PROPERTY CONTRIBUTION CALCULATION

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In this article, a service is outlined whereby one can ascertain their property contribution share under s 79 (4)(a,b,c). It is suggested that this information may be used as expert actuarial evidence in proceedings before the family court by virtue of the agreement of the results with the results determined by the court in a significant number of cases.

Rather than "put you off" by getting too deep into theory, it is appropriate to describe this service by way of the main authority on "mathematics in property" which is the case of Crawford and Crawford (1979) FLC 90-647.

This case remains as the authority after almost 20 years of lawyers scratching their heads and saying "this is the case which endorses the fact that we don't understand mathematics" (let alone computers) and therefore can keep using the wet finger method.

The truth is that the (always wise) words of the full court in this case actually described the computer algorithms to be used (and not to be used - reference Emily), even though (personal) computers were just a pipedream in 1979.

The words used were as set out below. Please suck them in and consider what these wise folk were getting at.

"In our view the longer the duration of the period of cohabitation, the less weight need be given to the initial contribution of capital by either spouse at the beginning of the marriage. It becomes, in our view, increasingly difficult as the period of cohabitation lengthens, to justify placing a special value on a single item such as an initial cash contribution made many years before and treating it mathematically, when indeed there are so many other facets of marital contribution which become equally, if not more, deserving of attention. The contribution of assets by each party to the marriage is always, of course, a factor to be taken into account, but we see the significance of the initial contribution gradually diminishing with the passing of years. The rate of diminution and, for that matter, the significance of the initial contribution, are matters which will vary according to the circumstances of each case."

OK, we will come back to this shortly but first take a look at the input data for the Crawfords and use BACK to return here.

First you will see the $3,880 deposit Mr Crawford (party #2) brought into the marriage, so he gets 100% as an INPUT credit (and NOT quarantined as we see later). It is a s 79 (4)(a) acquisition item

have another look and use BACK to return here.

Now comes that least understood item, the mortgage, where lawyers tend to confuse the amount borrowed with the amount repaid. The computer works out the total amount repaid as a s 79(4)(a,b) acquisition item.

Mr Crawford is (a) as he paid direct from his income and Mrs Crawford is (b) because she "did housewife things" - and the 50% credit for this follows from the famous phrases used/repeated here, "not in a token way but in a substantial way" and "equality was equity".

The interest % and the term have been assumed but in your own case you will know these figures. The interest is the average over the period or you may wish to use several "modes" with different rates. The computer could work out the residual but generally this information is provided by the parties on the record.

In this case 2 modes are used, mode 2 is the 13 yr period when the couple was together and mode 1 is for when Mrs Crawford zoomed off with Mr Aldred on his Middle Dural farm, so H gets 100% (or rather W gets 0%). You see, even boring maths can be like "Home and Away" in family law - and wait till you hear about Ms Emily Backhouse (H's barrister), Franca Arena and the pineapples.

have another look and use BACK to return here.

Now this leaves capital input and you are given 4 modes to play with. This would normally cover a swimming pool, an inheritance to a party etc but in this case we have used it to add $5,000 over the 13 years of cohabitation for rates, improvements, restoration etc. However, as these amounts would generally be apportioned equally (if H built the garage, W was doing needlework etc) and they don't greatly affect the result.

But in Graham and Graham (1997) unreported, Lawrie J disapproved of this computer method as such things [s 79 (4)(c)?] had not been included. However her Honour came to the exact same H 55% and W 45% contribution share proving that judges can simply use their intuition to come to a result.

But 96% of cases are "decided" by lawyer/registrar consent path and it is this 15 billion dollars each year which could benefit from a service which agrees better than 90% with case law, rather than lumping all into the nebulous soup of contribution plus s 75(2) trips to the well of eternal goodies which is used for these unfortunate folk (well at least the "loser" of each couple).

Back to the computer, although you have not seen it yet, the computer has worked out the total mortgage repayment and added it to all the other bits to give a total of $36,576. It has also worked out the total proceeds at $58,100. So question is how to divide up the spoils.

It would be easy to do it equally but would that be fair, a dollar invested in the house the day before it is sold gets the same as the dollar invested in the deposit 15 years ago. No it's not fair is the only answer but what sort of apportionment should be used.

To go to the other extreme, in Graham and Graham (supra) as a LIP tactic we offered the instructing solicitor a third order butterworth hyperbolic relationship with tangential Newtonian quadratic conversion. The tactic worked as Mr Errington of counsel flipped and handed the case over to Mr Ostinini FitzGerald of chambers.

But seriously, what we have employed is simply a linear "ramp" whereby a dollar on the date of sale/hearing gets a dollar back and a dollar at the date of purchase gets the maximum reward, and with everything in between decreasing as a linear function of the time difference.

The method the computer uses is called iteration (trial and error) and, after being told the rules of the game as described above it starts crunching numbers and will not give up until some 40 seconds and 10 million calculations later it has found the exact solution (to 15 decimals of one cent). That's the problem with computers, they never say 'that's close enough" they just keep going.

If you didn't follow that, just have a look and use BACK to return here.

If you look at the tabular result, the deposit is adjusted from $3,880 to $7,928 - more than double. You will also see that, as in most cases, the (yellow) mortgage repayments (mode #2) was the largest item at $23,197 and because it was input over the full period of joint occupation it was adjusted by some 50% to $37,261.

