by | Oct 26, 2023

Family Law Property Settlements – Fraud, Tax Evasion, Bankruptcy and Family Violence

Bad behaviour by separating couples is all too common. Fraud, tax evasion, bankruptcy, failing to disclose financial circumstances and other bad behaviour can result in negative outcomes for the recalcitrant party in property settlement proceedings.

The topics I will cover are:

  1. Overview of property settlement process
  2. Bad behaviour which may impact property settlement outcomes
  3. Overview of proposed reforms 
  4. Fraud and non-disclosure
  5. Wastage
  6. Liability for tax debts
  7. Bankruptcy
  8. Family violence
  9. Detail of proposed reforms

In most property settlements under the Family Law Act 1975 (Cth) (FLA) the process under s 79/s 90SM is the same:

  1. Identify and value the legal and equitable interests of the parties.
  2. Decide whether it is just and equitable to alter their interests. In other words, should the parties simply keep what they have or is there a reason to change the ownership of their property.
  3. Assess the contributions of the parties — these can be financial, non-financial, homemaking and parenting.
  4. Consider other factors – s 75(2)/s 90SF(3) – whether the contributions-based entitlements should be adjusted by taking into account other factors such as ages, the incomes and health of the parties, incomes and earning capacities and the care of children.

Although the court has a broad discretion when determining a property settlement, in some cases, there are particular factors which cause a departure from the wide range of standard outcomes, being the bad behaviour of one of the parties. 

Bad behaviour doesn’t impact a property settlement outcome unless it is very bad as Australia’s family law system is meant to be a no fault jurisdiction. Since the FLA commenced in 1975, parties don’t engage detectives to catch out a partner having an affair. But separating couples are often not at their best versions of themselves at the time of separation and it is quite amazing what they later discover about the other party that they didn’t know, or they knew but only disclose in the course of working out how to divide their property. Separation brings about extra financial and other pressures and the making of 2 households out of one doesn’t assist this process. The courts are reluctant to allow proceedings to sink into a mire of allegations about who didn’t wash the dishes, who spent too much money on clothing or hobbies etc. 

However, the courts expect parties to obey the law. They expect parties to comply with their duties of disclosure as set out in the court Rules, not to act fraudulently, to pay tax as required by the tax system, to pay creditors as and when they fall due and not to commit family violence. Unfortunately, many cases before the courts involve one or more of these factors. 

The bad behaviour I am going to talk about is:

  • Failing to disclose and fraud
  • Wastage
  • Tax evasion
  • Bankruptcy
  • Family violence

Coincidentally, after the topic for this talk was set draft legislation has been circulated for comment which will amend the FLA to expressly provide that the property settlement process take into account:

  • The effect of family violence to which one party to the relationship has subjected the other party;
  • Financial and emotional abuse;
  • Debt; and
  • Wastage.

Whilst these are matters which can be relevant under the current law, the proposals will arguably make this conduct far more relevant. So, I will explain the current position as well as the proposed new laws.

Fraud and non-disclosure

Fraud and non-disclosure are relevant to:

  • Property settlements
  • Setting aside property settlement orders – ss 79A and 90SN:

“there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance…”

Many of the cases involve consent orders.

  • Setting aside financial agreements – ss 90K(1)(a) and 90UM(1)(a):

“the agreement was obtained by fraud (including non-disclosure of a material matter)”

  • Setting aside transactions – s 106B:

“the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.”

  • Fraud against third parties – arises with respect to all of the above.

Parties have a duty of disclosure. “Full and frank disclosure” is the phrase used in the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (the Rules) to describe the obligation on a party to provide relevant information and documents to other parties.

The general duty of disclosure is:

“Each party to a proceeding has a duty to the court and to each other to give full and frank disclosure of all information relevant to the proceeding, in a timely manner (r 6.01(1))”.

In all cases, the duty of disclosure applies to each document that:

“(a) is or has been in the possession, or under the control, of the party disclosing the document; and

(b) is relevant to an issue in the case” (r 6.03).

For example, electricity bills are unlikely to be relevant to a property settlement dispute but may be relevant to a maintenance dispute.

The duty of disclosure applies:

  • • from the start of the proceeding (r 6.01(2))
  • • until the proceeding is finalised (r 6.01(2))
  • • when parties are complying with the pre-action procedures (Note to r 6.01(2); Sch 1, Pt 1, cl 4; Sch 1, Pt 1, cl 4). 

