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Inheritances and Family Law

Generally speaking, inheritances are not excluded or otherwise quarantined from the asset pool to be divided between separating parties, and will not automatically be allocated back to the party who received them.

Some of the relevant factors the Court takes into account are as follows:

Timing and length of relationship

For example, an inheritance received very early in a long relationship might not result in a significantly higher contributions assessment to the party who received it, because the other party might have made other contributions over the years which offset the effect of the inheritance.

An inheritance received late in the relationship or after separation in a short relationship, is more likely to result in a higher contribution assessment to the party who received it.

Amount received

The amount received – and compared with the asset pool to divide – will affect the Court’s ultimate decision.

For example, a smaller amount (say $20,000 inheritance in a pool of $1.5m) is less likely to result in contributions being assessed in favour of the party who received it than a larger amount (say $1m in a pool of $1.5m).

How it was applied

If the money was used for family holidays or otherwise spent and is no longer represented in the asset pool, it will carry less weight when assessing contributions than if it was used to purchase real estate or shares and those assets still exist at the time the Court is making a determination. It may also be relevant if the funds have been kept separate and not otherwise mingled with the parties’ assets.

Financial circumstances of the parties at the time the Court makes a decision

In a pool of $1m, where one party receives a post-separation inheritance of $500,000, it might not be just and equitable for one party to receive half of the net assets ($500,000) and the other to receive the other half plus the whole inheritance ($500,000 plus $500,000). The Court will consider the whole financial situation.

Inheritances received after separation

If one party receives an inheritance after separation but before property settlement has been agreed and formalised, the inheritance will be taken into account in the property settlement as the Court must consider all of the current financial circumstances at the time the determination is being made.

This is one of the reasons why it is recommended that separating parties finalise and formalise their property settlement as soon as possible.

This does not necessarily mean that the other party will receive a portion of the inheritance. The Court might determine that the other party made no contribution to the inheritance, but it will be taken into account and adjustments might be made in favour of the other party who does not receive the inheritance.

Future inheritances

A future inheritance will usually only be taken into account if the death of the testator is imminent.

As the inheritance has not yet been received, the Court could not include it in the asset pool, but can take it into account in assessing the respective future needs of the parties.

How can an inheritance be protected against claims by the other party?

Parties to a marriage or de facto relationship can protect future inheritances by entering into a Binding Financial Agreement which sets out how any inheritance would be dealt with in the event of separation.

If parties have separated and there is a possibility that one party will receive an inheritance in the future, it is recommended that they finalise their property settlement as soon as possible, and before the death of the testator.

Specialist Family Law advice is essential. Let your client know about our free initial telephone consultation service by calling Vanessa Mathews on 9804 7991.

We’re operating as usual at Mathews Family Law. If you have any questions or concerns about how COVID-19 may impact your client’s position in relation to their family law matter, call Vanessa Mathews on 9804 7991 or email enquiries@mflaw.com.au.

Inheritances and Divorce Property Settlement?

Inheritance – What Happens to Them In Divorce Property Settlement

An article was written for accountants and financial advisors by Vanessa Mathews of Mathews Family Law & Mediation Specialists.

Your client has the good fortune to receive a ‘windfall’, such as an inheritance or a lotto Your client and their partner separate.

Will the windfall be included in the property settlement asset pool?

Your client will likely answer ‘No Way!

From the court’s perspective, windfalls are not a special category of contributions and they must be:

  1. Included in the asset pool.
  2. Considered in the same manner as, and holistically with, all of the other contributions made during the relationship– financial, non-financial, homemaker and parenting.

The timing of the windfall will however be relevant as to how the windfall is ‘shared’:

  • A windfall received early in the relationship is likely to be treated equally.
  • A windfall received shortly before separation is less likely to be treated equally.
  • A windfall received after separation is even less likely to be treated equally.

The short answer is that the windfall is unlikely to be retained in full by your client.

I’ll leave it to you to break the bad news to them.

Next Steps Before a Divorce Property Settlement

You and/or your client may benefit from discussing the circumstances of the inheritance or other windfall and divorce property settlement before taking any action such as distributing or disposing of the asset in a manner that may adversely impact your client.

