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Your client who is going through a matrimonial/de facto property settlement may say to you that their particular contribution to the accumulation of the asset pool was ‘special’, by which they mean that:
In this article we review the current law on ‘special contributions’ and how you might respond to your client’s claim.
The second step of the ‘4 Step Process’ for determining how the assets of the marriage ought to be divided between the parties includes consideration of the contributions of the parties.
Contributions may be:
A party may claim that they made a ‘special’ direct financial contribution which warrants them receiving a greater share of the asset pool.
Examples of ‘special contributions’ include contributions made by:
The existence of a ‘Doctrine of Special Contribution’ was recently reviewed, and rejected, in the decision in Kane v Kane by the Full Court of the Family Court .
The parties had been married for 30 years. The issue in dispute was the weight to be given to their respective contributions to their self-managed superannuation fund. The husband sought a greater share of the fund based on his ‘special contributions’, being ‘the application of his acumen to investment decisions which caused the fund to prosper’ (from $540,000 in 2008 to $1,850,000 in 2012). The husband, with the wife’s consent, purchased shares using matrimonial savings. The shares were registered separately in the name of the husband or the wife, with different rates of growth in their respective portfolios. The husband asserted that this separation evidenced the parties’ shared intention to benefit individually, and not collectively, from their respective portfolios only. The wife asserted that the husband had merely invested their savings and they should benefit equally in the overall growth. The husband took principal responsibility for the investments and the wife was content with this (not unusual) arrangement although in evidence she conceded that she was unenthusiastic about the husband’s wish to invest in a particular share purchase. The husband asserted that he carefully researched each investment before deciding to purchase and that the success of the investment was due to his judgment and not mere chance or a random lottery win.
The trial judge held that ‘the evidence in the present proceedings permits a rational conclusion that the acquisition of those shares was no fluke. The husband’s diligent research of that corporation and his decision to invest the parties’ funds in it was an inspired investment decision, manifesting considerable expertise. His decision is all the more remarkable given that he knew he was making that investment decision without the support of the wife. I am satisfied that, without the husband’s skill in selecting and pursuing the investment in Company 1 shares, the parties’ superannuation interests within R Investments would currently be worth substantially less. It follows that the husband’s contributions to those superannuation interests were substantially greater than those of the wife. I reject the wife’s submission that her contributions were equal to those of the husband. The real difficulty is evaluating the parties’ contributions in mathematical terms’.
The trial judge split the fund two-thirds to the husband, one-third to the wife.
On appeal by the wife to the Full Court of the Family Court, it was held that the trial judges’ disproportionate division of the Fund could not be justified.
On the claim of ‘special contribution’ by the husband, His Honour Deputy Chief Justice Faulkes stated:
Family lawyers now have the benefit of a very clear message from the Full Court of the Family Court:
The rejection of the existence of a ‘Doctrine of Special Contribution’ will be most keenly felt by parties with a high value asset pool which they believe is the result of their ‘special contribution’ over and above the other parties’ contributions.
Whether you were party to a valid marriage or a de facto relationship, you are entitled to property division. While the courts maintain broad discretion with regard to property division, they strictly adhere to the following four-step process to determine who gets what.
Generally, the courts will look to split the net asset pool of the parties equally, unless while applying steps one through four it is apparent that an unequal split of the assets would be just and equitable.
The goal of property division is to both to allow parties to finalise their economic relationship, and also to recognise contributions to property. However, while the goal is to allow the parties to reach economic independence, a valid property order may in fact be varied under certain circumstances.
Property Division – The Details
The Family Law Act provides for property division for both formerly married couples, as well as de facto couples. There are two main goals when it comes to property division. First, this should be a step towards finalising the economic relationship between the parties. This “clean break” principal is supported by the requirement that courts make orders that will end the financial relationship of the parties as far as practicable. Second, this process recognises contributions to property, both financial and non-financial.
