Winter 2023 Family Law Case Watch

Introduction

The cost of living is continuing to climb and parties going through a separation or divorce are finding it increasingly difficult to pay for their legal fees and the cost of protracted litigation in the Federal Circuit and Family Court of Australia (‘the Court’). While there is no ‘cure’ for these issues, the Court has the power to make interim property and spousal maintenance orders before the final hearing. This can alleviate the financial burden the Court system places on individuals engaged in a family law dispute. This means that a party that may not have access to the parties’ finances can still engage in the family law system, even if their access to funds is severely limited.

In circumstances where one party is in control of the majority, if not all, of the matrimonial pool of assets, the Court can made interim property orders both to protect the other party’s interests and entitlements and provide them with the resources to be able to continue to meet the costs of their family law dispute.

Relevantly, in the recent case of Pinho & Pinho (No 2) [2022] FedCFamC1F 603, the Court considered what can be done in the interim of family law proceedings where neither party are able to support themselves with their respective incomes.

Facts

The facts in this case involved two parties in a marriage who commenced cohabitation in the middle of 2008. At the time they commenced living together, the wife owned an apartment (‘Property A’) which was subject to a mortgage. After the parties started living together, the husband then purchased another property (‘Property B’) in his sole name. This property was also subject to a mortgage. Five years after the parties started living together they sold the wife’s Property A and used the proceeds of sale to jointly purchase another property (‘Property C’).

At the time of the interim hearing, Property C was the residence of the wife and the parties’ children, and Property B was the residence of the husband. Both parties were unable to meet their mortgage repayments, with the wife experiencing a shortfall between her income and her expenses and the husband defaulting on mortgage repayments despite being up to date with all the outgoings of the property. The parties similarly sought orders for the sale of Property C.

Orders Sought

Due to her inability to meet both her expenses and mortgage repayments, the wife sought interim property orders for spousal maintenance requiring the sale of properties B and C to provide her with enough capital to meet her expenses.

The wife sought the sale of Property C whereby she would then receive $100,000 from the proceeds of sale to be characterised as spousal maintenance. The wife also sought the sale of Property B as the husband did not apply the rent he received towards the mortgage after separation. This was at a time when he was seeking orders from the Court obliging him to meet the payment of the mortgage, and instead he defaulted on the mortgage repayments.

Issues

The primary issue for the Court was ascertaining whether the payment to the wife should be characterised as spousal maintenance or as an interim property order by way of partial property adjustment. A secondary issue for the Court was determining where the funds would come from and whether the husband’s property (Property B) should be sold.

The Law

The Court recognised that parties to family law proceedings are at liberty to approach the Court for interim property orders, even though it is preferable that one set of property settlement orders be made under section 79 of the Family Law Act 1975 (Cth) (‘the Act’).

1. Spousal Maintenance:

The Court considered sections 72 and 75(2) in considering whether the wife would be successful in her application for spousal maintenance.

Section 72(1) states:-

“(1)  A party to a marriage is liable to maintain the other party, to the extent that the first-mentioned party is reasonably able to do so, if, and only if, that other party is unable to support herself or himself adequately whether:

(a)  by reason of having the care and control of a child of the marriage who has not attained the age of 18 years;

(b)  by reason of age or physical or mental incapacity for appropriate gainful employment; or

(c)  for any other adequate reason;

having regard to any relevant matter referred to in subsection 75(2).”

If the Court considers a person is unable to support themselves by reference to the above, then the Court must turn its mind to the matters in section 75(2). The Court is required to take into account only the matters referred to in section 75(2) when considering a spousal maintenance application.

The list of considerations regarding spousal maintenance is extensive, demonstrating how the Court needs to deliberate a wealth of factors in deciding whether a spousal maintenance order should be made.

Section 75(2) states that matters for the court to consider in relation to spousal maintenance include:-

1. 1. the age and state of health of each of the parties;
   2. the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment;
   3. whether either party has the care or control of a child of the marriage who has not attained the age of 18 years;
   4. commitments of each of the parties that are necessary to enable the party to support themselves and a child or [any] other person they have a duty to maintain;
   5. the eligibility of either party for a pension, allowance or benefit;
   6. where the parties have separated or divorced, a standard of living that in all the circumstances is reasonable;
   7. the extent to which the payment of maintenance to the party whose maintenance is under consideration would increase the earning capacity of that party by enabling that party to undertake a course of education or training or to establish himself or herself in a business or otherwise to obtain an adequate income;
   8. the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt;
   9. the extent to which the party whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other party;
   10. the duration of the marriage and the extent to which it has affected the earning capacity of the party whose maintenance is under consideration;
   11. the need to protect a party who wishes to continue that party’s role as a parent;
   12. if either party is cohabiting with another person–the financial circumstances relating to the cohabitation;
   13. the terms of any proposed or made order under section 79 regarding the property of the parties of vested bankruptcy property;
   14. the terms of any proposed or made order or declaration under Part VIIIAB relating to a party of the marriage or de facto and their property (including vested bankruptcy property);
   15. any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage;
   16. any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account;
   17. the terms of any financial agreement that is binding on the parties to the marriage; and
   18. the terms of any Part VIIIAB financial agreement that is binding on a party to the marriage.

