In our practice we have observed an unfortunate trend. Some separated folks think that the more the separation clock ticks, the less of a chance their ex has got to come knocking for their assets. Instead of squaring away their property settlement, they are just kicking a proverbial can down the road, hoping that neither side will step up to carve up the pie. But here's the rub - by stalling on your property settlement after you've gone your separate ways, parties are exposing themselves to considerable risk, which is often hard to quantify.
Let us take for instance the case of I & I [2005] FamCA 432, in which the parties had been living apart for approximately a decade before the Full Court reviewed the case on appeal.
Background
In this matter a couple cohabited from 1984 and had two children born in 1989 and 1991. They separated in 1995 and divorce was granted in 1998. Both were teachers, with the wife providing primary care to the children and the husband acquiring additional qualifications.
Post-separation, the husband purchased a property with a $65,000 interest-free loan from his parents and a mortgage. In 2002, he took a voluntary redundancy payment of about $53,000, which he initially used to reduce the mortgage but subsequently redrew due to unemployment. He paid child support, exceeding the assessment at times, but the wife bore most children's expenses. The husband had the children in his care about one-third of the time.
In October 2003 the wife was granted leave to institute proceedings for property settlement out of time, despite the limitation period having expired in 1999.
By the time of trial, the property, which cost $153,000 in 1997, was worth $360,000. The husband's superannuation interest grew from a few thousand to around $90,000, while the wife's increased to approximately $30,000.
First Instance
The trial judge quarantined assets acquired by husband post-separation and assessed the total asset pool at $365,500.00, which was less than half of the actual total assets, which stood at $778,500.00.
The judge awarded the wife 70% of that underestimated asset pool, equaling $255,850.00. With the addition of her superannuation, this amounted to approximately 36.5% of the actual total assets.
Appeal
The appeal was made on the grounds that the original ruling was unjust and inequitable, as it significantly undervalued the total asset pool, and as a result, the wife's awarded share was less than fair. It was noted that this figure was manifestly unjust and inequitable, considering that the wife had the primary care of the children, a lesser capacity to earn than the husband, and less job security. The Wife argued that the trial judge didn't adequately consider her post-separation contributions, which led to an unfair distribution.
The appeal court ultimately found errors in the original trial judge's approach. While the trial judge stated that he used an asset-by-asset approach in the division, the court found that he did not correctly apply this approach. Specifically, the judge did not adequately measure the wife's contributions against the husband's, particularly concerning the acquisition and maintenance of the R Street property and the growth of his superannuation.
Re-exercise of Discretion
The appeal court decided to re-evaluate the division of assets, taking into account both parties' contributions, the differential in their earning capacities, job security, and the wife’s primary responsibility for child care. This led the court to decide on a split of 65% to the husband and 35% to the wife. However, considering s 75(2) factors favoring the wife, the court further adjusted the division to 55% for the husband and 45% for the wife.
This meant that the wife was to receive 45% of the $778,500 total asset pool, amounting to $350,325. This marked a considerable increase in the wife's share compared to the original ruling.
Takeaway
In the case of I & I [2005] FamCA 432, it was determined that the trial Judge erred in the process of "quarantining" or excluding certain assets from the divisible pool, particularly the husband's home and superannuation entitlements which grew significantly after separation. The court stated that these assets should have been included in the divisible asset pool, which would then have led to a different, and arguably more equitable, division of assets.
Accordingly, in situations where there is a significant post-separation accumulation of assets, it might not be appropriate to "quarantine" these assets from the property pool. It's important to note, however, that this is a complex area of law and the outcome will be dependent on specific facts of the matter and discretion of the court.
Contract Surge Legal for a free detailed expert advice in relation to any family law issues you may have.