Proposed changes to the process for determining a family law property settlement – What do you need to know?

The concern is that a high proportion of litigants cannot easily access the common law principles which have developed since 1975, and exist outside of the FLA. The problems are exacerbated by the large number of self-represented litigants and those experiencing multiple risk factors such as family violence, child abuse and mental health issues.

The second theme of the Bill is to strengthen the manner in which the economic consequences of family violence for separated couples are addressed. The statistics show that over 80% of applications filed in the Federal Court and Family Court of Australia (FCFCOA) involve alleged family violence so this aspect of the reforms is likely to affect significant numbers of families.

Property settlement framework

The process the court currently takes to determine a property settlement is not clear on the face of the FLA. The Explanatory Memorandum states quite clearly that a primary intention of the Bill is to “codify the approach to decision-making in relation to a property division”. The proposed s 79(3) (with a corresponding s 90SM(3) for de facto couples) seeks to address this as it:

The proposed s 79(3) states:

“In considering what order (if any) should be made under this section in property settlement proceedings, the court:

• is to identify:
  • the existing legal and equitable rights and interests in any property of the parties to the marriage or either of them; and
  • the existing liabilities of the parties to the marriage or either of them; and
• is to take into account (except for the purpose of making an order with respect to the ownership of property that is a companion animal):
  • the considerations set out in subsection (4) (considerations relating to contributions); and
  • the considerations set out in subsection (5) (considerations relating to current and future circumstances).”

There are a number of notable points about s 79(3) and the codification of the property settlement framework:

• The just and equitable requirement in s 79(2) (and currently s 90SM(3), but to be re-numbered as s 90M(2)) is not part of the proposed s 79(3) (or s 90M(3)).
• The specific case law which the Bill is apparently codifying is not referred to in the Explanatory Memorandum.
• The identification of liabilities will be required.

The four-step process was set out in cases such as Hickey & Hickey and Attorney-General for the Commonwealth of Australia (2003) FLC ¶93-143. It provided a guideline or “structured approach” to “illuminate the path to the ultimate result” (e.g. Norman & Norman [2010] FamCAFC 66). The four-steps are:

1. Identify and value the net property of the parties.
2. Consider the contributions of the parties within paras (a) to (c) of ss 79(4) or 90SM(4).
3. Consider the ss 75(2) or 90SF(3) factors (ss 79(4)(d)–(g) or 90SM(4)(d)–(g)).
4. Consider whether the order proposed is just and equitable (ss 79(2) or 90SM(3)).

In Stanford v Stanford (2012) FLC ¶93-518 the High Court of Australia seemed to say (at [37]) that unlike under the four-step approach a consideration of s 79(2) was required first, not last:

After an initial period of uncertainty following Stanford when the courts considered various possibilities including five-steps and no steps, the four-step approach seems to be the “preferred approach” of the FCFCOA (e.g. Bevan & Bevan (2013) FLC ¶93-545 and Halstron & Halstron (2022) FLC ¶94-086). Consideration of s 79(2) sometimes also occurs at the outset as well as the end of the process if a party seeks that it be considered before contributions and s 75(2) factors, or the circumstances otherwise warrant it. In practice, parties usually advise the trial judge that they consider the s 79(2) requirement has been met. In other cases it is assumed to have been met and whilst it should perhaps be expressly articulated by the court, this does not always occur. This lack of clarity as to where s 79(2) fits into the property settlement process post-Stanford, has not been addressed in the Bill.

None of the above cases, not even Stanford, is referred to in the Explanatory Memorandum and the four-step process is not mentioned either.

In the Exposure Draft there was a note to s 79(3) stating that the court was not required to consider the matters in s 79(3) in any particular sequence. This note is not in the Bill, which seems sensible as contributions to property could not, for example, be properly considered before the property to which contributions are made, is identified. However, the proposed s 79(3) does not specifically state that the provisions must be dealt with in a set order - as in the four-step process. It seems likely though that the court will, however, still consider the four-step process to be the preferred approach if the Bill is passed.