An action for property division must be brought timely. For instance, if you were formerly married you must bring any property proceedings within 12 months of when your divorce order became absolute. Alternatively, if you were in a de facto relationship, you must seek property division prior to two years after the end of the relationship
The court maintains broad discretion when it comes to making property orders. For instance, should the parties disagree as to the ownership of property, the court has the discretion to make a declaration regarding the property in question.
Even the language in the Family Law Act speaks to this notion that the court has an abundance of discretion; the exact language expresses that the court may make “such order as it considers appropriate.” This broad discretion is subject to seven restrictions/considerations the court must contemplate. These considerations listed below are enumerated in the Family Law Act.
Finally, the last bit of guidance that the Family Law Act offers to the court, is that the court shall not make an order unless the circumstances indicate that it is both just and equitable to make the order.
Because the Family Law Act fails to provide strict guidelines with regard to property division, and the courts are given such broad discretion, the courts have adopted a four-step process to apply to property orders. First, the court must identify and value the property, then consider contributions of the parties, then consider the factors listed above, and finally consider whether the order is just and equitable.
Step One: Identify and Value Property
The court must identify and value a rather encompassing pool of property, which includes real property, assets, liabilities, financial resources, property presently possessed and property expected, as well as property disposed of. The court must also identify and value business interests, licenses, permits and professional qualifications, inheritances, insurance policies, among many other types of property. As you can see, the type of property is pretty much anything – the list is rather extensive.
Both the nature of the property as well as the value must be determined as of the date of the decision, rather than the date of separation or divorce. When determining the value of the property, the court will begin by considering the fair market value of the property. Fair market value generally refers to the amount that a willing (not anxious) purchaser who is adequately informed would pay a willing (not anxious) seller of the property. In some instances where there is a dispute as to the value of property, and the court cannot make a determination of the value, the court may order the property be sold.
Once the property has been identified and value, a simple formula is used to determine the net asset pool of the parties. The total assets minus the total liabilities will result in the net asset pool used by the court.
Step Two: Contributions
The court will consider financial contributions, non-financial contributions, contributions to the care and welfare of the family, and contributions in the capacity of homemaker or parent. Financial contributions are any monetary contribution related to acquisition, conservation, and improvement of the property and refers to contributions made before the marriage, during the marriage, and after separation. On the other hand, an example of a non-financial contribution would be where one party performs maintenance or renovations of any family asset.
Often, especially when considering long relationships, the court will make a determination that the parties contributed equally. However, each situation is unique, and may not call for a determination of equal contribution. The court can make necessary adjustments to account for your unique circumstances.
One situation that is given special attention with regard to contribution is violence. If violence during the marriage or relationship had an adverse impact on a party’s contributions to the marriage, the judge will consider this when assessing the respective contributions of the parties.
Step Three: Additional Factors
This step helps the courts in addressing the future needs of the parties. The court will consider all relevant factors, including but not limited to:
Step Four: “Just and Equitable”
The last step in the property division scheme requires to court to ensure that the proposed order is both just and equitable. This step is intended to allow the court to take a step back from the proceedings, and a whole, determine if the order is appropriate. The order should only be finalised if it is fair for each party. What is fair for one couple may not be fair for another couple, and thus determining fairness is wholly dependent on the circumstances of each individual case.
Variations of Property Orders
Despite the objective of ending the economic ties between the parties, property orders may in fact be varied after they have been issued. Variations are only permissible under certain circumstances. The Family Law Act only allows for reconsideration of a property order where both parties have consented, or where one party makes an application and the court is satisfied that at least one of the following is applicable:
Should you be in a situation where you anticipate property division, the best thing for you and your former partner to do is to work through steps one through four before bringing property proceedings. This will often help you avoid having to go through litigation to arrange for your property division.
