by | Oct 11, 2023

Is “fault” back? – Proposed property reforms to the Family Law Act 1975 (Cth)

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 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 elements of 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).

What does the 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

This article deals only with Schedule 1 — Property Reforms.

The Consultation Paper also addresses proposed amendments to the FLA about the use of protected confidences. The Attorney-General’s Department seeks to consult further about these. They were included in the Exposure Draft of the Family Law Amendment Bill 2023 (No 1), but not included as part of that Bill when it was introduced to Parliament in March 2023. The Family Law Amendment Bill (No 1) 2023 largely deals with parenting reforms and is expected to be passed by Federal Parliament later in 2023.

Overview of the proposed property reforms

The Consultation Paper explains that 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 in ss 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.”

The proposed property reforms cover:

  1. Decision-making framework
  2. Just & equitable
  3. Family violence
  4. Other proposed contributions factors
  5. Less adversarial trial process
  6. Duty of disclosure
  7. Arbitration – not discussed in this article.

Other recommendations in the ALRC Report with respect to property settlements which were largely intended to address the problem of the broad discretion under s 79/s 90SM creating uncertainty and expense for parties, were not adopted by the Exposure Draft. They include:

  1. Introduce a presumption of equality of contributions during the relationship (Recommendation 12);
  2. Value assets and liabilities at the date of separation unless the interests of justice require otherwise (Recommendation 13);
  3. Introduce a presumption of equality of superannuation accrued during the relationship (Recommendation 16);
  4. Simplify the process for splitting superannuation including: 
    • develop template superannuation splitting orders for commonly made superannuation splits; and 
    • when the applicant is suffering economic hardship, require superannuation trustees to limit the fees they charge members and their former spouse for services provided in connection with property settlement under Pt VIII to the actual cost of providing those services (Recommendation 17).

Curtailing the broad discretion of the courts under s 79/s 90SM was a focus of the ALRC Report. The Consultation Paper acknowledges that it has not adopted this approach.

Decision-making framework

The decision-making framework in the FLA is proposed to be significantly amended “to clarify and support the framework for making property and financial orders.” It will do this by:

  • Outlining the principles for decision-making under s 79/s 90SM;
  • Re-naming the s 75(2)/ s 90SM factors, sometimes called “future needs” factors,  to “current and future considerations”;
  • Providing that the effect of family violence can be considered in relation to both the assessment of contributions and the adjustment for current and future considerations; and
  • providing that financial and economic abuse, debts incurred by one or both of the parties and the effect of wastage can be considered in the assessment of contributions. 

The ALRC recommended in its 2019 Report that the FLA should be amended to:

  • specify the steps that a court will take when considering whether to make an order to alter the interests of the parties to the relationship in any property; and
  • simplify the list of matters that a court may take into account when considering whether to make an order to alter the interests of the parties to the relationship in any property.” (Recommendation 11)

Recommendation 11 has not been adopted in its entirety. Rather than specifying the steps or pathway which a court must follow, the Exposure Draft lists principles which can be followed in any order. Arguably, this makes the process even more complicated and confusing than it currently is, particularly for litigants, but also for their legal representatives and the courts. The Exposure Draft eschews and even rejects the idea that there is a single pathway or steps that must be followed in all cases. Furthermore, as discussed below, it adds new considerations to the lists of matters that a court must take into account under the existing s 75(2) and s 79(4) (ss 90SF(3) and 90SM(4)). 

In the past, the pathway for decision making in property settlement matters has been the subject of debate in the courts and by commentators. Prior to Hickey & Hickey and the Attorney-General for the Commonwealth of Australia (Intervenor) (2003) FLC 93-143 it was generally accepted that a property settlement was a 3-step process (e.g. Gibbs CJ in Mallet v Mallet (1984) FLC 91-507) but Hickey (and a number of other cases) added a fourth step: courts were required, after identifying  and valuing the property of the parties, assessing contributions and s 75(2) factors, to ask whether it was just and equitable to make the proposed property settlement order. 

The High Court’s decision in Stanford v Stanford (2012) FLC 93-495 identified an initial or preliminary step (although the Full Court of the Family Court of Australia has rejected the use of the term “threshold”). This initial step requires courts to establish that it is just and equitable to alter the legal and equitable interests of the parties at all, before embarking on the rest of the process. The approach taken by the High Court in Stanford arguably supported a 5-step process, (with the current s 79(2)/s 90SM(2) being considered at the outset and then possibly again at the end) but the High Court did not expressly comment on the 4-step Hickey approach.