Section 79(3)(a)(ii) includes a requirement to identify “liabilities”, although the wording of the primary obligation that the court may make such order as it considers appropriate to alter interests in property (s 79(1) and s 90SM(1)), remains unchanged (without the word “liabilities” inserted). Furthermore, the Bill does not propose to amend the definition of “property” in s 4(1) to include “liabilities”. The terms “debts” and “liabilities” are both used in the FLA, and the distinction (if any) remains unclear.

According to the Explanatory Memorandum:

In practice, the parties’ liabilities are included in a balance sheet dealing with non superannuation and superannuation. There may be a dispute as to whether one or both parties should bear a particular liability. This practice is reflected in the Bill.

Family violence

The Bill seeks to amend Pts VIII and VIIIAB to address and better recognise the economic consequences of family violence by making family violence explicitly relevant:

“These amendments send a strong message to the community that property settlement outcomes should recognise the effect of family violence on individuals, and on the wealth and welfare of the family, where this is relevant. The amendments make clear to the family law courts, and parties negotiating outside of court, that the economic consequences of family violence can be considered when resolving the property and financial aspects of relationship breakdown.

The Bill addresses family violence in the following ways, as set out in the Explanatory Memorandum:

• “accounting for family violence in the property decision-making framework, ensuring the economic impact of the family violence conduct on a party’s ability to make contributions to the relationship and on a party’s current and future considerations is considered, where relevant
• accounting for family violence in spousal maintenance proceedings, ensuring that when considering what order is proper for the provision of spousal maintenance, the family law courts can take into account the effect of family violence, where relevant
• amending the family violence definition to further identify forms of economic and financial abuse-related conduct, including dowry abuse
• providing that family violence is a relevant consideration when determining the ownership of a companion animal as part of property division
• extending the Less Adversarial Trial (LAT) procedures to property and financial matters where there are no children’s matters, providing the family law courts with additional powers to manage evidence, particularly where there may be family violence.”

The current s 4AB(2) includes only a short list of examples of economic and financial abuse:

• “unreasonably denying the family member the financial autonomy that he or she would otherwise have had; or
• unreasonably withholding financial support needed to meet the reasonable living expenses of the family member, or his or her child, at a time when the family member is entirely or predominantly dependent on the person for financial support...”

The proposed s 4AB(2A) gives an expanded list of examples of economic and financial abuse:

“For the purposes of paragraph (2)(g), examples of behaviour that might constitute economic or financial abuse of a family member include (but are not limited to) the following:

• unreasonably denying the family member the financial autonomy that the family member would otherwise have had, such as by:
  • forcibly controlling the family member’s money or assets, including superannuation; or
  • sabotaging the family member’s employment or income or potential employment or income; or
  • forcing the family member to take on a financial or legal liability, or status; or
  • forcibly or without the family member’s knowledge, accumulating debt in the family member’s name;
• unreasonably withholding financial support needed to meet the reasonable living expenses of the family member, or the family member’s child (including at a time when the family member is entirely or predominantly dependent on the person for financial support);
• coercing a family member (including by use of threats, physical abuse or emotional or psychological abuse):
  • to give or seek money, assets or other items as dowry; or
  • to do or agree to things in connection with a practice of dowry;
• hiding or falsely denying things done or agreed to by the family member, including hiding or falsely denying the receipt of money, assets or other items, in connection with a practice of dowry.”

The longer list of examples of economic and financial abuse will likely increase the number of such allegations raised by parties, but also provides greater clarity as to what may not be such abuse.

