The Family Law Courts have the power under s 79 of the Family Law Act 1975 (Cth) (FLA) to make an order that alters the property or financial interests of parties (including third parties) to a marriage or de facto relationship where it is just and equitable to do so. See Stanford v Stanford (2012) 47 Fam LR 481. The equivalent provision for de facto relationships in Western Australia is the s 205ZG of the Family Court Act 1997 (WA) (FCWA). Proceedings seeking such orders are referred to within the profession as property settlement matters.

When the court decides it is just and equitable to make orders in proceedings for property settlement the court will, as far as practicable, make such orders as will finally determine the financial relationship between the parties to the marriage and avoid further proceedings between them: s 81 of the FLA (s 90ST in relation to de facto relationships except in Western Australia). The equivalent provision for de facto relationships in Western Australia is the s 205ZJ of the FCWA.

The court has the power to:

• • make a declaration as to the title or rights, if any, that party has in respect of property;
• • make orders as to the sale or partition and interim or permanent orders as to possession;
• • alter the interest of the parties to the marriage in property;
• • make orders affecting the interests of third parties; and
• • alter the interest of a bankrupt (if any) in the vested bankruptcy property: s 79(1) of the FLA (s 90SM(1) in relation to de facto relationships except in Western Australia). The equivalent provision for de facto relationships in Western Australia is the s 205ZG of the FCWA.

Section 79(4) of the FLA sets out the factors which the court must take into account when deciding whether to alter the property interests of the parties, commencing with the requirement that any order be just and equitable to the parties. In considering the factual circumstances of some cases, the court has simply decided that it would not be just and equitable to make any order altering property interests, while in other cases, property interests were altered to give a just and equitable result.

Using a logical process, the court must identify:

• • the assets and financial resources of the parties;
• • the financial contribution made directly or indirectly by a party to the marriage or a de facto relationship;
• • the contribution (other than a financial contribution) made directly or indirectly by a party;
• • the contribution made by a party to the marriage to the welfare of the family, including any contribution made in the capacity of homemaker or parent; and
• • any other relevant matters as set out in s 75(2) of FLA (the “future needs”) of a party.

A multi-staged process is used by the profession and the court but with the acknowledgement that its role is confined to helping explain and apply the just and equitable requirement. This is consistent with the comments made by the Full Court in Norman & Norman [2010] FamCAFC 66 that the three-step or four-step process “merely illuminates the path to the ultimate result”.

Stage I: The identification and valuation of the matrimonial property

In this preliminary stage, the court will identify and value all assets, liabilities and financial resources that each party has an interest in. Property can include real property but also financial assets such as an inheritance, a windfall or superannuation.

See Identifying property and liabilities.

Stage II: The assessment of contributions by the parties

In this second stage, the court will assess the contributions, financial and non-financial, direct and indirect, made by each party to the property of the parties during the relationship.

See Contribution of parties.

Stage III: Section 75(2) adjustments for future needs

In this third stage, the court considers the ability of each party to attain economic self-sufficiency going into the future, The court must consider how to achieve a just and equitable outcome taking into account the matters prescribed in s 75(2) of the FLA (s 90SF(3) in relation to de facto relationships) (or commonly referred to as “future needs” factors). Often the court considers making “an adjustment” of resources, usually financial, to equalize the respective financial positions of each party where there is a significant disparity between them. Factors listed s 75(2) (or commonly referred to as “future needs” factors).

See Future needs.

Stage IV: Just and equitable

Before the court can make any orders altering the interests of parties, it must be satisfied that it is “just and equitable” to do so given the circumstances of the parties’ relationship. The concept of “just and equitable” is sometimes considered as a threshold question but is also a concept which permeates the whole process.

See Just and equitable principle.

Setting aside or varying orders

In certain situations, for example, where a party has failed to disclose relevant assets or liabilities which has disadvantaged the other party, the court is empowered to set aside previous orders made by consent under s 79A of FLA. Other factors which may ground a court setting aside previously made orders include where a party has acted fraudulently, coerced the other party or there has been a “miscarriage of justice”.

Section 90K (1) of FLA enables the court to set aside a financial agreement which has been made with reckless disregard of the interests of creditors.

See Setting aside or varying orders.

Effect of bankruptcy on property settlements

Where a party is bankrupt at the commencement of proceedings or subsequently becomes bankrupt, the outcome of the settlement can be greatly influenced by the joinder of the trustee in bankruptcy or a creditor to the proceedings. The court is required to balance the competing claims of the creditors’ interests against those of the spouse especially where the family home is not protected from being sold to meet existing debts.

A court can take into account a party’s bankruptcy in a wide range of matters under the FLA: the alteration of property interests; the making of consent orders or a financial agreement; spousal maintenance or setting aside orders already made. Bankruptcy does not affect a party’s obligation to continue to pay child support and may not be sufficient to avoid a claim for spousal maintenance.

Procedures in bankruptcy cases also differ in that in most cases, one party will seek to join the trustee, or the trustee may join of their own volition to protect the interests of creditors. Parties may also be summonsed for examination about their financial affairs with the court empowered to apprehend a person who does not appear to give evidence as requested.

See also Bankruptcy in the family law context.

Dealing with trusts under family law

Due to the very broad definition of property in the FLA, the Family Court has a much wider ability to deal with trust property than the courts dealing with other regimes, for example, bankruptcy. Property held by a trust may be treated as the property of the parties or as the sole financial resource of one party. In coming to a decision, the court will examine issues such as who has control of the trust as outlined in the trust deeds.

See Dealing with trusts under family law.