Prior to the institution of proceedings parties are expected to exchange relevant disclosure and endeavour to neogiate a settlement of their respective claims against each other.

Failing to disclose a party’s financial affairs can result in:

  1. Enforcement orders – r 6.18
  2. Costs orders – usually parties bear their own costs, but one exception is in 117(2A)(c):

“the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters”

  1. Subpoenas – courts need a reason to allow subpoenas to be issued. Can’t just be a fishing expedition and failing to disclose or delayed disclosure can justify a subpoena.
  2. Refusing to allow a document to be relied upon – r 6.17(a)(i)
  3. Being found guilty of contempt – r 6.17(a)(ii)
  4. May be an offence if Undertaking as to Disclosure is false or misleading in a material particular – r 6.02(2)
  5. Dismissal of all or part of a party’s case – r 6.17(b). Tate & Tate (2000) FLA 93-047; [2000] FamCA 1040 – After 4 years of litigation and 25 court appearances the wife was able to proceed on an undefended basis in circumstances where the husband failed to co-operate with orders for discovery and valuation or was late in doing so.

In Venter & Venter (No 5) [2023] FedCFamC1F 635, the wife disclosed the existence of 96,000 documents approximately one week before the commencement of trial and produced additional documents on the 4th day of the trial. She failed to offer any explanation for the delay in disclosing such an extraordinary number of documents. It was held that the sheer volume of documents demonstrated a considerable prejudice to the 8th respondent and amounted to trial by ambush. The claim against the 8th respondent was dismissed but the claims against the other respondents were able to proceed.

  1. The court can take a “robust” approach to the matter and assuming a party’s financial affairs are better than disclosed. This is the principle in Weir & Weir (1993) FLC 92-338 –  if there has been deliberate non-disclosure, the court “should not be unduly cautious about making findings in favour of the innocent party”
  2. Setting aside property settlement orders
  3. Setting aside financial agreements

Fraud is related to non-disclosure, as the FLA connects the concept. Fraud can also cover other conduct besides non-disclosure. Additionally, not all cases of non-disclosure will constitute fraud under the FLA. 

Much of the case law on setting aside property settlement orders for fraud involves consent orders, usually filed where there are no proceedings before the court. It is quite common with financial agreements too. 

The obligation to make full and frank disclosure under the FLA gives greater protection to parties from fraud and non-disclosure by the other. The obligation is not, however, transposed to the making of financial agreements.

A financial agreement is a private contract between parties where there is no express statutory requirement that disclosure be made or valuations be obtained; and there is no judicial scrutiny relating to the agreements being entered into. A party may enter an agreement, and such agreement is capable of being binding, with that party having little or no knowledge of the other party’s financial position. This is not likely to occur with respect to court orders.

However, fraud (including non-disclosure of a material matter) is a ground to set aside a financial agreement so it may be a fine line, or perhaps not so fine. In many of these cases there are often other relevant grounds for the agreement to be set aside such as undue influence and unconscionable conduct or hardship relating to the care of a child. 

Parke & Parke [2015] FCCA 1692 

Justice Howard held that the financial agreement should be set aside for non-disclosure or suppression of facts amounting to a misrepresentation. The applicant represented that Schedule 1 contained a list of all of his assets. That was untrue. He omitted the Parke Super Fund of which both parties were members although the respondent did not know of the existence of the fund or even that she had a member’s account.

The finding of the misrepresentation being false, rather than unintentional, was strengthened by the conduct of the applicant in the financial agreement proceedings where he had provided no disclosure of the superannuation fund and its existence was only discovered by the respondent as a result of a subpoena to the applicant’s accountant.

An appeal to the Full Court of the Family Court by the husband was never heard as the husband died and his legal personal representative discontinued the action.

Ainsley & Lake [2016] FCCA 2132

The wife sought enforcement of a post-separation financial agreement and the husband sought that it be set aside pursuant to s 90K(1)(a) FLA. The wife did not disclose her superannuation of $35,000 in the agreement although she had told her lawyers of its value and they had confirmed this in a letter. The husband knew that the wife had superannuation but believed it to be about $6,000. There was a blank space left in the schedule next to the words “Ms Ainsley’s superannuation”. The asset pool was modest, being less than $400,000.

The husband defaulted under the agreement, with his total defaults amounting to at least $38,241.

Judge Henderson found that the wife failed “to disclose a material fact, albeit without any intention to defraud in the usual meaning of such a phrase” (at [14]).

