How Australian Family Law Act Determines Your Entitlements to Property?

Australian family law act determines your entitlements to property

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The four-step approach of the Family Law Act which was adopted by the Family Court:

• Identifying and valuing the property of the parties;
• Considering the contribution of each party;
• Considering the futures of either party; and
• Considering whether the proposed orders to be made are just and equitable.

However, in a recent decision of the Court (Stanford), the Court added a fifth consideration. The Court will look at a matter to determine if it is a case suitable for the Court’s determination even before the Court considers a property application.

The Court may make orders with respect to the property of the parties altering the interests of the parties in such property being:

• An order for a settlement or property in substitution for any interest held in the property; and
• An order requiring:
• Either or both the parties of the relationship to make for the benefit of either or both parties or a child of the relationship a settlement or transfer of the property as the Court determines;
• The Court when considering what order (if any) should be made in proceedings with respect to the property, Court considers:
• Financial contributions made directly or indirectly by or on behalf of a party to the relationship of a child of the relationship to the acquisition, conservation, or improvement to any of the property of the parties or otherwise in relation to the property whether or not the property since the making of the contribution has ceased to be the property of the parties;
• Contributions other than financial contributions made directly or indirectly by or on behalf of a party to the acquisition, conservation, or improvement to any of the properties of the parties, or otherwise in relation to any property that since the making of the contribution has ceased to be the property of the parties;
• Contributions made by the parties to the welfare of the Australian family law act Brisbane and any children including any contributions made in the capacity of homemaker or parent;
• The effect of any proposed order upon the earning capacity of either party;
• Matters in relation to sections 75(2) of the act, which deal with the future financial positions of the parties and other matters set out therein.

The main factors considered under the section referred to section 75(2) are, but not limited to the ones mentioned;

• The age and state of health of each of the parties;
• The income, property, and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment;
• Whether a party has care and control of a child of the relationship, who is not 18 years of age and in certain circumstances adult children;
• Commitments of either party necessary to enable the party to support himself or herself or a child of the relationship;
• The responsibilities of either party to support any other person;
• The eligibility of either party to receive government support or allowance;
• The standard of living of a party, which in all the circumstances is reasonable;
• Consideration as to whether a party has a continuing role as a parent;
• If a party is cohabiting with another person, the financial circumstances relating to that relationship, importantly;
• The duration of the marriage and the extent to which it has affected the earning capacity of a party whose maintenance is under consideration.
• The Court will also consider child support payable by one party for the financial support of the children.

The Court shall not make an order under the provisions of section 79(2) unless it is satisfied that in all the circumstances it is just and equitable to make that order.

Two approaches to property settlement by the Australian Family Law act

There are two judicial approaches adopted by the Court for the entitlements of parties to property under the Australian  Family Law Act. These approaches are:

1. The global approach, which assesses the parties’ interests on a global view of the total assets; and
2. An asset by asset approach, which involves a determination of the parties’ interest in each individual item of property.

Read this Article If you’d like to read more about the Australian Family Law Act 1975

The global approach of the family law act is the approach that is mostly adopted by the Family Court. However, the Court can use the asset by asset approach, where:

1. The relationship was of short duration and during the relationship, the parties strictly divided and kept their own assets separate from each other;
2. Where the assets of the parties were divided formally at separation and there has been a long delay between separation and proceedings, particularly where one or both the parties since the separation have built up significant assets;
3. Where there has been a pension in the payment phase under a superannuation fund to be converted to a lump sum to enable a division of that pension to be made.

What is the property of the parties?

The Court can make orders which alter the interests of the parties in their property.

Property has been given the meaning of being a property that the parties are entitled to or in which they have an interest in. Property can include not only the home and family property but also interests in corporations, trusts, and partnerships. Superannuation is also considered property under the legislation.

A party’s interest in trust depends upon the nature of that interest and the degree of control that a person has over the trust property. A share in a public or private company is also property.

Watch this video to Know more About Property Settlement by the Australian Family Law act.

A vested interest in a deceased estate or an option to purchase property in some cases can be held to be property.

However, long service leave and redundancy payments do not constitute the property, unless, in the case of the redundancy payment, the capital sum has already been received by a party, and in the case of long service leave, a capital sum has been received and was taken in lieu of the actual leave that the party was entitled to.

