After separation it is not uncommon for parties to remain financially intertwined with one another prior to a formal division of their assets. Parties are also sometimes waiting many years after separation to get divorced. Post separation contributions may be made by both parties to the property pool including direct contributions (by way of paying down the mortgage or paying into super) or indirect contributions (by way of looking after the children).
Until one year after the divorce each party has a right to make an application for a property settlement to take place.
What this means is that it is becoming more and more common for there to be disputes about how post separation contributions are treated and valued in a property settlement.
Parties are not expected to go into a state of suspended economic animation after separation and until they do a formal property settlement. Bank accounts will continue to go up/or down, superannuation may accumulate, properties may increase or decrease in value, mortgages may be drawn down upon, parties may accumulate new assets or perhaps one party might receive an inheritance or other large sum of money.
It is a common misunderstanding that assets acquired after separation will be excluded (quarantined) from the property pool to be divided between the parties or treated differently.
It is also a common misunderstanding that if assets go up in value (for example super or the value of a house), it is the separation value that is relevant for the purposes of determining the split of assets between the parties.
In our previous blog How is property acquired after separation treated? we cleared up that all property is considered as part of the property pool for division between the parties, regardless of when it is acquired.
This blog addresses the important question as to how post separation contributions to assets are assessed, for example, when the property pool increases due to the purchase of new assets or due to the increase of value in assets, such as property and superannuation.
Post Separation Contributions Case: Marsh & Marsh – 10 year separation; Pool went from $388,000 to $1.67M
In Marsh & Marsh [2014] FamCAFC 24, the parties had separated for 10 years prior to property settlement proceedings being initiated. After separation, the parties continued to have intermingled finances in that the Husband continued to financially support the wife and paid for some of her household living expenses. The asset pool grew to five times its value between the date of separation and the date of trial as a result of the assets going up in value and the Husband continued to acquire properties. The Husband’s superannuation alone increased from $388,000 at the date of separation to $1,673,000 by the time of the trial.
The relationship was unusual in that although the parties separated in 2000, their relationship continued until the date of the trial, with each making significant contributions although different in nature from those made during the relationship.
The Trial decision
At the trial, the Judge segregated the contributions made by the parties prior to separation and after separation, determining that the contributions made by the parties prior to separation were equal, but after separation, the Husband had made greater contributions than the wife. The Husband had made significant direct financial contributions post separation to the wife, the children and the household and he continued to acquire assets. He made ‘virtually all the contributions to the increased property pool since 2001’ according to the Trial Judge. The Wife made significant indirect contributions to the welfare of the family and indirectly, to the property of the parties.
The Husband’s submission was that the court should assess the contributions made post separation as 90% in the Husband’s favour and 10% in the Wife’s favour.
The wife’s submission was that her contributions eroded the significance of the husband’s ongoing financial and non-financial contributions and that she indirectly contributed to the acquisition of the Husband’s investment properties such that the contributions should be assessed as equal.
Nonetheless, the trial judge awarded a 20% adjustment to the Husband on account of his post separation contributions making the contributions assessment 70% in favour of the Husband and 30% in favour of the Wife.
In relation to future needs, the Husband argued an adjustment of 10% to the Wife was appropriate whereas the Wife sought an adjustment to her of 25%.
The trial judge made an adjustment to the Wife for future needs of 10% but applied the adjustment only to the non-superannuation assets.
The Appeal
The Full court held that this was the wrong approach.
The Appeal Court held that the Trial Judge’s approach failed to give proper weight to the wife’s contributions as a homemaker and parent and it failed to give account to her indirect contribution to the husband’s career and thus his ability to make financial contributions in the first place. The Court emphasised that the roles adopted by the parties during the relationship whereby the wife attended to the home and did not work outside of the home enabled the husband to give great attention to his career and work, confident that his home life and parental responsibilities were being well met. This enabled the Husband to live abroad for a considerable period post separation at which point it fell entirely upon the wife to meet the burdens of parental responsibility with some financial assistance from the husband.
