Division of matrimonial property in Australia

Research Paper No. 25 – March 2001

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Question 1: What is the nature and value of assets on divorce

An important first step in the process of reviewing the current operation of the financial provisions of the Family Law Act is to examine the nature of the asset wealth of women and men who divorce; and the extent to which this wealth can be relied upon to ease the financial hardship associated with separation and divorce.

Measures

To assess the value of property owned at the time of separation, respondents were asked about each individual asset and associated liability that they and their former spouse had at the time of separation. Information was obtained on the value of each of the following assets and associated liabilities:

  1. Bank, building society and credit union accounts;
  2. Matrimonial home and mortgage;
  3. Furniture, cars, household equipment and amount owed on these;
  4. Superannuation policies (value at the time of separation);
  5. Life insurance policies (surrender value);
  6. Investments such as shares, bonds, debentures or other real estate and amount owed on these;
  7. Businesses or farms and related debts;
  8. Other assets with a value of $1,000 or more and the amounts owing on these assets (such as sporting and household equipment, caravans, boats, jewellery, musical instruments, paintings).
  9. Other liabilities (for example, non-asset related liabilities, such as personal or private loans, credit card debts).

On the basis of this information, the total net-value for all assets was derived. In addition, a number of distinctions were made between types of wealth. The net value of the basic assets of the marriage was calculated, following the approach adopted by McDonald (1986b: 173-174). Basic assets comprise those assets that the vast majority of people have, and that are used in day-to-day family life such as the family home, furniture and cars, bank accounts and non-asset related debts (such as credit card debts and personal or private loans). This distinction is based primarily on usage rather than on current practice in family law in distinguishing between assets for domestic use and other assets when dividing property.6 The non-basic assets comprise two different kinds of family wealth: (a) investments such as shares, bonds, debentures or other real estate, and businesses or farms; and (b) financial resources such as superannuation and life insurance.

Respondents were categorised according to the level of asset wealth of the couple at the time of separation. The 1997 social security non-home owner Pension Assets Test was used to assess the reported net asset wealth levels of the couple at the time of separation. As all calculations of assets include the value of couples’ net equity in their home, the test for all assets was used rather than the test that excludes the value for the owner-occupied home. This involved deriving the value of the couple’s total net assets excluding superannuation, as superannuation is excluded from calculation of the 1997 social security non-home owner Pension Assets Test. This value was then adjusted to 1997 dollars using the Consumer Price Index to determine whether the real value of assets was above or below the Asset Test cut off: $268, 500. The following three categories of asset wealth were then created: (a) the high asset wealth group where asset wealth was greater than the cut off for the assets test (that is, $268,500), (b) the medium asset wealth group with asset wealth valued at between $114,000 and $268,500, and (c) the low asset wealth group with asset wealth valued at below $114,000.7

Findings

Type of assets owned

Table 1.1 sets out the type of assets and liabilities owned by the couple at the time of separation.

Table 1.1 Combined assets and liabilities of couple: percentage of respondents who reported owning assets and liabilities of different types at separation ( n =597)
Type of asset or liability %
Basic assets
Bank & credit union accounts a 81
House, flat 77
Furniture 100
Cars 95
Other basic assets b 46
Non-Basic assets and financial resources
Superannuation 81
Life Insurance 40
Investments 22
Business or farms 24
   
Non-asset related debt c 34

Notes: missing cases=53 (property division not finalised at the time of interview).
a Percentage of respondents with money (i.e., credit) in bank, building society or credit union accounts at the time of separation.
b Other assets valued at more than $1000 (such as sporting and household equipment, caravans, boats, jewellery, musical instruments, paintings, etc).
cNon-asset related debt includes personal loans, credit card debts and overdrafts.

