Brodie and Brodie

[2008] FamCA 26

FAMILY COURT OF AUSTRALIA

BRODIE & BRODIE [2008] FamCA 26

FAMILY LAW – PROPERTY – Division of pool after eleven years of marriage – s 79(4) and s 75(2) considerations – the main redistribution issue concerned the significance of the husband’s sizeable initial capital contribution that had been improved and appreciated in value partly due to parties’ unequal efforts and market forces – Held: Pool of $3,571,000 in assets and over $1M in superannuation shared 75 % to the  husband on contribution reduced to 68.5% after adjustment.

APPLICANT: Mrs Brodie

RESPONDENT: Mr Brodie

FILE NUMBER: (P)BRF 953 of 2006

DATE DELIVERED: 25^th January 2008

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Carmody J

HEARING DATE: 22, 23, 24, 25 and 26 October 2007

REPRESENTATION

SOLICITOR FOR THE APPLICANT: Mr Cooper of Charles Cooper Lawyers

COUNSEL FOR THE RESPONDENT: Mr Kirk of Senior Counsel

SOLICITOR FOR THE RESPONDENT: Hopgood Ganim Lawyers

Orders

1. The parties are directed to consult and agree on the formal terms of order to give effect to my decision or if they cannot agree file proposed drafts by no later than 4.00 pm on 14^th February 2008.

IT IS NOTED IN CONNECTION WITH THESE ORDERS that the judgment of the Honourable Justice Carmody delivered this day will for all publication and reporting purposes be referred to as Brodie.

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER:  (P)BRF953 of 2006

Mrs Brodie

Applicant

And

Mr Brodie

Respondent

REASONS FOR JUDGMENT

Introduction

1. This is a property settlement dispute over net assets of around $4-5M.  The parties competing past contribution and future needs based claims are about $1M apart.

2. The husband concedes no more than a 15 percent share on his figures or $600,000 - $750,000 to the wife.  She seeks approximately $1,600,000-$2,000,000 or 40 % of her value of the pool as well as spouse maintenance. 

3. The most important issue of principle of is how the court should compare and balance up the total contribution of the parties during an eleven year virtually childless marriage when one of the parties had comparatively significant wealth and a high income earning capacity to begin with and the other started and ended with owing more than she owns.

Step 1:  The pool

1. The available property on the wife’s figures is worth $3,863,653 (actual) and $4,942,718 (notional) compared with the husband’s estimate of $3,828,256 (actual) and $4,181,040 (notional).

Agreed assets and liabilities

Assets	Owner	Value
W Property	Husband	$1,350,000
Honda	Joint	$18,000
Mercedes Benz	Wife	$40,000
Cruiser	Husband	$45,000
H Furniture	Co-owned
- pre-separation	$8,085
- post-separation	$8,852
$17,444
Jewellery	Wife	$10,400
Bank balance	Wife	$3,000
$1,500,781
Corporate/Trusts
Accounting Trust	$332,993
S Trust	($14)
E Pty Ltd	$205,744
Family Trust	$1,127,802
$2,408,537
Superannuation
Brodie Super Fund	Husband	$1,021,077
Superannuation	Wife	$46,154
$1,067,231
Loans
Husband	$428,881
Wife	($121,425)
Loan to L Business	$35,795
$343,251
Agreed Add backs
Wife’s legal costs	$89,806
Husband’s prepaid legal costs	$88,360
Wife’s pre-trial partial settlement	$50,000
$228,165
Total Assets	$4,041,818
Liabilities
Income tax payable on realised gains	($357,319)
Wife’s tax credits	$5,375
Husband’s income tax	($36,916)
Income tax refund	$2,286
Income tax on retained earnings	$48,497
Total liabilities	$435,070
Net property pool	$3,606,748

Disputed Property Items

1. The wife asserts that the husband has reduced the value of the available assets by allowing his professional practice to run down by $.5M and that H Trust losses have depleted net funds by a further $579,065.  She wants the whole $1,079,065 added back in to the pool. She also alleges that the husband has $300,000 concealed in overseas accounts and that his brother holds a $200,000 “loan repayment” for him as trustee.

2. The husband claims an add-back of $160,000 allegedly ‘wasted’ by the wife in desperately trying to keep a loss making business afloat.

3. A further dispute relates to whether the husband should bring all of the $176,719 of his prepaid legal fees into the pool or only half that sum viz., $88,360. In addition, the husband wants to bring a $55,382 contingent liability for unrealized gains tax as a liability.

4. There is also the question of how to treat a $20,000 pre-trial advance settlement to the wife. It is either a partial settlement to be added back or spousal maintenance which doesn’t affect valuation.

5. Last is an argument about whether there is a $200,000-$350,000 goodwill component in the husband’s 17% share of a professional practice.

6. I will deal with each in order under separate headings.

The court ordered $20,000 pre-trial distribution

1. This money was granted to the wife to help prop up L Business.  The husband wants it categorised as a partial property settlement and credited against her entitlement as money had and received.  The wife contends that it should be treated as spousal maintenance. 

2. I am with the husband on this item.  I accept that he had been telling her to get rid of the business because it was a bad investment from very early on in the piece.  Her decision not to do that meant that she had to inject funds to keep the doors open which, as it turned out, is costing her somewhere around $3,000 plus a monthly rental of $1,000.  This suggests an advance of property rather than periodic or lump sum maintenance in circumstances where the wife continued in occupation of the former matrimonial home and was the only one of the parties committed to the restraint.  I understand both points of view but have concluded in the circumstances that the money should be treated as a partial settlement of property to the wife and added back into the pool with the other $50,000 and the prepaid legals.

The husband’s legal fees

1. The husband argues that only $88,360 of total professional fees is returnable because at least half of the funds used to pay them came from post-separation earnings totalling $740,000.  He says it would be unjust to treat the entire amount as being sourced in co-contribution assets.  Ultimately it is a matter of discretion to be exercised in all the circumstances including the source of the funds.

2. In an unreported decision of K and K (delivered 30 August 2005) O’Ryan J disagreed with the guideline direction in Chorn and Hopkins,[1] that pre-paid legals should normally only be added back if they can be sourced in a co-contribution assets. O’Ryan J held that all pre-trial payments of professional costs should be added back to the pool irrespective of source at the first step of the process and then a decision made at the second step about whether or not to treat the money as a sole or co-contribution notional asset. 

   [1] (2004) FLC 93-204 at par [58].

3. In Harrington and Harrington,[2] the Full Court held that O’Ryan J’s approach did not constitute appealable error because there was a good reason given for departing from the longstanding guideline.  That reason was identified in his Honour’s reasons as the inability to confidently apportion between post-separation earnings and an inheritance

   [2] (2007) FLC 93-317.

4. Although I cannot say for sure whether or how much of his own funds the husband used his own funds to pay his lawyers, it is clear from the post-separation history that the wife has used all her available funds to either meet legal costs or business losses while the husband has maintained the asset pool and earned more than three times the total amount of fees paid in the same period.  The wife has not put on or pointed out any evidence to suggest that more than $88,360 came from ‘matrimonial’ assets.  I am reasonably satisfied that at least 50 percent of it was probably funded out of separate income rather than co-owned capital the wife has a moral claim over. It’s six of one and half dozen of the other in practical terms whether to adjust at the first or second step.  I’ve decided to follow rather than try to explain departing from the Chorn v Hopkins the guideline and only add back half but in doing so I would not want to be seen as distancing myself from what I consider the orthodoxy and the technical correctness of O’Ryan J’s analysis. Thus, only $88,360 will be added back to be shared pro rata.

The wastage adjustment

1. The husband claims that $160,000 in L Business losses incurred since 1 July 2006 should be added back on the basis that the wife initially paid too much and over-capitalised the business renovations, being the total start-up cost $90,000. He says that even after having lost nearly $100,000 (or more than $8,000 a month) in the first 12 months of trading, she is still refusing to sell or close down the business which is costing $4,000 a month to prop up.  The husband concedes that on his figures, he will have to bear 85 percent of those losses anyway but seeks to make the $160,000 lost over the last 18 months the wife’s sole responsibility. He accuses her of having been totally reckless and irresponsible in striving to keep the business afloat as a going concern over his objection and despite the fact that it was haemorrhaging badly.  He complains that she has failed to mitigate her losses since 1 July 2006 and was not really serious about trying to see it even after she put it on the market because her asking price was unrealistically high, making it virtually unmarketable.  Under the ‘rule’ in Kowaliw’s case,[3] financial losses, like gains, should normally be shared by the parties (although not necessarily equally) except where one of the parties has acted “recklessly, negligently or wantonly or embarked upon a course of conduct designed to reduce or minimise the value of a joint asset.[4]

   [3] Kowaliw (1981) FLC 91-092.

   [4] Kowaliw (1981) FLC 91-092 at 76,644.

2. The Full Court in Browne and Green[5] approved the Kowaliw approach as “a well accepted guideline within the jurisdiction” but made it clear that it was not a binding principle.  A judge considering departing from it on the facts in a particular case should give reasons for doing so or expect the validity of the departure to be closely scrutinised in the event of an appeal.  I see no good reason for departing from the guideline here.

   [5] (1999) FLC 92-873.

3. In order to make the wife bear sole responsibility for the business losses after 1 July 2006, therefore, I either have to find that her conduct was designed to reduce or minimise the business’s value (which I don’t) or that its value has been reduced by reckless, negligent or wanton economic lapses on her part.  It is hard to see how throwing good money after bad, of itself, affects the overall value of the business.

4. I suppose another way you can look at it is to say that the delay in putting the business on the market at an achievable price resulted in it being worth, if not $145,000 or $90,000, something considerably more than the nil value it probably has now.  Still, I am not persuaded the money she has lost or the diminution in value of the business was not the result of mere commercial ineptness as distinct from economic recklessness as to justify the wife bearing sole responsibility for the consequent loss.

5. The only other “asset” that the wife could arguably have lost or reduced by not selling up or walking away at least 18 months ago would be the $160,000 she would have ‘saved’ in that time.  However, this assumes a lot and tends to confuse revenue and losses with assets and liabilities.

6. I am not satisfied that the wife’s post 1 July 2006 expenditure on the business should be treated as a separate liability under either of the limbs of the rule in Kowaliw. 

7. The husband will have to accept his share of the ‘blame’ and loss as one of the vicissitudes of married life.  The marriage partnership involves give and take, profit and loss, better and worse etc and, as the Full Court said in D & D,[6] the extent to which a party carries the burden alone depends on how much solo sailing they do.  The wife may have been unrealistically hopeful or even wilfully blind to the underperformance of the business and the drain it was on the household income.  However, most of the losses have been paid for by loans, her management fees of $490 a week, the $168,770 in proceeds from the sale of the M apartment and the $70,000 repayable advance from the husband.

   [6] [2003] Fam CA 473.

