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Family Matters No. 31 - April 1992

Matrimonial property reform

Margaret Harrison

Abstract

The tasks of the Joint Parliamentary Inquiry into the Family Law Act include examining 'whether it is desirable to better structure the exercise of the discretion of the courts in making orders determining disputes in relation to ... property'. This article examines the issue of judicial discretion in matrimonial property disputes; presents a brief outline of the property division proposal of the Law Reform Commission, and the position taken by the Australian Institute of Family Studies on the proposal; notes the failure of the Commonwealth government to indicate whether it proposes to endorse some or all of the Law Reform Commission's recommendations; argues that a 50-50 starting point for determining the property share of each spouse would avoid many of the pitfalls of detailing and suggesting the different weights to be given to a possible multitude of contributions to a marriage. The author suggests such a starting point would also provide a strong message to husbands and wives alike that their marriage is a partnership of equals and not an institution composed of superior and inferior members.

The Parliamentary Joint Select Committee's review of the Family Law Act includes examining 'whether it is desirable to better structure the exercise of the discretion of the courts in making orders determining disputes in relation to ... property'. With the Committee's report due in August this year, it is timely to consider judicial discretion in determining matrimonial property disputes.

The issue of how best property may be allocated has a long history in Australian family law, and its origins can be traced back to the first Joint Select Committee on the Act, which reported to Parliament in mid-1980. One of the recommendations then was that a full study be carried out by the Australian Law Reform Commission (ALRC) on the legal implications of introducing a 'full matrimonial property regime'.

The topic was eventually referred to the Commission in 1983. One of the issues it was required to investigate was whether or not spouses should be entitled to a fixed proportion of some or all of the property acquired by either or both of them before, during or after marriage. The Institute's Economic Consequences of Marriage Breakdown study contributed to the Commission's inquiry by providing empirical information on the financial effects of separation on men and women, measured soon after they split up and then one to three years after divorce. The book Settling Up was the product of that research and its successor, Settling Down (forthcoming), traces the longer term economic and other adaptations of parents five to eight years after separation.

The first study found that property division failed to show equal or adequate consideration of indirect contributions to the marriage economy by women. Mothers had usually withdrawn from the paid workforce to care for young children, and consequently were often in a parlous financial position when the marriage came to an end.

In other words, the economic arrangements made during marriage did not help women after separation, when they lost the benefit of the main income earner but retained responsibility for a large proportion of child-related expenses. Their interrupted job histories and child care responsibilities also did not equip them for regular paid employment.

The second study showed that the economic disparities between former husbands and wives continued, although somewhat diminished, for at least another three years when women were sole custodial parents.

The Law

There are two distinct characteristics of the law of property allocation after separation in this country. The first is that, having inherited the common law tradition from Great Britain, Australia also acquired the common law approach to family-related issues, which is essentially non- interventionist, at least while a marriage remains intact.

However, once the law is called upon to intervene, it has very wide powers to adjust property as it considers appropriate under the circumstances. Detailed provisions defining the nature of family assets or entitlements and predetermining shares on death or divorce are quite foreign to the Anglo-Australian legal system, and broad judicial discretion and a minimum of legislative intervention are typical. The Family Law Act contains no definition of what is or is not matrimonial property, other than its unhelpful reference to 'property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion'. It also has no presumptions or rules as to distribution.

The Act confers wide powers on the court to adjust property after marriage breakdown in a manner it considers appropriate, provided it is satisfied that, in all the circumstances, the particular order is just and equitable. The discretion is not completely unfettered, as issues of contribution to the property and needs of the parties (both defined in the Act) must be taken into account, although there is no obligation to specify what weight is given to the various criteria when shares are determined.

Nevertheless, Wade (1988) has commented on the 'wilderness of single instances' resulting from the plethora of different interpretations, and one experienced practitioner has written that 'the implementation of [the Family Law Act sections relevant to property division] is as varied as the numbers of judges sitting on the Family Court bench (if not more so)' (Taussig 1983). Although written nearly a decade ago, in the absence of any substantial reforms to the law, Taussig's words can be assumed to still have relevance.

Who Owns What

The second, associated characteristic of Australian law is that marriage has no legal impact on a spouse's ownership of property. Anything owned before marriage or acquired in any manner during it remains the property of the owner and is under his or her management and control while the marriage continues.

