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In Family Law proceedings, who can take credit for a property’s increase in value?

Assisted by Madison Kelly & Ambrose Teo

Throughout the often-long process of family law proceedings, there are a number of areas of dispute that may arise with regard to shared property – as well as areas of ambiguity that accountants and their clients may face.

Two common areas of dispute relate to:
1. the value of property; and
2. the weight to be attributed to a party’s contribution.

With regard to the value of a property, the case of Williams & Williams [2007] FamCA 313, provides the following:

“…Where the pool of assets available for distribution between the parties consists of say an investment portfolio or a block of land or a painting that has risen significantly in value as a result of market forces, it is appropriate to give recognition to its value at the time of hearing of the time it was realised rather than simply pay attention to its initial value at the time of commencement of cohabitation.”

Disputes as to a property’s value can therefore usually be resolved through professional valuations, and it is this value that should be relied upon, rather than the asset’s value at the time that it was purchased.

However, Williams & Williams [2007] FamCA 313 also provided that “…in doing so it is equally as important to give recognition to the myriad of other contributions that each of the parties has made during the course of their relationship”.

Whilst this case confirmed how the value is to be treated, the Court did not comment on the way in which an asset’s increase in value over the period of the relationship ought to be attributed at the end.

A hypothetical example: A property was purchased in 2000 for $500,000 – and at the date of separation, the property was seen to be worth more than triple the initial investment.

In terms of the above, there are two common scenarios that accountants and their clients may encounter:
1. One party holds full ownership of the property and asserts that they are therefore entitled to the full weight of that increase in value being attributed to them; or
2. The parties own the property jointly, but the initial financial contribution of one party is significantly greater than the other, meaning they assert that the full weight be attributed to them.

In the case of Bilous v Mudaliar & 1 Or, the Court of Appeal in New South Wales reviewed the precedent relating to substantial increases in asset values during a relationship.  At paragraph 62 and 63 it was said:

“…His Honour appears to have stated a rule to the effect that…any increase in value of assets initially contributed should be regarded…as entirely a contribution by the party who contributed those assets.  If that is what His Honour intended, I do not agree.”

“Determinations as to what orders should be made…are to be made solely on the grounds of the justice and equity [and] may derive from the fact that the party who owns the… property was able to retain that property, while the market value increased, because ‘of joint efforts of wage earning, home making and parenting, and mutual support’…Thus, an increment in capital value may well result, indirectly, from ‘joint efforts of wage earning, home making and parenting, and mutual support”. 

It is clear here that initial precedent, which said that the contributor takes credit, was rebutted – and the case clearly emphasised principles of justice and equity, establishing that financial contributions are not the ‘be all and end all’.

The trial judge in the case of Murphy v Murphy [2007] Fam CA 795, Carmody J, said at para 706:

“The increase should normally be credited solely or mainly to the contributor rather than equally shared because it cannot properly be regarded as the ‘fruits of the relationship’.  There are, however, some cases in which justice and equity may require the non-financial contributions of the non-owner of the property to have substantial offsetting effect where it can be shown, for example, that the market value increased because of the joint efforts of the parties directly or indirectly…” 

It is clear here that the case re-established a general notion that the greatest contributor takes credit for the increase in value.  However, this can be rebutted if the other party has contributed in a way that caused that increase in value.  As mentioned above, this could be related to non-financial homemaker duties, or it could be assistance with renovations, interior design, landscaping etc.  All of these things can be taken into account when the Court considers how to divide property.

The case of Pierce v Pierce (1999) FLC 92-844 comments on the relevance of those contributions, providing that:

“…respective contributions of the parties over a long period of marriage ‘offset’ the significance which might otherwise be attached to a greater initial contribution by one party… The longer the marriage the more likely it is that there will be latter factors of significance and…whether equal or not, may in the circumstances of the individual case reduce the significance of the original contribution.”

In this respect, it is likely that marriages that last for a substantial period of time are more likely to have these ‘offsets,’ because if parties are married for one year, it is more difficult to run an argument that there has been significant contributions.  With that said, if, for example there were substantial renovations or design enhancements in that one year, this would still be relevant at law.

We feel that many accountants will have come across the common belief ingrained in some clients that if they had the financial contribution, this trumps any other.  In light of the above discussion, this is clearly not the case.  Just because one party may have provided the cash, does not mean they will necessarily be able to retrieve it through legal proceedings.

As an extension of that belief, it is often the position of those clients to ‘exclude’ that asset from the property pool, as they believe it is not relevant and is rightfully theirs.  The exclusion of assets from the asset pool will be discussed in a separate article, however the Court is generally extremely hesitant to do so.  All property owned by a party in family law proceedings must be included in the asset pool at first instance.

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