8. Another more experienced, commercially savvy or financially realistic businessperson may have closed the business down after the first 12 months but sometimes heart rules mind.  The human condition makes us all prone to “heart over head” type mistakes.  Marriage partners take those risks together albeit sometimes reluctantly during the marriage. Neither can really complain that their property entitlement shouldn’t be reduced because it wasn’t their mistake.

9. Not content just to resist the husband’s Kowaliw claim the wife wants the $70,000 she received in partial property settlement on 1 December 2006 plus the $168,770 in proceeds from the sale of the M unit (less her prepaid legal costs) to be treated as a financial contribution to the business.  I reject this submission on the basis that I think she should have tried harder to dispose of the business or cut her losses a lot earlier instead of throwing even more money at the problem.  Business decisions can be finely balanced and things are always clearer in hindsight than they were at the time.  However, I think she freely chose, even allowing for the mental trauma of the separation so soon after opening, to “soldier on” in spite of the obvious.  While contribution can validly be measured by “effort” as well as “value” I think the fairest thing to do in the circumstances is for the losses to be shared but not to give the wife credit for the period after 1 July 2006 as a contribution to “property” because it is probably worthless by now due to the delay in putting it on the market at a realistic price and the losses incurred.

The goodwill issue

1. The husband brought his practice, built up over 25 years, into the relationship.  The wife has made no real contribution to it except indirectly through her family welfare contribution.  Six months prior to separation, the husband merged with K Practice which has a no goodwill policy because of its growth potential and support networks.

2. The practice had a goodwill value of $350,000 in 1995.  The husband’s 17 percent interest in the practice is valued by an expert at $325,000 including a goodwill component of $200,000 adjusted to reflect the husband’s loss of his controlling position.  Goodwill in a business would normally qualify property for the purposes of s 79.  However, despite the expert evidence, I am not reasonably satisfied that there is anything of actual value to divide because of K Practice’s policy.  Goodwill, if any, will not be added to the pool.

The offshore funds

1. The wife apparently asserts that the husband has $300,000 in offshore funds in reliance on written statements amounting to admissions in a Suncorp application for finance the husband made.  Both the husband and the Suncorp officer, Mr P, who prepared the document, explained that while the form certainly makes it look as though there were two $ 300,000 amounts sent to the UK, there was, in fact, only one.  The double up was the result of a misunderstanding by Mr P.  The wife does not accept this explanation but based on the available evidence I do. Mr P impressed me as an honest, impartial and reliable witness. Neither he nor the husband were shaken in cross examination.

The brother’s loan

1. Both the husband and his brother swear that $200,000 transferred by the husband to his brother was repayment of a genuine loan.  The husband’s evidence was not challenged on this point and no suggestion of a resulting or constructive trust was ever put to him in cross examination.  The husband’s brother was not tested on his affidavit at all.

2. I am not satisfied that the wife has proven, in the s 140 of the Evidence Act 1995 (Cth) sense, that the husband has any beneficial entitlement to the $200,000 in issue.

Tax on unrealised gains

1. The onus in relation to adducing evidence as to capital gains related issues rests with the husband.  The valuers report refers to $55,382M tax on unrealised gains and costs of sale. Tax payable on deemed dividends on winding up of E Pty Ltd is $48,497. There is $6,885 in estimated realisation costs in respect of the husband’s 50% equity in Y Property Investments as well. Both E Pty Ltd and Y Property Investments are investment vehicles. E Pty Ltd holds shares in mining and firearms. Y Property Investments is a corporate trustee for a property investment trust of the same name. Trust assets include a 50% interest in the S Partnership who owns a rental unit.

2. The husband has no present intention of selling the property concerned or winding up his corporate/trust structure.  He does, however, have plans to retire (at 58-59) in the next couple of years.  There is considerable uncertainty as to how such tax should be brought to account. There are no statutory provisions to assist.  The Rosati[7] principles described as settled law by the Full Court in Noetel v Quealey[8] suggest the proper approach is to: (1) ask how likely it is that the asset will be realised in the foreseeable future; (2) if it is inevitably going to be sold or was acquired solely as an investment and with a view to its ultimate sale for profit then realisation costs and gains tax should be taken into account in valuing the asset; (3) otherwise a significant risk that the asset will have to be sold in the short to mid term may (not must) be taken into account as a relevant s 75(2) factor; and (4) even if there is no certainty or likelihood of a sale in the foreseeable future, the incidence of gains tax and realisation costs may be taken into account in special circumstances either at their full or a discounted rate.

   [7] (1998) FLC 92-804.

   [8] (2005) FLC 93-230.

3. The most helpful of these as far as the husband is concerned is the investment for profit referred to in principle (2). On my reading of Rosati, having a profit making purpose and buying an investment asset is sufficient on its own without also having to also satisfy the inevitable or likely sale in the mid to short term condition mentioned in principle (3).  This would mean that technically the husband would not even have to convince me that he actually intended to sell an investment asset in the foreseeable future to have the tax and realisation costs taken account of.  

4. I am reasonably satisfied that the properties are capital gains tax assets.  This means that tax and realisation costs will be incurred when the capital gains tax event or sale occurs.  There being no evidence led by the wife to contradict the husband’s evidence about his long held intention to retire before 60 or that he intends to retain the property in specie rather than sell it at that time, capital gains will probably be payable by the husband when he retires as he currently intends to in the next couple of years.  The total amount of $55,382 referred to in Mr C’s report of the 3 September 2007 at Annexure 2.3 will therefore be treated as a liability of the parties.

5. The other option is to take it into account as an adjustment factor as O’Ryan J did in Ashton but that was really only because his Honour could not quantify the liability in respect of the disputed items of property.  That is not the case here.

6. The net non-superannuation assets therefore are valued at $3,571,366.00.  Total superannuation interests are $1,067,231.00 giving an overall combined figure of $4,638,597.00.

1. If the wife succeeds she would receive the former matrimonial home debt-free at $1,350,000, contents of $16,544 (agreed value of $17,444 less an adjustment for items to be returned to the husband of $1,040 plus an adjustment of an item to come back to the wife worth $150) on top of the $700,000.00 already received and what she wants to retain (inclusive of prepaid legal fees) namely the Mercedes Benz ($40,000), superannuation ($46,154), jewellery ($10,400) and L Business which either has a value of nil (wife) or $73,472 (valuer) or is worth its sale price of $100,000 or somewhere in-between plus the payment of home and contents insurance and rates by the husband for the next two years to the value of $15,600.

2. Mr Kirk SC submits that this is far too much because it would mean she will reap over $175,000 or 42% of the divisible pool a year in capital growth since 1998 when her average after tax earnings were around $31,000. 

Step 2: Past Contribution

Pre-owned assets

1. The husband says that cohabitation began in 1995.  The wife contends that a de-facto relationship commenced in September 1993.  It is unnecessary for me to resolve this dispute because the wife made no identifiable contribution prior to March 1995 anyway.

2. The husband says he was financially well off from the outset allegedly bringing in:

   ØW Property purchased in 1985 for $129,000 said to be worth between $300-330,000 in March 1995[9] and still held at today’s value of $1,350,000.  The wife accepts she contributed no funds to the new home constructed in 2000-1.  However, the merger with K Practice wrote off goodwill in about the same amount as W Property was probably then worth.

   ØA 50% interest in P Property which was purchased in 1994 for $268,550.

   ØOther assets including his powerboat, motor vehicle, furniture and personal possessions.

   [9] An unsigned pre-nuptial agreement drafted in 1998 records the husband’s total pre-wedding worth in 1995 at $1,332,850 with the W home estimated at $300,000. The joint expert report (Ex 1) values it as at March 1995 at $300,000 - $330,000. 

3. He also had a substantial earning capacity with his taxable income from his professional practice increasing from $127,588 earnings for the 1994-95 year to $219,288 pa in 1996-97 and $376,672 pa by 1998-99.

4. While she concedes the husband may have brought in more assets than her, the wife says there was nothing like the differential the husband claims there was.

5. Based contemporaneous documents concerning his financial position at about the time of the first divorce provided to the Family Court of Australia in August 1992, she asserts that he had the house, the car, the boat, a debt of $179,000.00 and some miscellaneous bank accounts with little in them.

6. In a handwritten file note of the 25th May 1992”, the husband records the assets of the parties as $508,000.00.

7. In Exhibit 14 (the Consent Order between the husband and his first wife) provides for her to receive or retain cash and property totalling $192,000.00 out of the agreed asset pool of $508,000.00.

8. In the Form 1 filed by his solicitors in the Family Court of Australia on the 26^th August 1992, which gave rise to the order which is Exhibit 14, the husband swore to the fact that he was to retain the house at $280,000.00, his motor vehicle valued at $30,000.00, his boat valued at $30,000.00, furniture and personal effects and his professional practice, which needed to be rebuilt after the loss of his major client.

9. It is inherently unlikely the wife argues that the husband’s asset position would have increased from the limited assets he disclosed in 1992 and to Suncorp in 1994 (Exhibit 16) to assets in excess of $1.2 million (including goodwill of $350,000.00) as at September 1993 when she says the parties started their relationship, or even by March, 1995.

10. However, the wife’s attempts to portray the husband in cross-examination as struggling to meet business outgoings and pay wages failed.  I found his explanations to be credible and his evidence about financial matters much more reliable than hers.  I think it is safer and likely to be fairer to the parties to work on his rather than her 1995 figures.

11. I am reasonably satisfied that the wife, by contrast, had some financial troubles from the outset.  Her equity in her home at R was $54,000 when realised in 1997, but back in 1995 she had debts including a $8,264 loan from the husband to enable her to clear an Esanda debt dating back to 1994, a debt (as guarantor) for her former husband’s car and a tax debt of $30,000 (which the Taxation Relief Board forgave in August 1995 on hardship grounds).  She also had the liquidator of a company she was involved in with her former husband claiming $50,058 against her.

12. The husband owned more than 90 % of the initial property which represents nearly 35% cent of the current net value of the total non-superannuation pool.

The marital acquest or ‘fruits’ of the marriage partnership (1995-2005)

1. The disparity in initial property is considerable even if after more than a decade it cannot be precisely measured.

2. The period of co-contribution for s 79(4) purposes was 10 years 9 months, but, say, eleven years.  During that time, the wife mostly remained in her employment as a regional manager earning around $70,000 p.a.  In 2005 she resigned to set up and run L Business with her son.

3. There is no parenting element except with respect to the wife’s adult son from an earlier marriage who lived in the household on and off for the first five years.

4. The parties kept separate bank trading and savings accounts during the relationship. Their only joint investment was an apartment at M.  The wife funded her ½ share with part of the proceeds of the sale of her first home at R.  When it was sold she used the return on her investment to acquire L Business in 2005.

5. The husband was the main breadwinner in the sense that he maintained his professional practice, engaged in property investment and share trading, paid all the household bills and did the weekly shopping.  He also retained the services of a domestic housekeeper, gardener and pool cleaner. 

6. She also worked full time throughout the marriage.

7. In 1995 the wife was employed as a representative for the Hospitality Association and had a second job as in beauty services.  Her taxable income in the 1996-97 year was $20,613 (or about 10% of the husband’s).

