Before we define what a financial resource is, it is appropriate that we first define what the Court considers is ‘property’ for the purpose of the Family Law Act 1975.
What is property?
Section 4 of the Family Law Act 1975 defines “property” as follows:
“Property, in relation to the parties to a marriage or either of them, means property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion.”
Property under s4 of the Family Law Act is commonly accepted to include:
- real estate (including overseas real estate)
- bank accounts
- shares
- an interest in a business/partnership
- control of trust assets (but more than control is generally required, the trust must be the alter ego of the party, used for their sole benefit);
- vehicles
- superannuation
- jewellery
- Furniture
- personal belongings.
What is not property?
The following are not property under s4 of the Family Law Act:
- Business goodwill that is personal and not commercial;
- Non-transferable licences, unassignable rights or interests;
- Prospective inheritance (being an expectation of receiving an inheritance from someone who is still alive);
- A pending claim for damages for personal injury;
- A capacity to borrow money.
The practical effect is that where you have something that is not property but which may provide a future financial benefit to a party, an argument can be made that it is a “financial resource” which should be taken into account under section 75(2)(o) of the Act.
Why is it better for something to be property as opposed to a financial resource?
If the Court determines something to be property as opposed to a financial resource, it is included in the property pool available for distribution between the parties.
If the Court determines something is not property, but a financial resource, it is not included in the property pool, however, it is still relevant as a financial resource under s75(2)(o).
Clearly, there will be more benefit to one party, and less benefit to the other party, if something is determined to be an item of property as it will be included in the property pool.
Regardless, the Court must be satisfied that the Orders are just and equitable. The operation of section 75(2) (or s90SF(3)) of the Act enables the Court to take financial resources into account in determining what orders are just and equitable.
What is a financial resource?
A financial resource is defined by the High Court in Hall & Hall as a source of financial support which a party can reasonably suspect to be available to him/her to supply a financial need or deficiency.
Sounds simple right? The answer in actuality can be quite complicated. Each case turns on its own facts. The types of resources that might be considered a financial resource are not closed.
s75(2)(b) and s90SF(3)(b) of the Family Law Act 1975 (‘the Act’) state that the matters to be taken into account when considering an application for spousal maintenance are:
“the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment”
However, the relevance of financial resources in family law is further extended by virtue of the reference to s75(2) in s79(4)(e) (married couples) and the reference to s90SF(3) in s90SM(4)(e) of (de facto couples) thereby bringing in any financial resource as a matter to be considered at the third step when determining property settlement proceedings. ‘Financial resource’ is not defined in s4 of the Act thereby leaving it open as to what is meant by a financial resource.
Key decision regarding financial resources: Hall & Hall [2016] HCA 23
The Facts & Trial Decision
In Hall & Hall, an interim spousal maintenance order was made by the primary Judge for the husband a property developer, to pay the wife a medical practitioner, interim spousal maintenance of $10,833 per month. Parties were married in 2001 and separated 2013. They had 2 children together.
The Wife’s financial circumstances, as set out in her financial statement, were that she owned two luxury motor vehicles and had an interest, of an unknown value, in her late father’s estate. The wife did not have a copy of her father’s Will and did not know the particulars of his estate at the time the order was made. The primary Judge was satisfied of the wife’s need for spousal maintenance and of the husband’s ability to pay.
Following the interim order, the wife’s interest in the estate became known and revealed the estate to be quite substantial. The wife’s late Father expressed a “wish” in his will that the wife should receive from a group of companies in which the late father held shares which in turn had been bequeathed to the wife’s brothers, a lump sum payment of $16,500,000 on the first occurrence of a number of specified events. One of those triggering events was that the Wife be divorced from the husband. The Husband was not held in high regard by the Wife’s late father.
In addition, the father’s “wish” was that the wife should also receive an annual payment of $150,000 until that date, if any, of that lump sum payment of $16,500,000.
The Appeal Decision
The husband filed an application to set aside the orders made by the primary Judge on the basis of the wish that the wife receive the lump sum payment of $16,500,000.
