by | Feb 28, 2023

For Richer and Poorer: Drafting Watertight Property Consent Orders

There are many advantages to settling disputes through consent orders, but there are also many potential pitfalls in drafting them and in the process of having the orders made. This paper covers: 

  1. Legislative background
  2. Duty of Disclosure 
  3. When will a Court Decline to Make a Property Consent Order?
  4. Legal representation
  5. Requirements for the Application for Consent Orders form 
  6. Requirements for Format of Draft Consent Orders 
  7. When is a Property Consent Order Appropriate?
  8. Drafting Orders 
  9. Declarations, Notations, Recitals and Statement of Agreed Facts 
  10. Binding Third Parties 
  11. Lump sum or Percentage Interest in Property 
  12. Guarantees and Indemnities 
  13. Furniture 
  14. Transfer of Property to a Child 
  15. Superannuation 
  16. Execution of Instruments under s 106A(1)
  17. Lump Sum Spousal Maintenance Provisions: s 77A and 90SH

LEGISLATIVE BACKGROUND

Property settlement orders can be made by consent under the Family Law Act 1975 (Cth) (FLA) in circumstances where there is a current case or where there is not. Minutes of Proposed Orders must be filed in either the Federal Circuit and Family Court of Australia (FCFCOA) (Div 2), the Family Court of Western Australia or a state court of summary jurisdiction, but for the purpose of this paper it is assumed that they are filed with the FCFCOA.

Family Law Act

Property settlement orders, whether made by consent or after a contested hearing, must comply with the legislative scheme of either:

  • s 79 for married couples; or
  • s 90SM for de facto couples

It is beyond the scope of this paper to examine these sections in detail. Knowledge of these sections is presumed. In this paper, reference is made to: 

Section 79(1) “In property settlement proceedings, the court may make such order as it considers appropriate…”

Section 79(2) “The court shall not make an order under this section unless it is satisfied that in all the circumstances, it is just and equitable to make the order.”

Section 79(4) “In considering what order (if any) should be made under this section in property settlement proceedings, the court shall take into account:

  1. the financial contribution made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
  2. the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
  3. the contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent; and
  4. the effect of any proposed order upon the earning capacity of either party to the marriage; and
  5. the matters referred to in subsection 75(2) so far as they are relevant; and
  6. any other order made under this Act affecting a party to the marriage or a child of the marriage; and
  7. 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.”

Rules

If there is a current case, r 10.04(1) and (2) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (the Rules) applies: 

r 10.04(1) “The parties to a proceeding may apply for an order in terms of an agreement reached about a matter in dispute in the proceedings:

  1. By lodging a draft consent order; or
  2. By tendering a draft consent order to a judicial officer during a court event; or
  3. Orally, during a court hearing or trial.”

r 10.04(2) “A draft consent order must state that it is made by consent and must be signed by each party or the party’s legal representative.”

In practice, despite the amendment of r 10.04(2) as of 28 November 2022 to allow legal representatives to sign draft consent orders on behalf of a client, final property settlement orders should be signed by the parties and not by legal representatives, in order to lessen the risk of negligence claims and disputes as to whether a party truly consented. 

If there is no current case, an Application for Consent Orders must be filed with the proposed consent orders signed by the parties (r 10.04(4)) and the requisite filing fee or an exemption form. There are additional requirements if the parties also seek parenting orders but these requirements are beyond the scope of this paper. Again, r 10.04(2) applies and the proposed consent order can be signed by a party’s legal representative, but it is best practice that this be avoided.

Consent orders which will bind a third party can be sought if the procedural requirements in the Application for Consent Orders are met and the orders are within the court’s jurisdiction. This jurisdiction may be accrued, associated or within Pt VIIIAA.

An Application for Consent Orders in which property settlement orders are sought is a “financial proceeding”, but a Financial Questionnaire does not need to be filed (r 6.06(5)).

The respondent’s consent to an application lapses if 90 days have elapsed since the date of the first statement of truth in the Application for Consent Orders if the Application has not been filed (r 10.08).

