The Full Court of the Family Court some years ago identified the steps that the Court must follow to decide property matters between former spouses pursuant to section 79 and 75(2) of the Family Law Act. The Full Court’s approach has become a guide to parties’ entitlements. This approach became known as “the four-step approach” and it has been applied to family law matters for some years since.
A more recent, very significant, decision of the High Court of Australia  raises questions about whether “the four-step” approach continues to be the appropriate approach. In spite of the this decision, the “four-step” approach remains an important guide to assess what should be an appropriate family law property adjustment in a particular case even if it “merely illuminates the path to the ultimate result”.
Step One Identifying and valuing the assets and the liabilities of the parties.
This first step may appear at first instance obvious and uncontroversial. However, to identify what are the matrimonial assets, ascertain the liabilities and the value of the pool available for division between parties is on occasions an arduous process and it is not uncommon for matters to go to trial when the parties have not yet agreed on this aspect.
On occasions, one party is not in a position to identify all the assets and liabilities and the correct information is not forthcoming from the other party. The Family law Act and the Family Law Rules impose and obligation on each party to be candid about financial information and on occasions the Family Court has “punished” a party who failed to provide all relevant information by “drawing the worst possible conclusion against that party” and making its own assumptions about the extent and value of the secret assets.
On occasions, parties do not agree that they should be jointly liable to some liabilities, or a party would refuse to accept that a liability exists, typically, a loan repayable to parents.
Step Two Assessing the contributions that each party made to the marriage
The next step is to make an assessment of the contributions that each party made to the marriage in different ways including financial and non-financial contributions, the contributions of a party as a wage earner, as a parent and home maker, the contributions made by others “on behalf of a party”, for example, when a party receives an inheritance, when a party’s parents or other relatives provide labour to build a home or to build extensions and so on. A party may have introduced an asset at the commencement of the marriage and there may be a dispute about the extent to which that initial contribution should be credited to that party.
Step Three A comparison of the financial circumstances of each party
Once the assessment of contributions has been completed, it is necessary to make a comparison of the financial circumstances of the parties to ascertain whether there should be an adjustment in favour of one as against the other taking into account such things as disparity in income, whether one party has the care of a child of the marriage, each of the parties’ health, ability to work and financial resources.
As an example, assuming that a husband received an inheritance sometime in the last five or ten years before separation, the Court may conclude that, even though the parties have, in all other respects made equal contributions to the marriage, as a result of the inheritance (depending on the side of the inheritance and how long ago he received the inheritance) the husband made greater a contribution, say, sixty per cent. However, when the court makes an adjustment in Stage Three based on a comparison of the parties’ circumstances (section 75(2) of the Family Law Act) if the wife earns a much lesser income, does not have a career and has three children as dependents then in that case the court may make an adjustment in her favour of, say, fifteen per cent making the overall division fifty five forty five in her favour.
Step Four The just and equitable requirement
The Full Court indicated that there is a fourth stage to consider in these type of cases, namely, having completed the first three stages, the Court needs to consider whether justice has been achieve as between the parties or whether there should be a further adjustment in favour of one party or the other. Some critics including some judges have argued that there is no such thing as a fourth stage.
The four steps mentioned above provide a general overview of the court’s approach to property settlement and a useful guidance to a solicitor to assess what is his/her client’s entitlement in a particular case. Different principles apply in relation to de facto relationships. For a more detailed advice on your specific circumstances we invite you to contact our team.