The four step process a Court will undertake in determining a property matter
A Court, exercising jurisdiction under the Family Law Act 1975, has powers pursuant to Section 79(2) if you are married, or under s90SM if you are a de-facto, to make an alteration to both parties’ property interests by undertaking an exercise known as the Four Step Process. This process is undertaken to determine if a property settlement is appropriate, and if it is, what property adjustment is appropriate. It is also the process your lawyer will consider when giving you advice about a property settlement.
The Four Step Process is as follows:
The First Step
In one sentence, this step is probably summarised with the question: “What property is there to divide?”
The pertinent questions at this stage are:
- 1. What assets do both parties have?
- 2. How much are these assets worth and do both parties agree on those valuations?
- 3. Do these assets require a formal valuation?
This information will then be used to create the balance sheet.
What liabilities exist, who is responsible for these liabilities, what were they incurred for, and when were these liabilities incurred?
Some examples are:
- – Credit cards;
- – Mortgages;
- – Personal loans;
- – Loans to family members; and
- – Car loans.
In Family Law, Superannuation is considered an Asset, however it is treated as a different species of asset meaning that it forms part of the balance of the property pool but is treated slightly differently.
In essence, when considering a settlement proposal it is important to consider the usefulness of the assets that you will receive in addition to the dollar/percentage value of that offer. Whilst you could receive a majority of the property pool in terms of a percentage, you could potentially receive less tangible assets such as a car, the former shared home, or cash that you would be able to utilise immediately. In business terms, this can be likened to determining liquidity.
The Second Step – Contributions
The next step is to determine the contributions that each party made, to arrive at the asset pool identified above.
The Court will ask the following questions:
- 1. What contributions were made to the asset pool?
- 2. Who made these contributions?
- 3. When were these contributions made?
- 4. What types of contribution were made?
- 5. Did the contribution contribute to the acquisition, development or the improvement of property?
The Third Step – Future Needs
A Court will then look to the next stage in determining a property settlement, being the future needs of both parties. A Court looks at these factors under s75(2) of the Family Law Act and some of the relevant considerations it will look to here are:
- 1. A party’s age relative to their retirement age;
- 2. Whether a party is in good health;
- 3. Whether a party has care of a child and how much care; and
- 4. The income earning capacity of each party.
The Fourth Step
Lastly, a Court will look at whether the result is just and equitable with reference to what Assets and Liabilities that each party will receive as well as the amount of Superannuation each party will receive.
Spousal Maintenance is separate from the property settlement. Read more about spousal maintenance here