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Chapter 18
Financial and estate planning on
family breakdown
Updated by Nabil Wahhab
The big picture .....................................................................................¶18- Introduction to financial planning on family breakdown .................¶18- The Family Court ..................................................................................¶18- What about de facto relationships? ....................................................¶18- Estate and financial planning: is it necessary? ....................................¶18-
Property settlement
The four-step approach to property settlement .................................¶18- Property settlement step 1: Identification of the property pool .................................................................................................¶18- Property settlement step 2: Assessment of contributions ..................¶18- Property settlement step 3: s 75(2) ‘‘Future needs’’ ...........................¶18- Property settlement step 4: Justice and equity ...................................¶18-
Superannuation and family breakdown
Superannuation splitting .....................................................................¶18- Binding death nominations and superannuation splitting ................¶18-
Taxation and family breakdown
Realisation and taxation costs to be taken into account in property valuations .......................................................................¶18- Are tax losses property? .......................................................................¶18- Superannuation splitting .....................................................................¶18- Trusts and family breakdown ..............................................................¶18- Investment properties and family breakdown ...................................¶18- CGT roll-over relief on family breakdown ..........................................¶18- Deemed dividends and company loans ...............................................¶18- Part IVA considerations when advising on family breakdown .....................................................................................¶18-
Stamp duty and family breakdown
Stamp duty exemptions on marriage or relationship breakdown .....................................................................................¶18- Principal place of residence .................................................................¶18-
Land tax and family breakdown
Land tax and family breakdown ..........................................................¶18-
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Family trust elections
Income and taxation opportunities in making a family trust election ...........................................................................................¶18- Income splitting during marriage or relationships and after separation ......................................................................................¶18- Indemnities and guarantees from the controlling spouse .................¶18-
Maintenance
Spouse maintenance ............................................................................¶18- Child maintenance and support ..........................................................¶18- Adult child maintenance ......................................................................¶18- Child maintenance trusts .....................................................................¶18-
Other issues
Full and frank disclosure of financial position ....................................¶18- Issuing or receiving a subpoena ..........................................................¶18- Family Court’s powers over business entities ......................................¶18- Third parties standing in the Family Court .........................................¶18- When one of the spouses is bankrupt .................................................¶18- Binding financial agreements ..............................................................¶18- Estate planning for blended families ..................................................¶18- Family law mediations .........................................................................¶18-
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● CGT on supersplitting .................................................................................¶18- ● CGT on transfer of property .......................................................................¶18- ● Deemed dividends and company loans ....................................................¶18- ● Tax avoidance ...............................................................................................¶18- Stamp duty exemptions on marriage or relationship breakdown: There are exemptions from duty following breakdown of a marriage or de facto relationship ...........................................................................................................¶18- Land tax: In NSW, land tax is a tax levied on the owners of land situated in NSW as at midnight on 31 December of each year. There is no land tax roll-over relief on marriage or relationship breakdown ..........................................................¶18- Income and taxation opportunities: During the duration of a marriage or relationship, parties generally split the income of partnerships, companies or trusts between husband and wife. Should such arrangements continue from separation until the family law matter is resolved? Who should pay the tax? What protection will the client need from a nasty tax bill that may arrive after the settlement has been concluded? ..........................................................¶18-615, ¶18- Spouse maintenance: Under the Family Law Act spouses have an obligation to continue to support each other after separation to the extent that one spouse has a need and the other spouse has capacity to pay. From 1 March 2009 that obligation also applies to separated de facto couples .....................................¶18- Child support: Children born after 1 October 1989 or their parents separated after that date fall under the child support scheme set up under the Child Support (Assessment) Act 1989. The child support legislation overhaul commenced on 1 July 2006 and was completed on 1 July 2008. The changes are far reaching. In some cases (and particularly for paying parents on the highest tax margin), the new changes have resulted in some parents’ child support liability dropping by as much as 40% ....................................................................................................