The wife filed an affidavit in opposition to the husband’s application deposing she had recently spoken to one of her brothers who had explained the contents of their late father’s Will to her. Prior to this discussion the wife had no knowledge of the contents of the Will. The wife stated she had not received any income or payment from her late father’s estate. She did not say however whether or not she had requested the payment. In summary, her argument was that the gift was voluntary and not binding on the estate.
The husband’s application to set aside the original maintenance orders was dismissed.
The husband then filed an application for leave to appeal to the Full Court of the Family Court of Australia to discharge the interim maintenance order, which was heard on 12 November 2014.
Her brother’s evidence in the Appeal was that neither the annual payment of $150,000 nor the payment of $16,500,000 had to be paid to the wife, and that as executor of the Will, he had no obligation to her in respect to payment of that money.
The Full Court found that the primary judge had erred in failing to consider or make findings as to whether there was sufficient evidence to discharge the interim spousal maintenance orders.
The Full Court set aside the orders dismissing the Husband’s application and found that there was evidence before the Court which demonstrated that the wife had the capacity to support herself adequately. The court drew inference from the fact that the Wife had a very good relationship with her brothers and that she would have received the annual payment of $150,000 from the group had she asked her brothers for it. The Full Court indicated the brothers provision to the Wife of 2 luxury motor vehicles indicated the very good relationship she had with her brothers.
The High Court Majority Decision
The Wife appealed the Full Court’s decision to the High Court by special leave alleging failure of process and errors of substantive reasoning.
The Wife appealed the Full Court decision on two grounds, that errors were made as follows:
- Failure of process – that the Husband had not raised her ability to request a payment from her brothers on appeal or at first instance;
- Error of substantive reasoning including that:
- It was not open on the evidence to infer that the voluntary annual payment would have been made to her if she requested it
- Even if the voluntary payment would have been made to her if requested, that fact could not constitute a proper basis for concluding that she was able to support herself adequately within the meaning of s72(1).
Her argument was that her ability to obtain a voluntary payment upon asking for it could not be regarded as a financial resource within the meaning of s75(2)(b) and the Full Court could not form an opinion that it was a fact or circumstance which the justice of the case required to be taken into account so as to bring it within s75(2)(o).
The majority of the High Court held that the finding of the Full Court that the Wife would have received the payment of $150,000 per year had she asked for it was a finding open to the Full Court to make. The wife’s brothers were under a moral obligation to honour their late father’s wish with respect to both payments to the wife and there was no evidence to suggest that they might not fulfill that moral obligation. The evidence demonstrated that the Wife was able to support herself adequately and the threshold requirement under s72(1) was therefore not met.
The High Court went on to consider the second ground of the appeal as to whether a potential source of financial support amounts to a financial resource of a party. The High Court held that:
- a financial resource is defined as a source of financial support which a party can reasonably suspect to be available to him/her to supply a financial need or deficiency;
- In determining whether a form of financial support is a financial resource it turns in most cases on a factual enquiry as to whether or not support from that source could reasonably be expected to be forthcoming were the party to call on it.
- It must involve something more than an expectation of benevolence on the part of another;
- But it goes too far to suggest that the party must control the source of financial support (i.e. it does not need to be controlled by the party in receipt of it);
- It has long been recognised that a nominated beneficiary of a discretionary trust who has no control over the trustee but who has a reasonable expectation that the trustee’s discretion will be exercised in his/her favour has a financial resource, to the extent of the expectation.
- Regarding s75(2)(o) it plainly extends to any factual circumstance which in the opinion of the court, the justice of the court requires to be taken into account as showing that a party to the marriage is/is not able to pay spousal maintenance or is/is not able to support him/herself.
The majority of the High Court found a financial resource of the Wife was a matter falling within section 75 (2)(b) and that payment was available to the Wife if she asked for it.
The High Court Dissenting Judgement
The dissenting judgement of Justice Gordon noted that the wife’s father died in 2009, the parties separated in 2013, but after her father died, the Wife did not learn of her father’s wish for more than four years and never received a so called benefit.
Justice Gordon concluded that it was not open to the Full Court to draw the inference that the Wife would receive the annual payment nor was it open to the Full Court to make the finding that the Wife was able to support herself adequately.
