Update on contributions and adjustments

Kay Feeney, Feeney Family Law
Legalwise Family Law Conference

12/4/2022

As practitioners we recognise that many more people are assisted to resolution by family lawyers giving advice rather than by a judicial officer.

We work within the illumination of a discretionary judicial power and usually would expect to fall within the same range as the lawyers acting for “the other side”.

If we are not within “the range” then we need to re visit our analysis of the facts of the case and the law of contributions and adjustments.

Practitioners need to be familiar with the variety of arguments they can use or against which they may defend.

This paper hopes to help you as you rattle the bones, light the incense and mutter to yourself about the true meaning of your client’s contributions.

The starting point is of course section 79 (or section 90SM).

The first task of the Court is to identify the parties’ existing legal and equitable interests in their property: Stanford. That of course requires a consideration of appropriate liabilities: Biltoft.

The assessment of all of the relevant contributions, and then whether there ought to be an adjustment to that assessment, and if so the extent of that adjustment, leads us to “˜the range’ and then to an outcome.

Initial contributions

We usually look carefully at initial contributions. A convenient way to consider the recognition initial contributions are often given is to consider the concept of erosion.

That principle was considered in Kardos v Sarbutt [2006] NSWCA 11 (cited in Baranski & Baranski and Anor [2012] FamCAFC 18 at [248]):

65 In Pierce & Pierce (1998) 24 Fam LR 377; (1999) FLC 92-844, the Full Court (Ellis, Baker and O’Ryan JJ at 85-881) explained the significance of initial contributions and their “erosion” in a way which makes clear that, with the passage of time in the course of a relationship, substantial initial contributions may (emphasis added) in an appropriate case be eroded by the offsetting and ongoing contributions which result more and more in there being a totality of contributions, including of a non-financial kind, not all of which can be satisfied in full out of the available pool. As a result, all contributions, including those made at the outset, are “eroded”, in the sense that they cannot all be satisfied in full (emphasis added):-

[25] In addition to referring to a short passage from the judgment of Fogarty J in In the Marriage of Money (1994) 17 Fam LR 814; FLC 92-485, the trial judge noted that the passage was cited with approval by the Full Court (Nicholson CJ, Baker and Tolcon JJ) in In the Marriage of Bremner (1994) 18 Fam LR 407; (1995) FLC 92-560.

[26] In Way and Way (1996) FLC 92-702, the Full Court (Barblett DCJ, Finn and Butler JJ), said at 83,404:

In the subsequent Full Court decision in Bremner all three Judges expressly preferred the approach taken by Fogarty J in Money over that taken by Lindenmayer J in the same case. Thus, and notwithstanding the attempts by Counsel for the husband in this case to demonstrate that there was some inconsistency between what Fogarty J said in Money and what was actually said in the joint judgment of the Full Court in Lee Steere , we regard the law in this area as now settled by the statement by Fogarty J in Money (and subsequently accepted by all members of the Full Court in Bremner ) that “… an initial contribution by one party may be `eroded’ to a greater or lesser extent by the later contributions of the other party even though those later contributions do not necessarily at any particular point outstrip those of the other party” (emphasis added).

[27] However, it is important to put that quotation in its correct context. Fogarty J in In the Marriage of Money said at Fam LR 816; FLC 81,054:

I am unable to agree with the criticism by his Honour in the passage in his judgment immediately after that quotation or of his analysis of the issues involved. In an appropriate case, in my view, an initial substantial contribution by one party may be “eroded” to a greater or lesser extent by the later contributions of the other party even though those later contributions do not necessarily at any particular point outstrip those of the other party. I feel, if I may say so with respect, that his Honour’s formulation to the contrary is unrealistic and does not correspond with common experience in the court in many of these cases.

I think it is legitimate for me to say, as I was a member of the Full Court in the Marriage of Lee Steere (1985) 10 Fam LR 431; FLC 91-626, that His Honour has read too much into the passage to which he refers and that the term “off-setting contribution” does not necessarily mean “greater contribution”. It simply reflects the circumstance that the respective contributions of the parties over a long period of marriage “offset” the significance which might otherwise be attached to a greater initial contribution by one party. This is, in my view, made clear by the Full Court in White (1982) 8 Fam LR 512; FLC 91-246 where that court pointed out that the principle in Crawford (1979) 5 Fam LR 106; FLC 90-647 is that the original contribution should not be carried forward as a mathematical proportion; ultimately, when it comes to the trial such a contribution is one of a number of factors to be considered. The longer the marriage the more likely it is that there will be later factors of significance and in the ultimate the exercise is to weigh the original contribution with all other, later, factors and those later factors, whether equal or not, may in the circumstances of the individual case reduce the significance of the original contribution.

[28] In our opinion it is not so much a matter of erosion of contribution but a question of what weight is to be attached, in all the circumstances, to the initial contribution. It is necessary to weigh the initial contributions by a party with all other relevant contributions of both the husband and the wife. In considering the weight to be attached to the initial contribution, in this case of the husband, regard must be had to the use made by the parties of that contribution. In the present case that use was a substantial contribution to the purchase price of the matrimonial home: see also Campo and Campo (Full Court, Sydney, 19 May 1995, unreported) at pp 21-2 of the joint judgment of Ellis, Lindenmayer and Finn JJ and Zahra and Zahra (Full Court, Sydney, 3 October 1996, unreported) per Ellis J at p 10.

66 In Howlett v Neilson, Hodgson JA referred to that passage and, observing that there was no clear statement concerning the “erosion principle” in cases under the Property (Relationships) Act, suggested that it was by no means clear that it would apply to the same extent as under the Family Law Act where matters other than contributions can be taken into account and where the relationship involves a public commitment to mutual support for life [Howlett, [34]]. However, as the Full Family Court pointed out in the passage just cited, it is really a matter of weighing initial contributions with all other relevant contributions. In a short marriage, the other contributions may be relatively insignificant. In a long marriage, ongoing income contributions and contributions as a homemaker and parent, if they have not resulted in the acquisition of assets sufficient to recognise them, may warrant the “erosion” of initial contributions so that all contributions can be satisfied to some extent, though not in full, out of the available property. There is no reason why this approach would apply to any less extent under the Property (Relationships) Act than under the Family Law Act; it does not involve taking into account matters other than contributions, but is part of the methodology for weighing and balancing the different contributions.