DUTY OF DISCLOSURE

A duty of full disclosure applies even where parties are seeking that property settlement orders be made by consent. The general duty of disclosure requires each party “to give full and frank disclosure of all information relevant to the proceedings, in a timely manner” to the court and to each other party (r 6.01(1)). 

Rule 6.06(3) applies to financial proceedings. It states:

“Without limiting subrule (1), a party to a financial proceeding must make full and frank disclosure of the party’s financial circumstances, including the following:

(a)  the party’s earnings, including income that is paid or assigned to another party, person or legal entity;

(b)  any vested or contingent interest in property;

I  any vested or contingent interest in property owned by a legal entity that is fully or partially owned or controlled by a party;

(d)  any income earned by a legal entity fully or partially owned or controlled by a party, including income that is paid or assigned to any other party, person or legal entity 

(e)  the party’s other financial resources;

(f)  any trust:

(i)  of which the party is the appointor or trustee; or

(ii)  of which the party, the party’s child, spouse or de facto spouse is an eligible beneficiary as to capital or income; or

(iii)  of which a corporation is an eligible beneficiary as to capital or income if the party, or the party’s child, spouse or de facto spouse is a shareholder or director of the corporation; or

(iv)  over which the party has any direct or indirect power or control; or

(v)  of which the party has the direct or indirect power to remove or appoint a trustee; or

(vi)  of which the party has the power (whether subject to the concurrence of another person or not) to amend the terms; or

(vii)  of which the party has the power to disapprove a proposed amendment of the terms or the appointment or removal of a trustee; or

(viii)  over which a corporation has a power referred to in any of subparagraphs (iv) to (vii), if the party, the party’s child, spouse or de facto spouse is a director or shareholder of the corporation;

(g)  any disposal of property (whether by sale, transfer, assignment or gift) made by the party, a legal entity referred to in paragraph (c), a corporation or a trust referred to in paragraph (f) that may affect, defeat or deplete a claim:

(i)  in the 12 months immediately before the separation of the parties; or

(ii)  since the final separation of the es;

  1. liabilities and contingent liabilities.

The main consequences of non-disclosure prior to property settlement orders being made is the risk that the orders may be liable to be set aside under s 79A(1)(a) or s 90SN(1)(a). Section 79(1)(a) states:

“Where, an application by a person affected by an order made by a court under s 79 in property settlement proceedings, the court is satisfied that:

  1. 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…”

Importantly, not only must there have been a failure to disclose, but the court must also find that there was a miscarriage of justice.

Barker & Barker

In Barker & Barker [2007] FamCA 13 the parties agreed on the value of a property, AW, at $1,650,000, being a property the husband was to retain. The judge making the consent orders was told that the essential effect of the agreement was that the wife believed she was receiving between 53% and 55% of the property of the parties.

A few weeks prior to the consent orders being made, the husband rejected an offer of $2,300,000 for the AW property. He did not tell the wife of the offer. His evidence was that he did not regard it as a genuine offer and did not intend to sell the property.

Eight days after the orders were made the husband received an offer of $2,650,000 which he accepted. The wife applied to set the orders aside under s 79A(1)(a) and submitted that she only received approximately 30% of the property pool.

The trial judge dismissed the wife’s s 79A application, substantially because:

  • the offer made to the husband prior to the orders being made did not have to be disclosed to the wife; and
  • the fact that AW sold for more post the making of the orders could not form a basis for a s 79A application, as property prices commonly, if not inevitably, fluctuate. 

The wife appealed and the Full Court of the Family Court upheld the appeal. The Full Court said (at [94]):

“Indeed, the very fact that the husband wanted to retain the property increased the obligation on him to act in good faith in relation to offers, an obligation that might not have existed were there to have been a sale at which the value of the property would have been tested on the market.”

The Full Court said specifically in relation to the offer made before the orders were made (at [108]-[109]):

“This is so particularly because the husband did not wish to sell. It was not the fact of the potential sale to which the offer was relevant, His Honour clearly having accepted the husband’s evidence that he did not wish to sell, but the value of the property which the husband sought to keep… Whether he thought he would retain it in the long-term is again irrelevant in our view to the question of its value for the purposes of a just and equitable settlement between the parties. His Honour erred in our view by placing undue weight on the fact that the husband did not want to sell.

