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.

Although most matters are settled without Court proceedings, this is the approach usually adopted when negotiating a financial settlement and the matter considered by the Court when making orders regarding property.

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 include real estate, personal property, furniture, motor vehicles, investments, cash, shares, insurance policies, and any other property held jointly or by either party. 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’ 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 to other contributions. 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 considered as 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’  impacted on the Court’s determination of the percentages in which the assets were divided.

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 it may not be treated the same as other assets.

Usually, the weight given to an inheritance will diminish over the course of a long marriage. In shorter relationships, where the beneficiary of the inheritance used it for the benefit of the partnership, then he or she may claim a higher percentage of the overall property.

An inheritance received close to the time of separation, or afterwards, may in exceptional circumstances be excluded from the asset pool and be considered a financial resource of the party receiving it..

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 may result in a range of outcomes including but not limited to:

  • the complete isolation of the ‘windfall’ from the asset pool and the party entitled to it also receiving  a share of the asset pool;
  • the isolation of the ‘windfall’ from the asset pool and an adjustment made in favour of the party who did not contribute 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.

Talk to a specialist

For a confidential, free case assessment, please call us on 02 6621 2481 at Lismore, Ballina on 02 6686 2522 or Byron Bay on 02 6680 8525, email [email protected] or contact us online.