by | Mar 21, 2024

Proposed New Factors For Settlements – Key Insights Into Property Law Reform in 2024

Australia’s family law landscape is in the midst of transformation, with the Family Law Amendment Act (No 2) 2023 (FLAA) standing as the focal point of these changes. These modifications will have repercussions for legal practitioners.

Please note: This overview is derived from a detailed industry piece by Jacky Campbell, Partner at Forte Family Lawyers, offering an in-depth exploration available for reading here.

The article pertains to the draft Family Law Amendment Act (No 2) 2023, which has been circulated for discussion. It is likely that there will be changes made before the final version is tabled in Parliament and passed.

Is ‘at fault’ making a comeback? Exploring proposed property reforms to the Family Law Act 1975

The Federal Government has proposed changes to parts of the Family Law Act 1975 (Cth) (FLA) that will influence how property settlements between separated couples are determined.

The aim is to clarify the process followed by the courts that define 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.

There is a risk though, that parties will concentrate on these negative aspects and therefore increase costs and the conflict between the parties.

So, what does it mean to codify a law?

To ‘codify’ a law means to organise and compile a set of legal rules and principles, which have been set out in case law into the legislation. In this case, the process involves bringing case law principles into the FLA.

The goal is to create a clear and accessible legal framework, making it easier for people to understand their rights and responsibilities. Codification brings the case law principles into the legislation and helps streamline, making the law more straightforward, easier to locate and concise. It’s essentially creating a written legal code that consolidates and organises existing laws for better clarity and understanding.

Why are property law reforms happening in Australia?

The Federal Government aims to amend the FLA to clarify property settlements. The proposed changes seek to codify the case law, focusing on family violence, debts, and wastage.

The amendments respond to the Australian Law Reform Commission’s 2019 report, proposing a clearer process for property settlements. An Exposure Draft and Consultation Paper were released in September 2023, with consultations ending in November. The final version of the Family Law Amendment Bill (No 2) 2023 is expected to be law in 2024, affecting proceedings filed on or after the commencement date.

What does the Family Law Exposure Draft cover?

The Exposure Draft contains four schedules:

  1. Schedule 1: Property reforms
  2. Schedule 2: Children’s contact services
  3. Schedule 3: Case management and procedure
  4. Schedule 4: General provisions

The following article looks at Property Reforms (Schedule 1). If you’d like to read more about the changes to Parenting Arrangements, which are included in the Family Law Amendment Act (No 1) 2023, you can read either our summary or full article for more details.

The Exposure Draft “proposes significant amendments to clarify and support the framework for making property and financial orders” under the FLA. The amendments are intended to:

  • Align the decision‑making principles for property settlement with the aim of assisting separating parties, legal representatives and the courts to understand better 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.

What are the key family law areas the proposed changes apply to?

The core areas that changes apply to are:

  1. Decision-making framework: Aligning principles with existing case law for better understanding and application.
  2. Just & equitable: Ensuring a fair and equitable distribution of property.
  3. Family violence: Introducing family violence as a new factor in property settlement orders.
  4. Contributions factors: Expanding factors considered in property settlement assessments.
  5. Less adversarial trial process: Promoting a more cooperative and streamlined approach.
  6. Duty of disclosure: Emphasising the importance of transparent financial disclosure.
  7. Arbitration: Addressing dispute resolution through arbitration (not discussed in this article)

Which family law recommendations of the ALRC were not adopted?

  1. Equality presumption: No presumption of equal contributions during the relationship.
  2. Asset valuation: Assets and liabilities are not valued by default at the date of separation.
  3. Superannuation equality: No presumption of equality in accrued superannuation.
  4. Simplified superannuation splitting: No templates for common splits; no fee limitations for economic hardship, although we expect that these will be introduced in the future.

Current and future considerations added to the proposed decision-making framework (s 79(2)/s 90SM(2))

The proposed renaming of current s 75(2)/s 90SF(3) factors to “current and future considerations” is sensible. There is also a primary focus on the effect of family violence. Placing this factor at the beginning of the list emphasises its importance, although the court must give equal weight to all factors.

The proposed decision-making process consists of the following principles:

  1. Identify the existing legal and equitable rights and interests, and liabilities, of the parties, identify the existing legal and equitable rights and interests, and liabilities, of the parties to any property to any property.“1.
  2. Consider each party’s respective contributions to the property of the relationship (current s 79(4)(a)‑(d), (f)-(g) (for married couples)/s 90SM(4)(a)-(d) and (f)-(g)) (for de facto couples).
  3. Consider the parties’ current and future considerations (current s 75(2) (for married couples); s 90SF(3) (for de facto couples)).
  4. Determine whether it is just and equitable to make any order to alter a party’s interest in property (current s 79(2) (for married couples)/ s 90SM(3) (for de facto couples)).”

However, the term “principles” is used rather than “steps” to emphasise that the principles do not need to be approached in any particular order and this is confirmed in a note to s 79(5).

Removal of cross-referencing

Proposed reforms separate spousal maintenance and property settlement provisions, implementing Recommendation 18 of the ALRC Report. This removes cross-referencing, providing distinct sections for each claim type.

Debates about the Family Law property settlement process

Historically, the property settlement process has been the subject of debate. Key cases, like Hickey & Hickey, added complexity, introducing a fourth step — evaluating the just and equitable nature of proposed property settlement orders.

Since the High Court case of Stanford v Stanford the process has been less clear.