¶18- Child maintenance trusts: A child maintenance trust is a trust that arises as a result of the family breakdown and would be set up to receive child maintenance payments. One of the principal benefits of a child maintenance trust is that it enables tax-effective income splitting to beneficiaries of a trust (including beneficiaries who are under 18 years of age) without attracting the penalty tax provisions contained in Div 6AA of the Income Tax Assessment Act 1936 (ITAA36) .................................................................................................................................¶18- Full and frank disclosure: The cornerstone of all property settlements is built on parties making full and frank disclosure of their financial position. Failure to do so could spell a disaster for the client’s credibility before the court and give their spouse a higher adjustment from the property pool. The adviser’s role is therefore significant in assisting the client to discharge their obligations of full and frank disclosure ............................................................................................¶18- Third parties standing in the Family Court: A party that may be affected by a decision of the court has standing to intervene in Family Court proceedings. Generally, family law proceedings are inter partes; however, there may be occasions where third parties need to intervene to protect their position ..¶18- Bankruptcy: Since 19 September 2005, the Family Court also has jurisdiction to determine financial matters (property and spouse matters) where one of the spouses becomes bankrupt. The court can alter the rights of the trustee in bankruptcy in relation to the bankrupt’s property that has vested in the trustee in bankruptcy ............................................................................................................¶18-
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Financial agreements: Financial agreements provide a good measure of asset protection on marriage or relationship breakdown because they provide certainty of result on division of assets rather than rely on lawyers and judges to come up with a result that will cost tens of thousands of dollars. However, more recently lawyers have shied away from financial agreements. Why is this and how will this impact on clients? ........................................................................¶18- Mediation: The Family Law Rules 2004 mandate that parties undertake Pre- Action Procedures (PAP) before proceedings are commenced. This is an opportunity for advisers to seize upon and be involved in the settlement of their client’s family law disputes. This would be done in conjunction with the family lawyers retained by the client(s) ........................................................................¶18-
¶ 18-005 Introduction to financial planning on
family breakdown
There are significant financial planning, estate planning and taxation issues and opportunities that financial advisers (and family lawyers) should be aware of and address on marriage or relationship breakdown for their clients. With 40% of first marriages ending in divorce and a higher rate of breakdowns for de facto relationships, divorce or relationship breakdowns can be emotionally and financially draining. Divorce is a reality for many financial planning clients.
It is, therefore, incumbent upon advisers and lawyers to consider, plan and implement strategies that take into account marriage or relationship breakdowns when providing financial and estate planning advice to their clients before the marriage or relationship breaks down and be proactive if and when the client’s relationship or marriage fails.
Most clients choose to undertake estate planning because an adviser or lawyer identifies significant financial and other benefits to them and their family. A property settlement is the corollary in that it is a compulsory estate plan that clients are forced to undertake.
Lawyers and advisers must not shy away when their clients’ relationships or marriages break down. Lack of action or awareness of the issues and opportunities by the adviser (or the lawyer, for that matter) of the financial impact and consequences of marriage or relationship breakdown could have a disastrous financial impact on the client and place a client’s future estate planning and retirement in disarray.
With careful planning and cooperation between lawyer and adviser, clients’ financial costs could be kept at a minimum and leave their estate planning intact. This holistic approach that lawyers and advisers give to clients is akin to an insurance policy and crucial, regardless of whether or not divorce or separation will become a reality.
From 1 March 2009, the laws on de facto relationships breakdown commenced in Australia with the exception of Western Australia. The new laws were a revolution as they represent a significant departure from the de facto laws that existed in some states. The laws apply to de facto couples and couples in same
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and re-examine on behalf of their clients, not just at the first point of contact but throughout the duration of their professional relationship with the client.
Given a client’s reliance upon professional advisers for advice, it is incumbent upon advisers to keep in mind the various financial and estate planning issues that are raised in this chapter whenever they give advice to clients. This is not to suggest that the adviser should become a de facto lawyer in giving advice to clients. It is about the professional adviser being attuned to the various legal ramifications of financial decisions that clients may make and being able to identify those issues. The adviser and the lawyer work together to ensure that clients make informed decisions.
¶ 18-010 The Family Court
The Family Law Act 1975 (the Act) commenced in January 1976. The Act confers wide powers upon the Family Court in relation to property and financial resources of separated spouses. (In de facto matters, such powers were until 2009/10 conferred under the Property (Relationships) Act 1984 in New South Wales on the Supreme Court, District Court and Local Court (depending upon the pool of assets under consideration).)
The word ‘‘property’’ is widely defined in the Act and includes real estate or shares in public or private companies, interest in trusts (where the spouse is a controller or a spouse is a beneficiary and where there has been regular distributions from the trust), interest in any business and bank accounts.