In addition, the wife’s failure to disclose her current superannuation at the time she signed the deed was in breach of specific recitals in the financial agreement.

The agreement was set aside although the husband had knowledge that the wife had some superannuation, he had failed to comply with the terms of the agreement and the pool was modest. These matters were irrelevant to the discrete issue in the case, which was the wife’s failure to disclose.

The wife argued that the husband’s failure to waive privilege and produce his then solicitor’s file was relevant and an adverse inference could be drawn from it. Judge Henderson rejected this argument and concluded (at [27]):

“It was the wife’s obligation to disclose her financial position. 

It was not the husband’s obligation to find it out.”

Talley & Patterson [2022] FedCFamC2F 1203 

There was found to be no basis to set aside a financial agreement for material non-disclosure as the wife was aware that the husband’s J Street, Suburb F property had been sold and of the sale price, at the time she signed the financial agreement. The agreement stated the agreed estimated value of the property as $800,000 rather than the actual sale price of $945,000. However, it was held that the sale price was within her knowledge and the husband had no intent to mislead or deceive.

Whitford & Whitford [2023] FCWA 15 

The court found that the values attributed to the Farm A property and the farming business were materially inaccurate. There was no reference to the Farm B property or to the pending sale of the Farm A property in the financial agreement. The court was satisfied that the s 90K(1)(b) non-disclosure ground had been established by the wife.

Wastage 

Parties love to argue this one, but there is a strict test. The main case is Kowaliw & Kowaliw (1981) FLC 91-092; [1981] FamCA 70 where the husband had lost money and been left with certain liabilities as the result of the failure of the business from which he had derived his income during most of the marriage. The court held that these losses and liabilities should be borne by both of the parties but not equally. The husband had also lost money by permitting a prospective purchaser, who in fact did not finally purchase the property, to occupy the matrimonial home free of rent or contribution for approximately a year. It was held that this action was commercially and economically reckless and the husband should be solely responsible for the consequent loss. 

Justice Baker’s classic statement in Kowaliw was (at 76,644):

“As a statement of general principle, I am firmly of the view that financial loss incurred by the parties in the course of the marriage … should be shared by them (although not necessarily equally) except in the following circumstances:

(a) where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets; or

(b) where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.”

It is a fairly high test and does not just apply if someone has a failed business or unfortunate investment.

Wastage may be relevant under either: 

  1. The assessment of contributions
  2. The future or needs factors: 

s 75(2)(o)/s 90SF(3)(r):

“any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account”

Hawkins & Hawkins [2016] FamCA 440

Kent J found that the wife’s expenditure of $634,000 on baseless claims in Supreme Court litigation and causing the husband to spend $235,000 on that litigation was wastage.

Nikas & Anthis [2015] FCCA 1871

The husband’s gambling of between $200,000 and $400,000 was found by Bender J to be in no way proportionate to the parties’ lifestyle or to his contributions during the course of the relationship. The gambling was an aspect of the parties’ contributions which led to a finding that the husband’s contributions to the non-inherited property of over $1.3 million was only 10% so he only received $303,300 after a s 75(2) adjustment. The wife also retained her inheritance of over $800,000.

Carron & Laniga (2019) FLC 93-909

The deterioration of a house while the husband had sole occupation of it was considered to be wastage. The Full Court of the Family Court upheld the trial judge’s finding that the husband had “wasted part of the value of the home” but the appeal was allowed on other grounds. The home was valued at $525,000 in December 2015. At the time of trial another expert valued the house at between $270,000 and $300,000 but gave the opinion that it would be worth in the mid $500,000 range if it was in “average” condition. The husband had cash of about $150,000 and therefore had the financial capacity to fund repairs, whereas the wife had only meagre resources. The husband sought to retain the house but did not rationally explain why he had not repaired it. The dilapidation of the house was not seemingly caused by mere inattention to regular maintenance. 

The husband told the expert the property was structurally unsound and access to the house was only by way of a step-ladder propped against the side of the house.

