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.1 The Full Court’s approach has become a guide to parties’ entitlements. This approach became known as “the four-steps approach” and it has been applied to family law matters for some years since. The Court applies the four-steps approach in circumstances where parties are (or were) married or in a de facto relationship.
A more recent, very significant, decision of the High Court of Australia2 raised questions about whether the four-steps approach continues to be the appropriate approach in all cases. In spite of the decision, the four-steps 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”.3
The four-steps approach should be used to analyse the likely outcome of a property matter whether or not parties wish to negotiate a settlement or to take the matter to Court.
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 matters surrounding the matrimonial pool divisible between them.
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 an 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”. The Court has proceeded to make its own assumptions about the extent and value of the party’s 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.
When considering the four-steps approach, normally, the Court separates the parties’ assets and accumulated superannuation entitlements into two separate pools:
- The superannuation pool of assets; and
- The non-superannuation pool of assets.
The Court has power to adjust and divide between the parties their assets and their superannuation entitlements.
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.
Step Four – The just and equitable requirement
The fourth stage in the four-steps approach is for the Court to consider, after it has completed an analysis of the first three stages, whether justice has been achieved 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.
Examples:
Below are a couple of examples about how the four-steps approach is applied by courts in different cases:
Example One – A couple cohabited for fifteen years. They married ten years after they commenced cohabitation.
At the commencement of cohabitation they were both young and poor! Neither party has any significant assets and neither had accumulated any significant superannuation entitlements. When they had children, the wife ceased working as a teacher. The husband continued to work as a public servant. The wife returned to work part time for three days per week as a teacher when the children commenced school. The parties separated and agreed to an arrangement whereby the children live with the mother and spend every second weekend and every Wednesday overnight with the father. Five years before separation, the husband received a substantial inheritance which he applied to pay off the mortgage on the former matrimonial home.
The Court would normally recognise that both parties made substantial contributions to the marriage in different ways both financial and non-financial during the period of cohabitation. The fact that they married years after they commenced cohabitation would be irrelevant in the Court’s approach to the four-steps approach. The Court must then consider whether there are any special circumstances which it must take into account and it may conclude (subject to the size of the inheritance) that the husband’s inheritance and the manner he applied it to pay off a substantial matrimonial debt is a significant factor with regard to Stage Two of the four-steps approach and, therefore, that the husband made a sixty per cent contribution. The Court must then consider Stage Three and compare the parties’ circumstances to decide whether there should be a further adjustment taking into account that the wife no longer has the same prospects in her career as a teacher, she earns a much lesser income and has three children as dependents (even though the husband may be paying child support). Under Stage Three, the Court may make a ten to fifteen per cent adjustment in favour of the wife which would make the overall adjustment a fifty-fifty division of the assets or a fifty-five forty-five division in her favour.4
Example Two – The parties commenced to cohabit in a de facto relationship three years ago in the woman’s house which she owns in her name.
She has a mortgage which she continues to service during cohabitation. Her partner contributes an agreed sum per week to all outgoing expenses including an agreed sum for “rent”. After three years of cohabitation, the parties separate. They have no children.
Although the parties did not marry, the four-stage approach would need to be applied in the same manner than if the parties had married.
The Court approaches short marriages and short de facto relationships differently. Normally, a marriage or relationship of less than five years is considered “short” and the Court would try to place the parties in the same or similar circumstances each were before the marriage or relationship commenced to the extent that this is possible. It may all become more complicated in some circumstances for example:
- If the parties had a child and one of them will care for the child predominantly;
- If both parties made significant contributions even though it was a short marriage or relationship.
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. For a more detailed advice on your specific circumstances we invite you to contact our team.
For more information call Carlos Turini or to make an appointment either our Canberra or Queanbeyan office:
- Hickey v Hickey [2003] FamCA 395 http://www6.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FamCA/2003/395.html ↩︎
- Stanford v Stanford [2012] HCA 52 (15 November 2012). In that case, the Court emphasised the importance of section 79(2) of the Family Law Act which reads: The court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order. The Family Court has wide discretion to adjust the proprietary rights of parties under the Family Law Act using the four-steps approach. There are some cases, however, when the Court should not disturb the parties’ proprietary rights and should not make any adjustments at all. A good example may be a short marriage or a short relationship. http://www6.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/2012/52.html ↩︎
- Bevan and Bevan [2013] FAM CAFC116 http://www6.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FamCAFC/2014/19.html ↩︎
- The Court has a wide discretion about how to divide the parties’ superannuation entitlements. Normally, although not in all cases, the adjustment described in the example relates to the non-superannuation pool of assets. In that example, the Court is likely to divide the combined superannuation entitlements of the parties equally between them. ↩︎
