Property Settlement in a Short Marriage

A common situation which arises in the context of short relationships is where one party contributes a significant asset at the commencement of the relationship and that asset subsequently experiences an “uplift” in value during the relationship or after separation. 

In this situation, the question becomes, who ought to enjoy the benefit of that “uplift” and in what proportion? 

Some general principles may be applied as follows:

• The weight of the initial contribution in favour of the contributor will be greater where the increase in value has come about by market forces as opposed to the contributions of either party.
• The weight of an initial contribution in favour of the contributor may be less where the non-contributor has contributed to the increase in the value of the asset during the relationship. 

For example, performing or funding renovations on the property, making business decisions which lead to an increase in the value of a company.

Kardos v Sarbutt [2006] NSWCA 11

This case concerned a three-year relationship where there were no children.  At first instance, the trial judge returned to the parties their initial contributions and then divided equally the uplift in the assets that occurred during the relationship.  The decision was appealed on the basis that the initial contributions of one party were “undervalued”.

Brereton J referred to the cases of Howlett v Neilson and Burgess v King and stated:  “The approach which was adopted in Burgess v King is one which gives due weight to the time value of money, and recognizes that capital gains are the product of the initial introduction of the property, rather than of ongoing contributions.    On the other hand, the approach adopted in Howlett v Neilson, in my respectful opinion, may, at least in some cases, result in a serious undervaluation of initial contributions. It treats any increment in capital value of an asset held at the outset of the relationship as if it were part of the fruits of the relationship, when it is not: it is the result of the asset having been held by one of the parties at the commencement of the relationship, and not the result of joint efforts of wage-earning, homemaking and parenting, and mutual support of the type described by Deane J as producing “fruits of the relationship”. 

It disregards the “time value of money”.  It is likely to produce erratic results because under it the significance of any particular asset in the ultimate evaluation will depend on its value when it was introduced.  If one party has a house worth $250,000 at the outset, and it appreciates during the relationship to be worth $750,000, the contribution is of a house which at separation is worth $750,000 – not of money worth $250,000.”

His Honour held that the approach is taken at first instance “gave manifestly inadequate weight and significance to the initial contributions of the parties in this short relationship”.  His Honour set aside the trial judge’s decision in favour of an overall division of 60/40, which reduced the payment ordered from the contributor to the non-contributor.