8. Both made substantial financial and non-financial contributions.

9. The wife’s income was applied towards trying to keep the business operating and supporting herself and her children.  She contributed $100.00 a week towards the groceries and bought the husband clothes, took him out, bought him alcohol as well as conducting dinner parties and running the home and providing the husband with emotional and loving support during the period of the relationship.

10. By supporting herself and paying all of her own personal expenses she freed up the husband’s income and relieved him of the obligation of fully supporting her.  It is also likely to have made it easier for him to retain and improve the value of his premarital assets.

11. However, the disparity in earnings during cohabitation is substantial.  The husband earned $2,120,775 after tax compared with the wife’s after tax income of $315,007 or 13% of their combined household incomes before adjusting for the recent business losses.

12. The husband conceded under cross-examination that the wife helped with the planning and construction of the home.  He acknowledged they would have discussed the construction and the planning of the home regularly and agreed that she was involved in the planning of the new home and had responsibility for “décor, aesthetic aspects of the property”.

13. I accept that the husband initially supported the wife’s decision to leave her secure and well paid job with the Hospitality Association in 2005 and encouraged her to into business for herself.

14. He provided her with some financial assistance and paid the lease bond.

Post separation contribution

1. The wife occupies the husband’s home rent free and continues to operate L Business at a loss.  The husband still meets all the domestic and investment outgoings.

Resolving the problem of passive growth on non marital assets

1. The task of a judge in property cases –itself not always easy - is to measure and value contribution over time and not simply to give credit for the investment of time itself.  The duration of a marriage is expressly relevant under par (d) of subs 79(4) but it might be highly significant in assessing contribution based entitlement too, because, as I noted earlier, the shorter the duration of the marriage the more weight may be given to financial contributions, especially initial capital, and less to the domestic role.

2. Conversely, in a marriage of considerable duration there is a greater likelihood that the contribution by one party in the capacity of homemaker and parent will be treated as more or less equal to the financial contribution of the other party even where that financial contribution has been a considerable one.[10]  Often, but by no means always, the “fruits” of the marriage partnership lasting longer than average ie. more than around seven years tend to be treated as being acquired through mutual or cooperative effort regardless of the roles each party played.  Similarly, increases in the capital value of businesses and other assets non-domestic assets during the course of the marriage will often reflect joint (but perhaps unequal) effort as well a return on the initial investment through interest, inflation or windfall profit.

   [10] See Harris and Harris (1991) FLC 92-254.

3. However general property law principles continue to apply in the determination of ownership rights and property interests except to the extent that they are displaced or overridden by the just and equitable requirement based on contribution and need contained in s 79.

4. Thus, property which is not the product (or fruits) of the partnership is notionally treated as separate or non matrimonial property. In s 79(4) language the parties initial capital is the sole ‘contribution’ of the one who brought it into the marriage.  Strictly speaking it is only the property acquired, improved or preserved during the marriage by community of earnings or effort (and, perhaps, good fortune), that is shareable, though not always equally, between the parties. Arguably a non-owner or non-contributor spouse should both morally and legally only share in premarital assets to the extent that he or she has contributed to the maintenance and improvement of them and not otherwise.

5. In practice, however, the way in which the court should treat growth on initial or non matrimonial after divorce or separation is a complex issue.  It has been the subject of discussion in many cases. Yet considerable inconsistency and uncertainty remain because not all of them have reached the same conclusion via the same reasoning.

6. The Full Court has always emphasised the importance of giving appropriate weight or credit to significantly unequal initial financial contribution but, as recognised in Zyk, [11] the difficulty of reflecting substantially disproportionate contributions at the beginning of the marriage in an order distributing the property after it is over remains an acute one.

   [11] (1995) FLC 92-644 at 82,517.

7. The cases reveal four basic methods of calculating the value to be given to pre-marital assets or financial contributions made directly or indirectly by or on behalf of a party at the outset or an early stage of a marriage.  Three of them are discussed in John Wade’s well known but aging text Property Division upon Marriage Breakdown. [12]

   [12]  (1984)  CCH Australia Limited at pp234-235.

Option 1

1. Under the first or so called “straight-line” approach the donee is awarded the full value to which the property has appreciated at the date of trial. Instead of returning the actual cash investment made by the parties, each receives back the same percentage of their total contribution to the initial assets assessed at the date of hearing.  This recognises that there may well be cases where it is appropriate to assess the contributions of the parties by reference to their direct financial contribution or that an order which results in reverting to each party only what they contributed directly and financially would be just and equitable.

2. Both the original and appreciated value are credited solely to the owner/contributor rather than being shared equally or proportionally because neither can properly be regarded as the ‘fruits of the relationship’. This method of valuation is especially applicable to childless marriages which only last for a short time after the contribution is made and is consistent with the view Nygh J expressed in Hirst and Rosen,[13] that in marriages of brief duration (34 months in that case) the focus should be on the actual financial as distinct form non-financial contributions made directly or indirectly to the acquisition or preservation of assets. 

   [13] (1982) FLC 91-230.

3. The original source of this comment was a statement in Wardman and Hudson [14] in which the Full Court held that where a marriage is short and no question arises of the care and control of children, assessment of the indirect contributions made by the parties becomes less important on the basis that they cannot have the same significance as they do where parties over a long period of time keep house and raise a family.

   [14] (1978) FLC 90-466.

4. In cases falling in to that catergory, the donee party may receive the original value plus half the acquest or whatever his or her contribution over the length of the marriage expressed as a percentage is assessed to be: see for eg Foster v Foster.[15]

   [15] [2003] 2 FLR 299; See too Burgess v Burgess [1996] 2 FLR 34.

5. Other cases like in Crawford[16] suggest that where there are no other s 75(2) factors leading to a different result a couple who make unequal contributions to such a marriage will usually see a property order made leaving the bulk of the assets remaining with the party contributing them.

   [16] (1979) FLC 90-647.

6. Thus, in Freeman,[17] the parties to a seven year marriage have both made predominantly financial contributions to the cost of their jointly owned home of approximately $11,500 from the wife and $2,800 from the husband.  The wife received approximately 80 percent of the current value of the home because the husband had financially contributed no more than 20 percent of the initial capital value.

   [17] (1979) FLC 90-697.

7. In Zyk itself the parties were married for eight years.  The wife's initial contributions were five times that of the husband.  The couple had no children.  Their net assets at trial were $806,452.  The wife’s initial capital contribution of $550,000.00 was calculated at 78.5 % while the husband’s of $116,000.00 at 21.5 %.  The parties contributions during the marriage were treated as equal.  The final division largely reflected a calculation based on the initial disparity and treating any fruits as acquired in roughly the same proportions.

8. In Kennon v Kennon,[18] a childless couple cohabited for a period of about five years.  At the time of the trial the husband had net assets of about $8.7M.  He had much the same at commencement.  All the assets which existed at the date of hearing either existed at the time cohabitation began or could be traced to pre-existing assets.  His income was close to $1m per annum.  When the parties began cohabiting, the wife was employed at an income of $45,000 per annum and had property to the value of $49,000.  She worked part time in the husband’s company during the marriage but did not otherwise work for wages except on a casual basis.  At trial, she was employed in a similar occupation to that in 1989 but was earning less.  Her notional assets were assessed at $94,000. 

   [18] (1997) FLC 92-757.

9. The wife claimed an order for between $800,000 and $1.3m in property settlement.  The husband’s case was that a proper award was $150,000.  The trial judge awarded a total of $400,000 half of which reflected contributions and the other half s 75(2) factors.  His Honour concluded that the wife had made no direct financial contributions under paragraph 79(4)(a) and that she had made very limited contribution under paragraph (b).  The wife’s indirect financial contribution issue under par (b) was not examined in isolation but her contribution to the husband’s business (to a small extent) by her assistance at social functions was acknowledged.  In relation to paragraph (c) a number of circumstances were taken into account including that the wife left cohabitation with more assets than she brought into it, (b) the “very substantial benefit which the wife received from the husband in various ways”, (c) Although there was no suggestion that during the marriage the wife received any significant property she was provided for in a manner that was “more comfortable than anything she had experienced in her adult working life prior to that time”, (d) that the parties had domestic assistance in the home, (e) the wife could not have expected to accumulate $400,000 during that time if she had not married the husband, and (f) she had “reaped at least the equal of what she sowed during the five years of cohabitation”.

10. His Honour was not satisfied in relation to subsec 75(2) that the duration of the marriage had affected the wife’s earning capacity and made no substantial adjustment under that heading.

11. Both parties challenged the outcome principally on the basis that for different reasons it was outside a reasonable range of discretion. 

12. A majority of the Full Court upheld the wife’s appeal on the ground that the approach taken by the trial judge resulted in a serious undervaluation of the wife’s welfare contributions to the marriage pursuant to s 79(4)(c).  Her entitlement was increased to $700,000 (about eight percent of the property in the pool).  Baker J (dissenting) found no appellable error, having regard to the husband’s substantial wealth and the fact that the wife made very little by way of financial contribution to the marriage.

13. Fogarty and Lindenmayer JJ acknowledged that the direct financial contributions during the marriage were overwhelmingly those of the husband.  He was a very wealthy man with a substantial income throughout the marriage.  Any property acquired during the marriage was through him.  The only financial contribution made by the wife was her income which was minuscule compared to his.  The trial judges’ conclusions as to direct financial contributions were therefore held to be correct.

14. Nor was the majority prepared to conclude that the trial judge’s discretion had miscarried in assessing the wife’s indirect financial contributions.

15. Their reservations lay mainly in his Honour’s treatment of the wife’s welfare contributions under par (c).  Their Honours stated:

    “There is no doubt that the wife made a major contribution in this area, doing all that was required of her, given the shape and nature of this marriage.

    . . .

    The important aspect of this case is that the wife contributed fully to the task of wife and homemaker.  The circumstances that the husband may have made almost equivalent contributions does not mean that they cancel each other out but [that] approach … had the effect of leaving the other party’s financial contributions as the only ones to be counted as significant.  This seems to have happened here, leaving the wife’s case apparently largely dependent upon peripheral matters.”

16. The majority held that when the parties commenced cohabitation their probable future lifestyle was predictable.  The husband was a wealthy man, it was agreed that they would not have children, they would entertain lavishly for both business and pleasure and the wife may or may not work full time.  Instead of money or property the wife added “qualities” which appealed to the husband and which both understood were to be her contributions to their married life together.  Her welfare contributions were not diminished by domestic assistance and were made within a known and mutually accepted context.  The offsetting impact of the substantial non-capital benefits which the wife received and retained as a result of the marriage were not regarded as representing an appropriate recognition of her efforts.  What the wife received from the husband during the marriage (the only property being a motor car) was really an issue of standard of living within 75(2)(g) rather than contributions and is not to be seen as a down payment on a subsequent property settlement.  Moreover, the circumstance that the parties during the marriage lived to a very high standard largely due to the wealth of one of them does not mean that at the end of that period, that circumstance cancels out or largely diminishes the contributions which were expected of the other party and which that person provided.  To approach the matter in such a way is contrary to principle “under present thinking”.