Vanessa Mathews is a family law specialist with the expertise and experience to advise you about your family law property settlement issues.

Please call Mathews Family Law & Mediation Specialists on 03 9804 7991 or email enquiries@mflaw.com.au to speak with Vanessa Mathews.

Resources

Mathews Family Law – Dividing the Property: http://mathewsfamilylaw.com.au/divorce/divorce-videos/dividing-the-property-in-victoria/

Family Court of Australia: http://www.familycourt.gov.au/wps/wcm/connect/fcoaweb/home

Federal Circuit Court of Australia: http://www.federalcircuitcourt.gov.au/wps/wcm/connect/fccweb/home

Financial loss during a relationship – case note

In the recent Family Court case of Anaya & Anaya [2019] FCCA 1048, the principle in the long established case of Kowaliw and Kowaliw was re-affirmed that:

As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:

  1. Where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets; or
  2. Where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimise d their value.

In Anaya, the husband argued that investment funds (including an inheritance of $1,000,000) ‘lost’ by the wife should be ‘added back’ to the asset pool and treated as an advance on her property settlement. The wife argued that the losses were a matter to be taken into account generally and to have them ‘added back’ to the asset pool would likely result in hardship to her.

His Honour held that at the time the wife decided to enter into the high risk investment she was likely to have been depressed and angry at the husband about their separation but that her decision to do so was reckless and fell within the second category of Kowaliw. The wife’s awareness was exacerbated by the timing of her decisions – after Family Court proceedings had commenced and she had legal representation.

I often have clients ask me to seek redress for losses ‘caused’ by their former partner, for example, the reduced value of their share portfolio or investment in a now worthless time-share resort. For the majority, my answer is no, that these losses were incurred in the course of the marriage but for some however, the answer is ‘yes’, for example, money lost due to gambling.

It is important that each significant financial ‘win’ and ‘loss’ experienced during the marriage is objectively assessed in the context of its surrounding circumstances. An emotional assessment may be misguided and result in unrealistic expectations by the aggrieved client.

I am available to assist with this task – by offering an objective and realistic assessment of your client’s complex property settlements.

Please contact me on vanessam@mflaw.com.au or 9804 7991 if you would like to discuss your client’s situation.

Or have your client contact me to arrange a free initial 15 minute telephone consultation.

‘Special Contributions’ and Divorce

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:

  • They made a greater contribution than their partner;
  • They should receive a greater share of the asset pool.

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:

  • Financial, to the acquisition, conservation or improvement of property
  • Non-financial, to the acquisition, conservation or improvement of property
  • Welfare and homemaking, to the relationship and the children of the relationship.

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:

  • An inheritance
  • A ‘good’ business person
  • An entrepreneur
  • A successful artist
  • A specialist surgeon.

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 [2013].

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 his 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 funds two-thirds to the husband and 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 Honor Deputy Chief Justice Faulks stated:

  • The Family Law Act does not refer to ‘special’ or ‘extraordinary’ contributions
  • `Special skills … will not always produce significant financial results. An academic may be brilliant and possess exceptional or special skills which require much work and effort to apply, but which may nevertheless not reflect in the … property of the parties’
  • `A range of highly specialized practical skills may not produce an economic return equivalent to the return produced by the entrepreneurial skills or a newspaper magnate’
  • It is difficult to correlate effort or skill (even if special) with results. Frequently, the financial result of a contribution (whether by physical or intellectual labor or imagination foresight and perspicacity) will be influenced by external factors beyond the control of the party contributing’.

Family lawyers now have the benefit of a very clear message from the Full Court of the Family Court:

  • There is no such thing as a ‘Doctrine of Special Contribution’
  • The totality of the contributions to the asset pool must be considered
  • An asset pool ought not be divided merely on the basis of a ‘special contribution’ having been made by one of the parties
  • No one contribution to an asset pool should be given greater weight than other contributions.

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.

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 finalizing 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 recognizes 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

Broad Discretion

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.

