How are pre-rela­tion­ship assets treat­ed in a prop­er­ty set­tle­ment? Are they includ­ed or excluded?

After sep­a­ra­tion the par­ties to a mar­riage or a defac­to rela­tion­ship are enti­tled to seek a divi­sion of assets of the rela­tion­ship. The assets of the rela­tion­ship include all assets held joint­ly or indi­vid­u­al­ly whether they were acquired pri­or, dur­ing or after the rela­tion­ship. It does not mat­ter which part­ner paid for the asset or from where they obtained the funds.

When con­sid­er­ing the divi­sion of assets of a rela­tion­ship a court is required to under­take the fol­low­ing steps:

Deter­mine whether there should be any change to the own­er­ship of assets

The court must deter­mine whether there should be any change to the own­er­ship of assets at all hav­ing regard to the cir­cum­stances of a rela­tion­ship. In most cas­es, the court will deter­mine that there should be an alter­ation of prop­er­ty inter­ests, how­ev­er, this is not guar­an­teed. This is par­tic­u­lar­ly the case in short mar­riages, sec­ond mar­riages or if there are over­whelm­ing con­tri­bu­tions by or through one par­ty with min­i­mal or no con­tri­bu­tions by the oth­er. Fur­ther, a court may con­sid­er it appro­pri­ate that the assets should remain with the per­son who has the own­er­ship or pos­ses­sion of them as at the date of the hearing.

Deter­mine the asset pool

This is achieved by tak­ing the val­ue of the assets of the par­ties held joint­ly and indi­vid­u­al­ly and deduct­ing the val­ue of the lia­bil­i­ties of the par­ties and each of them. There is some­times an argu­ment about whether cer­tain lia­bil­i­ties should be includ­ed but usu­al­ly all lia­bil­i­ties are includ­ed. This is not to sug­gest that a court will not exclude a cer­tain lia­bil­i­ty if it con­sid­ers this appro­pri­ate in a par­tic­u­lar case. It is the net val­ue (assets minus lia­bil­i­ties) which is said to make up the prop­er­ty pool for division.

Deter­mine how the par­ties con­tributed to the prop­er­ty pool?

This is where the con­tri­bu­tions of both par­ties are con­sid­ered. Who was the pri­ma­ry care­giv­er of the chil­dren, who was the pri­ma­ry finan­cial provider, did one par­ty ren­o­vate the prop­er­ty, who did the greater share of the cook­ing, clean­ing, gar­den­ing etc? Were there any indi­rect finan­cial con­tri­bu­tions through gifts or inher­i­tances from fam­i­ly or friends?

Deter­mine the fac­tors that will affect each of the par­ties in the future?

Such things as future earn­ing capac­i­ty, the health of the par­ties, the age of the par­ties, any future car­ing respon­si­bil­i­ties of the par­ties are considered. 

Assess whether the orders are fair and equi­table between the par­ties of the relationship?

The effect of the pro­posed orders on both par­ties are con­sid­ered. The court will con­sid­er the length of the rela­tion­ship and all the fac­tors out­lined above to deter­mine whether the pro­posed orders are fair tak­ing into account all of the cir­cum­stances of the rela­tion­ship. It is here that such mat­ters as destruc­tion of prop­er­ty and chron­ic gam­bling are considered.

Con­clu­sion

A pre-rela­tion­ship asset will be con­sid­ered a con­tri­bu­tion of the per­son who bought that asset into the rela­tion­ship. There is a prin­ci­ple in law known as the ero­sion prin­ci­ple which means that over time the val­ue of the ini­tial con­tri­bu­tion reduces and the con­tri­bu­tion of the oth­er per­son increas­es. This is par­tic­u­lar­ly the case if the per­son who did not bring the asset into the rela­tion­ship con­tributes direct­ly to the asset in ques­tion. This means that a con­tri­bu­tion of a pre-rela­tion­ship asset in a short mar­riage or de fac­to rela­tion­ship will have more influ­ence than in a long mar­riage or de fac­to rela­tion­ship. Nat­u­ral­ly this will depend on the dol­lar val­ue of the asset at the com­mence­ment of the rela­tion­ship, for exam­ple, the con­tri­bu­tion of a prop­er­ty with an equi­ty of $1,000,000 at com­mence­ment will be con­sid­ered a greater con­tri­bu­tion than a prop­er­ty with an equi­ty of $40,000.

It is also rel­e­vant to con­sid­er whether a pre-rela­tion­ship asset has had lit­tle or no call on the joint assets of the mar­riage. For exam­ple, if the prop­er­ty was pro­duc­ing a pos­i­tive income (no mar­i­tal funds used to top up the mort­gage) from rental income then this asset may be con­sid­ered as a major con­tri­bu­tion of one par­ty alone.

The solic­i­tors at Swaab are experts in the field of Fam­i­ly Law and many are accred­it­ed spe­cial­ists. We are avail­able to assist with your prop­er­ty mat­ter whether it is sim­ple or complex.