Maintenance – The Basics
Maintenance is available to those who were married, and also those who were part of a de facto couple. While there is no automatic right to maintenance, the court may choose to issue an order for maintenance if the facts indicate that it is proper. When faced with whether to issue an order for maintenance, the court will consider a myriad of factors, such as the ability of one party to pay, the standard of living of the spouses, the income capacity of the receiving spouse and whether it has been negatively impacted by the marriage, any child support being paid, and the health of the spouses.
When an order for maintenance is issued, it is intended to be temporary. The ultimate objective of maintenance is to help the financially disadvantaged party to reach a point of self-support. Most maintenance orders do not last more than three or four years, as the court ultimately wants all parties to reach a point of financial independence so the relationship can be finalised.
If certain specific circumstances have arisen since the order has been issued, the order may be varied. The court may only take this action, however, if one of the circumstances proscribed in the Family Law Act has occurred. An example of when an order for maintenance may be varied is where the cost of living has changed to justify a variation.
Orders for maintenance will terminate upon the occurrence of an event, for instance if either party dies or remarries. However, termination of an order does not affect your right to collect an arrearage.
Maintenance – The Details
When there is a disparity between parties’ income and earning capacity, the Family Law Act allows this disparity to be remedied through the something called “maintenance.” Typically, maintenance is only available for a short-term period – about three to four years. The idea behind only allowing a party to receive maintenance for a relatively brief period of time is that the maintenance payments are intended to compensate the recipient while that person takes steps to enter the workforce or re-establish him or herself.
Much like the approach to property division, the objective of maintenance is to work towards a “clean-break” between the parties. Maintenance is intended to be a temporary crutch to help the financially disadvantaged party get back on their feet and subsequently be able to independently support themselves.
An action for maintenance can be brought before divorce, after divorce (but within 12 months), even if the parties’ marriage is void, and after the breakdown of a de facto relationship. The two major limitations with regard to orders for maintenance are that you must get leave or court (special permission) to seek maintenance after 12 months of the divorce being final, and you cannot seek maintenance if there is a binding financial agreement that addresses maintenance.
Who Is Entitled to Maintenance?
The Family Law Act provides for three circumstances that warrant an order for maintenance for formerly married couples. Said circumstances are:
(a) by reason of having the care and control of a child of the marriage who has not attained the age of 18 years;
(b) by reason of age or physical or mental incapacity for appropriate gainful employment; or
(c) for any adequate reason,
Additionally, the court must consider relevant factors in making this determination. Those factors include: the ability of one party to pay, the standard of living of the spouses, the income capacity of the receiving spouse and whether it has been negatively impacted by the marriage, any child support being paid, and the health of the spouses.
There is a similar provision regarding maintenance for de facto couples. While there is no automatic right to maintenance, one party may be liable to pay maintenance towards the other party to the extent that the party can reasonably do so and only in circumstances where the other party is unable to support himself or herself adequately. The test used by the courts is not whether the applicant is in need of maintenance, but rather if that person is in a position to support themselves with their own resources.
Types of Maintenance Orders
An order awarding maintenance can be made several ways; by consent, after a contested hearing or to meet urgent needs. The Family Law Act gives courts the authority to issue an urgent maintenance order without a detailed enquiry, which would normally be required upon application for maintenance. These cases are rare, and only exist where one party is in immediate need of financial assistance. These orders differ from regular maintenance orders and only last for a limited duration.
Another type of maintenance order is referred to as a secured maintenance order. This occurs where the court makes a requirement that a maintenance order be secured by some type of collateral. These orders minimize the risk of default, and also make the enforcement of a maintenance order easier.
Maintenance can be in the form of periodic payments, a lump sum, or use of the car or home. The modern trend is for maintenance to be issued in a lump sum amount. This is preferable because the objective of awarding maintenance is to provide the financially disadvantaged party temporary help to reach a level of self-support. Often, a lump sum works towards this objective better than periodic payments.
