Property Settlements and the Hidden Value of Earning Capacity
When a relationship ends, one of the most important issues to resolve is how property will be
divided; this is called a property settlement. A property settlement involves dividing assets,
debts, and financial resources between separating parties. In Australia, property settlements
are determined under the Family Law Act 1975 (Cth) and apply to both married and de facto
couples.
Property settlements require careful consideration of each person’s financial position, their
roles within the relationship, and how the separation will affect their future. Understanding
how the Family Court approaches property matters can help manage expectations and lead to a
fairer outcome.
A common misconception is that property is always divided equally. This is not true. The Federal Circuit and Family Court of Australia (“the Court”) do not adopt a presumption of
equal sharing. Instead, the Court examines the circumstances of each case to determine
what orders are just and equitable. Every relationship is different, and outcomes can vary
significantly depending on the facts of your family law matter.
The five-step process
The Court has broad discretion to alter the parties’ interests in property where it is just and
equitable to do so. All factors must be considered; however, the major considerations for the
Courts are the contributions and future needs of the parties.
The Court has a broad discretion to adjust parties’ property interests where it is just and
equitable to do so.
In exercising that discretion, the Court follows a structured five-step
process:
Whether there ought to be a property settlement at all – in some cases it may not be
appropriate;The identification of the property pool – identifying the assets, liabilities and financial
resources that exist;Assessing the contributions made by each party – including financial and non-
financial contributions;Assessing the future needs of each party; and
Determining a just and equitable division considering the above assessments.
What is included in a property pool?
A property pool includes everything both parties own and owe, regardless of whose name it
is in. This commonly includes the family home, other real estate, bank accounts, shares and
investments, superannuation, businesses or trusts, motor vehicles, debts such as home
loans, personal loans, tax debts and credit cards. The Court will add up all assets, subtracts
all liabilities, and arrive at a net property pool to be divided.
Parties have a duty to disclose to each other all information relevant to an issue in dispute.
Commonly in property settlements, this will include disclosing bank statements, tax returns,
Trust Deeds, superannuation statements and shareholding portfolios. This is an important
step that establishes transparency and ensures that future decisions are based on accurate
information. It is important to note that your duty of disclosure remains ongoing until a formal
settlement has been reached.
Contributions
When looking at contributions, the Court will consider the financial and non-financial
contributions of the parties. The Court will consider much more than who earned the income.
In long relationships, especially where one person has taken on most of the homemaking
and parenting responsibilities, the Court often equalises those contributions despite one
party having earned the income.
Future Needs
After assessing contributions, the Court considers whether an adjustment should be made to
account for the parties’ future needs. This includes, but is not limited to, assessing:
The age and state of health of the parties
The income, property and financial resources of each party and the capacity for
employmentWho has the care of any children of the relationship under 18
Commitments necessary to enable a party to support themselves or any other
person, the party has a duty to maintainThe standard of living is reasonable in the circumstances, and
the extent to which the earning capacity of a party has been affected by the
relationship.
This stage allows the Court to recognise that one party may be financially disadvantaged
after separation. The Full Court in Clausen & Clausen¹, observed one of the most valuable
things a party may leave a marriage with is their ability to earn an income. Highlighting the
important role future earning capacity plays in property settlements.
Why Earning Capacity Matters
In many relationships, couples divide roles for the benefit of the family. Typically, one person
focuses on earning income while the other is the primary caregiver. This arrangement may
work well during the relationship but can cause an imbalance after separation.
The caregiver may have spent years out of the workforce or accumulated less
superannuation. If they return to work, they may earn significantly less than the other party.
The Court looks at factors such as work history, time out of the workforce, and childcare
responsibilities and can adjust the property division to account for this long-term
disadvantage.
This was a consideration in Brimmer & Brimmer², involving an 11-year marriage with two
children; the property pool was approximately $649,000. The husband earned around
$110,000 per year, while the wife was unemployed and had primary care of the children. The court found the wife could not support herself at a similar standard and accepted that her
role at home allowed the husband to build his earning capacity. As a result, the wife received
65% of the property settlement, and the husband 35%.
¹ Clausen & Clausen [1995] FamCA 10.
² Brimmer & Brimmer [2025] FedCFamC2F 149.
This case shows how future needs, especially earning capacity, can affect outcomes.
What if an agreement can’t Be Reached?
Many people resolve property settlements through negotiation or mediation. If an agreement
cannot be reached outside of Court, the Family Court will make a determination using the
five-step process.
Property settlements are not about winning or losing. They are about reaching a just and
equitable outcome that reflects contributions and future needs.
Understanding the process and getting the right family law advice when you separate can
help separating couples move forward with clarity and confidence.