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The Exception to the Rule

December 2017

Equal sharing repugnant to justice

The majority of our clients are already aware that where a marriage/de facto relationship of long duration comes to an end, relationship property is divided equally between the former spouses/partners. This “equal sharing rule” reflects key principles set out in section 1N of the Property (Relationships) Act 1976 (“the Act”) that:

  • Men and women have equal status and their equality should be maintained and enhanced; and
  • That all contributions to a relationship (whether financial or non-financial) are treated as equal.

However, there are often exceptions to this rule and when it comes to dividing relationship property the Act is no different. The exception to equal sharing is found in section 13(1) of the Act. It states that:

Section 13(1) Exception to equal sharing

  • If the Court considers that there are extraordinary circumstances that make equal sharing of property or money under section 11 or section 11A or section 11B or section 12 repugnant to justice, the share of each spouse or partner in that property or money is to be determined in accordance with the contribution of each spouse to the marriage or of each civil union partner to the civil union or of each de facto partner to the de facto relationship.

There are two limbs to a successful claim under section 13 of the Act. Firstly, the Applicant must identify the extraordinary circumstances that exist. Secondly, there needs to be consideration of whether those extraordinary circumstances make equal sharing repugnant to justice.

The language of section 13 is deliberately strong. It reinforces that the principles set out above were intended by parliament to have real effect when it comes to division of property between spouses/partners. The threshold for meeting the requirements of section 13 which would justify an unequal division of relationship property are consequently very high and this is well-established in the case law.

It is common for clients to assume that because they earn a higher income or owned more assets coming into the marriage/de facto relationship they are entitled to a greater share of the relationship property. That is not the case and section 13 does not change that position. The key to a successful section 13 claim is showing that the when viewed togethe, the combination of circumstances that exist are such that equal sharing would be repugnant to justice.

Bowden v Bowden was an appeal by the wife to the High Court against her former husband’s estate. In the Family Court it was held that there were extraordinary circumstances in the relationship that made equal sharing repugnant to justice. As a result, the Family Court awarded 80% of the relationship property to the husband’s estate (his son being the sole beneficiary) and the remaining 20% to the wife. The High Court upheld the Family Court’s decision agreeing that there were extraordinary circumstances making equal sharing repugnant to justice and confirming that the 80/20 split was appropriate.

The couple in Bowden met in early March 2008 and began their de facto relationship on 27 February 2009. The relationship ended after three years and 2 days, when the husband passed away from a terminal illness.

In reaching its decision the Court considered that the following factors were relevant:

  • The age of the parties – both were in their 50s/60s;
  • They did not have any children together;
  • They kept their finances separate throughout their relationship – there were no joint accounts and they did not have access to each other’s separate accounts;
  • The husband owned the family home before their relationship commenced;
  • The husband was solely responsible for the outgoings related to the family home, such as mortgage, insurances, rates etc;
  • The wife paid $100 in cash per week to the husband;
  • The parties shared expenses for food;
  • The husband provided the chattels for the family home;
    the wife only bought a few of her personal possessions to the relationship;
  • They did not acquire any relationship property together;
  • The husband paid for their holidays together – including a trip to Europe for 2 months.

The Court acknowledged that both parties provided each other with love, friendship and companionship and acknowledged that the wife cared for the husband towards the end of his life.

When we look at each of the above factors considered by the Court – none of them by themselves suggest there was anything extraordinary about the relationship that should result in unequal sharing of relationship property. The judgment acknowledges this but goes on to explain that it is when all relevant factors are looked at together as a whole, that the picture changes, so that the Court is left with the conclusion that if relationship property were divided equally in this case it would be repugnant to justice.

This case is a useful reminder to us all as it highlights that factors that may not seem extraordinary by themselves may when taken and considered together, lead to extraordinary circumstances making equal sharing repugnant to justice.

Given the above, it is easy to understand why the wife in Bowden appealed the Family Court’s decision to the High Court. In my view there are other factors that if they existed could have led to both the Family Court and High Court deciding not to depart from the equal sharing rule.

Firstly, this was a second relationship for both parties and the husband had children from a previous relationship. This was clearly accepted by all parties. It is unclear whether the wife also had children of her own from a previous relationship. However, no consideration was given to the fact that often parties who have been previously married/in a de facto relationship or have children from an earlier relationship will at least consider, if not execute, a section 21 agreement contracting out of the equal sharing provisions of the Act that would otherwise apply to them if the relationship goes beyond the three-year mark.

It is unclear from reading the case whether this issue was canvassed during the hearing. However, in my view the fact the parties did not enter into such an agreement, particularly in circumstances where one spouse had substantially more assets than the other, is a strong indication that the parties intended to share their relationship property equally in the event of separation after three years. Whether or not a contracting out agreement was considered or signed should be a relevant factor that is considered when determining whether or not to depart from the equal sharing rule.

Secondly, it appears that the Court did not take into account that the relationship only ended because the husband passed away. Would it have made a difference if the husband’s death was completely unexpected? Would it have made a difference if the husband’s death had occurred a year (or more) later? I would argue that this was a relevant factor that the Court was entitled to take into account when considering whether there were extraordinary circumstances justifying a departure from the presumption of equal sharing.

Thirdly, the fact that the wife bought substantially less assets to the relationship than the husband and that they kept their bank accounts completely separate is not unusual where couples have previously been married/in a de facto relationship. However, it is also arguable that the Court did not give sufficient weight to the non-financial contributions of the parties. The judgment notes that the husband generally paid for the couples’ holidays, including a trip to Europe. However, it does not seem to take into account other non-financial contributions by each of the parties. For example, although the wife only paid $100.00 per week in board, she may also have been primarily responsible for running the household and general maintenance, such as the housework and gardening; organising Christmas presents; and arranging social gatherings for the couple with their friends and family. The existence of such circumstances, would have demonstrated the relationship was more equally balanced than the judgment suggests it was in this case. The Court is entitled to take into account non-financial contributions and the Act clearly states that non-financial contributions are no less valuable than financial contributions.

Bowden is a timely reminder to us that equal sharing is the norm in all marriages/de facto relationships of three years or more. It is only if the stringent legal test under section 13 of the Act is met that a departure from this rule will be justified.

In the event of a separation, we strongly recommend that you seek legal advice before you begin dividing any relationship assets and liabilities. We will talk you through these rules and any others that might be relevant to your situation and we will be able to give you an indication of whether the exception under section 13 might be applicable to you.

Having said that, “prevention is the best cure”. So, if you are entering into a new relationship we recommend that you consider entering into a contracting out agreement under section 21 of the Act to protect your assets (and liabilities) from the outset. It is also an excellent time to ensure that your Will is up to date.