How are financial resources in Family Law considered when dividing assets after a separation?
A couple who has separated may consider arrangements to divide their assets, finances, and liabilities, or ‘property pool’, which is defined as the collective pool of shared and individual possessions.
An evaluation of the couple’s property pool is the first step of the property settlement process, and includes the valuation of assets, such as:
- Motor vehicles
- Family home
- Business interests
The division of a separated couple’s assets will be greatly affected by how the Australian Federal Circuit and Family court will classify these assets.
In the decision to divide the shared assets, the court will weigh each party’s contribution to the property pool, their respective future needs, and whether the decision is just and equitable. Another factor to be considered is the differentiation between what asset in the property pool is considered as property, and what is considered as financial resources.
Property vs Financial Resources in Family Law
Distinguishing between property and financial resources is essential in family law in the case of asset division – as it determines what is to be allocated and divided between the parties. “Property” refers to tangible assets, while “financial resources” encompass liquid assets.
In family law, “property” is defined by the Family Law Act 1975 as:
“Property, in relation to the parties to a marriage or either of them, means property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion.”
Items categorised as “property” includes:
- Real estate
- Family home
- Trust assets
As previously mentioned, a division of assets of a separated couple is based on their property pool. If the court designates an item as property, then it becomes part of the property pool eligible for division. In contrast, financial resources, while still a critical consideration in the asset division process, will not be included in the asset pool itself.
What is considered a financial resource in Family Law?
It can be tricky to determine what qualifies as a financial resource. Unlike property, the Family Law Act does not explicitly outline the specific criteria for financial resources.
So, what is a financial resource?
The main difference between a financial resource and a property is that the former can potentially bring in income or assets down the road, while the latter does not. That is why, even though financial resources aren’t typically part of the asset pool being divided in a separation, the court will take them into account as they can offer one party future financial benefits.
A financial resource refers to something that an individual can use to draw financial or monetary resources, such as:
- Loan agreements
- Inheritances, including one that a beneficiary does not expect to receive for some time
- A person’s ability to apply for monetary loans
- Future pension entitlements
- A beneficiary’s interest in a discretionary trust
How do financial resources affect asset settlements in Family Law?
When it comes to dividing assets following a separation, it is important to differentiate some items as property, and others as financial resources. This distinction is crucial because if an item is categorised as property, it will be considered part of the property pool to be divided between parties, where those classified as a financial resource will remain with the individual and cannot be divided.
In some cases, the court may determine that a fair outcome necessitates one party to receive the larger portion of the financial resources, taking into account each party’s contribution to the overall property pool and future financial needs.
For instance, a business owned by one spouse may be designated as a financial resource, allowing them to retain complete ownership for income. On the other hand, a hobby farm is classified as property, and it would likely be subject to sharing arrangements and to be divided accordingly.
The intricacies of this asset classification is why seeking professional legal guidance becomes crucial. Such service will help a couple to fully understand financial resources and the complexities of family law related to asset division following a separation.
At Quill Legal, we pride ourselves on being Sydney’s leading family law experts. We are here to help provide the support and expertise you need to navigate through this intricate process.
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