In every financial settlement after the breakdown of the marriage, a four step mythology is used to determine the entitlements of each party. When lawyers give advice to clients as to their entitlement or likely settlement, they have an obligation to do so based how they think the Court may apply the four step mythology given the information and instructions provided by the parties.
Step one in the four step methodology involves determining the balance sheet. In this process each party is required to make a full and frank disclosure of their financial circumstances. Any interest that each party has in real and personal property, whether held individually, jointly, or with a third person is included and then valued. The liabilities of the party are determined, together with what superannuation interests the parties have. Once all this has been identified and values agreed upon or settled, then a settled balance sheet emerges and the parties are then able to work out with more clarity what their likely settlement entitlements will be.
The second step in the methodology involves determining on a percentage basis for each party what their contributions have been. This is not a strictly mathematical exercise, because the requirement to consider both the financial and non financial contributions of each of the parties. In every case this will involve taking a history from each party as to the various contributions towards the assets. The starting point will be looking at what assets each party brought into the relationship, and then tracing how parties got from that starting point to where they are at the current point in time.
The third step in the process involves asking whether either party is entitled to an additional percentage for any reason. If so, it is then a question of what additional percentage of the net assets that party will be entitled to receive.
At the final step in the process the percentages assessed at steps two and three are added to determine the overall proportion of the net assets each party will be entitled to receive. Once that view of the overall percentage entitlement has been reached, it then a matter of determining how to allocated the net assets such that each party receives their percentage entitlement and that the assets and liabilities are no longer held in joint names. This may involve either a transfer of assets from one party to another or a sale of assets and the division of the net proceeds of sale.
What the outcome will look like at the end of the day will be influenced by a number of factors such as the financial capacity of each party, and what it is they actually seek to achieve.
Craddock Murray Neumann has a specialised family law section with two Accredited Specialists in Family Law, one a former Registrar of the Family Court of Australia. For assistance telephone Dominic Wilson on (02) 8268 4000.