What’s Fair In Love & Law?

Family Law Act
25 Feb

What’s Fair In Love & Law?

Determining issues at law

When the Court makes a determination on property issues it takes into account the provisions of the Family Law Act 1975 and in particular the approach for the determination of an application under section 79 of the Family Law Act.  The principles are well established by authorities (in the marriage of Lee Steere (1985) FLC 91-626; in the marriage of Ferraro (1993) FLC 92-335; in the marriage of Clauson (1995) FLC 92-595 and involves consideration of the following factors where superannuation is not a relevant factor:

  1. what were the assets, liabilities and financial resources of the parties and values at the time of the hearing;
  2. What were the financial and non-financial contributions made directly or indirectly by or on behalf of each party to the acquisition, conservation or improvement of the property of the parties? 
  3. What was the contribution of each party to the welfare of the family including contributions made in the capacity homemaker or parent;
  4. What is the effect, if any, of any proposed order upon the earning capacity of each party;
  5. What matters referred to in subsection subjection 75 (2) of the Family Law Act are relevant and what adjustment, if any, should be made as a result of these factors. (this will be referred to later);
  6. Have there been any other orders made affecting a child or either party and is child support payable or likely to be payable in the future for the children of the marriage;
  7. After consideration of these matters, is just and equitable to make the actual orders.

Steps two (2) and three (3) are generally considered the one step, namely “contributions”.  Steps four (4), five (5) and six (6) are often inter-connected considerations and are usually considered as one step loosely described as the “section 75 (2) factors”.  Hence the classic “four (4) step process”.  

Section 79 (2) of the Family Law Act provides that a Court should not make an order for property settlement unless it is satisfied that it is just and equitable to do so. Refer Stanford v Stanford (2012) HCA 52; 2012 247 CLR 108: Bevan and Bevan (2014) 51 fam LR (363).

A Court’s power to make an order altering the parties’ interest in a property is conditioned upon the Court has found that it is just and equitable to make such an order, the just and equitable requirement permeates the process in which the Court is engaged.  

The High Court said in Stanford at paragraph 36 that: 

“The expression ‘just and equitable’ is a qualitative description of a conclusion reached after the examination of the range of potentially competing considerations.  It does not admit of exhaustive definition. It is not possible to chart its metes and bounds.”

In terms of what matters might be taken into account in determining whether it is “just and equitable” to make orders altering existing interest in the property, in Bevan, Bryant CJ said at paragraph 84 as follows:  

“Just as the expression ‘just and equitable’ does not admit of exhaustive definition it is not possible to catalog the ‘range of potentially competing considerations’ that may be taken into account when determining whether if it is just and equitable to make an order altering property interests. However, in our view, it would be a fundamental misunderstanding to read Stanford as suggesting that the matters referred to in section 79 (4) should be ignored in coming to that decision.  Indeed, such a reading would ignore the plain words of section 79 (4), which make clear that in considering ‘what order’ (if any) to make, the Court must take into account the matters referred to in that subsection.” 

It is not mandatory to considers the matters in section 79 (4) of the Family Law Act in determining the question of whether it is “just and equitable” to make orders altering interests in property but it is open to the Court to consider the matters in section 79 (4) of the Act in addressing the question posed by section 79 (2) of the Act.  Those matters are not conclusive of whether or not it is ‘just and equitable’ to make an order altering any interest in a property.”

The High Court in paragraph 42 of Stanford noted: 

“In many cases where an application is made for a property settlement order, the just and equitable requirement is readily satisfied by observing that, as a result of choice made by one or both of the parties, the Husband and the Wife are no longer living in a marital relationship. It will be just and equitable to make a property settlement order in such a case because there is not and will not thereafter be the common use of the property by the Husband and the Wife.  No less importantly, the express and implicit assumptions that underpin the existing property arrangements have been brought to an end by the voluntary severance of the mutuality of the marital relationship.” 

What is the position in regard to unsecured liabilities? Secured liabilities are easily determined and are taken into account when determining the net relationship assets.

In Biltoft,65 the Full Court said: “Notwithstanding the general practice which has developed, the court has indicated that it may properly determine not to take into account or to discount the value of an unsecured liability in certain circumstances. Such liabilities would include but are not limited to a liability which is vague or uncertain, if it is unlikely to be enforced or if it was unreasonably incurred.”

In Biltoft and later decided cases, it is also open to disregard only part of debt upon the above principles. 

