Ben and Heather talk about the contributions to a marriage that can be factored into a property settlement, focusing on the non-financial contributions which can easily be missed. Together they discuss the following:
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Benjamin Bryant: Welcome to episode 60 of The Family Matters Show. I’m your host Benjamin Bryant from Bryant McKinnon Lawyers. Today we are going to talk about property settlement from a slightly different perspective than we have on previous episodes. This time we will look at the many non-financial contributions, particularly parenting contributions, that may impact on the percentage of the property pool that you are awarded. Joining me today is my partner and family law expert, Heather McKinnon, and together we will delve into how the non-financial contributions you make can play a role in a property settlement.
Benjamin Bryant: Before we jump into the show, a quick reminder to share this podcast with any family and friends who are on the rather scary journey of separation. With today’s show, we have a library of 60 podcasts that provide the answers your family and friends need to feel less fearful and to make informed decisions.
Benjamin Bryant: And now on with the show.
Benjamin Bryant: Heather, welcome back to The Family Matters Show podcast.
Heather McKinnon: Thanks, Ben.
Benjamin Bryant: Heather let’s start with some dry legal terminology. What do you mean when we refer to “contributions” and how do they factor into a property settlement?
Heather McKinnon: So when the judge is making a decision about a property settlement, there’s an act of Parliament that sets out what they’ve got to look at. And one of the words that’s used is “contributions”. The contributions that we assess when we see people include, obviously financial contributions. That’s things like the salaries that people earn, gifts that they might receive, inheritances that might come in. And what tends to happen is that people, when they’re thinking about what’s fair, tend to exaggerate contributions that they make. So, for example, if one person’s been the greater earner, they will say, I need more because I earned more money. But the twist in that is that the Family Law Act looks at a whole lot of other contributions. So the contribution that you make during a relationship as a parent. The contribution you make as a homemaker. Contributions that you might make to renovating properties. If you’re on farming properties, did you do weed control and fencing? There are just thousands of things that people do in a relationship, and our job is to help people weigh up how those contributions might be assessed to work out a just settlement at the end of a relationship.
Benjamin Bryant: It’s always interesting, Heather, because we find ourselves saying to people all the time, that is a door that swings both ways. Because if you’re out earning all the income, working five days a week, someone must be at home looking after the children and making sandwiches. And you refer to the Act of Parliament, Heather. I do what I normally do, refer you to the specific section for those that like to read all about it. Section 79, subsection 4 of the Family Law Act for married couples in section 90SM, subsection 4 for de facto couples.
Benjamin Bryant: And Heather, what are the obvious contributions that people usually think about?
Heather McKinnon: The obvious ones are those ones we talk about financial, the role of parent, and the role of homemaker. Those three in the Australian consciousness of being, they’re now imprinted for nearly 50 years. Most people get that. But in our world, there’s lots more.
Benjamin Bryant: And I guess today we want to talk about the less obvious contributions that people make to a marriage and understand how the Family Law Act might treat them. So let’s start with parenting contributions, Heather. What about parenting other people’s children?
Heather McKinnon: So this is a really interesting issue that sort of hits a nerve when you start to take a history. Obviously, we have lots of blended families in Australia where people will have children in a marriage, separate, and then re-partner. Sometimes, their partner will have children. Sometimes, their partner won’t have children. There’s a long history of the family court exploring the economic ramifications to someone who, morally and ethically does the right thing, puts their hand in their pocket and raises somebody else’s kids. We have a very unusual system where there are many people who abandon children financially, and the new partner takes on responsibility to raise them. Now, what’s interesting about this is that we have heaps of published research in Australia about the costs of raising children. Pending whether you’re middle class or lower down the financial spectrum, it’s estimated that to take a child from birth to the end of the HSC for the average Australian family, somewhere between $600,000 and $1 million. So if you come into a relationship with a partner that’s got kids and you don’t have kids and the partner who has abandoned the kids gets off scot-free, we know that you’ll lose over your period of raising someone else’s kid about $5-600,000. So it’s a really fraught issue because there’s this sort of acceptance that if you take on someone else’s kids, will you do it? But what the family court says in property settlement, your contribution to the wealth of the family has been really impacted by the fact that you’ve morally taken on the responsibility for that child. So you will be given an adjustment in property settlement. And there’s a case that we refer to called Robb’s case, which is the first time that the Family Court actually recognised the contribution that a stepparent makes. It’s still something that’s not argued very often in terms of good research. But it is interesting that if you don’t have kids, you have a lot more money for retirement. So I think we’ll see a bit more examination of it, particularly in cases where people put 10 to 15 years of their resources into raising someone else’s kids.