Justice Gordon said it was not clear on what evidence the Full Court had relied in concluding that the Wife had a good relationship with her brothers. In explaining that it was not open to the Full Court to infer that the brother would have made a payment to the Wife had she requested it, she held that the brothers conduct after the father’s death, in relation to the will, did not support a finding that the brothers would have caused B Group to make payment to the Wife if requested. On the contrary, their conduct indicated an unwillingness to disclose the will to the Wife and unwillingness to comply with her father’s stated wish in relation to the wife. In this respect, the Wife’s position stands in stark contrast to the position of a beneficiary of a discretionary trust who has no control over the trustee, but has a reasonable expectation by reference to past distributions, that the trustee’s discretion will be exercised in their favour.
Her Honour went on to say that even assuming the conclusion that the Wife had a good relationship with her brothers, was soundly based, there are at least two difficulties relying on it to draw the inference. First there is a difference between having a good relationship with a person and being willing to give them large sums of money on a regular basis. The latter does not necessarily follow from the former. Second, if payments were to come from the B group, not the brothers in their personal capacity. Although the brothers controlled the B group, it could not be assumed that the brother would distribute money from one or more of the corporate trusts which comprised the corporate entity, to the Wife, to fulfill their father’s wish.
The Wife’s appeal was dismissed with costs.
What does Hall & Hall tell us regarding the definition of financial resources?
Despite the dissent of Justice Gordon in relation to the correctness of the inferences drawn by the primary judge and the Full Court, that resulted in a finding that the Wife was in receipt of a financial resource, the differing judgements turned on the specific circumstances of the case.
However, what is clear from the High Court Case and was not affected by the dissenting judgement, was that the High Court endorsed the long standing definition of a financial resource as a source of financial support which a party can reasonably suspect to be available to him/her but it does not need to be controlled by the party who might expect that source of financial support.
In the Marriage of Kelly & Kelly (No. 2) – further component regarding what is a financial resource
In the marriage of Kelly and Kelly (No 2) (1981) FLC 91-108, which was endorsed by the High Court in Hall & Hall, the Court referred to a further important evidentiary component when answering the question as to what is a financial resource:
- The financial resource which a person has is not necessarily to be equated with the asset or income of which a benefit is derived. E.g. if the rental of a property is regularly paid to a person through a family arrangement, the receipt of the rent may be regarded as a financial resource of the person concerned, not necessarily the capital value of the property;
- it is important therefore to define what benefit a person has received in the past and what is likely to be received in the future.
- Where there is factual control, that may allow the person concerned to not only ensure the continuation of past benefits, but also to expand the possibility of future benefits, but neither legal or factual control is necessary.
Did the High Court get it wrong? Should the majority have adopted Justice Gordon’s view?
The Majority in Kelly emphasised a review of the past benefits received in the context of what is likely to be received in the future, however in Hall, the absence of receipt of past benefits by the Wife did not trouble the majority or the Full Court or the primary Judge, but it troubled Justice Gordon in her dissenting judgement.
Consequently, the majority in endorsing the primary judgement in Kelly, appears to have ignored what might be an important evidentiary component when determining what is a financial resource.
The next next evidence to consider, is the present. Justice Gordon held that the timing and mechanics of the payment were relevant to whether the Wife was able to support herself at any particular point in time. For example, assume the Wife requested the annual payments and the brothers agreed to make the first payment 12 months from the date of the request. It may be that in 12 months time, upon receipt of the payment, the Wife would be able to support herself in the intervening period. The Full court had to find that the Wife was able to adequately support herself at a point in time to discharge the interim spousal maintenance order, being on 10 December 2013 (the primary judgement).
This appears to be a valid argument in our view. The means to which a party is able to support themselves needs to be available, if not immediately, relatively soon.
The final issue of importance is the future. s75(2)(b) bears on the practical ability of one party to support the other and that party’s ability to support themselves.
s75(2)(b) refers to financial resources which indicates that the resource can be available in the future.
However, isn’t the same financial resource going to have different relevance to an interim spousal maintenance claim which is pending a final order, compared to a final spousal maintenance claim and again compared to a final property settlement order?
These are important questions that will need to be answered by the Courts in the future.
Categories of financial resources
There are various categories of financial resources including as follows:
- A prospective inheritance: De Angelis & De Angelis [1999] FamCA 1609
- An interest in a discretionary trust : Kennon & Spry [2008] HCA 56 (in this case held to be property).
