Division of matrimonial property in Australia

Research Paper No. 25 – March 2001

Introduction

The aim of this Working Paper is to draw on recent data from the Australian Divorce Transitions Project to provide an insight into the way in which women and men are dividing their property when they divorce. The Research Paper provides an empirical analysis of matrimonial property division in Australia, rather than a legal analysis. A number of specific issues are explored including the nature and value of the assets on separation of women and men. The share of property women and men receive at settlement is also examined, and the extent to which the various contributions and needs specified by the Family Law Act contribute to the share of property received is tested. The final issue examined concerns the extent to which women and men would be worse (or better) off under a system of property division that results in equal shares being allocated to the husband and wife.

Before turning to the methods of the survey and a detailed account of the findings, the research needs to be placed in a broader context. In the first section of the Research Paper a brief outline of the legal framework for property division in Australia is provided. This is followed by a discussion of current proposals for reform and a brief outline of relevant policy and socio-demographic changes that have occurred over the past decade that may have impacted on the way property is currently divided on divorce.

Legal framework

The Australian system for dividing the matrimonial assets on divorce is a ‘separate’ property regime. On separation, the starting point when dividing property is that each spouse retains ownership of the property legally theirs. This is, however, only a starting point. Under the financial provisions of the Family Law Act 1975, the Family Court has the discretionary power to alter parties’ property interests on marriage breakdown if it is satisfied that, in all the circumstances, it is just and equitable to make the order. Exercising this power requires the court to consider the parties’ respective contributions to the property and other factors including their future needs. Where spousal support is sought in addition to a property order, it becomes the final stage in the process.

More specifically, when dividing the property the court is directed to take account of the financial and non-financial contributions made to the property and to the welfare of the family. Non-financial contributions in particular include any labour that may have increased the value of the property as well as contributions made to the welfare of the family through unpaid work at home and care of the children (FLA s. 79(4)).

In theory the task of dividing property based on the parties’ respective contributions appears simple. However, in practice there are clear difficulties involved in comparing contributions which are fundamentally different from one another (Parkinson, 1999). In the case of non-financial contributions, there are also difficulties involved in placing a monetary value on the contributions made.1 This particular concern has attracted the considerable attention of law reformers over the past two decades,2 some of whom have recommended restricting judicial discretion in evaluating contributions by introducing a starting point of equal sharing in the value of the matrimonial property - a starting point that is based on the principle of equal contribution by the parties to the property of the marriage.

Having determined the respective shares of property based on these contributions, the court is then directed to make an adjustment to take account of other factors including the future needs of each of the parties. The estimation of future need is based on factors or circumstances of a broadly financial nature such as the age and health of the parties, employment prospects and financial resources, responsibility for the care of children post-separation and divorce, the duration of the marriage and the extent to which it has affected the future earning capacity of the parties. In all there are fifteen largely prospective factors for consideration covering what each party is likely to need and what each is able to pay to support the other (the factors are set out in FLA s 75(2)).3

In practice, this second stage in achieving a just and equitable settlement is frequently employed to take into account the future financial needs of women and children. Women with dependent children can be at a considerable disadvantage compared to men in terms of their financial circumstances and their income earning potential following marital dissolution. In particular, single mothers and older women living alone post-divorce can experience a drastic fall in living standards, with many becoming (and remaining) poor, along with their children (Weston, 1986, 1993).

This economic vulnerability of women post-separation can be attributed to a combination of social and economic factors, many of which operate independently of marriage. These factors include women's weaker position in, and attachment to, the labour market (Funder, 1986b; Wolcott, 1997) and their relatively lower earnings compared with similarly aged men (ABS, 1998; Bryson 1996).

