PROPERTY DIVISION IN SHORT RELATIONSHIPS
Paul Fildes
Taussig Cherrie Fildes
Level 3, 530 Lonsdale Street
Melbourne
1. WHAT IS A “SHORT RELATIONSHIP”?
The expression “short relationship” is often used to describe a marriage or de facto
relationship which has lasted for less than approximately five years.
2. APPROACH
TO
SECTION
79
PROPERTY
DIVISION
IN
CASES
INVOLVING“SHORT RELATIONSHIPS”
Where there are Section 79 property proceedings involving a “short relationship”, the
standard process for determining the parties’ entitlements to division of property will be
employed by the Court: property pool, contributions, Section 75(2) factors, “just and
equitable”.
However, what are the nuances of the process when the relationship is particularly short?
Some issues which typically arise in the context of short relationships requiring
determination include:
•
Where one party has contributed a substantial sum at the commencement of the
relationship whilst the other party has contributed relatively little.
•
Where an asset brought into the relationship by one party experiences significant
growth (or decline) in value during the relationship.
•
Where one party’s earning capacity far outweighs the other’s, and the noncontributor has had the benefit of an increased standard of living for a short period
of time.
In those circumstances, how is the wealth of the parties’ at the date of trial to be shared
between the parties?
3. SOME PRINCIPLES REGARDING “SHORT RELATIONSHIPS”
Property Pool
This step, for obvious reasons, will not change in any way. The Court must determine the
property pool available for division between the parties in accordance with ordinary
principles.
It is worth noting, however, that there are two possible judicial approaches to the
assessment of a parties’ entitlement to property under the Act: the global approach and
the asset-by-asset approach.
The global approach involves the division of the parties’ assets on an overall proportion
of the total assets.The asset-by-asset approach involves a determination of the parties’
interests in individual items of property on an asset-by-asset basis.
The High Court has held that either approach is legitimate and that there is no binding
principle of law controlling the exercise of discretion in the division of property (see
Norbis v Norbis (1986) FLC ¶91-712).
Most matters in Family Court proceedings are dealt with using the global
approach.However, where a marriage is of a relatively short duration and during the
marriage the parties have strictly divided and kept their own assets separate from each
other, the asset-by-asset approach has generally been adopted by the Court. See, for
example, McMahon and McMahon (1995) FLC ¶92-606).
McMahon and McMahon (1995) FLC ¶92-606
In this case, the parties began cohabiting in 1987, were married in 1988 and separated in
1993.
Early in the marriage the parties had made joint investments, but from approximately
mid-1991 they had conducted their financial affairs separately. The parties conceded they
each made equal contributions during the marriage.
At first instance, the wife was awarded slightly more than 55% of the parties’ total asset
pool, including an adjustment of 5% for s 75(2) factors.
The Full Court held that, in the circumstances, an asset by asset approach was preferable
to a global approach. The circumstances included: the short duration of the marriage, the
number of separations during the marriage, the parties’ strict separation of their assets and
their methods of dealing with them.
The Full Court held that each party should be entitled to their separate assets and that their
contributions to the joint assets should be regarded as equal reflecting the agreement
between them at trial. No further adjustment was made for s 75(2) factors.
Initial Contributions
A significant initial contribution made by one party to a relationship will be regarded as
important and given significant weight. However, the relevance of and weight given to
the initial contribution may be diminished over time depending on a number of factors.
This was historically known as the “erosion principle” as follows.
Lawler andLawler(1988) FLC ¶91-927
This case involved a marriage of 23 years. The husband had initially brought in the first
matrimonial home and later the proceeds of its sale.
The Family Court held the longer the duration of the marriage, depending on the quality
and extent of the contribution, the more the proportionality of the original contribution
was eroded.
This occurred, not by the passage of time, but by the offsetting contributions of the other
spouse.
On the facts of this case, the husband’s initial contribution was not eroded by the extent
of the wife’s contributions, such that the husband should receive 55% and the wife 45%.
However, when Section 75(2) factors were also taken into account, the wife received 50%
of the net assets.
The “erosion” principle was later summarized by Fogarty J in Money & Money
(1994) FLC 92-485 and later adopted by the Full Court in Bremner v Bremner (1995)
FLC 92-560 as follows:
“An initial substantial contribution by one party may be “eroded” to a greater
or lesser extent by the later contributions of the other party even though those
later contributions do not necessarily at any particular point outstrip those of the
other party”.
The “erosion principle” later evolved as follows.
Pierce v Pierce (1999) FLC 92-844
This case involved a 12 year relationship with 2 children.
