Windfalls and family law property settlements

The steps involved in determining how property is divided after the breakdown of a relationship generally include:

• identifying the assets, liabilities and financial resources of the parties;
• assessing the parties’ financial and non-financial contributions;
• evaluating the parties’ respective future needs;
• determining a financial settlement that is, in all circumstances, just and equitable.

This is the process a Court takes in making property orders and, although most matters are settled without Court proceedings, is the approach usually adopted when lawyers and their respective clients negotiate a financial settlement.

What happens though when one party receives a windfall? Will this be considered a contribution from that person alone, or a joint contribution, and will the benefits of the windfall form part of the asset pool available for distribution between both parties?

The answer is neither a definitive ‘yes’ or ‘no’. It depends on the nature of the windfall, when it was received, the relevant circumstances, and the Court’s discretion to alter property interests to achieve a just and equitable distribution.

What do assets and contributions include?

Assets generally include real estate, personal property, furniture, motor vehicles, investments, cash, shares and insurance policies. Superannuation is also included which may be split between the parties to give effect to property orders.

Contributions include financial contributions, such as assets brought into the relationship and the parties’ financial earnings, and non-financial contributions such as the care and welfare of the family.

Windfalls may also be considered contributions to the financial assets.

What is a windfall?

A windfall is money or a gift received, sometimes unexpectedly, but not necessarily earned. A windfall may be a win on the horses or other event through organised betting, a jackpot on the pokies, a lottery win, or an inheritance.

Is a windfall a contribution for the purposes of a family law property settlement?

Previously, a lottery win was deemed a windfall and treated distinctly from other contributions and property of the relationship. In Mackie and Mackie [1981] FamCa 34 the husband’s post-separation lottery win was not relevant in assessing an application for spousal maintenance.

More recently however, cases have determined that windfalls do form part of the asset pool and are therefore contributions when determining the alteration of property interests.

Zyk and Zyk [1995] FamCa 135 dealt specifically with lottery winnings and noted that the term ‘windfall’ was problematic and should more accurately be described as a ‘contribution’. The Court determined that the individual purchase of a lottery ticket during a marriage should be treated as any other purchase made from the joint income provided to the partnership. This would be so even in marriages where only one party contributes financially, based on the recognition of the non-financial (domestic) contributions of the other. Consequently, the treatment of the winnings as a ‘contribution’ rather than a ‘windfall’ made a significant impact to the net contributions determined by the Court.

Does timing make a difference?

The timing of a windfall may be of considerable relevance to how it is treated and the overall outcome when dividing property.

In Eufrosin and Eufrosin [2014] FamCAFC 191 the Court considered the timing of a windfall, looked at the nature of the relationship at the time it was received, as well as exercising its discretion of factors to be taken into account regarding spousal maintenance.

The parties had been married for 20 years and separated for 6 months (and living separate lives) when the wife won $6 million. Although the Court found that the husband had not contributed to the lottery winnings, and divided the non-windfall assets equally, the husband was awarded spousal maintenance of $500,000 which took account of the income, property, and financial resources of the parties and their respective capacity for gainful employment. In this case the husband was 62 years old.

In Elford and Elford [2016] FamCAFC 45 the parties, both of whom had previous relationships, led largely separate financial lives and had no joint accounts. They co-habited in 2003, married in 2007 and separated in 2012. The husband, who was 22 years older than the wife, won $622,842 about 12 months after they started living together. He added personal savings and invested a total of $650,000 in a term deposit in his name.

In this case, the Court held that the purchase of the ticket was not a joint endeavour between the parties as they had ‘clearly kept their assets quite separate’ and ‘to a very large degree’ their finances. The wife did not contribute to the purchase of the ticket, nor the selection of the winning numbers which the husband had consistently used on a weekly basis since 1995, and the ticket was in the husband’s sole name. Consequently, the winnings were treated as the sole contribution of the husband.

What about inheritances?

The treatment of an inheritance generally depends on when it was received, the duration of the relationship and the value of the inheritance compared to the overall asset pool.

Generally, an inheritance received before or during a relationship forms part of the asset pool, however its full value may not be equally proportioned between the parties.

Usually, the significance of an inheritance will diminish over the course of a long marriage or relationship, with less weight likely given to it when compared to the overall asset pool. In shorter relationships, where the beneficiary of the inheritance used it for the benefit of the partnership, then he or she may have a greater entitlement to it.

An inheritance received close to the time of separation, or afterwards, is generally (but not always) considered an entitlement of the recipient and may not form part of the asset pool available for distribution. It may however be considered a financial resource of the party receiving it which is potentially available to meet the needs of the other.

Conclusion

The above examples illustrate the discretionary role the Court plays in determining family law financial settlements generally and, more particularly, how a windfall might be treated. Each case will turn on its own unique circumstances, which could result in a range of outcomes including:

• the complete isolation of the windfall from the asset pool and the party entitled to it entitled also to a share of all other joint property;
• the isolation of the windfall from the asset pool and an adjustment made in favour of the party who is not entitled to it;
• inclusion of the windfall in the asset pool, with an adjustment made in favour of the party contributing the windfall;
• inclusion of the windfall in the asset pool without regard to its source.

This article is intended to provide general information only. You should obtain professional advice before you undertake any course of action.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.