When the buck stops

This article was co-authored by Adam Bye, a Law Cadet working in the family law team.

A property settlement pursuant to the Family Law Act takes into account the assets of the parties at the time of the settlement, not at the time the relationship ended. This means that although the relationship may be over, the entitlement of your former partner to claim against any new income generated by you may not be.  It also means that the parties have to be mindful when disposing or selling items that existed during the relationship.

While there are often reservations about dealing with the division of assets after the break down of a relationship, it is important that a settlement is reached as quickly as possible to allow the parties to move forward with their lives.

A four stage process has been adopted by the Court when approaching a property settlement pursuant to the provisions of the Family Law Act.  In general terms the four steps involve:

1. identifying the assets and debts of the relationship;
   
   
2. ascertaining the contributions made by each party, either directly or indirectly, of both a financial and non-financial nature, towards the accumulation, improvement and maintenance of assets of the relationship. This may also include contributions made by each party in their capacity as homemaker and parent;
   
   
3. identifying any other relevant matters and future needs of each party in accordance with the matters set out under the Family Law Act; and
   
   
4. considering whether the Orders to be made by the Court are fair and equitable given the circumstances of the case. This fourth step allows the Court to exercise judicial discretion. 

It is now well settled that step one of this approach, being identifying and valuing the property of the relationship, is ordinarily taken as at the time of the final hearing of the matter. This means that step one of the approach may also require a Court to identify and value the contributions of the parties post separation.

It is crucial that after a breakdown of the relationship you immediately seek legal advice, as a property settlement pursuant to the provisions of the Family Law Act will take into account a party’s conduct even after the time when the relationship has broken down.

Starting with the case of Kowaliw (1981) FLC 91-092 a line of authority has developed which enables a Court to take into account the conduct of the parties post separation. The Court is allowed to add back assets that may have been sold or are no longer available in circumstances where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value of a matrimonial asset or where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets.

The Court expanded on this idea in the case Townsend v Townsend (1995) FLC 92-569 and further developed the concept of “adding back notional property.”  This concept allows the Court to look at the conduct of the parties post separation and take this into account in a final property settlement.

It has been stated  repeatedly that neither the Family Law Act nor the case law require that parties go into a state of suspended economic animation once their  relationship  breaks down pending the resolution of their financial arrangements. The Court has maintained that the adding back of assets is “the exception, not the rule. The parties are reasonably entitled to conduct their affairs post separation in a manner which is consistent with properly getting on with their lives.” (Chorn & Hopkins (2004) FLC 93-204)

Generally the principles established in Kowaliw and Townsend are used in circumstances where a party has disposed or sold an asset of the relationship. The sale of the asset will not precluded it from being dealt with in the property settlement and generally the sale proceeds will be taken into account. In circumstances where an asset has been disposed of in a wasteful or reckless way, such as being sold well under market value, the Court can take into account the true value of the asset and deal with this as a notional add back.

Section 75(o) of the Family Law Act also allows the Court to take into account “any fact or circumstance which, in the opinion of the Court, the justice of the case requires to be taken into account.”

This broad discretionary power also allows the Court to consider whether to include the assets and income generated post separation in a final property settlement. In particular the Court can examine the circumstances in which income was generated post separation and the source of that income. See Chorn & Hopkins (2004) FLC 93-204.

For example, if a wife helps her husband establish a profitable business and then after separation the husband continues to draw a large income from that business, the Court may take into account that income even though it was generated after separation.

By delaying effecting a property settlement pursuant to the Family Law Act, a party runs the risk of the assets or income they have generated and acquired post separation being caught up in the final property settlement.

The buck does not stop at separation, it continues to the hearing of the matter or final settlement. Therefore, to be able to move on after a break down of a relationship it is important that you seek advice regarding your rights under the Family Law Act as soon as possible.