The proposed s 79(2) (and equivalent s 90SM(2)) sets out that the decision-making process consists of the following principles:

“1. Identify the existing legal and equitable rights and interests, and liabilities, of the parties to any property.

  1. 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). 
  2. Consider the parties’ current and future considerations (current s 75(2) (for married couples); s 90SF(3) (for de facto couples)).
  3. 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)).”

The term “principles” rather than “steps” is used 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). 

It isn’t obvious how the proposed s 79(2) (and s 90SM(2)) is an improvement on the existing law or how it clarifies the law for litigants. It does not settle the debate as to whether there are 3, 4 or 5 “steps” and the proposed s 79(2)/s 90SM(2) does not set out a pathway but rather a list of 4 “principles” which can be dealt with in any order, so there are no “steps” at all. To an experienced family lawyer it will seem illogical to have the option of starting the s 79/s 90SM process by looking at contributions or current and future considerations, but this is expressly permitted by the note to the proposed s 79(2).

The proposed reforms do, however, remove the cross-referencing between spousal maintenance provisions and the property settlement provisions so each type of claim has its own separate section in the legislation. This is in accordance with the first part of Recommendation 18 of the ALRC Report. 

Just and equitable

The Exposure Draft aims to resolve the uncertainty as to how and when the just and equitable principle in the current s 79(2) (proposed s 79(2)(a)) and s 90SM(3) (proposed s 90SM(2)(a)) is addressed. The Exposure Draft clarifies that the court has flexibility about when this question is determined — at the outset, during or at the end of the decision-making process. 

The Consultation Paper says that this approach reflects the legal principle from Bevan & Bevan (2013) FLC 93-545 that the just and equitable requirement in the current s 79(2) “is not a threshold issue” and while it can be addressed at the outset in the vast majority of cases, consideration of whether it is just and equitable to make property orders “permeates the entire decision-making process” (at [62]). The Consultation Paper explains that the existing law is that, prior to making any order under the current s 79 (or s 90SM), a court must make a “positive determination” that it is just and equitable to make an order altering property interests (or a conclusion that such an order is not just and equitable). Unlike the Consultation Paper, Bevan and other Full Court cases, do not use the phrase “positive determination” or anything similar. Instead, the approach taken by Chief Justice Bryant and Justice Thackray in Bevan (at [66]) is followed. Their Honours cited the High Court of Australia in Mallet v Mallet (1984) FLC 91-507 where Dawson J at (p 79,132) described it as the “overriding requirement”, and said (at [82]) that it is “necessary for it to be shown that the trial judge has expressly, or by clear implication, answered that question in the affirmative.” 

The proposed wording appears to be both a change in the law and a watering down of Stanford. Whether the proposed terms of an order are ‘just and equitable” (the Hickey approach) is a different analysis than whether it is just and equitable to make any order at all (Stanford). As the note to the proposed s 79(2)/s 90SM(2) makes it clear that the 4 principles can be examined in any sequence, it is unclear whether the notion that the just and equitable principle “permeates” the entire process remains. Guidance is likely to be needed from the courts as to how and when “just and equitable” is to be considered under the proposed amendments. The proposed process may bring about considerable uncertainty, which is contrary to the expressed objectives of the Exposure Draft.

Family violence

Currently, family violence rarely impacts the alteration of property interests, and when it does the effect is usually modest. The ALRC report referred to research (para 6.86) to support this conclusion. 

Assessing the impact on the victim’s contributions is the approach taken by the courts in cases such as Kennon & Kennon (1997) FLC 92-257, rather than the concept of “negative contributions.” The principle in Kennon & Kennon is that the effect of family violence can be relevant if there is a course of conduct that made the victim’s contributions within the current 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 full passage is highly relevant when considering the context of the proposed amendments. 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.

However, in our view, s 79 should encompass the exceptional cases which we described above. It would not be appropriate to exclude them as a matter of policy because of this risk. It is a matter of common sense for the lawyers involved and, where that may not be sufficient, it is a matter for a firm hand by the Court at an early stage when a case appears to raise those issues.