1. Fogarty and Lindenmayer JJ found:

   “The … parties … brought to the marriage qualities which each saw as attractive.  Within the s 79 context each party contributed as best they could the qualities which each brought to this marriage.  In the husband’s case, it included the quality of being very wealthy.  In the wife’s case, the qualities were less tangible.  His Honour did not give these aspects the consideration which they deserved.”

2. The Full Court awarded the wife $400,000 by way of contribution and $300,000 for s 75(2) factors.

3. Contrast these comments with the approach taken by a differently constituted Full Court in the case of GBT and BJT .[19]  A property settlement determination of 87.5 % in favour of the husband and 12.5 % ($395,917.00) to the wife was made in the context of a marriage lasting six years.  Both parties had been married before.  Neither had any children.  At the commencement of the relationship the husband was a partner in an accountancy firm that employed the wife as a secretary.   The husband established his own practice shortly after the marriage.  The wife worked in the business for three years before retiring.  There was criticism of her excessive or extravagant use of her credit card.  She had re-partnered and was earning a good wage at the time of trial. 

   [19] [2005] Fam CA 683.

4. In allowing the appeal, Kay, Holden and Warnick JJ reduced the wife's contribution by 5 % from 12.5 % to 7.5 % (representing a 40% reduction in the amount awarded)[20] because they considered the original contribution assessment was manifestly excessive.

   [20] GBT and BJT [2005] Fam CA 683 at [58]-[60].

5. Their honours said at [58] - [60] :

   . . . [the trial judge] found that the husband had clearly made the greater financial and non-financial contributions and although the wife had made the greater contributions as a homemaker that was only of marginal significance . . . "  (emphasis added).

   Having regard to such ultimate conclusions, … on the findings made, an assessment within a narrow band 5 - 7.5 % to the wife was the range of discretion.

   Taking the view most favourable to the wife and assessing her contributions at 7.5 per cent results in an assessment of 5 per cent less than that nominated by the trial judge. While in circumstances dealing with much more substantial and even contributions by each party, 5 per cent, more or less, than awarded by a trial judge might not render the trial judge's award manifestly insufficient or excessive, here 5 per cent less represents a 40 per cent reduction of the amount awarded."

6. The forgoing authorities all support the proposition that in some situations it may be appropriate to assess the contributions of the parties solely and wholly by reference to their direct financial contribution or, to put it another way, that an order which results in returning to each party what they contributed valued at the date of trial would be just and equitable.

7. However, in other situations justice and equity may require non-financial contributions of a non-owner of property to have a substantial offsetting effect where it can be shown, for example, that the market value increased because of the co-operative effort of both parties in their respective roles. Often the non-financial contributions of one partner may allow the other to advance his or her career and earn a high income that enables the property in question to be maintained and retained and, thus, rise in value.[21]   Likewise, the original of the value of the asset may not be left intact often after children’s needs or other s 75(2) adjustments including the duration of the marriage[22] are factored. 

   [21] cf Bilous v Mudaliar (2006) 35 Fam LR 155 per Ipp JA at [62]-[63].

   [22] cf Money v Money (1994) FLC 92-485 at 81,054

8. In Clauson[23] for instance, assets brought into a nine year marriage by the husband increased from $700,000 to $1.27 million.  The Full Court accepted the wife’s contention that the net increase should be treated as having been contributed to jointly so that overall the husband was awarded 70 percent to the wife’s 30 percent (ie $700,000 + $570,000 ÷ 2).

   [23] (1995) FLC 92-595.

9. This pseudo mathematical approach of working out the approximate appreciation of say a business asset during the course of the marriage and splitting it in half, according to one respected commentator, has much to commend it as a simple rule which makes prediction of the outcome reasonably straightforward.  However, treating the whole gain as being the equivalent of community property is not entirely fair to the contributor of the premarital assets.  It means that the full inflationary increase is treated as jointly owned and the contributor is not given interest on the capital which he or she brought into the marriage.  Perhaps a fairer result would be to estimate the gain during the marriage and then subtract from that a reasonable rate of interest on capital brought into the marriage calculated as simple interest at regular intervals.[24]

   [24] cf.  Parkinsonk, P, ‘The Diminishing Significance of Initial Contributions to Property’,  (1999) 13 Australian Family Law Journal 1.

Option 2

1. A second option is to give credit for what the contribution was worth when it was made but not its current day value.  For example, in W and W,[25] the husband was given $20,000 credit or cash value of his contribution as initial assets seven years previously.  The wife received the balance of the added value which had built up over time due to inflation. 

   [25] (1980) FLC 90-872.

2. Again, this approach is not usually appropriate in long to medium term marriage cases and is not as popular these days as it used to be twenty years ago.

Option 3

1. Under the third alternative known these days as the “erosion principle” which was established in Crawford and Crawford[26], the significance of initial or early contributions reduce either over time or as a result of the offsetting contribution of the other spouse.[27] 

   [26] (1979) FLC 90-647.

   [27]  cf. Aleksovski v Aleksovski (1996) FLC 92-705.

2. As explained in Le Steere v Le Steere:[28]

   By bringing pre-marital assets, however acquired, into the pool, that party is to that extent making a contribution which cannot be matched by the party who brings few, if any, assets into the marriage.

   The longer the duration of the marriage, depending on the quality and extent of her contribution, the more the proportionality of the original contribution is reduced . . .  The proposition that the strength of a contribution made at the inception of the marriage is eroded, not by the passage of time but by the offsetting contribution to the other spouse, still holds true.

   [28] (1985) FLC 91-626 at 80,079.

3. This statement was made in the context of a wife’s contribution over an eight year marriage in which there were three children giving her 20% of a working farm which her husband had brought into the marriage.

4. Likewise, in Hunt v Zuryn[29] the Full Court made it clear that an assessment of contribution ought adequately recognise, where it can be demonstrated, that much of the party’s wealth derived from the capital growth in assets introduced by one the party’s at the commencement of the marriage but at the same time must also reflect the other contributions of all kinds that each made in the course of that relationship.

   [29] (2005) FLC 93-226.

5. In that case,[30] the parties (the husband aged 50 and the wife 42) lived together for 11 years.  They had two school-age children.  The husband brought in between $257,000 and $339,000, compared with $46,000 for the wife.  The pool at trial was $1.2 M.  The wife earned $30,000 per annum throughout, whereas the husband was employed (sometimes part-time only) for 5 out of the 11 years.  He spent the remaining 6 years renovating various investment properties registered in his name. 

   [30] (2005) FLC 93-226

6. The trial judge assessed the wife's entitlement based on contribution at 25%. The Full Court altered this to a 32.5% contribution.

7. In Rogers,[31] the Full Court gave the husband a half interest in the matrimonial home in circumstances where substantial gifts to the house and household from the wife’s parents during their 18 year marriage were not credited to her exclusively over the husband on the basis that the gifts “mixed” with the husband’s efforts of working on the house, paying for the mortgage and caring for the children during 14 out of a total of 18 years of marriage. 

   [31] (1980) FLC 90-874.

8. In Pierce[32] the husband owned $214,500 or 90% of the total $240,000 introduced to a 10 year marriage.  It was used to buy the family home two years after cohabitation commenced for $235,000 and registered in the husband’s sole name.   There were two children of the marriage who were residing with the husband at the time of trial.  The net pool was valued at $320,000, 80% of which was the family home.  The contribution during the marriage was equal and the husband was allowed 5% for post-separation child care.  There was no s 75(2) adjustment.  The husband was awarded 55% of the property at trial.  On appeal the Full Court reassessed contribution 70:30 in his favour holding that the trial judge had failed to give enough weight to the greater initial and post-separation contribution of the husband. 

   [32] (1999) FLC 92-844.

9. Significant weight was given to Mr Pierce’s initial contribution which expressed in dollar terms was valued by the Full Court at about at $50,000 of the extra $64,000 he was awarded; that is 15% of the  final pool and 22% of his initial capital.  Accordingly, the husband’s contribution at commencement, despite its significance and importance to the family’s economic success,  diminished by nearly 80% over 10 years when the parties net worth went from $240,000 ($214,000 of it the husband’s) to $319,190 10 years later.  This was an increase of about $9500 per annum due solely to the appreciation of the former matrimonial home contributed to equally during the marriage.

10. The Full Court[33]  referred to Fogarty J in Money and Money:[34]

    …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…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 latter 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.

    [33] (1999) FLC 92-844.

    [34] (1994) FLC 92-485 at 81,054

11. Then went on to say at [28]:

    In our opinion it is … a question of what weight is to be attached, in all the circumstances, to the initial contributions.  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 (of the initial contribution) … regard must be had to the use made by the parties of that contribution.

12. In other words, instead of being gradually eroded or whittled away by time itself, the s 79A significance of a substantial initial contribution reduces or erodes over time because of offsetting contribution and other circumstances.  Thus, the use as well as the nature of the property can affect the weighting.  A mutual benefit asset like a family home might be regarded as having more lasting significance than an undeveloped piece of investment land or shares.  On the other hand, the former is more likely to attract counter-acting contribution by the non-owner spouse especially in a long marriage than the latter which might even be viewed by some judges as a sole contribution asset even in a marriage of some length.

13. The most recent Full Court decision about the relevance of use of initial contributions to the weight problem in matrimonial property settlement cases is MWP & LMP.[35]  That was a seven year marriage.  The wife owned the former matrimonial home and commencement.  The husband’s initial contribution was 42% greater than the wife’s.  During cohabitation his assets were used to fund lifestyle choices.  Neither party had substantial income during cohabitation.  The pool was divided 77.5/22.5 % in favour of the wife.  Allowing the husband’s appeal the Full Court held that the use of an initial contribution did not automatically determine it of the weight to be given to it.  The weight is to be determined in the light of its use in all the circumstances.  The fact that the husband’s initial contribution was expended on lifestyle choices made jointly by the parties did not warrant that contribution being unduly diminished in value because by providing in this manner the husband’s initial contribution has assisted the wife to retain the assets that had appreciated in capital value.

    [35] (2005) FamCA 733.

14. The main argument advanced by the husband was that at commencement there was a 16 % differential in the wife’s favour but by the end of the assessment of contributions it was 55%.  The size of the disparity was said to be excessive considering that neither party contributed any substantial income.  Warnick J held[36] that it was wrong to focus exclusively on the profitable nature of the use to which the husband’s initial contributions were put.  The fact that they were not used for investments should not be used against him because what he paid for from his financial contribution relieved the wife of paying for the same thing.  In other words, if he did not spend his money on lifestyle choices she would have had to spend hers and maybe could not have afforded to keep the house.  The pool ought to have been divided 67.5/32.5 % in favour of the husband.

    [36] (2005) FamCA 733 at [26].

Option 4

1. The fourth and final method to be considered takes the erosion concept to its logical conclusion and depending on the initial asset disparity makes no allowance for the value of an initial contribution made at the beginning of a long marriage.