A number of patterns evident in Table 1.1 are of note. The first is the predominance of superannuation. Around 81 per cent of all cases involved at least one superannuation policy (usually the husband’s). This represents a substantial increase on the rate of 55 per cent cited by McDonald (1986b). Such a finding is consistent with the shift in government policy during the late 1980s and 1990s towards compulsory superannuation, and represents a marked change in the composition of the family’s asset wealth, and in couples’ investment priorities (see also Dewar, Sheehan & Hughes, 1999). Aside from this increase in the importance of superannuation, the general nature of the assets owned by parties on separation and divorce appears to have remained consistent with the patterns of asset wealth identified in the early 1980s byMcDonald (1986b).

The type of the assets owned by parties at separation is dependent on a variety of factors, the most obvious of which is the wealth of the couple. Table 1.2 presents the assets and liabilities of the couple at separation for the three asset wealth groups.

Table 1.2 Percentage of respondents who reported owning assets and liabilities of different types by level of asset wealth * ( n =389).
Type of asset or liability Low Asset
( n=178)%
Med Asset
( n=131)%
High Asset
( n=80)%
Basic assets
Bank & credit union accounts 68 81 88
House, flat 58 92 86
Furniture 100 100 100
Cars 92 95 100
Other basic assets 40 51 61
Non-Basic assets and financial resources
Superannuation 71 90 82
Life Insurance 25 41 54
Investments 7 23 54
Business or farms 12 24 41
Non-asset related debt 42 35 30

Notes: missing cases=261 (53 cases are missing because property division was not finalised at the time of interview, 203 cases are missing because incomplete information was provided on the value of asset items and 5 cases are missing because data collection was not complete).
* Wealth is defined as the net worth of the couple adding in the values of all assets and subtracting all debts (excluding the surrender values of superannuation at the time the property was divided).

Not surprisingly, women and men from high asset marriages, and to a lesser extent those from medium asset marriages, report ownership of a wider range of assets at separation than women and men from the low asset marriages. The main differences between the low asset group (46% of the sample) and the high asset group (21% of the sample) are that women and men from ‘low asset’ marriages rarely report ownership of investments such as real estate (other than the family home) and shares, businesses or farms. In contrast, just over half of the high asset group had investments at the time of separation and over one third (41%) reported equity in businesses or farms. Further, around half (58%) of the women and men from the low asset group report equity in the family home compared with the vast majority (86%) of those from the high asset group.

Value of assets owned

The reported net value of all assets owned at separation for the vast majority of respondents (80%) was below the 1997 Social Security Pensions Assets Test. The median value of net asset wealth as reported by women and men (excluding superannuation) was $124,101.8 These median property values accord reasonably well with findings from a recent study of cases finalised in the Family Court (Matruglio & McAllister, 1999). The median value of women’s superannuation at divorce was $5,590 compared with $22,361 for men. The median net dollar value of assets and liabilities of particular types are given in Table 1.3.

Table 1.3 Median net value of assets and liabilities ( n =389).
Type of asset or liability $ n
Basic assets
Bank, credit union accounts $2,236 295
Matrimonial home $99,385 294
Furniture, cars & other assets $28,373 389
Non-Basic assets and financial resources
Superannuation $26,152 179
Life insurance policies a $10,461 89
Investments $40,732 86
Businesses or farms $55,901 81
     
Non asset related debt $3,638 143

Notes: missing cases=261. All values are adjusted to 1997 dollars using the Consumer Price Index.
Only assets and liabilities with a non zero gross value are included in estimates (Excludes one case on computation of value of life insurance policies, one case on computation of value of non asset related debt and 91 cases in computation of value of funds held in bank, building society and credit union accounts).
a Represents the value of all policies held by the husband and the wife at the time of separation.

As McDonald (1986b) found, couples generally had only a very small fraction of their assets in liquid form (such as money in bank accounts), suggesting that on distribution, there was generally little ready cash available for either party to buy out the other party’s share of a particular asset, or to set up a second household. Table 1.3 also indicates that equity in the family home was by far the most valuable source of asset wealth at separation. However, for most divorcing couples there is also considerable debt remaining on the family home at the time of separation (i.e., 78 per cent of couples with equity in the family home had debt remaining on the family home at the time of separation; and for those who had such debt, it was worth, on average, 35 per cent of the estimated value of the family home).

