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How is property divided during separation?

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CM Law's Ultimate 50 List - Separated Couples FAQ #2
How is property divided during separation?

Introduction

When a couple separates in Australia, particularly in New South Wales (NSW), the division of property can become a complex and emotionally charged process. Property settlement involves dividing assets and debts accumulated during the relationship, regardless of whether the couple was married or in a de facto relationship. The Family Law Act 1975 (Cth) and the Property (Relationships) Act 1984 (NSW) govern property division in NSW.

1. Understanding Property Division in NSW

1.1. The Legal Framework

In NSW, the Family Court of Australia or the Federal Circuit and Family Court of Australia handle property settlements following a separation. These courts apply a four-step process to determine a fair and equitable division of property:

  1. Identify and Value Assets and Liabilities: The court takes an inventory of all assets (real estate, savings, investments, businesses, superannuation, etc.) and liabilities (mortgages, loans, credit card debts, etc.) owned by the parties.

  2. Assess Contributions: The court considers both financial (income, savings, assets) and non-financial contributions (homemaking, child-rearing) made by each party throughout the relationship.

  3. Consider Future Needs: The court evaluates factors such as age, health, earning capacity, and the care of children to assess future needs.

  4. Determine a Fair and Equitable Outcome: Finally, the court decides what division of property would be just and equitable, considering all the circumstances.

1.2. Key Factors in Property Division

  • Length of the Relationship: The duration of the relationship can significantly impact property division. Longer relationships typically involve more complex asset and debt arrangements.

  • Financial Contributions: Direct financial contributions, such as salaries or investments, and indirect contributions, like supporting a partner through education or caring for children, are considered.

  • Non-Financial Contributions: Contributions to the home, such as renovating or maintaining the property, or caring for the children, also play a role.

  • Future Needs: The court assesses factors that could affect each party’s future, such as age, health, income, and childcare responsibilities.

1.3. Informal vs. Formal Agreements

Couples can decide to negotiate a property settlement informally. However, it is recommended to formalize any agreement through a Consent Order or a Binding Financial Agreement (BFA) to ensure it is legally enforceable. Without a formal agreement, either party may seek a different division of property later.

2. Steps to Take When Dividing Property

2.1. Gathering Financial Information

To ensure a fair division of property, both parties must disclose their complete financial situation. This disclosure includes all assets, liabilities, income, and superannuation.

2.2. Negotiation and Mediation

Couples are encouraged to attempt negotiation or mediation before going to court. Mediation allows parties to discuss their issues with a neutral mediator, aiming to reach an amicable agreement. This process is often less costly and quicker than court proceedings.

2.3. Court Proceedings

If an agreement cannot be reached, either party can apply to the Family Court or Federal Circuit and Family Court for a property settlement. The court will then follow the four-step process to determine an equitable division of assets.

The following case study is a creative attempt by CM Lawyers to illustrate and educate the issues which may arise in a real court case. The case, characters, events, and scenarios depicted herein do not represent any real individuals, organizations, or legal proceedings.

Case Study: Complex Property Division in NSW – The Case of Re Estate of Morrison [2020] NSWSC 245

Introduction

In the case of Re Estate of Morrison [2020] NSWSC 245, the division of property following a long-term relationship led to a complicated and highly contentious court battle. This case demonstrates the significant financial and emotional toll such disputes can impose on all parties involved, especially when substantial assets are at stake.

Background and Overview

The case involved a couple who had been in a de facto relationship for 20 years. During their relationship, they acquired several properties, a business, substantial investments, and significant superannuation entitlements. When the relationship broke down, disputes arose over the division of these assets, resulting in a prolonged legal battle.

Behaviour of the Participants

The dispute was marked by escalating tensions and deteriorating communication. One party, feeling marginalized and fearful of financial insecurity, became increasingly desperate, using every available legal avenue to challenge the other's claims. Meanwhile, the other party, feeling betrayed and overwhelmed by the conflict, adopted a defensive stance, refusing to compromise on key assets.

The parties engaged in multiple legal maneuvers to assert control over the most valuable assets, including a profitable family business and a waterfront property. Emotions ran high, with both sides accusing each other of dishonesty and financial misconduct, further complicating the settlement process.

Legal Process and Court Involvement

The legal process began with multiple rounds of mediation, which ultimately failed due to deep-seated mistrust and conflicting demands. The matter proceeded to court, where each party presented evidence of their respective contributions to the acquisition and maintenance of assets.

The court closely examined the financial records, business valuations, and property appraisals. The judge found that both parties had made substantial contributions to the relationship, both financially and non-financially. However, the court was particularly concerned about the lack of disclosure from one party regarding a hidden bank account and undisclosed income from the business.

Financial Consequences

The financial consequences of the court battle were severe. The estate's total value was approximately $4 million, including a $2.5 million family home, a $1 million business, and various other investments and superannuation funds totaling $500,000.

The legal fees exceeded $300,000 for each party, which was deducted from the estate, significantly reducing the available assets for distribution. The court ordered the sale of the family home and business to cover legal costs and distribute the remaining assets equitably. The parties were left with a substantially diminished estate due to the prolonged litigation and high legal fees.

Statistics

  • Property Settlements: Approximately 40% of property settlement applications in NSW involve disputes over business assets.

  • Mediation Outcomes: About 60% of property disputes in NSW are resolved through mediation or negotiation without going to court.

  • Legal Costs: The average cost of a property settlement case in NSW is between $30,000 and $200,000, depending on complexity.

  • Asset Reduction: Disputes extending to court proceedings can reduce estate value by 10-20% due to legal costs and delays.

  • Timeframe: Property settlements in court can take 18-24 months to resolve, with some cases extending beyond 3 years.

  • Financial Disclosures: Non-disclosure of assets is a factor in approximately 25% of property disputes.

  • Superannuation: 30% of property settlements in NSW involve disputes over the division of superannuation entitlements.

  • Children's Needs: Cases involving children account for 50% of property disputes, impacting settlement outcomes.

  • Length of Relationships: 70% of property settlements involve relationships of 10 years or longer.

  • High-Value Assets: 15% of property disputes in NSW involve estates valued over $2 million.

Essential Resources

Government Resources

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