2. Interim Property Adjustment:

The Court stated that where the statutory requirements above were not met regarding a spousal maintenance order, then it needed to consider section 79 of the Act regarding interim property adjustment.

Section 79 empowers the Court to make property settlement orders altering the property interests of the parties to a marriage. In essence, section 79 states that the Court may make any property settlement order it considers appropriate:-

1. in the case of proceedings with respect to the property of the parties to the marriageor either of them–altering the interests of the parties to the marriage in the property; or
2. in the case of proceedings with respect to the vested bankruptcy property in relation to a bankrupt party to the marriage – altering the interest of the bankruptcy trustee in the vested bankruptcy property; including:
3. an order for a settlement of property in substitution for any interest in the property; and
4. an order requiring:
   1. either or bother of the parties to the marriage; or
   2. the relevant bankruptcy trustee (if any);

to make, for the benefit of either or both of the parties to the marriage or a child of the marriage, such settlement or transfer of property as the court determines.

The Court stated that in considering whether to make an interim property order that it was necessary to demonstrate that the order would be just and equitable, that such an order would not prejudice the other party and that there are assets available to satisfy the order. In doing so, the Court referred to principles settled in the case of Strahan & Strahan (2021) 64 Fam LR 89.

Judgment

1. Source of Funds:

In deciding the source of funds, the Court turned its mind to the possible sale of Property B and Property C. The Court ultimately decided that only Property C should be sold because the parties each did not oppose its sale and as such, this could be an alternate source of funds that meant it was not necessary for Property B to be sold. The Court also emphasised that the sale of Property B would likely prejudice the relief sought by the husband in his final orders, as the husband wished to retain Property B as part of the final division of assets between the parties.

2. Characterisation of Payment:

As the source of funds had been decided, the Court then considered the characterisation of the payment to the wife. The Court recognised that the wife was experiencing a shortfall between her income and her expenses and that she would be required to meet her and the children’s living expenses including the costs of moving from Property C after its sale. To characterise the wife’s requested $100,000 payment as spousal maintenance would require that she was unable to support herself and that the husband was also reasonably able to meet that need from his income, property or resources.

As the husband was not able to meet any shortfall and because both parties were working and making an income (and both experiencing a shortfall between their income and expenses), the Court only characterised a payment of $10,000 as spousal maintenance. This is the money the Court considered the wife would require to meet her moving expenses. The Court then characterised an additional payment to the wife of $90,000 as an interim property adjustment.

Orders

The Court ordered that Property C be sold by private treaty and failing that by auction. From the settlement funds the wife was to receive a payment of $10,000 characterised as spousal maintenance and a payment of $90,000 characterised as interim property adjustment. The balance of funds after the payment of any fees associated with the sale, including any agent’s fees, was to be held in a solicitor’s trust account pending further order or agreement between the parties.

Conclusion

This case demonstrates the difficulties that parties experience in making an application for spousal maintenance as well as the possibility for interim property orders to be made for partial property settlement. In circumstances where a party is unable to meet their own living expenses or the costs of continued protracted litigation, the Court does offer interim remedies to alleviate the significant financial burden that litigation places on parties.

The key takeaway from this case watch is that the Court has a range of remedies and resources to enable parties to engage in the family law system, even in circumstances where one party is in a difficult financial situation or unable to access the assets of the relationship. This case demonstrates a situation currently experienced by many Australians due to the increase in the cost of living – how easy it is for your income to not be enough for you to meet your expenses.

The Court’s decision allowed both the husband to retain his property pending final orders and the wife to receive spousal maintenance and an interim property adjustment to allow her to meet her expenses. This demonstrates how the family law system addresses issues in income earning and wealth disparity between the parties, and how the law can accommodate parties in financial distress.

In conclusion, there are several options available to parties engaged in proceedings in the Court that allow them to obtain a just and equitable outcome, even where they are short on funds.

If you have recently separated or have a Family Law enquiry or questions, please telephone us on (02) 9437 0010 or send us an email at enquiries@familylawyersdw.com.au to discuss your matter in complete confidence.  We are conveniently situated in St Leonards on  Sydney’s Lower North Shore and have a team of experienced and caring professional family lawyers available to help you.

These posts are only intended as an overview or comment on current issues that may interest you and are not legal advice. If there are any matters that you would like us to advise you on, then please contact us.