The Family Court does not distinguish between assets held in the name of a spouse or in a company or trust controlled by a spouse or in circumstances where a company or trust, for instance, are controlled by third parties who are mere puppets for the spouse in Family Court proceedings. They are all ‘‘matrimonial property’’.
The decision of the High Court in Kennon v Spry highlighted the broad powers given to the court in relation to what ‘‘property’’ is. The decision may have some significant ramifications on trust law generally and also on areas that traditionally viewed trusts as separate entities. This includes bankruptcy cases where trusts are generally excluded from a property that vests in the trustee in bankruptcy.
In Kennon v Spry , the High Court confirmed what the Family Court has done over the years — including trusts in the general property pool of the parties. The courts have endorsed the concept that a typical family trust is in effect for the family, and an individual cannot exclude their spouse from the fruits of that trust even if the trust was originally established to benefit the parties’ children.
Superannuation is ‘‘ another species of assets ’’. In some cases, superannuation will be treated as if it is property but in other cases it will be treated as a financial resource. The nature, characteristics and form of a superannuation interest will determine whether super will be added to the property pool in Step 1 (of the four-step approach adopted by the court which will be discussed in ¶18-100) or will be taken into account in Step 3. This distinction is not
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cosmetic but has significant consequences for the parties and the overall property division. If the super value is included in Step 1, the property pool is enlarged. However, if the super value is characterised as a financial resource, then the value will not be added to the property pool in Step 1 but will be taken into account in a broad brush way in Step 3.
Financial resources are taken into account in dividing the property pool between spouses in Step 3 in that the court examines whether there should be an adjustment to the notional property pool divided in Step 2 by reason of a party having an interest in a financial resource. Financial resources include being a beneficiary in a trust where the trust distributions to the beneficiary spouse are not regular, taxation losses, frequent flyer points or rewards points, long service leave and in some circumstances, superannuation.
The powers of third parties in the court have been increased and strengthened in recent years. This is evident in the third parties powers in Pt VIIIAA, which allows third parties such as government instrumentalities and creditors to institute proceedings to set aside financial agreements or consent orders where it can be shown that the agreement or consent orders were entered into with an intention to defeat or defraud creditors.
The court’s powers also extend to deal with bankruptcy matters where bankruptcy and family law collide. The court has the jurisdiction to deal with and make orders as to property or spouse maintenance from property that has vested in the trustee in bankruptcy.
Since 1 March 2009, de facto couples’ (which include same-sex relationships) financial settlements and spouse maintenance are determined in the Family Law Courts. This applies to all couples in all states with the exception of Western Australia. For people living in some states, this will have some serious consequences on the property settlement or spouse maintenance outcome as determined by the Family Court versus what that outcome might have been if the case was determined in the state courts.
¶ 18-015 What about de facto relationships?
This chapter outlines the financial and estate planning and taxation issues and opportunities required for a married couple, and for couples who have separated after 1 March 2009. On a practical level, most of the chapter also applies to de facto couples who also separated before 1 March 2009.
The law that commenced on 1 March 2009 (or 1 July 2010 if parties have geographical connections to SA) confers jurisdiction on the Family Court to determine financial settlements for de facto couples who separated after 1 March 2009 (or 1 July 2010 for SA). For those couples who separated pre- March 2009 (or 1 July 2010 for SA), the state courts will continue to determine those cases under the relevant state-based legislation. In NSW the relevant legislation will continue to be the Property (Relationships) Act 1984.
For example, capital gains tax (CGT) roll-over relief is available for de facto couples (who separated pre-1 March 2009) where transfers of property are
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up to two if not three years, or even longer. Even if the parties were divorced, the wife would still have received the house by survivorship.
In all likelihood the husband in the case did not intend for the above to occur. He was in the Family Court because he wanted a financial separation from his wife. The question that must be considered is whether the lawyer for the husband, or for that matter his professional adviser breached any duties to him. It is arguable that they should have advised that death meant the person he was trying to secure assets from would inherit everything, but that a few small steps could have avoided this outcome.
In the example above, the husband could have severed the joint tenancy on separation, changed his will and changed his binding death nomination. These steps were simple yet necessary and it was crucial to have been taken or for the husband to have been advised upon and his mind be applied to those issues. This is where the adviser’s role becomes critical immediately upon separation.
