Property Settlements

PROPERTY SETTLEMENTS

WHO PUT IN WHAT?
CONTRIBUTIONS, FAMILY LAW AND PROPERTY SETTLMENTS

Finances and property are a huge area of uncertainty, misunderstanding and conflict for Family Law clients during and after separation.

Clients often come to me seeking advice after the breakdown of their marriage or relationship. In most cases, they are shocked or at least surprised to learn that simply because assets are held in their name, or they had them at the start of the relationship or they earned more during the relationship, they may not keep more of the assets when the relationship breaks down. Sometimes, clients start off thinking that they contributed “everything” and the other side has contributed nothing and so they should get the bulk of the assets after separation.

Not necessarily! Assessing the contributions of each party to a relationship can be complex. The issue is how to balance the contributions of both parties to a marriage or de facto relationship not just one of them.

Considering the contributions of each party to a relationship is the second of the four steps the family courts (and therefore mediators and lawyers assisting family law clients) must complete in deciding (or negotiating) a family law property settlement. The requirement to take contributions into account is set out in section 79(4) of the Family Law Act 1975i.

There have been many cases where the family law courts have pondered the issue of contribution and how to assess it, in accordance with the Family Law Act 1975. This is particularly the case where there has been an obvious injection of property or funds from one of the partners.

The law embraces a wide view of contribution. Direct and indirect financial and non-financial contributions, made by or on behalf of a party and contributions to the welfare of the family are all considered. In more recent cases, the Courts have also taken into account the extent to which family violence may have made the victim/survivor’s contributions more onerous and therefore greater. (This will be included in amendments to the Family Law Act due to take effect in June 2025.)

Often, where one party owned substantial assets over and above those owned by the other at the start, (for example a debt free home or farm), the issue arises as to what weight should be given to that initial contribution.

Over many cases, the Courts have held that assessing contributions is not a mathematical exercise but a holistic assessment of the parties’ contributions across the entirety of their relationship.

So, how does this apply in practice?

The first thing is to be very clear about who had what at the start of the marriage or de facto relationship. That includes what it was, its value and any liabilities secured against it. For example, did one party own a $450,000 home or did they own a $450,000 home with a $350,000 mortgage? Big difference, especially if the mortgage was being paid during the relationship, regardless of whose wage was used to pay it.

Even if the asset hasn’t crystallized at the start of the relationship, it might be based on earnings or entitlements that one party had before and so will be considered a contribution by that party. Examples of this can include TPD, redundancy or other compensation type payouts. The important element is that the entitlement has arisen before cohabitation.

Next, how was the asset treated by the parties during the relationship? Was it kept apart and never used or contributed to, or was it treated as a springboard to acquire further assets? Did the parties make sacrifices in other ways to maintain the asset?

Then look at the entire contributions made by both parties over the time of the marriage or de facto relationship, and even after separation.

It is not just the contribution to (or of) one particular asset. Often, the longer the relationship, the less weight will be given to an initial or early contribution. If a particular asset has greatly increased in value (one of the cases is about a block of land owned by the husband before a long marriage that skyrocketed in value after being re-zoned) the court will look at the circumstances surrounding that increase in value. Was it due to the contribution of one party, or both, or was it just a windfall to which both or neither of them contributed? It may still however represent a springboard without which the parties wouldn’t have such a comfortable asset base for division, and so the introducing party will still get some “credit” for it as an initial contribution.

Another common area of dispute between parties is where the family of one of them has provided gifts or an inheritance during the relationship. Usually, both parties have a relationship with the giver of the gift and so the spouse of the family member often tries to claim that the gift was a joint one to both parties. Unless there is really clear evidence that this was the intention, the courts have held that a gift by the family of one party is likely to have been motivated by the circumstance of the relationship and therefore was made directly on behalf of and as a means of benefitting the family member. This will hold even if the gift was made into the names of both parties to the marriage.

The prejudices, fear, resentment, disappointment and other emotions that people understandably experience during and after separation, and often for long after, usually mean that they have difficulty in being fair and objective in negotiating a property settlement without professional help.

The assessment of contributions in the context of Family Law is complex and subject to myriad claims between parties. It requires careful and detailed analysis of facts and evidence, not to mention knowledge of the law.

So if you, or someone you know is separating, get legal advice from a qualified and experienced Family Lawyer.