67 Significant factors affecting the application of the “erosion principle” are the length of the relationship and, in particular, the extent to which there have been other or off-setting contributions which also have to be satisfied from the available pool. It is to accommodate those contributions that the initial contributions are “eroded”.

The Full Court in Pierce & Pierce told us not to associate erosion of initial contributions as a mere passage of time issue.

In Wallis & Manning a different Full Court elaborated.[1]

The parties were married for 27 years

Judicial debate has surrounded the so-called “erosion principle” but that debate has centred primarily on the question of whether early capital contributions are eroded only by “an imbalance” in later contributions.

In our view, talk of “erosion” of the early capital contribution obscures the issue rather than illuminates it.

However, it can be taken as well settled that the length of the relationship has a significant impact on how early significant capital contributions should be viewed in assessing the totality of the parties’ contributions.

The Full Court then referred to Lee Steere and Money & Money and said:[2]

The length of a marriage is important, then, in assessing the respective contributions of the parties, particularly when it is said that significant capital contributions made early in the marriage are a dominant feature of that assessment.

What we are seeing as early as Pierce, at least in relation to initial contributions, and a re-emergence in the late 2010s, is what practitioners sometimes conveniently refer to as the Jabour type assessment.

That is, there need not be such a nuanced identification, analysis and characterisation of contributions.

Large capital introductions, injections or acquisition over the long term must be held against the role of the other party.

It invites error to identify only the matters which can be “˜distinguished’ as not being equal.

For instance, both parties contributing to the home equally, both working full time, but one earning a greater income.

Another instance is the minor initial contribution.

Parties and practitioners will often cling to the discrepancies to advance their case.

In my view, it is not by coincidence that the Full Court lays down authority to take the big picture approach.

If we as practitioners whole-heartedly adopted that Full Court-endorsed approach, perhaps we would find ourselves agreeing on the range and even the outcome more often.

Equality is not allowed to be the starting point. But it is certainly an oft-arrived conclusion.

Practitioners may come across the rare case in which a client argues a gift, a wedding for example, ought to be considered a “joint” contribution. The usual principle is that such a gift is deemed to come in from your side: Gosper (1987) 11 Fam LR 601, 612 per Fogarty J:

The critical case is where a relative of one of the parties gifts property to both the parties to that marriage. Dependent upon the circumstances of the case, it is, in my view, open to the Court in such a case to look at the actuality and treat that as a “financial contribution made directly … on behalf of” the spouse relative (see for example Rainbird, Matthews, W, Underwood, Abdullah, Freeman, cf Cleary, Hogan J in Freeman, and Antmann, supra ).

In many such cases that gift was made only because of that relationship and in reality as a means of benefiting that relative in that marriage. It was made “because she was a daughter of that family” as was said in W’s case at 75,527 .

It is clearly a “financial contribution” and one “made directly” to the acquisition, conservation and improvement of property. In such cases it is open to the court to conclude, if the facts justify it, that it was made “on behalf of” one spouse.’

Commonly one party argues that their financial contribution ought to be given greater weight because they entered the relationship with their income earning capacity, be it skill, experience or qualification. It is trite to distinguish that argument from one of special contributions.[3] Warnick J has discerned the argument in an unreported decision:[4]

… what is being counted as a contribution by the husband is not his potential to produce income. All that is being done is recognising that the actual financial contribution of the husband was made in the context of the exercise of a capacity substantially developed prior to cohabitation.

That argument however often falters to the inevitable holistic assessment. In Grier & Malphas [2016] FamCAFC 84 at [91]:

… A person with the same “skill set” but who was not so fortunate in their financial dealings throughout the marriage may conclude their relationship with a very different financial outcome. The same “skill set” applied in the context of that relationship would therefore be irrelevant. To develop an argument ex post facto that a particular set of skills available at the outset of the marriage is the only or major cause of the parties’ later prosperity is to hypothesise a causal relationship which in most cases will be difficult to reconcile or prove.

In that case, the “skill set” which the husband argued he brought to the relationship was questionable. The focus is of course how the skill set was used, and where it is reflected in the acquisition, conservation and improvement of the property of the parties or in indirect contributions.

In most cases the argument is likely to conflate the “special contribution” or beset by the double-count of first skill and second contribution to property. It is part of an argument.

It is important in such cases to consider the particular “skill set” only as context to the financial contribution made by the party. In some cases, it may be that fewer hours at work enabled more contributions at home.

The inverse invites the challenge to the importance of those contributions in light of the other spouse’s contributions as homemaker and parent: Kasiopoulos & Garapiperis (No. 2) [2010] FamCA 1184 at [185] (first instance, undisturbed on appeal).

The problem the husband faces in arguing that his contributions over about 20 years, were greater than those of the wife, is one of time. He is not someone who generated an income out of all proportion to the time he applied to his work. He worked long hours and made a substantial commitment of time to work related travel. He is to be credited with those efforts but they necessarily came at the expense of his availability to the family.

When combining the rationale in cases arriving at equality (or close to equality) of contributions despite the immense income of one party, such as Kasiopoulos, and the consistent stream of cases eschewing “special contributions”, such as Fields & Smith, it seems almost that the jurisprudence borders if not dabbles in the notion that the quantum of one’s income is irrelevant, it is the variety of their contributions that is given weight.

Or simply, did everyone do their role as well as they could?

Does that then mean, in a case with two working spouses, their hours, or “efforts” are taken into account, rather than an assessment of who derived the more income?

Attempts to simplify the holistic assessment

The Court has the discretion to “˜quarantine’ property in the appropriate circumstances, including post separation property. Chan & Chih [2020] FamCAFC 31 the Full Court considered whether a global or asset-by-asset approach was appropriate where each party had inherited property in South Korea.

The husband used the property he had inherited in South Korea to purchase property in Australia, while the wife had not received the property she inherited at the time of trial.