The adviser’s role, however, is not confined to providing advice of the type referred to above on marriage breakdown. The role of the adviser is dynamic and ever changing, and given changes in community standards and developments in society, the adviser needs to turn their mind to issues that impact upon their clients.
One timely example relates to baby boomers assisting their Generation X and Y children by providing them with a deposit on a house or giving them money to set up a business. It is not unheard of, in Sydney at least, that parents give $500,000 and in some cases more to an adult child to assist them in buying a home. What is unclear in such cases is the basis of the advancement of funds. That is, did the parents intend the money advanced to be a gift or a loan? If a gift and the adult child was in a relationship already, was the money advanced to the adult child or to them and their partner? Is the partner aware of the nature of the advance? How is that proven in the future if the parties separate and the partner denies the advance as a loan because they were unaware of the terms of the advance or they were not involved in discussions?
The adviser should give advice to the client to deal with the above issues. Advisers are constantly approached by clients asking them to liquidate assets for purposes such as the above. The adviser’s obligations extend to enquiring about the purpose of the advancement; how the advancement of the monies to the Generation X and Y children should be done; that documentary evidence should be put in place before the funds are advanced; whether interest rates will be charged or should be charged if certain conditions come into play. Even if the adviser does not know the legal implications of the above, the client should be advised (and such advice should be documented in a file note at least) to seek legal advice before the money is advanced.
The above steps are necessary because the baby boomer client, while wishing to benefit their Generation X or Y child, would not want to see the funds lent or advanced being shared by a future spouse of their son or daughter in the
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event of marriage breakdown. A deed of loan evidencing the advancement of funds could be entered, which outlines the amount given in situations when the funds are repayable, such as marriage breakdown, sale of business, or death of the adult child.
If the adult child later separates from their spouse, the money advanced would, prima facie, be a liability that will reduce the property pool to be divided between the spouses. If, on the other hand, the funds advanced were not the subject of documentation such as a deed of loan, the adult child and the parents will be put to the task of proving the existence of the debt and, if this is not established, the court may only accept that the money advanced was a gift. A monetary gift made on behalf of a spouse is taken into account by the court at Step 3; however, it does not receive the same weight as a loan that has the effect of reducing the pool of property available for distribution. The difference between gift and loan is not cosmetic. It is significant and substantive.
Even if there is a deed of loan, that may not be sufficient to get the client over the line and have the debt deducted from the pool of property. This generally occurs because a spouse would argue that the debt is not a real debt or is not repayable. It is therefore crucial to consider whether the baby boomer should insist on there being a Binding Financial Agreement between their adult child and their spouse before the money is lent, which deals with the financial consequences relevant to the money to be advanced in the event of a breakdown of the relationship or marriage.
There are a number of advisers who set up trusts on behalf of their clients by simply buying a standard trust deed without giving any consideration to the client’s particular circumstances. There is a potential negligence claim here as the adviser needs to consider whether or not the trust should benefit a child of the client (or that child’s spouse or former spouse), who should be the appointor or appointors of the trust, who should be the trustee of the trust and whether there should be any statements of intentions as to the reasons for the setting up of the trust to be incorporated in the trust deed. The High Court decision in Kennon v Spry is a reminder of how crucial it is to turn your mind to the structure as to who should be the appointor, the trustee and the beneficiaries from the outset rather than seek to amend the trust deed after the event. More recent cases in the Family Court have provided guidance on what happens when a trust is set up in a way that control is not conferred on a party but the control remains with, for example, the parents of the spouses. In a recent case the court found that such a trust was not property for family law purposes given that the husband did not have the control of the trust. In that case the trust owned the family home. The husband’s father set up the trust and bought the home which the parties used as their matrimonial home during the marriage. The wife was unable to convince the court that the Trust is the alter ego of the husband as the husband’s father was in real control of the trust.
Advisers should also be aware that their clients can enter into binding financial agreements (before the client gets married or into a relationship,
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Bell JJ noted three fundamental propositions relevant to the operation of s 79. Those propositions were conveniently summarised by Bryant CJ and Thackray J in the decision of the Full Court of the Family Court in Bevan and Bevan [2013] FamCAFC 116.