Photo by Roger Starnes Sr on Unsplash

EMERGENCY FUNDS
(HOGAN ORDERS)

August 27, 2021

So, your relationship has broken down, you’ve got no money even though there should be heaps. You can’t afford a lawyer, you can’t afford the bond on a house, Centrelink say there are too many assets and you’re a partner in the family business, what do you do? This is a common scenario where one party has control of all of the assets and the other party has none. It may be that the controlling party has cleaned out the bank accounts or perhaps they are, well, “controlling”.

Whatever the reason, if there are assets and financial resources within the relationship, the law will give you access to what you need, if you have no other options.

A Family Law property settlement is about adjusting the assets and financial resources between the parties. How this is done is decided according to guidelines set out in the Family Law Act and cases decided by the Family Law Courts. (So, it’s vital make sure you have the right evidence before the court in the right way - see my previous blog ‘What’s Fair – Family Law Property Settlements (Basic Principles)’.

Getting to trial can take time, particularly if there are significant assets and financial resources, financial structures, trusts, companies or other business arrangements to be understood and investigated. Sometimes it can take two or more years.

In the meantime, life goes on and money is needed.

To make matters more difficult, it is unusual these days for lawyers to be prepared to wait for payment until the end of the case. Afterall, why should your lawyer have to pay interest on their overdraft or go without simply because you can’t pay for their work?

So, how do you obtain essential legal advice and representation if your ex holds all the money or assets?

The law and the courts enforcing the Family Law recognise that this is a serious issue and so provide short term remedies to ensure that the party who doesn’t control the money is still able to survive, obtain housing, live according to a reasonable standard of living and obtain their own legal advice and representation.

As we always say in Family Law, “each unhappy family is unhappy in their own way”. So, it is important for you to calmly and carefully work out what it is you are going to need in terms of short-term relief.

It’s best if you do this with a professional, usually a family lawyer, but it might also be a financial counsellor or an accountant.

If you need income support but you can’t access Centrelink and you don’t have work or sufficient work or if you are unable to work for some reason, then it might be appropriate for you to apply for what is called ‘spousal maintenance’. A spousal maintenance application can be made independently of an application for a property settlement and can be made at the Magistrates Court level.

On the other hand, you might have sufficient income to cover your basic necessities, but you don’t have sufficient to pay a lawyer or to obtain secure housing.

In these cases, you can apply for what is effectively an interim property settlement, seeking for the release of sufficient funds to enable you to engage a lawyer, possibly buy a car if you don’t have one, pay the bond on a home for yourself and the children etc.

Orders that are specifically designed to ensure that you have access to money for legal fees, so that you can have proper legal representation in your Family Law matter, are called ‘Hogan Orders’. The court makes these orders on the basis that it is essential to the administration of justice that one party is not disadvantaged by being unable to afford legal representation, particularly when there are sufficient funds available and the other party is able to pay for legal representation.

There are other forms of relief available too. If there is a delay in obtaining Child Support, for example because the financial structures within the family make it difficult to ascertain the correct level, you can apply to a court for urgent Child Support. Another remedy may simply be to enable you to access funds in bank accounts, provide access to a particular motor vehicle owned by the other party (but surplus to their needs) or the sale and retention of the sale proceeds for your own use of particular assets such as livestock, shares etc.

Very often, these matters or preliminary matters can be negotiated between the lawyers for each party because those lawyers themselves have an understanding of the parameters.

A word of warning, if you are seeking orders that are effectively an interim property settlement, you also need to be willing and able to commence proceedings for a final property settlement. It is not possible to obtain interim or short-term orders unless you are also applying for final property orders. The process is that, at the first return date of your application, the court is made aware that you are also seeking interim orders and will set aside time, either the same day or within a short period, for those interim orders to be argued and a decision made, pending final settlement.

Like any other court proceeding, these proceedings require significant and careful consideration, drafting of documents and, possibly, advocacy so it’s important to ensure that you have an experienced family lawyer representing you. In many cases, it should be possible to negotiate these orders without the need for a particular hearing but it’s always better to be prepared so that you are negotiating from a position of strength.

The critical thing, before you apply to court, is to carefully work out what it is that you actually need and to be reasonable in what you are seeking, so speaking to an experienced family lawyer can be a worthwhile investment.

WHAT’S FAIR – FAMILY LAW PROPERTY SETTLEMENTS (BASIC PRINCIPLES)

August 19, 2015

What do you think should happen to your assets when you split up? Everyone agrees that it should be fair, but fairness, like beauty, is in the eye of the beholder.

