windfalls and lottery gains

FAMILY CONTRIBUTIONS, WINDFALLS AND LOTTERY GAINS

In a divorce or a breakdown of de-facto relationships, often disputes arise about property. The parties to the dispute can either come to an agreement about the distribution of the property or can make an application to the Court to determine the dispute about division of the matrimonial assets. Section 4(1) of the Family Law Act 1975 (Cth) (the Act) defines the term property in relation to the parties to a marriage/de-facto relationship or either of them as ‘property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion’.

Consequently, things such as trust interests, jewellery, cars, animals and assets acquired through inheritance may fall under the definition of property for the purposes of family law disputes. In addition, liabilities such as debts, loans and taxes can also fall under the ambit of the term property liabilities.

In certain circumstances, disputes might arise as to how an increase in the property value should be distributed, especially when the contribution towards the property has been made by one party. This article seeks to analyse how Family Contributions, ‘Windfall’ gains, including lottery winnings are looked at by the Courts. However, before we explore the above, let us understand a few basic things.

CONTRIBUTIONS

The Basics

The contribution of each party to the marriage is assessed by the Courts in property applications to determine the share of each party to the proceedings. The Courts have tended to reject the notion or presumption of equality of contributions as the starting point after a long marriage (Mallet v Mallet (1984) FLC). While, the Courts have frequently tended to look at contributions made by each party as separate, i.e the “two pools” approach, caution has also been exercised in assessing contributions separately. This caution is in light of the holistic assessment of the contribution of the parties required as per s 79(4) of the Family Law Act 1975 (Cth).

The most common issue that arises while determining contributions is the comparison between financial contributions and homemaking and parenting contributions. In this regard, the High Court in the case of Norbis v Norbis 161 CLR 513 has stated as follows:

Although it is natural to assess financial contributions under s 79(4)(a) by reference to individual assets, it is also natural to assess the contribution of a spouse as homemaker and parent either by reference to the whole of the parties’ property or to some part of that property. For ease of comparison and calculation it will be convenient in assessing the overall contributions of the parties at some stage to place the two types of contributions on the same basis, ie on a global or, alternatively, on an “asset-by-asset” basis. Which of the two approaches is the more convenient will depend on the circumstances of the particular case. However, there is much to be said for the view that in most cases the global approach is the more convenient.”

Timing of Contribution

The case of Aleksovski & Aleksovski (1996) FLC 92 is the landmark case cited on the relevance of the timing of a particular contribution when contributions are being assessed. The Court in this case said that:

It is therefore necessary that trial Judges weigh and assess the contributions of all kinds and from all sources made by each of the parties throughout the period of their cohabitation and then translate such assessment into a percentage of the overall property of the parties or provide for a transfer of property in specie in accordance with that assessment.

It really comes down to questions of weight. Whilst weight would and must be given to a contribution which a party makes shortly before the separation, less weight may be given to a contribution made by one of the parties to a marriage early in the cohabitation period of a long marriage, particularly in circumstances where the contribution has gone into the parties’ assets or been used up in the payment of family expenses”

The above passage would essentially entail attributing a mathematical approach to the contributions made, however, in some circumstances it is not practical to do so. The Full Bench of the Family Court recognised this and stated the following in the case of Bolger & Headon [2014]Fam CAFC 27:

There can be little doubt that the classification of contributions by reference to terms such as “initial contributions”, “contributions during the relationship”, and “postseparation contributions”, can be helpful as a convenient means of giving coherent expression to the evidence in a s 79 case and to giving coherence to the nature, form and extent of the parties’ respective contributions. However, the task of assessing contributions is holistic and but part of a yet further holistic determination of what orders, if any, represent justice and equity in the particular circumstances of this particular relationship. … The essential task is to assess the nature, form and extent of the contributions of all types made by each of the parties within the context of an analysis of their particular relationship

In addition to finding a balance between the mathematical and holistic approach to contributions, it is important to note that the Full Court in the case of Williams &Williams [2007] FamCA 313 stated that it would be incorrect to look at the value of an initial contribution at the commencement of cohabitation without looking at its value at the time it was realised or at the time of the trial, although it was important to weigh up all the contributions.

Notwithstanding the above, the Courts in several cases have tended to apply the “erosion” principle where-in later contributions are usually given more weight than early contributions. Here, regard is also given to the use made by the parties of that initial contribution (Pierce &Pierce (1999) FLC 92)

 

 

 

WINDFALL

Now that we have understood how the Courts treats contributions of each party to the marriage, we delve into understanding Windfalls.

What is the meaning of windfalls?