The High Court in Stanford has laid down three ‘‘fundamental propositions’’ which will provide useful guidance to trial judges in approaching the task under s 79. These were recited above, and could be summarised thus:
● determination of a just and equitable outcome of an application for property settlement begins with the identification of existing property interests (as determined by common law and equity). ● the discretion conferred by the statute must be exercised in accordance with legal principles and must not proceed on an assumption that the parties’ interests in the property are or should be different from those determined by common law and equity. ● a determination that a party has a right to a division of property fixed by reference only to the matters in s 79(4), and without separate consideration of s 79(2), would erroneously conflate what are distinct statutory requirements.
It has been suggested that the four-step approach ‘‘merely illuminates the path to the ultimate result’’ and is not an approach that is mandated by the Act. Rather, it is the ‘‘mandatory legislative imperative (to reach a conclusion that is just and equitable) that drives the ultimate result’’. Ultimately, it appears that Stanford requires judges to consider whether the jurisdiction be invoked. The preliminary step for a judge is to consider whether the s 79 enquiry will be engaged. In doing so, the judge will need to consider any equitable principles that would need to be attended to in relation to property registered in the name of a spouse and once this is done, consider the assets that each party has an interest in and look over the fence to see what contributions were made by the parties and assess whether an adjustment may be required to be made under s 79. In most cases, this will be an easy exercise in particular where parties have lived together for a long time and/or have children.
The difficult cases will be where the marriage is short and/or where it is short and no child or children were born of the relationship or marriage. If there has been no merger of finances in such a marriage and the assets of the parties were purchased in names that one of the spouses considers that there should be no adjustment in favour of the other spouse, then it is open to that spouse to raise as a threshold argument that the court should not exercise jurisdiction. That spouse would argue that there ought be no adjustment to the property because the other spouse is not or will not be able to establish that they have an interest in the property of the other spouse because of the short relationship. This gateway question is gaining momentum and as time passes, there may be more cases on this point.
Once the gateway issue is addressed and if the judge comes to the view that justice and equity dictates there being an adjustment of property, then the s 79 enquiry commences and the four-step approach is engaged.
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The four-step approach, being:
(1) identification of the pool of property (including superannuation and tax liabilities, if applicable) (2) assessment of contributions that each of the parties have made to the accumulation of the pool (3) assessment of the s 75(2) factors for married couples. For de facto couples, there are identical provisions in s 90SF(3) — commonly known as ‘‘future needs factors’’, and (4) examination of whether or not the result will deliver justice and equity between the parties.
¶ 18-105 Property settlement step 1: Identification
of the property pool
In identifying the property pool to be divided, the court generally looks at the property pool each of the parties had at the commencement of the relationship and their values (known as initial financial contributions), what happened to the initial property and the accumulation of property during the course of the marriage and since separation.
It may be easy to identify the initial financial contributions of each of the parties; however, it is difficult to ascribe a value to the initial property that the court would accept unless valuation had been obtained at the time the parties entered into the relationship or shortly thereafter. Some advisers advise their clients to obtain a valuation of their assets as they are about to enter into a relationship or get married so that that could be evidence of that party’s initial financial contribution in the event the relationship or marriage breaks down in the future.
Initial financial contributions by one spouse could have a significant impact on the outcome of the property settlement. The value of the initial financial contribution, the length of the marriage and the value of the property pool at hearing or settlement are important considerations as to the weight the court will give to initial financial contributions.
The court has generally adopted the value of the property pool as at the date of hearing (or as close as possible to that date). However, this may not be adopted in each case. In circumstances where the period between separation and hearing could be up to two years or longer, it may be prudent to obtain a valuation of property as at the date of separation, as well as at the date as close as possible to the hearing. This need not be the case for each parcel of property. It may be appropriate where a spouse runs a business and the business value has significantly increased from the date of separation as compared with the date of hearing.
Superannuation is another example where valuation at the two dates should be obtained. This is relevant in particular to accumulation interests where a spouse has continued to make contributions into the fund or even in defined benefit super funds, post separation.
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marriage — and potentially an important part’’. The court went on to say that the court can take into account assets that no longer exist when the court looks at s 75(2) being the third stage in the assessment where the court looks at whether there should be an adjustment of the percentage notional division made by the court in respect of the contributions assessment in respect of the existing assets and superannuation. The court does this relying on s 75(2)(o) being ‘‘any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account’’.