Gross or Net value of the matrimonial property

General practice has developed in relation to property applications. The Australian Family Law Court first ascertains the gross value of the property of the parties and then deducts from such value the value of the parties’ liabilities. In the case of encumbered assets, the value is ascertained by deducting the amount of the secured liability from the gross value of that asset.

Where the assets are not encumbered, and monies are owed by the parties or one of them to unsecured creditors, the court ascertains the value of the properties by deducting from the value of their assets the value of their total liabilities, including unsecured liabilities.

While some liabilities are charges upon the property, which can be accurately assessed at a certain date, other liabilities may not be precisely determined or are contingent to be paid in the future, for example, tax liabilities.

The parties often have loans from their parents or extended family members to assist them in acquiring the assets of their relationship. Such loans are then considered as liabilities.

If the amounts provided by the family members were gifted to them, then those amounts are deemed to be contributions by the party whose family made that gift. The gift is not determined as debt or liability to be repaid.

There may be liabilities unfairly incurred by one of the parties in which case the other party may not be held responsible. In such circumstances, that liability is not considered a matrimonial liability and remains the liability of the party so incurring it.

In some instances, the Court may consider property as notional property or as an “add-back” or a “financial resource” which is to be included in the assets of the parties, although no longer in existence, for example:

• Money which has already been spent, for example, on legal fees;
• Property disposed of or used for the benefit of one party;
• Property which has not been disclosed or accounted for by one party;
• An unexpected inheritance.

However, the Courts are now reluctant to add back ‘such amounts’ to the property pool, and in such cases, may treat such property as a negative contribution by one party to the acquisition or improvement to the assets, decreasing that party’s interest in the overall matrimonial pool. ‘Add backs’ are the exceptions rather than the rule.

The general principle regarding legal costs being paid by a party in court proceedings is that the parties bear their own legal costs and such legal costs are not considered as a liability to be deducted from the gross value of the assets when determining the net asset pool.

The Court may order one party to pay the other party’s costs if the claims made by a party are frivolous or vexatious or if there is no defense to any application brought by the other party and the defense filed by a party has no foundation.

Duty of disclosure by the parties

Each party has an obligation to make full financial disclosure of all relevant matters, but not limited to:

1. An interest to actual property, either real or personal, including superannuation and equitable interest;
2. Income from all the sources from employment or business interests;
3. An interest in the trust, cooperation, partnership, or other business interest.

If full disclosure is not made by a party, the Court may make findings against that party which may in some cases inflate the size of the property pool in the value of the assets not disclosed.

If the parties are unable to agree on the value of the various items of property, or if the parties perceive different values for such property, then the Court can order that such properties be valued by a registered valuer. The valuations are not only of the assets of the parties, such as realty but include valuations of corporate, partnership, and other entities.

Financial and non-financial contributions made by the parties.

Contributions are assessed at the date of the trial, not at the date of separation. Contributions include:

Direct financial contributions

The Court is required to consider the financial contributions made directly or indirectly by or on behalf of a party or a child to the acquisition, conservation, and improvement to the property of the parties or otherwise in relation to such property.

It is essential that the financial contributions go directly towards the acquisition or improvement of the property. A financial contribution by one party to, say, the family’s welfare is not relevant and is not considered as a contribution to determine the party’s interest in the property.

Initial financial contributions

The Court looks at the initial financial contributions made by the parties. That is contributions made by the parties at or before the commencement of the relationship of the parties. Contributions received by one party from family members or gifted to that party are considered the financial contribution of the party who received the benefit. It is considered a party’s own contribution towards the acquisition and improvement of the assets.

Financial contributions at the commencement of the relationship decrease in value as time goes on, and after an extensive period, may not be considered as contributions to be considered when assessing the parties’ interests in the net matrimonial pool. The initial contributions decrease in value because of the overall contributions made by the parties throughout the term of the relationship.

Financial contributions made by the parties during the relationship arising from, for example, the incomes of the parties from their employment are not considered as an individual contribution by one of the parties but are considered as joint contributions of the parties to the relationship. These contributions can be offset by the non-financial contributions of the other party, for instance, if one party has the household or parenting role and does not earn an income.