Benjamin Bryant: You mentioned Robb’s case, Heather, and that’s obviously treating children of another partner as children of the relationship. What if you’re with the partner, they have children and they spend the majority of the time in the other parent’s household. But in your relationship, you’re contributing to the child support or the school fees and stuff like that, for the children of the other relationship. Is that considered in a property settlement?
Heather McKinnon: Yeah, it certainly is. And in the cases that have been before the court, they look at the quality of the stepparents’ contributions. So, you might have stay-at-home parent who’s looking after on the weekends and things, someone else’s kids and doing the sporting runs and going to parent-teacher interviews and generally being an excellent stepparent. It is a contribution they make, and the court does weigh it up. You mightn’t get a judgement that says for that role, we’re giving you 2.5% or whatever. But the court will talk about the weighing up of it in the overall distribution of assets.
Benjamin Bryant: That’s right. There might be a specific adjustment or specific percentage. But when the court takes its holistic approach, it’ll take those types of matters into account as well.
Heather McKinnon: Absolutely.
Benjamin Bryant: And Heather what about parenting in general if both parties are working, but one is doing all of the heavy lifting when it comes to parenting, might the court consider that in a property settlement?
Heather McKinnon: It’s similar to the last response? It’s a weigh-up. How do you feel? What they’re tending to make sure we all understand is that when you put your life in the boat together, you decide yourselves how you’re going to divide tasks. So it’s very common for one party to take on responsibility for bookkeeping, accounting, financial management. One might do more meal preparation. One person might clean the gutters out and do the whipper-snipping. They’re really looking in these cases, is anyone a real bludger? That’s really hard to prove. It’s more likely that they’ll look at things like inability to contribute through alcoholism or gambling or something. But in the main, what I say to people is, look, you might have had different roles, but it’s very rare the court will say one of you did more than the other. They’ll just say your contributions are similar but different. And the classic, isn’t it? You get a builder who renovates every house they’ve ever lived in, and the builder will get in the witness box, and they’ll be cross-examined, and they’ll say, and you were up in the roof at midnight every night, and you worked really hard and you didn’t have downtime. And then of course, the next question is, and where were the children when you were up in the roof? Who was looking after them? So they try and show that even though you might have been doing one thing very well, that means the other partner had to come in and fill the gap for what you weren’t doing in another job.
Benjamin Bryant: That’s right. I think people can understand that non-financial and financial contributions can kind of neutralise each other, if we can say. But this question was like, well, what if we’re both working? But I did more of the children. I think it’s really important for people to understand it’s not siloed. It’s not like you get a percentage for this, you get a percentage for that. It’s that holistic approach. And I agree with you, that realistically, the court’s not going to often differentiate, especially long relationships, who did what. a common theme that we have in our podcast episodes is that what people find or take solace in during the relationship that kind of use or weaponize after the relationship. So that was their setup, that was their agreement. And that’s all fine for 20 years. But come separation, it’s the worst.
Heather McKinnon: So it gets really sad when you get inexperienced practitioners who get tax schedules which show how much money one party earned during the marriage compared to the other. That’s not helpful because the.
Benjamin Bryant: or a checklist of chores.
Heather McKinnon: Yeah, it does weaponize something that they’d formed an arrangement for happily for decades.
Benjamin Bryant: And now Heather what about stay-at-home moms and dads? I know we’ve covered this in previous shows but talk to me about the entitlement of a stay-at-home parent to the property pool, including superannuation, versus the partner who’s been out there earning all the money.
