Australia: Family Law Accountants’ Update: The section 75(2) factors

In previous newsletters we've analysed different aspects of the four-step process the Family Court undertakes when determining how to adjust the property of couples after relationship breakdown. The process is now virtually identical for both married and de facto couples (provided a number of jurisdictional thresholds are met by the de facto couple), but for present purposes we'll refer to the provisions that apply to married couples.

Briefly, in the first step, the Court seeks to establish the extent of the net property pool. The second step involves the Court assessing the contributions to those assets of each of the parties; the third step requires the Court to consider the matters set out in s 75(2) of the Act (often broadly, though inaccurately, described as assessing the parties' future needs), while the fourth step requires the Court to examine carefully the justice and equity of any proposed order.

In this article we'll examine the third step: the so-called 'section 75(2) factors'.

Unlike 'communal property' jurisdictions in the United States, Europe and elsewhere, where the starting point for determining the split between parties after the end of a relationship is an equal distribution of matrimonial assets, in Australia our starting point is a consideration of the contributions the parties have made, both financially and non -financially, and both directly and indirectly.

This is a backward looking, somewhat objective process, in that it is based on events that have already occurred and that can be substantiated by the evidence. What it doesn't take into account are the unique characteristics of the parties: their responsibility to care for children, their age and health, the effect the relationship might have had on their earning capacity, and other issues that may impact on their lives. Because our law doesn't view intimate relationships as mere economic partnerships, but as strong interpersonal bonds that form the basis of our society and that are entered into 'for better or worse' and for mutual support, ignoring these more subjective matters and relying only on contributions could result in gross injustice.

Section 75(2) of the Family Law Act lists these more subjective, non-contributions based matters in some detail. Interestingly, it serves a dual purpose: it is used both to evaluate a party's needs for the purposes of determining maintenance claims, and for the purposes of fine-tuning a property settlement under s 79. That's why the section is peppered with references to maintenance.

So what are the matters the Court looks at? Some of the more significant s 75(2) factors are as follows:

  • the age and state of health of each of the parties;
  • the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment; 
  • whether either party has the care or control of a child of the marriage who has not attained the age of 18 years; 
  • the responsibilities of either party to support themselves and anyone else, including children; 
  • the eligibility of either party for a pension, allowance or benefit; 
  • where the parties have separated or divorced, a standard of living that in all the circumstances is reasonable; 
  • the extent to which the payment of maintenance to the party whose maintenance is under consideration would increase the earning capacity of that party by enabling that party to undertake a course of education or training or to establish himself or herself in a business or otherwise to obtain an adequate income; 
  • the effect of any proposed order on the ability of a creditor of a party to recover the creditor's debt, so far as that effect is relevant; 
  • the extent to which the party whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other party; 
  • the duration of the relationship and the extent to which it has affected the earning capacity of the party whose maintenance is under consideration; 
  • the need to protect a party who wishes to continue that party's role as a parent; 
  • if either party is cohabiting with another person - the financial circumstances relating to the cohabitation; and 
  • any child support that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.

In addition, the Court can take into account any fact or circumstance which, in its opinion, the justice of the case requires to be taken into account.

This is all very well, but how does the Court actually calculate an adjustment based on these factors? This question is at the centre of why it can be so difficult to accurately predict outcomes in Family Law property cases.

The first thing it is important to note is that, contrary to popular belief, the Court is usually not interested in thinking in terms of percentage adjustments; the process is directed toward an actual dollar adjustment.

To see why, think of the effect an order might have if there were a rule that, in all cases where a party is left with the care of two children under 10 years of age there would be a 10% adjustment in his or her favour. If the property pool were $1m, this would amount to an adjustment of $100k. But if the pool were only $100k, this would equal an adjustment of only $10k, an amount that might not be adequate to reflect the burden falling on the parent who will have the children living with them.

Given this, the Court looks to the actual effect of the adjustment: what dollar amount would be needed in these circumstances to address adequately the matters raised in s 75(2)? This means that, broadly speaking, in matters where there is a very substantial property pool, we expect to see a smaller percentage adjustment on the s 75(2) factors than we would were the pool to be much smaller.

The second, related, thing to note is that rather than predicting a fixed result in matters where s 75(2) comes into play, family lawyers tend to speak of an expected range of results. It's not quite a 'how long is a piece of string' question, as an experienced family lawyer can certainly narrow the predicted range down somewhat; but nor is it a precise science: in many cases the acceptable range can cover 10% of the total value of the pool.

One final thing to note: the effect of the s 75(2) factors on a property settlement has a great deal to do with the length of the relationship and the existence of children of that relationship. In the absence of children, we ordinarily don't expect to see significant s 75(2) adjustments in relationships of less than, say five years' duration.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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