When determining the parties’ respective interests in the net matrimonial assets, the Court firstly considers the initial financial contributions made by the parties at the commencement of the relationship. That is property owned by the parties at the time that the relationship commences.

The initial financial contributions do diminish with the passage of time. The Court has held that the longer the duration of the relationship, depending on the quality and extent of the initial financial contribution, the more the proportionality of the original contribution has eroded. This erosion is not by the passage of time, but by the offset in contributions of the other party. In other words, the court places a greater emphasis on the initial financial contributions of the parties if there is a short relationship.

In the case of a short relationship for, say, a period less than five years, (a period of five years is not a definite guideline), the initial financial contributions are, in most cases, given their full value. A short duration of a relationship results in a closer examination of the parties’ relevant financial contributions, particularly if there are no children.

The Relevance of Section 75(2). Future Factors

Matters to be taken into consideration are:

(a). The age and state of health of the parties

(b). The income, property, and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment

(c). Whether either party has the care or control of a child of the relationship who has not attained the age of 18 years

(d). Commitments of each of the parties that are necessary to enable the party to support himself or herself or a child or another person that a party has a duty to maintain

(d). A standard of living that in all the circumstances is reasonable

(e). The duration of the relationship and the extent to which it has affected the earning capacity of a party

(f). The need to protect a party who wishes to continue that party’s role as a parent, and

(g). Any fact or circumstance which in the opinion of the Court, the justice of the case requires it to be considered

The relevant factors under section 75(2) in the case of a marriage, and section 90SF(3) of a de facto relationship, such as the existence of dependent children of the parties, clearly impact whether it is just and equitable to make an order which reflects only the financial contributions.

In the case of no children, the following factors are relevant:

1. The relationship is of short duration;
2. Parties have kept their assets separate and apart;
3. The parties have not financially contributed to the other parties’ assets;
4. The parties have maintained their employment throughout the relationship, and
5. The future financial positions have not been affected by the duration of the relationship, then –

In such circumstances, the Courts could order that each party receive those assets and liabilities that they brought into the relationship. It is a good example of the approach given by the Courts as an asset by asset approach.

In such circumstances, if the parties did contribute to the assets jointly, then the Courts could order that the joint property be distributed in accordance with the financial contributions made by the parties to the acquisition or improvements to such joint assets.

This is not a set rule for determining the parties’ interests. There could be other factors that the Court would consider, say for example, where the husband during a short relationship increases his business interests significantly, and where the wife or partner assisted the husband in the business as a secretary or in some other manner.

In such circumstances, the Courts could award the wife or partner a greater percentage interest in the net matrimonial assets at the time of separation.

Post-separation contributions in family law act

There is no definite answer to the question of whether post-separation financial contributions by the parties are given greater weight than other contributions that may have been made by a party to the relationship, such as parenting and household roles.

The Court, when considering the division of the net relationship assets, looks at all the assets, those acquired during the relationship and those acquired after the relationship, and the value of such assets at the time that the matter is determined.

The contributions include those made by the parties, not only during the relationship but after separation to the acquisition and improvement to the overall asset pool.

Normally the income earned by a party during the relationship is determined as a joint contribution as the income was earned during the period of the relationship.

However, after separation, the parties are no longer living in the relationship and a party’s income is therefore separate from any contribution to be considered by the other party.

The use of such income to the acquisition of the further property would be considered as that party’s financial contribution to the acquisition and improvement to the future property.

The continuing role of the other party of caring for and the parenting of the children of the relationship would also be considered as a contribution by that person post-separation.

There is no definitive answer as to how post-separation property is to be divided. It depends upon the overall contributions of the party’s post-separation.

Gifts and inheritances in Family Law Act

Financial contributions by a parent to one of the parties which are used by the parties in the acquisition and improvement of the property are considered contributions made by a party to the marriage whose family assisted or gave the financial assistance to the acquisition of the properties.

Again, as with the direct financial contributions made by the parties at the commencement of a relationship these contributions will diminish in value with the passage of time.

Such gifted monies will be considered in the overall financial contributions made by the party who received the gift. It will be given full weight as a financial contribution to that party.

