PROPERTY & FINANCIAL SETTLEMENTS
Inheritances received during the relationship are typically treated as a contribution on behalf of the person who received the inheritance, unless the non-receiving party can demonstrate they contributed to the inheritance in any way. For example, if the non-receiving party assisted in a significant way to care for the receiving party’s relative. Or, if the non-receiving party undertook significant repairs or renovations to real estate received as part of the inheritance without receiving any benefit.
When the inheritance is received is an important factor in how the court will treat it. Although and adjustment may be made in favour of the receiving party to an inheritance received early in the relationship, this contribution may be offset by the contributions made by the non-receiving spouse over the course of the relationship.
If an inheritance was received late in the relationship or following separation the Court has discretion to exclude it from the main asset pool when assessing contributions and adopt a ‘two pool approach’. However even if the Court adopts a two pool approach this does not mean that it will excluded altogether as the inheritance will be considered when deciding whether any adjustment is required between the parties for future needs factors (such as earning capacity, health issues, parenting obligations etc.).
Often a party will try to argue that the Court should take into consideration that a person may receive an inheritance in the future. A future inheritance will generally only be taken into account by the Court if the testator’s death is imminent and one party is likely to receive the whole or part of the estate. Even if it is taken into consideration, typically the inheritance will not be considered property but a financial resource and will be relevant hen the court is determining any adjustments pursuant to section 75(2) of the Family Law Act 1975.
Gift or Loan?
Although typically family law property disputes are between married or de facto partners, in an age where it is common for parents (and other family members) to provide financial support to the parties during the marriage, there is an increasing trend for these third parties to become enmeshed in the dispute between parties.
Parents and family members often find themselves involved in family law proceedings where an argument arises following the breakdown of the marriage or relationship as to whether the monies received by the parties (or one of them) were a gift or a loan to be repaid.
The dispute often arises because there was an informal or verbal agreement between one of the parties and their parents in relation to the advancement of monies. In many circumstances, parents and their children do not consider it necessary to formalise or document the loan as there is an ‘understanding’ or expectation that the money will be repaid, and it is not anticipated that the marriage or relationship may break down.
In other cases, the ‘loan’ is documented and secured by mortgage, but it can still be challenged, in both the Family Court and the Supreme Court.
The question of whether money provided by parents is a loan or a gift can be a complex issue. When determining whether the monies are a gift or a loan, the Court will consider all the evidence, including evidence from the parents, to determine whether there is a repayable loan. There are a number of factors that the Court may consider in making its determination, including but not limited to:
- the existence of any written loan agreement.
- the terms of repayment.
- whether any loan repayments were in fact made by the parties.
- evidence of any discussions held between the parties as to the existence and terms of the loan.
- whether there was any expectation of repayment.
- whether there was any security provided in respect of the loan, such as a registered mortgage.
If after reviewing the circumstances of the case, the Family Court considers the money to be a loan, the next question is whether the loan is legally repayable and if so whether it is likely to be repaid. For example, a loan repayable on demand may be statute barred depending on when the loan was advanced. If these questions are answered positively, within property proceedings, the Court may order the parties to repay the loan from the matrimonial asset pool; however, the Family Court is less likely to include the loan if it is vague or uncertain and if it is unlikely to be enforced.
If the Family Court is not satisfied that the monies advanced are a loan, repayable to a party’s parents or other third party, then it may determine the monies were a gift to the parties. In these circumstances the money is generally treated as a contribution made on behalf of the party whose parents gifted the money. This will in turn generally increases that party’s property settlement entitlements.
Whether money advanced by parents is treated as either a gift or a loan can significantly affect the outcome of a property settlement. Therefore, it is important that where parents wish to loan money to children who are married or in a de facto relationship, which they expect to be repaid:
- That the parents obtain their own independent legal advice at the outset.1. That the parents obtain their own independent legal advice at the outset.
- There is an enforceable written loan agreement in place between all the parties. The loan agreement should set out the terms of the loan – when it is to be repaid, the interest to be charged etc.
- The borrowers must obtain independent legal advice to protect against a claim that the contract is “unjust” within the meaning of the Contracts Review Act.
- Whether there should be security for the loan, for example by the parents lodging a caveat or registering a mortgage against the parties’ home.5. Once the agreement is entered into, the terms of the agreement are adhered to, for example by the payment of interest.
Setting Aside And Varying Consent Orders
Once Orders are made, either by the Court or the consent of the parties, they are final in relation to property settlement. Once made, Orders made only be varied if either the parties’ consent or the Court determines that it is appropriate to change the Orders.
Changing Orders by Consent
If a party is seeking to change Orders, it is always beneficial to try and negotiate the changes sought. Resolution of matters through litigation can take between 12 and 18 months and cost anywhere between $20,000 and $200,000. By engaging in negotiations parties are often able to achieve an agreement in less time and without incurring significant legal fees.
Changing Orders by Application to the Court
If parties are unable to achieve an agreement the party seeking to vary the Orders will need to file an Application with the Court to set aside or vary the Final Orders.
There are only very limited circumstances in which Final Orders will be set aside by the Court. These circumstances are set out in section 79A of the Family Law Act. Pursuant to s79A (1) the Court can set aside Final Orders if it is satisfied that:
- there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance; or
- in the circumstances that have arisen since the order was made it is impracticable for the order to be carried out or impracticable for a part of the order to be carried out; or2. in the circumstances that have arisen since the order was made it is impracticable for the order to be carried out or impracticable for a part of the order to be carried out; or
- a person has defaulted in carrying out an obligation imposed on the person by the order and, in the circumstances that have arisen as a result of that default, it is just and equitable to vary the order or to set the order aside and make another order in substitution for the order; or3. a person has defaulted in carrying out an obligation imposed on the person by the order and, in the circumstances that have arisen as a result of that default, it is just and equitable to vary the order or to set the order aside and make another order in substitution for the order; or
- in the circumstances that have arisen since the making of the order, being circumstances of an exceptional nature relating to the care, welfare and development of a child of the marriage, the child or, where the applicant has caring responsibility for the child, the applicant, will suffer hardship if the court does not vary the order or set the order aside and make another order in substitution for the order;4. in the circumstances that have arisen since the making of the order, being circumstances of an exceptional nature relating to the care, welfare and development of a child of the marriage, the child or, where the applicant has caring responsibility for the child, the applicant, will suffer hardship if the court does not vary the order or set the order aside and make another order in substitution for the order;
Parties should also be aware that even if the Court is satisfied that one or more of the grounds contained in section 79A are made out; the Court has discretion as to whether or not to grant the application. The Court may also set aside Orders where parties have provided express or implied consent to set aside or vary the Order.