Other factors, by contrast, relate more specifically to the roles that women adopt during and after marriage (Funder 1986b). For example, during marriage the couple may decide that the husband's income earning capacity will be promoted while the wife assumes greater responsibility for caring for children and home making. Given the needs of children and men's usually higher earning capacity, this arrangement can work well — unless the marriage ends. On separation the costs of this division of labour during the marriage, such as loss of immediate earnings and reduced ability to earn and income in the future, place these women in economically precarious circumstances post-separation and divorce (Funder, 1992; 1993).

While simplified here, the detailed financial provisions that govern the allocation of property on divorce are inherently complex and there is broad scope for disagreement amongst the judiciary and the parties themselves as to the interpretation of these provisions (Parkinson, 1999). This is not surprising given that the law confers such wide discretion in settling property matters. In addition, the law guides parties’ actions at a time in their lives when they are under considerable emotional and financial stress, and at a time when mutual consideration for one another’s welfare and due recognition of their respective contributions to the marriage may no longer be the norm (Grote & Clark, 1998).

In such an environment, dividing property on divorce is a difficult task, and one which is made even harder for the sizeable minority of women and men who settle their property matters without formal legal representation (Dewar, Smith & Banks, 2000). There is, therefore, potential for discordance between the provisions of the law described above, and the application of these provisions by women and men who ‘bargain in the shadow of the law’ (Mnookin & Kornhauser, 1979). The extent to which there is a match between the way women and men divide their property and the provisions of the law, is one of the issues that this Research Paper will address.

Current reform agenda

A recent Government discussion paper on property and family law reform, the content of which is summarised below, provides the platform for the Federal Government’s current reform agenda for property and family law. In March 1999 the Government issued the discussion paper ‘Property and family law: Options for change’ outlining a number of options for property division reform. The two options for reform that were presented in the discussion paper include a continuation of the current separate property regime but with a presumptive starting point of equal sharing based on the assumption that each party has contributed equally to the property. Under this option the Court would retain discretion to depart from equal sharing to recognise either disparities in past contributions or in future needs.

The second option was a more radical proposal in which property acquired during the period of the relationship would be classified as ‘community property’ to which each party would have an equal entitlement on marriage breakdown. Under this second option departures would also have been allowed on the basis of future needs or compensation for loss of income (or earning capacity) arising from the marriage.

The discussion paper also proposes that superannuation would be dealt with in accordance with the terms of the government’s position paper released in 1998 (Superannuation and Family Law: A position paper, Attorney-General’s Department, 1988). Since the release of this paper in 1998, legislation has been introduced into parliament to permit the division of superannuation on divorce. The Family Law Legislation (Superannuation) Bill 2000, if enacted, will amend the Family Law Act 1975 and the Superannuation Industry Supervision Act 1993, to provide for the division of superannuation interests on marriage breakdown. The way in which superannuation entitlements are to be divided will, however, be dependent on the model of property division adopted (see Dewar, Sheehan & Hughes, 1999 for further discussion of family law reform and the treatment of superannuation on divorce). The Government called for submissions on the merits of these proposed options yet left open the possibility of adopting other models of reform that the community believes would be of benefit.

In a speech to the National Press Club on 27 October 1999, the Federal Attorney- General reported the outcome of consultations on this paper. In essence, the Attorney-General reported that neither option had received significant support. Instead, "the submissions overwhelmingly supported the retention of the status quo, with some minor modifications" (Attorney-General, 1999:10). Thus, while no major reform of the current property regime will be undertaken, there will be some "tidying up" of the current provisions. In particular, minor amendments are planned that will clarify the factors to be considered in property and spousal maintenance proceedings. The s 75 (2) spousal maintenance factors will be separated from the provisions governing property division and a discrete set of factors for the operation of s 79(4) will be devised that includes a modified version of the current s 75(2) factors. The exact nature of these modifications is not yet known.

Given that the Federal Government is in the process of reforming property and family law, it is considered timely to have available up-to-date data on the ways in which couples divide their property on divorce. Few approaches enable nationally representative estimates to be obtained of both court ordered and registered agreements and private arrangements, and for this reason the Australian Divorce Transitions data are significant. Such information is necessary to inform the reform agenda and to provide a baseline against which and any corresponding change in the way property is divided can be later evaluated.