Mabb & Mabb and Anor (2020) FLC 93-947  — could also be considered a poor conduct case

The Full Court upheld the trial judge’s finding that the wife’s post-separation contributions were made more difficult by the conduct of the husband. The husband and the wife established a processing business during the marriage, though over time the wife devoted more time and money to the business than the husband. After separation, the wife was solely responsible for running the business. The husband interfered with the business, including by freezing the business accounts and by making an incorrect complaint about the business to the local council which meant the business could not undertake production. He also failed to contribute to mortgage payments he was ordered to pay and refused to contribute to other business expenses. The parties’ contributions during the marriage were held to be equal, but the wife’s post-separation contributions were held to be much greater than those of the husband and were made more onerous by the husband’s conduct. The husband’s conduct had a direct causal connection to the wife’s contributions (this is usually the terminology in Kennon v Kennon (1997) FLC 92-757 which I will discuss under family violence). The trial judge assessed the wife’s contributions at 60% and made a s 75(2) adjustment of 10% in the wife’s favour.

Tax evasion and liability for tax debts

In determining an appropriate property settlement order, the court may consider debts in relation to:

  1. The identification of the property to be divided between the parties
  2. The assessment of contributions
  3. The “future needs” factors: 

s 75(2)(ha)/(s 90SF(3)(i):

“the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant”. 

s 75(2)(o)/s 90SF(3)(r):

“any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account”

Tax evasion, particularly if the other party was completely innocent and unaware of it, can result in the tax evader being solely liable for the debt, or at least solely liable for any interest and penalties. As the innocent party may have benefited from the tax evasion there is a delicate balance between holding the tax evader liable and letting the “innocent” party off so that they unfairly benefit from the tax evasion to the detriment of the Australian Taxation Office.

The interests of creditors under s 75(2)(ha) do not have any more or less weight than the other factors under s 75(2). They are only one factor among many, such as disparities in the incomes and earning capacities of the parties and the impact of the care of children. 

Prince & Prince [1984] FamCA 7; (1984) FLC 91-501 

It was held that the court can make an allowance for a particular liability where appropriate. It can take the view that because of the circumstances surrounding how the liability was incurred, justice and equity may apply so as to wholly or partly disregard the liability when determining the property to be divided between the parties. 

Johnson & Johnson [1999] FamCA 3969

Assuming the debtor spouse is not bankrupt, frequently the ”innocent” spouse is held liable for some of the tax debt as that spouse benefited from the non-payment through lifestyle or the accumulation of assets. However, if the debtor spouse incurred the tax debt by being fraudulent or secretive, the “innocent” spouse may be held liable for 50% of the principal debt but for none of the interest and penalties. 

Chemaisse & Chemaisse (1988) FLC 91-915; [1987] FamCA 28

There is a history of Family Law Courts being concerned to ensure that revenue authorities, such as the Australian Taxation Office and State Revenue Offices, are paid. This is an example. 

Most practitioners discourage clients who are blatant tax-evaders from litigating due to the risk of a referral by the judge to the Australian Taxation Office (ATO) for investigation, thus potentially depleting the pool even further and delaying the litigation.

Hannah & Hannah; Tozer & Tozer (1989) FLC 92-052; [1989] FamCA 49

Priority was given in this case to tax debts over the interests of the non-bankrupt spouse and other unsecured creditors. That won’t always happen. It is a balancing exercise.

I will use a case example to illustrate, but many of the bankruptcy cases also often involve tax debts.

James & Snipper and Anor [2018] FamCAFC 235

The net property of the parties excluding the husband’s tax debts were $1,284,142, but once tax was deducted the position was negative, minus $847,237. The trial judge took into account that the wife received a substantial benefit from the husband’s post-separation income and concluded that it was just and equitable for the wife to contribute $200,000 to the husband’s tax debt, which was 10% of that debt and 18% of the net assets available to the wife after paying her own tax debt.

The appeal by the husband was dismissed.

Bankruptcy 

Before 2005 the principles which affected outcomes in relation to disputes between non-bankrupt spouses and trustees in bankruptcy were:

  • The roller-coaster principle
  • The partnership principle
  • Who got in first

To some extent these are all still relevant. However, since 2005, disputes involving the interaction of the FLA and the Bankruptcy Act 1966 (Cth) (BA) are generally decided in the one court, now called the Federal Circuit and Family Court of Australia (FCFCOA). The court’s powers are broadly contained in s 79(1):

“In property settlement proceedings, the court may make such order as it considers appropriate:

(b)  in the case of proceedings with respect to the vested bankruptcy property in relation to a bankrupt party to the marriage-altering the interests of the bankruptcy trustee in the vested bankruptcy property;

including:

(d) an order requiring:

(i) either or both of the parties to the marriage; or

(ii) the relevant bankruptcy trustee (if any);

to make, for the benefit of either or both of the parties to the marriage or a child of the marriage, such settlement or transfer of property as the court determines.”

