How does the Family Court treat assets and financial contributions in a short marriage when determining a property settlement?
In short marriages, particularly those lasting five years or less and where there are no children, the Family Court places significant weight on each party’s initial financial contributions and assets brought into the relationship. Unlike longer marriages, where initial contributions may diminish in importance over time, courts are more likely to adopt an asset-by-asset approach and recognise what each party contributed at the outset. The Court will also closely examine any increase in the value of assets during the relationship and determine whether that growth resulted from market forces or the parties’ efforts. As a result, initial contributions often have a much greater influence on the outcome of property settlements following short relationships.
If you have separated but were married for five years or less, the court will closely examine the parties’ financial contributions, particularly if there are no children. Some issues which typically arise in short relationships relate to the following scenarios:
- one party contributes a large sum at the beginning of the relationship whilst the other party contributes relatively little;
- an asset brought into the relationship by one party experiences significant growth (or decline) in value during the relationship;
- one party’s earning capacity far outweighs the other’s, and the non-contributor has had the benefit of an increased standard of living for a short period of time.
Assets brought into the relationship – “Initial Contributions”
In marriages of more than five years duration the weight given by the court to initial contributions lessens over time depending on a number of factors (including the contributions made over time by each party). This is known as the ‘erosion principle’. The ‘erosion’ principle was summarised by Fogarty J in Money & Money (1994) FLC 92-485 and later adopted by the Full Court in Bremner & Bremner (1995) FLC 92-560 as follows:
An initial substantial contribution by one party may be “eroded” to a greater or lesser extent by the later contributions of the other party even though those later contributions do not necessarily at any particular point outstrip those of the other party.
The ‘erosion principle’ is applied to marriages of more than five years duration. IN these marriages a global approach would be taken to the division of assets. In short marriages, it is likely that an asset by asset approach will be more appropriate, particularly if you have strictly divided and kept your own assets separate from each other (see, for example, McMahon and McMahon (1995) FLC 92-606). The practical outcome of an asset by asset approach is that parties take what they contributed to the marriage by way of direct financial contributions including initial contributions. The erosion principle will have little to no application in short marriages.
Contributions made during the relationship and “uplifts”
The court will examine financial contributions made during a short marriage much more closely than it would in longer marriages, particularly if there are no children. In cases where there has been an “uplift” (that is, an increase in the value of an asset contributed by a party at the outset of the marriage) the question arises as to who should enjoy the benefit of that uplift and in what proportion. If the uplift has occurred as a result of market forces, rather than renovations or business decisions that resulted in an increase in value, the court will usually attribute more weight to the initial contribution of that asset in favour of party that contributed the asset at the outset of the marriage.