Full Family Court Finds Exclusion of After-Acquired Property from Consideration was an Error of Principle

Background

In the recent case of Holland [2017] FamCAFC 166 (9 August 2017) the Full Court of the Family Court of Australia (Ainslie-Wallace, Murphy & Aldridge JJ) heard the wife’s appeal against a property order in a case where the parties cohabited for 17 years and had 2 children aged 17 and 14. The husband inherited “Property W” from his late brother’s estate about 3½ years after separation, which was worth approximately $715,000. At first instance, Judge Jones excluded Property W from the asset pool and referred to it as a separate financial resource of the husband. The wife appealed.

Full Court Analysis

Before the Full Court of the Family Court stated that initially it was argued that Property W was plainly “property of the parties of the marriage or either of them’ within the meaning of section 79(1) of the Family Law Act, and that the trial judge erroneously failed to treat it as such by ‘excluding’ it from the ‘pool of assets’ and treating it instead as a ‘financial resource’.

Secondly, it was argued that, despite the property being inherited and inhabited by the husband and his brother, the trial judge erred by not according to the wife an indirect contribution to it.

After-acquired property

The concepts that were referred to before the Court were premises that Property W was an ‘after-acquired property of the husband’, that was, property acquired after separation. According to the Full Court, That description, together with the descriptions ‘financial resource’ and ‘excluded’ require specific attention, as they involve the risk of error exemplified by argument advanced in Calvin & McTier [2017] FamCAFC and firmly rejected by the Full Court of the Family Court in that case.

As the High Court of Australia made plain in the seminal family law decision, Stanford v Stanford (2012), it is necessary to begin consideration of whether it is just and equitable to make a property settlement order by identifying, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property. So much follows from the text of s 79(1)(a) of the Act itself, which refers to “altering the interests of the parties to the marriage in the property”. This includes property acquired by either party up to the hearing. The question posed by s 79(2) is thus whether, having regard to those existing interests, the court was satisfied that it is just and equitable to make a property settlement order.

Financial Resource

According to the Full Court, the expression ‘financial resource’ requires similar caution. It has been used by the court throughout the Act’s history in contradistinction to ‘property’ to highlight a proposition central to the operation of s 79 of the Act. Orders pursuant to s 79 of the Act can alter interests in respect of ‘property’; financial resources’ cannot be the subject of such orders. Those same financial resources can be important, however, to the making of s 79 orders by reason of a consideration of them pursuant to s 79(4)(e) of the Act- dealing with factors that can be taken into account to arrive at a just and equitable property settlement.

The expression ‘financial resource’ has sometimes been used to describe a situation where property the subject of an inheritance has been assessed within an ‘asset by asset’ or ‘separate pool’ approach. However, with respect to those who have used that expression in that context, the Court reiterated what was said by the Full Court in Bonnici and Bonnici (1992) FLC 92-272 referred to by her Honour:

‘The expression “financial resource” should be confined to those interests which do not fall into the definition of property as such to which the parties have a present entitlement.’

Such an approach was supported by the recent statement by the High Court in Stanford earlier referred to.

Accordingly, the Full Court considered it important to state that there was no doubt that her Honour erred in referring to the husband’s vested interest in Property as a ‘financial resource’. It was not a financial resource; it was property of the husband. It did not in the Court’s view, however, follow that this error warranted intervention by this court. If her Honour can be seen to have erred in the manner of her expression rather than in the error infecting the application of principle or the exercise of her Honour’s discretion, intervention by this court was not warranted.

“Exclusion” of property in section 79 property proceedings

In a similar vein to the expressions just discussed, earlier cases often contained reference to particular property being ‘excluded’ from consideration. In the Full Court’s view, it was wrong as a matter of principle to refer to any existing legal or equitable interests in property of the parties or either of them as ‘excluded’ from, or ‘immune’ from, consideration in applications for orders pursuant to s 79. This was applying Stanford.

More often than not, the expression was used to indicate that particular property, or a particular category of property, or superannuation interests, were to be treated separately from other property for the purpose of a consideration of s 79(2) or for the purpose of assessing contributions.

The nature of a particular interest or interests in property and when and how it was acquired, utilised, improved or preserved was very relevant to each or all of three central questions: (1) should a s 79 order be made at all; (2) whether contributions should be assessed ‘globally’ or ‘asset by asset’ or by reference to two or more ‘pools; and, (3) what is the nature and extent of each party’s contributions. There was no basis, however, for automatically excluding from consideration any property in which the parties have an existing legal and equitable interest.

Importantly, while it was convenient to describe by reference to a characteristics (for example, as an ‘inheritance’ or post-separation’ or after-acquired’ property) its place within the ambit of s 79 was determined by the fact that it existed as a legal or equitable interest of the parties to the marriage or either of the parties and that the nature, form and characteristics of it and the contributions of all types made by the party suggested that it should be treated in a particular way.

The consideration of the three central questions earlier referred to called in each case for the exercise of discretion by a trial judge. That discretion was exercised not by reference to whether property might conveniently be described as ‘an inheritance’ or ‘after-acquired’ but, rather, by reference to the nature, form and characteristics of the property in question and the nature, form and extent of the parties’ contributions of all types across the entirety of their relationship.

In respect of the last point, it was important to emphasise that the categorisation of property as ‘an inheritance’ or as ‘after-acquired’ property often led to an erroneous argument that unless contributions to that property can be established, the property should be ‘excluded from consideration’. The Court stated that this argument was erroneous by reason of ignoring the fundamental premise that s 79 was directed to all of the existing legal and equitable interests in property of the parties or either of them without exclusion of any of those interests.

Concluding Remarks

It may have been open to her Honour to find first, that Property W should be assessed separately from the other property (and superannuation interests) and, secondly, to find that, by reference to s 79(4)(a),(b) and (c), the wife should be assessed as having no entitlement to a share of it by reference to those considerations. However, that conclusion was to be reached by findings which (a) included the interest in that property; and (b) by making findings on the evidence which justify that conclusion with respect to contributions of all types made across the entirety of the period until the date of trial. According to the Full Court, her Honour did neither.

If her Honour was to adopt as ‘asset by asset’ or ‘two pools’ approach of the assessment of contributions, her Honour’s task was to assess contributions across the whole of the more than 25 year period under consideration (approximately 17 years of co-habitation and approximately eight and a half years post-separation) in respect of Property W and to assess contributions separately across the same period in respect of the balance of the parties’ interest in property (and superannuation).

Having determined to consider contributions by reference to the period of cohabitation and, in effect, separately in respect of the post-separation period, her Honour was obliged to make findings relevant to each such period so as to arrive at an overall conclusion as to contributions to Property W and an overall conclusion as to contributions to the balance of the interests in property (and superannuation).

Rather than an infelicitous use of the expression ‘financial resource’ or of expressions indicating that Property W was ‘excluded’ so as to inform a decision whether an ‘asset by asset’ or ‘global’ approach should be adopted, in the Court’s view, the trial judge excluded Property W altogether from a consideration of the contributions made to the parties’ existing interests in property. The Court stated that doing so was an error of principle.

Orders

The appeal was allowed and the case remitted for re-hearing.

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