Family Court: conduct reconsidered: zip is not enough

In a recent Full Court of the Family Court case of Polonius and York, the court said that to give the husband nothing by way of property settlement was not enough, and remitted the matter for rehearing before a different Federal Magistrate. The court summarised the law as to conduct on property settlements.

The court also said that in cases where there had been a long marriage, followed by a long separation, the appropriate course might be to assess property on an asset by asset basis.

The parties had separated in 1997, after a 22 year marriage. They continued to live under the same roof for another 10 years. The husband became bankrupt shortly after separation, and the wife paid out the trustee to keep the house. As a reminder of why it is important to remember that the time limit for property settlement is one year after divorce, not separation, many years after they separated, and after he was discharged from bankruptcy, the husband sought a property settlement.

Federal Magistrate McGuire thought that the appropriate amount that the husband should receive was nought, nil, nix, zero or zip, or as the Full Court said:

The effect of the order made by the Federal Magistrate was that the Husband only received his superannuation interest of $1,500.00 or 0.17 per cent of the net assets of the parties. The former matrimonial home and the superannuation interests have a value of $459,226.00 of which the Husband received an entitlement of 0.33 per cent. In other words, the Husband received virtually nothing, which is what his Honour intended.

The Federal Magistrate considered that the wife’s contributions post-separation “negated” the husband’s earlier contributions, a proposition specifically rejected by the Full Court.

Conduct

86. Marital conduct of parties is not specifically referred to in s 79 of the Act and as a general proposition the marital behaviour of parties is not of itself relevant to applications under s 79: Soblusky and Soblusky (1976) FLC 90-124. However, there may be circumstances in which marital conduct may be relevant and taken into account. If the conduct of a party towards the other had a significant adverse impact upon the other parties’ contributions to the marriage or made the other parties’ contributions more arduous than they ought to have been, then this may be relevant: Kennon v Kennon [1997] FamCA 27; (1997) FLC 92-757. As well, certain types of behaviour which have a direct connection with financial matters may be relevant. In Sheedy and Sheedy (1979) FLC 90-719 Nygh J said at 78,872 that conduct may be relevant “if it has financial consequences, such as financial misbehaviour resulting in the waste or suspension of family assets”: see also Fisher and Fisher (1990) FLC 92-127 at 77,846.
87. In Kowaliw Baker J said at 76,644:

As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of the marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:

(a) where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets or
(b) where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.

Conduct of the kind referred to in para. (a) and (b) above having economic consequences is clearly in my view relevant under sec. 75(2)(o) to applications for settlement of property instituted under the provisions of sec. 79.
Examples of this type of conduct may include circumstances where the drinking and gambling of one party has led to the failure of a business or the dissipation of assets: see Mead and Mead (1983) FLC 91-354 per Asche SJ at 78,369.

88. In Kowaliw Baker J also said at 76,644-45: “It does seem to me, however, that if a party has either by deliberate act or by economic recklessness reduced the value of assets available for distribution then the economic consequences which flow therefrom including the resultant burden to the other party are directly relevant to a consideration of the respective contributions of the parties contemplated by sec. 79(4)”.

89. It follows that in certain circumstances financial misconduct or financial misbehaviour may be taken into account in a number of ways. It may be taken into account by the notional inclusion of an amount at step one of the preferred approach to the determination of an application pursuant to s 79 of the Act which was explained in Hickey and Hickey and Attorney-General for the Commonwealth of Australia (Intervener) [2003] FamCA 395; (2003) FLC 93-143 or when assessing the contributions at step two of the preferred approach or perhaps when considering the other factors at step three of the preferred approach: see M and M [1998] FamCA 42 (1 May 1998).

90. In this case, it was not established that there was financial misconduct or financial misbehaviour as we have described above. The Federal Magistrate made clear at [73] that the evidence did not enable him to “make a positive finding that the [Husband had] acted recklessly, negligently or wantonly”. Thus, it follows that the parties had the benefit of amounts that comprised the secured and unsecured debts of the Husband of perhaps $241,626.00 ($139,626.00 plus $102,000.00): see Boege and Boege.

91. We also observe that in relation to what Baker J said in Kowaliw with respect to the sharing by parties of financial losses, in Browne v Green [1999] FamCA 1483; (1999) FLC 92-873 the Full Court (Lindenmayer, Finn and Holden JJ) observed at 86,364:

    53. On a careful consideration of the material before us, we have had to conclude that it was manifestly unjust to the husband in this case to depart from the Kowaliw guideline and to place upon him the full burden of the losses, merely on the basis that he was that party who initiated and had overall control of the venture which led to the financial losses, particularly in circumstances where there is no suggestion that the wife was anything other then a willing participant. There can be little doubt that had the Hayle project succeeded, the wife would have sought to share in the fruits of that success, and there would seem to be no reason why she would not have been entitled to do so. It is this last-mentioned consideration, being that parties generally expect to share the economic profits of a marriage, which, in our view, requires that there should be good and substantial reasons for departing from the principle that where there are economic losses incurred in a marriage, those losses should be shared, absent any negligence, recklessness or deliberate dissipation of assets by one party. No such good and substantial reasons are apparent to us in this case. (emphasis added)

    Post-separation contributions

    The Full Court stated:

    It then becomes necessary to consider what happened subsequent to separation in mid-1997. Before proceeding we observe that in Zalewski and Zalewski [2005] FamCA 996; (2005) FLC 93-241, Finn J observed at 79,978:

It is my impression that there are currently coming before the Court a significant number of cases in which the period between the parties’ separation and the hearing of their property settlement proceedings is substantial. The delay seems often to arise, at least in part, because the parties have initially reached some form of informal (or even formal) settlement from which one party later resiles (often for good reason). In these long separation periods, the parties will usually have built up substantial new assets or incurred substantial liabilities. In an endeavour to satisfy the parties that any orders which are eventually made by the Court in these somewhat complicated cases are just and equitable, it can, in my view, be very useful for Judges to assess contributions to property on an asset by asset basis. (emphasis added)

We agree with these observations. In a case such as this, where there was a marriage of long duration and a lengthy period of separation before the hearing of applications for property settlement, during which time significant assets were accumulated by one or both parties, it should indicate that in such circumstances it may be more useful to undertake an assessment of contributions on an asset by asset, or, category of asset by category of asset basis: see Norbis v Norbis [1986] HCA 17; (1986) 161 CLR 513.