An Overview of the Courts’ Approach to Property Settlements

Every single property settlement made by an Australian court will be influenced by two universal principles.

The first is that courts will not make any order unless they are satisfied that, in all the circumstances, it is just and equitable to make the order.

The second is that both parties have an inescapable obligation to make a full and frank disclosure of their financial circumstances. Included in the definition of ‘financial circumstances’ are interests in property, earnings, involvement in trusts and liabilities. (A detailed list is contained in Rule 13.04 of the Family Law Rules 2004.) A failure to make proper disclosure of a relevant matter can have very serious consequences.

With these two principles always in mind, we can now look step-by-step at how a court will determine an acceptable property settlement.

The first step is assessing the pool of assets and liabilities as at the date of the court hearing. This inventory of assets and liabilities will be inclusive and diverse in nature. It will cover both personal and business assets, encompassing cars, boats, homes, jewellery, furniture, shares, funds in bank accounts, legal and equitable interests in real property, and, possibly, the assets of a trust. How the assets were acquired is irrelevant. (Superannuation will probably be the one item excluded from this pool.)

A less obvious item on the list is what is known as ‘add-backs’. According to the authority, the case AJO & GRO,[28] there are three sure scenarios where it is appropriate to ‘add back’ to the asset pool. The first is where the parties have spent money on legal fees. The second is where there has been a premature distribution of matrimonial assets. The third is conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or reckless or negligent behaviour with assets which has reduced or minimised their value or the pool of assets. Parties are entitled to incur reasonable living expenses at the time of separation; what is ‘reasonable’ will vary according to the parties’ financial position and will be decided by a judge. However, wasting or dissipating money will cause the sum spent to be added back to the asset pool for division between the parties. This is a complex area of law and each case is different.

The second step a court takes in determining is to ascertain each party’s contribution to the relationship, both financial and non-financial. This step lends itself to argument more than the other steps.

Section 79(4) of the Family Law Act states:

(4) In considering what order (if any) should be made under this section in property settlement proceedings, the court shall take into account:
(a) the financial contribution made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(b) the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(c) the contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent.
As of March 2009, the same laws have applied to de facto couples whose relationship is ending.

The court will express the relative contributions in terms of percentages, for example, ‘husband – 50 %, wife – 50%’.

First it will look closely at these contributions. Then it will assign them a weight. Weighing contributions is not, however, a straightforward mathematical computation based on respective financial inputs.

Males in a heterosexual union have traditionally been the household’s chief breadwinner and, consequently, the prime contributors to the couple’s, or family’s, assets. Therefore, if courts only considered financial contributions when making property settlements, it would be to the detriment of many women.

Courts take a different approach, one summed up in the case Figgins & Figgins,[29] ‘[m]arriage is and should be regarded as a genuine partnership to which each brings different gifts. The fact that one is productive of money in large quantities is no reason to disadvantage the other’.

Even so, while financial contributions can be quantified easily, ascertaining the value of a homemaker role is obviously much less clear. In straightforward cases where the couple’s main asset is their house and they have been together for a decade or more, courts tend to view the contributions as equal.

This is because a party who has stayed home looking after children is considered to have made an important contribution by freeing the other party from effort and distraction, enabling him (or, less often, her) to earn to his or her fullest capacity in the paid workforce.
However, the wording of Section 79 (4) (a) shows that the court must take into account, when making a property settlement, the ‘financial contribution made directly or indirectly by…a party to the marriage…to the acquisition, conservation or improvement of any of the property of the parties’.

The 1998 case Pierce[30] explored this point. This case involved a marriage that lasted about 12 years. The couple’s main asset was a house valued at $260,000. The husband had paid 85 percent of the purchase price. The court considered how it should make a property settlement when one party makes a much greater financial contribution, at the beginning of the relationship, to the purchase of the family home.

Although deciding that the parties had made equal contributions during the relationship, the court reasoned that considerable weight should be given to the husband’s financial contribution to the purchase price of the home. Without that, the couple would not have been able to buy the property when they did. The court decided to attribute 70 % to the husband and 30 % to the wife.

If the marriage or partnership has lasted less than a decade, a court is likely to place even greater weight on a significant initial financial contribution by one party

[28] AJO & GRO [2005] FamCA 195
[29] Figgins & Figgins [2002] FamCA 688
[30] Pierce & Pierce [1998] FamCA 74