“The Federal Magistrates acceptance of the husband’s proposition that in some way the increase in and acquisition of the property after separation should in some way be segregated from consideration neglects the continuing indirect financial contributions of the wife to the husband’s earning capacity, commenced during the marriage and continued to date of trial…..
The parties agreed that, up to separation, their contributions had been equal. What then had changed between separation and trial sufficient to warrant the Federal Magistrate’s conclusion that the husband’s post-separation contributions should be assessed at 70 per cent and those of the wife at 30 per cent? It seems that the issue operating on his Honour’s mind was the husband’s use of his very considerable earning capacity to support the family and to acquire assets after separation. For the wife’s part, she remained in the role adopted by her during the marriage, caring for the children and the home. It was not until 2008 that the youngest child completed final school exams.
The assessment of parties’ contributions involves weighing the quality and extent of each contribution. It is accepted that the nature and character of those contributions may change, as here. During the cohabitation, the husband developed expertise and skills which have caused him to advance in his employment, skills and expertise which continued after separation. The wife has contributed to that ongoing earning capacity.
Clearly then the husband’s submissions that the increase in property after separation should be regarded as being referable to a contribution made only by him is to be rejected. It not only ignores the ongoing contribution of the wife to his income but further seeks, impermissibly, to confine contributions to a particular class or list of assets.
The effect of the Federal Magistrate’s orders was to accept the husband’s argument that he had made the overwhelming financial contribution since 2000 but in which he failed to give effect to his findings that after separation the wife continued to make significant contributions both as to the home and children and also indirectly to the husband’s present earning capacity.”
The appeal court concluded that the assessment of contributions of the parties was unjust and plainly wrong.
The Wife also appealed the Trial judge’s decision that the evidence supported an adjustment limited to 10% for future needs, in relation to the non-superannuation asset pool. In relation to this ground of appeal, the appeal court concluded that whilst the percentage adjustment made in favour of the Wife was within the range of outcomes that was available to the Trial Judge, given it applied only in relation to non-superannuation assets, it fell outside the range of a reasonable exercise of discretion by the Trial Judge.
The appeal was allowed in relation to those grounds, and the matter was remitted for rehearing before a different Judge.
Post separation contributions Case: Maine & Maine – 11 year separation; Relevance of an informal settlement of assets
In Maine & Maine [2016] FamCAFC 270, the parties commenced cohabitation in 1980, married in 1983 and separated in 2004 and divorced in 2014.
The Husband applied to the Court for property settlement orders in 2014 and a final hearing occurred in 2015.
At the time of the trial, the parties had adult children who the Wife had primary care of.
The Informal Agreement
Trial
At the trial, the key issue was whether the informal agreement reached between the parties binding. The former matrimonial home had been transferred by agreement to the Wife in early 2009 and fort his purpose there were competing arguments. The Wife said the transfer was a gift. The Husband said that it was agreed that the Wife would pay him $80,000.
The transfer forms were prepared by a third party and the consideration box was left blank. The Husband signed the document. The Wife subsequently added ‘agreement in divorce settlement’ in the consideration box. This was crossed out and amended to say ‘by way of gift’ which was initialed. The Husband said the initials were not the Wife’s but later agreed that they were. The Wife said she did not initial the form. No money was paid by the Wife to the Husband and the Husband could not produce any evidence of his demand for payment since 2009.
Counsel for the Husband sought an alteration of property interests in his favour.
The Wife’s argument at trial was taht once proper regard was had to the evidence, the court should find that the only reasonable conclusion was that it was not just and equitable to make any order altering the interests of parties in property or superannuation (s79(2)).
At the Final Hearing the trial judge held that there was an agreement that the Husband would transfer his right to the former matrimonial home to the Wife upon the wife paying him $80,000.
It was also held that the agreement was meant to be a financial agreement between the parties and that if the Wife had paid $80,000 to the Husband, then the Husband would not have brought proceedings / they would have been dismissed. The Court concluded that there was a financial agreement which the wife had repudiated which then caused him to look to section 79 of the Family Law Act to determine the just and equitable division of assets.
