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How property is divided by the court

Information about the 4 step process when deciding how property is divided.

Must be just and equitable to make a property order

The court can only make a property order if it is just and equitable to do so. When the court is deciding whether it is just an equitable, the court will take these 7 considerations into account:

  • The financial contributions made by or on behalf of either party or a child to the property including the buying, maintaining and improvement of any property belonging to either or both parties. This includes property that was ownded during the marriage/defacto relationship but is no longer owned by the parties.
  • Any non-financial contributions made directly or indirectly by or on behalf of either party or a child to the property. This includes buying, maintaining and improving that property whether it belongs to one or both parties. This also includes non-financial contributions made to property which was owned during the marriage/defacto relationship but is no longer owned by the parties.
  • Any contribution made by either party to the welfare of the family, including being a home maker or parent.
  • The effect of any proposed order upon the amount of money either party to the relationship can earn.
  • The matters referred to in ss. 75(2)/90SF(3) of the Family Law Act 1975 (Cth)(opens in a new window) if they are relevant.
  • Any other order made under the Family Law Act 1975 that affects either party or children of the marriage/defacto relationship.
  • Any child support under the Child Support (Assessment) Act 1989 that a party to the marriage/relationship has provided, is to provide or might be liable to provide in future, for any children of the marriage/defacto relaitonship.

Note: 75(2) matters are those to be taken into consideration in relation to spousal maintenance. 90SM(4) relates to alteration of property interests in de facto relationships.

See ss. 79(4), 90SM(4)—Family Law Act 1975 (Cth)(opens in a new window).

Four step process for property division

Family law case law has reduced these 7 considerations into 4 inter-related steps when determining an application for property division. This 4 step process was the preferred process set down in a 2010 High Court case, Stanford and Stanford [2012] HCA 52 (15 November 2012). The process is the same for married couples and eligible de facto couples.

See De facto property.

If the court has to make a decision about how property should be divided, they will go through the following steps before reaching a decision:

1. Getting the value of the asset pool

Identify and value all property (including liabilities) that is available to the parties. Unless there is detailed knowledge of all of the assets and their value the court will not be able to make any order that is just and equitable. It will also not be able to assess the contributions made to the property by or on behalf of the parties during their relationship.

The value of the asset pool is determined as at the date of the hearing, not when the parties separated or divorced. It includes property brought to the relationship, accumulated during the relationship and after the relationship has broken down.

Note: It is vital that the parties make full and frank disclosure of all of their property. The court may penalise a party that fails to disclose assets.

See Discovery and exchange of documents.

Assets

The asset pool is the value of the assets that a couple have, both jointly and as individuals. For example, if one party owned a house before the couple began their relationship, this house must still be added into the assets pool. This means all of the property of the relationship minus the debts.

Assets may include shares, houses, superannuation, savings, vehicles, furniture and other goods. It is all things that have some monetary value. The value is decided at the current value not at the time that the parties separated. It is important not to overestimate the value of chattels like furniture, for example. Their value is usually the equivalent of the way they would be valued if sold at a garage sale, unless it is a specialist item such as an antique.

It includes property brought into the relationship and also what may have been accumulated after separation, as well as property that accumulated during the relationship. It also includes other financial resources that one party may have influence over such as a company or trust and may include prospective entitlements, such as an inheritance.

Note: Although superannuation is dealt with separately, it is taken into account when the court is considering property division.

See What is property? and Family Court—Superannuation information kit(opens in a new window).

Debts

Now the debts have to be taken into account. These include: the mortgage, overdrafts, personal loans, tax and credit card debts.

The assets that the couple have left over after calculating the debts they owe become the net property pool to be divided. This can be a very complicated equation as it may have to take into account taxation, stamp duties and the appreciation or depreciation of the value of assets.

Generally, the court will distribute between the parties the net value of the assets after the debts have been deducted, but this is not always the case. The court has discretion to ignore debts.

The court may disregard altogether or discount the value of an unsecured debt which is:

  • vague or uncertain
  • unlikely to be enforced
  • unreasonably incurred, or
  • a debt where one party should bear exclusive responsibility.

See Biltoft [1995] Fam CA 45 FLC 92-614 (10 May 1995).

The court will want to make sure that a debt is genuine. For example, if one party was given a loan by their parents as a deposit to buy a house, the court will need to establish if there was an expectation that it would be repaid, or if it was intended as a gift. The court may also 'add back' debts incurred due to wastage, for example if one party dissipated a large sum of money after separation.

Add backs

According to Omancini (2005) there are 3 categories of cases where the court has decided that it is appropriate to add back to the pool of assets, assets that no longer exist. They are:

  • where money has been spent on legal fees
  • where there has been a premature distribution of assets
  • in circumstances where assets have been wasted (that is where one of the parties has intentionally educed or minimised the value of the assets (or acted recklessly, negligently or wantonly in doing so).

Old debts

It is important to know when loans were made, and therefore whether any of the debts may be statute barred. This period is usually 6 years from the time that the loan was last acknowledged, however this depends on the kind of loan involved.

See Civil—Consumer and debt—Debt collectors—Old debts.

Date of valuation

The date of valuation of property is the date of the court hearing or settlement, not the date of separation.

