What is a financial resource? What is property? How can the difference impact on Family Law property settlement proceedings? If any of these questions resonate with you, read on.

How are assets divided after a separation?

A separating couple will often arrange the way in which their assets, finances and liabilities will be divided.

One part of the property settlement process is the evaluation of the couple’s ‘property pool’, including items of value such as:

• Investments;
• Motor vehicles;
• The family home;
• Superannuation;
• Savings;
• Business interests.

The way in which the Federal Circuit and Family Court of Australia categorises these assets can significantly impact the splitting of assets.

To determine the splitting of assets, the court considers factors such as each party’s contribution to the property pool and each party’s future needs, and whether the outcome is just and equitable.

Property vs financial resources

What is property in Family Law?

Section 4 of the Family Law Act 1975 defines property. It says:

“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.”

Property includes items such as:

• Jewellery;
• Real estate;
• Vehicles;
• The family home;
• Trust assets.

If the court categorises something as property, it is included in the property pool available for division between the parties.

What is a financial resource in Family Law?

Unlike property, what constitutes a financial resource is not specifically defined in the Family Law Act and is a fairly broad concept. So, what is a financial resource?

Typically, a financial resource is something which is not considered to be property to be included in the asset pool. It is however to be taken into consideration by the court as it offers future financial benefit to one party.

The key difference between a financial resource and property is that a financial resource has the potential to generate future income or assets, while property does not.

A financial resource is an asset that can be used for the purpose of generating income. It is something from which a person can draw financial or monetary resources and includes:

• Loan agreements;
• Inheritances;
• an individual’s capacity of to borrow money;
• a future pension entitlement;
• a beneficiary’s interest in a discretionary trust.

In certain circumstances, a court may also consider other items a financial resource, such as an inheritance which a beneficiary does not expect to receive for some time.

How does this affect property settlements?

When dealing with the division of assets after separation, your lawyer may want to classify some items as property and others as financial resources.

The reason for this is if an item is classified as property, it can be divided between the parties, whereas if it is classified as a financial resource, it cannot be divided. The court may decide that a just and equitable outcome requires that one party receive a greater share of financial resources, based on each party’s contribution to the property pool and their future needs.

For example, the court may decide to classify a business owned by a spouse as a financial resource and that they should retain their ownership as it provides them with income and security.

In contrast, if a hobby farm is classified as property, it would be subject to a sharing regime and would likely be up for division.

Need help?

Contact us for free initial legal advice and assistance if you are or someone you know is struggling with property settlement following a separation. We are experienced in all aspects of family law and are here to help.