The ability of parties to allocate their property in a way that meets the financial needs of all parties and preserves the family home for the children is dependent on both the value and range of asset wealth available at separation — characteristics of asset wealth that would by definition be most constrained for those women and men from low asset marriages. Table 1.4 presents the median dollar value of assets and liabilities of particular types for the three asset wealth groups.

Table 1.4 Median net value of assets and liabilities by asset wealth * ( n =389).
Type of asset or liability Low asset ( n=178) Med asset( n=131) High asset( n=80)
Basic assets
Bank, credit union accounts $1,118 $2,615 $5,575
Matrimonial home $44,721 $120,169 $202,679
Furniture, cars & other assets $21,330 $33,448 $44,870
Non-Basic assets and financial resources
Superannuation $15,878 $28,373 $34,961
Life Insurance Policies $3,864 $9,137 $27,293
Investments $11,149 $28,162 $111,492
Businesses or farms -$2,012 $31,864 $131,236
       
Non asset related debt $3,865 $3,199 $3,596

Notes: missing cases=261.
Only assets and liabilities with a non zero gross value are included in estimates.
All values are adjusted to 1997 dollars using the Consumer Price Index.
* Wealth is defined as the net worth of the couple adding in the values of all assets and subtracting all debts (excluding the surrender values of superannuation assets at the time of asset division).

The data presented in Table 1.4 shows that, a large minority of women and men (those from low asset marriages) are very limited in the extent to which they can address the respective parties’ needs. This is because their asset wealth is primarily tied up in the family home and contents, cars, and in superannuation. Those in the low asset range have little or no equity in non-basic assets such as investments. In addition, of the 58 per cent of women and men from low asset marriages who report equity in the family home, the vast majority (90%) reported having money owing on the family home at the time of separation — debt that, on average, amounted to 50 per cent of the estimated value of the property at the time of separation. This composition of asset wealth — high levels of debt combined with limited wealth in non-basic assets — suggests that it would be difficult for these women and men to divide their assets in a way that would allow both parties access to immediate financial resources post-settlement, and secure the family home for the resident parent and children.

In contrast, for the high asset group (one in five of the women and men interviewed) the basic assets and superannuation account for around half of these couples’ total asset wealth and they have substantial equity in non-basic assets such as investments. In addition, of the 86 per cent of women and men from high asset marriages who reported having equity in the family home, 60 per cent had money owing on the house at the time of separation - debt that accounted for, on average only 20 per cent of the value of that property at the time of separation. This composition of wealth — low levels of debt on basic assets and greater wealth in non-basic assets — arguably gives these women and men a greater ability to take into account the financial needs of all parties and to preserve the family home on separation and divorce.

Summary

The findings suggest that around half the women and men interviewed reported asset wealth at the time of separation, the nature and value of which, when divided, may not be sufficient to both meet the immediate financial needs of all parties and the housing needs of dependent children. Nor can this asset wealth be relied upon to offset any longer-term financial hardship experienced by these parties post-separation and divorce; hardship that Weston and Smyth (2000) found to be considerable, particularly for sole mothers. Drawing on data from the Australian DivorceTransitions Project, Weston and Smyth (2000) found that, 44 per cent of sole mothers from short-term marriages through to 59 per cent of sole mothers from longer-term marriages (i.e., fifteen years or more) had household incomes below the poverty line some six years post-separation.

6 Mason J made a distinction between basic assets and non-basic assets in Mallet v Mallet (1984), however, it is not a distinction that is relied on by the Family Court in recent years. The Family Court generally deals with the assessment of contributions to property on a global basis not an asset-by-asset basis nor by clustering assets based on usage (Dickey 1997: 682-683).

7 The two 'low asset' groups were determined by a median split for those cases where assets were valued at less than $268,500.

8 The sample used to compute this value (n=389) includes 11 cases with a net shortfall on the total value of assets (excluding superannuation).