Have another look and use BACK to return here.

The mode #1 mortgage the H paid alone was all towards the end of the investment so only marginally increased by 10 % or so.

Does that demonstrate how this equitable ramp works to apportion the profit (or loss - but we won't try to explain that here) on the contributions to find the present value of each item?

Then it is simple addition to come up with the total to each party and hence the percentage. In this case we got 61.02% to H and full court got 60%, an excellent agreement with the ambit of discretional bandwidth under s 79.

Have another look and use BACK to return here. You will note the graph displays the result in brilliant technicolour. Observe the last 2 columns where the red and green being part of the H's contribution only caused the difference.

In making this comparison, remember that this was pre 1987 and children were still considered within s 75(2), if relevant via s 79(4)(e). In fact, not only was there not a Dench adjustment in this case but the "lack of needs per se" issue was raised (and defeated) as to contributions. This was indeed an important case, but there's more!

As "nice to know" information, the investment results are shown at the bottom of the graphic. You will note that the appreciation of the investment was 59% but that by weighting this index in line with the CPI there was a loss of 33% in real terms. You might recall these were the days before the treasurer we had to have saved us from the banana republic, days when inflation peaked at 17% in 1974. In fact the result is even worse as the CPI figures only start in 1966 and this house was bought in 1963.

Have another look and use BACK to return here.

So what does all this mean in relation to the wise words of the full court?

"In our view the longer the duration of the period of cohabitation, the less weight need be given to the initial contribution of capital by either spouse at the beginning of the marriage. (Correct, although the VALUE of the initial deposit of the H more than doubled its WEIGHT went from 25% of the purchase price to only 14% of the sale price)

It becomes, in our view, increasingly difficult as the period of cohabitation lengthens, to justify placing a special value on a single item such as an initial cash contribution made many years before and treating it mathematically, (OK, by "mathematically" they were talking of the quarantining balloon which has floated around in the "reform ether" for 20 more years. Ironically they are saying this to protect reformers from themselves, ie if Mr Crawford only got back his $3,880, would justice have been done? And indeed under s 79(2) the court would have been prevented from making an order under s 79 had such inequity existed)

when indeed there are so many other facets of marital contribution which become equally, if not more, deserving of attention. (and as usually is the case the yellow and green mortgage repayments are the predominant contribution)

The contribution of assets by each party to the marriage is always, of course, a factor to be taken into account, but we see the significance of the initial contribution gradually diminishing with the passing of years. (and the above method via computer does this exercise with total equity and accuracy)

The rate of diminution and, for that matter, the significance of the initial contribution, are matters which will vary according to the circumstances of each case." (exactly, these wise gents have retired now [or about to] so you can't ask them to repeat their judgement for your case, but we can via this service)

So what went so wrong that the legal profession did not understand and apply this excellent judgement? Well in our opinion it was simply the fact that these gents were true gentlemen and rather than treat Ms Backhouse's submission with the disdain it deserved, they just said.

"In short, counsel argued that the amount of the husband's original contribution should be extrapolated (sic interpolated?) proportionately to the inflationary growth of the real estate."

Consider had this been the high court in the Franca Arena case as to if she was allowed to name a few more Yeldham JJ, as being keen users of StateRail facilities.

MR KATZ: It would appear that the nature of an application for special leave is not such that it qualifies as an interlocutory matter, rather it is a proceeding sui generis in which the Court determines whether or not to exercise its appellate jurisdiction and - - -

BRENNAN CJ: It is certainly not a final matter.

GUMMOW J: You may have the wrong end of the pineapple, I think.

So why did Ms Backhouse have the wrong end of the pineapple dear readers?

Yes you are all correct, she confused the amount borrowed from the bank with the amount repaid by the parties. It is a common problem with lawyers and judiciary alike (but generally not full court judges). For example Lawrie J twice mentioned the initial contribution to the purchase price in Graham and Graham (supra).

The explanation is indirectly given by coincidence in this Crawford case where, on a different tack, Ms Backhouse claims the house should be 100% to the H as it is in his name only.

So the explanation applies to both tacks. S 79 is about the property of the parties or either of them and contributions to such property. So while the parties input 25% at purchase, the $12,000 was input by the bank - not a party under s 79. So although the parties owned the home (rather it was Mr Crawford in this case), their financial ownership only increases as they start paying off the mortgage, capital and interest.

So to give a simple example, if they sold the house a week after they bought it the whole residual of $12,000 goes back to the bank and rather than Mr Crawford having 25% equity in the house in relation to the purchase price, he actually had 100% as to the proceeds of an early sale. In this way the purchase price of a home has no part in s 79, except to deduce the amount to be borrowed (if not provided).

You will see that the contribution of the parties to the mortgage repayments was $28,000 (and there was still $1,900 owing), rather than $12,000.

The final point about this service is that even if you do not understand all these finer points on calculating property contribution, we do so all you need to do is supply your input and you will receive the correct result, verified by reference to many full court cases.

As a "caviar" in this result, the contribution share is then twigged, where relevant, to give a Dench offset via s 75(2) factors, generally in a completely nebulous manner. The importance of insisting on the initial contribution calculation is that the start point is set correctly rather than the "equal start" suggested reform where Mr Crawford would have been "cheated out" of 10%.

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