Initial Contributions in Property Settlements
A property settlement is an important step in the separation of a married or de-facto couple. A formal property settlement is a legal contract between spouses that records an agreement about the division of shared assets and liabilities. One of the key factors in the calculation of a property settlement is the initial contribution that each spouse made to the relationship. A property settlement can be formalised by a private Binding Financial Agreement, or through a judicial Court Order or Consent Order. Whether the settlement is agreed privately between the spouses or assessed by the court, there are general rules that should govern the division of assets upon the dissolution of a relationship. These rules are established by the Family Law Act 1975 (Cth). This article outlines the role of initial contributions in property settlements in Australia.
What is an Initial Contribution?
The assets that each party brings with them at the beginning of a relationship, whether it is cash, property, or another item of value, is known as their “initial contribution”. There is no set formula that the court uses in assessing initial contributions in a property settlement: rather, the court takes into account the totality of factors. Initial contributions are assessed according to monetary value, the percentage that this represents of the total property pool, the length of the relationship, and whether the other spouse has also made significant contributions.
During a property settlement it is important to not only identify who contributed which asset, but also to determine the nature of the asset, and the effect the asset had on further contributions during the relationship. For example, a spouse might contribute a home at the start of a long-term relationship. At the end of the relationship, the house might be worth a far larger amount. In that case, greater weight will be attributed to the initial contribution, because it provided significant benefit during the relationship as the property appreciated in value and provided a residence for the couple.
Length of Relationship
One of the deciding factors in assessing initial contributions in property settlements is the length of the relationship.
In shorter relationships, each spouse’s initial contributions are of particular importance in terms of the final division of property. It is typically easier to identify the original owner of an asset, and there are usually fewer jointly acquired assets.
Courts take a different view of relationships that are longer term, based on the assumption that after a period of time a couple’s assets have merged. As such initial contributions are assessed against the totality of contributions made throughout the relationship, including unpaid child-care and household duties. For instance, in a recent decision of the Family Court in Jabour & Jabour, the parties had been married for 20 years, and the husband had an initial contribution of part shares in three parcels of land. By the end of the marriage the couple owned one whole parcel of land. The trial judge found that the contributions made by the couple were equal but the land was a major portion of the property pool. As such the judge found that the husband’s contribution was 66% and the wife’s contribution was 34% of the whole property pool. This decision was reversed by the Full Court, which found that the husband’s contribution was 53% and the wife’s contribution was 47%. The Full Court emphasised several principles relating to the assessment of initial contributions in relationships of longer duration.
- An initial contribution must be assessed against the total contributions made by both spouses during the relationship.
- Any decisions that are made in relation to the asset (in this case the decision to use the proceeds from the sale of two pieces of land to buy the third and the decision to not to sell the land earlier) are considered major joint contributions.
- If an asset increased in value during the marriage but not through the efforts of either spouse then that increase is considered to be a joint contribution.
For longer relationships, the court typically assesses each party’s contribution to the acquisition, maintenance, and preservation of the property pool. For instance, while one spouse may bring a house to the relationship as an initial contribution, if the other spouse has acted over the years to maintain and preserve the asset, then this minimises the importance of the initial contribution.
Armstrong Legal’s family law experts can answer any questions you have about the impact of initial contributions on property settlements, and help you negotiate a property settlement after the dissolution of a relationship. Please contact us on 1300 038 223 or send an email to make an appointment with one of our family law experts.