  • the direct and indirect financial contributions of the parties
  • the non-financial contributions of the parties
  • contributions to the welfare of the family, including contributions as homemaker or parent
  • the effect of any order on the parties’ income earning capacity
  • the list of considerations in s 75(2) and 90SF(3) of the Family Law Act
  • any other order made under the Family Law Act affecting a party or child of the marriage or de facto relationship
  • any child support payable, or likely to be paid in the future

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:

  • the age and state of health of each party,
  • the income, property and financial resources of each party and their physical and mental capacity for achieving gainful employment,
  • responsibility for a child of the marriage who is less than18 years old,
  • commitments necessary for a party to support themselves or to support any other person that the party has a duty towards,
  • eligibility for a pension, allowance or benefit,
  • the standard of living which is reasonable in the circumstances,
  • whether the relationship has affected the earning capacity of a party and to what extent,
  • if either party is living with someone else, the financial circumstances arising from cohabitating with another person,
  • the terms of any Orders made in relation to the property of the parties and the terms of any binding financial agreement.

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:

  • there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence, etc.
  • circumstances have arisen since the order was made that has rendered it impracticable for all or part of the order to be carried out
  • a person has defaulted in carrying out an obligation imposed by the order, and as a result it is just and equitable to vary or set aside the order
  • circumstances have arisen since the order relating to a child or the marriage or relationship, and hardship will occur if the order is not set aside or varied
  • a proceeds of crime order concerning property of the marriage or relationship, or such an order has been made against a party to the marriage or relationship.

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.

Dividing The Property In Australia

 Transcript

Hi, I’m Vanessa Mathews for Mathews Family Law & Mediation Specialists, and I’m going to be talking about property distribution today. Property distribution is about how the assets and liabilities of the marriage or de facto relationship are divided.

Assets are the things of value that you own, like, a home, a car, a bank account, investments, savings, superannuation, and furniture. Liabilities are the things you owe to others, like, a mortgage or a loan or even credit card debt.

For the most part, when it comes to questions of property and property division, de facto couples have the same rights and obligations as married couples. But some of the laws are different for de facto couples, depending on the state or territory they’re living. So you should always get professional legal advice to be sure how the law applies to your particular situation.

When a couple splits up, if they are married or if they’re in a de facto relationship, all of their property, both the assets and the liabilities, have to be divided between them. That is, they have to decide who owns what and who owes what.

When people come to me for help, I often hear things, like, ‘I don’t have to give him anything. I earn all the money, so it’s all mine.’ Or ‘She spent so much of our money over the years, she doesn’t deserve anything.’ Well, the law doesn’t work on emotions, but instead on the assumption that both people contributed to the marriage, perhaps in different ways, but both worked for the benefit of the shared union.

Now, some couples divide their property by themselves or with help from friends or professionals. If you choose to work it out just between the two of you, you can decide to split your property however you like. Generally, if you work with lawyers or through mediation, you have to follow the same four step process the court uses, which I’ll discuss later on.

You can also do this property division at any time, before you’re married and this is called a prenuptial agreement or even after you are married or when you’re in the process of divorcing.

Once you come to an agreement and sign this document, you can submit it to the court by applying for a Consent Order, if you want to, but you don’t have to. The court will allow you to make your own decisions, but will want to know that each of you had professional advice when you made the agreement, so that one side is not being duped or misunderstood something.

A Consent Order means your agreement has the strength of a court decision. So if one side breaches or goes against the agreement, you can take action against them immediately, without having to first sue, and get a court verdict.

If you can’t work out the property issues on your own, you can go to the court and let a judge decide for you. The law has a very logical approach to dividing up the property, which is the four step process I mentioned earlier. The first step is to figure out what actually are the martial assets and debts. You can start out by putting everything together, the house, cars, mortgage, loan, furniture, and calling that your property. If the couple has been together for only a short time, the court might remove certain things from the pile of matrimonial property. These are things that belonged to each individual before they married or started their de facto relationship.
So if you brought a car or a house to the marriage, and then you got divorced, the car would be yours. In the same way, if you came with a mortgage to the marriage, that debt is still yours if you get divorced.

But if you’re married for say, 10 or 15 or 20 years, a court, if it goes to court, will probably consider most of your joint marital property. And despite the rules in other countries, even property one partner may have inherited during the marriage or de facto relationship, is still considered joint martial property.

