouse, it is always advisable to have a family lawyer involved in formalising any property agreement. Drafting agreements without expert advice opens yourself up to unenforceable terms, a lack of finality in your financial relationship, and a world of risk down the track.
Related Articles: How To Divorce Well: Working Together To Plan Your Life Apart
Phillips Family Law is an award-winning Family Law practice serving clients across Australia and abroad. Regardless of where you are in your decision-making process, we can make you aware of your options. To discuss your situation confidentially, phone (07) 3007 9898 or secure a time by filling in our confidential form here.
Disclaimer: The content in this article provides general information however it does not substitute legal advice or opinion. Information is best used in conjunction with legal advice from an experienced member of our team.