- in this case, being the Husband’s power as trustee to apply the whole income and capital of the trust at his absolute discretion including to the Wife, his power of appointment and power to vary the trust, combined with the wife’s equitable interest to due administration of the trust.
- Husband’s interest in a unit trust: Harris & Dewell and Anor [2018] FamCAFC 94
- Long Service Leave: Gould & Gould (1996) FLC 92-657.
- Carried forward tax losses: JEL and DDF [2000] FamCA 1353; Cromwell;
- A future pension entitlement.
Property versus financial resource versus not relevant
Interest in discretionary trust
In Harris, the Full Court said the Husband’s interest in the trust was a financial resource, not property. The Wife had asserted at Trial that the Husband’s interest in the unit trust was property pursuant to s79. The Husband did not hold an interest in the trust or control the trust. The Wife contended at trial that the Husband’s interest in the unit trust should have been held to be the Husband’s puppet or creature by reason of the extent, manner and history of the Husband making decisions directly affecting the trust and his dealings with its property. The primary judge did not accept the Wife’s contention. The Husband’s father was a party to the proceedings (99 years of age when the appeal was heard). The Trust was established by deed in 1981 prior to the parties commencing cohabitation. The Trustee was a company incorporated at that time. By 1991, the Husband’s father was the sole unit holder of the Trust. The Husband had never been a unit holder. The Husband had a 1/3 interest in the Trustee company and his father held 2/3 of the trustee company shares. The husband argued he held his shares on trust for his father. The husband ceased acting as director of the trustee company in 2011 and the husband’s father’s solicitor replaced in.
In support of the contention that the trust was the Husband’s puppet/creature, the Wife called examples of the following:
- examples of the Husband engaging in dealings on behalf of the trust and directing agents on behalf of the trust;
- having the benefit of trust asset as security for his own personal borrowings;
- intermingling of his own personal funds with the funds of the trust.
The Court held that since 2002, the Husband treated the trust as if it was his own. Since 2011, there is no evidence that his father has been aware of any transactions that the husband has conducted on behalf of the trust. He will on his father’s death inherit the trust units. He treats the trust units for all intensive purposes as his own.
The Trial Judge held:
- Having made extensive findings as to the Husband’s control of the trustee company and the trust;
- The Court nonetheless holds that whilst the Husband’s father remains the owner of the trust, the Husband has a lawful right to benefit from the assets of the trust;
- Despite the control exhibited by the Husband in respect of the dealings of the trust, the trust is not an alter ego of the Husband used by him for his sole benefit;
- the husband’s father is the legal/beneficial owner of the trust units.
The Full Court held:
- Except in the case of shams and companies that are mere puppets of a party to the marriage, the Family Court must take the property of the parties as it finds it;
- the Family Court cannot ignore the interests of third parties in the property;
- The Trust was not the property of the Husband;
- Regarding the notion of control – for the trust to be the property of the Husband, more than control is required. What is required is control over a person or entity where by reason of the powers contained in the trust deed can obtain or affect the obtaining of a beneficial interest in the property of the trust.
- the Trust was a financial resource.
Long Service Leave
In Gould & Gould (1996) FLC 92-657, the Full Court it was held that the right to long service leave should only be treated as a financial resource if the employee spouse is likely to receive a lump sum in lieu of leave taken. The Full Court in Gould highlighted that such an entitlement may result in the employee spouse obtaining other temporary employment, developing a business or pursuing further study which would provide the employee spouse a financial advantage which could be treated as a financial resource.
Key take aways regarding financial resources
- A financial resource is a source of financial support which a party can reasonably suspect to be available to him/her but it does not need to be controlled by the party who might expect that source of financial support.
- Categories of financial resources are not closed;
- A ‘financial resource’ may be taken into account in property settlements and interim orders for spousal maintenance;
- The Court will make orders that are just and equitable, ensuring the circumstances of parties are taken into account.
Contact us
If you have recently separated and this article has raised questions for you, please contact us to book a reduced rate consultation with on of our experienced Brisbane Family Lawyers to have a confidential discussion about your individual circumstances.
