The erosion principle in property settlement is applicable to premarital assets. The contribution of a party in the form of a premarital asset will be eroded in a long relationship.
Many parties enter into a marriage or de facto relationship with assets of their own. Parties without prenuptial agreements lose their absolute ownership over these assets. Upon dissolution of the marriage or de facto relationship these assets will form part of the asset pool of the parties. However, the longevity of the marriage or relationship is a factor that is considered by the court with respect to premarital assets.
Premarital assets are properties that are brought by a party to a marriage or de facto relationship. The assets may be in the form of real estate, personal properties, bank deposits, stocks and other financial sources.
Premarital assets are the contributions of a party that will be taken into account by the court in the four step process that is followed in property settlement applications. An asset that is brought into the marriage or de facto relationship is a direct financial contribution of a party. How this asset will be divided will depend largely on the erosion principle.
Parties whose marriages or de facto relationships have ended in divorce or separation divide their properties either through financial agreements or court action. With a financial agreement parties can control how their properties will be shared and divided between them. With an agreement the parties have a wide discretion in making the terms of their agreement without having to comply with the steps for property settlement that must be followed by the court.
In deciding an application for property settlement the courts will be following a four step process with the ultimate goal of issuing an order that is just and equitable for all parties.
The erosion principle is applied in court cases for property settlement. This is the principle that is used with respect to premarital assets in the couple’s asset pool.
The erosion principle basically provides that with passage of time the value of a premarital asset decreases while the contribution of the former spouse or de facto partner increases. A short relationship means that the asset has remained intact without the other party having contributed to its improvement.
However, when the parties had a long relationship the supposition is that the premarital asset is improved through the contribution of the other spouse or de facto partner. For example, a house and lot that was brought into the marriage is improved in a long relationship by renovations, repainting and landscaping all of which must have been paid using conjugal funds. Thus, for long relationships the initial contribution of a party is offset by the contributions of the other party. When it comes to property settlement the court will then consider the contributions of the other party to the improvement of the premarital asset.