Watts J rejected the husband’s argument that the Court should consider the property as three distinct pools, as the husband’s inherited property had been intermingled with the Australian property, whereas the wife’s inherited property had effectively been quarantined as it had not become available.

Contrastingly, Marcel & Garrigan [2013] FamCAFC 94 at [68]:

Having formulated the main pool, the trial judge identified and analysed the parties’ contributions. Contributions are not tied to assets which exist at the date of hearing and are taken into account in a general sense, including in relation to property that has been disposed of (Farmer & Bramley (2000) FLC 93-060).

It can be all too tempting to attribute percentages to different stages of the relationship or categories of contributions. The Full Court has time and time again warned against such an approach:

Dickons & Dickons [2012] FamCAFC 154 at [26]:

The necessarily imprecise “wide discretion” inherent in what is required by the section is made no more precise or coherent by attributing percentage figures to arbitrary time frames or categorisations of contributions within the relationship. Indeed, we consider that doing so is contrary to the holistic analysis required by the section and, in the usual course of events, should be avoided.

See also: Wallis & Manning, Fields & Smith.

Galliano & Galliano [2011] FamCAFC 149 is a good example of the slippery slope that is attributing percentages at any stage of the process other than on a holistic view. At [67] and [68] Strickland J referred to the submissions on behalf of the husband that the difference in income represented 57% and therefore on that basis alone contributions could not be equal. His Honour said:

The flaw in this approach though is that it has long been held in this Court that “[t]he assessment and comparison of contributions, both financial and non-financial, and the translation of that weighing and comparison is not and cannot generally be a strictly mathematical task” (Z & Z (2005) FLC 93-241 at paragraph 165).
In my view, this case exemplifies why a strict mathematical approach is inappropriate. That approach fails to allow for the proper assessment and comparison of all contributions of the parties, both financial and non-financial, and that is an essential aspect of an appropriate exercise of the broad discretion that the Federal Magistrate undoubtedly had.

The recent case of Vinci & Adamo [2021] FedCFamC1A 53 (Aldridge, Gill and Hartnett JJ) affirms a recent departure from a historic approach of weighting one significant contribution against other contributions. At [21] the Court said:

Such reasoning is entirely orthodox and does not bespeak error. Indeed, had her Honour weighed particular contributions, such as the appellant’s contributions whilst an elected official against all of the other contributions of the parties’, that would have been an error (Dickons v Dickons (2012) 50 Fam LR 244 at [21]; Jabour & Jabour (2019) FLC 93-898 at [73]-[87]; Horrigan & Horrigan [2020] FamCAFC 25 at [42]-[48]; Benson & Drury (2020) FLC 93-998 at [35]).

Another temptation which must be avoided is the comparison of one category of s.79(4) contributions, labelling them as equal and then seeking to disregard them to only focus on the categories which result in disparity. The difficulty arises similarly in the comparison of contributions over the three different stages of the relationship.

The inappropriateness of lending to the temptation is well established. In Samper & Samper [2021] FamCAFC 140 the Full Court observed:

Significantly however as required by established authority (Dickons v Dickons (2012) 50 Fam LR 244; Jabour & Jabour (2019 FLC 93-898 at [73]-[87]; Horrigan & Horrigan [2020] FamCAFC 25 at [42]-[48]; Benson & Drury (2020) FLC 93-998 at [35]), the primary judge placed the post-separation contributions over that six year period in the context of all contributions made over a 32 year period and concluded:
The fact that the parties, quite rightly, agreed that contributions in this 26 year period were equal does not mean that the Court treats these as being mathematically equal and then ignores them when assessing and weighing post separation contributions. To do so would give undue weight to the contributions during the 6 post separation years over the 26 pre-separation years, particularly when the asset pool was largely developed over the period prior to separation. The post separation contributions are to be seen and weighed and as part of the totality.
This is not a mathematical exercise. While on one view [the wife] may have made slightly greater post separation contributions, weighing so far as possible all of the mutual contributions across the 26 years of cohabitation and the various post-separation contributions as set out above, I am not satisfied that there is any basis on which I should find that either party made greater contributions overall.
Accordingly, I find that the parties made equal contributions to the date of hearing.
The primary judge was entitled to so find and gave adequate reasons for doing so.

The parties’ roles

We are seeing more and more courts at first instance placing less weight on significant incomes, by having regard to the parties’ roles during and after the relationship. Kasiopoulos & Garapiperis (No. 2) [2010] FamCA 1184, albeit from over a decade ago, conveniently summarises the point at [185] (first instance, undisturbed on appeal):

This can be compared with the notion that parties are entitled to “˜get on with their lives’.

In the appeal of that case, Kasiopoulos & Garapiperis [2012] FamCAFC 85, at [36], the husband argued that:

[He] was free to do with his post separation income as he pleased, provided he was at the same time properly meeting his obligations towards the wife and children. There was no obligation on the Husband in that decision to accumulate assets after separation. It is submitted that in this case, the Husband has in essence accumulated assets after separation from his income by discharging liabilities and increasing his superannuation and therefore he should be given credit for this in any assessment of contributions.

The wife argued that the bonus the husband received post separation resulted from his qualifications acquired during the 20-year relationship.

The Full Court said at [43]:

… Neither in Gollings (supra) nor any provision of the Act, or other authority to which we have been referred, do we discern support for the proposition that, once a party has provided adequately for the other party and/or children of the marriage in the post-separation period, the fruits of any acquisition, conservation or improvement of further property in that period are necessarily to be regarded as exclusively, or overwhelmingly, the entitlement of that party. A Court may so conclude in an appropriate case, but so doing does not establish any “principle” to that effect.

The non-financial party argues that it is really business as usual – one works in the environment established during the relationship and one takes on the homemaker and parent roles as during the relationship.

Even if the range is known, every family lawyer knows that a judicial determination will depend on the trial judge. We all know there are certain judges who tend to conclude matters in one favour and others who take the opposite approach. The Full Court acknowledges that is OK as long as both judges are within Range.

In my view, the Honourable Paul Cronin often gave significant consideration to the concept that the parties had “˜roles’.

Vasilias & Vasilias was a first instance decision of Cronin J in 2008.[5] The poor state of the evidence informed the outcome.