2. The longer the marriage the more likely it is that there will be later factors which when weighed up against the original contribution, whether equal or not, may in the circumstances of  the individual case cancel out the significance of it altogether.

3. This is best illustrated by Bremner and Bremner.[37] 

   [37] (1995) FLC 92-560.

4. The parties married in 1969 and separated in 1991.  At commencement, the husband was the registered owner of unimproved acreage at Marsden which he had purchased 10 years earlier.  At the time of the hearing 25 years later, the land had appreciated in value from 125 pounds to $220,000 and represented just over 60 percent of the total net assets available for distribution.  Both parties had worked for wages throughout the marriage.  The wife was primarily responsible for homemaking and parenting the couple’s two children.  The trial judge divided the assets equally between the parties based on their contribution without any adjustment for s 75(2) factors.

5. The husband appealed on the ground that insufficient weight had been given to his initial contribution of the Marsden land.  He relied on the fact that the block had remained unimproved and his ‘separate’ property throughout the relationship and had not been contributed to by the wife in any direct or indirect sense except for the payment of council rates and maintenance costs out of household funds.  The appeal was dismissed.  The strength of the contribution Mr Bremner made at the inception of the marriage had been completely eroded, by the offsetting contribution of the wife in the intervening years even though hers was no greater than his. 

6. The decision in Bremner stands for the proposition that even when the contribution of the parties during a course of a long marriage are equal, the sole contribution of the husband at the inception of the relationship of a majority of the assets which existed at the end of the relationship can be treated as having no value at all even though the wife did nothing directly or indirectly to increase the value of those assets by co-contributing to the payment of rates from the household income but otherwise did not improve or preserve the land. This is difficult to argue with the result in Bremner on moral or equity grounds but the reasoning is contestable.[38]

   [38] Parkinson, P, ‘The Diminishing Significance of International Contributions to Property’, (1999) 13 Australian Family Law Journal 1

Critique

1. Patrick Parkinson[39] criticises the court’s current approach to initial contribution assessment as incoherent and irrational.  He says that it lacks a clear conceptual basis.  The evaluation method mandated by the High Court’s construction of s 79(4) in Mallet[40] is inapt and inept, the Professor says, because it wrongly assumes that it is possible to compare contribution of quite a different nature and reach a conclusion about their relative value expressed in percentage terms about the available property without any point of comparison.

   [39] ‘The Diminishing Significance of International Contributions to Property’, (1999) 13 Australian Family Law Journal 1 at 3

   [40] (1984) 156 CLR 605.

2. Parkinson urges a re-appraisal of past precedents and a re-interpretation of the terms of the statute which more closely reflects contemporary social values and a contemporary view of marriage as co-equal, socio-economic partnership in which regardless of their roles the contribution made by each party is treated as equal, whether financial or non-financial, to the property acquired or improved or value added to during the marriage.  Just as contribution of the parties to the “fruits of the marriage partnership” are treated as equal the property should be divided equally subject to other legitimate wealth transferring principles such as need or compensation.  Property which is not the product of the partnership should be regarded as the separate property or sole contribution of the owner. 

3. This is similar to the approach recently adopted in England where the so called “fruits of the marriage” or “matrimonial property” represent the by-product of co-operative or joint effort and normally equal shared. A contribution made to the marriage solely by one of the parties is usually treated as non-matrimonial and not shared at all.  However, according to Lord Nicholls in Miller v Miller, McFarlane v MaFarlane[41] the weight of this contribution can diminish as the years pass in many but not all cases.  When that happens, some or all of the sole contribution or non-matrimonial assets are added to the matrimonial property pool with other fruits of the marriage partnership for equal sharing unless the relevant concept of fairness requires or justifies unequal division. .

   [41] (2006) 2 AC 618.

4. In Miller [42] the wife was awarded £5 million following a marriage which lasted less than three years.

   [42] [2006] 1 FLR 151. See generally, Eekelaar J, Miller v Miller: The Descent into Chaos [2005] Fam Law 870; Bird, R. Miller v Miller: Guidance or Confusion [2005] Fam Law 874; M v M, Case Report [2005] Fam Law 537.

5. She was previously a professional woman living in a flat in London, earning about £50,000 a year net.  The husband, a successful fund manager, earned more than £1 million annually.  Just before the wedding he received sale proceeds of £20 million.  The wife subsequently gave up her employment and oversaw the refurbishment of a holiday villa in the south of France until April 2002.  Early the following year the husband left the wife for another woman.  There were no children.

6. The husband's position at trial was that the wife was only entitled to be returned to her former position which could be achieved by allowing her £500,000 to purchase a flat and £120,000 to cover three years' revenue shortfall while she worked her way back to her pre-marriage level.  In total, therefore, his offer amounted to £1.3 million. 

1. The wife's opposing case was that, as a consequence of the earlier decision of the House of Lords in White v White,[43] the proper approach was to calculate her award by reference to the increase in the husband's fortune during the period of the marriage.  She claimed £7.2 million, or 37.5 % of the marital acquest.

   [43] White v White [2001] 1 AC 596.

2. Miller revolutionised the English approach to property adjustment on divorce by applying a starting point of equal property division based on partnership theory and assumed equal contribution in the role each party performed within the marriage relationship.  The principle applies regardless of duration or pool size. The ultimate aim is to achieve economic fairness between the parties and to avoid role based or gender discrimination of any kind. However, only matrimonial assets, that is, the fruits of the marital partnership (not including pre-owned except passive capital growth and eroded initial assets, after acquired, inherited or other windfall property) are equally subject to fairness considerations. 

3. The House of Lords identified the justification for wealth transfer under the English legislation as contribution, need and compensation.  Compensation is not a recognised justifying principle in Australia but economic disadvantage in the future is taken into account as an s 75(2) factor.  To date Miller has not been followed in Australia but its wider ramifications for matrimonial property division in this country are only just emerging.  Many of the sentiments articulated by the House of Lords in Miller were foreshadowed by a majority of our own Full Court in Figgins.[44] Despite cases like Norbis, Kennon and Ferraro the Miller approach cannot really be justified in Australia on the orthodox contribution counting and comparing or evaluative method approved in Mallet without either legislative change or, subject to the doctrine of stare decisis, the Appeal Courts’ review of Mallet and reinterpretation of s 79(4) as suggested by Professor Parkinson. 

   [44] (2002) FLC 93-122.

4. In any event, both Parkinson and Miller raise legitimate questions about the validity of the current Australian family law approach to dividing so called matrimonial and non-matrimonial property between former spouses and there is no canon of construction or High Court decision in the way of making a formal distinction between matrimonial and non-matrimonial property for the discretionary purpose of allocating shares or interests in distributable property. Non-matrimonial property eg. a pre-marriage asset would not usually be equal shared but may erode over time perhaps even to the point of extinction.

5. A genuine partnership principle may be a fairer way to give proper weight to the non-economic contribution of a wife to building up family wealth because of the conventional evaluative approach is not as well suited to counting and giving a percentage or money value to the intangibles of marriage.  However, that is the preferred or orthodox approach and must be followed unless and until the Full Court decides otherwise. 

6. The only current legal justifications for making awards out of property acquired before a marriage in Australia are contribution and need.

7. All three kinds of contribution – financial, non-financial and family welfare - mentioned in s 79(4) are relevant and to be assessed in accordance with the evaluative approach endorsed by the High Court in Mallet[45] as explained by the Full Court in Ferraro.[46]

   [45] (1984) 156 CLR 605 at 635-636.

   [46] (1993) FLC 92-335.

8. This is not a narrow or purely mathematical process.  Nor does it start with an assumption of equality of contribution or a presumption that equal sharing of the accumulated wealth after a longish relationship will be the fairest result in most cases.  Rather, the process involves accounting and comparing of the contribution each party made to their accumulated wealth and overall welfare.[47]  Each spouse is entitled under the law to a proportionate share of pre-marital assets measured according to the extent that he or she has contributed directly or indirectly, financially or otherwise, to their maintenance and improvement.   Equality will be equity only if given each contribution appropriate weight without discriminating between the bread winner and homemaker roles only if the quality and true worth of the parties’ contribution to the building up of the assets and to the family unit are roughly equal judged in a setting of marriage as a socio-economic partnership of equals.

   [47] (2001) FLC 93-075; cf .JEL v DDF (2001) FLC 93-075.

9. Zyk[48] is the most authoritative Full Court statement on weighting and significance of the final distribution of property predating the marriage. The considerations identified are:

   ·The initial contribution disparity;

   ·The use made of the asset;

   ·Whether the asset has increased in value during the marriage and, if so, whether that was due to the efforts (equal or unequal) of either or both parties or due to market forces or a combination of both;

   ·The length of the marriage;

   ·Any other offsetting including non-financial or homemaker contribution made by the other by the  non-owner spouse in the intervening period, The family welfare and homemaker contribution of the wife is an indirect contribution to the acquisition conservation or improvement of the property of the parties as well as having a stand alone non-financial value to the parties.

   [48] (1995) FLC 92-644.

10. The nature of the property, eg. cash, former matrimonial home, investment or heirloom is clearly also relevant especially after the comments of the Full Court in Williams.

11. The governing principles apply to all law marriages regardless of length. 

12. Contribution to the marriage if normally given equal weight and in many if not most, regardless of duration, justify roughly equal sharing of the “fruits” of the partnership.

13. Contributions to the welfare of the family may be as significant in this exercise as direct financial contributions.  The obvious way in which contributions to the welfare of the family can operate to erode the significance of initial contributions to the marriage is by the money to which a non-earning spouse contributes through caring for the family being utilised for the maintenance and improvement of the pre-marital asset.

14. On this analysis contributions made to the welfare of the family do not directly erode the significance of the pre-marital assets and only do so to the extent that money which would otherwise be available to the household is expended on the maintenance or improvement of those assets.

15. However, Fogarty J’s statement of principle in Money and the outcome of cases like Kennon and Figgins suggest that competent parenting and other family welfare contribution can be “double-counted” under s 79(4)(a) and (c) justifying both an equal share in marital acquests and a slice or sizeable chunk of the pre-marital property.  While this sort of convenient reasoning may produce an objectively “fair” result it suffers from a serious problem from a legal point of view – it is unprincipled. As Patrick Parkinson (rightly in my opinion) argues where the home-maker spouse has made an extraordinary contribution to the welfare of the family which justifies an unequal contribution in her favour (in the same way that a person’s special entrepreneurial or artistic skill justifies extra recognition) it can only properly be reflected in the sharing of property acquired during the marriage. What is being recognised is a ‘special’ contribution to the marriage partnership but there was no nexus between what was done during the marriage, whether it was exceptional or mediocre, and the initial capital.

16. This takes us back to the rationale for the decision in Bremner.

17. Assuming that because of the length of the marriage the significance of Mr Bremner’s initial contribution notionally reduced over time why exactly is it that 30 years of marriage had the practical effect of completely extinguishing his claim to a greater share in the Marsden block than the wife’s even on a Ferraro style partnership approach?

