New Family Law Case with Big Impact

Recently, the High Court of Australia delved into the depths of Australia’s Family Law Act 1975 (Cth), delivering its judgement in Stanford v Stanford (2012) 293 ALR 70; [2012] HCA 52. This is in itself a rarity, and the practical implications for Family Law Judges, practitioners and parties to proceedings are substantial.

The facts:-[1]

Briefly, the husband and wife were married in 1971. Each party had been previously married and had children to their former partners. There were no children to their marriage. The couple lived together in a house registered in the husband’s name for 37 years. The husband’s will left this property, subject to a life tenancy in favour of the wife, to his children. The wife left her estate to her children. In December 2008 the wife was admitted into full-time residential care after suffering a stroke. Due to her failing health and the onset of dementia, she was never able to return to her husband, nor to the marital home. The husband set aside approximately $40,000 in a bank account solely for the wife’s medical needs and requirements.

In August 2009 the wife (by her daughter as case guardian) initiated proceedings seeking that the matrimonial home be sold and the net proceeds (including the husband’s superannuation entitlements and their combined savings accounts) be divided equally between them. This application was heard in the Magistrates Court of Western Australia. The Magistrate ordered that the husband should transfer to the wife $612,931 (42.5% of the assets) within 60 days of the Order. This Order necessitated that he sell the matrimonial home in which he was still residing. The husband appealed to the Full Court of the Family Court of Australia.

The Full Court allowed the appeal and set aside the Magistrate’s decision. However after this appeal had been heard, but before the decision was delivered, the wife passed away. The Full Court failed to consider the effects of her orders on the husband, and that the marriage was still intact when determining whether the orders were just and equitable. Further, they considered that maintenance could have met the wife’s needs. The Full Court was requested to determine the matter on a final basis. The Full Court ordered that on the husband’s death, his estate was to transfer to the wife’s legal personal representatives an amount totalling of 42.5% of the property pool. The husband appealed this decision to the Australian High Court.

The High Court allowed the appeal, noting that the Full Court failed to canvas whether the order would have been made if the wife had not died, as necessitated by section 79(8)(b)(i). The plurality’s judgement also confirmed that ‘proceedings do not cease to be a “matrimonial cause”…upon the death of a party’ by virtue of section 79(8)(b). Further, parties do not have to be ‘separated’ before property settlement orders can be made. More importantly, the High Court set down “three fundamental propositions” regarding section 79(2) of the Family Law Act 1975 (Cth).[2]

Section 79(2) states that:-

“The court shall not make an order under this section [79] unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.”[3]

The three fundamental propositions:-

1)    Identify the ‘existing legal and equitable interests of the parties in the property’;[4]

2)    When determining whether an order is just and equitable, do not assume ‘that the parties’ rights to or interests in marital property are or should be different from those that then exist’;[5] and

3)    When determining whether an order is just and equitable, do not assume that it is just and equitable for a party to have a right to the property by reference solely to the section 79(4) factors. 

How does the decision in Stanford v Stanford affect family law proceedings:-

The 4 step process

Arguably the traditional ‘Four step process’ set down in the Full Court’s decision of Hickey v Hickey[6] may be no more. The traditional ‘Four step process’ required a court to (1) identify the assets and liabilities of the property pool, (2) assess the financial and non-financial contributions of each party, (3) consider the factors outlined in section 75(2) to determine if there should be any adjustment in favour of a party, and lastly (4) required the Court to consider whether the orders are ‘just and equitable’.[7] The ‘four step process’ was never once mentioned in the judgment of the plurality or Heydon J, leaving practitioners wondering whether the ‘Four step process’ is now a ‘Three’ or ‘Five’ step process.

‘Step 1’

The first fundamental proposition affects the categorisation of property under Step 1. Traditionally practitioners combined all matrimonial property in the property pool with little practical consideration of who legally or in equity owned each piece. The High Court now requires a strict reading of section 79(1)(a). This step will now require practitioners to determine the legal and equitable rights of the parties when constructing the property pool, before a Court makes an order ‘altering the [existing legal or equitable] interests of the parties’.[8] It may also require practitioners to canvas the possibility of equitable or statutory claims over the property.[9] For example, as in the case of Stanford, a couple may live in the matrimonial home their entire married lives, but the property was only ever registered in the name of the husband. In this instance, the marital property would belong solely to the husband in Step 1.

‘Step 4’

The decision in Stanford v Stanford has fundamentally altered how the Court is to read and interpret section 79(2). Traditionally Family Courts have interpreted section 79(2) as whether the orders to be made are ‘just and equitable’ in the circumstances. Rather the High Court proposes that this section requires two separate and distinct inquiries:-[10]

–       ‘The first inquiry, pursuant to section 79(2)’ asks whether it is ‘just and equitable to make an order’ to alter existing legal or equitable property interests.[11]

–       The second step is to consider what order is ‘just and equitable’ in the circumstances, giving consideration to matters in section 79(4) (and by virtue of section 79(4)(e),  section 75(2)).[12]

This first step involving section 79(2) is essentially treated as a precondition, in that if the answer is ‘yes’, then the Court may continue on with consideration of the factors set out in sections 79(4) and 75(2) to determine what is a just and equitable order in the circumstances.[13] However, if the answer is ‘no’, the Court should not continue making an order. Helpfully, the High Court outlined some circumstances where it would be ‘just and equitable’ to make an order.[14] These circumstances include;

–       ‘There is no longer common use of the property by the husband and wife’;[15]

–       ‘The express and implicit assumptions that underpinned the existing property arrangements have been brought to an end by the voluntary severance’ of the marriage;[16] or

–       Or where ‘one party’s unmet needs that cannot be answered by a maintenance order.’[17]

In Stanford v Stanford the High Court held that the Full Court failed to inquiry whether ‘had the wife not died, [the Full Court] would have made a property settlement order’. This would have required consideration of whether it was just and equitable to make a property settlement if the wife had not died. As the Full Court failed to do so, it could not have considered whether it was ‘still appropriate to make an order’.[18]

Stanford v Stanford and de facto relationships:-

It would appear that Stanford v Stanford also applies to de facto decisions. This reasoning is apparent (and not yet challenged) in Justice Murphy’s decision in Watson and Ling [2013] FamCA 57.[19] 

The future:- 

The Family Law system and those within it are grappling with the consequences of Stanford v Stanford upon family law matters in practice. Practices and assumptions ingrained in the family law system have been rocked. Arguably parties do not have be separated before an order for property settlement can be made, and the reading and practical application of section 79 has been altered.

If you are concerned about the potential ramifications for yourself or a loved one, book a consultation with one of Attwood Marshall Lawyer’s highly skilled family lawyers, or discuss your estate and its management with our Estate Planning team on 1800 621 071 or email info@attwoodmarshall.com.au.