The husband was a taxi driver. He worked from early morning to late at night. He used his “˜tradesmen-like talents’ on and around the home and to maintain the parties’ cars.

The wife undertook the traditional homemaker and parenting role. Having regard to the limited time available to the husband to contribute “˜at home’, the wife’s role was taken to be significant.

On the husband’s part, he argued the wife spent an exorbitant amount of time on the telephone and in so doing, neglected her role as homemaker. He adduced photographs of the state of the home the day after separation. The wife looked at the photographs and when asked to describe the condition of the home, she described it as “disgusting”. His Honour made some important comments:

… cobwebs on windows, dirty bathroom basins and untidy floors and laundries are not matters about which this Court should be unduly critical. This is a very subjective area into which judges should be cautious about treading. The quality of a homemaker role is an issue of contribution about which an assessment has to be made and weight given. However, over a period of the length of a relationship such as this with all of its incumbent problems, in my view, it is dangerous to draw broad assertions from a series of photographs even if they did depict a home that was “disgusting”. Contrary to the assertion that this was consistent with her behaviour and effort all of the time, the wife maintained that she was a very proud homemaker. There is no evidence that the children were adversely affected by it and certainly no evidence that it in someway diminished the value of any property.
In a case in which the husband has worked extraordinarily long hours to earn a limited amount of income, it is difficult to make an assessment as to whether that absence from home contributed to what might otherwise attract criticism for the homemaking role of the wife. In my view, that comparison would be completely inappropriate.
In the circumstances, I do not propose to distinguish between the husband and the wife in respect of the period of time that they were together during the marriage.

Then, turning to post separation matters:

Contributions do not cease when the relationship comes to an end. Parties contribute in their own ways subsequent to that time. In this case, the wife took on the very significant role of the care of the children which she had clearly done well during the relationship itself. Her role was not made any easier by a number of matters about which I have already criticised the husband … Most significantly, subsequent to separation, the husband has contributed very little by way of financial support for the children albeit that he has contributed to the mortgage. In so doing however, he has clearly protected his own financial position.

The issue of disparate early contributions was also relevant. The husband’s parents gave him money towards the purchase of the family home. a considerable argument about whether the advance was a gift or loan was resolved by the husband’s father’s evidence in cross examination that he did not require the loan to be repaid. Cronin J accepted the advance as a contribution by the husband.

After referring to Lee Steere, Way & Way and Pierce & Pierce, his Honour held that:

162 … Even if there was a contribution by one party greater than the other, it has to be weighed against the subsequent contributions over a period of many years in which both parties worked and/or raised their family. …

Post separation income

One of the plights of the s.79 process can be identifying and giving weight to post separation income and expenditure, and more intricately, at what stage of the process that consideration is given.

Income earned since separation is relevant in several distinct, and not so distinct, ways. For example:

In identifying the property of the parties and any relevant liabilities;
As a direct contribution; or
As evidence of a parties’ current and future financial circumstances (75(2)(b)).

There are important subcategories.

Post separation income could manifest as savings sought to be “˜excluded’ from the pool. Expenditure could be sought to be added-back.

A post separation contribution can be easy to identify, but it is much more difficult to support arguments for the weight to be attached to it.

Expenditure could be framed, not as a negative contribution, but through context of the other party’s contribution to the conservation of property, for example. Simply put, one party spends while the other doesn’t. Attracting any weight to that argument can be difficult. That may always have been the pattern. Is it the pattern or a change that matters?

Greater post separation income cannot be its own reward by attracting little weight as a contribution and supporting an argument for a greater adjustment on account of income disparity.

In some cases, parties continue their pre-separation roles in their post-separation lives. This continuation of roles was an integral consideration in Trask & Westlake, where the Full Court heard an appeal against property adjustment orders made by Aldridge J. The parties’ marriage was a traditional one – the husband zealously pursued his career, and the wife was the homemaker and primary carer of the children. Although university educated, the wife had never been employed on a full-time basis and would need extensive training to enter the workforce.

The parties continued their roles post-separation – the husband’s income increased by way of his employment, while the wife’s role as primary carer became more difficult due to the separation.

The husband argued that Aldridge J attributed excess weight to the non-financial post-separation contributions of the wife.

The Full Court said at [14] – [15]:

The husband’s written outline of argument calculates the percentage of the total value of the property represented by the husband’s post-separation cash injections. That can be a useful measuring stick, but the assessment of contributions remains “a matter of judgment and not of computation” (In the Marriage of Garrett (1984) FLC 91-539 at 79,372). That it must be so is emphasised by the fact that the percentage figure pertaining to direct financial contributions is being compared to the extremely important contributions made by the wife in maintaining a home as a single parent to four children dealing with the separation of their parents. Those contributions are not susceptible to any such mathematical calculation. His Honour plainly, and with respect correctly, recognised that the wife’s contributions did not cease upon separation but, rather, continued in circumstances made more difficult by the fact of separation. His Honour plainly accorded significant weight to those contributions.

Central to his Honour’s assessment of the parties’ respective post-separation contributions are the findings to the effect that the husband had arrived at his position with Company E by dint of his talents, dedication and hard work but also by dint of the contributions made by the wife across the years preceding that employment. The years of cohabitation had embraced roles for the parties agreed between them that had led them to the point where one of them, the husband, received tangible recognition of, as his Honour put it, the “experience, knowledge and opportunities he had obtained in his earlier employment” (at [84]). The contributions of the wife are much less tangible. The lack of tangible recognition, or the fact that they are not susceptible to a dollar calculation, does not render them less important.

The Full Court allowed the husband’s appeal on the basis that the original orders did not reflect the judgment that had been given. Crucially, the husband’s increase in income did not alter the Court’s consideration of the contributions-based assessment.

This jurisprudence can interestingly be compared with the Full Court’s approach to windfall increases in the value of property.

In Jabour & Jabour [2019] FamCAFC 78 the Full Court famously said at [43]:

We consider that the decisions in Baker and Bilous indicate that the Court in Williams somewhat overstated the importance of the increase in value of a piece of property at the expense of “the myriad of other contributions that each of the parties has made during the course of the relationship” (Williams at [26]).

