Special skills as contributions in family law property divisions

May 19th, 2014

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Whether you and your ex-spouse are negotiating your own property settlement, or whether you are making your case before the Family Court, part of that process will involve a consideration of the contributions each party has made to the marital asset pool.

Such contributions may be financial or non-financial, which will include any contributions as a homemaker and/or parent, and they will be considered broadly at three stages: initially, during the relationship, and post separation.

In a classic family law property settlement, you may encounter a couple who married when they were young and neither party had assets of significance. The couple start out working, they buy a house, they start a family and the husband continues in his paid employment while the wife stays home to raise the children. Then, after 20 years or so, they decide to separate. Their asset pool includes their home, the parties’ super, a couple of motor vehicles, furniture, bank accounts and various other items, with a net value of up to $1m or so.

In their circumstances, the husband has made the greater financial contribution as he was working full-time for the majority of the relationship, while the wife has made the greater contribution as a home-maker and parent, as she was the one who looked after the children and the household full-time.

The Family Court would generally consider the parties’ contributions as equal, as the family unit was a joint endeavour and the parties’ respective roles were both equally necessary. This would generally be expected to result in a 50/50 division of the marital asset pool subject to any necessary adjustments for the parties’ future needs.

In similar circumstances to our classic family, but where one of the parties, for example, has received an inheritance or has been gifted funds from a family member, there may be an adjustment in favour of that party to reflect the fact that the family unit benefited through the existence of that party’s other relationships.

The adjustment is generally expressed as a percentage of the marital asset pool, and the extent of the adjustment will depend on several factors including (but not limited to) the amount of the inheritance or funds provided, the timing of the receipt of the funds, what the funds were used for and the size of the current marital asset pool.

In a small number of cases, it has been argued that one party has made a significant contribution to the marital asset pool due to the exercise of skills that should be regarded as special, or over and above the standard contribution made by a party merely contributing financially through a full-time job.

Special skills have included one party working to create very successful and lucrative business, or one party having an exceptional entrepreneurial ability. The argument is that solely due to the particular skill of this one party, the marital asset pool has been considerably increased and that their role should be recognised by a special adjustment to the overall division of the property in their favour

The notion of this special skill contribution is contentious:

• The argument is usually only raised in relation to large marital asset pools above $10m. There is therefore an arbitrary (but undefined) line over which the income earned is special but under which is considered “the norm”.
• Where joint funds are used in an investment, both parties are subject to the same financial risks, so if the risk did not pay off, both parties will suffer the detriment, whereas if the risk is successful, the special skill doctrine would only reward the Husband.
• The doctrine could technically be applied to non-financial contributions as home-maker and parent (where the parties had a child with special needs for example). However, this is rarely the case in practice.
• There is no legislative basis for the argument.

The future of the special skill argument is uncertain. In a recent decision (Kane [2013] FamCAFC 205), the Full Court of the Family Court of Australia remitted for hearing a property case which had recognised “a principle in which weight is attributed to the special skill of a spouse” and which been decided with an adjustment in favour of the husband to recognise his efforts in investing in shares of a company.

In the original case, the husband invested $1,060,400, which increased to $3,420,294 in less than 2 years. The Full Court stated in their decision that excessive weight had been placed on his contribution and that the Family Law Act does not require, and the authorities do not mandate, any such doctrine (of special contribution).

Another recent decision which had recognised the special contribution of the husband (Smith & Fields [2012] FamCA 510) has been appealed. The matter was heard in November 2013, and the decision is yet to be handed down but the appeal has given the Full Court the opportunity to consider the doctrine.

At this stage, there is nothing to preclude a party making the special skill argument. However, it is far from certain that the courts will apply the doctrine and we may receive a definitive answer in the not too distant future.

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.