18. Admittedly, Mrs Bremner made a direct financial contribution to the preservation of the land’s value by allowing her wages to be used, at least in part, to the payment of rates.  This had the ongoing effect of conserving the property over three decades but at no point did her overall contribution match or outstrip Mr Bremner’s.  Why then did they equal share both the fruits of the marriage partnership and the Marsden block which was introduced by the husband and only improved in value by inflation rather than the joint efforts?

19. Why was the passive (as distinct from onerous) increase in value due solely or substantially to market forces treated as if it was a jointly owned asset?  The initial owner/contributor is not even given any credit on account of interest notionally earned on the initial capital. The answer may lie in the view expressed by Fogarty J in Money[49] and the Full Court’s treatment of initial assets in Kennon[50].    

    [49] (1995) FLC 92-485.

    [50] (1997) FLC 92-757.

20. But what about those cases where because of the very nature of the asset there will be almost no or minimal offsetting contribution by the other spouse?  Valuable jewellery, heirlooms and art pieces owned before the marriage are examples.  It is difficult to see how the other spouse can validly claim a share of its value at trial on the basis of contribution to its acquisition, maintenance or improvement in a case where there are no fruits of the joint endeavours as marriage partners to share.  Nor does the length of the marriage itself logically “erode” the owner’s title whether time itself is treated as having wealth transfer consequences or because it gives the non-owner the opportunity to make non-financial or indirect contributions.  An even more conceptually challenging situation is where there are no financial fruits of the marriage partnership at all and nothing left to share except initial assets which have either retained much the same or even lost value during the period of cohabitation.  Kennon is an example of the first while Shaw v Shaw[51] illustrates the second.

    [51] (1989) FLC 92-030.

21. In Shaw[52]  two homemakers were both given a share of pre-marriage assets where they diminished or did not increase during the marriage. The husband brought a $5 million fortune into the marriage.  Less than $2 million remained after twelve years of marriage because of extravagant living.

    [52] (1989) FLC 92-010.

22. The Full Court took the view that it should place a value on the wife’s contribution, even though there was no gain in wealth, and awarded her 10-12% of what was left of the $5,000,000 property by way of contribution and a similar amount on the basis of s 75(2) considerations. On a contribution basis the decision is hard to justify because the claimant made no financial contribution to the acquisition, improvement or conservation of the pre-marriage property constituting the distributable pool. The length or nature of the marriage relationship eroded the significance of the husband’s pre-marriage assets. Except for her welfare contribution the wife consumed rather than conserved. In return the husband provided her with a lifestyle she could not have enjoyed from her own resources.

23. The problem here is how to recognise the contribution of the homemaker when she cannot be rewarded for her ‘efforts’ including emotional support out of the ‘fruits’ of the marriage.  Rewarding a contribution to family welfare by awarding the home-maker a percentage of pre-marital property is hard to justify as a matter of principle.

24. A second difficulty is that the value placed on the home-maker contribution seems to largely ignore the fact that in marriage benefits are conferred mutually.  That is, if his contributions equal hers, in all but the most exceptional cases, then neither should be required, on the basis of contribution alone to compensate the other out of pre-owned property.

25. However, this objection was considered and rejected by Fogarty and Lindenmayer JJ in Kennon[53]:

    The important aspect of this case is that the wife contributed fully to the task of wife and homemaker.  The circumstances the husband may have made almost equivalent contributions does not mean that they cancel each other out.  But the approach of treating them as virtually cancelling each other out had the effect of leaving the other party’s financial contributions as the only ones that counted as significant.

    [53] (1997) FLC 92-757 at 84,298.

26. Professor Parkinson suggests the error in this approach is that it treats a range of different considerations all as contributions which can be meaningfully compared.  Millions of dollars worth of pre-marital assets were treated by the Full Court in Kennon as just another form of financial contribution of the same nature as a contribution made from earnings during the marriage and give home-maker contributions a value in comparison with the pre-marital assets to avoid undervaluing them.  Parkinson argues this “melting pot” method to contribution assessment does not have any conceptual basis and is incapable of producing law which may be rationally explained to those not versed in its history or intricacies.  He suggests that Lindenmayer J was right in Money to insist that the contribution of one spouse during the marriage can only be regarded as having an offsetting or eroding effect on an initial contribution to the extent that exceeds the overall contribution made by the other.

27. However, two other members of the Full Court in Money disagreed with Lindenmayer on that issue. Fogarty J said at 81,054:

    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.

28. Fogarty J considered that Lindenmayer J’s approach did not correspond with the common experience of the court and read too much into some comments in Le Steere.[54] His Honour argued that the term “offsetting contribution” does not necessarily mean “greater contribution”, it simply reflects the circumstance that the respective contributions of the party over a long period of marriage may “offset” the significance which otherwise be attached to a greater initial contribution by one party.

    [54] (1985) FLC 91-626.

29. Holden J agreed with Fogarty J and disagreed with Lindenmayer J to the extent that his Honour had suggested that the husband’s initial contribution could only be eroded by some imbalance of subsequent contributions favourable to the wife. If that was so than years of equal contribution to the conservation and improvement of an asset introduced by the husband and contribution to the welfare of the family would not be adequately recognised.

30. All three judges in Bremner expressly preferred the approach taken by Fogarty J in Money. So too did the Full Court unanimously endorse Fogarty J in Way v Way. 

31. Thus, it seems separate property or an initial sole contribution can be characterised or dealt with for s.79 purposes as partnership property in Australia when it actually is not depending on the core values or sense of economic justice of the decision maker.

32. Take Figgins and Figgins.[55] The parties cohabited for approximately seven years between 1994 and 2000.  They had one child aged five at the time of hearing.  The wife continued to be the primary parent after separation.  Neither party had any significant asset at commencement.  However, the husband had a net worth of $22,500,000 at trial as a result of an inheritance early in the marriage.  The wife, on the other hand, had liabilities exceeding her assets.

    [55] (2002) FLC 93-122.

33. The trial Judge awarded the wife $600,000 for contribution and $500,000 for s 75(2) factors.  The Full Court held the result to be manifestly inadequate and, by a majority, substituted $2.5M, which was slightly more than 10 % of the husband's net worth. 

34. The Full Court placed heavy reliance on the remarks of Lord Nicholls and Lord Cooke in the English decision of White and White. [56] 

    [56] [2001] 1 AC 596.

35. Although also a big money case White differed from Figgins to the extent that it was a much longer marriage of 30 years involving greater direct and indirect contribution by the wife and different legislation

36. Their Honours said:[57]

    132.    We think that the important concept that can be said to emerge from White is that, in order to test whether a result is fair, or in Australian terms just and equitable, it is important to ask whether the husband and wife are being treated equally.  It states in the clearest terms the modern recognition of equality of the sexes and the need to abandon all forms of discrimination. 

    133.    In the present case we think that the emphasis given by White to gender equality is important in testing the overall result.  We think that the lesson to be learned from White is that it is a major error to approach these cases upon the basis that one arrives at a figure that is thought to satisfy the needs of the wife and give the balance to the husband.

    134.    In some cases that may produce an appropriate result but in many others it is likely to be productive of a grave injustice.  We reject the concept that there is something special about the role of the male breadwinner that means that he should achieve such a preferred position in relation to the female partner.  To do so is to pay mere lip-service to gender equality.  Marriage is and should be regarded as a genuine partnership to which each brings different gifts.  The fact that one is productive of money in large quantities is no reason to disadvantage the other. . . .

    135.    When one asks the question with these considerations in mind, as to whether the award to the wife in this case of about 5 % of the assets, involved equal treatment of her as well as the husband, the answer is that such an award is far below what is reasonable that it cannot be accepted.

    136.    It is obviously unfair.  . . . .

    [57] Figgins v Figgins (2002) FLC 93-122 at 89,301.

37. Like White in England Figgins was concerned with avoiding stereotypical assumptions and discriminatory approaches to the adjustive discretion and made it plain that it is a major mistake to approach the contribution assessment process on the basis that one arrives at a figure that is sought to satisfy the needs of the homemaker and give the balance to the breadwinner.

How then should the husband’s initial contribution be properly valued and shared?

1. Senior Counsel for the wife contends that the wife has no moral or legal right to a share of the:

   ·$600,000 increase in the value of the husband’s interest in the P Property which was sold in February 2007 for $864,493 is not a “fruit of this relationship” and the wife does not allege she made any direct financial contribution to it.

   ·gain on the husband’s home from $300,000 - $330,000 in March 1995 to its current value of $1,350,000 (in respect of which the wife concedes she has contributed “not $1”) is not a “fruit of this relationship”.  If the property is to be brought to account as a divisible asset it should be treated as his sole contribution asset of $1,350,000.

   ·husband’s professional practice and skills which he brought to the relationship in March 1995 contributed $2,868,861 in before tax income in the period to 30 June 2005.  It was not enhanced by the duration of the marriage and is a sole contribution of the husband.

2. In his amended response filed 24 November 2006, the husband conceded an overall division of 20% in the wife’s favour but he now resiles from that position and Mr Kirk SC submits that the wife’s contribution entitlement ought not properly exceed 10%.

1. Mr Kirk SC relies on what Brereton J said in Kardos v Sarbutt: [58]

   …  (the capital growth) is the result of the asset having been held by one of the parties at the commencement of the relationship, and not the result of joint efforts of wage earning, homemaking and parenting, and mutual support of the type described by Deane J [in Mallet] as producing “fruits of the relationship”. 

   [58] (2006) 34 Fam LR 550 at [61].

1. His Honour relevantly went on to emphasise the need to assess the true value of the contribution at the date of hearing or realisation not merely at commencement especially in respect of investment properties.:

   If one party has a house worth $250,000 at the outset, and it appreciates during the relationship to be worth $750,000, the contribution is of a house which at separation is worth $750,000 - not of money worth $250,000.[59]

   [59] (2006) DFC 95-332 at 78,548.

2. In that case a de-facto couple cohabitated for 3 years and had no children. The female partner owned about $300,000 in real estate at commencement which had grown to be worth $683,500 at termination. The male owned $240,000 at the beginning which was worth $400,000 at the end. There was a disparity of earnings in favour of the husband during the relationship of $190,000 to $110,000.

3. The pair initially received a return of initial capital and equally shared the combined capital growth at trial. The New South Wales Court of Appeal allowed the appeal by the female partner. In doing so the court recognised that capital gain is often a reflection of passive growth and not the result of joint effort.  Accordingly, it was not to be divided up as if it was part of the ‘fruits’ of the relationship.

4. Brereton J considered that any other method of contribution assessment has the potential in some cases for serious undervaluation of initial contribution by disregarding the “time value of money”.  His Honour also expressed concern that retrospectively valuing a contribution of or to property at the time it was made perhaps many years before would have a tendency to produce erratic results and disproportionately increase litigation costs.  It may not even be viable in some situations.

