Step 1: Identification and valuation of assets
This step involves identifying and valuing the assets, liabilities and financial resources of the parties.
Property includes all possible interests of the parties whenever and however acquired. It includes both property presently possessed and property expected (for example an inheritance.) It may also include assets and liabilities disposed of in the past.
Property and financial resources are recognised separately. Property can be sold or transferred today, whereas a financial resource (for example superannuation or a damages claim) cannot be separated from a person.
Property must be identified at the date of settlement, not at the date of separation. When identifying assets full and frank disclosure should be demonstrated.
This is a simple step in many cases, but for some cases, particularly those involving businesses, the valuation exercise can be quite complex and require the assistance of experts.
How are liabilities treated in a family law property settlement?
Liabilities are given similar importance to the property of both parties. The net asset pool is commonly determined by calculating total assets and then subtracting total liabilities as follows:
Net Asset Pool = Total Assets – Total Liabilities
Liabilities are deducted from assets regardless of which party is responsible for incurring or paying them. The net asset pool is then shared between the parties on the basis of the contribution of each party and consideration of the additional factors/‘future needs’.
Liabilities to deduct from the asset pool include:
- credit card debts,
- tax liabilities,
- overdrafts and
- personal loans.
Debts are usually shared, unless one party has wasted assets of the marriage (for example, gambling or efforts to deliberately decrease the asset pool). These debts are not deducted from assets as liabilities normally would be.
Debt might not be included where a family member has lent money. The reason for excluding this type of debt is that there is often a possibility that this debt will not be collected. This type of debt may arise in various situations and may be owed to people other than family members.
Full and frank disclosure must be demonstrated when identifying and declaring assets. Otherwise, the Court has the option of favouring the other party due to dishonesty/lack of credibility on the part of the non-disclosing party.
Click here to calculate your asset pool using the Matthews Family Law Asset Pool Calculator.