Having been alerted in the wife’s affidavit to the fact that she was aware that an offer had been made but was not aware of the price, in our view the husband was under an obligation to disclose the existence of a relevant offer, even if he did not think the offeror was genuine in his desire to buy the property.”

Barrett & Simmel

A more recent case was Barrett & Simmel [2022] FedCFamC1F 896. The husband unsuccessfully sought that the wife’s application for orders under s 79A be summarily dismissed. Of course, the wife’s s 79A application may not ultimately be successful, but the case raises interesting issues regarding disclosure and the drafting of orders.

The final orders were made by consent in chambers, and had been signed by the husband on 24 August 2022 and by the wife on 25 August 2022. They were sent to chambers by the wife’s lawyers at about 10am on 30 August 2022, together with a joint letter written by the wife’s lawyers explaining the final orders, co-signed by the parties’ practitioners. The proposed orders provided for the wife to receive 32.5% of the pool. There was no challenge to the division of assets at 32.5% to the wife and 67.5% to the husband being a fair and appropriate outcome. 

Having been satisfied that it was just and equitable that orders be made, and that the proposed orders were appropriate in all the circumstances, the final orders were made by Justice Carter at 12.23pm that day. 

The husband held more than 3,000,000 shares in B Pty Ltd, which he kept as part of the final orders. 

About six months before the parties’ final separation, the B Pty Ltd shares were listed at over $1.50 per share. They increased in value and around four months after the parties separated, they were valued at over $3.50 per share. 

Knowing the volatility of the B Pty Ltd share price, the parties agreed to tie the value of the shares to the traded value as at the date the final orders were made. 

At the close of the ASX on 29 August 2022, the B Pty Ltd shares were trading at under $1.50 per share, which was a particularly low point for the share price. The company put in place a trading halt on 30 August 2022, and no shares were traded on the ASX that day. The wife said she became aware of the trading halt on the morning of 30 August 2022, and advised her lawyers of it at 10.52 am that day. Justice Carter’s chambers were not notified.

The trading halt was implemented in the face of a takeover bid made by a private equity firm, E Pty Ltd. B Pty Ltd said on 30 August 2022, it had rejected an offer made by E Pty Ltd, apparently asserting the indicative proposal to acquire 100% of B Pty Ltd shares at around $1.50 was inadequate, and highly opportunistic, being made “at a time of significant share market volatility and cyclical weakness in […] valuations”

According to ASIC, E Pty Ltd became a substantial shareholder in B Pty Ltd on 30 August 2022, having acquired the shares at around $1.50 a share. 

On 31 August 2022 the B Pty Ltd shares opened on the ASX at around $1.50 per share. Also on that day E Pty Ltd announced it had become a substantial holder of B Pty Ltd shares, having acquired the shares at around $1.50 per share.

The wife filed an Initiating Application seeking to set aside and vary Order 1.3 of the final orders under s 79A(1)(a). She sought either that Order 1.3: 

  1. be set aside and varied to include fixed dollar values for the various shares, including the B Pty Ltd shares at around $1.50 per share; or
  2. be set aside and varied to provide that the share price be determined by the ASX listed price on the date of the orders, or if no trade that day for that entity, at the conclusion of trade the following day. 

If the wife’s s 79A(1)(a) application was not successful, and the pool calculated on the basis that the shares were worth less than $1.50 per share, she said this would result in a miscarriage of justice for “any other circumstance within the meaning of s 79A(1)(a). 

If the B Pty Ltd shares were valued at less than $1.50 per share, then the shareholding was valued at approximately $3.6 million. If they were valued at around $1.50 per share, that value increased to approximately $5 million.