The Judge held that the Wife was ‘deceitful and dishonest’ based on finding that there was in his view clearly an agreement to pay $80,000 to the Husband. This was despite the fact that there was no evidence to contradict what the Wife had said (that the transfer was a gift). His original judgement is heavily coloured by this finding as to the Wife’s credit.
This was despite the fact that the Husband’s counsel conceded that there were no evidentiary grounds for concluding that there was meant to be a financial agreement between the parties.
The appeal:
The appeal court held there was no grounds for concluding taht there was meant to be a financial agreement between the parties or for stating what might have happened if the Wife had paid the amount of $80,000 to the Husband nor did the court agree that the ‘agreement in divorce settlement’ was consistent with an agreement that the Wife pay the husband $80,000.
It was held to be an error of law to say that as a result of a finding of repudiation of an informal agreement, that the Court would look at whether orders ought to be made under section 79 of the Family Law Act (incorrect application of Bevan and inconsistent with Stanford).
The Full Court noted that the significance of an informal agreement is well settled from Woodland and Todd in that:
- other than where there is an approved financial agreement under the Act (BFA) or a consent order, the Court must look at the current application on its merits;
- there is no threshold test of whether the former agreement is just and equitable and it should only be considered in so far as indicating what the parties agreed was just and equitable at the time
- because the agreement was not binding, it had limited operation, and is only used to show the intentions of the parties at the relevant time as to what the parties regarded as just and equitable.
The provisions of the agreement should only be given effect in the Court’s view if those terms coincide with an order which is just and equitable at the time of the hearing.
The Court noted that the first step by His Honour should have been to determine if it was just and equitable to make any order adjusting the interests of the parties (s79(2)) and then what order should be made (79(4)). The primary judge did not do this as he did not consider the respective contributions of the parties after separation.
It was also noted that there was no evidentiary basis for finding that the Wife was being ‘deceitful and dishonest’ as the evidence was consistent with what she was purporting – there was stamp duty paid and the amount was consistent with paying no consideration to the husband.
Contributions assessment
At the time of separation, there was a $490,000 house with a mortgage of $297,000. The Wife had met all outlays for the house since 2004. The Wife refinanced the mortgage and bought an investment property. She had made significant improvements to the home since that time.
The Husband received a $57,000 disability payment in 2014, purchased his car and had some cash remaining. The payout was part of his super which had been contributed to and preserved throughout the 25 year marriage. Since separation the husband had acquired no real property or other assets save for the cash and car.
Trial
At the Final Hearing, the Wife owned the matrimonial home, an investment unit, cash and a car valued at $1,100,000. the Husband had cash and a car worth $24,000. Both parties had a similar amount of super ($80,000). All liabilities were owned by the wife ($627,000) with a net pool of $659,000.
His Honour determined that contributions be assessed at 65% in favour of the Wife and 35% in favour of the Husband with no adjustment for future needs.
His Honour failed to consider the parties post separation contributions to the pool despite the fact the evidence supported and counsel for the Husband conceded that the overwhelming bulk of contributions since separation were made by the wife.
During the relationship there were limited financial records but for between 2000 and 2004. His Honour stated that whilst this was a snapshot it should not be extrapolated to make conclusions about the rest of the relationship.
Later his Honour said “if the true situation had been as the wife is now making out, then there would be no cause for complaint as she would now be financially better off without having the drain of her husband” but also that “the husband did fritter money away”.
The Appeal
The court held that the respective contributions of the parties during the 11 year separation were an extremely relevant consideration, it being almost one third of the whole 35 years since cohabitation commenced. The omission of any assessment of contributions by the parties’ post separation to the pool constituted “a failure to consider a highly relevant consideration”.