Heather McKinnon: How we look at the balancing of those things is to look at a thing called earning capacity. So if you make a decision within a marriage or a relationship, that you will have a parent at home with kids, so they don’t have to go into childcare. That’s a decision you two make, but it does have economic consequences over the long term. So we know that most families still will have one party working part-time up until the kids go to primary school. That has lifelong consequences on that person’s earning capacity. So when we’re assessing who gets what, we have to factor in what that stepping off the career pathway did to earnings over a long period of time. So there’s usually an adjustment to the lower earner because we have to compensate them in some way. And if people feel resentful about that, they should really have a look at the research that’s done around this, which shows that there is an absolute economic consequence to stepping off the career pathway in your 20s and 30s to parent children. Again, we’ve got to be very careful not to put absolute percentage or dollar terms. It is a way up, but we do, as a culture, recognise what someone gives up in terms of earning capacity to do that vital work when children are small.
Benjamin Bryant: And Heather, I just wanted to say two points on this one as well. One is there’s no such thing as special skills anymore. You know, in this particular question about the partner earning all the money, to say it wasn’t for my investment prowess or my real estate knowledge or something like that, there would be nothing to divide. Those days are gone. People want to try and use that. Unfortunately, it’s already been done before and the courts not recognising it anymore. The other thing that I wanted to say Heather, was this question about the superannuation pool, which can be quite a complex issue in the sense of does a court take a one pool approach where essentially super’s just treated like another asset? Does it take a two-pool approach where it separates it and might do a different adjustment to each pool? What are the advantages and disadvantages? Does a parent who’s got the children ongoing in their care, even want super Do they have to take the super? It can be very complicated. So when you get to superannuation division and things like that, I think it’s really important to get legal advice if you haven’t already at that stage.
Heather McKinnon: And it’s really important in that middle years, because I know in my office that if I ask somebody how much super they’ve got, if they’re under, say, 45, they’ll have no clue, because it’s so far off on the horizon. Whereas people that are 55 have got their app on the phone and are looking at their super every day. Superannuation for young people. Really important to get advice. The other thing to watch is that there is a bill before Parliament to create family superannuation accounts so that the family who has one out looking after kids will create an account and superannuation will be shared between both spouses, no matter who was earning the money. To create the account to balance that problem we have at the moment.
Benjamin Bryant: So stay tuned. And looking outside of parenting, what if someone has worked to put their partner through medical school or some other education? Might that count as a contribution, Heather?
Heather McKinnon: Yeah, it certainly is a contribution because what’s happening is the decision to divide tasks that way means one person’s armed with much higher earning capacity going forward. And so when we come to assess what we call future needs, it’s critical that all those factors that have given one person much safer economic security in the future are balanced by giving the partner who hasn’t got that earning capacity, a larger share of the capital to compensate them for that. So very interesting. And one of the other things that obviously plays into that are HECS and health debts. Is it a debt of the marriage? If it is a debt of the marriage, then you’ve really got to look at who benefited from the earning capacity that that debt attached to. So again, we don’t see a lot of case law on it, because the financial costs of getting economic analysis done is really reserved for huge pool cases. Thankfully, we do have cases where you have a multi-millionaire professional and a dependent spouse. One of the best examples is a very early case if people are interested, called Best, which was about a partner in one of Australia’s big commercial law firms. The couple had no assets of significance, but the male partner was earning in those years, about $600,000 a year where the average wage in Australia was $40,000 a year. So what they did in that case was give the support spouse all of the existing assets, and then made an order that he pay a weekly sum of income over a long period of time. So there’s lots of stuff you can read about the different ways the courts approached it, but being very aware of each of your earning capacities is the critical thing that we look at.
Benjamin Bryant: And, Heather, what about couples without children? Because a lot of the time we’re offsetting financial contributions with that of the parenting roles. You know, those big contributions? What if there are no children and you’re a stay-at-home spouse? Is it fair to say that the homemaker duties can neutralise the financial contributions, or is that a little bit more tricky?
Heather McKinnon: Well, it’s a discretionary issue. Often executives still have stay-at-home. There still are very obvious examples of executive Spouses. It is a really nuanced approach. I mean, if they’re together a long time, you can often show that the income earned by the high earner was a direct result of the other spouse running their lives. And the interesting case is.