To satisfy the court that an item of property that is no longer in existence should be added back, a party must be able to show that the item of property was in some way wasted by the spouse in control of the item. Examples of add-backs include legal fees paid from capital and assets that were wasted by a spouse, such as by gambling.
In relation to legal fees paid, these will generally be added back if they were paid from capital. That is, if a spouse withdraws money from a savings account that the parties had as at the date of separation or sells an asset to pay legal fees, the legal fees are added back as notional property and will be taken as if there has been a partial distribution in favour of the spouse who paid the legal fees from that savings account or disposal of the asset.
On the other hand, legal fees paid by a spouse from their earnings are not generally added back as they have been paid from that spouse’s earnings. However, a judge still has the discretion to add-back the legal fees paid from earnings or to exclude legal fees paid from capital. The circumstances of the case can, in some instances, sway judges to act in this manner. For example, in cases where a judge makes a finding of non-disclosure, and where one spouse pays legal fees from capital and the other spouse pays legal fees from borrowings, there have been cases where judges have ignored the legal fees paid and excluded the loan obtained to fund one party’s legal fees.
Most advisers and lawyers also do not appreciate that when adding back certain property and then dividing the pool say equally, then the pool is enlarged by the amount added back and then divided between spouses. So the spouse pushing for an add-back could be sharing in something that no longer exists. If that spouse receives 60% of the total property, then an add-back would see that spouse receive 60% of something that no longer exists. Thus, proportionality needs to be considered as the add-back may hold up settlement of a family law matter because one party is convinced that a certain sum be added back. The reality is, in an add-back, both parties end up sharing the amount added back. This was never the intention. So perhaps consideration ought be given to depart from add-back and argue that a spouse has received a financial benefit and seek a higher contribution of what is left in the pool or seek an adjustment back against the other spouse from their share of the property pool. The latter would be better argued in cases such as waste.
‘‘Assets waste’’
‘‘Assets waste’’ has become more popular in recent times in family law disputes. The court has to make a finding that the spouse who dealt with an
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asset did so with reckless indifference to the parties’ accumulation of the pool. It is difficult to establish that a spouse has been recklessly indifferent to the asset if the asset has been lost, given the test that the full court has formulated.
An extreme example of waste is where a spouse gambles $100,000 at the casino and loses the money, then the court will add as notional property the amount of property that has been wasted by that spouse, namely $100,000. In the overall property division the court will take into account that that spouse has received the property that has been wasted as partial distribution.
Gifts and inheritances
Gifts and inheritances are treated differently to assets accumulated by spouses. If the inheritance or monetary gifts have been intermingled in the parties’ property pool, the court would still take them into account in assessing each of the parties’ contributions. However, if the inheritance or gifts, for instance, were not intermingled or were received close to or following separation, it is likely that the court will quarantine them from the property pool in Step 1 on the basis that the other spouse did not make any contributions to the inheritance or gift. Notwithstanding this, however, the court would still take such inheritance or gifts into account in Step 3 (s 75(2) factors).
¶ 18-110 Property settlement step 2: Assessment of
contributions
In assessing the parties’ respective contributions to the acquisition, conservation and improvement of the pool of property, the court assesses the following:
● the parties’ respective initial financial contributions ● gifts and inheritances received and their application ● the direct and indirect financial contributions of each of the parties ● the direct and indirect non-financial contributions of each of the parties, and ● the parenting and homemaker contributions made by each of the parties.
Initial financial contributions
It is incumbent upon advisers to advise clients who, at the commencement of their cohabitation or marriage (whichever is earlier), own property that they should obtain valuation of the assets so as to be able to prove the value of the assets and therefore the value of their initial financial contribution in the event of separation. For businesses owned by a client, an adviser should advise the client to retain the financial statements and income tax returns for the business for the three financial years prior to the commencement of cohabitation or marriage as these documents can be used to value the business if the client and their spouse were to separate in the future.
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Example 2
If the property, however, is sold during the course of the parties’ marriage and the proceeds intermingled with the parties’ other wealth, then the court will take the inheritance into account in assessing contributions rather than try and quarantine the value of the inheritance.