And then at [55]:

Again, consistent with the authorities set out above and those which we discuss below, the import of Pierce is that the weight to be attached to an initial contribution must be assessed against the rubric of all of the contributions, both financial and non-financial, made by the parties over the course of their relationship.

Concluding at [73]:

As can be seen the primary judge weighed the myriad of contributions made by the parties against the contribution made by the husband by bringing in Property A rather than treating Property A as one of the myriad of the contributions made.

Savings generated by post-separation income which comprise a substantial part of the pool are often not given weight on account of other circumstances.

In Teal & Teal [2010] FamCAFC 120 the husband’s post-separation savings comprised 21% of the non-superannuation assets. However, the Court considered that against the benefit of the wife’s employment reducing the children’s school fees by 90%. But for the wife’s contribution reducing the parties’ expenses, the husband would have been unable to save as much as he did post-separation.

That case involved a unique contribution which explicitly offset the post separation savings. It does communicate the idea though that even post separation the parties may still be contributing in their own way and one way is no better than another.

In other cases, one party has continued to benefit post-separation while leaving the other to fend for themselves.

The cases of Gollings & Scott [2007] FamCA 397 (at [68]) and C & C [1998] FamCA 143 are often used to support arguments that parties are entitled to use post separation income as they see fit.

The Full Court considered the weight to be attributed to contributions in those circumstances

In Rankin & Rankin [2017] FamCAFC 29, the Full Court considered an appeal against, inter alia, the treatment of the husband’s post separation income which was largely spent on legal fees. This case emphasises the flexibility for courts dealing with post separation income.

The primary judge’s relevant reasons are set out by the Full Court at [54]:

In view of these passages, the primary judge concluded:

There is no dispute that the funds used by the husband to pay his legal fees have been generated by him after separation from his employment as a [professional]. It is submitted on behalf of the wife that she has made contributions to the development of the husband’s career; she has supported him in the early years of his practice when he was establishing himself as a [professional]. Otherwise, it is submitted on her behalf that she has been the primary care-giver to the parties’ children and principally responsible for maintaining the home; in this way she provided invaluable support to the husband in the progression of his career and development of his capacity to earn income. I accept those submissions.
At the time the husband earned the income applied to the payment of his legal fees, he had an obligation to support the wife and the children of the marriage. That this is so is evident from the orders dated 4 November 2013 which required him to meet mortgage payments and outgoings with respect to the properties in Western Australia and [Suburb C].
As noted earlier, the husband did not service the mortgage liabilities on the parties’ properties, thereby increasing the debt payable upon settlement of the sales of those properties. Further he substantially reduced his child support liability by providing an estimate of his income to the Child Support Registrar which substantially reduced his obligation to pay child support. Income which otherwise would have been available to support the wife and the children was applied to the payment of his legal fees. The husband has effectively executed self-help with respect to his legal costs and in doing so has disregarded his obligations to meet liabilities pursuant to orders of this Court and in accordance with the Child Support (Assessment) Act 1989 (Cth). (emphasis added)
Such matters may be taken into account pursuant to the provisions of s. 75(2)(o) of the Family Law Act. However, in my view a percentage adjustment will not achieve justice and equity in the overall context of this case in circumstances where:-

the asset pool excluding superannuation is only $803,000;
the husband has paid $230,000 to his lawyers in preference to his obligations to the wife and the children; and
such payment has been made from income which he has been able to earn, in part, through the contributions of the wife.

Having regard to those circumstances, I am satisfied that justice and equity require that there be a cash adjustment in favour of the wife with respect to her outstanding legal costs prior to the disbursement of the sale proceeds rather than a percentage adjustment in her favour.

The husband accepted that “income which otherwise would have been available to support the wife and the children was applied to the payment of his legal fees”.

The Full Court proceeded to affirm the approach taken by the trial judge, acknowledging that considering the s.75(2)(o) adjustment as a lump sum was appropriate, but eschewed the comment that a percentage adjustment was inappropriate “if correctly calculated”.

The husband argued that the primary judge did not take into account money paid post separation, which “he was entitled to spend as he saw fit”.

The Full Court observed:

… In support of this submission, the husband referred to Beklar & Beklar [2013] FamCA 327. In that case the primary judge “added back” into the property pool payments made to a party’s lawyer, but, recognising that the payments had been made from post”‘separation income, the amounts added back were reduced by 50 per cent.
That case is, of course, an example of the flexibility of approach required in complex financial cases where the orders must be adapted to the particular facts of the matter before the court. It is not, and did not purport to be, a statement of general principle, as counsel for the husband properly conceded.
In the unique circumstances of this case and having regard to the husband’s evidence and her Honour’s unchallenged findings, the primary judge could have followed such a course. However, the relevant enquiry is whether the primary judge was in error in taking into account the whole of the $230,000. It is apparent from what we have already said that we do not consider that there was such an error. In particular, the findings made by the primary judge at [136] – [138], which were unchallenged, support her approach.

In some cases, it is not the treatment of post-separation income, which is the subject of dispute, but the taxation liability remaining at the time of trial.

The Full Court considered the treatment of pre- and post-separation taxation debts in Zabarac & Zabarac & Anor [2016] FamCAFC 186.

The Full Court said at [176] – [184]:

Ground 14 contends that her Honour ought to have found that the wife continued to enjoy the benefits of the husband’s post separation income and thus should have been required to share jointly in the 2012 tax debts.

Her Honour said:

In my view, justice between the parties dictates that separate consideration is given to the pre- and post-separation taxation debts. In her oral evidence the wife conceded that she “liaised with our accountants and lawyers“ and that she “had [her] finger on the pulse in relation to our money“ prior to the separation. By contrast, the husband thereafter caused the incorporation of the company [SY Pty Limited] and channelled his income into that entity without any input at all from the wife.

(Emphasis in original)

Before moving to the thrust of this ground, her Honour’s reasons clearly indicate why she chose to treat the pre and post separation tax debts differently.