However, should a determination be sought in the event of a separation, all assets (and liabilities) may be brought into the 'pot' for division and possible re-allocation, regardless of legal title. Where assets are owned jointly as matrimonial homes almost invariably are the spouses have equal rights and entitlements to them; but this may also be altered in matrimonial proceedings. Whether or not the assets are considered to be divisible, and in what proportions division may occur, depends on factors such as how and when the assets were acquired and the uses to which they were put during the marriage.

It should be mentioned that a very small proportion of separated spouses have their matrimonial property disputes decided by a judge. The Family Law Act discourages litigation by requiring that matters be heard by a registrar, before they are listed for hearing before a judge, and at that time about 60 per cent of disputes are settled. Many would have already been resolved by negotiations between the parties themselves, with or without legal advice. The rarity of judicial decisions, particularly those that are reported, gives them an importance to practitioners that far outweighs their significance for the 'average' matter. In the absence of legal advice, anecdotes, horror stories and folklore often fill the gap (Wade 1988).

As part of its matrimonial property reference, the Law Reform Commission undertook a survey of those statistically unusual cases which had at least proceeded some way down the path to litigation (Swartzkoff and Rizzo 1985). More than 200 cases had been contested and judgment delivered. These cases were rarely seen to involve complex legal or factual issues. Registrars and judges alike were of the opinion that settlement had been impeded by unrealistic or unreasonable behaviour by one or both spouses, by their poor relationship with each other and by an inability to compromise.

Alternative Systems

By way of contrast to the judicial discretion approach, many jurisdictions are far more precise, defining what assets are or are not 'matrimonial' and how these are to be divided should the marriage be dissolved. Much of western Europe is characterised by such an approach, as are New Zealand and several states and provinces in North America.

In the light of espoused views of spousal equality, the shares in such systems are almost invariably classified as equal. Depending on the nature of the legislation, marriage may have no impact on property ownership (as in Australia) but particular rules may operate on separation, on the death of a spouse, or on application to a court. This is known as a deferred community system, as an occurrence such as separation is required before rules or presumptions of ownership come into operation.

Alternatively but less frequently, in what is called a full community system, property defined as being matrimonial and acquired during marriage is immediately and automatically owned equally by husband and wife throughout the marriage, and each takes an equal share if the marriage ends. In both full and deferred community schemes, exemptions may apply in the case of inheritances, and the matrimonial home may be treated differently from other assets. The rules of definition and distribution may also be avoided or varied by the parties entering into a contract adopting their own terms.

Discretionary and Non-Discretionary Systems

Adjustment by judicial discretion is based on a belief that justice can best be achieved if every case is considered to be unique. Practitioners speak of the law's strength in tailoring outcomes to the nuances of a particular couple's financial position, needs and expectations, and of the value of flexibility in trading off assets.

For the many who are unwilling or unable to dispute a financial settlement and are bargaining in the shadow of an already nebulous law, this flexibility is more likely to suggest high levels of uncertainty and unpredictability. Broad judicial discretion also considerably reduces the chances of appeals succeeding, as it is almost impossible to conclude that a judge has erred, unless she or he comes to a patently outrageous conclusion on the facts presented.

In contrast, the most obvious features of community systems are their relative precision and the certainty this generates. Discretion is necessarily reduced where the law is more precise and prescriptive, but this is accompanied by the problem that inflexible, non-discretionary rules relating to property definition and allocation may produce inequitable outcomes. They are particularly deficient when taking into account unequal financial consequences which have resulted from roles undertaken in the marriage.

Views of the relative merits of community and discretionary systems appear to be influenced by the system the particular commentator is most familiar with. The Scandinavian lawyer Agell (1992) concedes that discretionary systems offer low foreseeability but fair solutions in individual cases, while community systems offer foreseeability without the same possibilities for achieving justice for the individual case. While arguing that foreseeability and justice need not be alternatives, he expresses concern that one result of low foreseeability may be 'considerable risk that equal cases will be decided unequally'.

It can be argued that at times when marriages are breaking down at a high rate, it is an unaffordable luxury to continue with a broad discretionary system that treats every case as intrinsically different. The Australian child support experience suggested that many cases fall within 'normal' parameters. Moreover, with the time at their disposal and within the financial constraints of the parties themselves, courts had great difficulty in obtaining the information necessary to decide appropriate amounts of support, let alone to actually tailor amounts to the capacity to pay or the needs of the recipients. The most pragmatic solution was seen to be an administrative system with cases assessed according to a formula.

Although not without its critics, the Child Support Scheme was introduced without the large-scale disruption predicted. Those who argue that the formula is crude and inadequate in various respects are rarely heard to promote a return to the time when paying support was virtually an elective act, and amounts payable were almost invariably grossly inadequate.