The changing context

A further reason why up-to-date information on property division is needed is that more than a decade has passed since research on the division of property that covered both privately negotiated and judicially determined settlements was conducted (i.e., Settling Up). Since that time there have been a number of broad based policy, economic and demographic changes in Australia that may have influenced the way in which property is divided.

One of the core changes has been the introduction of the Child Support Scheme (collection in 1988 and assessment in 1989). This is a major legislative reform that has arguably reduced the need for the day-to-day support of children to be taken into consideration in property proceedings. In addition, recent research suggests that the Child Support Scheme has ameliorated the post-separation financial position of some mothers with dependent children. Drawing on data from the Australian Divorce Transitions Project, Smyth and Weston (2000) found that for a small group of resident mothers whose main source of income was wages, child support lifted their financial resources above the Henderson poverty line (Smyth & Weston, 2000: 14).

Another core change is the continued growth in women’s workforce participation prior to and during marriage, particularly in the area of part-time and casualised employment (Wolcott, 1997; Office of the Status of Women, 1999). Concomitant with increases in women’s educational attainment (Norris & Wooden, 1996), these kinds of changes may have increased women’s financial contribution to the matrimonial property and the welfare of the family. It may also have improved their chances of being in, or finding paid work when the marriage ends, thereby reducing the economic toll of separation and divorce.

In addition, changes in fertility and the nature of relationships may also imply some mitigation of the economic costs of separation and divorce for women. The increasing tendency for couples to live together before marriage, to marry at a later age, and have fewer children (de Vaus, 1997a; 1997b), are demographic shifts that may extend the period of time in which women lead financially independent lives. This may also result in increased contributions by women beyond the domestic assets of the marriage (such as the family home), and their greater financial resilience following separation and divorce. However, this is not to say that the adverse economic consequences of divorce for women have all but disappeared. Drawing on data from the Australian Divorce Transitions Project, Weston and Smyth (2000) found that sole mothers, and women from long-term marriages who live alone, are still more likely than men to experience financial hardship after divorce, and the hardship they experience is considerable.

1 Although calculating a monetary value for non-financial contributions is difficult, efforts have been made to do so. For example see Beggs and Chapman (1988) and more recently Chapmen et al, (1999), for estimates of the earnings women forgo because of the need to care for children. There are, however, no current Australian estimates available of the earnings gained by the breadwinner in having a spouse who stays home to have and care for the children.

2 The Joint Select Committee of Parliament conducted the first review of property and family law. In its 1980 report Family Law in Australia, it recommended consideration of a community property regime in which there would be joint matrimonial property (where the parties would be presumed to own property in equal shares) and separate property. This report was soon followed by an in-depth examination of matrimonial property law by the Australian Law Reform Commission. This report (Matrimonial Property, 1987) recommended the retention of the separate property regime with a starting point of equal sharing in the value of the property of the marriage. This recommendation was never implemented. The joint select committee proposed a similar agenda of reform in 1992 in its report (The Family Law Act 1975: Aspects of its operation and interpretation). The recommendations of this report were later reflected in the Family Law Reform Bill (No 2) which was released as an Exposure Draft in December 1994. The Bill attracted extensive criticism on the grounds that a starting point of assumed equal contribution to the marriage as a whole would become a de facto finishing point of assumed equal entitlement. A revised version of the Bill was approved by the Senate Legal and Constitutional Committee, and was introduced into parliament, but lapsed on the calling of the 1996 election.

3 These factors are more broadly referred to by the Family Court as the 's 75(2) factors' - a label that recognises that this adjustment is not only made on the basis of future financial need. Any other fact or circumstance of a broadly economic nature, which in the opinion of the court the justice of the case requires, can be taken into account (FLA s. 75(2)(o)).