A formal property settlement is a legal contract between spouses recording their agreement about the division of shared assets and liabilities.

A property settlement can be formalised by a private financial agreement or by consent orders or judicial court orders.

A key factor in calculating a property settlement is the initial contribution each spouse made to the relationship.

Whether the settlement is assessed by the court or agreed privately between the spouses, rules established by the Family Law Act 1975 (Cth) govern the division of assets.

What is an initial contribution?

The assets each party brings with them at the beginning of a relationship is their “initial contribution”. There is no set formula in assessing initial contributions: the court takes into account the totality of factors.

Initial contributions are assessed according to:

1. their monetary value and the percentage this represents of the total property pool;
2. whether the other spouse also made significant contributions; and
3. the length of the relationship.

The parties must identify who contributed which asset, the asset’s nature, and it’s effect on further contributions during the relationship. 

Not all initial contributions are tangible assets: spouses can also make non-financial contributions such as household management and child-care.

Length of relationship

The length of the relationship is a deciding factor in assessing initial contributions.

In shorter relationships, each spouse’s initial contributions are particularly important. There are generally fewer jointly acquired assets, and It is easier to identify the original owner of an asset.

Courts view longer term relationships differently, based on the assumption that after a period of time a couple’s assets have merged. Initial contributions are assessed against the totality of contributions made by both spouses during the relationship, including household duties and unpaid child-care. 

If an increase in the value of an asset during a relationship or marriage was not through the efforts of either spouse then that increase would be considered a joint contribution.

For longer relationships, the court usually assesses each party’s contribution to the acquisition, maintenance, and preservation of the property pool.