It is essential to bear in mind the relatively narrow band of cases to which these considerations apply. To be relevant, it would be necessary to show that the conduct occurred during the course of the marriage and had a discernible impact upon the contributions of the other party. It is not directed to conduct which does not have that effect and of necessity it does not encompass conduct 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], [24]-[26]):

“…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…

For the reasons given, the words “significantly” and “more arduous” are not to be read as coterminous with “exceptional”. Rather, they arise from the basis of the principle itself which focuses on contributions. If the nature and extent of a person’s contributions are made more difficult or harder so that they should be accorded greater weight, such that they should be taken into account in the determining of the outcome, they have therefore been “significantly impacted” or made “more arduous”. The focus is not on the conduct per se, but on its effects on contributions.

The threshold for recognition is therefore met by conduct which has a discernible effect on the contributions of the other party such that it should be recognised in determining the respective contributions of the parties.

That, in my view, should be the focus and terms such as “exceptional” or “narrow”, or indeed, “onerous” add an unnecessary and unacceptable gloss suggesting that a rare and high level of impact is required and that the violence or its impact must be exceptional. That is not however, what their Honours said. All that was required was a “significant adverse impact” upon a party’s contributions. The word “significant” was used, in my opinion, as describing that the effect must be sufficient to warrant recognition but not imparting some artificial threshold. The effect of the conduct must be such that a greater weight should be given to the contributions.”

Under the Exposure Draft, the effect of family violence perpetrated by one party to the relationship on the other party will be an express factor for the court to consider both as part of assessing parties’ contributions (proposed s 79(4)(ca)/s 90SM(4(ca)) and as part of the current and future considerations (proposed s 79(5)(a)/ s 90SM(5)(a)). The Consultation Paper explains that the court will be able to consider the impact of the conduct on a party’s ability to contribute during the relationship, for example through a reduced ability to engage in paid work and contribute financially. The effect of family violence will also be an overarching factor to be considered as part of the other contributions factors in the proposed s 79(4) (i.e. financial, non-financial, homemaking and parenting contributions). Notably, the “effect” of family violence is without any qualifications, such as the “discernible impact” and “significantly more arduous” tests used in Kennon and later cases. Therefore, the proposed provisions do not reflect the existing case law and offers less assistance to self-represented litigantsthan was the intention. 

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

“(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 …” 

This proposed current and future considerations factor has extra emphasis as 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 adding the express consideration of family violence to the assessment of contributions and current and future considerations will impact a property settlement, save that the family violence needs to have had an effect on the party’s contributions and/or their current and future circumstances. 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.

It is in the context of the prevalence of family violence in society and the matters before the FCFCOA that amendments to the FLA to allow adjustments to be made for family violence have been considered. The proposed amendments implement recommendation 23 of the JSC in its Second Interim Report tabled on 15 and 16 March 2021: 

“The committee recommends that the Australian Government amend the Family Law Act 1975 to better reflect the impact of family violence on property settlement.”

The ALRC Report did not, however, recommend including family violence as an express contributions or s 75(2) (s 90SF(3) factor. In relation to family violence in the context of contributions, the ALRC said (para 6.88):

“The process of accounting for family violence through the lens of contributions may appear contrived when compared with an approach that focuses on compensating for the harm caused.”

Instead, the ALRC recommended that the FLA be amended to provide for a cause of action for harm caused by family violence and that Kennon be explicitly reversed (para 7.5 and Recommendation 19). The ALRC’s view was that creating a tort of family violence would remove the evidentiary barriers and confusion because the law of tort would apply, whilst making it clear that claims of family violence could only be made in limited circumstances. Clearly, the Exposure Draft has taken a contrary path.

The ALRC Report refers to research conducted by the Australian Institute of Family Studies (paras 3.87-3.90) that family violence is reported by approximately 60% of separated parents prior to and during separation. The statistics for parenting matters before the court is substantially higher, at 85%. Although the ALRC Report does not refer to family violence statistics in property proceedings, it can be speculated that there are high numbers of litigants in property cases who have been, or are exposed to family violence. Justice Aldridge’s statements in Martell, rejecting consideration of family violence as only encompassing the “exceptional cases” is likely to be correct, and if the proposed amendments become law, family violence may be relevant to the assessment of contributions in a large number of property settlement disputes between separated couples.