Varying and Terminating Maintenance Orders
Maintenance orders differ from other family law orders in that they may only be varied on limited grounds. In order to have the amount of a maintenance order increased or decreased, the following circumstances must have occurred since the order was made or last varied:
While the court enjoys slightly more discretion when varying other orders in family law proceedings, it is clear that they may only vary maintenance orders for the reasons laid out above.
Once a maintenance order requiring the payment of a lump sum has been executed, and the money paid, that order can no longer be varied. Such orders are deemed to have completed and at that point cannot be altered.
An order for maintenance will terminate upon the happening of various events. It will terminate at a time prescribed in the order, when the order is discharged, when one of the parties dies, or when a party remarries. However, it is important to keep in mind that once a maintenance order terminates, your rights to collect arrears do not also terminate. If you are owed maintenance, you may still collect it despite the fact that the order is no longer in affect.
When a couple separates or divorces, or a de facto relationship[i] ends, property must be divided. Property includes all of the assets – houses, cars, jewelry, furniture – and all of the liabilities, like loans and mortgages. Superannuation – the money individuals set aside to have when they retire – are now also included in those assets that need to be divided fairly between a couple, whether married, de facto heterosexual or de facto same sex. In the past, superannuation was considered a financial resource, similar to salary or other income. Today, however, most couples weigh superannuation funds as if they are marital assets or property.
Part VIIIB of the Family Law Act, 1975 (FLA) covers issues dealing with superannuation and families. The law requires that the superannuation benefits due to one spouse or de facto partner must be divided with the other spouse or partner. But there are several difficulties with dividing superannuation. Firstly, if a couple divorces before retirement, the superannuation funds are not yet available. So while a couple may divide up their property at the age of 45, they may not see funds from superannuation for another 20 or 30 years. Other problems…..
The law recognizes these problems and offers three ways a divorcing couple can divide superannuation interests.
Splitting the Superannuation Now
Typically, divorcing couples split their superannuation. Most couples choose this approach because it enables them to know exactly how much money they are receiving and allows them to make a clean break, without having to return to financial issues ten, twenty or thirty years later.
There are several steps needed to split the superannuation:
Step 1: Request information from the partner’s superannuation fund. There are two forms that a spouse must submit to the trustee of the superannuation fund: (1) Form 6 Declaration, which proves to the trustee that you are entitled to see the information and; (2) the Superannuation Information Request Form. These forms can be obtained online.
You must be “eligible” to receive the information from the fund. An eligible person is:
(1) The member of the fund or;
(2)The spouse of the member of the fund or;
(3)If (1) or (2) died, the deceased person’s legal representative or;
(4)Someone who plans to enter into a superannuation agreement with the member
Step 2: Evaluating information from the superannuation fund. The law requires the fund to provide information to the member of the fund and his or her spouse. The fund may provide information regarding the value of the superannuation or information that helps the person requesting information determine the value of the fund. The trustee should also notify the requester whether or not the fund may be split. Once this information is obtained, the numbers must be calculated using specific formulas, depending on the type of fund. An expert in family law or accounting can help determine the correct formula to use in order to obtain the correct amount of interest each party is entitled to from the superannuation.
Step 3: Turn to the courts for an order. Couples may sign their own splitting agreement and take it directly to the trustee of the superannuation fund. Alternatively, couples can turn to the courts with their own financial agreement already signed. Finally, if a couple can’t agree, they may obtain a court order.
(1) If both sides agree about the value of the fund and it’s division, they can submit an Application for Consent Orders, which includes their agreement regarding superannuation. This agreement is binding only if both parties signed it AND both received independent legal advice. This is the case regarding all financial agreements between couples divorcing.
De facto couples terminating their relationship may also submit a financial agreement regarding superannuation, but only if they were residents of New South Wales, Victoria, Queensland, South Australia, Tasmania, the Australian Capital Territory, the Northern Territory or Norfolk Island when the agreement was made.
(2)If the parties cannot come to their own agreement, they may turn to the court for Orders.
