Financial Settlement For Long-Term Relationships & Marriages

This note explores the approach taken by the Federal Circuit and Family Court of Australia (Family Court) in determining how to divide the assets of spouse parties to a long relationship or marriage (of around 10 years or more), often referred to as the four-step process.

The four-step process

In the decision of Stanford v Stanford [2012] HCA 52, the High Court of Australia affirmed the four-step process as the approach that must be taken in all family law financial settlements in Australia.

Initial considerations

Before embarking on the four-step process, the Family Court must first consider whether it is just and equitable for the Court to make any property adjustment orders between spouse parties at the end of their marriage or de facto relationship, on application by either of them.

Simply because the Family Court has jurisdiction to make property settlement orders between spouse parties by virtue of their marriage or de facto relationship, does not mean that the Court will always intervene and make such orders on application by either party.

For example, consider a young couple in their 20s who were married for six months, have no children, who kept their finances separate, and who did not acquire any joint assets. In this situation, even if the husband entered and left the marriage with, say, AUD$10,000,000 and the wife with AUD$50, the Family Court would probably not intervene and make any property adjustment orders between the parties on application by the wife.

If, however, that same couple had purchased a property together and/or had a child, the Family Court would certainly intervene on application by either of them and make property settlement orders, adjusting their pool of assets by reference to the facts of their particular circumstances (such as the length of the marriage and their respective contributions and future needs, as discussed further below).

Step one

Once the Family Court has determined that it should intervene and make property adjustment orders between spouse parties, the first step requires the Court to identify the assets, liabilities, and financial resources of the parties that are available for division between them, otherwise referred to as the net asset pool or the net property pool.

If, for example, the parties have AUD$1,000,000 in assets and AUD$200,000 in liabilities, the net asset pool to be divided between the parties will be taken to be AUD$800,000.

As part of the process in step one, the parties are required to provide each other with full and frank financial disclosure of all financial matters that are relevant to their circumstances.

This would include, for example:

1. personal and business bank statements;

2. tax returns;

3. documents and particulars about a party’s potential entitlements in respect of a chose in action, such as ancillary litigation in which the party has an interest;

4. a party’s expectancy under a will; and

5. a party’s interest, entitlement, or potential entitlement under a trust.

The scope of disclosure that parties are obliged to provide is very wide and will be dependent on the particular circumstances of the parties and the nature of their financial affairs.

Once the parties have exchanged full and frank disclosure and identified the asset pool that is available for division between them, they must then consider how the net asset pool should be divided by application of the principles in steps two, three, and four, as follows.

Step two

Step two is the first step to determine an appropriate percentage division of the parties’ asset pool that was identified in step one. This is often referred to as the contributions-based assessment step.

Under section 79 of the Family Law Act 1975 (Cth), the Family Court will consider the financial contributions and non-financial contributions (such as homemaker contributions) of the parties:

1. before they started living together;

2. during the relationship; and

3. after separation.

In the context of long marriages, it is a fundamental axiom of the Family Court that the starting point is to presume that the spouse parties made equal contributions towards the asset pool, unless there is a specific reason that contributions should not be equal.

The primary specific reasons the contributions of the parties might not be considered equal might be because, for example:

1. a party came into the marriage with material, initial financial contributions;

2. a party received an inheritance during the marriage;

3. a party received a financial gift during the marriage;

4. a party came into funds during the marriage by virtue of another reason other than by means of his or her employment or business endeavours; and

5. a party makes significant post-separation financial contributions towards the asset pool (together, additional contributions factors).

Absent any of the additional contributions factors, the contributions between spouse parties to a long marriage will be considered equal even if, for example:

1. one party did all the paid work, all the caring for the children, and all the housework, while the other watched TV and shopped; or

2. one party performed all the paid work and the other cared for the children and home and did no paid work.

This is because the parliament has decided that the State should not, as a matter of public policy, make qualitative assessments about how people arrange their relationships and affairs in the context of long committed marriages, unless the specific circumstances of the marriage demand it.

We do not intend to traverse in this note how the Family Court deals with assessing the additional contributions factors when undertaking its contributions-based assessment, but we encourage you to consider these issues at the mediation between the parties.

When the Family Court makes its contributions-based assessment in step two in the context of long marriages, it will ascribe a contributions percentage to each party. If, for example, the parties are considered to have made equal contributions (i.e., because none of the additional contributions factors apply), each party will be ascribed 50% at step two.

Step three

At step three, the Family Court will then consider whether any further percentage adjustment ought to be made in favour of either party by reference to both parties’ future needs, otherwise referred to as the section 75(2) factors.

The main (but not only) future needs factors that the Family Court will consider are:

1. whether a party has a substantially higher future earning capacity than the other;

2. whether a party has greater responsibility for the care of children to the marriage; and

3. whether a party has a health issue that requires ongoing treatment and limits his or her capacity to perform paid work.

So, for example, if the parties made equal contributions but the 39-year-old wife has primary care of the parties’ two young children and has a substantially lower future earning capacity than the husband, the Family Court may give the wife, say:

1. an additional 5% for her lower earnings; and

2. additional 7.5% for her primary care of the children.

In this situation, the wife would receive 50% for contributions and 12.5% for future needs factors, leaving her with 62.5% of the total asset pool and the husband with 37.5% of the total asset pool (or a differential of 25% of the asset pool).

For spouse parties to a long marriage who are elderly with adult children and a sizable asset pool, absent any unusual features neither party is likely to receive a future needs adjustment, even if any of the considerations in (a) to (c) to which we refer above apply.

Step four

After the Family Court has made its contributions-based and future needs assessments in steps two and three, it must then consider whether it should make any other order so as to achieve justice and equity between the parties.

This step devolves absolute discretion upon the Family Court and allows the judicial officer to make any further orders that he or she sees fit to ensure that justice is achieved between the spouse parties.

One example might be if the Family Court awarded the wife 55% of the asset pool at step three, but to maintain that outcome would mean that she is unable to retain the family home, which she wishes to keep and continue to raise the children in.

In this situation, the Family Court may invoke step four to make further orders to award the wife additional funds as necessary for her to retain the family home for her and the children’s future welfare and to give justice and equity to them.

There are numerous other situations where the Family Court may exercise its discretion in step four; this is just one example.

This note is intended as general guidance only. Different or specific considerations apply for shorter relationships and marriages and where any of the additional contributions factors apply.

Conclusion

The four-step process offers a systematic and fair approach to handling complex marital asset distribution. By identifying, valuing, considering relevant factors, and achieving equitable division, it ensures a comprehensive analysis that respects the unique aspects of each marriage. This process underscores the importance of seeking legal guidance to navigate the intricacies of divorce and achieve just outcomes for both parties involved.

At Boyce & Boyce, we have extensive experience advising on the application of the four-step process and acting on financial settlement and disputes involving asset pools or varying complexity. Contact us today to schedule a consultation and gain the expertise you need.