In Australia, if you were either married or in an eligiblei de facto relationship (including a same sex relationship), “who gets what” is governed by the Family Law Act. You can agree on a settlement, but if you want it to be legally binding, it must be within the rules set down by the law.

There are basically five steps that the law requires we follow in looking at a property settlement.

1. The threshold step – is it just and equitable to make an order?

The law provides that an adjustment of property between the parties should only be made if it is “just and equitable” to do so. Most cases do meet the “just and equitable” threshold. Occasionally, the family law courts will decline to make an order at all, for example where each party has property registered in their own name and the court doesn’t consider it would be “just and equitable’ to make changes. There might be other circumstances where a court would also decide it’s not “just and equitable’ to make an order. In most cases, even to make this decision requires an examination of the other four steps!

2. Which property –what is there to be divided?

This should be easy – but often it’s the bit that causes most problems. Very often people talk of "my car", "her jewellery" or "his tools in the garage". The Family Law Act however takes into account, for possible re-distribution, all of the possessions and property that either party owns or to which either of them is entitled. Debts or liabilities are treated the same way.

We work out what the assets (another word for "property") and liabilities of the relationship are and how much they total.

Valuation

In looking at property in terms of a Family Law settlement, we look at its market value; that is, what would the property fetch if it were sold at the time the decision is being made. The price you paid for it or the insurance value are generally not adequate.

If you can’t agree on the value of an asset, expert valuation evidence may be required.

Superannuation

At family law, superannuation is treated as property, even though generally it can’t be accessed until retirement. The method of valuing superannuation depends on the type of superannuation policy, however many policies are simple accrual policies and so the value of the superannuation can often be readily determined.

The court has a number of choices as to how to deal with superannuation. One option is to leave the superannuation in the hands of the party in whose name it has accrued and compensate the other party with alternative assets. Alternatively, the court may make a decision to “split” the superannuation in proportions that the court considers appropriate so that both parties receive a portion of the fund upon their retirement. Another option for the court is to simply “flag” the superannuation fund so that it cannot be accessed or dealt with until the court has made a further decision as to what should happen with it.

3. Looking back –contributions

The third step is to work out who's contributed what – how did the parties get to the current financial position. Contribution may be financial or non financial, direct or indirect, it may be to the welfare of the family or it may be a contribution made on behalf of one of the parties of the marriage.

If one spouse has been the "homemaker and parent", instead of going to work outside the home, that contribution is usually regarded as equal to the income earning contribution of the other spouse. (However it's almost unheard of for working spouses who do most of the housework to be credited for more than 50% on contribution!)

Another example is where family or friends of one spouse have given that spouse money or other property (e.g. as an inheritance). This would usually be regarded as a contribution on behalf of the spouse whose family or friends made the gift.

In the majority of cases where parties have been together for a number of years, unless one party had substantially more assets at the time of marriage or there has been such a gift, parties' contributions are likely to have been equal. If the law stopped here, many property settlements would be 50/50.

4. Looking forward – future needs

Fairness at law also means looking to the future. Perhaps one party has the responsibility of young children and therefore can't work full time or not without paid help, or that party will have more expensive housing needs to accommodate the children, or a disability. One party might always have a much higher earning capacity than the other or will receive substantial superannuation benefits in the future. The ages of the parties and their capacity to support themselves will also be taken into account. The payment of child support and its amount (or the nonpayment of child support) will also be relevant.

Depending on the circumstances, a court is likely to make a further adjustment to take account of those factors.

5. Is it just and equitable – any other adjustments?

So back again – the first step is repeated. The law requires the court to make an order that is “just and equitable" in all of the circumstances. There may be other matters that need to be taken into account to reach this end, where the strict application of the factors above produces an “unjust” or unfair result. This means the court will make a further adjustment.

How to make it stick

If you are able to negotiate a settlement, you have some flexibility as to how to arrange your finances and assets. However, any agreement you make will not be legally binding unless it is formalized in accordance with the Family Law Act. This can be done either with consent orders, in which case a court will review the proposals in accordance with the legal principles above. The other alternative is a compliant Binding Financial Agreement – in which case both parties must have legal advice.

This article is a simple, introductory explanation of what can be a complicated process. The best advice is to speak to an experienced Family Lawyer!