The husband made a
significant contribution at the commencement of the relationship. At the date of trial, the
pool was $320,000. The largest asset of the parties was the former matrimonial home, of
which most of its value could be apportioned to funds initially contributed by the
husband.
The trial judge found that the parties had contributed equally throughout the marriage and
that the husband’s initial contribution had diminished such that his entitlement should
only be 55/45 on the basis of contributions with no adjustment for section 75(2) factors.
While on appeal it was agreed that it was acceptable for the trial judge to have found
equal contributions during the relationship, the trial judge’s conclusion that the initial
contributions were diminished such that his entitlement should only be 55/45 was not
accepted.
The Full Court held that the trial judge had not given proper weight to the husband’s
initial contributions. Rather than speaking in terms of “erosion” of his contribution, Ellis,
Baker and O’Ryan JJ stated:
“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 an initial
contribution. It is necessary to weigh the initial contributions by a party with all
other relevant contributions of both the husband and 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.”
The Full Court found that despite the length of the relationship (12 years), the initial
contribution formed a major portion of the post separation pool. The adjustment of 5% in
favour of the husband was increased to an adjustment of 70/30 on the basis of
contributions, with a further adjustment under section 75(2) of the Act to take the
husband’s entitlements to 75% overall.
Initial Contributions in Short Relationships
Bearing those principles in mind, there are no hard and fast rules in relation to how initial
contributions will be treated in short relationships.
However, it is clear that in a short relationship, initial contributions are likely to hold
much greater weight in the circumstances than in a longer relationship. This is because
there is simply less time for the non-contributor to “off-set” a larger initial contribution
made by the other party.
However, it is not simply the passage of time that will “offset” the initial contributions,
but the contributions made by the other party during the relationship that are important
(although both factors may go hand in hand). This will be discussed further below.
The weight attached to an initial contribution may also depend on how the initially
contributed asset is treated and used during the relationship, including whether the noncontributor contributes to any increase in the value of the asset during the relationship.
This will also be discussed further below.
The following case is an example of where an initial contribution in a short de facto
relationship was given significant weight given the lack of “off-setting” contributions by
the other party during the relationship.
Cook v Langford (2008) FLC 93-374
In this case, the parties cohabited for 5 ½ years.
At the commencement of the
relationship, the wife had assets and an interest in a discretionary trust valued at
approximately $14.5 million. She also had control over a group of companies. The
husband was bankrupt.
Over time, changes occurred to the structure of the wife’s companies and their underlying
assets. After separation, shares in one company sold for $45 million. At the date of
hearing, the adjusted net assets of the group were valued at over $65.6 million.
The trial judge made adverse findings in respect of the husband’s credit and found that
whilst the husband had contributed to the value of the companies by working on some
properties owned by them, his alleged contributions were over inflated. She held that
when all considerations were weighed, contributions by the parties overwhelmingly
favoured the wife.
Her Honour noted the “more usual” way of expressing contribution findings as a
percentage, but said the process was not obligatory. Her Honour concluded: “It can be
expressed as a monetary sum. As I assess it, this would be recognized by apportioning to
the husband the sum of $1 million”.In addition, the wife was ordered to release the
husband from any debt owing by the husband to any company controlled by the wife in
the amount of just under $2.5 million.
The husband appealed the trial judge’s assessment of his contributions as a monetary
figure. He asserted that he had contributed to the appreciation of assets and that the wife
had not contributed any greater than him in this regard. The husband submitted that the
appropriate adjustment to reflect his contributions was 16.8% of the total property pool.
The husband’s appeal was dismissed. The Full Court found that the trial judge’s decision
was within the reasonable ambit of her discretion. Their Honours said:
“In the circumstances of this case, it was well open to find that it was inappropriate
and/or artificial to attempt to evaluate the actual contributions of the husband as a
percentage of the large pool of assets which were sourced exclusively from the wife’s
sole pre-marriage assets, maintained and improved significantly by her during the
marriage, and substantially increased post separation as a result of the sale,
engineered by the wife, of a company to another enterprise.”
Brandow & Brandow [2010] FMCAfam 1026 (24 September 2010)
In this case, the parties cohabited for a total of 7 years.
The husband contributed 100% of the assets at the commencement of the relationship.
Both parties worked during the marriage. The husband alleged that the wife applied all of
her income to herself. In particular, the husband alleged that the wife wasted most of her
money on gambling and that the husband contributed further funds to the wife’s
gambling. The wife denied this and claimed that she applied her income to family
purposes.
The husband sought a property split of 90/10 in his favour. The wife alleged violence and
sought an 80/20 split in the husband’s favour.