Benjamin Bryant: The making of the sandwich, the getting the clothes out in the morning, the….
Heather McKinnon: Well, the putting dinner parties on,
Benjamin Bryant: Logistics.
Heather McKinnon: Yeah, logistics, travel arrangements. I mean, there’s so many different ways people live their lives. And it’s what makes our job so interesting. And I think that’s why we say judges are given a discretion. They’re not given a set of black-and-white rules because every single relationship is absolutely different.
Benjamin Bryant: That’s right. And if there was black and white, then we would just be able to do a little checklist and submit it to a computer, and there’s your property settlement.
Benjamin Bryant: And Heather what if you and your partner spent years living rent-free with your parents while you saved for a mortgage? Would that be viewed as a contribution to be factored in?
Heather McKinnon: Again, different judges will take different approaches, but in the main the provision by in-laws of rent-free accommodation over a number of years, which enables a couple to save a deposit, is directly a contribution made on behalf of the spouse whose parents do that. Again, the clever lawyers will get an economic analysis of what was the cost of that accommodation. But I think it’s something that’s overlooked. I mean, if you can live for 4 or 5 years rent and mortgage free, you can save a lot of money. And so definitely it’ll be a way up. And a judge, in my view, will usually consider it a contribution made on behalf of whoever’s parents did that.
Benjamin Bryant: It’s kind of akin, I guess, to, the Bank of Mum and Dad, which is getting more and more common these days The parents, advancing the monies, that’s ultimately repaid, so it’s not as if they’re a gift. But the question is, what is the financial benefit to the parties for not having to go with the NAB or Westpac and pay the interest and things like that? So really important.
Benjamin Bryant: And finally, Heather, do you have any advice for people to ensure that all of your contributions are appropriately considered in a property settlement?
Heather McKinnon: I think it’s really the questions that the lawyer asks, so that you do pick up things like rent-free accommodation provided by in-laws, interest-free loans, evidence of, childcare provided by grandparents so that you saved on childcare fees. There are so many different things, but it’s about the comprehensive instructions that you can give your lawyer about how we ran our lives. And then it’s up to the family lawyers to sort of tease out the categories and how you might frame an argument as to why there should be an adjustment for that contribution.
Benjamin Bryant: And as a family lawyer, I guess it’s easier to prove the financial contribution, right? You get the transaction, there’s a paper trail, you get the bank statement or whatever it is. But with those non-financial contributions, it’s really difficult. And a lot of times it’s about finding of fact because as we know, people do not agree. The sky is not necessarily blue. You might get those comprehensive instructions from your client saying, this is what I did, and this is what they did. Then you read the other side’s case and they’re like, that’s completely opposite. So it’s very tricky to navigate.
Heather McKinnon: I think you gave a beautiful example of a judge in the last few weeks, saying at the opening of a property settlement hearing to one barrister, stand up and summarise your colleague’s case and then asking the other barrister to summarise the other case so that you can see that their job is to understand both sides and how people viewed the arrangements. It’s a tricky job. Judges deserve every cent they get.
Benjamin Bryant: Well, thank you so much Heather for another great episode.
Heather McKinnon: Thanks Ben. See you next time.
Benjamin Bryant: Thank you for listening to this episode on how parental and other non-financial contributions can affect your share of the property pool. We hope this has answered some of your questions on how to get your fair share when finalising a property settlement.
Benjamin Bryant: We know there are so many questions when it comes to separation. That’s why we created this podcast. We now have an extensive library of episodes on different topics featuring different experts, so make sure to review our growing library to find the answers that you need. If you have specific questions and can’t find the answers in our library, please email us on familymatters@bryantmckinnon.com.au. We will do our very best to get the answers that you need. Have a look at our website, bryantmckinnon.com.au, where we have categorised the episodes to make it easier to find the information that you’re looking for. On the website, you’ll also find the full transcript of today’s show and links to any resources mentioned. A final reminder to please share this show with any friends or family who may benefit. We hope to have your ears again soon.