It’s a common question that we receive here at Emerson Family Law. As Covid-19 continues to affect our lives and the Australian economy, a concern for many people, is the effect on the value of assets and “property”, such as houses, shares and superannuation.
For those in the middle of the divorce process, a common concern is if and how their property settlement in Australia might be affected by the global pandemic. There’s still a lot of uncertainty surrounding the financial aspects of separation, so here’s how we think Covid-19 might affect your property settlement.
Family Law Act
In family law, ‘property’ wide refers to a wide range of assets, such as your home, any savings, and your superannuation. It can include things like cars, business interests and even inheritances. It also includes any debts and liabilities you have.
There are general principles the court considers when deciding financial disputes after the end of a marriage or de facto relationship according to the Family Law Act 1975 (see Sections 79(4) and 75(2)) or a de facto relationship (see Sections 90SM(4) and 90SF(3)). These general principles include:
- What each party has and what they owe (assets and debts);
- Indirect financial contributions by each party (inheritances from families);
- Direct financial contributions by each party (wage or salary earnings);
- Non-financial contributions such as caring for children;
- Future requirements post-separation, for example, health, the ability to earn and care of children.
Section 79(5) of the Family Law Act (married couples) and Section 90SM(5) (de-facto partners) explains that the Court has the power to grant adjournment for property settlement proceedings in Australia if:
- There is likely to be a significant change in financial circumstances of either parties, considering the time when the change is likely to take place.
- The Court could make an order in relation to the property of the parties if the significant financial change is more likely to do justice that if the Court were to make an immediate order.
This could potentially apply to significant financial loss as a result of Covid-19.
One of the first steps in any property settlement in Australia is a valuation.
A valuation involves identifying the assets that are available to be divided between the parties and determining the value of these assets.
Valuations prepared before Covid-19, perhaps even as recently as January 2020, may be considered redundant or inaccurate due to changes in the economy. The same goes for valuations prepared during or after Covid-19. These valuations may be disputed as it might be difficult to predict future earning potentials or cash flow.
Since part of the process of a property settlement in Australia is considering the future financial needs of each party, including earning capacity, a loss of income has the potential to impact on the final decision. This loss of income could affect a person’s ability to pay any existing or future spousal maintenance and child support payments.
If you are planning on negotiating a property settlement very soon, we do recommend obtaining updated valuations and to factor in the current and ongoing economic impact of Covid-19. We do predict that valuations may become more complex over time, and issues may arise due to the uncertainty in this economic climate. It may be worth holding off on any property settlement discussions during this time if you are able to. Please seek legal advice before making that final decision.
When it comes to whether to go ahead with any potential business valuations, this really depends on the industry that business is in. There are some industries that have experienced a significant increase in revenue during this time, while others have experienced severe income loss, resulting in office closures and staff being let go.
Superannuation splitting laws allow superannuation to be divided when a relationship breaks down. Many people have seen their superannuation funds plummet as a result of the global pandemic, resulting in a smaller sum to be split between parties. Some have also made early withdrawals of up to $10,000. It is uncertain whether or not this early release of superannuation will be considered as an addition into the property pool; it could very well be argued that this early access amount should be considered part of the property settlement inclusions.
In the current climate, rather than splitting superannuation in terms of dollar figures, it may be preferential to divide in terms of percentages. This way, if any other significant changes occur in the superannuation accounts, the intended percentage split is retained.
Former Family Home
The same goes for shared property in the form of a family home or investment property. There is a risk of selling a home and not reaching the anticipated value. The best option is to divide the sale proceeds between the parties by way of a percentage split – whether that’s 50/50 or some other agreed percentage. However, you should seek financial advice from a professional as to whether this is the best time to sell your property.
Other Property Considerations
Covid-19 may also affect the value of common assets like vehicles, artwork, inheritances and shares. It might be best to take a similar approach to your superannuation and family property, and split the total value of these assets by a percentage.
Discuss Property Settlement in Australia With a Qualified Lawyer at Emerson Family Law
While the full economic effects of Covid-19 are still unfolding, it may be worth considering putting your property settlement negotiations on hold. However, if you decide to continue, we do recommend seeking legal advice from a lawyer. Our team here at Emerson Family Law is experienced in family law issues including divorce, separation and property settlements. We also offer collaborative law and mediation services, which offer a private, more cost-effective and generally more efficient pathway of negotiating property settlements in Australia during this time. Please get in touch to learn more about your options for dealing with family law issues during this time.