Initial Contributions in Property Settlements

A property settlement is an arrangement between parties for division of assets, liabilities, and superannuation after the separation of a married or de facto couple. A property settlement can be formalised by way of a Financial Agreement, Consent Orders or by Court Order after a contested hearing. Whether property division is agreed to between the parties or determined by a court, it is important for parties to understand the principles utilised by the court to assess the division of property between the parties. This article will discuss how the initial contributions of parties to the asset pool are treated during property settlements. 

The five-step test

The court determines the parties’ entitlement to an adjustment in property rights through a five-step test. The five steps of the test that the court utilises to determine property settlement are as follows:

1. Consider whether it is just and equitable to make any adjustment in the property held by the parties;
2. Determine the assets and liabilities of the parties to the relationship to establish the current property pool;
3. Assess the contributions of each party to the relationship;
4. Assess each party’s future needs;
5. Consider whether the proposed division is just and equitable.

The third step in the five-step test is the consideration of the contributions made by each party. The contributions can be financial, or non-financial, direct or indirect. This article will concentrate on the financial contributions, specifically the initial contribution made by the parties.

What are initial contributions?

When some relationships commence, one party has significant assets, whether in the form of cash, land or real property, that they bring into the relationship. These assets are considered the initial contribution by that party to the relationship.

Given the fact that there is no clear formula that the court can apply in assessing the contributions made by the parties, each case is assessed on its individual merits and facts.

Length of the relationship

The length of the relationship has a major impact on the approach taken by the court in assessing the contributions made by each party to the acquisition and maintenance of the property pool.

In longer relationships (more than five years) the court generally takes a more global approach to the assessment of contributions. The court takes a broad view as the passage of time may have tended to blend how the assets were acquired and maintained. In short relationships (less than five years), the court is more likely to take an asset by asset approach. This is because the court is more readily able to identify and assess who has contributed and how much each party has contributed to the property pool. However, each case is assessed on its own merits and it is at the Judge’s discretion how the facts of each case are assessed.

Initial contributions in short relationships

In short relationships, financial contributions of parties at the commencement of the relationship will have a large impact on the final division of the property by the court. This is so because the assets acquired by the parties jointly will still be minor and the initial contributions most likely still make up the major portion of the current property pool. Additionally, it is easier for the court to identify how that asset was acquired and how the funds were applied.

Initial contributions in long relationships

In longer relationships, however, the weight applied to an initial contribution may be diminished. The impact of an initial contribution needs to be assessed against the other contributions made by the parties over the duration of the relationship. Due to the length of the relationship, the contributions made during the relationship may outweigh the initial contribution made by a party.

The Full Court of the Family Court assessed the impact of an initial contribution in a long marriage in the recent decision of Jabour & Jabour [2019] FamCAFC 78.

The parties were married for over 20 years.

At the commencement of the relationship the husband had half a share in three parcels of land that he had purchased thirteen years prior to the marriage. During the marriage, the husband sold two of the parcels of land to acquire the other half of the share in the third parcel of land. After acquiring the full parcel of land, the land was rezoned for residential use. The trial judge assessed that the contributions made by the parties during the relationship were equal. However, the third parcel of land brought into the relationship by the husband still formed a major portion of the current property pool.

The trial judge assessed the husband’s contribution to be 66% and the wife’s contribution to be 34% of the property pool.

The Full Court reversed the decision of the trial judge and assessed the contribution to be 53% in the husband’s favour and 47% in the wife’s favour. The Full Court confirmed the following principles in relation to the assessment of initial contributions in long relationships:

• The initial contribution needs to be assessed against the contributions made by both parties during the course of the relationship. The contributions made by the parties during the course of the relationship cannot be minimised. The Full Court stated that the parties’ decision not to use all the proceeds from the sale of the half interest in the two parcels of land for family purposes and the decision to not sell the third parcel of land at an early stage are also major contributions which were made by both parties during the relationship. The decision of the trial judge had the effect of overlooking these contributions.
• An increase in the value of an asset that is not due to the efforts of the parties is considered a contribution by both parties. The increase in the value of the third parcel of land was due to the rezoning of the land for residential use. The Full Court found that the husband cannot be afforded the benefit of that increase in value of the property as a contribution by him.

The weight afforded to each contribution by a party in a property settlement is a complex area of the law and in the end, it is at the Judge’s discretion to assess each individual set of facts.

If you require legal advice or representation in a property matter or in any other legal matter, please contact Go To Court Lawyers.

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