The 4-Step Property Settlement Process Explained

Step 1: Identify and value the asset pool

The first step is to identify and value all of the property, liabilities and financial resources of both parties. This includes real property (the family home and any investment properties), superannuation, savings, shares, vehicles, business interests, and personal property. It also includes liabilities such as mortgages, credit cards and personal loans.

Superannuation is treated separately from other assets — it is included in the pool but split by a formal superannuation splitting order rather than simply transferred. Both parties are required to make full and frank disclosure of all their assets and liabilities. Failing to disclose can have serious consequences.

Step 2: Assess contributions

The second step is to assess the contributions of each party to the acquisition, conservation and improvement of the property. Contributions include financial contributions (income, gifts, inheritances) and non-financial contributions (homemaking, parenting, supporting the other party's career).

Contributions are not assessed mechanically — a short high-income marriage is assessed differently from a long marriage where one party stayed home with children. Initial contributions (assets brought into the relationship) can be significant in shorter relationships but may be 'washed out' over a longer marriage. Inheritances and gifts received during the relationship are treated as contributions by the recipient party.

Step 3: Consider future needs

The third step is to consider the future needs of each party and adjust the split accordingly. Factors the court considers include the age and health of each party, their income-earning capacity, whether one party has the primary care of children, and any disparity in financial resources.

A party who has primary care of young children and a lower earning capacity may receive a larger share of the asset pool to reflect those future needs. This adjustment is sometimes called a 'future needs' loading.

Step 4: Check the outcome is just and equitable

Having worked through steps one to three, the court — or the parties in negotiation — must check that the proposed outcome is just and equitable in all the circumstances. This is a broad test that ensures the technical result of the first three steps produces a genuinely fair outcome. In some cases, particularly where there was little property brought into the relationship and a long history of equal contributions, the outcome will be close to 50/50. In others, it may be significantly different.

Consent orders, binding financial agreements, or court?

If the parties reach agreement, they can formalise it by way of consent orders (approved by the court without a hearing) or a binding financial agreement (BFA, sometimes called a 'pre-nup' or 'post-nup'). Consent orders are generally the preferred approach — they are stamped duty exempt in Victoria and enforceable as court orders.

A BFA does not require court approval, but both parties must have had independent legal advice, and the formal requirements are strict. If the parties cannot agree, either can apply to the Federal Circuit and Family Court for property orders. Court is generally the option of last resort — it is costly, time-consuming and uncertain.

Limitation periods — act promptly

Married couples have 12 months from the date the divorce order becomes final to apply to the court for property orders. De facto couples have two years from separation. If you miss these deadlines, you may need to seek leave (permission) from the court to apply out of time — which is not guaranteed. Reach a formal agreement as soon as practicable after separation.