Where a court is required to decide a property settlement application, there are five considerations of a court, when determining what orders are just and equitable to each party. First and foremost, the court considers whether it is just & equitable to make any order. This an overarching consideration as there is no automatic entitlement to an order altering the parties interests in property after a separation occurs. In most cases this requirement will easily be satisfied by the fact that the parties have separated and no longer live with one another. But not always. Then, provided the court determines that an alteration of property interests is just and equitable, the court implements a 4 step test. First of all, the court looks at the current asset pool, second the court looks at the parties contributions to that asset pool, thirdly the court looks at the parties ‘future needs’ and last, the court looks overall to assess what percentage division of the pool and what actual division of the pool in the circumstances is just and equitable. Part of the 2nd step is to look at the assets that the parties brought into the relationship, otherwise known as, initial contributions.
This blog discusses the relevance of initial contributions in the context of a long relationship and we will look at some recent case law that has canvassed the issue, where a property has fluctuated in value because of residential rezoning.
How does the court work out how assets should be divided in long relationships?
In longer relationships (usually over 10 or 15 years), the Court will generally take a global approach to the assessment of the contributions of the parties to the acquisition, maintenance and conservation of the property pool.
What this means is that instead of looking at the current property pool with a magnifying glass and assessing what asset was purchased by each party and/or who was the greater financial contributor the court may, depending on the nature of the relationship, determine that one party’s financial contributions are counteracted by the other person’s non-financial contributions (e.g. as homemaker and parent) such that the contributions of the parties to the property pool are considered equal.
This is far from a general presumption however and each case is assessed on its own facts. There are many cases where a court has determined that despite the long relationship between the parties that the contributions were not equal due to factors particular to that relationship, e.g. the nature of the relationship between the parties, initial contributions made by one party, the lack of intermingling of assets, and/or windfalls received by one party.
How does the court assess initial contributions in long relationships?
Initial Contributions are assessed and weighted depending on a number of factors including the size of the contribution by the relevant party (in dollars), the percentage proportion that the contribution represents when compared with the current property pool that exists, the length of the relationship between the parties and last but not least, any offsetting contributions by the other party that may ‘erode’ the initial contribution over time.
Case Study: Jabour
In Jabour [2019] FamCAFC 78 the Full Court was required to determine an appeal of a property settlement order made following a 25 year marriage that produced three children, where the primary judge had assessed that the contributions of the parties were 66% in favour of the Husband and 34% in favour of the Wife.
When the parties first got together the Husband owned a 50% share in three blocks of land (30 acres, 30 acres and 44 acres) which he purchased from his father in 1975 for $26,000.
11 years into the marriage the Husband sold his 50% interest in the 2 x 30 acres lots to acquire the whole interest in the 44 acre lot.
The property acquired by the Husband was later rezoned for residential use causing the property value to increase significantly. The property subsequently sold in 2017 for $10,350,000.
At the original Trial, the Husband proposed that the net proceeds of sale of the property be divided 70% to him and 30% to the Wife. The Wife sought a 50/50 split.
The Court found at first instance that the financial and non-financial during the relationship were equal. The court then observed that the value of the property represented almost 90% of the non-super pool. Citing Williams [2007] FamCA 313 and Zappacosta [1976} FamCA 56, the Court concluded that bringing in the property to the relationship made a significant contribution that needed to be appropriately recognised in the division of property between the parties. Whilst it was noted that the decision to purchase the half interest in the 44 acre lot 11 years into the marriage was a joint decision, the Judge reiterated that if the Husband did not have the original interest at the commencement of the relationship in the three blocks, he would not have had the opportunity to utilise this to purchase the remaining 50% share in the larger block that now forms part of the pool. As a result, the court determined that the contributions were assessed at 66%/34% in favour of the Husband to the non-superannuation assets.
On appeal, Alstergren, Ryan and Aldridge accepted the Wife’s argument that the primary judge in assessing contributions was in error in seeking a nexus between the contributions by the parties to a particular item of property and its present value, when assessing contributions holistically over a long marriage and when considering the assets of the parties on a global basis. The Judge essentially quarantined from the assessment of contributions of the parties to that land, all of the other contributions made by the parties thereafter during the relationship.
The Full Court stated that the approach of the primary Judge had the effect of overlooking:
- The parties decision not to use all of the funds from sale of the other block for family purposes, but to use half of those proceeds in order for the husband to gain sole ownership of the block of land that was rezoned;
- The decision not to sell the rezoned land at an early stage was also a significant contribution, allowing the parties to enjoy the benefit of the increased value of the land.
Despite the significance of the initial contribution, the Court of appeal reassessed the contributions of the parties at 53%/47% in favour of the Husband stating “the court in Williams somewhat overstated the importance of the increase in the value of a piece of property at the expense of ‘the myriad of other contributions that each of the parties has made during the course of the relationship” (43).
What can we learn regarding initial contributions?
Initial Contributions are treated according to the size of the contribution by the relevant party (in dollars), the percentage proportion that the contribution represents when compared with the current property pool that exists, the length of the relationship between the parties and last but not least, any offsetting contributions by the other party that may ‘erode’ the initial contribution over time.
The case of Jabour has confirmed that:
- When considering initial contributions, it is important to consider offsetting contributions by the other party during the relationship;
- In relation to a sudden increase in the value of an asset unrelated to the efforts of the parties, such as rezoning by a council or a lottery win, that the increase should be treated as a joint contribution by both parties regardless of which party may have brought the item during the relationship.
The court made an analogy to lottery tickets and noted “where both parties are in receipt of income and where their marriage is predicated upon the basis of each contributing their income towards the joint partnership constituted by their marriage, the purchase of the ticket would be regarded as a purchase from joint funds in the same way as any other purchase within the context and would be treated accordingly.” I.e. the sudden increase in the value of the land as a result of the rezoning was a joint contribution by the parties.
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