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.
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.