How are pre-relationship assets treated after a separation?

Clients often ask how assets they or their former partner may have held prior to a relationship commencing are to be treated upon separation, particularly in circumstances where these assets may have increased in value, at times quite significantly. The assessment of contributions made by the parties to a relationship is a critical component of the Court’s determination as to how to divide assets as part of a property settlement. The Full Court of the Family Court of Australia recently looked at this question in the case of Jabour & Jabour [2019] FamCAFC 78.

 

Background Facts

 

The parties had a long relationship, meeting in 1988, marrying in 1991 and separating on a final basis in May 2015. They had three (3) children throughout the marriage. Importantly it was a marriage of 24 years duration.

The Husband owned land prior to meeting the Wife. Specifically, he held a one-half interest in three (3) acreages, one of which was 44 acres in size and the other two were 30 acre lots. By 2010, the land then owned was rezoned “residential”, resulting in a significant increase in value to $10 million by the time of the Trial.

 

Issues to Be Determined

 

The main issue in dispute related to whether the increase in value of the land should be treated as a contribution of the Husband alone, in circumstances where he brought the property into the relationship, or whether it should be considered a joint contribution of the parties.

 

Judgment at First Instance

 

The Trial judge determined that the contributions of the parties throughout the marriage were equal, save largely for the Husband’s initial contribution of the parcels of land. Importantly, the judge held that “the Husband, in bringing [the block of land] into the relationship, has made a significant contribution which needs to be appropriately recognised in the division of property between the parties” [at 125]. Orders were made at first instance for the parties $9 million in assets (excluding superannuation) to be divided so that the Wife received 34% and the Husband received 66%. Both parties received an equalisation of their superannuation entitlements (cumulatively totalling approximately $370,000). The wife appealed this decision.

 

Appeal

 

The Trial judge, in assessing contributions, held that where an asset which was brought into the relationship remains intact at the time of separation, it is important to have regard to the value of that asset at the time of trial so as to assess contribution, not the value of the asset at the commencement of cohabitation. Insodoing she had effectively failed to weigh the initial contribution in a holistic manner as part of the myriad of contributions of all kinds and from all sources made by each of the parties throughout the period of their long marriage. The Full Court found that this was an error of law and the trial judge was effectively wrong in quarantining the Husband’s initial contribution.

 

Further, the Court of Appeal found that the Trial judge, in searching for a nexus between the contributions by the parties to a particular property and its present value, could only identify the contribution of the Husband in bringing the property to the relationship at the outset. Significantly the Appeal judges identified that the Wife made contributions to the property, that were overlooked by the Trial judge, including: –

 

  1. The Wife’s role in the “reorganisation” of the Husband’s ownership of the lots of land; and
  2. The Wife’s role in the parties jointly deciding in 2012 to delay a sale of the property, such that the parties’ achieved a sale price for the property in excess of $10 million as opposed to $2.5 million in 2012.

 

Finally, the Full Court cited a string of authorities supporting the proposition that sudden windfalls and increases in the value of an asset unrelated to the efforts of the parties, such as a rezoning or a lottery win, are to be considered a contribution by both parties equally (or a contribution by neither of them).

 

The Full Court in giving weight to the respective contributions of the parties determined that, the contributions favour the Husband by 53% and the Wife 47%, and as such the trial judge’s order was set aside and the net non-superannuation pool of assets was divided accordingly.

 

What Does This Mean for Separating Couples?

 

In summary, the Court’s approach in Jabour “downplays” the importance of initial contributions made by a party to a relationship, particularly in long relationships where the parties have broadly otherwise contributed equally. The Court stressed the importance of taking a holistic approach in weighing up the contributions of the parties and insodoing considering the initial contributions of a party as one of the myriad of contributions, financial and non-financial, each party makes over the course of their relationship. In short, the initial contribution is simply part of the contributions of the parties and is not to be weighed up against or isolated or “quarantined” from the other contributions of the parties.

 

The takeaway point from this case is then that in cases where parties to a long marriage have both worked hard, albeit maybe in different ways or in different spheres, the value of the contribution attributable to any interest in property held at the commencement of the relationship is likely to be very modest. Importantly though this was a marriage of 24 years.

 

Doolan Wagner Family Lawyers offer specialist family law advice in St Leonards on Sydney’s North Shore.  If you have recently separated or have a Family Law enquiry, please contact us on (02) 9437 0010 or send us an email at enquiries@familylawyersdw.com.au to discuss your matter in complete confidence. We have a dedicated team of experienced family lawyers to handle your matter effectively and efficiently, providing you with reliable, direct and practical advice.

