Last updated 13 June 2017
The court will assess the net value of the parties’ assets after deduction of all debts. In general, the court will do this by deducting from the value of all of the property all liabilities owing by the parties, whether secured or unsecured.
- are vague or uncertain
- are unlikely to be enforced
- were unreasonably incurred by one party
- were incurred after the separation
the court may not take into account unsecured liabilities (Biltoft & Biltoft (1995) FLC 92–614). This is because an unsecured debt does not diminish the property available until it is paid or execution is levied on the property. However, such debts would ordinarily be taken into account in calculating the property pool, unless there were reasons for the court to exercise its discretion to exclude them. The fact that an order in such circumstances might reduce the chances of the third party recovering their debt does not prevent the court making such an order. There is no requirement that the rights of an unsecured creditor or a claim by a third party must be considered and dealt with prior to the court making a property settlement order. Similarly, no rule determines priority between a creditor and a spouse.
Family loan arrangements
The most common instance when the court is called upon to determine the existence of a liability arises with family loan arrangements. Often, funds are advanced on a non-commercial basis including no requirement to pay interest and a deferring of repayment until the disposal of the property to which the loan relates. Questions arise as to the nature of the payment (i.e. whether it is a loan or a gift and, if it is a loan, whether it is ever intended to be repaid). Often, parties to such arrangements are unaware of the time limits within which such loans may be enforced, which may also be an issue.
Ultimately, this is an issue that turns on the individual facts of each case, and evidence ought to be led from all relevant parties to the transaction. Similarly, loans may exist between a party to a marriage and a related entity, and the court will consider the reliability of accounting evidence in relation to the debt and whether it is likely to be repaid before determining whether it should be deducted from the pool of property available for division between the parties (Foda & Foda (1997) FLC 92–753).
Either party to a property dispute is obliged to disclose any significant creditors or any significant claim against either of them by a third party. Notice of the property proceedings may be given to a creditor or claimant to enable them to have an opportunity to join in the proceedings (Biltoft & Biltoft (1995) FLC 92–614).
The value of assets
The court will require the parties to place a value on each of their assets. The parties may either agree on a value or obtain a valuation of an asset. Where the parties disagree, the preferred practice is for the parties’ solicitors to jointly appoint a valuer. If the parties do not do this before they litigate, the family law courts will generally order the appointment of an expert.
When the process of valuation is hazardous or uncertain because wide differences exist between legitimate valuations due to a volatile market or peculiarities relating to the specific property, the court may prefer to order the sale of the property so the real value can be revealed by market forces (Smith & Smith (1991) FLC 92–261).
Assessment of contributions
In deciding what each party has contributed to the total asset pool of the parties, the court will assess:
- the direct or indirect, financial or non-financial contributions made by, or on behalf of, the party to the marriage or a child of the marriage
- the contribution made by each party to the acquisition, conservation or improvement of any property, including property which has, since the contribution, ceased to be the property of the parties or of either party
- the contribution made by each party to the welfare of the family constituted by the marriage, including any contribution made as homemaker or parent.
The court has developed two principal methods of assessing contributions:
- the global approach—the pooling of all assets and liabilities and assessing the contributions as a whole
- the asset-by-asset approach—where the contributions made to each asset by each party are assessed (Norbis v Norbis (1986) FLC 91–712).
When determining the contributions of the parties, the court looks to all of the contributions over the entire relationship of the parties, including contributions before, during or after the formal tie of marriage was entered into or dissolved.
Non-financial and financial contributions
In a relationship where one party has exclusively been the breadwinner and the other exclusively the homemaker, the task of evaluating and comparing the parties’ respective contributions is difficult. It often involves value judgments about the worth of fundamentally different activities and assessments of the value of contributions to property and to the welfare of the family.
The court has the power to evaluate how well each party performed the task associated with their role of breadwinner or homemaker. After the initial assessment is made, the court must then compare the worth of the respective contributions.