The principles enunciated in Biltoft’s case flow from an earlier decision Evatt CJ of Prince. The relevant part of his Honour’s reasoning is set out as follows;

“The assessment of debts and liabilities is not necessarily arrived at by a strictly mathematical or accountancy approach in all cases. While some liabilities are charges upon the property which can be accurately assessed at a certain date, others are at large or have not been precisely determined, e.g. tax liabilities (Kelly and Kelly (No. 2) (1981) FLC 91-108 p. 76,801). In some cases, the amount of the liability can only be estimated generally (Albany (supra), p. 75,717). The Court can make an allowance for a particular liability if appropriate to do so. In some cases, there are sufficient uncertainties as to the alleged liability to lead the Court to disregard it entirely or partly (e.g. a loan from a parent of the party not likely to be enforced; Af Petersens (supra); Quirk (1983) unreported). In other cases, the Court may take the view that because of the circumstances surrounding the incurring of the liability it ought in justice and equity to be wholly or partly disregarded in determining the appropriate order to make under sec. 79 as between the parties to the marriage. Such a result could be reached where a spouse had incurred a liability in deliberate or reckless disregard of the other party’s potential entitlement under sec. 79 (Kimber and Kimber (1981) FLC 91-085; Kowaliw and Kowaliw (1981) FLC 91-092; Antmann and Antmann (1980) FLC 90-908; Af Petersens (supra)). Complex issues can arise in regard to liabilities to third parties (see, e.g. Pockran and Crewes; Pockran (1983) FLC 91-311).

Of course, the Court cannot ignore the fact that there is or may be a liability; the effect is simply that it does not consider that the other spouse should be called upon to in effect “contribute” to the liability by having that spouse’s fair share in the parties’ property reduced by virtue of its existence. The effect may be that the party who has incurred the liability will be left to meet it out of whatever funds remain to that party after satisfying the property order made under sec. 79 (Af Petersens (supra)).”

Critical Assessment

Critical to the assessment of the Balance Sheet (the net relationship assets) is a consideration of the argument concerning add-backs.

As a consequence of the decision in Stanford, the practice of “adding-back” notional assets into the pool at Step 1 had been eschewed but that does not mean add-backs are not able to be taken into account.

The issue of add-backs was recently considered by the Full Court in Trevi & Trevi [2018] FamCAFC 173 where the Full Court held

“In Stanford v Stanford, the High Court emphasized as fundamental that consideration of whether it is just and equitable to make a property settlement order begins by “identifying, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property”.

The essence of a claim for attacks is that the asserted sum/s should be added to the value of the existing property interests of the parties and, subsequent to the assessment of contributions, credited to the spending party as part of the value of their assessed entitlements. Doing so does not offend what was emphasized by the High Court. Adding back does not seek to create property interests that do not exist. Rather, doing so emphasizes that satisfying the respective requirements of ss 79(2) and (4) of the Act to do justice and equity can require an “accounting” or “balance sheet” exercise for the purposes of s 79(2) and (4), so as to include the value of the dissipated property or expended sums within the total value of the parties’ existing interests in property and to credit the value of same against the assessed entitlement of the dissipating or spending party. 

In Trevi, the Full Court usefully summarises from para 27 guidelines for the adding back of property available at trial where the dissipation of property or expenditure is other than on legal fees.

The three clear categories

“The Full Court held in Omacini and Omacini that attacks fall into “three clear categories”: where the parties have expended money on legal fees; where there has been a premature distribution of matrimonial assets; and “waste” or wanton, negligent, or reckless dissipation of assets.

However, the Full Court also made it clear that an attack does not necessarily occur whenever “a party has expended money realized from the disposition of assets that existed as at the date of separation”, the Full Court describing such a proposition as “unduly simplistic”. An earlier Full Court made the same point, saying that adding back is “the exception rather than the rule”.

The fundamental precept that addbacks are exceptional, reflected in the decisions just referred to, also mirrors what has been said in earlier decisions of the Full Court that, for example, “the Family Court must take the property of a party to the marriage as it finds it” at trial. An important parallel proposition is that the parties do not “go into a state of suspended economic animation” after separation. Thus, reasonably incurred expenditure does not usually come within accepted categories of addback. Two fundamental premises emerge from Omacini and the authorities preceding it. First, “adding back” is a discretionary exercise. When the discretion is exercised in favor of adding back, it reflects a decision that, exceptionally, in the particular circumstances of a case, justice and equity require it. The second premise is its corollary: in cases that are not “exceptional” justice and equity can be achieved, not by adding back, but by the exercise of a different discretion – usually by taking up the same as a relevant s 75(2)factor. Indeed, it has been said that the latter is “a course which is, perhaps, technically more correct” than adding back to the list of existing interests in property. “

Step 2 – Contributions

The contribution assessment is very much a matter of the subjective opinion of an adjudicator. The property jurisdiction is a discretionary one and there is a generous ambit within which a reasonable disagreement is possible.

The types of contributions to be contemplated are contained in sections s79(4)(a) to (c).