 

  

About the Authors: 

Lisa Wagner is Managing Director and Principal of Doolan Wagner Family Lawyers. Lisa is an Accredited Family Law specialist and a nationally registered Family Dispute Resolution Practitioner. Lisa has close to 30 years’ experience as a specialist family lawyer, experienced litigator and skilful negotiator in all family law matters.

Connect with Lisa on LinkedIn

 

Stuart Colderick is a Family Lawyer at Doolan Wagner Family Lawyers. Stuart has experience in a range of complex property and parenting matters both in documenting settlements and to final hearing stage. Stuart’s meticulous eye for detail and his friendly and caring attitude ensures he diligently supports his clients’ and senior family lawyers of the practice.

Connect with Stuart on LinkedIn 

 

 

Disclaimer:

These posts are only intended as an overview or comment on current issues that may interest you and are not legal advice. If there are any matters that you would like us to advise you on, then please contact us.

 

Trial Separations

Are you thinking of a trial separation?

Have you and your partner or spouse started a trial separation?

Making the decision to separate, whether as a trial or permanently, is not a decision you make lightly. And the steps you take regarding your separation, even a trial separation, can have long-term consequences for you and your family.

 When is a Separation a Separation?

There are 3 elements to separation:

  1. Having an intention to separate. Where one or both parties have decided to separate;
  1. Communicating the intention or wish to separate to the other person. This can be verbally or in writing; and
  1. A change in behaviour such as:

– moving out of the home or moving into separate rooms/parts of the home;

– opening and operating separate bank accounts;

– not sharing meals together;

– not undertaking usual or regular domestic tasks for the benefit of the other person;

– not spending time together in or out of the home;

– advising children, family members, friends and/or other third parties that you have separated, especially if you continue to live in the same home.

Sometimes these 3 elements coincide however this is not always the case as a separation can be gradual over a long period of time. A decision to separate can be formed months or even years before that intention is communicated to the other party or spouse. And a change in behaviour can occur prior to the intention being formed. There are no “textbook” cases in separation. Each relationship is different.

It is important to understand that some parties cannot, or choose not to, physically separate and instead decide to live separately under the one roof with their former partner or spouse. Provided that they can prove the abovementioned 3 elements of separation then they will still be considered to have separated.

 

Things to consider prior to any trial separation

1.Where will you live? Are you going to stay in the home in another room in the home or are you going to move out? There might be very good reasons to leave the home, such as domestic violence or abuse. However if this is not the case and you are not afraid for your safety then deciding to leave the home can have serious consequences down the track for you and your children both financially (including when you are negotiating a property settlement with your former partner or spouse) and in practical terms. Always get expert family law advice before deciding to leave your home.

 

2. Will the trial separation affect the “status quo”? Will existing arrangements change or a new precedent be set? Thinking about the impact that your decisions will have on you and on your children and also on the day-to-day “household finances” is really important.

 

3. What decisions have been made about cash-flow during your trial separation? Have you agreed that your partner or spouse will keep paying some or all of your expenses? What happens if they change their mind once you have commenced the separation? Can you afford to support yourself and your children if necessary? Will the decisions and arrangements you have made before commencing the trial separation still work for you in 12 months time if the separation is not “temporary” after all? On the flip side, if you have agreed to help you partner or spouse pay for their expenses when they move out or when you have a trial separation, will you be able to maintain this promise in the long-term if the separation is not “temporary” after all? What impact will those decisions have on you and your ability to meet your own expenses? What if your partner or spouse is able to work but chooses not to because they don’t “need” to work to meet their own expenses? Will you still feel the same way in 6 or 12 months time?

 

4. If you own property with your partner you should not make any rash decisions about selling it or changing the way in which the property is held on the Certificate of Title. Instead you should have a discussion with an expert family lawyer about what you can do and the ramifications of each option. Put simply, taking these steps may not be a good idea for you in your particular circumstances and can have serious implications for you in the long-term.

 

5. Expect the “dynamic” at home to change. If you remain living in the same home as your partner or spouse during your trial separation you may not be able to tell them what to do and may have to “put up” with their behaviour. This might include them entertaining people in the home that you are not comfortable being around, coming home late or not keeping the home in the state you would like. Alternatively if you leave your home you may not be able to control what happens inside the home other than to request that it be kept in a reasonable state of repair.