If the value of a property increased during a marriage due to an outside circumstance such as rezoning or lottery win, rather than due to the activities of a party, it is referred to as a windfall. The timing of the windfall gain plays an important role in determining the outcome of a property application.

Before Separation

If the windfall gain is before the parties separate, i.e, before the relationship commenced or during the relationship it is treated as a contribution under section 79(4) or section 90SM (4) of the Family Law Act 1975(Cth).

After Separation

The determination of a windfall after the separation of the parties depends on the facts and circumstances of each case. There may be circumstances where a windfall may be determined to be a part of the asset pool for the purposes of property settlement. However, where the parties have separated and started to live separately before receiving a windfall, it is likely that the windfall may not be considered to be a part of the asset pool.

LOTTERIES AND THE COURTS

Lottery wins were viewed as windfall and not contributions or assets for the purpose of property in a divorce dispute. However, in 1995 in the case of Zyk &Zyk (1995) FLC, the Full bench of the Family Court reviewed the way lottery wins were considered and amended the position of law to hold that they should be viewed as a contribution rather than a windfall. The Court held that where the winning ticket was purchased during the marriage it was windfall and a contribution by both parties.

Lottery wins after separation have held be property for the purpose of divorce proceedings. Although generally considered a sole contribution by the person who purchased the ticket, it may be relevant to the assessment of factors under s 75(2) Family Law Act 1975 (Cth).

With regard to the above, the case of Farmer & Bramley (2000) FLC 93 is an interesting read.

FARMER & BRAMLEY (2000) FLC 93

Facts

The case of Farmer & Bramley deals with lottery wins by one of the parties after separation. In this case, the husband won a lottery of $5 million after he had separated from his wife. The parties had lived together for period of 12 years with no property of significant value. This was the situation even at the time of separation.

In the early part of the marriage, the husband had been a heroin addict. In these circumstances, the wife had helped the husband out both financially and emotionally. Not only had the wife helped the husband get out of heroin addiction but had also motivated him to study and supported him financially while he was doing so. As a result, the husband was successfully able to gain full-time employment.

The couple had a child as a result of their relationship and at the time of the hearing, the child was almost 15 years of age. Barring the two years after separation, the child had lived with the wife with the husband making seldom contact and not paying child support.

After the husband won the lottery, he arranged to reduce his liability towards child support to be nil. In fact, he stated that it was not he, but his mother who had won the lottery. One year after the lottery wining, the wife remarried and soon after applied for a 1-million-dollar property settlement with her former husband.

When the matter for the settlement came up for hearing, which was five years after separation, the husband had remarried and had had a child with his new partner.

Issues

The questions before the Court was:

  1. Whether a direct connection between the property interests to be adjusted and the parties’ contributions was required?
  2. Whether the lottery prize belonged to the husband or his mother?

Judgment of the Lower Court

At the lower Court, it was held that the full amount of $5 million, i.e the entire lottery price money was available for allocation between the parties to the dispute. The Court awarded a sum of $750,000 or 15% of the winnings to the wife because of:

  1. The wife’s significant financial and non-financial contributions throughout the marriage.

2.The disparity in the parties’ financial circumstances

  1. The wife’s ongoing care of the child without financial and practical support from the husband
  2. The factors of age, health and sources of income of the wife weighed heavily in favour of her.

Appeal

The husband appealed the judgement of the lower Court and sought for dismissal of the award made. However, the appeal was dismissed by a majority of 2:1 with the Appeal Court holding that the wife had made significant contributions generally to the marriage even though she had not directly contributed to the Lotto win. Therefore, the award of $750,000 was justified. The holding of the Court mentioned below is of significant importance:

“If it was to be determined that a majority of the community considered that one spouse should, as a general rule, have no entitlement to share in property either by good fortune or good management acquired after separation by the other spouse, then the Act would need to be amended to make this clear.”

Our Observations

The hearing in the case of Farmer was almost after five years from the date of separation. If the matter was taken up immediately after the separation, there would not have been any property of significance. In this case, the wife received the award for her contributions during and after the relationship when the said property (Lottery) did not exist. Although this could have prompted the Court to come to a different conclusion regarding the award, the Court would have been reluctant to do so in light of the fact that section 75(2) factors ( Matters considered in spousal maintenance)  were heavily in favour of the wife.

 

The above information is intended as general information and is not to be relied on as legal advice.

If you have a family law matter, contact one of our experienced family law solicitors on (02) 9920 1787 to discuss how we may assist you to achieve a favourable outcome. Pannu Lawyers extensively practice in Family Law and regularly appear at Courts throughout New South Wales such as Federal Circuit Court Parramatta, Family Court of Australia Parramatta, Federal Circuit Court Sydney, and Family Court of Australia Sydney.

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