The FCFCOA has jurisdiction to make orders about the property of a bankrupt if either:

  • there are property settlement proceedings related to property which has become the property of the bankruptcy trustee i.e. property which has vested in the trustee; or
  • spousal maintenance is sought by or from a party who is bankrupt at the time of the application or becomes bankrupt after the application is made.

A bankruptcy trustee must be joined as a party to property settlement proceedings under the FLA if:

  • the trustee applies to be joined; and
  • a party to the relationship became bankrupt before a final order was made; and
  • the court is satisfied that the interests of the bankrupt’s creditors may be affected by the making of a property settlement order.

The trustee may, after weighing up the costs and risks of the litigation, tell the court that it does not want to be a party, but will abide by the court’s decision made without hearing from the trustee.

The bankrupt spouse needs the leave of the court to participate in the proceedings other than to make submissions as to exempt property (s 79(12) FLA). Leave can only be granted to the bankrupt in exceptional circumstances (s 79(13) FLA). 

Section 75(2)(ha) refers to “creditors” and not the “trustee” and there is case law which suggests that the trustee’s claims cannot be considered here. Official Trustee in Bankruptcy & Galanis [2014] FamCA 832 confirmed on appeal. The trustee’s claims will still be relevant in determining the property pool and in assessing contributions.

Trustee of the property of G Lemnos, a Bankrupt & Lemnos & Anor (2009) FLC ¶93-394; [2009] FamCAFC 20

The trustee of the bankrupt estate of the husband appealed against orders for property settlement which provided that the matrimonial home vested in the trustee be sold, and that the net proceeds be divided equally between the trustee and the wife.

The proof of debt lodged by the Deputy Commissioner of Taxation in the husband’s bankrupt estate, as a consequence of his improper tax deductions over many years, far exceeded the net equity in the matrimonial home which was the only significant asset of the parties. 

The wife argued that the husband’s actions in respect of his income tax liability amounted to wasting of the matrimonial assets under s 75(2). The court referred to the doctrine of waste and the principles set out in Kowaliw and Kowaliw (1981) FLC 91-092 (at [72]) by the Full Court. Justice Le Poer Trench found that the husband’s conduct in completing his tax returns between 1991 and 2002 (and claiming deductions for expenses (including mortgage interest) on a property while he was living there) was “reckless and negligent at the least in filling in his tax returns for the relevant years”. This included using his old address as his residential address throughout this period (and for seven years after that property had been sold). The court therefore held that it was appropriate to require the husband to satisfy the Australian Tax Office (the ATO) debt from his own resources.

The court was not persuaded by the trustee’s argument that the wife had received a windfall from the non-payment of tax by the husband. In any event, the court was not satisfied that the wife did or ought to have had knowledge of the non-payment of proper tax liabilities of the husband.

In the end, the wife’s receipt of half of the $2.4m equity in the home was found to be just and equitable.

On appeal the Full Court allowed the appeal and remitted the matter for re-hearing. Thackray and Ryan JJ held that the trial judge erred in giving undue weight to the wife’s innocence in the tax deductions claimed by the husband. The majority judgment held at [244]:

“Having had the benefit of the funds flowing from the husband’s conduct, it would seem to us neither just nor equitable for the wife to escape all responsibility for payment of the primary tax that would otherwise have been paid”.

Commissioner of Taxation & Worsnop & Anor (2009) FLC 93-392; [2009] FamCAFC 4

The only significant asset of the husband and wife was the former matrimonial home valued at $4,750,000. The husband had a tax liability of $12,031,124 and that of a company of which the husband was sole director and shareholder of $421,756.

The trial judge ordered that the former matrimonial home be sold and that, after costs of sale, proceeds be divided equally between the wife and the commissioner. 

There was conflicting evidence as to the wife’s knowledge of the husband’s tax avoidance, but the trial judge accepted that the wife did not know. The trial judge made no adjustment in favour of the wife for s 75(2) factors although she had the primary care of 4 children aged between 1 and 13 years and this affected her earning capacity. He offset her s 75(2) factors against the husband’s indebtedness to the ATO as a factor in the Commissioner’s favour under s 75(2)(ha). Both the Commissioner and the wife appealed.

Both appeals were dismissed. 