What is Matrimonial Property?

An important component of any legislative scheme is the definition of matrimonial property, as this obviously has an enormous impact on the ultimate distribution. As mentioned earlier, the Family Law Act does not classify assets as being matrimonial or not. It has a technical definition of property and refers separately to 'financial resources', which case law has defined as sources of financial support which a spouse can reasonably expect will be made available (at a future time). The most common example of a financial resource is the proceeds of superannuation.

In an article of this nature it is not possible to describe the many and varied ways in which matrimonial property is defined or treated in different jurisdictions, in societies which to all intents and purposes appear to operate very similarly to our own. There are many variants on community property schemes. These were referred to in the Law Reform Commission report, which pointed out the convergence of models caused by a perceived need to support both the mutual commitment involved in marriage and the individual interests of husbands and wives.

However, undeniably, legal tradition, community expectations and societal pressures help shape the law and ensure its acceptability. It is also obvious that social change, varying economic climates and increased marriage breakdown are some of the factors which bring the relevance of established laws into question and suggest the need for change, as occurred most notably in the child support area.

There is debate here and overseas as to whether 'matrimonial property' should be limited to 'traditional' or 'basic' assets, should be widened to include superannuation and/or assets inherited or acquired later, or even extended to career assets such as a professional qualification acquired during the marriage. The last and widest categorisation takes into account the financial importance of being able to generate earnings and to have access to a career structure and work-associated benefits. In terms of monetary value, these are often more significant than the tangible assets acquired, such as an equity in a house, a car and some small savings (Glendon 1981; Weitzman 1985; McDonald 1986).

The issue of what is individual property and what is matrimonial property is far from being resolved and is unlikely to be considered comprehensively in Australia for some time. However, it is apparent that overseas commentators with a working knowledge of strict entitlement systems are in the forefront of attempts to widen the definition of property, as in most cases this would result in women receiving larger awards.

For example, Weitzman's famous study of unequal outcomes was carried out in California where, unless spouses specifically opt out, total community assets are divided equally. She found that so-called gender neutrality actually operated to the detriment of women and the children in their care. Similar results in Australia suggest that discretionary approaches are also falling short of producing equitable outcomes by inappropriate use of their much vaunted flexibility, by not taking a broader view of matrimonial property and by the community as a whole not putting sufficient social supports in place.

Equal, Unequal or Different?

In Australia, research by the Institute of Family Studies and the Law Reform Commission specifically showed that an equal division of assets and liabilities would not necessarily produce an equitable result for separated couples or their children. Settling Up also showed that only between 35 and 45 per cent of former spouses divided their property in the 4060 per cent range, suggesting that any move to a regime of equal shares would have a big impact on the results prevailing under the present system. Women tended to receive a higher proportion of property, and the loading was most commonly to account for their having the custody of the children.

Respondents to the Institute's study were generally antagonistic to the proposition that the general rule should be that on divorce, a couple's property is always divided 5050. On average, 20 per cent of women and just over 30 per cent of men supported such an approach. In contrast, about 80 per cent of women and 66 per cent of men supported the proposition that 'every marriage and divorce is different, and no one rule will suit all cases. Property should be divided up according to the particular situation of the couple concerned, even if that means uncertainty and some extra cost or delay'. However, a rigid 5050 result in all cases is a very different proposition to using a 5050 division as the notional starting point. Respondents were not asked their views on a possible equal starting point (see below).

Such a view and the survey results in general support Fineman's (1983) argument that there are major distinctions between rule equality and result equality, with the latter being the appropriate goal of any matrimonial property reform. This allows sufficient flexibility to take account of economic disparities occurring as a result of disadvantages flowing from the roles performed during the marriage. So where do these findings leave the Joint Select Committee's term of reference to consider the future role of discretion in property procedings under the Family Law Act?

Equal Sharing: A Starting Point

As a result of their various enquiries between 1983 and 1987, the Law Reform Commission and the Institute both proposed a rule of equal sharing as a starting (but not necessarily an end) point in property matters. Indeed, there was almost total agreement between the Law Reform Commission and the Institute on the ways in which the law should be amended (see accompanying boxed inset). In particular, each suggested a reduction, but not an elimination, of judicial discretion.