It was held on contributions alone that there was to be a 90/10 split in favour of the
husband. A Section 75(2) adjustment in favour of the wife resulted in a final 85/15 split
in favour of the husband.
Contributions During the Relationship
The Court will, in the ordinary course of things, assess each of the parties’ financial and
non-financial contributions during a relationship.
Financial Contributions in Short Relationships
Where a matter involves a relatively short marriage or de facto relationship, the Court has
held that there will be a closer examination of the parties’ relevant financial
contributions, particularly if there are no children of the relationship (G and G [2006]
FamCA 877).
The following cases are some examples of where financial contributions have been given
significant weight:
Anastasio and Anastasio (1981) FLC ¶91-093
In this case, the parties cohabited for 14 months. Both had savings at the time of the
marriage and worked during the cohabitation.
Baker J concluded that the wife’s earnings represented 22.78% of the parties’ total
income. His Honour was not ordinarily attracted to a mathematical approach, but having
regard to the facts and, in particular, the shortness of the marriage, he held each party
should take what they contributed to it directly financially.
Bushby and Bushby (1988) FLC ¶91-919
In this case, the parties cohabited for nearly four years in the husband’s home before
becoming married. During the marriage, the wife lived in the husband’s house, was
maintained by him and received cash benefits from the husband of some $12,508.
Baker, McCall and Bell JJ stated as follows:
“The husband’s income substantially exceeded that of the wife, and when one looks at
the total property, whether in cash or in kind, which the wife received, to confer any
further benefit upon her would… be a grave injustice to the husband… Neither party
should leave this marriage with any further benefit than that which they have already
received.”
Douglas v Douglas (2006) FLC 93-300
In this case, the parties lived together for 5 years and there were no children of the
relationship. The husband (aged 78 at trial) had come to the relationship with assets of
$2.5 million, whilst the wife (aged 52 at trial) had brought in $85,000, about 3.15% of the
assets at trial.
The husband had met most of the financial support for the parties throughout the
relationship and had also made a superannuation contribution on behalf of the wife.
The trial judge determined that the wife’s entitlement was 7.5% on contributions and 7.5%
for section 75(2) factors. As such, the wife was awarded 15% of a pool of $3.5 million.
On appeal, the Full Court found that the trial judge had fallen into error by taking into
account extraneous matters. On a re-exercise of their discretion, the Full Court awarded
the wife 5% for contribution and a further 3.3% under section 75(2) of the Act. Warnick J
commented that this was a just result given the enormous disparity in initial contributions
and the fairly short period of cohabitation, amongst other factors.
Non-Financial Contributions
Notwithstanding the above, non-financial contributions during a short relationshipwill also
be taken into account when determining the parties’ overall entitlements.
Figgins and Figgins (2002) FLC ¶93-122
In this case, the parties cohabited for nearly seven years and had a young child who lived
with the wife. Neither party had any significant assets at the commencement of the
relationship. However, the husband’s net worth at the end of the relationship was $22.5m
as a result of an inheritance early in the marriage. The wife’s liabilities exceeded her
assets.
The trial judge awarded the wife $600,000 for contributions and $500,000 for s 75(2)
factors.
The Full Court held this manifestly inadequate and by a majority gave the wife
$2.5million, which was slightly more than 10% of the husband’s net worth.
Fogarty and Lindenmayer JJ said:
“The important aspect of this case is that the wife contributed fully to the task of wife
and homemaker. The circumstances that the husband may have made almost
equivalent contributions does not mean that they cancel each other out but the
approach of treating them as virtually cancelling each other out had the effect of
leaving the other party’s financial contributions as the only ones to be counted as
significant. This seems to have happened here, leaving the wife’s case apparently
largely dependent upon peripheral matters.”
GBT v BJT [2005] FamCA 683
This case involved a 6 ½ year period of cohabitation with a total property pool of $3
million.The wife was awarded a 7.5% contribution based adjustment. She made very little
financial contribution to the relationship. However, the adjustment was based on nonfinancial contributions.
Lambert & Jackson [2010] FamCA 357
In this case, the husband and wife began cohabiting in March 2003 and married in January
2004. Twins of the marriage were born in November 2004. The parties separated on 24
March 2006 and divorced on 6 July 2007.
At the commencement of the relationship, the wife contributed assets worth $569,549 plus
furniture. The husband contributed assets worth $133,723 plus a UK property and 2
business partnerships.
During cohabitation and marriage, the wife brought in rental income, loans from her
mother at favourable conditions and gifts from her mother. The wife was virtually the sole
caretaker of the twins from the time of their birth. Post-separation, the husband had very
little contact with the twins.