Family violence

It is fairly rare for family violence to result in an adjustment in favour of the victim, but it does happen. Assessing the impact on the victim’s contributions is the approach taken by the courts. The leading case is Kennon & Kennon (1997) FLC 92-257; [1997] FamCA 27. The Kenon principle is that the effect of family violence can be relevant if there is a course of conduct that made the victim’s contributions within s 79 “significantly more arduous than they ought to have been” so there is a “discernible impact” upon the contributions (per Fogarty and Lindenmayer JJ). 

The exact wording is highly relevant when considering the context of the proposed amendments, because it is not proposed that the test be reprodcued. Their Honours said (at 84,294 – 84,295):

“Put shortly, our view is that where there is a course of violent conduct by one party towards the other during the marriage which is demonstrated to have had a significant adverse impact upon that party’s contributions to the marriage, or, put the other way, to have made his or her contributions significantly more arduous than they ought to have been, that is a fact which a trial judge is entitled to take into account in assessing the parties’ respective contributions within s 79. We prefer this approach to the concept of ”negative contributions” which is sometimes referred to in this discussion. …

However, it is important to consider the “floodgates” argument. That is, these principles, which should only apply to exceptional cases, may become common coinage in property cases and be used inappropriately as tactical weapons or for personal attacks and so return this Court to fault and misconduct in property matters — a circumstance which proved so debilitating in the past. In addition, there is the risk of substantial additional time and cost.”

The Full Court expressly ruled out conduct which does not have that effect and the principle did not encompass conduct solely related to the breakdown of the marriage, basically because it would not have had a sufficient duration for this impact to be relevant to contributions.

More recently, Justice Aldridge, sitting as the Full Court, expanded on the test in Kennon and pointed out that given the prevalence of family violence in today’s society, the relevant conduct is not limited to “exceptional” cases. He said in Martell & Martell [2023] FedCFamC1A 71 (at [22]:

“…Unfortunately the prevalence of family violence is wide and artificial barriers to its recognition, such as trying to limit its recognition in property cases to exceptional or narrow cases, has no basis in principle. As I shall endeavour to explain shortly, the focus of the majority’s reasoning was on the nature and quality of the contributions themselves which were not limited by such qualifying adjectives…

So, for a recent case example, Loncar & Loncar (2021) FLC 94-054; [2021] FedCFamC1A 14

The violence found to have occurred was:

  • The husband subjected the wife to a systemic pattern of family violence including being choked, cut, kicked, slapped, hit and having household items thrown at her during the cohabitation not less than once every three months. 
  • The wife was subjected to abusive language and abusive behaviour by the husband directed not only to her but also at the children, and the wife had to intervene on numerous occasions in an attempt to protect the children. 
  • The husband also hit the wife in the shoulder with a piece of wood in 2013. 
  • The husband tightly controlled the wife’s access to and expenditure of money.
  • During the course of this pattern of family violence, the wife experienced pain, bruising, bleeding, a perforated eardrum and anxiety. 
  • The wife received medical treatment, including stitches in respect of a wound to her right elbow as a result of the husband slashing it with a razor blade.
  • The husband was before the Local Court in respect of allegations of violence on at least eight occasions. 
  • The husband had pleaded guilty on a number of occasions to charges arising from his violent conduct towards the wife. He pleaded guilty to the charge that he had choked the wife. In relation to the incident where he slashed the wife with a razor blade, he received a good behaviour bond for 24 months.

The primary judge initially assessed the parties’ contributions equally but, having found that the husband had subjected the wife to a systemic pattern of family violence, then considered that the wife’s contributions as a homemaker were made much more arduous, including in the post-separation period. 

A 7.5% adjustment was made with respect to contributions in favour of the wife, giving her 57.5% of the proprty. 

A further 10% adjustment was made in the wife’s favour on the basis of s 75(2) factors due to:

  • the uncertainty of the wife’s employment as a recently graduated public servant
  • her responsibility for the financial support and parenting of three children under the age of 18 and one over 18
  • the inability of the husband to make any reasonable contribution by way of child support or any other financial support 
  • the requirement of the wife to house four children.

The wife appealed. She argued that the primary judge erred in failing to properly consider the wife’s overall contributions and particularly the contributions she made as homemaker and parent between 2015 and 2020, and in making the unreasonable and plainly unjust finding of a s 75(2) adjustment of 10%.

She also argued that the primary judge’s approach overly diluted her Kennon adjustment, and that in considering s 75(2)(b) he should have ignored the 7.5% adjustment because it was the result of the husband’s family violence. 