Courts exercising jurisdiction pursuant to the FLA often refer to the assessment of contributions either upon an asset-by-asset or global approach, with the former often urged upon a court when the marriage is of relatively short duration.71

In Norbis & Norbis [1986] HCA 17; (1986) 161 CLR 513 Mason & Deane JJ said (at 523): Although it is natural to assess financial contributions under s. 79(4)(a) by reference to individual assets, it is also natural to assess the contribution of a spouse as homemaker and parent either by reference to the whole of the parties’ property or to some part of that property. For ease of comparison and calculation, it will be convenient in assessing the overall contributions of the parties at some stage to place the two types of contribution on the same basis, i.e. on a global or, alternatively, on an “asset-by-asset” basis. Which of the two approaches is the more convenient will depend on the circumstances of the particular case. However, there is much to be said for the view that in most cases the global approach is more convenient. It follows that the Full Court is quite entitled to prescribe that approach as a guideline in order to promote uniformity of approach within the Court. In saying this we are not to be understood as denying the legitimacy of the trial judge’s ascertainment in the first instance of the financial contributions of the parties by reference to particular assets. It is difficult to conceive how the trial judge in many cases could otherwise take account of such contributions as he is required to by s.79(4)(a) of the Act. In this respect, we agree with the comment of Nygh J. in G and G that, although mathematical precision is certainly not required, there is ordinarily a need to know the circumstances in which assets were acquired and the general extent of each party’s contribution to them.

Brennan J agreed with the majority and said (at 541):

The present case, however, does not involve the Family Court’s authority to prescribe either a legal rule controlling or a guideline affecting the exercise of discretion. The global approach which the Full Court of the Family Court regarded as appropriate in the present case is not a guideline affecting the order which should be made. The global approach is no more than a procedure for determining the exercise of the discretion. It is a procedure that tends to shorten the hearing so as to avoid sapping the finances of the parties and engendering further ill-feeling between them. The primary judge’s adoption of the asset by asset approach in lieu of the global approach was not an error affecting the validity of the order which he made. There is no logical foundation for concluding that one approach should produce, at the end of the day, an order different from, or preferable to, the order which the other approach would produce. Either approach is capable of producing a just and equitable order. To intervene merely on the ground that the primary judge did not adopt the global approach would be to require primary judges to follow a single procedure when more than one procedure is consistent with the provisions of the Act.

The concept of initial contributions was extensively examined in Pierce v Pierce (1999) FLC ¶92-844.

Pierce is now considered the authority for the following proposition;

In our opinion, it is not so much a matter of erosion of contribution but a question of what weight is to be attached, in all the circumstances, to the initial contribution. It is necessary to weigh the initial contributions by a party with all the other relevant contributions of both the husband and the wife. In considering the weight to be attached to the initial contribution, in this case of the husband, regard must be had to the use made by the parties of that contribution. In the present case that use was a substantial contribution to the purchase price of the matrimonial home...”

Step 3 – Section 75(2) factors

Section 75(2) provides that relevant matters for the Court to consider are;

  1. the age and state of health of each of the parties;
  2. 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;
  3. whether either party has the care or control of a child of the marriage who has not attained the age of 18 years;
  4. commitments of each of the parties that are necessary to enable the party to support:
    1. himself or herself; and
    2. a child or another person that the party has a duty to maintain;
  5. the responsibilities of either party to support any other person;
  6. subject to subsection (3), the eligibility of either party for a pension, allowance or benefit under:
    1. any law of the Commonwealth, of a State or Territory or of another country; or
    2. any superannuation fund or scheme, whether the fund or scheme was established, or operates, within or outside Australia; and the rate of any such pension, allowance or benefit being paid to either party;
  7. where the parties have separated or divorced, a standard of living that in all the circumstances is reasonable;
  8. the extent to which the payment of maintenance to the party whose maintenance is under consideration would increase the earning capacity of that party by enabling that party to undertake a course of education or training or to establish himself or herself in a business or otherwise to obtain an adequate income;

(ha) the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt so far as that effect is relevant; and

  1. the extent to which the party whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other party;
  2. the duration of the marriage and the extent to which it has affected the earning capacity of the party whose maintenance is under consideration;
  3. the need to protect a party who wishes to continue that party’s role as a parent;
  4. if either party is cohabiting with another person—the financial circumstances relating to the cohabitation;
  5. the terms of any order made or proposed to be made under section 79 in relation to:
    1. the property of the parties; or
    2. vested bankruptcy property in relation to a bankrupt party;

Any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage; and

  1. any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account; and
  2. the terms of any financial agreement that is binding on the parties.

Section 75(3) requires a court to exclude from consideration any Commonwealth Government income tested pension, allowance or benefit.

Disclosure

The Full Court of the Family Court in Kannis & Kannis [2002] FamCA 1150 held that “Whether the non-disclosure is wilful or accidental, is a result of misfeasance, or malfeasance or nonfeasance, is beside the point. The duty to disclose is absolute. Where the Court is satisfied the whole truth has not come out it might readily conclude the asset pool is greater than demonstrated. In those circumstances, it may be appropriate to err on the side of generosity to the party who might be otherwise be seen to be disadvantaged by the lack of complete candor.” See also Chang and Su (2002) Fam CA 156 and Weir v Weir (1993) FLC 92-338.

Superannuation splitting

Prior to the introduction of the superannuation splitting regime into the FLA superannuated spouses often had to trade away an asset in exchange for an asset (superannuation) that may not be realized for many years, resulting in one party with a realized asset such as a house and cash, yet with no retirement income and the other party with no realizable asset but often a significant retirement income. The superannuation splitting regime brought about a fundamental change to that problem by recognizing superannuation as property and enabling it to be “split”.

 

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