For cases under the Family Law Act, the court applies a ‘four-step process’ to deciding cases on post-separation property and finance:
Identifying and valuing the property pool
The court asks the parties to provide evidence about the value of all of their assets (including superannuation), liabilities (debts), income and other financial responsibilities (e.g. to support another person). Often the parties disagree about the value of items. The court makes a decision about what should be included in the final pool for distribution between the parties, the value of each item and the total value of all the items together in the ‘property pool’.
Assessing the contributions of the parties
The court makes an initial assessment of an appropriate split of the property pool based on how much each party contributed to the relationship. The split is often referred to in percentage terms (for example, 55% of the property pool value to Party X). The assessment process involves looking at the parties’ evidence of their financial contributions (such as wage-earning and gifts or inheritances from family) and their non-financial contributions (such as homemaking and parenting). In the case of longer-term relationships particularly, the court often decides that the parties’ contributions have been roughly equal. This is because society regards such relationships as representing co-operative, multi-functional partnerships with common purpose.
Assessing the future needs and resources of the parties
The court will adjust the initial percentage split of the property pool made in Step 2 by an additional amount to take into account the future financial needs and resources of the parties. The percentage adjustment is usually in the region of 0-20%. So, for example, a couple with a 50/50 assessment after Step 2 might end up with a percentage split of 70/30 after Step 3, with the larger share awarded to the partner who is the primary carer for (say) the couple’s three young children. In assessing future needs and resources, the court will consider such factors as the age, health, financial resources, child-caring responsibilities and the earning capacity of the parties.
Making the final distribution and checking for overall fairness
After the percentage split of the property pool is assessed, the court must then decide how the value to each party’s share will be made up. This can be difficult as large assets such as superannuation are not easily divided, and contractual arrangements with third parties such as banks and business partners can complicate things – although amendments to the Family Law Act have given the court more power in this area (see Developments in family law since 1975). Sometimes the court decides it is necessary for an item in the property pool to be sold so that the value can be split to make up the necessary percentage of the total pool assessed for each party. When organising the practical split of the items in the pool (including valuable assets and debts) the court will look at the overall fairness of the situation being created by the distribution. If it doesn’t appear possible to put the Stage 1 to 3 assessment into action in such a way that sets the parties’ into their new futures in a fair way, then it is possible, although rare, that the shares will be adjusted in this final Stage 4 check.
The four-step process is process devised by the courts and based on the law to guide them in making appropriate property orders. There is no part of the law however that requires people to use the process outside court. On the other hand, the four-step process can be a very useful tool for a separating couple who wish to make their arrangements privately but ‘in the shadow of the law’ (that is, with a sense of what the law and the courts would consider fair in the circumstances).
For the same reason, it is advisable that each member of a separating couple should get at least a sense of their entitlements at law, in the course of a consultation with a legal practitioner before concluding their private property settlement negotiations. The stakes for the future in this area can be very high. Misjudgement is easy to make and difficult to unmake – particularly in the early months after separation.