The value of the husband’s business increased from $300,000 at the date of separation to
$2,327,000 at the date of the hearing, without direct contribution from the wife. However,
it was noted that the business structure had been established during the marriage and that
the increase in value was “in some ways, something of a windfall”.
The Court held that the wife was entitled to a 55/45 split of net assets in her favour. It
stated as follows:
“It is relevant in this case to bear in mind the short period of time over which the
wealth has been generated by the husband and what the wife was doing during that
period by way of contributions in her role as parent.”
“Uplift” Cases
A common situation which arises in the context of short relationships is where one party
contributes a significant asset at the commencement of the relationship and that asset
subsequently experiences an “uplift” in value during the relationship or after separation.
In this situation, the question becomes, who ought to enjoy the benefit of that “uplift” and
in what proportion?
Some general principles may be applied as follows:
•
The weight of the initial contribution in favour of the contributor will be greater
where the increase in value has come about by market forces as opposed to the
contributions of either party.
•
The weight of an initial contribution in favour of the contributor may be less
where the non-contributor has contributed to the increase in the value of the asset
during the relationship. For example, performing or funding renovations on a
property, making business decisions which lead to an increase in the value of a
company.
Set out below are some examples of such cases and how the Courts have determined the
parties’ entitlements.
Howlett v Neilson [2005] NSWCA 149
In this case, on appeal, the parties’ respective contributions of $110,000 and $2,000 were
returned to them, with the uplift in the assets which occurred during the relationship divided
on a 50/50 basis.
Burgess v King [2005] NSWCA 396
In this case, the wife came to the relationship with an interest in a house. During the
relationship, the husband loaned funds to the wife, the parties jointly borrowed funds and the
husband completed renovations to the house. There was a subsequent increase in the value of
the wife’s house.
At first instance, the trial judge returned to the husband his financial contributions to the
house, at a discounted rate, however, to take into account care that the wife had provided to
him. The husband was not given any share in the “uplift” in the value of the house.
The husband appealed the decision claiming that he was justly entitled to a share in the uplift
in the value of the house based on his contributions. It was held that the uplift was to be
apportioned between the parties and the husband was awarded 23% of the increase in value
(being $100,000 of a $420,000 uplift).
Kardos v Sarbutt [2006] NSWCA 11
This case concerned a three year relationship where there were no children. At first instance,
the trial judge returned to the parties their initial contributions and then divided equally the
uplift in the assets that occurred during the relationship.
The decision was appealed on the basis that the initial contributions of one party were
“undervalued”.
Brereton J referred to the cases of Howlett v Neilson and Burgess v King and stated:
“The approach which was adopted in Burgess v King is one which gives due weight
to the time value of money, and recognizes that capital gains are the product of the
initial introduction of the property, rather than of ongoing contributions.
On the other hand, the approach adopted in Howlett v Neilson, in my respectful
opinion, may, at least in some cases, result in a serious undervaluation of initial
contributions. It treats any increment in capital value of an asset held at the outset of
the relationship as if it were part of the fruits of the relationship, when it is not: it is
the result of the asset having been held by one of the parties at the commencement of
the relationship, and not the result of joint efforts of wage earning, homemaking and
parenting, and mutual support of the type described by Deane J as producing “fruits
of the relationship”. It disregards the “time value of money”. It is likely to produce
erratic results, because under it the significance of any particular asset in the ultimate
evaluation will depend on its value when it was introduced. If one party has a house
worth $250,000 at the outset, and it appreciates during the relationship to be worth
$750,000, the contribution is of a house which at separation is worth $750,000 – not
of money worth $250,000.”
His Honour held that the approach taken at first instance “gave manifestly inadequate weight
and significance to the initial contributions of the parties in this short relationship”. His
Honour set aside the trial judge’s decision in favour of an overall division of 60/40, which
reduced the payment ordered from the contributor to the non-contributor.
Sharpless v McKibbin [2007] NSWSC 1498
In this case, Brereton J considered his earlier decision in Kardos v Sarbutt and said:
“I did not intend to suggest that any increase in value in assets initially contributed
should be regarded, in all the circumstances, as entirely a contribution by the party who
contributed those assets, nor that there was an onus on the other party to prove that the
initial contribution should be eroded; but that… it is necessary to weigh the initial
contributions of a party with all other relevant contributions of both parties, and that in
doing so, regard must be had to the use made by the parties of the initial contributions,
and that it was inappropriate to routinely regard increments in value of assets so
introduced as the produce of equal contributions by both parties.