Neither attempted to graft a community system regime onto the Australian legal system, nor did they define or classify different types of property, nor exclude any from consideration. The Institute proposal, which is based on the premise that foregone earnings are capable of calculation and should be taken into account, has been discussed in considerable detail elsewhere (Funder 1992) Details of the Commission's recommendations are contained in its report. Suffice to say that no amendments have been made to the Family Law Act as a result of these considerable bodies of scholarship.

A rule of equal sharing was actually applied by the Family Court for several years after the Family Law Act came into operation, when it adopted the approach that a useful starting point when considering the division of assets accumulated during a marriage of reasonable length was equality of contribution, ownership and division. The approach undoubtedly had a ripple effect, with solicitors advising their clients accordingly.

However, in 1984 the High Court, in the case of Mallet, explicitly rejected this approach. The court stressed that each case must be decided on its merit, and thereby reiterated the widest possible discretionary approach in matrimonial property disputes. The Chief Justice made the position very clear in Mallet when he said: 'Parliament has not provided, expressly or by implication, that the contribution of one party as a homemaker or parent and the financial contribution made by the other party are deemed to be equal, or that there should, on divorce, either generally, or in certain circumstances, be an equal division of property, or that equality should be the normal or proper starting point for the exercise of the court's discretion.'

Cases such as Mallet were litigated (or settled acrimoniously) because of the perceived injustices involved in equating financial and non-financial contributions to a marriage, particularly where substantial monetary assets had been accumulated supposedly by only one spouse. As mentioned, the Family Law Act refers specifically to both categories of contributions but gives no guidelines as to their relative importance.

Settling Up found that in settlements involving higher levels of wealth, women tended to receive a lesser share than they did in the usual case where assets were fairly low in value and restricted to basic assets. This finding was complemented by the data showing that men and women in the study saw their contributions to the marriage differently. Funder (1986) found that men tended to overlook their former wives' financial contributions to the family while recognising (but not placing a great value on) their homemakerchild carer roles. Indeed, neither men nor women attached much value to homemaking, but considered direct financial contributions as being more important.

In Settling Up, the Institute argued that the most important characteristics of laws and the measurement of their performance were justice, predictability and efficiency. In arguing for an equal starting point, the Institute pointed out that this would involve a significant shift away from the present position, as the relative weight of each different contribution would be irrelevant. A similar point is made by Justice Evatt in her submission to the Joint select Committee (1991). Evatt explains that a primary rule of equal division requires the spouse who is seeking to disprove equality to provide evidence to this effect.

Which System?

The obvious question when the law is reviewed is which system out of the several major ones and their numerous variants is more equitable? In finding an answer, it must be asked: equitable to whom and in what circumstances? The choice is not merely between total discretion and a rigid, fixed entitlement system. Both, as mentioned earlier, have tangible disadvantages.

The movement for property reform in this country is far from being a 'hot' issue. Although a term of reference of the current parliamentary inquiry, it has not sparked off the amount of interest shown in child support, access and custody disputes or alternative dispute resolution such as mediation. Family law practitioner bodies have consistently argued against change, although individual members have been heard to complain about the difficulties of advising clients in cases displaying unusual attributes.

In its very detailed submission to the Joint Select Committee (1991), the Law Council of Australia urged that there be no change to the discretion-based system set out in the Family Law Act, other than in guidelines for the treatment of superannuation entitlements and the recognition and enforcement of marriage contracts. In coming to this conclusion, the Council relied on the support in Settling Up for the continuance of a discretionary system, and on the extremely low rate of litigation. In contrast, the Family Law Council (1991) recommended a 5050 starting point, referring to the need 'to structure the court's discretion to some extent, but not so as to tie the court's hands entirely'.

Conclusion

The Parliamentary Joint Select Committee faces the task of putting an end to the uncertainty about existing provisions in the Family Law Act as they relate to property allocation. The Law Council of Australia's submission to the Committee castigated the Commonwealth Government for its failure to indicate whether it proposes to endorse some or all of the Law Reform Commission's recommendations. Given that Settling Up was published in 1986 and the Commission's report was completed in the following year, the silence has been, at the very least, disconcerting.

The choices open to the Committee have been made somewhat easier by the lack of support for a full matrimonial regime as was canvassed in the first Parliamentary inquiry. However, the trenchant opposition by the legal profession is disappointing, given that a 5050 starting point would avoid many of the pitfalls of detailing and suggesting the different weights to be given to a possible multitude of contributions to a marriage. Such a starting point would also provide a strong message to husbands and wives alike that marriage is a partnership of equals and not an institution composed of superior and inferior members.

