Claiming Property After Separation

Dealing with property matters after the breakdown of a relationship can be daunting, especially when dealing with children and the emotional challenges of separation.

This article answers some common questions asked by family law clients about claiming property after a separation.

Division of property: what property am I entitled to?

“Property” is defined under s 4(1) of the Family Law Act 1975 (Cth) as, “property to which those parties are, or that party is, as the case may be, entitled whether in possession or reversion.”

The definition is incredibly broad and includes:

real property;
money in bank accounts;
investments;
life insurance policies;
motor vehicles;
business interests (e.g., companies, partnerships and trusts);
household contents and other personal property; and
superannuation (by virtue of s 90XC).

What do we do about our debts?

The Court also has power to make orders in relation to liabilities which must be considered when assessing a parties’ entitlements.

The Court has a duty to end parties’ financial relations on a final basis (s 81). This requires parties to deal with joint liabilities that are dealt with as part of any settlement – e.g., the mortgage on the family home.

Do all separating couples need to have a property settlement?

No matter if you’re a de-facto couple or married, there are three ways for parties to deal with property by agreement after separation:

informal settlement: where parties reach an informal agreement without taking any legal steps to put it into effect;
financial agreements: where parties document their agreement by entering a binding financial agreement under the Family Law Act; and
consent orders: where parties apply to have their property settlement approved by the Court through an application for consent orders.

The following table sets out the advantages and disadvantages of each:

Informal settlement

Financial agreements

Consent orders

Advantages

Low cost; and
No delays.

Usually prevents parties from later making a property settlement claim;
Reduces the likelihood of the parties being successful in making a claim against the other’s estate; and
Parties are able to take advantage of certain tax concessions associate with property settlements – e.g., stamp duty exemptions and CGT rollovers.

Relatively low cost;
Prevents parties from later making a property settlement claim;
Significantly reduces the likelihood of the parties being successful in making a claim against the other’s estate; and
Parties are able to take advantage of certain tax concessions associated with property settlements – e.g., stamp duty exemptions and CGT rollovers.

Disadvantages

A party may later make a property settlement claim against the other;
A party may later make a claim on the other’s estate; and
Parties are unable to take advantage of certain tax concessions associated with property settlements – e.g., stamp duty exemptions and CGT rollovers.

There are strict rules regarding the requirements of financial agreements. This makes them significantly more expensive and time consuming to prepare; and
Financial agreements are far more likely to be challenged on contractual and equitable grounds than consent orders.

Slightly more expensive than an informal settlement; and
May take a few days to a few weeks to be approved by the Court.

Consent orders are overwhelmingly the preferred option for most people.

Stamp duty or transfer duty is a state tax levied on the transfer of property. In NSW, no duty is payable on the transfer of property between parties to a marriage or de facto relationship that has broken down if it is effected pursuant to a property settlement order or financial agreement under the Family Law Act (s 68 of the Duties Act 1997 (NSW)).

Capital gains tax (CGT) is the taxation of a gain made from buying an asset and selling it later for a higher price. The capital is the difference – loss or gain – between what the asset is bought and sold for. In property settlements, a CGT event will typically be triggered by the sale or transfer of an asset between properties.

Section 126-5 of the Income Tax Assessment Act 1997 (Cth) provides for a CGT rollover where an asset is transferred to a spouse or former spouse pursuant to a property settlement order or financial agreement. This means that the receiving party inherits the CGT history and cost base of the asset which is deferred until a later CGT event occurs.

A CGT liability will need to be considered as part of a property settlement where an asset is sold pursuant to orders. It may also need to be considered depending on what the receiving party later wishes to do with the asset (Rosati & Rosati [1998] FamCA 38).

How long after separation can you claim property?

Property proceedings must be commenced:

for parties to a marriage: within 12 months of a divorce order becoming effective; and
for parties to a de facto relationship: within two years after their date of separation.

These time limits apply regardless of whether parties have reached an agreement.

While the Court may grant leave for parties to commence proceedings out of time, these applications are complicated and expensive. It is strongly recommended that parties seek independent legal advice in relation to their property matters well in advance of these deadlines.