5. Kardos v Sarbutt was not endorsed by the Court of Appeal decision in Bilous v Mudalia and Anor[60] where a differently constituted NSW Court of appeal was faced with dividing a $1.7 million pool between a de-facto couple after a 11 year relationship. The male partner’s initial award of $340,000 or 20% of the pool was increased by 12% or $200,000 to reflect the justice and equity of the situation.

   [60] (2006) 35 FamLR 55 [60]-[67].

6. The court explicitly distanced itself from Brereton J’s comments suggesting that any increase in the value of initial assets was always to be treated as a sole contribution of the owner valued at the date of trial.

7. Ipp J said it all depended upon the facts. A former matrimonial home may be increased by a combination of market forces and the joint efforts of wage earning, homemaking and parenting and mutual support. In some instances the non-financial contribution of one parent may mean that the initial asset did not have to be sold. In other the non-financial contribution of the non-owner may allow the other to dedicate his or her effort on breadwinning and earn enough income to be able to maintain, improve and retain the property. In those instances the indirect joint effort regardless of the role will justify sharing.

8. As Ipp JA explained at [49]:

   The adjusting order may require the party making the initial contribution (or the party who is a registered owner) to pay the other party a sum of money that represents a proportion of the increase in the capital value of the property concerned, or, indeed, overall value.

9. Howlett v Nielsen[61] confirms that the justice and equity requirement may justify an order sharing the value of an initial capital contribution as well as increases.

   [61] (2005) 33 FamLR 402 at 407

10. Brereton J also applied the “erosion principle” in Kardos v Sarbutt when weighing the ongoing value of an initial contribution against all other offsetting contributions in the meantime but, both Howlett v Nielsen and Bilous v Mudaliar rejected the principle as having no legitimate role to play in de-facto cases but according to Ipp JA it placed the onus on the non-owner party to prove that the initial contribution has eroded contrary to the governing words of the state legislation.

11. The applicability of Brereton J’s approach to the Family Law Act cases was recently considered by the Full Court in Williams.[62]

    [62] (2007) FamCA 313.

12. There, the husband’s pre-owned property consisted of a dynastic farm which increased in value by a million dollars from $900,000 to $1.9 million over the 10 year period of the marriage. $580,000 of the growth was agreed to be attributable to joint effort but the balance of $450,000 was claimed solely by the husband. The wife made a financial contribution of $670,000 during the marriage. There the husband sought a greater acknowledgement of his contribution of a farm to the asset pool at the commencement of a ten year relationship which had substantially increased in value at the date of hearing. The trial judge credited him with a loading of 7.5 % on account of his initial contribution. The Full Court made an overall division of 55:45 in favour of the husband.

13. The Full Court expressed the view that:

    …where the pool of assets available for distribution between the parties consists of say an investment portfolio or a block of land or a painting that has risen significantly in value as a result of market forces, it is appropriate to give recognition to its value at the time of hearing or the time it was realised rather than simply pay attention to its initial value at the time of commencement of cohabitation.  But in so doing it is equally as important to give recognition to the myriad of other contributions that each of the parties has made during the course of their relationship. (emphasis added)

14. It should be noted, however, that in that particular case there was no clear evidence about whether the growth as passive or active or due to joint or sole contributions by the parties.

15. How much of it was due to the husband’s initial and subsequent “contribution” of the farm and how much was due to the wife both financial and non-financial contributions was, therefore, a matter of discretionary conjecture.

16. Another point of distinction is that the Full Court’s comments in Williams were mainly directed to investment portfolios or speculative acquisitions like paintings, rather than former matrimonial homes. 

17. It is not necessary for me to enter into or try to resolve the ongoing debate about how to deal with appreciated values in de-facto cases because Williams is binding on me.  So too is the long line of cases recognizing the application of the erosion principle in relation to pre-marriage assets. I also direct myself in accordance with Fogarty J’s statement in Money rather than to Lindenmayer J’s.

18. Whether solely owned property is to be shared and if so in what proportions depends on all the circumstances of the case including the contributions of the parties, their likely future needs and the overall requirements of fairness. 

19. The extent to which the appreciated value of a sole contribution at commencement property is made available for sharing is a matter of degree depending on a multitude of factors including the length of the marriage, the way the parties have organised their financial affairs, need, offsetting contribution, the requirements of justice and equity and whether the increase is to market forces or the efforts of one or other of the parties.

20. Thus, the income and capital gain on a sole initial contribution may or may not be excluded depending on whether it is referable to passive or active economic growth, the duration of the marriage, the nature and use of the property concerned during the marriage and any offsetting (not necessarily outstripping or matching) contribution of the other party.

21. The Family Law Act does not distinguish between short and long marriages or breadwinners and homemakers. The courts shouldn’t either. Any disparity in entitlement should be based solely on assessed contribution or other statutory factors mentioned in s 79 including s 75(2).

22. Even though the partnership principle does not apply with the same force or effect as it now does in England contribution evaluation in Australia can and should be done in line with the statements in Ferraro, Waters and Jurek, Figgins and Green and Browne; that is, in the context of marriage as a socioeconomic partnership of equals.  Scrupulous care must be taken not to allow undisclosed social values to discriminate between the spousal roles in the marriage on gender grounds.

23. The natural tendency to give more weight to financial over non-financial contribution also has to be resisted because fairness requires that each be given real and not merely token weight.

1. The welfare contribution the wife made to the husband and herself in this marriage can easily be overshadowed by his business acumen and her lack of it.  As the Full Court recognised in Kennon, husbands and wives bring different “qualities” to a marriage relationship.  Their attraction to each other is not measured in dollar terms.  Their day to day lives involves co-operative effort and reliance.  Their relationship consists of love and affection as much as dollars and cents.  Each fulfils the other’s different wants or needs in a way that maybe nobody else can. Spouses also commit their “economic destiny” to the other and the “risk of business failure effects one spouse as much as the other…”[63]. The financial has to be offset against the emotional and the conjugal and other hard to measure aspects of “contribution” to family welfare such as mutual life longs care and support.

   [63] Law Reform Commission of Canada working paper 8: “Family Property” March 1975 at 34.

2. The extent to which spouses’ domestic activities or other contribution, including intangibles, contribute to the building up of business assets is a particularly vexed problem for the evaluative method of contribution assessment.  However, this is not a case of the wife making a very significant direct financial or non-financial contribution to her partner’s business activities either under s 79(4)(b) by releasing him from the domestic front to concentrate on business earnings or under par (c) because the business activities encroached on the family and imposed an extra domestic burden on the wife[64].

   [64] cf Ferraro (1992) 111 FLR 124 at 171.

3. In GBT and BJT the parties lived together for 6 years and were aged husband

   
   

   (54 years) and wife (36 years) at trial.  There were no children.  The husband was a partner in an accounting firm and earned a high income throughout ($1.4M during cohabitation).  The value of that practice was $400,000 at the start the husband also had other substantial assets.  The wife’s assets at the start were not stated but clearly not substantial.  The Wife’s earnings throughout total $98,000 from employment and $45,000 from his family trust.  The pool at trial was $3M of which the Trial Judge awarded the Wife 17½% including 5% for s.75(2) factors. The majority of the Full Court upheld the husband’s appeal after finding that the trial Judge’s contribution award and reduced that on appeal to 10%, being 7½% for contribution and 2½% for s.79(2) factors was 5% too high.  The husband had made significant initial financial contribution and earned $1,300,000.00 more than the wife during the marriage.  The wife’s comparatively greater homemaker contribution was regarded as only having “marginal” significance by the trial Judge.  The wife was found to have exaggerated her contributions in the household in comparison to their lifestyle which included living in rented accommodation, eating out at restaurants several times a week, no parenting responsibilities, the assistance of domestic help including a house cleaner and ironer.  The wife was also found to have lacked commitment to the marriage in the latter years resulting in her giving less attention to family welfare matters.

4. The Full Court overturned the award because of insufficient weight having been given by the trial Judge to the shortness and childlessness of the marriage and the “great deal of domestic assistance” paid for by the husband and reduced her contribution share to 7.5%.  Thus, her six and a half years of marital contribution was valued at $225,000.00 compared to the husband’s $2,750,000 odd.  In D and D[65] an award of 7.5% of a $3,500,000.00 pool ($260,000.00) representing about half the passive capital appreciation of the husband’s initial business asset was set aside in circumstances where there was a 25 year age gap.  The husband was over 70 at the date of marriage. It was a second marriage for both parties, they cohabited for five years with no children of the marriage.  Again, the husband made overwhelming financial contribution to the pool and the wife’s was limited to minor indirect financial and non-financial homemaker type effort.  The parties travelled a lot and maintained largely separation accounts. 

   [65] (2006) FLC 93-300.

5. The results in D and D and DBT and BJT are comparable and arguably consistent with a strict evaluative approach of counting and comparing contribution with the discernible tendency of that method to favour the par (a) over par (b) and par (c) at step two of the process. Neither, however, seems fair because both fell in to the trap of giving too much weight to financial contribution of the husband and too little to the non financial contribution of a “good enough” but not extraordinary wife.

6. The wives in those cases got 7.5% for six years and 5% for five years respectively in comparable circumstances including, in particular, a husband with substantial pre-owned assets and a high level of business income.

7. However, in Kennon[66], decided ten years before DBT and BJT and D and D, a younger wife was awarded $200,000.00 (or 2.2%) after a five year childless marriage for contribution to net assets of $8,700,000.00 introduced by the wealthy husband at commencement.  The wife had little property of her own and an average income.  The husband also earned close to $1,000,000.00 a year as a well known media personality.  The wife made no direct financial contribution and only a small indirect contribution to the husband’s business by attending and assisting at social functions.  The wife’s lifestyle during the marriage was much more comfortable than anything she had experienced in her adult working life previously.  She had domestic assistance in the home.  She did, however, care for the husband’s four children from his first marriage on regular contact visits.

   [66] (1997) FLC 92-757.

8. The majority of the Full Court (Fogarty and Lindenmayer JJ) upheld the wife’s appeal on the basis of an undervaluation of her welfare contribution.  Her entitlement was reassessed at $700,000.00 (about 8% of the total pool).  The award might have been higher if more had been claimed by the wife under his head. 

9. Kennon makes is clear that wives of wealthy husbands are not merely “along for the ride”.  A wife who carried out the ordinary and usual wifely duties in a proper way in support of her husband should not be denied the right to claim her effort as help to build up the business and its profitability. As already noted domestic contribution adds indirect value to a business asset under both pars 79(4)(b) and (c).

10. The wider importance of Kennon in the context of this case, were the observations about the value to be given to the “less tangible … qualities” of the wife and the rejection of the notion that a high standard of living provided by the other party amounts to a down payment on a subsequent property settlement.  It was also held to be contrary to principle to treat almost equivalent non-financial contribution as virtually cancelling each other out.  The unfair effect of this was identified as “…leaving the other party’s financial contribution as the only ones to be counted as significant”.