Generally, the court does not adopt a strict mathematical approach or undertake a detailed qualitative assessment of contributions but takes a more holistic approach. The parties are usually considered to have performed their roles and made contributions within the normal range.
In a long marriage, where one partner is a homemaker and one partner is a breadwinner, the court tends to assess each partner’s contribution as equal.
In some cases, the court might find that one party has made a particularly significant contribution. Significant contributions by a party can be an initial large contribution of property. The court will often find that a substantial initial contribution by one spouse may be eroded to some extent by being offset against the later contributions of the other spouse, even though such contributions do not at any point exceed the initial contribution (Pierce & Pierce (1999) FLC 92–844). The rate of erosion of the value of an original contribution of property, and therefore the weight attached to it as an initial contribution, will depend on the quality and extent of the contributions made by both parties since the initial contribution, having regard to all the circumstances. For example, the ownership by one party of a house and land prior to marriage will be less significant after a thirty-year marriage than after a five-year marriage.
If an initial contribution by one party has increased rapidly in value during the marriage, the question is whether that increase is a fruit of the marriage or a fruit of the initial contribution (e.g. the decision of Coleman v Coleman (2007) FMCAfam 604 involved a marriage of three and a half years where the trial judge held that the increase in the value of the house held by the husband at the commencement of the relationship was not a fruit of the marriage).
Other significant contributions by one party could be:
- gifts or inheritance received by one party
- contributions by third parties of a non-financial nature (e.g. a grandmother’s care of the children) (Aleksovski v Aleksovski (1996) FLC 92–705)
- a damages award received by one party on account of an injury, particularly if that award relates to the future loss of earnings of that party
- contributions a spouse has made to the maintenance of stepchildren during the course of a marriage when no legal duty required the spouse to make that contribution (Robb & Robb (1995) FLC 92–555).
The court may also adjust the contributions of the parties where:
- the conduct of one party has caused financial loss to the parties (i.e. one of the partners has embarked upon a course of conduct designed to reduce the effective value of the assets or has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced their value) (Kowaliw & Kowaliw (1981) FLC 91–092)
- there is a course of violent conduct by one party towards the other during the marriage that is demonstrated to have had a significant impact upon that party’s contributions to the marriage, or which made their contributions significantly more arduous than they ought to have been (Kennon v Kennon (1997) FLC 92–757). For instance, the court may find that, because of one spouse’s conduct, the other spouse’s contribution as a homemaker was increased (Doherty & Doherty (1996) FLC 92–652).
The future needs of the parties
Once the court has determined what the parties own and what contribution each person made to the acquisition of those assets, the court must consider the financial resources, means and needs of the parties, as well as the other matters set out in s 75(2) of the Family Law Act 1975 (Cth) (Family Law Act) (see also the Spousal & Child Maintenance and Child Support chapter).
The court will consider any disparity between the parties’ earning capacity and income (DJM v JLM (1998) FLC 92–816), financial resources (e.g. benefits that a party may derive from family companies or trusts) and the obligation of either to provide a home for the children. When such an adjustment is made, the entitlement of the other party to joint property is proportionally reduced.
The court is also required to consider the effect of any proposed order on the earning capacity of either party and the effect of any other order made under the Family Law Act. Section 75(2) also requires the court to take into account any child support paid by a spouse under the provisions of the Child Support (Assessment) Act 1989 (Cth).
The making of an adjustment under s 75(2) of the Family Law Act in a property settlement is not incompatible with a finding that a spouse is able to support themselves. A maintenance application is a separate matter and if spousal maintenance is sought, a separate application is required (Waters & Jurek (1995) FLC 92–635).
The court, when dealing with a final spousal maintenance application, is required to take into account any order that was made or proposed to be made in relation to the property of the parties (Bevan & Bevan (1995) FLC 92–600).
Just and equitable assessment
After assessing the parties’ contributions and the factors outlined in s 75(2) of the Family Law Act, the court must further consider whether the result achieves a just and equitable distribution of property between the parties (Dickson & Dickson (1999) FLC 92–843).