New ‘just and equitable’ considerations for Australian property settlements

The Exposure Draft addresses uncertainties surrounding when and how the “just and equitable” principle is considered. It clarifies that the court has flexibility in determining this, allowing consideration at the outset, during, or at the end of the decision-making process.

Proposed family law changes to simplify property settlement yet also bring their own uncertainties

While attempting to resolve uncertainties, the proposed changes might introduce new complexities. The wording introduces flexibility but raises questions about whether the “just and equitable” principle permeates the entire process. The proposed process could bring about considerable uncertainty, contrary to the objectives of the Exposure Draft. Judicial guidance may be necessary for interpreting and applying the proposed amendments.

Family violence, economic abuse, wastage and debts

The Exposure Draft introduces new contribution factors, including the effects of family violence, economic or financial abuse, wastage, and debts. These factors aim to consider a range of behaviours, but there’s uncertainty about their effect.

Wastage

Wastage, currently considered under the case law in various ways, will become a distinct contribution factor. The proposal broadens the scope beyond existing case law, potentially impacting court proceedings and making it more challenging to limit claims of wastage, and easiest to succeed in these types of claims. The matters considered are likely to be similar to current law, but there will be greater awareness of the concept of wastage.

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

Debts incurred by the parties are recognised as a negative financial contribution. The proposal aligns with current case law, but there is greater potential for overlap and double-counting, thus creating uncertainty.

Less adversarial trial rocess

The amendments introduce “Less Adversarial Trial” processes for non-child-related proceedings. Three key principles aim to actively manage proceedings, safeguard against family violence, and minimise formality and delay.

There are concerns though, that this type of process may lead to unfairness through lack of clarity and increased costs, which are contrary to the objectives of the court.

Duty of disclosure

The duty of disclosure, currently in court rules, will be explicitly stated in the FLA. The change aims to enhance visibility and adherence to disclosure obligations in financial or property matters.

These amendments respond to recommendations and seek to address challenges arising from family violence while introducing more streamlined trial processes and explicit disclosure duties.

The main problems with the proposal are that there is no reference to disclosure being “relevant” so the disclosure obligation will potentially apply to documents which are not relevant to a particular proceeding, and due to the types of documents proposed to be covered, the disclosure obligation will not apply to certain documents which are relevant to a particular proceeding. There may also be problems with inconsistency between the disclosure obligations in the Rules and the FLA.

Impacts of family violence

Currently, family violence minimally impacts property settlements. Courts typically assess the impact of family violence on the victim’s contributions, as seen in Kennon & Kennon. The proposed reforms, however, expressly include the effect of family violence as a critical factor for court consideration, both in assessing contributions and current and future considerations.

Impact of family violence – prevalence and statistics

Family violence is reported by around 60% of separated parents and 85% in parenting matters before the court.

Addressing family violence in property settlements

The proposed changes to the Family Law Act (FLA) aim to recognise and deal with the impact of family violence on property settlements.

Changes to family violence considerations

Under the Exposure Draft, family violence’s impact on a party’s ability to contribute and on their current and future circumstances becomes an explicit factor in property settlement considerations. Notably, the proposed amendments remove qualifiers like “discernible impact” and “significantly more arduous,” potentially providing less guidance than existing case law and broadening the circumstances where an adjustment may be made for family violence.

Intention of family violence proposal and potential impacts

The Consultation Paper aims to prevent fault-based considerations and punitive outcomes for family violence. However, the proposed wording may still invite parties to perceive adjustments through a lens of fault. The lack of guidance on applying family violence considerations in property settlements raises questions about the potential impact and interpretation of the proposed amendments by the courts.

The proposed amendments introduce significant changes in considering family violence in property settlements. While seeking to address uncertainties, potential challenges and interpretations could arise, requiring careful examination and potential clarifications during the legislative process.

The proposed changes are likely to increase legal complexity, the length of trials, and costs. There’s a possibility that the same conduct, like family violence, might be considered more than once, potentially impacting property settlement outcomes. It is not clear that the legal outcomes will justify the increased costs.

New obligations for practitioners

Legal practitioners and family dispute resolution practitioners (FDRPs) will have enhanced obligations under proposed s 71B(1). They must inform parties about their duties, explain potential consequences for non-compliance, and encourage adherence, promoting early disclosure. This could be problematic as FDRPs are not authorised to give legal advice.

Duty of Disclosure timelines

The duty of disclosure in financial and property matters for married couples starts from the proceeding’s initiation until finalisation (proposed s 71B(1)), while for de facto couples, it applies once proceedings commence (s 90RI(5)). These distinctions arise due to constitutional limitations on state powers.

Potential issues with 2023 property settlement reforms

The proposed amendments aim to simplify the FLA but might complicate the property settlement process. Despite attempts to align with existing case law, the absence of established tests like those in Kowaliw and Kennon raises concerns. The potential for increased legal costs and disputes is anticipated, overshadowing the intended simplification.

Despite intentions to enhance clarity and accessibility, the proposed changes may introduce complexity, increased discretion for courts, and challenges in settling matters. Concerns about unintended consequences, more fault allegations, and additional pressure on the court system arise, questioning the effectiveness of the proposed amendments.

A longer version of this article was first published in the Family Law practice area on CCH iKnowConnect and is reproduced with the permission of Wolters Kluwer.

Separated parents should stay informed about these ongoing reforms and seek legal advice to effectively navigate the evolving family law landscape.

Please note that this article is not designed as legal advice. Please contact a legal professional to discuss any content shared in this article and if it is relevant to your individual situation.

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