However, to recognise the possible impact of the Bill it is relevant to reflect upon the current law. The case most frequently referred to in judgments and commentary is Kennon & Kennon (1997) FLC ¶92-757, which established the contributions approach to family violence, under which the impact of family violence on the victim’s ability to contribute is assessed. If the impact on the victim had the effect that contributions were “significantly more arduous than they ought to have been” so there is a “discernible impact” upon the contributions, this can be taken into account in determining the victim’s property settlement entitlements under s 79. The conduct must have occurred over a significant duration of the relationship and not just at the time of the breakdown of the relationship. The Full Court of the Family Court made it clear that a Kennon claim should only apply to the most “exceptional” cases.

In 2024 the impact of a Kennon adjustment is still usually modest but there is greater recognition that family violence is relevant in many of the matters which come before the court. The leading case which looked at family violence more expansively is Martell & Martell [2023] FedCFamC1A 71. In Kennon, the Full Court was worried about opening the floodgates. There is no longer a concern about floodgates as the amount of family violence in the community and amongst family law litigants is significant. Justice Aldridge stated in Martell (at [22], [24]) that, given the prevalence of family violence in today’s society, the relevant conduct was not limited to “exceptional” cases. Justice Aldridge also made it clear that the basic principle from Kennon remained — “the focus is not on the conduct per se, but on its effects on contributions”.

Under the current law, family violence can also be relevant to the assessment of s 75(2) factors, and family violence may be relevant to both the assessment of contributions and s 75(2) factors (e.g. Boulton & Boulton [2024] FedCFamC1A 132.

The Bill inserts a new s 79(4)(ca) (and s 90SM(4)(ca)) requiring that in the assessment of contributions the court examine:

In both cases, the “effect” of the conduct must be examined, not simply the family violence of itself.

The Government, in proposing these amendments, surely expects an increase in claims for an adjustment for family violence in property settlement cases because the amendments are intended to make it clearer to the court and to parties that the economic consequences of family violence can be considered when resolving the property and financial aspects of relationship breakdown.

The Explanatory Memorandum refers to Kennon and the Bill does seem to codify the principles laid down in Kennon and later cases. It seems likely that the proposed changes will not change the position under the case law, but that as intended, many more parties will be aware of the possible relevance of family violence and will look to the effect of family violence and whether it increases or reduces their property settlement entitlements.

Currently, when claims for increased entitlements are made due to family violence, the other party often does not accept that family violence occurred or that there should be an adjustment of property entitlements of the claimant. It is difficult to see how this will change. The assailant must not only acknowledge that they have committed family violence, but also acknowledge that the victim has been so affected by the family violence that they are entitled to a greater share of the property. It is likely therefore that there will be an increase in contested property settlement cases before the courts, and presumably also in the volume of affidavit material of litigants and experts to support these disputes. Curiously, the Explanatory Memorandum does not recognise this and states that the Bill will have “nil financial impact”.

Considerations relating to current and future circumstances

Any uncertainty as to the terminology to use when referring to s 75(2) or “future needs” factors will be removed by renaming them as “considerations relating to current and future circumstances”. Removing the cross-referencing between the maintenance and property provisions of the FLA will make the process set out in the FLA clearer, and easier to follow for litigants. When dealing with a property settlement matter the s 75(2) factors will be (largely) replicated in their own specific property settlement section in ss 79 and 90SM as a new s 79(5) (and s 90SM(5)).

The existing s 75(2) has not been simply copied across from the maintenance provisions into the proposed s 79(5), but has been adjusted to suit property settlement claims, and expanded by reforms in the Bill. Besides the addition of family violence, the housing needs of children, liabilities and wastage are also relevant – in similar terms to the test in Kowaliw & Kowaliw (1981) FLC ¶91-092, save that:

• a more modern and clearer test is used, namely that the party must have acted “intentionally or recklessly” rather than recklessly, negligently or wantonly”; and
• the wastage must be “material”, so as to discourage frivolous claims.