As with direct financial contributions made by a party, gifted monies and also inheritances received by a party are given far greater weight if such monies are gifted or received shortly prior to separation or after separation.

The expectation of inheritance in Family Law Act

The grounds to establish the relevance of an expectation of inheritance are as follows:

• Under section 75(2) and section 90SF(3), the Court is required to consider the ‘financial resources’ of each of the parties;
• The Court is required to consider any facts or circumstances, which in the opinion of the Court, the justice of the case requires that it be considered;
• The significant change in the financial circumstances of the parties to the relationship;
• If in all the circumstances, it is just and equitable to make an order adjusting the financial interests of the parties.

The court could consider an expectation of an inheritance in the following circumstances:

• Where the testator had already made a will favoring one party, but no longer has testamentary capacity;
• Where there was evidence of his or her likely impending death;
• Circumstances where there may be a significant estate.

On the other hand, the assertion that one of the parties had a known relative who has property and is or is not likely to benefit, that party’s interest is treated as speculation and it would be inappropriate to contemplate the relevance of any inheritance in such circumstances, as the party receiving any benefit is too remote to affect the justice and equity of the case.

Windfalls

If the value of the property increased during a relationship due to outside circumstances such as rezoning or a lottery win, rather than due to the activities of the parties, then in such circumstances, such value was referred to as a windfall and is treated differently to contributions made by the parties or on behalf of the parties.

Lottery wins

A lottery ticket purchased by one or other of the parties whilst the parties are in receipt of income, in normal circumstances where the parties are contributing their income towards the relationship, the purchase of the ticket would be regarded as a purchase from joint funds, in the same way as any other purchase within that context.

It is also the case when one party is working and the other party is not, the working party’s income is treated as joint income in the same way as the domestic and parenting activities of the nonworking partner are regarded as having the same benefit.

If the lottery win was acquired after separation and the ticket was acquired solely from the income earned by one party after separation, then in most cases, that lottery win would normally be considered the asset of the party.

This however this can be offset by other factors, such as the continuing role of the other party as homemaker and parent to the children of the relationship.

Reduction of assets by the conduct of parties

Normally, financial losses incurred by the parties or either of them in the course of the relationship, whether such losses result from a joint or several liabilities, are usually shared by the parties. Losses may not be shared equally or at all, in circumstances such as:

• Where one of the parties has embarked on a course of conduct designed to reduce or minimize the effect or the value or worth of an asset or assets; or
• Where one of the parties has acted recklessly, negligently, or wantonly with matrimonial assets, the overall effect of which has reduced or minimized the value of such assets.

Where one party has engaged in conduct, but for that conduct, the legal and equitable interest of a party or the parties or the value of such interests would have been significantly greater, then justice would require the recognition of unfairness inherent in those circumstances in the terms of the orders to be made.

If a court finds that a party wasted assets, that party may receive a lesser proportion of the property pool.

A party may also be given sole responsibility for a debt, which arose because of that party’s actions.

Where but for the disposal of money or property by one party, a legal or equitable interest would have been part of the matrimonial assets to be considered for distribution between the parties, then in such circumstances, it may be possible for such money or property to be considered as part of the existing legal property interests of the parties and to be treated as a national asset to be added back into the property pool and for the person who received the benefit of such property given a partial settlement of the overall property interest.

However, the Courts have held that such notional interests or add-backs into the property pool are the exceptions rather than the rule.

Damages awards

If a party receives a damages award, for example, as a result of personal injury, and contributes the damages award towards the asset of the parties, the Court may consider that the party’s contribution to the acquisition and improvements to the assets should be taken into account. Damages awards should not be considered in isolation.

If, for example, the damages award contained a component for lost income, which would have been earned by the party who received the award during the relationship, then that may be considered as a joint financial contribution by the parties.

If, for example, the damages award contained a component for pain and suffering, then that may be considered a sole contribution by the party receiving the award.

The components of a damages award should be carefully considered and broken up into their various components. The award may contain a component for care and treatment.

If the partner to the person who received the injury and the award provided that care and treatment, then it is not solely a contribution made by the party who received it. Such components of the award would have been an expense incurred by a party during the relationship and therefore do not have significance or relevance.