In support of this ground it was argued that her Honour failed to take into account the husband’s evidence that his post separation income had been applied to benefit the wife, children and in maintaining the parties’ properties (husband’s written summary of argument at [14.2]).

Further it was argued that her Honour failed to give proper weight to the wife’s agreement that after separation the husband paid her periodic sums of $13,303 per month, reduced later to $10,000 per month, and that the husband’s income received from LBP was applied to the purchase of the Suburb R property, the value of which was included in the balance sheet of the parties’ assets.

For the wife it was submitted that before the husband incorporated SY Pty Ltd his income was paid into the Trust from which both the husband and wife jointly benefitted.

Clearly her Honour’s distinction between the wife’s capacity to control or exercise control over the parties’ finances before separation and the husband’s election to refocus the channel for his income to a separate corporation justified both her treatment of the tax debts and her conclusion that post separation tax debts should rest with the husband.

That the husband attended to his obligations to provide financial support to his children and the wife does not, in our view, support this ground.

There is no substance in this challenge and it is not made out.

Post separation “˜excessive’ expenditure

It is commonly the duty of a family lawyer to explain to their client why the so-called “excessive” expenditure of their spouse is unlikely to attract any real weight in the section 79 process.

Family lawyers often seek to exclude assets or liabilities from, or add-back notional assets to, the balance sheet because doing so enhances the chances of extra weight being attached to the particular circumstance. They forefront issues as advocates.

The alternative is to have it considered as either a contribution or a section 75(2) matter, the concern being that both of which are easily devalued or even lost altogether in the sea of the myriad of contributions.

It is for that reason that expenditure is rarely sought to be taken into account under s.75(2)(o) by the party alleging profligate spending.

Manipulating the balance sheet is desirable because it secures consideration of an aspect of the case. That is arguably applying a mathematical approach to what must be a holistic assessment. However, as we are reminded time and time again, it is not improper in the appropriate cases: Trevi.

It is, however, important to acknowledge the impact of manipulating the balance sheet, because it is the reason only the exceptional cases are adopted by the courts.

The high threshold of establishing a party’s profligate spending besets the frugal spouse. Some level of hobby spending might be appropriate or at least accepted as not being waste.

The party asserting wastage on part of the other invites application of scrutiny to their own affairs. The courts will often reject an argument of wastage on the basis that both parties made less than prudent decisions concerning their property or finances.[6]

In Murray & Murray [2020] FamCAFC 293 the Full Court considered an argument that credit card debts of $78,000 were inappropriately omitted from the balance sheet by the primary judge. The husband had previously earned a consistently high income of approximately $800,000 to $1,100,000. After separation he suffered a significant reduction in his income. Despite his reduced income, he did not curb his expenditure and amassed a large debt. In cross-examination he said he conceded that his lifestyle had not changed “all that much”. The primary judge omitted the debts from the balance sheet because they were incurred “in order to maintain [his] lifestyle”. The Full Court held that the primary judge was within discretion to ignore the debts “in accordance with the Biltoft guidelines”: ([31] to [41]).

The principle against a presumption of equality is clear. It is perhaps due to the overwhelming amount of cases in which equality is the appropriate conclusion that the annunciation of the principle is required. In Elgin & Elgin [2014] FamCA 10 (first instance, undisturbed on appeal) Forrest J said:

Although I am quite conscious of the clear authoritative rejection of the existence of a presumption of equality as a starting point in the assessment of contributions in this discretionary exercise, I am equally conscious of the authoritative pronouncement of the following propositions that go to informing the discretion (whether they are correctly described as “values” or otherwise):

contributions by a spouse to the welfare of the family, including as a homemaker and a parent, should be recognized in a substantial and not merely in a token way;
no nexus between a spouse’s contribution and a specific item of property is required when the parties’ contributions are being considered; and
marriage is and should be regarded as a genuine partnership to which each party brings different gifts and when one party’s efforts produce great wealth that is no reason, in itself, to disadvantage the other party.

Having regard to these propositions, I respectfully agree with the view expressed by my judicial colleague, Cronin J, in Bulleen & Bulleen (2010) 43 Fam LR 489 that to retrospectively distinguish between the value of the roles respectively adopted by the parties in the course of a very long marriage, who saw themselves as equals, merging their lives and each contributing to their common goals to the best of their abilities, is something fraught with the risk of injustice.

In the same vein, I also agree with the submission of counsel for the Wife that to consider a party’s contributions to the welfare of the family as of diminished significance in a long marriage where the children who that party principally parented have long grown up and left home is contrary to community expectations and also likely to be productive of injustice. The obligation to recognize contributions to the welfare of the family in a substantial and not token way, without having to link them to particular property amassed by the couple, provides principled foundation, in my view, to the attribution of weight to the “fantastic” and “terrific” contributions made by the Wife to the welfare of the family, including as a homemaker and parent over 30 years, and as a homemaker on an ongoing basis to the point of separation after 49 years, so as to arrive at a determination that the contributions of both parties made in their respective roles weigh relatively equally, even where the Husband has continued to generate further wealth by his own contributions after the children have grown up.

If the Court does not accept that property provided to a party constitutes a loan, the Court will in the ordinary course of events consider the property a contribution: Vass & Vass [2015] FamCAFC 51 at [119] citing Kessey & Kessey (1994) FLC 92-495 at 81,150.

Then there is the debt that may never have to be repaid. Where an unsecured liability is vague or uncertain, or unlikely to be enforced, the Court may determine not to take it into account: Biltoft

Rent vs mortgage repayments

Another common argument between parties is the discrepancy in living situations post-separation where one party remains in the family home and the other must find and pay for temporary or rental accommodation.

Who pays the mortgage?

In some cases the financial spouse moves out but continues to meet all or some of the mortgage repayments. This is often treated as a contribution, but in all of the circumstances, seen as the continuation of pre-existing roles.

Defraying the costs of the mortgage can often be seen as asset preservation and credit rating preservation.

Paying the costs of rent, with the care of a child, is often seen as a contribution in its own right but also an indirect contribution to the mortgage repayments in all the circumstances.

