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 the 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 a 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. In so doing 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: –
- The Wife’s role in the “reorganisation” of the Husband’s ownership of the lots of land; and
- 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 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 in so doing considering the initial contributions of a party as one of the myriads 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.
Also Read: Separation Checklist
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 the 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 of experience as a specialist family lawyer, experienced litigator and skilful negotiator in all family law matters.
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 the 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.
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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.