The proposed s 79(5) is set out below with the main changes in bold:

“For the purposes of subparagraph (3)(b)(ii), the court is to take into account the following considerations, so far as they are relevant:

• the effect of any family violence, to which one party to the marriage has subjected or exposed the other party, on the current and future circumstances of the other party, including on any of the matters mentioned elsewhere in this subsection;
• the age and state of health of each of the parties to the marriage;
• the income, property and financial resources of each of the parties to the marriage and the physical and mental capacity of each of them for appropriate gainful employment;
• the effect of any material wastage, caused intentionally or recklessly by a party to the marriage, of property or financial resources of either of the parties to the marriage or both of them;
• any liabilities incurred by either of the parties to the marriage or both of them, including the nature of the liabilities and the circumstances relating to them;
• the extent to which either party to the marriage has the care of a child of the marriage who has not attained the age of 18 years, including the need of either party to provide appropriate housing for such a child;
• commitments of each of the parties to the marriage that are necessary to enable the party to support themselves and any child or other person that the party has a duty to maintain;
• the responsibilities of either party to the marriage to support any other person;
• the eligibility of either party to the marriage for a pension, allowance or benefit under:
  • any law of the Commonwealth, of a State or Territory or of another country; or
  • any superannuation fund or scheme, whether the fund or scheme was established, or operates, within or outside Australia;
• if either party to the marriage is eligible for a pension, allowance or benefit as mentioned in paragraph (i)—the rate at which it is being paid to the party;
• if the parties to the marriage have separated or divorced, a standard of living that in all the circumstances is reasonable;
• the extent to which an alteration of the interests of the parties to the marriage in any property would enable a party to undertake education or establish a business or otherwise obtain an adequate income;
• the effect of any proposed order on the ability of a creditor of a party to the marriage to recover the creditor’s debt, so far as that effect is relevant;
• the extent to which each party to the marriage has contributed to the income, earning capacity, property and financial resources of the other party;
• the duration of the marriage and the extent to which it has affected the earning capacity of each party to the marriage;
• the need to protect a party to the marriage who wishes to continue that party’s role as a parent;
• if either party to the marriage is cohabiting with another person—the financial circumstances relating to the cohabitation;
• the terms of any order or declaration made, or proposed to be made, under Part VIIIAB in relation to:
  • a party to the marriage; or
  • a person who is a party to a de facto relationship with a party to the marriage; or
  • the property of a person covered by subparagraph (i) and of a person covered by subparagraph (ii), or of either of them; or
  • vested bankruptcy property in relation to a person covered by subparagraph (i) or (ii);
• any child support under the Child Support (Assessment) Act 1989 that a party to the marriage is to provide, or might be liable to provide in the future, for a child of the marriage;
• the terms of any financial agreement that is binding on the parties to the marriage;
• the terms of any Part VIIIAB financial agreement that is binding on a party to the marriage;
• any other fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account.”

The catch-all provision, currently s 75(2)(o) will be at the end of s 79(5), re-numbered as s 79(5)(v), and again performing its proper purpose under the ejusdem generis rule of statutory construction being a general statement at the end of a list taking its meaning from the preceding matters. Similarly, in s 75(2) which will solely deal with maintenance, the current s 75(2)(o) will become s 75(2)(r). There are other amendments to s 75(2) including the addition of s 75(2)(aa) which is a family violence consideration.

Using similar wording in relation to contributions and current and future circumstances

The opening words to the paragraphs requiring contributions and current and future circumstances to be considered are proposed to be the same, which is not currently the case. The proposed s 79(4) will refer to:

The commencement words for the proposed s 79(5) will the same as for s 79(4). This will reduce the risk of the factors being approached differently.

Disputes about companion animals or pets

The Bill defines “companion animals” (or pets) as a specific category of property and sets out considerations that apply where the ownership of a companion animal is to be determined as part of a property settlement. The proposed reforms also recognise that animal abuse is a form of family violence. The proposed s 79(6) (and s 90SM(6)) provides that the court can order that only one party is to have ownership of the companion animal or that it be sold.