The second step of this four step process is to consider the contributions each side made to the marriage. There are two types of contributions partners can make. One is clear financial contributions, like, salaries, other types of income, inheritance, actual money or some type of physical property. But there are also non-financial contributions. For example, if one parent stayed home to take care of the children, they’ve contributed by saving money on daycare and enabling the other spouse to develop professionally and earn more. And by simply helping the family unit develop.

The next step is to consider the future needs of each partner. If the couple is older, and one partner never worked outside the home, the court will take into consideration that he or she may need more of the joint property, since they are less able to now go out and find a job. On the other hand, the court will also note that there are no small children, the mortgage is paid off, and there are no large expenses to be paid. So the financial needs are smaller than they once were.

If both people are young professionals with a good future outlook, the court will take that into consideration too. Also, does one partner still have to stay home to care for the children for an extended period of time, leaving them with less income? The court will also look at the health of each person. The one thing the court does not consider is whose fault is it, that the marriage or de facto relationship ended.

Australia has a no-fault divorce, meaning there does not have to be a reason or cause for the divorce, other than one side asking for it. So blame has no impact on property.

The fourth and final step is for the court to take all of this into consideration and make a just and equitable division of the property. That is, the court will split up the assets and the liabilities in a way that gives each partner what he or she needs and deserves. Just and equitable doesn’t mean everything will be split evenly and each person gets 50 percent. When the court decides who gets what and who pays what, the court will explain how this process will work.

So if the superannuation needs to be split, but the side can only get money in ten years, the judge will need to decide what happens in ten years or if there is a house and its value needs to be split between the two sides, the judge will decide if it should be sold, and the money from the sale divided or if one person will pay the other person his or her share, or if one person keeps the house and the other gets some other property of equal value.

A few suggestions I would make, when you begin thinking about dividing your property, make sure that as you create a list of your assets and liabilities, you don’t overlook anything significant. For example, people often forget superannuation or other retirement plans.

If you’re thinking about separating or if you’re in the process, and the need to be plain for how you’re going to deal with your property, start gathering documents, like, financial statements, tax returns, mutual fund statements, bank statements, check account statements. Make copies if you can, and keep them in a safe place.

If you have questions about property distribution or any of the issues related to divorce and separation, please visit our website, and feel free to call me to set up an appointment. I’m Vanessa Mathews from Mathews Family Law & Mediation Specialists.

The four step process to family law property settlements

When you apply for a property settlement, the Court uses a ‘4-step’ process to determine the application as follows:

Step 1: Identification and valuation of assets

This step involves identifying and valuing the assets, liabilities and financial resources of the parties.

The property includes all possible interests of the parties whenever and however acquired. It includes both properties presently possessed and property expected (for example inheritance.)  It may also include assets and liabilities disposed of in the past.

Property and financial resources are recognized separately. Property can be sold or transferred today, whereas a financial resource (for example superannuation or a damages claim) cannot be separated from a person.

Property must be identified at the date of settlement, not at the date of separation. When identifying assets full and frank disclosure should be demonstrated.

This is a simple step in many cases, but for some cases, particularly those involving businesses, the valuation exercise can be quite complex and require the assistance of experts.

How are liabilities treated in a family law property settlement?

Liabilities are given similar importance to the property of both parties. The net asset pool is commonly determined by calculating total assets and then subtracting total liabilities as follows:

Net Asset Pool = Total Assets – Total Liabilities

Liabilities are deducted from assets regardless of which party is responsible for incurring or paying them. The net asset pool is then shared between the parties on the basis of the contribution of each party and consideration of the additional factors/‘future needs’.

Liabilities to deduct from the asset pool include:

  • mortgages,
  • credit card debts,
  • tax liabilities,
  • overdrafts and
  • personal loans.

Debts are usually shared unless one party has wasted assets of the marriage (for example, gambling or efforts to deliberately decrease the asset pool). These debts are not deducted from assets as liabilities normally would be.

Debt might not be included where a family member has lent money. The reason for excluding this type of debt is that there is often a possibility that this debt will not be collected. This type of debt may arise in various situations and may be owed to people other than family members.