In either case, the trustee of the fund must be notified that the court is being asked to give orders. This is to ensure that the request being made complies with the fund’s rules. Also, the trustee is entitled to attend the court hearing and oppose the orders.
Step 4: Send a copy of the agreement or court order to the superfund trustee. Once the court gives orders, the superannuation fund must be sent a sealed copy of the decision.
Step 5: Split the superannuation benefit. Generally, the superannuation benefit will be split into two funds, one for each partner. There may be administrative costs for splitting the fund.
When a couple divorces (or de facto or same sex couples terminate their relationship), one of the major decisions to make is “who gets what”. A pre-nuptial agreement may help make this division easier. If a couple can decide between them and come up with their own agreement, long court battles can be avoided. If not, the courts have their own way of dealing with property division. In Australia, the courts place all property into one pool and then divide it “equitably” or fairly. Everything is included and considered joint property by the courts.
The law governing property division(link to “Property Division FAQs”) between spouses or de facto couples is Part VIII of the Family Law Act, 1975 (FLA). The law provides guidelines for the courts to use when dividing property. There are a number of factors the court will consider and which couples should know about. Below is a list of some considerations.
Think about the children
Before even entering into the fight, divorcing couples should consider their children when dividing up property. It might be more “fair” to sell the marital home, but parents (if they can afford to) should also consider the impact of this change on the children. If parents are going to share parenting time, they should think about what children will need in each home and also divide accordingly. If one parent is moving to a smaller home, he or she might not have space for so much furniture, so why demand it just for the sake of being fair. Both parents should consider the physical and emotional needs of their children, not just what they themselves believe they are entitled to receive.
Depreciation of ownership rights
Over time, the contribution of the person who brought the property decreases and the contribution of the other partner increases. For example, one person may have purchased the house prior to the marriage, but the other partner paid most of the mortgage on it for the next 20 years. The investment in the house may be equal by the time the couple splits up and the court will consider this relevant in making an equitable distribution.
The value of the property when it was acquired.
The courts will consider the value of the property when it was brought into the marriage as well as the length of the marriage. There is a difference between a house that was worth $100,000 and one worth $2 million. If a couple was married for only a short period and during that time the marital home tripled in value, how much is the spouse who purchased it prior to the marriage entitled to? How much is the other spouse, who paid next to nothing in terms of mortgage and maintenance, entitled to?
The courts in Australia today recognize that in many marriages today, one partner may earn a high salary while the other contributes to the marriage in a non-financial capacity. This role has a value that also needs to be measured for property purposes. Many couples decide that one partner will stay home to care for the house and children. This enables the other partner to obtain an education, gain professional experience and earn a higher wage. The stay-at-home parent is entitled to financial compensation for his or her job at home and for allowing the other spouse professional development.
The parent who stays at home makes other large non-financial contributions to the home. By being at home, the family saves thousands of dollars on child care and possibly cleaners and cooks. Finally, the at-home spouse may undertake do-it-yourself jobs, like painting, also worth a good deal of money to the family, but without any actual monetary compensation. Imagine a spouse who repaints the inside of the house. Not only has the family saved on the expense of paying an outside contractor but the value of the home has also increased.
Use and maintenance of the property
The court will consider not only the worth of the couple’s property but also how it is used. In one family, for example, the father stays home to care for the children. He is responsible for all household work – cooking, cleaning, gardening, paying bills. The mother, in turn, works long hours to provide a good income and financial stability. No doubt the mother “earned” her share of the house, but so did the father. The court might ask who actually needs the home more. In this case, the court may consider equitable distribution to mean that the father keeps the house and the mother receives other property.
Section 75(2) of the FLA lays out the factors a court uses to determine the “future needs” of each spouse. The court considers age, health, professional training and ability and property and financial resources, among other factors. Based on this analysis, the court may decide that a particular spouse is entitled to more of the marital property, to compensate for that person’s weaker ability to earn a living.