There may be circumstances where the adviser may advise a client who is about to receive an inheritance or a large monetary gift that such assets should remain quarantined and should always be identifiable so as not to lose their character during the course of the parties’ marriage in the event that the marriage breaks down in the future. This may work if the asset in question is property, but may be difficult if the asset received is a sum of money which the parties may apply towards reduction of a mortgage or the like. However, at the very least, the client should be advised to keep all documentary evidence to show the amount of the inheritance or gift received and how the inheritance or gift was applied.
Financial contributions
The financial contributions the court examines are the income that each of the parties receive during the course of the marriage and how that income was applied. The court also examines indirect financial contributions that are made for the benefit of spouses — for example, the parties occupying a home owned by one of the spouse’s parents without paying rent or paying below market rent. Generally, the court takes a broad brush approach to such contributions. That is, the court does not mathematically adds up the income of each of the parties to reach a conclusion about each party’s contributions. This is important having regard to the High Court decision in Mallett where the High Court made it clear that contributions made by a spouse as a homemaker and parents are not inferior to financial contributions made by the other spouse. This applies even if the financial activist spouse earned $50,000 per annum or $1m per annum.
Non-financial contributions
The non-financial contributions that the court looks at relate to matters such as home renovations carried out by the parties themselves or by a parent, relative or friend, thereby saving the parties’ money in paying contractors to do the work and where such work has added value to the property in question.
Homemaker and parenting contributions
In regard to the homemaker and parenting contributions, the court examines the parties’ respective contributions to caring for the children (ie each party’s role in raising the children) and attending to the homemaking activities such as cooking, cleaning, ironing and the like.
The High Court said that homemaking and parenting contributions should be recognised not in a token way but in a substantial way. Accordingly, in most cases in the Family Court (let us call them the ‘‘house and garden cases’’),
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generally the court assesses contributions made by spouses equally. This is notwithstanding one spouse was the financial activist and the other spouse attended to the homemaking and parenting role during the marriage.
What the Family Court has developed in house and garden cases is a partnership analysis where each partner contributes to the partnership. If one spouse is the financial activist, then the other spouse freed that party to pursue wealth-making activities and thus to be a contribution not just to the welfare of the family but also to the generation of wealth.
There have been cases determined by the Family Court going back to 1994 where the court gave loading to a financial activist spouse contributions entitlement because of what the court termed as ‘‘special contributions’’, ‘‘business acumen skills’’ and ‘‘entrepreneurial skills’’. These cases started with the case of Ferraro [1992] FamCA 64. However, in the year 2000 in the case of Figgins [2002] FamCA 688, the court started to distance itself from such concepts. The recent decisions of the Full Court in Kane and Kane [2013] FamCAFC 205 and Hoffman and Hoffman [2014] FamCAFC 92 appear to lay to rest such concepts and confirm that such a path was a ‘‘terrible mistake’’ that the court embarked upon and it should not go down that path. In 2015, in the case of Fields and Smith [2015] FamCAFC 57 (17 April 2015), the Full Court all but laid to rest the concept of special contributions.
No doubt assessing homemaker and parenting contributions versus financial contributions is like comparing apples and oranges. What makes an apple better than an orange in a basket is difficult to say. In a way the court does not want to consider the quality of contributions that each spouse makes as that would be a very difficult and time consuming task and is highly subjective.
It is a very difficult task to evaluate contributions where one party was homemaker and parent and the other party was the financial activist as the evaluation and comparisons are not conducted on a level playing field. In essence, you are comparing two different matters, one can be quantified and the other cannot.
In Kane and Kane , the parties had a net asset pool of $4.2m of which $3.4m was in a self managed superannuation fund (SMSF). The parties were married for 28 years and had four children; the youngest being almost 18 years at the time of trial. Shortly prior to separation, the parties sold a jointly owned company for $1,650,000. Of this sum, the amount of $1,060,400 was paid into the parties’ SMSF. The value of the SMSF at the date of trial was $3,420,294.
The trial judge awarded the husband, a retired businessman, two-thirds of the SMSF, and the wife one-third having acknowledged ‘‘the assertion of the husband that the application of his acumen to investment decisions, which caused the superannuation fund to prosper, was a contribution of significance which differentiates his contributions from those of the wife and entitles him to a much greater share of the superannuation interests’’.
The Full Court of the Family Court overturned the decision, ruling the trial judge had given unacceptable weight to the husband’s ‘‘special skill’’. Deputy Chief Justice Faulks made the following comment ‘‘... the trial judge’s