Full and frank disclosure must be demonstrated when identifying and declaring assets. Otherwise, the Court has the option of favoring the other party due to dishonesty/lack of credibility on the part of the non-disclosing party.

Click here to calculate your asset pool using the Matthews Family Law Asset Pool Calculator.

Step 2: Contributions of each party

The contributions made by each party to a marriage fall into the following categories:

  • financial contributions,
  • non-financial contributions,
  • contributions to the care and welfare of the family and
  • contributions in the capacity of homemaker or parent.

In many cases, particularly where there has been a long relationship, the determination will be that the parties have contributed equally. The contribution of the parties may be viewed as something other than equal, where:

  • the relationship is short and there are no children, here the main concern will be about direct financial made by each of the parties;
  • a partner has brought considerably more assets to the relationship than the other party;
  • one of the parties contributed substantially via an inheritance, gift or personal injury settlement;
  • a partner has special skills or has made outstanding efforts that have brought substantial wealth into the relationship; or
  • a partner behaved in a deliberate or reckless manner resulting in a loss to the parties.

Assets are usually split half-half and then any necessary adjustments are made, taking into account all other factors including contributions.

If there has been violence in the relationship, this can affect the property division. This is due to the possibility that the effects of violence may have limited the ability of a party to contribute.

Financial contributions

Financial contributions are any monetary contributions made to the marriage either:

  • before the marriage,
  • during the marriage or
  • after separation.

The financial contributions made by each party make up the asset pool.

Career assets are also financial contributions. They include contributions such as income, long-service leave and redundancy payment.

Notional assets are included as financial contributions. Notional property can be items such as legal costs and money spent on individual pursuits such as gambling.

Financial contributions made before the marriage

Sometimes a party brings a property to the marriage. Deciding how this property is shared depends on how the property is used and how the other spouse contributes to the property. The interest of the spouse bringing the property may be eroded by the passage of time and by the other party’s contribution to it and the asset will then be added to the asset pool.

Financial contributions made during the marriage

Financial contributions can be made towards purchasing, maintaining and improving the property. They can be made either directly by a spouse or on behalf of the spouse.

A lottery win would be a financial contribution made during the marriage if the ticket is purchased during the marriage using joint funds. The winnings would be a ‘joint contribution’ and would be shared as such.

The beneficiary spouse of an inheritance may be allocated the assets of the estate, in circumstances where there is a substantial quantity of assets in the asset pool. Otherwise, the inheritance is divided. The timing of the inheritance will be an important consideration.

A compensation payout is usually seen to have had both spouses contributing. The entitlement of the injured spouse is based on suffering and the entitlement of the other spouse is based on the contribution of caring for the injured spouse.

Financial contributions after separation

There are two methods of considering entitlements to property acquired after separation.

The first method considers how the property is used and how the other spouse contributes to the property. The interest of the spouse owning the property may be balanced by the other party’s contribution to it and the asset will then be added to the asset pool.

The second method looks at contributions after separation made by the non-owner spouse towards all matters concerning both parties.

Case: Husband wins $5M in a lottery after separation

In Farmer and Bramley, the husband acquired a winning lottery ticket 20 months after separation. The prize money was $5,000,000. Until the win, the parties had no property after a relationship of 12 years. There was one child of the marriage who lived with the mother. The wife was entitled to $750,000 as she cared for the child after the separation and also cared for the husband during the marriage, nursing him through a heroin addiction.

Career assets in a family law property settlement

Sometimes one spouse obtains a valuable qualification whilst accumulating minimal property, meanwhile, the other spouse takes additional responsibility for financial and family support. In these circumstances, the career assets of the qualification-earning spouse are brought into the asset pool as a financial resource. The spouse without the qualification can be awarded payments for the extra responsibilities accepted and carried out.

Career assets can be difficult to value, as different qualifications take different amounts of time and effort to complete and may or may not lead to employment.

A partnership interest in a business is property, however such interests are often considered to be personal and not transferable to a third party such as a spouse.

Prospective long service leave and redundancy payment entitlements will only be regarded as property if payments have been received.