2. Decide if just and equitable

In 2012 a High Court decision has changed the way a court must approach an application for property division. After getting the asset pool, the court must make a finding about whether it is just and equitable to make a property settlement order at all. Only if this is satisfied should the court proceed to the remaining steps.

The breakdown of a marriage or de facto relationship does not bring as an automatic consequence, an alteration of existing property interests of the couple. The making of a property adjustment order at all is not to be assumed but must be shown to be just and equitable to do so. In the vast majority of cases, however this requirement is met by the mere fact of the parties' voluntary separation. which demonstrates the parties have a just and equitable need to alter the property interest that lie behind whatever common use they may have made of assets when they were able and did live together.

See Stanford and Stanford [2012] HCA 52 (15 November 2012).

3. Looking at contributions

The court then looks at all contributions to the relationship that have been made by the parties. This includes financial and non-financial contributions that have been made before, during and after the relationship breakdown. These contributions can be:

Financial

That is, bringing money and assets into the relationship. This might include, for example if one party owned a house before the relationship started, and also wages that are earned by each party.

Financial contributions can be indirect, for example where one person has received an inheritance from a grandparent, or where parents of one party had helped pay the deposit on the family home, or had let the couple live rent-free in their investment property for a period of time.

Non-financial

These are contributions that increase the value of a relationship without spending money. Examples of this could be the time that a person spends out of the workforce raising children, creating a garden, providing their labour to renovate or extend the family home, preparing meals, event managing to enhance the other party's business career.

These non-financial contributions can be made on behalf of one party, such as where the maternal grandparents babysit while both parents go out to work, or if a brother-in-law paints the house, builds a shed, or if the parents allow the couple to live their home rent free.

These contributions are then expressed as a percentage of the net value of the property of the parties, the property pool.

4. Future needs

The court then looks at the future needs of both parties. The court takes into account many factors when they investigate this. For example, they look at:

  • the earning capacity of each party
  • their age and health
  • their parenting responsibilities
  • whether child support is paid, and if so, how much
  • any new relationships they have formed
  • whether the parties will have a reasonable standard of living in, and
  • the assets that each party has (including property and financial resources).

Future needs considerations are listed in s. 75(2)—Family Law Act 1975 (Cth)(opens in a new window).

Dispute resolution

Unless an exception applies, both parties are required to make a genuine effort to sort out their disputes without having to go to court. A party can be penalised if they refuse to do this.

Each party should get independent legal advice before they proceed to try to reach an agreement about property.

See Dispute resolution and property.

More information

Legislation

Family Law Act 1975 (Cth)

  • Part Vlll—Property, spousal maintenance and maintenance agreements
  • s. 75—matters taken into consideration
  • s. 79—alteration of property interests
  • s. 90SM(4)—alteration of property interests (defacto couples)

See Family Law Act 1975 (Cth)(opens in a new window).

Cases

Stanford and Stanford [2012] HCA 52 (15 November 2012)

Facts: This case involved an appeal from the Full Court Appeal in the Family Court. It involved a couple who had been separated only by the fact that the woman had entered into a nursing home following a stroke and was suffering from dementia. The application for a property settlement had been started by a daughter from a former marriage who was acting as the wife's case guardian. The couple had been married for 37 years. The wife died before the final orders were made.

Held: In every case where a property settlement order is sought, it is necessary to satisfy the court that in all circumstances it is just and equitable to make the order.

'Whether a property settlement order is just and equitable is not to be answered by beginning from the assumption that one or other party has the right to have the property of the parties divided between them or has the right to an interest in marital property which is fixed by reference to the various matters (including financial and other contributions) set out in s. 79(4).' and 'To conclude that making an order is just and equitable only because of and by reference to various matters in s. 79(4), without separate consideration of s. 79(2), would be to conflate the statutory requirements and ignore the principles laid down by the Act.'

See Stanford and Stanford [2012] HCA 52 (15 November 2012)(opens in a new window).

In the Marriage of: Christopher John Biltoft Cross Appellant/Husband and Valentine Biltoft Respondent/ Wife Appeal [1995] Fam CA 45 FLC 92-614 (10 May 1995)

In this case the husband claimed that there was a liability to an unsecured creditor. The amount of the debt was uncertain. There had been no attempt by the creditor to recover any of the debt. At trial, the husband asserted that the parties were insolvent. He sought an order that the property be sold and the proceeds be made available to the creditors. The trial judge refused to accept the evidence of the husband and the creditor.

The Appeal was dismissed because the procedure for amassing the net property pool in relation to unsecured debts is uncertain. The court may decide not to take into account the amount of value of an unsecured debt, or it may discount that debt. The rights of the creditor must be balanced against the rights of the other wife.

See In the Marriage of: Christopher John Biltoft Cross Appellant/Husband and Valentine Biltoft Respondent/ Wife Appeal [1995] Fam CA 45 FLC 92-614 (10 May 1995)(opens in a new window).

Reference

Family Court

The court website has information to explain how superannuation is treated.

See Family Court—Superannuation information kit(opens in a new window).

VLA Professional Support —Family law practice resources

Our professional support team have content available on the intranet to support staff with family law property matters.

See Practice resources—Family law resources—Getting started in a property settlement matter(opens in a new window).

Updated