 

6. Who are you going to tell about your trial separation? Who you tell and what you tell them can have a significant impact on things down the track, especially for calculating when your separation actually occurred. If you choose to stay in the home and then wish to get divorced you will need to ask a witness to provide an Affidavit outlining what they understand the circumstances of your separation to be.

 

Separation Checklist

Some things you should think about prior to a separation…

 

  1. Collect important documents e.g. birth certificates, marriage certificates and passports and place them in safe keeping. Keep a copy of each document handy – take photos of these documents on your phone if you can.

 

  1. Collect financial documents for yourself and if possible your partner, including:

 

  • Income Tax Returns and Notices of Assessments for the last three (3) financial years;

 

  • Any employment records you have including employment contracts, recent pay slips and records of leave entitlements;

 

  • Bank statements including savings and investment accounts, loan accounts (including personal loans, mortgages) and other liabilities (such as credit cards, store finance, hire purchases, store cards, family loan agreements etc.);

 

  • Share or investment statements and particulars of all shares in any public company;

 

  • Records and statements in relation to any entity that you are “associated” with. For companies this includes Articles of Association, Balance Sheets, Profit and Loss Statements and BAS statements. For trusts this includes Trust Deeds and Financial Statements and details as to whether you are the Appointee, Trustee or any beneficiary;

 

  • Details of any Real Property owned by either of you including the street address, rate notices etc.;

 

  • Details of other property owned by you e.g. motor vehicles (a registration certificate is helpful), tools, machinery and furniture etc. together with an estimate of the value of each. Also particulars of any items disposed of by Sale, Transfer, Assignment or Gift in the period twelve (12) months prior to separation to date;

 

  • Details for any superannuation account or entitlement in which you or your partner have an interest including recent statements for each and the financial accounts in relation to any self-managed superannuation fund; and

 

  • Details of any personal injury claim, inheritance or pending inheritance or other financial resource.

 

  1. Prepare an inventory of furniture in your home and take pictures of things that are difficult to describe. Things may be removed, sold or destroyed when you move out and it helps to know exactly what was there when you moved out as it can be surprisingly hard to recall later on.

 

  1. Open a new bank account and apply for your own separate credit card. Perhaps consider this step with a different bank. Ask for a reasonable credit limit. You don’t have to use it at this stage but it is a helpful safety net if an emergency arises.

 

  1. Find out what redraw facilities are available on your bank accounts and also determine what accounts can be operated by one signatory and what accounts require two or more signatories in order to operate. Consider getting advice about what options you have so as to best preserve assets.

 

  1. Organise a modest cash flow in case of emergency. You might be relying on joint funds in the beginning but you might find that money “disappears” or is depleted more quickly than you originally expected. At other times unknown or unexpected “debts” and “bills” suddenly arise.

 

  1. Remain involved in as much as you can with things your children are doing. Take up opportunities to engage in their lives. Consider speaking to your employer about flexible working arrangements that may be available, even if only in the short term.

 

  1. Compile a list of all people that provide care for your children including doctors, physiotherapists, occupational therapists, paediatricians and the like. Get up to date information about all treatments and obtain copies of all reports.

 

  1. Touch base with your children’s classroom or preschool teacher just to “check-in” and understand better your child’s progress. Stay updated and involved in their school as best you can.

 

  1. Don’t vent on social media sites and be discrete with your posts on Facebook and the like. You don’t want compromising photos of yourself or unflattering comments circulating at this time as they can seriously backfire.

 

  1. Set up a separate confidential email account and change your passwords to any personal email, social media, internet banking and other accounts. It’s a good idea to also restrict access to these accounts from the family computer or other devices accessible by other family members.

 

  1. Try and get expert family law advice. Confidential, no obligation appointments are available at short notice from our friendly and highly experienced specialist team.

 

A trial separation can be a way to allow everyone to feel more comfortable with a new life and adjust to the huge changes that a separation brings. A trial separation can also allow you to test the “reality” of the decision you are about to make. Sometimes people suggest a trial separation as a way of easing the other person into a permanent separation even if they have already firmly decided that the relationship is over.

 

Trial separations can be confusing, very painful and emotionally fraught. And they can wreak havoc on you, your children and your financial security if the road ahead is not very clear.

 

If you are thinking of a trial separation or trying to make decisions about your separation or have recently separated or are currently trialling a separation and don’t know where things stand or need advice about the next steps to take, contact us on 9437 0010 or enquiries@familylawyersdw.com.au to discuss your matter. Doolan Wagner Family Lawyers offer Accredited Family Law Specialists on Sydney’s North Shore who are experts in all areas of family law.