If a spouse is a company director, shares owned by the director in this company will form part of the asset pool, however assets owned by the company will not. Any shares held in public or private companies can be included as property in the asset pool.

Notional assets in a family law property settlement

Financial resources may include legal costs paid, the property disposed of for the benefit of only one of the parties, expected inheritances and gifts from parents. These financial resources are calculated and allocated by the court or according to an agreement between the parties.

Income is usually not included as a financial asset and is not considered property for the purposes of a property settlement process in NSW. However, it can be taken into account as an additional factor. A party with little in terms of financial assets may be awarded more property assets to compensate, this is in the interests of ensuring a just and equitable result.

Money earned after separation is usually not ‘added back’ into the asset pool. However, there are some exceptions, for instance, if the funds arise from selling a business asset after separation where the business operated during the course of the marriage, then the funds may be included in the asset pool.

Case: Taxi license sold after separation

Usually funds accumulated post-separation are not added back into the asset pool, however, in some cases they can be. In the case of Townsend and Townsend, the money earned from selling a taxi license was included in the asset pool. The reason for including the money was that the license had value during the marriage and therefore the other party was entitled to a proportion of the proceeds from the sale.

Legal costs are usually considered notional property and are included in the asset pool. It is necessary though for these funds to have been earned prior to separation.

Certain types of expenditure are considered to be national property and will be ‘added back’ into the asset pool. These types of expenditure include gambling, behavior contributing to addictions and extravagant gifts. If add back occurs then the reasonableness of the expenditure is taken into account and the assets added to the asset pool must be of a reasonable amount.

Non-financial contributions

Non-financial contributions to life as a couple are an important and significant consideration for a property settlement in Australia.

Non-financial contributions made to the marriage are contributions involving services where a professional or tradesman might have been employed had the party not performed the work.

Examples include maintenance and renovations of the family home, cars, or any other asset owned by the couple.

Maintenance and renovations

Non-financial contributions may increase the value of a property or save on maintenance costs. They are included as they effectively increase the value of the property or funds available. Factors considered are the quantity of work undertaken, the worth of the work and the party completing the work.

Contribution to the care and welfare of the family

Domestic and family welfare contributions have received increasing recognition and importance. Since 1983, these contributions have gained the status of a separately considered contribution.

Where one party works outside the home to support the family and the other takes care of the family contributions to the care and welfare of the family are an important consideration.

Examples of contributions to the care and welfare of the family are:

  • caring for children,
  • school drop-off and pick up,
  • taking children to sports and other activities and
  • responsibilities as a homemaker.

Case: Wife placed in domestic servitude granted 75% of assets

A man who married his sixth wife lost 75% of his assets, including his house and his business

Step 3: Assessment of additional factors (s 75(2) factors)

The third step involves assessing the future needs of each party. Factors to consider include:

  • the age and state of health of each party,
  • the income, property and financial resources of each party and their physical and mental capacity for achieving gainful employment,
  • responsibility for a child of the marriage who is less than18 years old,
  • commitments necessary for a party to support themselves or to support any other person that the party has a duty towards,
  • eligibility for a pension, allowance or benefit,
  • the standard of living which is reasonable in the circumstances,
  • whether the relationship has affected the earning capacity of a party and to what extent,
  • if either party is living with someone else, the financial circumstances arising from cohabitating with another person,
  • the terms of any Orders made in relation to the property of the parties and
  • the terms of any binding financial agreement.

Re-partnering is a commonly assessed factor. The financial situation resulting from the new relationship may influence the property settlement.

If a property settlement application proceeds to Court, the Court may place a great deal of weight on these factors or it can choose to decide they have a minimal impact. The Court will apply an adjustment in favour of one or other of the parties to compensate for any difference in their future circumstances.

Step 4: Just and equitable requirement

Unless the property settlement is fair, the arrangements should not be finalized. This requirement is the fourth step in the four-step process of determining a property distribution as provided by the case Hickey and Hickey. What is just and equitable depends on the circumstances of the particular case.

What is just and equitable in family law proceedings?