In the “Government Response to ALRC Report 135: Family Law for the Future – An Inquiry 

into the Family Law System” released in March 2021, (at p 22), it was stated:

“The Government believes that a tort of family violence may increase conflict and acrimony between parties, with a subsequent impact on children, and have limited applicability due to the need to prove loss or damage. Additionally, the tort may be costly and result in lengthy hearings, potentially causing delays in the resolution of family law property matters. Consultation with key stakeholders has indicated a lack of support for this recommendation.”

The Government does not appear to be concerned that its approach may have the same effect as introducing a tort. Furthermore, the floodgates may be, as foreshadowed in Kennon, opened by the broadening of the number of cases in which family violence can potentially be a factor in the outcome of property settlements. It is likely that legal costs will also increase as affidavits will be longer, particularly for trials; more lay and expert witnesses will be called; cross-examination will take longer; more self-represented parties will need Legal Aid to cross-examine the affected family member if intervention orders are in place; and cases will be more difficult to settle by consent. There could also be an increase in the number of intervention orders sought and a higher percentage of contested intervention order applications. Some of these matters were discussed in the ALRC’s Discussion Paper “Review of the Family Law System: Discussion Paper (2018) (at 3.114-3.121).

The ALRC in the Discussion Paper described the Kennon test (at 3.111) as “relatively strict” but in it s Final Report (at 1.39) referred to the uncertainty of the Kennon test: 

“There remains uncertainty too about the application of the decision of the Full Court of the Family Court in Kennon & Kennon in which it held that courts were able to adjust a party’s property interests in circumstances where the court determined that family violence had made the contribution of the person who experienced violence more difficult. The precise way in which the test was framed has made it difficult for later courts to apply. In any event, the legal principle on which this decision was based has been a matter of much academic conjecture and it is difficult to articulate the jurisprudential basis of the test. Further, as there is no legislative recognition of the relevance of family violence to the division of property, unrepresented litigants are in a different position to those who have sought legal advice and have been made aware of the possibility of running a ‘Kennon’ case.”

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 which states: 

“It is possible that the same conduct could be relevant to the assessment of contributions and current and future considerations. The proposed amendments do not curtail the court’s discretion in making these assessments and to respond to the wide variety of factual circumstances that come before it.”

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 s 79 process could be greater than its current impact under Kennon. Does this also mean that other matters, such as a financial resource or wastage can also be considered more than once?

Other proposed contributions factors

In addition to the effect of family violence, three other new contributions factors are proposed: the effect of financial and economic abuse, the effect of any wastage, and debts.

The proposed s 79(4)(ca) – (cd) (s 90SM(4)((ca)-(cd)) sets out all 4 of the proposed contribution factors, including family violence which is discussed above:

“(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”…

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 “family violence” does not include economic and financial abuse, and this may have unintended consequences for other aspects of the FLA. Greater assistance would be given to self-represented litigants by placing a definition of family violence in Pts VII, VIIIAB and VIIIC, even if it is repeated.

Wastage

The proposed contributions factor of the effect of wastage is intended to codify the current approach set out in Kowaliw & Kowaliw (1981) FLC 91-092 (at 76,644), namely:

“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.”

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.

Add-backs of wasted property as notional property are not popular among judges. In cases such as Trevi & Trevi (2018) FLC 93-858 the Full Court of the Family Court said that add-backs were “the exception rather than the rule” (at [28]). It will likely be more difficult for the courts to limits claims of wastage when the FLA expressly allows them to be considered as a contribution factor. Of course, they may not be successful, but claims which are likely to be unsuccessful still clog up the courts. 

Presumably the use of parties’ funds on legal costs, which is not given as an example of wastage, will still be allowed as an add-back of “notional property” so that the parties still bear their own costs as required by s 117(1). It may, however, be more difficult to claim that other add-backs to the property pool be made in dollar terms rather than as a percentage along with other contributions factors, or for wastage to be considered as a factor under the existing s 75(2)(o) and 90SF(3)(r), when wastage is expressly referred to as a contributions factor.

