What is the process for dividing property after separation in Australia?

When a relationship ends, working out how property should be divided can feel overwhelming, especially where there are significant assets, business interests or competing financial priorities.

This article explains how property settlement works under Australian family law. In this article, we examine the critical starting point in any financial settlement – identifying and valuing the net asset pool.

What Is the First Step in the Property Settlement Process?

Before the Court can determine how property should be divided between separating parties, it must first establish what property exists and what it is worth.

This is the first step in the property settlement process – identifying and valuing the net asset pool.

In practical terms, this involves determining which assets are held by each party, which liabilities exist, and the value of those assets and liabilities.

Many people assume that the most difficult part of a property settlement is negotiating the percentage split. However, in our experience, disputes frequently arise much earlier – when parties do not agree about what should be included in the asset pool or the value that should be attributed to particular assets.

Negotiations that begin on incomplete or inaccurate financial information may yield a settlement that appears fair in percentage terms but is fundamentally unjust in practice.

Why Is Identifying and Valuing the Asset Pool So Important?

Property settlement in Australia generally follows a four-step process:

1. Identifying and valuing the net asset pool.
2. Assessing the contributions of each party.
3. Considering future needs, and
4. Determining whether the proposed outcome is just and equitable.

Each of these steps is dependent upon the accuracy of the one before it.

If the net asset pool is incomplete or the value attributed to particular assets is incorrect, the remaining steps may produce an outcome that appears reasonable but does not accurately reflect the financial position of the parties.

For example, a difference of several hundred thousand dollars in the value attributed to the family home may significantly alter the division of the asset pool. The same principle applies to business interests, trust structures, share portfolios or superannuation entitlements.

For this reason, identifying and valuing the net asset pool is not merely a preliminary exercise. It is the financial foundation upon which the entire settlement process rests.

What Is Considered “Property” Under the Family Law Act?

Under the Family Law Act 1975 (Cth), property is interpreted broadly.

It is not limited to assets held jointly, nor is it confined to items registered in both parties’ names. Property may include anything of value in which either party has a legal or equitable interest.

This can include:

• Real estate
• Savings and investments
• Business interests,
• Superannuation entitlements,
• Trust interests,
• Inheritances,
• Tax refunds and
• Digital assets such as cryptocurrency
• Vehicles
• Stocks and shares
• Overseas property

Liabilities must also be considered.

These can include:

• Mortgages,
• Personal or business loans
• Credit card balances
• Taxation liabilities.

Importantly, the name in which an asset or liability is held does not determine whether it forms part of the asset pool.

Are Assets in One Person’s Name Included in a Property Settlement?

It is a common misconception that assets held in one party’s sole name are excluded from property settlement.

In fact, ownership alone does not determine whether an asset forms part of the pool. The Court will consider all property in which either party has an interest, regardless of whose name appears on the legal title.

Can Assets Acquired After Separation Be Included in the Property Pool?

Another common misunderstanding is that only assets in existence at the date of separation are relevant.

The Court assesses the financial circumstances of the parties at the time the property settlement is determined. This means that assets acquired after separation may still be included within the pool for division.

Can Debts Incurred After Separation Be Included in the Property Pool?

Debts incurred after separation may also be considered, but this is case-specific.

Loans obtained by one party after separation to maintain the family business were included in the overall pool. The effect was a reduction in the asset pool available for division.

In some circumstances, a delay in resolving a property settlement may therefore expose one party to financial obligations incurred without their knowledge or agreement.

Is Inheritance Included in the Property Pool After Separation?

Inheritance often creates uncertainty in property settlement matters.

An inheritance that has already been received, whether during the relationship or following separation, may form part of the asset pool.

The manner in which it is treated depends on a range of factors, including when it was received and whether it has been applied for the benefit of the parties jointly.

For example, an inheritance used to reduce a mortgage on the family home is more likely to be regarded as part of the shared financial position than funds retained separately and not intermingled with joint finances.

Because the Court exercises a broad discretion in this area, early legal advice is often essential to ensure that inheritances are properly accounted for.

Do We Have to Disclose All Financial Information During a Property Settlement?

Separating parties are subject to an ongoing duty of full and frank financial disclosure.

This obligation requires each party to disclose all relevant financial information, including assets, liabilities, income and financial resources. The Federal Circuit and Family Court of Australia have produced a Brochure “Duty of Disclosure’, which provides guidance on the parties’ duty of disclosure.

What Happens If My Former Partner Is Hiding Assets?

Difficulties commonly arise where one party suspects that assets have not been disclosed.

In practice, this may involve the transfer of funds to family members, the use of corporate or trust structures to divert income, or the non-disclosure of investment accounts or digital holdings.

Where the Court is satisfied that a party has failed to comply with their disclosure obligations, it may draw adverse inferences as to that party’s financial position. The Court may also adjust the division of property or make costs orders against the non-complying party.

In appropriate circumstances, investigative steps may be taken to obtain financial records from third parties.

What If My Former Partner Has Spent Joint Money After Separation?

It is not uncommon for one party to spend money after separation from funds that were previously held jointly.

While this was historically referred to as an “add back”, i.e. you could add back the amount spent onto the balance sheet, the Court no longer treats post-separation spending as a separate accounting exercise, following the case of Shinohara v Shinohara.

Instead, the Court may consider whether the value of the asset pool has been reduced by one party’s conduct. For example, through excessive personal spending or transferring funds to third parties when assessing contributions or determining whether the proposed division of property is just and equitable.

The Court will distinguish between reasonable living expenses and conduct that has unfairly diminished the available assets. This can add a layer of complexity to the property settlement process, particularly where there is disagreement about how funds have been used following separation.

Although money that has already been spent cannot be physically returned to the pool, the Court may still take this conduct into account when determining the appropriate outcome.

Obtaining legal advice at an early stage can assist in identifying whether post-separation expenditure may affect your entitlements and how this issue should be addressed within the settlement process.

What If We Cannot Agree on the Value of the Family Home or a Business?

Even where parties can identify the assets comprising the pool, disputes frequently arise as to their value. This is particularly common in relation to real property, business interests and self-managed superannuation funds.

A difference in valuation of even a modest amount may materially affect the ultimate outcome.

In these circumstances, it is often appropriate for the parties to jointly instruct a single expert valuer pursuant to Rule 7.07 of the Family Law Rules. The expert’s report may then be relied upon in negotiations or Court proceedings.

Final Thoughts

Identifying and valuing the net asset pool is one of the most important stages of any property settlement.

If assets are not properly disclosed or accurately valued at the outset, the final division of property may not reflect your true financial entitlement.

At Arora Legal, we advise clients across Brisbane in relation to property settlement matters involving business interests, inheritances, trust structures and disputed asset values. Early legal advice can assist in ensuring that negotiations are based on a complete and accurate understanding of the available asset pool.

If you would like advice about your property settlement or financial disclosure obligations, you can contact our Brisbane family lawyers to discuss your options.