After assessing steps 1, 2 and 3, the Court must decide whether the final result is fair for each of the parties. To achieve this aim it is important for both parties to know their obligations and entitlements. What is just and equitable depends on the circumstances of the particular case.

Case: Husband receives $1M out of a $66M property pool

An example of the just and equitable considerations being applied can be seen in the case of Cook v Langford. Here, the total property pool was $66 million, however, the Court found that the husband was only entitled to $1 million based on his overall position and contribution to the assets. This was considered as neither unjust nor inequitable.

Deciding what is just and equitable requires:

  • considering the effects of the findings of the first two steps (specifically Step 1: What assets are in the asset pool? Step 2: What contribution did each party make?);
  • considering the effects of the determinations regarding the contributions of the party which are influenced by the s 75(2) additional factors (specifical factors such as the age and stage of the health of each party, responsibility each party to care for a child, the income, property and financial resources of each party); and
  • deciding what order is just and equitable taking into account all the circumstances of the parties.

This final step recognizes that the calculation of percentages or an equal distribution is not necessarily the fairest outcome. For instance, one party may have an amount in superannuation that is equal to the property in the asset pool. If this party receives the superannuation and the other party receives the property in the asset pool the distribution is equal. However if the superannuation cannot be used for several years, the outcome is unfair. It is for the judge to decide what is just and equitable, with the main concern being the present and future needs of both parties.

Click here to apply sample percentage divisions of your asset pool using the Mathews Family Law & Mediation Specialists Asset Pool Calculator.

What is involved in a family law property settlement?

There are a number of issues to be considered for a property settlement, some of which you may not even have thought are relevant, such as your and your former partner’s superannuation entitlements.

Further issues to be considered may include:

– Assets and liabilities of each party

– How much did each party contribute financially

– Domestic duties performed by each party

–  Who looked after the children

– Superannuation

– Any gifts received and

– Inheritances.

What should you consider for a Binding Financial Agreement?

A Binding Financial Agreement requires careful consideration of what might happen during a relationship and how the couple might plan their finances.

You and your partner should discuss your future plans including:

  • whether you both intend to work during the relationship;
  • whether you plan to have children;
  • what arrangements there will be in relation to children that either of you currently have;
  • what will happen if either of you can’t work because of illness or injury or the need to care for a disabled child;
  • whether you wish to make special provision in relation to inheritances and if so what you expect to receive and what you expect to do with your inheritance;
  • what provision you each intend to make for retirement;
  • how you intend to meet your financial commitments and pay your living expenses; and
  • whether you intend to have a joint bank account or intend to keep your finances separate.

After discussing your plans and considering how you will handle any unexpected situations, you should talk to your lawyer. A detailed statement of your current income, assets and liabilities will be needed. Also bank statements, shareholding and dividend statements, superannuation statements and other investments should be provided. You should not neglect to provide information about any of your assets or liabilities and you should provide information that is as up to date and detailed as possible.

You should allow plenty of time to discuss your agreement with your lawyer before the marriage or before commencing a de facto relationship. This will allow you the time to take into account the considerations that are important to yourself and avoid overlooking any past, present or future assets or liabilities that are relevant to the agreement. Adequate preparation time and care in planning will help to ensure the agreement is binding and the terms are acceptable to both parties.

If you are entering into a de facto relationship it is important to remember that any Binding Financial Agreement you have made will be of no effect if you and your partner marry. It is important to obtain legal advice well in advance of the marriage.

The lawyers at Mathews Family Law & Mediation Specialists Melbourne understand the legal requirements for a Binding Financial Agreement to be valid and enforceable. We can help to ensure your rights and entitlements are fully considered and protected in the event of separation. For couples who have a substantial asset pool, such as a major property/share portfolio or a family business, we understand the commercial importance of ensuring these assets are protected and can help to ensure your rights and entitlements are protected.

Mathews Family Law is a leading family law firm in Australia. Please contact us on 1300 635 529 to speak with a family lawyer from our law firm today. You can also send through your enquiry online now and we will contact you shortly.

Case: Family plans for peace of mind

Who should have a financial agreement?