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. Debts can also be taken into account in the identification of “the existing legal and equitable rights and interests, and liabilities in respect of” the parties to property ##word/s missing here? (proposed s 79(2)(a)/ s 90SM(4)(a)). As a result, debts may be relevant to a consideration of the first 3 principles in the proposed s 79(2)/s 90SM(2), and it seems possible that it could 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.

Less Adversarial Trial process

Part 2 of Schedule 1 of the Exposure Draft contains amendments to establish “Less Adversarial Trial” (LAT) processes for conducting property or other non-child-related proceedings. The amendments are modelled on, and adapt, the existing LAT processes for child-related proceedings under Division 12A, Part VII of the FLA.

Recommendation 20 of the ALRC Report recommended extending ss 69ZX and 69ZN to property proceedings. However, the Government considered that a separate legislative scheme would be clearer for courts and parties, and would enable the proposed provisions to be better tailored to non-child related proceedings.

The Exposure Draft proposes 3 principles that will apply to LAT processes for non-child-related proceedings and underpin the operation of the proposed Division.

The principles set out in the proposed s 102NE(2) are:

  1. the court is to actively direct, control and manage the conduct of the proceedings 
  2. the proceedings are to be conducted in a way that will safeguard the parties to the proceedings against family violence, and
  3. the proceedings are to be conducted without undue delay and with as little formality, and legal technicality and form, as possible. 

The Consultation Paper explains that an intentionally broad approach is proposed in relation to the scope of proceedings that are defined as “or other non-child-related proceedings” and to which the proposed Division will apply. The proposed Division will apply to all proceedings where the court is exercising jurisdiction under the FLA, other than child-related-proceedings (defined in s 69ZM), where it may be beneficial. 

Duty of disclosure 

The Exposure Draft contains amendments to establish the disclosure requirements for separated parties with “financial or property matters”, which are defined widely in the proposed s 71B(7) for married couples (and s 90ROI(7) for de facto couples) of the FLA. So, rather than the duty of disclosure being only in the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 as is currently the case, the duty will also be in the FLA. 

Recommendation 25 of the ALRC Report was that the FLA “be amended to clearly set out the disclosure obligation of the parties and the consequences for breach of those obligations”.

The proposed duty will be located in Part VIII of the FLA to apply to property and financial disputes arising from the breakdown of a marriage, Part VIIIAB which applies to property and financial disputes for de facto relationships, and Part VIIIC which applies to superannuation matters for de facto relationships in Western Australia. 

The purpose of the change is to make the disclosure obligations more prominent and visible to users, legal practitioners and other advisers. The proposed s 71B(1) in Pt VIII (and s 90RI(1) in Pt VIIIAB and s 90YJA in Pt VIIIC) states:

“Each party to a proceeding relating to financial or property matters of a marriage has a duty to the court and to each other party to give full and frank disclosure, in a timely manner, of all information and documents relevant to:

(a) for a party to the marriage — the issues in the proceeding that relate to financial or property matters of the marriage; or

(b) for any other party to the proceeding — so much of the party’s financial circumstances as are relevant to the issues in the proceeding that relate to property or financial matters of the marriage.”

There will be new obligations on legal practitioners and family dispute resolution practitioners (FDRPs) to inform parties about the duties, explain the potential consequences of the party not complying with the duties and encourage the party to take all necessary steps to comply with the duties, thus supporting the intended aim of facilitating early disclosure (proposed s 71B(1)).

Although the first part of Recommendation 25 has been adopted, the latter has not. The proposed amendment aims to ensure that parties are advised of their duties of disclosure at an early stage by placing an obligation on FDRPs (who are often not legal practitioners) to explain legal obligations to parties. This doesn’t seem fair to FDRPs, nor compliant with State laws constraining non-lawyers from giving legal advice e.g. s 10 Legal Profession Uniform Law (NSW). There are exemptions from the prohibition on engaging in legal practice in, for example, s 10 Legal Profession Uniform General Rules 2015 (NSW), but these do not extend to FDRPs.

A better course may be to create an obligation on FDRPs (and legal practitioners) to give parties a court issued brochure explaining the duty, such as the obligation created by Part III FLA. 