In Meadows & Meadows (No 3) [2020] FamCAFC 124 the husband occupied the home post separation. The wife rented. She argued[7] that there ought to be a capitalisation of the benefit of the husband remaining in the home with regard to the estimate of rent he otherwise would have paid. The trial judge appropriately refused to identify a capitalise rental benefit, acknowledging it was properly a matter for contributions.

As to the assessment of contributions by the trial judge, the Full Court said:[8]

Having discussed the parties contributions during the marriage, including the mother’s contribution as primary carer of the child and accepting her contention that the father had the benefit of occupation of the former marital home, albeit paying the mortgage, whereas she and for significant time the child, were living elsewhere paying rent. His Honour took into account the relative disparities in the parties’ income and earning capacities. He concluded that the mother’s contribution based entitlements were slightly greater than those of the father and assessed them at 55 per cent in favour of the mother.

The wife complained that the trial judge gave insufficient weight to the disparate living situation.

The Full Court then concluded:[9]

His Honour took the father’s occupation into account and considered it to be an indirect contribution by the mother, albeit noting that the father’s occupation included payment of the mortgage, rates and taxes on the property (at [87(f)]). No error has been established.

Contributions and adjustments in elder divorce

The median age of divorcees in Australia has risen sharply, from 34 years old in 1990 to 45.6 years old in 2020.[10] The rise of the so called “˜grey divorce’ phenomenon raises numerous questions regarding the application of section 75(2) for elderly parties.

The Court will consider the “˜future needs’ of each party, and has the discretion to determine how much weight will be placed upon the relevant considerations.

The section 75(2) considerations of particular relevance for the Court when assessing the parties’ future needs in elder divorce cases are:

Their age and health;
Their income and capacity for appropriate gainful employment;
Their eligibility for a pension, allowance or benefit;
A standard of living that in all the circumstances is reasonable;
The duration of the marriage and the extent to which is has affected the earning capacity of the party whose maintenance in under consideration;

The relevant section 75(2) considerations can be contradicted by an elderly party’s life expectancy. A shortened life expectancy effectively reduces the future needs of that party. Adducing persuasive evidence of that fact may be challenging.

If a party is elderly and unwell, their future medical needs will increase, even if that increase coincides with a reduction of the life expectancy of the party.

The Full Court in Varnham & Moses [2020] FamCA 83 considered the assessment of post-separation contributions and the approach to address the relevant section75(2) factors in the property settlement of an elderly couple.

At [48] – [60]:

The 60 per cent contribution-based entitlement of the wife determined by the primary judge represented, in money terms, $1,683,837.60 as compared to the husband’s 40 per cent entitlement worth $1,122,558.40.

The primary judge did not have regard to that as a starting point when assessing the s 75(2) factors. Her Honour’s consideration of s 75(2)(b) “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” in respect of the wife appears to be confined to her existing property interests (at [191]) and her employability (at [198]-[201]). Moreover, s 75(2)(n)(i) mandates that account be taken of “the terms of any order made or proposed to be made under section 79 in relation to … the property of the parties”. That factor was not identified or addressed by the primary judge in her Honour’s listing of the factors her Honour considered to be relevant.

The primary judge erred in failing to consider, for example, potential income to the wife, or the financial resource of the investment of capital consequent upon the 60 per cent the wife was to receive, as compared with the husband’s position and his 40 per cent entitlement, given also that her Honour did not propose to make any splitting order with respect to the husband’s superannuation.

These errors also manifest themselves in the conclusion the primary judge expressed at [217] as follows:

Taking those matters into account an adjustment in favour of the wife is appropriate in circumstances where her earning capacity and access to superannuation is much less, by a factor of 10 percent.

(Emphasis added)

The property pool determined by the primary judge (at [143]) included the wife’s superannuation of $31,000 and the husband’s superannuation interests totalling $542,386. All of the parties’ superannuation interests were accounted for. On a 60 per cent/40 per cent contribution assessment overall the wife was obviously to receive the equivalent of 60 per cent of the parties’ combined superannuation. In circumstances where the primary judge did not propose to make any splitting order with respect to the husband’s superannuation, the wife was already to receive, wholly by way of non-superannuation capital, the majority of the value of the parties’ combined superannuation.

The primary judge’s reference then in [217] to the wife’s “access to superannuation is much less” as part of the foundation for a further 10 per cent adjustment in the wife’s favour for s 75(2) factors is an obvious error.

We have considered whether the primary judge’s error with respect to superannuation is capable of being characterised as immaterial on the basis that the primary judge’s 10 per cent adjustment for s 75(2) factors is supportable by reference to only the disparity between the parties’ respective earning capacities as discussed by the primary judge.

However, a 10 per cent adjustment for s 75(2) factors gives rise to a 20 per cent disparity between the parties worth, in money terms, $561,279.20.

As at trial in July 2019 the husband was soon to turn 61 years of age and whilst he was then unemployed his evidence was that he was actively seeking employment and, if successful, he intended to work “for two or three years at the maximum” before retiring (husband’s affidavit filed 5 June 2019, paragraphs 398-399). There was no challenge in the course of the husband’s extensive cross-examination at trial as to his stated intention in this respect. That is perhaps unsurprising given the husband’s age and the feature that as at trial the wife, at age 58 years, already regarded herself as retired as found by the primary judge (at [201]).

For the purposes of making some comparison, it is notable that the primary judge recorded:

The husband received a substantial redundancy package (AUD$529,000) equivalent to three years employment, paid to him in June 2017.

(Emphasis added)

On that comparison, the disparity of $561,279.20 is a present capital sum greater than the redundancy package the husband historically received calculated by reference to three years of his employment.

Self-evidently the disparity amount exceeds the entirety of the husband’s probable (or possible) total net (after tax) earnings for the anticipated balance of his notional working life. Viewed another way, the husband would have to work for many more than three years to ever have any prospect of accumulating an amount of capital approaching that magnitude and there was no evidentiary basis for such a conclusion. As noted, the unchallenged evidence of the husband was that he would work for a further period of two or three years before retiring.