“Decline in Value” Cases
On the other hand, where there has been a decline in the value of an asset initially contributed
during the relationship, it is generally recognized that in the absence of a party having acted
“recklessly, negligently or wantonly” in the context of Kowaliw, then those losses should
generally be shared, rather than attributed solely to the initial contributor whose funds have
dwindled (MacGregor & MacGregor (1996) FLC 92-710 and Browne and Greene (1999)
FLC 92-873).
Quarantining Assets
In many cases parties, entering into a marriage or de facto relationship wish to protect their
initial contributions. This wish to protect is perhaps heightened when a relationship turns out
to be short-lived.
One way of protecting assets is of course to enter into a pre-nuptial or binding financial
agreement of some kind.
However, where this step is not taken, it is clear from the case law that an initial contribution
made by one spouse party may be bolstered depending on its treatment and use during a
relationship.
A spouse party who is seeking to protect or bolster a significant asset contributed at the
commencement of the relationship may benefit from:
•
“Quarantining” that asset from the remainder of the assets and keeping the asset
easily identifiable
•
“Leaving the asset to the side” such that the asset does not require the effort or
contribution (financial or non-financial) of the parties during the relationship.
Summary
Like any other relationship, the contributions of both parties will be assessed by the Court in
Section 79 property proceedings involving a short relationship.
However, in the particular context of short relationships, it appears likely that the financial
contributions of the parties will be given primary significance although non-financial
contributions are still relevant and may also prove significant.
Further, where there has been a substantial initial contribution by one party, significant
weight is likely to be given to that contribution subject to the contributions subsequently
made by the non-contributing party during the marriage, including their non-financial
contributions and any contribution made to the specific asset contributed which results in an
increase in its value.
Section 75(2) Factors
The contributions of parties in the context of short relationships appears to be the paramount
consideration in Section 79 property proceedings.
However, Section 75(2) factors, such as the existence of dependent children and disparity in
income-earning capacity, will also clearly impact on whether a particular order is just and
equitable in the circumstances.
Notwithstanding the above, it is relatively clear that childless short marriages attract
adjustments usually under 10% and this is not affected significantly by Section 75(2) factors.
Bondar-Twersky & Twersky [2009] FMCA Fam 85
In this case, Neville FM held: “It is clear that this court and others like it, cannot and must
not engage in social engineering. Among other things, whatever the understandably difficult
life that lays before both, though perhaps especially Ms Bondar-Twersky, it would be unjust
in my view, for Mr Twersky for this to be a disproportionate award in Mrs Bondar-Twersky’s
favour giving the extremely short length of the relationship”.
Hurst & Weber [2009] FAM CAFC 139
In this case, the Court stated: “We think the idea of the wife emerging from the short
relationship in much the same position as she entered it is a sound starting point.”Ultimately,
the wife received 2% of the total pool.
Goodwin and Goodwin Alpe (1991) FLC ¶92-192
This case involved a cohabitation of just over three and a half years. There were no children
of the marriage although the wife had two children of her former marriage, one of whom
lived with the parties. The husband supported this child. Prior to the property settlement
hearing, the wife started to receive maintenance for the child.
There was no indication of the husband’s asset position at the commencement of the marriage
but at the date of the trial it was about $3 million. At the time of the trial, the wife had assets
of approximately $117,000.
At the commencement of the relationship, the wife owned a house and she received the
benefit of rental income from it during the period when she cohabited with the husband. A
car worth $13,000 was purchased by the husband to replace a car previously owned by the
wife. The wife was unemployed but had a capacity to earn income as a secretary.
The trial judge found that the wife had only made a small contribution over the short period
of the marriage to the acquisition, conservation and improvement of the husband’s assets and
an insignificant contribution to his resources and awarded her 10% of the husband’s assets,
being about $300,000.
The Full Court (Nicholson CJ, Simpson and Finn JJ) upheld the trial judge’s award but stated
as follows. The trial judge was in error when he took into account the disparity in financial
resources between the parties when assessing the contributions. Nonetheless, if a lesser figure
were allowed in that respect, it would be necessary to make an adjustment for s 75(2) factors
having regard to the great disparity in resources between the parties.
4.
SUMMARY
•
An asset-by-asset approach to the division of assets rather than a global approach may
be appropriate in the circumstances
•
Initial contributions will be given significant weight, subject to contributions
subsequently made during the marriage and the treatment of and use of the initially
contributed asset during the marriage. In short relationships, initial contributions are
likely to be of paramount importance.
•
Financial contributions will be significant, although non-financial contributions and
Section 75(2) factors will also be relevant.
•
Childless “short relationships” usually result in an adjustment in favour of the “noncontributor” of less than 10%.