The appeal was dismissed.

The Full Court said (at [38])

“The weighing of contributions is quintessentially a matter for the primary judge and we are unable to discern any merit in Ground 1. It is not open to cherry-pick specific contributions and submit that adequate weight was not given to them without taking into account and weighing all other contributions of the parties. As is required his Honour assessed the respective contributions of the parties holistically, and no error is revealed.”

Proposed Reforms

The Federal Government has proposed changes to those parts of the Family Law Act 1975 (Cth) (FLA) which direct how property settlements between separated couples are determined. Primarily the proposed amendments aim to clarify the process followed by the courts to determine the parties’ property entitlements and codify adjustments made under case law for family violence, debts and wastage to promote a greater understanding by parties as to their relevance to the assessment of contributions. 

The proposed amendments are intended to address elements of both the Australian Law Reform Commission’s 2019 Final Report No. 135: Family Law for the Future – An Inquiry into the Family Law System (ALRC Report) and the Government Response to the Joint Select Committee on Australia’s Family Law System (JSC).

An Exposure Draft and Consultation Paper covering these and other proposed reforms were released on 18 September 2023. The consultation process will end on 10 November 2023 with the Federal Government expecting that the final version of the Family Law Amendment Bill (No 2) 2023 will be passed into law early in 2024. It is proposed that most aspects of the Bill will commence 6 months after Royal Assent. In relation to the property reforms, they will only apply to proceedings filed on or after the commencement date (s 24 of Sch 1 of the Exposure Draft).

Objectives of the proposed amendments (as set out in the Consultation Paper):

align the decision-making principles for property settlement in sections 79 and 90SM with existing case law with the aim of assisting separating parties, legal representatives and the courts to better understand and apply these principles

  • introduce family violence as a new factor for consideration when determining property settlement orders, when relevant to the circumstances of the case. The recognition of the effect of family violence within the legal framework is intended to better support parties, both in and out of court, to understand the relevance of family violence to a property settlement.
  • simplify the property decision-making principles by including the list of future considerations factors within the relevant provision, (rather than referring users to the list of factors in the spousal maintenance provisions). This will ensure all relevant considerations for property settlement orders are clearer and easier to understand by parties and legal advisers.
  • extend the less adversarial trial procedures to property and financial matters, providing the court with the power to manage evidence where family violence is alleged or present between separating couples.
  • insert a specific duty of disclosure in property and financial matters to the Family Law Act, that would apply during court proceedings or when a party is preparing to start a proceeding.”

Proposed contribution factors:

“(ca) the effect of any family violence, to which one party to the marriage has subjected the other party, on the ability of a party to the marriage to make the kind of contributions referred to in paragraphs (a), (b) and (c); and

(cb) the effect of any economic or financial abuse to which a party to the marriage has been subjected by the other party; and

(cc) the effect of any wastage, by a party to the marriage, of property or financial resources of either of the parties to the marriage or both of them; and

(cd) any debts incurred by either of the parties to the marriage or both of them.” 

The proposed “current and future considerations factors” (a renaming of the current s 75(2)/s 90SF(3) factors) will consider with this placed first :

“(a) the effect of any family violence, to which one party to the marriage has subjected the other party, on the current and future circumstances of the other party, including on any of the matters mentioned elsewhere in this subsection …” 

Family violence

This proposed current and future considerations factor has extra emphasis as I said earlier it has been deliberately added at the beginning of the list, rather than the end. However, none of the current and future considerations factors (or the proposed ones) are intended to carry more weight than any others in the section, but rather their weight depends upon the particular circumstances of each case. 

The proposed amendments specify that the court take into account the effect of family violence to which one party to the relationship has subjected the other party. According to the Consultation Paper, the intention is to prevent consideration of fault by the court and avoid penalising or punishing conduct. However, this intention seems more aspirational than directive. Parties are likely to see adjustments to property settlement outcomes due to family violence through a lens of fault. The proposed wording offers no guidance as to how the consideration of family violence will impact a property settlement. The “significantly more arduous than they ought to have been” and “discernible impact” tests in Kennon are not reflected in the proposed amendments and may not be applied by the courts when considering the proposed amendments if they are passed as currently drafted.

As the intention is that family violence could be relevant to both contributions and future considerations there is considerable potential for doubling-up, which is recognised in the Consultation Paper. 