How does the Court decide who gets what?

The Court applies a four-step process when assessing property settlement entitlements as set out in the decision of Hickey & Hickey [2003] FamCA 395:

identifying and valuing the parties’ assets, liabilities and superannuation as at the date of final hearing;

assessing the parties’ contributions expressed as a percentage of the asset pool;

adjusting that percentage to account for the parties’ future needs as defined in s 75(2); and

determining whether a court order would be just and equitable in the circumstances of the case.

There are two possible approaches for assessing a parties’ entitlements:

a global approach: where the parties’ entitlements are expressed as a percentage of the overall pool; and

an asset-by-asset approach: where the parties’ entitlements are expressed in relation to individual items of property.

While a global approach will be applied by the Court in most cases, an asset-by-asset approach may be preferred in short relationships (McMahon & McMahon [1995] FamCA 145), where there are post-separation inheritances (Bonnici & Bonnici [1991] FamCA 86) or where these is a pension in the payment phase (McKinnon & McKinnon [2005] FamCA 1245).

Reaching an agreement without going to Court

In most cases, parties are able to reach an agreed property settlement without going to Court. This can be done informally between them or through dispute resolution or mediation.

Dispute resolution is a process where parties involved in a dispute are assisted by an independent third party (usually an experienced lawyer or barrister) to help them reach an agreement. This can occur both with and without the assistance of lawyers. It is a procedural requirement before commencing property settlement proceedings.

Once an agreement is reached, parties will need to have their property settlement approved by the Court through a process known as an application for consent orders. While the process for this is relatively quick and affordable, parties will need to seek independent legal advice from an accredited specialist family lawyer to prepare the necessary Court documents.

Seeking legal advice from a family lawyer

Family law is a specialist area with its own jurisdiction.

The NSW Law Society operates a specialist accreditation program which recognises lawyers as experts in their chosen area of practice.

It is strongly recommended that you engage an accredited family law specialist in finalising your property settlement so that you and your former partner are able to resolve matters as quickly and cost effectively as possible.

Doolan Wagner Family Lawyers offer specialist family law advice and are based in St Leonards on Sydney’s North Shore. If you have recently separated or have a Family Law enquiry, please contact us on (02) 9437 0010 or send us an email at enquiries@familylawyersdw.com.au to discuss your matter in complete confidence. We have a dedicated team of experienced family lawyers to handle your matter effectively and efficiently, providing you with reliable, direct and practical advice.

About the Authors:

Lisa Wagner

Managing Director and Principal of Doolan Wagner Family Lawyers. Lisa is an Accredited Family Law specialist holding honours degrees in economics and law. She is also a Collaboratively trained Family Lawyer, a Family Dispute Resolution Practitioner, and a Parenting Coordinator. Lisa has over 30 years’ experience as a specialist family lawyer, experienced litigator and skilful negotiator in all family law matters; working for the majority of that time in Sydney’s CBD as well as on Sydney’s lower North Shore and Northern Beaches.

Connect with Lisa on LinkedIn

Oliver Lacey

Born and raised in the Hunter Valley, Oliver studied a Bachelor of Arts/Bachelor of Laws at the University of Newcastle before being admitted as a solicitor in 2015.

After admission, Oliver worked at a leading CBD law firm where he specialised in commercial disputes involving equity, trusts, business valuations, complex corporate structures, insolvency, mortgages and commercial finance before transitioning these skills into family law.

With a special interest in high-value and complex property matters, Oliver applies a commercial mindset to financial disputes, priding himself on providing in-depth legal advice to achieve real world outcomes for clients. He opposes a “one-size fits all” mentality to family law, applying a tailored approach to meet his client’s needs, especially in matters involving children.

Whilst favouring early dispute resolution outside of Court, Oliver also has significant experience acting in matters involving significant interpersonal conflict and managing clients throughout this process.

Oliver is currently undertaking a Master of Applied Law (Family Law) at the College of Law.

Connect with Oliver on LinkedIn: linkedin.com/in/olaceydwfl