Common reasons for considering a prenuptial agreement include:

  • ownership of a successful business;
  • having a high level of wealth;
  • having children from a previous marriage;
  •  having elderly parents;
  • anticipating a sizeable inheritance;
  • having sizeable debt;
  • pursuing a lucrative career;
  • ownership of stock, a home or retirement fund; or
  • avoiding a costly divorce.

How is the property split?

Depending on the length of the relationship, how the parties have organised their finances and their circumstances, a property settlement can be quite simple or involve complex negotiations.

Both financial and non-financial contributions are taken into account when deciding a property settlement. It is important to understand that the Family Law Act takes into account various items and factors that you may not be aware of. These include compensation payments for personal injury, ill health or disability of each party, superannuation, future needs, the future earning capacity of each party, the health of any children and the financial resources of each party such as expected future inheritances.

It is important to find out what your legal entitlements are before you sign anything.

If you are negotiating an agreement yourself, gaining knowledge on your legal entitlements will help you to make an informed decision.

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Vanessa Mathews
Managing Director FDRP and Mediator
BCOMM BSW LLB

Accredited Family Law Specialist, FDRP,
Mediator and Parenting Coordinator

Vanessa Mathews is the founder and managing director of Mathews Family Law & Mediation Specialists, and has the rare combination of social work qualifications and experience, combined with nearly 20 years’ experience as a lawyer and mediator; it makes her approach to resolving legal relationship issues both sensible and sensitive.

She is a fully accredited family law specialist, mediator, family dispute resolution practitioner and parenting coordinator with a commerce degree – adding a financially astute aspect to her practice.

Vanessa has extensive experience in complex issues that arise from relationship breakdown, and works in partnership with her clients,
who regularly describe her as empathetic

Vanessa is an active member of the family law profession and
a member of the:

  •  Law Institute of Victoria, Family Law Section
  •  Law Council of Australia, Family Law Section
  •  Resolution Institute
  •  Australian Institute of Family Law Arbitrators and Mediators
  • National Mediation Accreditation System
  •  Relationships Australia Family Lawyers Panel
  • Fellow of the International Academy of Family Lawyers
  •  Relationships Australia / Federal Circuit Court ‘Access Resolve’ Mediation Service
  • Relationships Australia ‘Property Mediation’ Service

Vanessa and Mathews Family Law & Mediation Specialists
are regularly recognised as a ‘Leading Victorian Family
Lawyer’, ‘Recommended Family Law Mediator’ and a
‘Leading Victorian Family Law Firm’ by Doyle’s Guide to
the Australian Legal Profession.

Get Started With Vanessa

Book A Free Consult

Vanessa Mathews
Managing Director FDRP and Mediator
BCOMM BSW LLB

Accredited Family Law Specialist, FDRP,
Mediator and Parenting Coordinator

Vanessa Mathews is the founder and managing director of Mathews Family Law & Mediation Specialists, and has the rare combination of social work qualifications and experience, combined with nearly 20 years’ experience as a lawyer and mediator; it makes her approach to resolving legal relationship issues both sensible and sensitive.

She is a fully accredited family law specialist, mediator, family dispute resolution practitioner and parenting coordinator with a commerce degree – adding a financially astute aspect to her practice.

Vanessa has extensive experience in complex issues that arise from relationship breakdown, and works in partnership with her clients,
who regularly describe her as empathetic

Vanessa is an active member of the family law profession and
a member of the:

  •  Law Institute of Victoria, Family Law Section
  •  Law Council of Australia, Family Law Section
  •  Resolution Institute
  •  Australian Institute of Family Law Arbitrators and Mediators
  • National Mediation Accreditation System
  •  Relationships Australia Family Lawyers Panel
  • Fellow of the International Academy of Family Lawyers
  •  Relationships Australia / Federal Circuit Court ‘Access Resolve’ Mediation Service
  • Relationships Australia ‘Property Mediation’ Service

Vanessa and Mathews Family Law & Mediation Specialists
are regularly recognised as a ‘Leading Victorian Family
Lawyer’, ‘Recommended Family Law Mediator’ and a
‘Leading Victorian Family Law Firm’ by Doyle’s Guide to
the Australian Legal Profession.

Get Started With Vanessa

Book A Free Consult