The matters to be considered in making an order about a companion animal are set out in the proposed ss 79(7) and 90SM(7), so far as they are relevant:

• “the circumstances in which the companion animal was acquired;
• who has ownership or possession of the companion animal;
• the extent to which each party cared for, and paid for the maintenance of, the companion animal;
• any family violence to which one party has subjected or exposed the other party;
• any history of actual or threatened cruelty or abuse by a party towards the companion animal;
• any attachment by a party, or a child of the marriage, to the companion animal;
• the demonstrated ability of each party to care for and maintain the companion animal in the future, without support or involvement from the other party;
• any other fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account.”

This will change the law. Under cases such as Downey & Beale [2017] FCCA 316, family violence is not considered to be relevant. Factors (a)-(c) have been the most important factors in the few reported cases on pets. The proposed list of factors to consider includes matters not relevant to other items of property.

Duty of disclosure

The Bill proposes that the duty of disclosure in financial matters will be contained in the FLA to better ensure that parties are aware of their disclosure obligations. Currently the duty is located only in the Rules so it will make it easier for parties to find although parties will need to refer to both the FLA and the Rules.

The proposed s 71B(1) (and s 90YJA(1) for de facto couples) states:

The word “relevant” has been inserted since the Exposure Draft was circulated. It is an important inclusion and limitation on the duty in the FLA and consistent with the duty as stated in the Rules. Excluded from the Bill are the lists of relevant documents which were in the Exposure Draft, leaving this level of specificity, quite properly, for the Rules.

The duty will apply:

• from the start of the proceeding and continue until the proceeding is finalised - ss 71B(2) and 90RI(2)
• if separated parties to a marriage are preparing for a proceeding relating to financial or property matters of the marriage (other than proceedings on appeal) - s ss 71B(5) and 90RI(5)

In the Exposure Draft this second point was not covered. Its inclusion makes the coverage of the duty under the FLA and under the Rules similar, as the Pre-Action procedures (in Schedule 2 to the Rules) covers disclosure obligations before proceedings are commenced.

Arbitration

Currently, arbitration can only be ordered under the FLA in proceedings under Pt VIII or Pt VIIIAB (other than proceedings in relation to a Pt VIIIAB financial agreement), although the list of matters which can be arbitrated though private arbitration is wider. This disparity is referred to in the Explanatory Memorandum as being “an unnecessary and confusing distinction”. The proposed s 13E(1A) provides that the following proceedings or any part of them or any matter arising in them are referable to an arbitrator for arbitration:

• Part VIII proceedings;
• Part VIIIA proceedings;
• Part VIIIAB proceedings;
• Part VIIIB proceedings;
• Part VIIIC proceedings;
• Section 106A proceedings;
• Proceedings under s 106B.

Superannuation

The proposed s 90XT(3) gives a power to the Minister to give directions in the circumstances set out in regulations to require superannuation trustees to review the actuarial formulas used to value superannuation interests using approved methods and factors. This is intended to ensure approved methods and factors continue to produce accurate and reasonable valuations of superannuation interests by ensuring they are reviewed and updated over time.

Conclusion

One of the key takeaways from the Bill is that a strong attempt has been made to codify the common law to make it more accessible to parties. This should make it easier for self-represented litigants (and courts dealing with those litigants). There will, however, be uncertainties as there will always be when there is legislative change. A codification cannot in a few words summarise the complexities and nuances of the common law. Also, the common law is not static. For example, the Kennon principle has developed over time. If the Bill intended to codify the Stanford principle, or the 4-step approach of Hickey, the Explanatory Memorandum might have referred to those cases but it did not. It is possible that codification of that case law was sought and has not been achieved, but more likely that the intention was to make the property settlement process clearer and more accessible. The wording here is important: the framework is made clearer but there is no definitive stepped pathway. The effect of family violence will likely be considered in the majority of property settlement disputes dealt with by the court. The constraints on the floodgates which were imposed by Kennon have been swept away, but it is clear from recent cases and societal changes that they were already gone.