Principal of Justice Family Lawyers, Hayder specialises in complex parenting and property family law matters. He is based in Sydney and holds a Bachelor of Law and Bachelor of Communications from UTS.
Divorce, Property Division and The Erosion Principle
If you are looking to get a divorce, you may have been advised that the erosion principle will play a role in how your property and assets are divided.
While a divorce will legally end your marriage, it does not necessarily end disagreements about property division or child custody.
This is even more relevant if you have only been married for a short time, have no children, or came together later in life.
In legal terms, a short marriage is considered to be a marriage that has lasted for less than five years. However, it is important to note that how long a couple lived together before being married can affect the court’s decision regarding the division of property. In most cases, where the court considers the union to be a short marriage, the erosion principle will not apply in the division of property and assets.
Marriages, by their nature, involve a myriad of financial, emotional and the minutiae of day to day life and regardless of the length of time a couple is married a court will also take these factors into account.
While the dissolution of a marriage or long-term relationship can be an extremely emotional and fractious time between couples, settling out of court in regards to property and child custody issues can ease the stress and save time, money and energy.
What Happens In A Property Settlement?
A property settlement or financial settlement is a financial order made under family law that defines how a couple’s assets and liabilities are divided after a breakup.
To determine how this order looks, a court will evaluate the divisible pool of assets that are shared between the parties.
It is the aim of the court to make sure the property split is just and equitable for both parties.
How property is divided is different in each and every case depends on several factors. It doesn’t always doesn’t necessarily mean a 50/50 split particularly in the case of a short marriage.
If you and your ex can’t come to an agreement out of court, a judge will look at several factors when making a determination.
How does a court decide how to divide assets and debts?
The Family Law Act 1975 sets out the general principles the court considers when deciding financial disputes after the breakdown of a marriage or a de facto relationship.
The general principles of the act that apply to the division of assets and debts are the same, regardless of whether you were in a legal marriage or were considered to be de facto.
The factors that a court will consider when looking at the division of property and assets are:
- Your assets and debts as a couple and what they are worth
- The direct financial contributions made by each party during the marriage, including each person’s salaries, wages and business earnings
- The indirect financial contributions of each party, such as gifts and inheritances
- Non-financial contributions to the marriage such as caring for any minor children
- The future requirements of each party according to factors such as age, health, capacity to earn and any child care responsibilities
How Does This Apply To A Short Marriage Property Settlement?
While a court will take into account certain of the above principles in a short marriage settlement, the length of a marriage will affect how they consider the contributions of each party throughout the marriage and will ultimately play a role in how assets are divided.
While in longer marriages, a court will normally evaluate non-financial and financial contributions as roughly equal, this is generally not the case in short marriages.
If no children are involved in a short marriage dissolution, a court will generally look more closely at the financial contributions of both parties throughout the marriage.
This is particularly applicable to initial contributions such as any considerable savings, inheritances and properties brought into the marriage, and a court is more likely to exclude them from the property pool when dividing assets.
Other aspects a court will consider when looking at the division of assets in a marriage are as follows:
- The division of domestic duties during the marriage. However, this is only really relevant if one of the parties sacrifices their ability income and earning capacity to be a homemaker. As noted by Patrick Parkinson on the case of Fielding and Nichol, mainly when a couple comes together later in life, who does the dishes, mows the lawns or takes out the garbage are not relevant in evaluating how assets are divided.
- Any children involved and to who the primary caring duties now fall.
- Financial contributions. This includes what party A and party B own separately, what they own jointly, any superannuation entitlements and what financial and other contributions each party has made to the conservation and improvement of any property owned, either together or separately.
- Financial and other contributions each party has made to the conservation and improvement of any property owned, either jointly or separately. This relates directly to the erosion principle.
What is the erosion principle?
The erosion principle provides that throughout a marriage, the value of pre-marital assets and property decrease, while the contribution to the asset from the married parties increases.
In longer-term marriages, it is supposed that if an asset has increased in value over time, this is partly due to the contribution of both parties throughout the marriage.
In short term marriages, an asset that is brought into the marriage will be seen to have remained intact without the spouse having contributed to its improvement and the erosion principle will not apply.
Why settle without going to court?
Separated couples are encouraged by the Australian legal system to make every effort to agree on property division arrangements without going to court. In fact, the family law courts require people to make a genuine effort to resolve property matters before filing an application to have it heard in court.
Aside from being costly and time-consuming, leaving the decision of property division up to the courts may not result in a decision that is agreeable to you.
It is advisable in such situations to seek competent legal advice. A trusted family lawyer can assist you in making an agreement on how to divide your property in the following ways:
- By creating an informal agreement
- By making a financial agreement
- Getting a consent order from the courts
If for whatever reason, you can’t come to a mutual agreement with the help of a lawyer, you will have to go to court, where the division of assets will be decided by a family law court judge.
In these cases, the erosion principle may apply.