It is well settled that the primary judge was obliged to analyse the effect of any further adjustment for s 75(2) factors in real money terms (Clauson and Clauson (1995) FLC 92-595; Steinbrenner & Steinbrenner [2008] FamCAFC 193; Phipson & Phipson [2009] FamCAFC 28; Wayne & Wayne [2010] FamCAFC 33 at [106]; Lovine & Connor (2012) FLC 93-515 at [80]). We are satisfied that the primary judge failed to so do and that error vitiates the exercise of discretion.

In Trevi & Trevi [2019] FamCAFC 51, the Full Court considered a section 75(2) percentage adjustment, where the husband earned $30,000 per week and intended to soon retire and the wife had minimal income capacity.

[45]:

Noting that, as has often been said, there is considerable overlap in the applicability of s 75(2)’s sub-paragraphs, her Honour’s findings referenced to the relevant sub-paragraphs of s 75(2) are as follows:

…

s 75(2)(b)

“There is a large disparity in income between the parties. The husband’s total average weekly income in accordance with his latest financial statement is $29,980 and his total weekly personal expenditure is $26,189″ (at [52]).

“The wife’s average weekly income in accordance with her latest financial statement is estimated at $317 and her total weekly personal expenditure is estimated at $2,835″ (at [53]).

“The wife is now living in an unencumbered property valued at approximately $2,480,000 purchased from her part property settlement and the husband is living in an unencumbered property valued at $2,700,000 which was purchased during the marriage…” (at [396]).

“There is a significant disparity of income earning capacity between the parties” (at [400]).

“The husband’s income is significant and for the year ended 30 June 2015 it was $1.54 million. In contrast the wife is studying and without paid employment. She is depleting her capital to pay living expenses. She has a nominal income earning capacity” (at [401]).

“…The wife will take some time to complete her studies and having regard to her age and lack of experience in the workforce, her employment prospects and potential for remuneration are limited” (at [402]).

“I accept the submission on behalf of the husband that it cannot be assumed that he will still be earning at his current level in seven years’ time. Having regard to his highly demanding position and competitive work environment, I accept the argument that a prospective assessment on the assumption of future earnings at this level can be no greater than four to five more years…” (at [403]).

“At the conclusion of the trial the parties reached an agreement on this issue and the expert witnesses were not required for cross examination. The agreement reached was that on an invested sum of $1.5 million that the wife would receive a return on that investment of between $50,250, which equates to 3.35% per annum and $141,873, which equates to 9.5% per annum” (footnote omitted) (at [406]).

“The significance that I should attach to this evidence was never explained” (at [407]).

“The husband’s income as a partner is approximately $1,196,416 per annum. As an equity partner, the husband’s remuneration depends upon his performance which is linked to the profitability of the practice. His work environment is competitive and demanding. However it was conceded in closing submissions, that it could be assumed that his income is likely to remain the same for a period of between two to four years. I accept that proposition as reasonable given that his income might decrease or increase” (at [427]).

“The husband also receives rental income from the investment properties which on his financial statement amounts to approximately $239,824 per annum. His weekly income is $29,980 and his weekly personal expenditure is $26,189. He has funds in his bank account of approximately $449,705 and he has superannuation of approximately $473,071 which includes his benefit under the [Trevi] Family Superannuation Fund” (at [428]).

“The wife’s income is approximately $317 per week but this is dependent upon her savings. According to her financial statement filed 28 April 2016 her weekly personal expenditure is $2,835 and her funds in her bank account are $215,228. The wife has superannuation of approximately $77,352 including her benefit in the [Trevi] Family Superannuation Fund” (at [429]).

“I am satisfied that in the years remaining of his working life, the husband is likely to continue to earn a significantly greater income than the wife” (at [430]).

“The wife ascribed a value of $2,250,000 to the husband’s potential [N Lawyers] Early Retirement Scheme entitlement in her balance sheet (Exhibit 11) but ultimately accepted the husband’s evidence that he was not “˜counting’ on getting money from the scheme and his evidence that “˜if I need another million dollars I will just work for another year’. Her case is that this should not be ignored. However I find that the husband is proposing to work for another five to seven years” (footnote omitted) (at [433]).

“I find that for the purposes of considering s 75(2) factors that the husband’s present income cannot be assumed for any longer than four to five years” (at [437]).

“[The husband] … intends to continue to work for the next five to seven years but obviously this cannot be guaranteed” (at [4]).

“I also find on the joint expert evidence of the chartered accountants, which was accepted by the parties, that if the wife received an amount of $1.5 million and invested that sum, that she would be likely to receive a return on that investment of between $50,250 which equates to 3.35% per annum and $141,873 which equates to 9.5% per annum” (footnote omitted) (at [438]).

[56]:

Weighing all of her Honour’s findings and all of the matters to which I have just referred, I assess the s 75(2) factors as weighing significantly in favour of the wife receiving a significant sum. I have given very significant weight to the disparity in income and income earning capacity seen in light of the parties’ respective ages.

Colleagues, once more into the fray. No doubt there are experiences of trial decisions that stick with each of us. I always remember the wife arguing the husband spending about $18,000 a year on gambling was wastage. The trial judge thought it was a reasonable hobby spent in proportion to his income. I was relieved to hear that.

[1] [2017] FamCAFC 14 at [116].

[2] [2017] FamCAFC 14 at [117].

[3] Kane & Kane (2013) FLC 93-569; Hoffman & Hoffman (2014) FLC 93-591; Fields & Smith (2015) FLC 93-638.

[4] Doolan & Doolan (20 November 2003) [2003] FamCA 1356, cited in Grier & Malphas [2016] FamCAFC 84 at [90].

[5] [2008] FamCA 34.

[6] For example Walters & Carson [2018] FamCAFC 233 at 111 (citing the trial judge’s undisturbed reasons).

[7] Meadows & Meadows (No 3) [2020] FamCAFC 124 [143].

[8] Meadows & Meadows (No 3) [2020] FamCAFC 124 [128].

[9] Meadows & Meadows (No 3) [2020] FamCAFC 124 [152].

[10] Australian Bureau of Statistics, Marriages and Divorces, Australia, 2020, accessed at: https://www.abs.gov.au/statistics/people/people-and-communities/marriages-and-divorces-australia/latest-release.

Update on contributions and adjustments

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