This is unlike the existing law where if a matter is considered relevant to the assessment of contributions under the current s 79(4), such as a financial resource, it cannot then be considered again under s 75(2). If family violence can be considered twice, the impact of the family violence on the outcome of the property settlement process could be greater than its current impact under Kennon. 

Economic and financial abuse

It is unclear how much overlap there will be between family violence and economic or financial abuse. The Consultation Paper recognises there will be at least some overlap but the intention is to “make expressly relevant the effect of this type of abuse, including coercive controlling behaviours” and capture a broad range of conduct including controlling or denying access to money, finances or information about money and finances, and also undermining a party’s earning potential, for example, by limiting access to employment, education or training.

A preferable approach may have been to review the current definition of “family violence” in the current s 4AB(1) and, possibly expand on the examples in s 4AB(2) to ensure that they encapsulate  financial and economic abuse. Listing it as a separate factor to family violence suggests that the current definition of “family violence” does not include economic and financial abuse, and this may have unintended consequences for other aspects of the FLA. 

Wastage

The proposed contributions factor of the effect of wastage is intended to codify the current approach set out in Kowaliw. Currently, wastage is usually considered under ss 75(2)(o) (or 90SF(3)(r)), but it is proposed that wastage will instead be a contributions factor. The proposed s 79(4)(cc) (and s 90SM(2)(cc)) looks at “the effect of any wastage, by a party to the marriage, of property or financial resources of either of the parties to the marriage or both of them”, which is not a codification of Kowaliw and is arguably far wider. There is no definition of “wastage” in the Exposure Draft. Examples of wastage given in the Consultation Paper include:  

  • allowing a person to live in the parties’ property rent free for a year;
  • excessive gambling;
  • undermining the profitability of a business or investment, for example, by intentionally or recklessly undermining the goodwill of a business or damaging its reputation.

Debts

Another proposed contributions factor concerns the parties’ debts. The current s 75(2)(ha) (and s 90SF(3)(i)) (proposed s 79(5)(k)/s 90SM(5)(k)), requires the consideration of debts in a shopping list of factors which are relevant to the determination of a property settlement so far as they are relevant by virtue of s 79(4)(e)/s 79(4)(e). The current 75(2)(ha) (s 90SF(3)(i)) states that the court take into account:

“The effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant.”

The proposed provision that debts incurred by either of the parties or both of them can be considered as a “negative” financial contribution to the property pool (as explained in the Consultation Paper) is intended to be consistent with current case law. According to the Consultation Paper, the court will “continue to exercise its broad discretion in considering debt, including how and when a debt was incurred (that is, before, during or after the relationship), who incurred the debt and who it is owed to, and whether it was incurred with the awareness and/or consent of the other party to the relationship.” Interestingly though, the case law is clear that “negative” financial contributions are not recognised under the FLA (e.g. Kennon; Murphy J in Watson & Ling (2013) FLC 93-257 (at [33]). 

It seems likely that the existing s 75(2)(ha)/s 90SF(3)(i) will overlap with the proposed s 79(4)(cd)/s 90SM(4)(cd), but there is no clarity as to what this means. 

It is also proposed that as well as in the identification of “the existing legal and equitable rights and interestsof the parties to property that liabilities be expressly recognised (proposed s 79(2)(a)/ s 90SM(4)(a)), although traditionally they were considered there anyway. As a result, debts may be dealt with 3 times.  

For example, a loan may have been incurred by a party to purchase speculative shares which have reduced in value or a tax debt incurred by one party failing to lodge tax returns. That loan or tax debt might be considered:

  1. When identifying the existing legal and equitable rights and interests, and liabilities of the parties – whether it reduces the net property available for alteration or is the party who incurred solely liable for it;
  2. In the assessment of contributions – the other party may argue that even if the loan or tax debt is in the balance sheet, it should be taken into account as a contributions factor in their favour, and against the party who incurred it;
  3. In the assessment of the parties’ current and future considerations, if one party is solely liable for the loan or tax debt, they can argue for an adjustment in their favour so as to give them sufficient property that the creditor can recover the debt.

A bit confusing.

Conclusion

  • Do the reforms achieve their objectives?
  • Are there unintended consequences?

By overly simplifying the case law and bringing about a doubling-up or even tripling of opportunities to consider various factors I am concerned that there will be confusion. By not fully codifying the existing, well established principles in Kenon and Kowaliw it is likely that there will be considerable uncertainty, more litigation and the floodgates will be well and truly open thereby clogging up the court and increasing legal costs.

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.__

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