The proposed duty of disclosure in financial and property matters to married parties will apply:

  • from the start of the proceeding and continue until the proceeding is finalised (proposed s 71B(1) (s 90RI(1) for de facto couples);
  • when the parties are “preparing to commence proceedings” (proposed s 71B(3)). However, for de facto couples, s 90RI(5) is worded differently and does not apply to parties “preparing to commence proceedings”, only once they have commenced. This distinction is due to the Constitutional limitations arising from the referral of State powers over parties whose de facto relationship has broken down. 

Currently, the Pre-Action Procedures within the Rules require parties to give disclosure as part of the Pre-Action Procedures (Sch 1, Pt 1, Item 4). The Pre-Action Procedures seem to apply in similar circumstances to s 71B(3). Rule 4.01 of the Rules provides that “…before starting a proceeding, each prospective party to the proceedings must comply with the pre-action procedures.” There is no distinction between de facto couples and married couples. 

The Consultation Paper’s explanation for the distinction in the Exposure Draft is:

“The proposed amendments would apply the disclosure duty in financial and property matters to parties when they are preparing to commence proceedings, supporting the early resolution of disputes. Currently, the pre-action procedures within the Family Law Rules require parties to give disclosure as they prepare to file with a court. Parties may complete facilitative dispute resolution processes at this time in an effort to resolve their dispute without needing to commence proceedings. 

The proposed duty would not apply in the context of facilitative dispute resolution processes unless the parties are preparing for proceedings or the court has referred parties to these processes. There would be practical and constitutional limitations associated with such an expansion. The new practitioner obligation to inform parties about the duty (detailed below), would support early disclosure.”

This distinction seems likely to confuse parties and their legal practitioners, particularly as no definition of “facilitative dispute resolution processes” is given. Anecdotally, legal practitioners generally interpret the disclosure obligations in the Pre-Action Procedures of the Rules as arising from when the legal practitioner starts communicating with the other party or their legal practitioner with the objective of negotiating a settlement through correspondence, a private mediation, family dispute resolution (FDR) or a round table conference. Some of these processes may be caught by “facilitative dispute resolution processes”, although the limitation is not in the Exposure Draft. If the FLA’s proposed duty of disclosure does not apply in these circumstances, then it seems unlikely that the current obligation in the Pre-Action Procedures of the Rules can have broader application and apply to parties who are not “preparing to commence proceedings” or to de facto couples.  

The inconsistency between to whom the disclosure obligation applies under the FLA and under the Rules seems likely to create confusion. The Consultation Paper does not acknowledge that the proposed change may have the unintended effect of reducing compliance with the duty of disclosure the Pre-Action Procedures if parties are not “preparing” to commence proceedings, or the difficulty of who will assess (and when) that “preparations” are underway and how this is defined. This is likely to create a separate (and new) area of dispute. 

Conclusion

The intentions of the Exposure Draft as described in the Consultation Paper, are arguably not met; in particular, there is less clarity as to the pathway to determine a property settlement than under the current s 79/s 90SM. As it is proposed that there will be more, not fewer, factors to consider than under the existing s 75(2)/s 903F(3) and s 79(4)/s 90SM(4) the property settlement process has not been simplified. Although attempts have been made to “align the decision-making principles for property settlement in ss 79 and 90SM with existing case law” by codifying the existing case law, the proposals do not incorporate the existing tests which have been developed over decades, such as in Kowaliw (over 40 years old) and in Kennon (over 25 years old) and cases which have followed them, suggesting that the courts will be at large to develop new guidelines rather than follow the current ones, and that parties may believe that such claims can be made in a broader range of circumstances. 

The proposed amendments are intended to simplify the FLA and increase its usability and accessibility, providing a clearer guide to parties negotiating out of court settlements. Instead, it appears likely that if these proposed changes are legislated, the law will be more complex, the courts will have more discretion, and it will be more difficult to settle matters by consent. Whilst family violence and wastage are behaviours to be discouraged and there ought to be consequences where appropriate, the current drafting creates uncertainty, and the prospect of unintended consequences. It seems likely that more frequent allegations of fault will be made (and denied), in the hope of obtaining a greater share of the property pool, leading to the possibility of increased legal costs and increased pressures on the court system.

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

 

Contact Forte Family Lawyers

"*" indicates required fields

Name*

© Copyright 2021 Forte Family Lawyers. Rights reserved. Liability limited by a scheme approved under Professional Standards Legislation. Disclaimer Privacy Policy