11. A v A[67] concerned a marriage of 11 years where the husband brought in $1.1M and the wife $73,000.  There were no children.  The pool at trial was $2.1M. The Full Court gave the wife 16.6% based on contribution with no s.75(2) adjustment because she died before the trial.

    [67] [2000] FamCA 1571.

12. In Dewar v Dewar a total pool of $1 million including a $350,000.00 initial contribution by the husband was distributed after a 13 year marriage with two school age children 65:35 to the husband for contributions and 55:45 in his favour after adjustment.

13. Mr Cooper for the wife argues that decisions like GBT and BJT bear no real similarity to the facts here and should not apply.  He refers me to Shaw[68] involving a 12 year relationship where neither party worked but both helped to reduce the husband’s net worth from $5,000,000 to $2,000,000.  There were no children. The most prominent family welfare contribution of the wife was to nurse her husband through illness.  She made no positive financial contribution. Rather than conserving, she, together with the husband, consumed much of the property.  On appeal, she was awarded 25 % of what was left of the husband’s fortune on the basis of 12.5% contribution and 12.5% for future needs.  Mr Cooper argues by analogy that if Mrs Shaw was worth 12½ % for contribution, then the wife in this case should in fairness be entitled to an even bigger share because she worked throughout the relationship, was the homemaker and supported the husband, helped with the husband’s assets which almost tripled in value during the course of the relationship.

    [68] (1989) FLC 92-010.

14. I was also referred by Mr Cooper to a recent single judge de-facto case decision in the Supreme Court of Queensland in CL v GNJ[69].  The relationship lasted slightly less than 11 years.  The male partner was worth about $2,500,000 at commencement.  The female partner had comparatively negligible assets.  The male partner’s assets trebled during the relationship.  The female partner had brought a child of a previous relationship into this one and worked for wages ($26,000.00 pa) in the family business.  The trial Judge awarded her 30 % of the asset pool.

    [69] (2007) QSC 169 (delivered 28 May 2007).

15. In S v S[70] a wife who bought in effectively a negative initial financial contribution and two children to a seven year marriage.  She was awarded 27.5% of the asset pool in circumstances where she had two relatively young children of the relationship as well as two children from a previous relationship.

    [70] [2005] FamCA 1195

16. In that case the husband’s initial financial contribution was found to be worth some 60% of the final asset pool. 

17. Ultimately, I have to be satisfied that any order I make is just and equitable in all the circumstances not just the underlying percentage division but in real money terms.

18. The marriage I am concerned with here lasted for more than a decade.  As I have already said my principal task is to measure and value contribution not just time, but the duration of a marriage is relevant under par (d) of s 79(4) and may, of course, be highly significant in assessing pars (b) - (c) contribution too, because, as mentioned earlier, the shorter the duration of the marriage the less counter-veiling weight the domestic role may attract.  Conversely, in a marriage of considerable duration there is a greater likelihood that the contribution by one party in the capacity of homemaker and parent will be treated as more or less equal to the financial contribution of the other party even where that financial contribution has been a considerable one.[71] 

    [71] See Harris and Harris (1991) FLC 92-254.

19. Both parties contributed directly to the capital appreciation but I find that the bulk of the increase is related more to the husband’s initial and subsequent sole contribution, rather than joint effort as well as inflationary pressures.  However, there is no clear way of identifying how much was due to the active efforts of the parties and in what proportion or the comparative extent of passive growth. The asset disparity in 1995 was used as a platform to create greater wealth and also to improve living standards and lifestyle for the mutual benefit of the parties.   Nonetheless, the husband’s professional practice and investments had mixed fortunes during the period of the marriage. 

1. The marriage was not a lengthy one by comparison with others but is was longer than average.  It was long enough, in my judgment, for the wife’s non-financial contribution to wear away, like the dripping of water on a stone, some of the significance of this husband’s pre-owned assets and entitle her to a part, though by no means equal, share of their current value.

2. I am satisfied here that the wife did all that was required of her given the shape and nature of this marriage[72].  She gave what she could financially and emotionally.  The husband clearly benefited from the role the wife played in his life.  He brought in wealth whereas she invested non-economic qualities no less important and appealing to him, though less tangible, than he did.  Most importantly, she dedicated nearly 11 years of her life to being a good and loyal supporter of the husband and indirectly his business.  However, the husband’s overall contribution to the acquisition, improvement and conservation of the total property available for distribution exceeded the wife’s justifies a significantly greater share allocation to him.

   [72] See Kennon (1997) FLC 92-757 at 84,298.

3. Taking into account all the matters I have mentioned and hard as it is to compare the relative value of fundamentally different types of contribution over a lengthy period but doing the best I can to be fair to both parties I have concluded in the final analysis that the relevant concept of justice and equity requires that the wife be awarded $1,159,650 or around 25 % share of the current day value of the total net assets and superannuation for past contribution.  I know this amount is more than twice the sum given to the wife in GBT and BJT and D & D but so was the duration of the relationship.  It took Mrs Bremner two more than 30 years to earn a 50 % share in non-matrimonial as well as matrimonial property.  The wife here put in just under half that amount of time.

4. The size of the wife’s award is also intended to give more emphasis to the Ferraro and Figgins notion of partnership when measuring para 79(4)(c) contribution with financial contribution than appears to have been given in the cases cited by Mr Kirk SC.  Counter weighting that is the opinion I formed that the capital growth was linked to a degree with the husband’s much greater efforts in actively value adding and improving. 

Section 75(2) factors

1. Adjustment of contribution based entitlement is justified only where necessary to meet proven need or make a just and equitable order.[73] In determining s75(2) factors all assets are to be considered as well as income, property and financial resources.

   [73] Dickson (1999) FLC 92-843 at 85,872.

2. The husband argues against any significant adjustment and concedes no more than 5 %[74].

   [74] Tuck (1991) FLC 91-021.

3. The parties are both in their mid 50’s. The husband has some health problems related to stress and hypertension and proposes to retire within 2 years. No one suggests this is unreasonable or unlikely.

4. There is and always was a substantial disparity in financial circumstances.

5. A disparity in the economic position of spouses on account of factors relating to cohabitation might attract a more generous property adjustment than other circumstances but needs have no casual nexus with the marriage or its breakdown are still relevant to the s 75(2) exercise.

6. A doctor confirmed that if the husband undertook the lifestyle change recommendations the doctor gave him he would be in better health generally.

7. Whilst Dr V under cross examination did say the husband attended the doctor more frequently than most males, it is clear from the doctor’s notes that his attendances are only spasmodic and for the minor matters referred to above in most instances.

8. The evidence is that the wife has problems with her right knee for which she is having orthopaedic treatment.  She suffers from chronic knee pain, pain in her left wrist as well as shoulder pain.  She has suffered from depression post-separation for which she has had treatment from her GP and a psychologist. 

9. The income, property and financial resources of the parties are set out in the documentation filed in these proceedings including the valuation of Mr. C to be provided. 

10. The wife has limited physical and psychological capacity for gainful employment.  The husband is working and generating a very substantial income in the field in which he has worked most of his life. 

11. The wife has not re-partnered and is not involved in a highly profitable business as was the wife in GBT & BJT[75] for example.

    [75] [2005] FamCA 683.

12. Neither of the parties are eligible for a pension, allowance or benefit under any law of the Commonwealth however the husband does have substantial superannuation entitlements.  His super fund alone is worth over $1 million.  The wife’s super fund is worth $46,154.00.

13. The parties enjoyed a very good standard of living whilst they were together commensurate with the husband’s status and the wife’s support of the husband.  The wife seeks to maintain that living standard in the future.

14. The wife needs to retrain for the purpose of having an income earning capacity in the future.  She can no longer undertake work that requires her to be on her feet given her chronic knee problems, her wrist and shoulder problems and depression.  At 57 years of age however the wife’s employability in any event is somewhat limited.

15. During the relationship the wife has contributed to the extent of her capacity to the support of the husband and the family generally.  She now finds herself at 57 years of age in a disadvantaged position in the work force, little superannuation to rely on and owning a business, which was purchased into whilst the parties were together, with financial support from her husband initially, the business is causing her major financial difficulty.

16. The applicant will be at risk in relation to employment in the future due to her age, health and medical problems. The respondent is in a far better position for the future than is the applicant especially if orders are made in the terms of the respondent’s application. 

17. A further adjustment for the future is sought by the respondent to the order of 7½ % of the overall asset pool given the substantial difference between the parties and their respective income earning capacities at the end of this relatively long relationship.  Thus, the wife will receive or retain property to the value of $1,507,545compared to the husband’s of $3,131,052.

Spouse Maintenance Claim

1. The wife claims as spousal support:

   (a)a contribution from the husband towards maintaining the home for two years by him paying the rates, house insurance and contents insurance viz., $85,696 a year in after tax dollars;

   (a)       $500 a week for twelve months;

   (b)for the duration of the business lease (presumably until 30 June 2008) the husband pay $1,000 a week to “help with the operating expenses of the business”.

2. Awarding spousal maintenance is a discretionary power exercised in accordance with the provisions of s 74 with ‘reasonableness in the circumstances’ as the guiding principle.[76]  There is no fettering principle that pre-separation standard of living must automatically be awarded where the respondent’s means permit.

   [76]  Bevan (1995) FLC 92-600.

3. The pre-conditions to a successful claim are:

   (i)       a threshold finding of means and need under s 72;

   (ii)      a consideration of s 74 and s 75(2).

4. Mr Kirk SC submits that, in the circumstances of this case, the wife cannot overcome the “reasonableness” hurdle and cannot demonstrate that the orders she seeks would be “proper”.

Wife’s reasonable needs

1. The wife’s financial statement discloses needs of $1,725.00 or $725.00 a week without the business assistance.  The husband estimates them at $493.75 a week.

2. The husband contends the wife’s boarder ought share some of the utility costs.  I agree.

3. The wife’s capacity to support herself is complicated by the business losses. It is on the market but probably only has a nominal value.  Keeping it open seems a luxury the wife cannot afford and one which it would be unreasonable to expect the husband to subsidise given his long-term opposition to it.  Her income from L Business can be ignored as the business is effectively defunct and on the market for sale having incurring substantial losses. She still has her body corporate income of $490 a week and additional gainful employment in a range of areas.

Husband’s capacity

1. The husband has no capacity to pay spousal maintenance from income because of unchallenged partnership losses.  He has undisputed available before tax income of $6,346 reasonable weekly expenses and other expenses of $8,357. Evidence was given of a deterioration of cash flow in K Practice. His salary has been reduced from $250,000 pa to $200,000 pa. practice generated $2.7 million of fees of a total firm production of $7,000,000.00 i.e. 40%.  The husband agreed that it was probably a temporary hiccup in cash flow.  The husband also agreed that:

2. He does, however, have some capacity based on his assessed share of the available assets.  I will add an extra lump sum of $40,000.00 to her property entitlement specified under s 77A(1) as provision for the wife’s maintenance.

I certify that the preceding two hundred and thirty seven (237) are a true copy of the reasons for judgment of the Honourable Justice Carmody

Associate: 

Date:  25^th January 2008