Kennon Argument
The trial
On a side note, the Wife alleged that the Husband was domestically violent towards her and sought further adjustment in her favour under the principles of Kennon, on the basis that her contributions during the relationship were more arduous by reason of domestic violence she alleged was perpetrated by the Husband. The Trial Judge made findings in his judgement that the Husband would “sometimes” verbally and sometimes physically abuse the wife but that “notwithstanding these most unfortunate character traits of the Husband” the Wife was prepared for some form of reconciliation and that letters written by the wife to the Husband which did not mention domestic violence “make it clear that there was no impact from any violent conduct of the husband.” He called domestic violence “the nature of this relationship” and said that was no “evidence that illustrates how such conduct has made the contributions by the wife more arduous.” His Honour said that “for me to further adjust the contributions because of the nature of this particular relationship would mean that I am indirectly reimporting into matrimonial law the concept of fault.”
The Appeal
It was noted by the Full Court that His Honour had made findings that family violence had occurred throughout the 20-year relationship and the Court could not understand how at the least the
The Wife gave direct evidence that family violence had made the household tasks and care of the children more difficult and of the history of the Husband’s drunken violence and abuse over the 20-year relationship.
The Court held that His Honour did not consider the Wife’s direct evidence in her affidavit which was not challenged substantively in cross-examination, nor subject to any adverse finding of His Honour, of the impact of the domestic violence upon her when he said that there was no evidence that the domestic violence made her contributions more arduous. There was an inescapable inference that the wife’s homemaker and parenting contributions were at the very least “made more onerous”.
It was also noted importantly that the principle that contributions can be made more arduous by domestic violence is a well-established principle in the case of Kennon and it was not contrary to the concept of the no-fault system in Australian matrimonial law.
Post separation contributions Case: Ilett & Ilett – 19 year separation; Pool increased from $366,000 to $778,000
In Ilett & Ilett (2005) FLC 93 – 221, the parties married in 1984 and separated in 1995 after a marriage of 11 years with 2 young children (6 and 4) who remained in wife’s care.
Although there had not been an informal division of assets there was a lengthy delay in the wife bringing property settlement proceedings after being granted leave to issue out of time, In October 2003, 19 years after separation.
Following separation, the husband’s parents advanced him $65,000 by way of a loan/interest free gift, which he contributed to the purchase of a property. By the time of trial, this “new” property was valued at $360,000 out of a total pool at that time of $778,000. Further, the bulk of the husband’s superannuation interest at trial ($90,000) had also accumulated since separation.
The Trial decision
The Trial Judge adopted an asset-by-asset approach and quarantined the husband’s post separation assets.
The wife was awarded 50% of the asset pool at separation and a further 20% of that reduced pool by way section 75(2) future needs factors, amounting to a distribution to the Wife overall of 70% of the reduced pool and only 36.5% of total current pool of assets.
The Appeal
In allowing the appeal, the Court found that notwithstanding the husband’s extra contributions post separation, a division of 36.5% to the Wife overall was manifestly unjust and inequitable.
In adopting an asset-by-asset approach, the Trial Judge should have assessed the contributions of the wife as homemaker and parent contribution against the husband’s post separation contributions by way of new residence and the increase of his superannuation entitlements.
In adopting that approach the trial judge also failed to take into account as a future needs factor, the dramatic disparity in the parties’ financial circumstances which the adoption of that approach led to him so doing.
The trial Judge was wrong in considering the wife’s post separation contributions (homemaker and parent) as a future needs factor and wrong again in applying the adjustment regarding future needs to the reduced pool.
In re-exercising the discretion, the Full Court adopted the global approach, considered the total asset pool, assessed the contributions at 65/35% in the husband’s favour and applied an adjustment of 10% to the Wife for future needs factors giving an overall division of 55% to husband and 45% to wife.
What have we learnt?
The above cases make clear that post separation contributions are not automatically quarantined or treated differently from pre-separation contributions.
The take home message however is the importance of finalising your financial matters with your ex-partner as soon as possible after separation, to avoid having to share all assets and super with your ex-partner that you acquire after separation.
If you would like legal advice on your particular situation and how your post separation acquired assets will be treated, contact us to book your reduce rate initial consultation with one of our Brisbane Family Lawyers.