References

  • Agell, A. (1992), 'Grounds and procedures reviewed', in Economic Consequences of Divorce, Weitzman, L.J. and Maclean, M. (eds), Clarendon Press, Oxford.
  • Evatt, E. (1991), Vol.13, Joint Select Committee on Certain Aspects of the Operation and Interpretation of the Family Law Act (official Hansard report).
  • Family Law Council (1991), Vol.16, Joint Select Committee on Certain Aspects of the Operation and Interpretation of the Family Law Act (official Hansard report).
  • Fineman, M. (1983), 'Implementing equality: ideology, contradiction and social change: a study of rhetoric and results in the regulation of the consequences of divorce', Wisconsin Law Review.
  • Funder, K. (1986), 'His and her divorce', in Settling Up: Property and Income Distribution on Divorce in Australia, pp.224240, McDonald, P. (ed), Australian Institute of Family Studies and Prentice Hall of Australia, Sydney.
  • Funder, K. (1992), 'Australia: a proposal for reform', in Economic Consequences of Divorce, Weitzman, L.J. and Maclean, M. (eds), Clarendon Press, Oxford.
  • Glendon, M. (1981), The New Family and the New Property, Butterworths, Tortonto.
  • Law Council of Australia (1991), Vol.11, Joint Select Committee on Certain Aspects of the Operation and Interpretation of the Family Law Act (official Hansard report).
  • McDonald, P. (ed) (1986), Settling Up: Property and Income Distribution on Divorce in Australia, Australian Institute of Family Studies and Prentice Hall of Australia, Sydney.
  • Swartzkoff, J. and Rizzo, C. (1985), 'A Survey of Family Court Property Cases in Australia', Research Paper No.1, Australian Law Reform Commission.
  • Taussig, M. (1983), 'Identification and evaluation of the property of the parties to a family law action', Law Institute Journal, July.
  • Wade, J. (1988), 'Property reform in Australia: an overview', Family Law Quarterly, Vol.XXIII.
  • Weitzman, L.J. (1985), The Divorce Revolution: The Unexpected Social and Economic Consequences for Women and Children in America, The Free Press, New York.

Property Division

Proposal of the Law Reform Commission

Property to be included in the division All of the property of either spouse should be included (as is presently the case).

The starting point A rule of equal sharing (5050 split) as a starting point in the determination of the share of each spouse.

Allowable reasons for adjustment from the 5050 starting point

  1. that one party brought property into the marriage or acquired it by way of gift or inheritance or compensation or damages;
  2. actions of the parties in relation to property and child care after the marriage;
  3. a substantially greater contribution to the marriage by one party than by the other;
  4. that one party has the benefit of financial resources (for example, superannuation or assets held by a company or trust) built up during the marriage; and
  5. that there is a disparity between the standards of living reasonably attainable by the parties and that this disparity is wholly or partly attributable to a party's responsibility for the future care of the children of the marriage or to a party's income earning capacity having been affected by the marriage.

AIFS Position on the Proposal

As an endorsement of the general principle that a marriage is a partnership of equals, the Institute strongly supports the proposed changes. However, we would amend the wording of points 2 and 5 of the allowable reasons for adjustment to read:

2. actions of the parties in relation to property after the marriage, and

5. that one party's future income earning capacity has been reduced because of the division of roles within the marriage.

Reference to the present or future care of the children of the marriage has been dropped by the Institute from the wording of these two points on the basis that this aspect is now covered by the provisions of the Child Support Scheme.

In the Institute's wording of point 5, adjustment for the effect of the marriage upon future income earning capacity is not contingent upon there being a disparity between the standards of living reasonably attainable by the parties.

Except for any action of either party after the marriage which may have affected the value of the property, the Institute's rewording of points 2 and 5 effectively eliminates any consideration of present or future circumstances from the property settlement. The division would be based solely on what happened during the marriage and not on anything which happens after the marriage ends.

A Question for Family Law Practitioners

While family law reform should not be based on anecdote, we believe that answers to the following question to family law practitioners would yield strong support for legislation which provided for a 50-50 starting point in property division.

'How often do you describe a proposed property division to clients in terms of variation from a 50-50 starting point?

  • always
  • often
  • sometimes
  • never

In a straw poll of 17 family lawyers in Melbourne, five answered 'always', five answered 'often', five answered 'sometimes' and only two answered 'never'. While this is not a reliable sample, it suggests that irrespective of the ruling in the case of Mallet, a 50-50 starting point is conventionally used in matrimonial property division.