A property settlement is a financial agreement between you and your former spouse/partner, concerning the division of assets held by one or both parties in the marriage.

You don’t need to wait for your divorce to be finalised before commencing the property settlement process. For married couples, the time limit is 12 months after the divorce order takes effect, while for de facto partners, it is 2 years after separation. The sooner you address this matter, the better you can transition into your new life financially.

There are different ways to finalise a property settlement when leaving a relationship:

By Binding Financial Agreement

You and your former partner can agree to divide your assets and liabilities yourself without resorting to the Court. Couples are free to make their own arrangements on the property settlements. For any agreement to be enforceable, the agreement must be in writing and binding in the ways that the law provides.

A binding financial agreement is a written agreement reached by consent and negotiated by lawyers, that could finalise the property settlement without going to court. Each party would have their own independent legal advice and representative. You would be legally advised of your rights at the time you signed the agreement. The Family Court does not consider the BFA unless one of the parties applied that it be set aside for the reasons of fraud and misrepresentation. Therefore, the BFA should be done properly in accordance with the Family law Act 1975 (Cth).

Thorne v Kennedy [2017] HCA 49

This case concerns two substantially identical financial agreements, a pre-nuptial agreement and a post-nuptial agreement which replaced it, made under the Family Law Act 1975(Cth). The agreements were made between a wealthy property developer Mr Kennedy and his fiancée Ms Thorne. On the financial agreement, it was written that if the relationship ended, she would have no entitlement of any property. The pre-nuptial agreement was signed very shortly before the wedding in circumstances in which Ms Thorne was given emphatic independent legal advice that the agreement was “entirely inappropriate” and that she should not sign it.

The question was whether the agreements were voidable for duress, undue influence or unconscionable conduct. The judge found that the circumstances led Ms Thorne to believe she had no choice, was powerless, to act in any other way than to sign the pre-nuptial agreement.

The High Court held in this case that two financial agreements were held voidable due to undue influence. The Court also held that the agreements were vitiated by unconscionable conduct. As Ms Throne’s special disadvantage was known to Mr Kennedy, the Court said her special disadvantage was partly created by him. Because he created the urgency with the pre-nuptial agreement required to be signed and the haste surrounding the post-nuptial agreement and the advice on it. Further, as a single mother, Ms Thorne’s family members had been brought to Australia for the wedding by Mr Kennedy and there was not any offer of assistance for returning home. All these matters increased the pressure on Ms Thorne’s free will in relation to the agreements. Mr Kennedy took advantage of Ms Thorne’s vulnerability to obtaining the signed financial agreements.

Undue influence

The high court lists a list of factors in determining the validity of financial agreements, which includes:

  • Whether the agreement was offered on the basis that it was not subject to negotiation
  • The emotional circumstances in which the agreement was entered, including any explicit or implicate threat to end a marriage or engagement
  • Whether there was any time for careful reflection
  • The nature of the parties’ relationship
  • The relevant financial position of the parties
  • The Independent advice that was received and whether there was time to reflect on that advice.

 

By consent order

The consent order is usually drafted by your lawyers or your former partner’s lawyer, and it must thereafter be submitted to the court for consideration. It is the most used way to formalise the private property agreement. This is cost-effective, fast, private, low-conflict, final and enforceable. You will need professional assistance in the preparation for the application if you decide to finalise the agreement.

The consent order could cover both the parenting arrangements and the financial arrangements in one document. The court will consider whether the parenting arrangements are in the best interest of the children and whether the effect of the property orders is just and equitable in all circumstances.

 

By orders of the court

If both parties cannot reach a mutual agreement as to the finalisation of your property agreement, then you can apply to the court to make one for you. Usually, the application to the court should be the last resort, as it could be a long process. The court can make orders declaring that a party owns a property, the alternation of property interests, and injunctions to property.

Property negotiations may be difficult sometimes if you cannot agree on the value of the property in the assets pool. If the values are not agreed upon, the court will not simply halve the difference but will apply the appropriate principles and methodology and arrive at its own assessment of the value. It may involve an order for the sale of the property: Commonwealth v Milledge (1953).

 

The court’s process in determining property settlement

The court uses a staged process to determine property settlements. A recent approach involves a four-step process based on the provisions of section 79(4) Family Law Act. This process is conditional on ensuring that any property order is just and equitable.

In summary, the four-step process includes:

Step 1: Identify and assess the property in the pool

Identify and value the assets and liabilities that form the global pool of property that is subject to the settlement.

All the assets and liabilities together are often referred to as “the property pool”. The total value of the pool is calculated by adding and subtracting the value of the assets and liabilities, which include:

  • Property owned by the parties when they married or commence their de facto relationship
  • Capital obtained by a party owned before the marriage or de facto relationship
  • inheritances
  • property obtained by a party during the relationship & after the separation

Please note, that property negotiations may be difficult and extended if you cannot agree on the value of the assets in the pool.  Before you start to negotiate a potential division of assets, you need to work to agree on the values of individual assets and liabilities and the total net value of the global asset pool.

Step 2: Assess the parties’ contributions

After the assets and liabilities of the property pool have been identified and valued, each party’s contributions to the relationship – both financial and non-financial – are assessed. This relevant period is the time between the commencement of cohabitation and the hearing date.

  • Assessment of each party’s financial contribution to the family’s assets
  • Assessment of non-financial contributions such as homemaking and caring for children
  • Some consideration of negative contributions such as violence, gambling and substance abuse

Step 3: Needs and resources factors – sections 75(2) and 90 SF(3)

Consideration of parties’ future needs and resources – factors such as their age and health, their ability to support themselves, income and earning capacity, their other commitments and the standard of living that is reasonable in the circumstances.

The factors listed in sections 75(2) and 90SF (3) deal with the expected future needs and resources of the parties. The factors operate quite independently in each case. After the court has determined a fair distribution of assets based on past contributions, it must then review another set of factors – this time pointing to the future – to decide whether future adjustments should be made.

Step 4: Test for justice and equity overall

The result of steps 1 to 3, and the consequences of the various orders that might potentially be made and checked for overall fairness in the light of all the circumstances of the case. Under the Rule 4.11(2) of Federal Circuit and Family Court of Australia (Family Law) Rules 2021, each party must make a genuine offer to settle to all other parties within 28 days after the conciliation conference or mediation.

If you’re seeking expert Family Law advice on property settlement, please call us at 1300 559 888. We offer a 20-minute complimentary consultation to discuss how we can assist you with every aspect of the property settlement, including applying for property orders and addressing any other queries you may have about property settlement. We provide proper legal advice to help you secure the settlement you are entitled to.