The wife alleged that the circumstances which gave rise to the miscarriage of justice were (at [17]):

“(a) there was no trading of the shares on the ASX on the day the final orders were made. Using the trade price from the day before is not a correct interpretation of the final orders which specify close of trading on the day;

  1. there was trading of the shares on the day the final orders were made, although not publicly, in which the shares were traded at around $1.50 per share. There is no reference in the final orders to trading on the ASX only. Additionally, when the exchange opened the following day, being the day immediately following the making of the final orders, the shares were listed at around $1.50 per share. Accordingly, that value should be used for the purpose of calculating the pool and the wife’s 32.5 per cent entitlement; and 
  2. nowhere in the husband’s material does he say he was not aware that the trading halt was about to be called. If he did know, he ought to have disclosed that. If he knew offers were going to be made, he ought to have disclosed that too.”

The wife’s application was opposed by the husband. He sought that the pool be calculated on the basis that the B Pty Ltd shares were worth less than $1.50 per share.

Effectively the wife’s case was that the real value of the B Pty Ltd shares at the time the final orders were made was not reflected in the ASX price at close of trade on 29 August 2022. The shares, she said, did not leap in value the day immediately after the final orders were made – but were in actual reality worth around $1.50 per share on the day the final orders were made. She said that was corroborated by discussions between B Pty Ltd and E Pty Ltd on the day the final orders were made. Accordingly, it could be argued that a miscarriage of justice arose out of the circumstances that:

  • the method agreed and fixed by the parties to determine the value of the shares was flawed and did not accurately reflect the true value of the shares as at the day the final orders were made; and 
  • as a result of using that flawed method of valuation, the wife will not receive 32.5 per cent of the pool properly calculated, being the percentage that the parties – and the court – have agreed is her entitlement. 

There was some vague suggestion that perhaps the husband had some knowledge of the trade halt. It was unclear if it is asserted he knew more than that. Justice Carter dismissed the husband’s application to summarily dismiss the wife’s case, and said (at [49]):

“If he did have knowledge of the impending acquisition of a substantial number of shares by E Pty Ltd at that higher price and did not inform the wife, that perhaps could amount to a miscarriage of justice. The court would need to know what knowledge the husband had, and then determine whether or not that was information he had a duty to disclose.”

Adler & Madigan

In Adler & Madigan [2019] FCCA 194 the husband sought to set aside consent orders on the basis that the orders were made by reason of duress and suppression of evidence. Judge Speleken said (at [30]):

“In view of the following considerations, I find that the husband has not adequately discharged the onus of proving the existence of any unconscionable conduct such that it could amount to duress:

  1. The husband was represented by an experienced solicitor who would have represented his best interests during the negotiations.
  2. The husband presumably received independent legal advice from his legal representative and was made aware of options available to him on day the Order was made.
  3. The husband presumably chose to stay and participate in negotiations rather than seek an adjournment. 
  4. At no time, did the husband bring to the attention of the other parties or his legal representative the possibility of his mental health affecting his ability to understand the negotiations.”

Hien & Chien

In Hien & Chien [2021] FedCFamC2F 111 the husband sought to set aside consent orders, contending that the wife suppressed evidence at the time the consent orders were made regarding her intention to sell the former matrimonial home.

Documentary evidence established that the wife decided to sell the home 2-3 months after settlement after taking stock of her financial position, and sold it for $220,000 more than her valuation, after she spent significant funds on renovating the property. She sold the property at a price which was higher than the valuation obtained by her 18 months earlier and which had been disclosed to the husband. The court found that the husband failed to establish that the wife had suppressed evidence.

Furthermore, the evidence established that the husband had failed to disclose a valuation he obtained 6 months after the wife’s valuation which showed the property had increased in value. He failed to disclose this to the court in his s 79A application in breach of his duty to provide full and accurate evidence.

Obligations of legal practitioners

Full instructions must be taken from the client with respect to property and maintenance claims under the FLA. This is the case even if the client attends the legal practitioner having already reached agreement with the other party. The legal practitioner cannot accept the agreement at face value as they must have sufficient information to advise the client of the appropriateness of the agreement reached so as to assess that it complies with s 79 or s 90SM and sign the Statement of Independent Legal Advice. 

It is imperative that instructions be confirmed by supporting documentation and searches where appropriate. Searches which may be necessary include:

  • Index searches at the titles office to check which real properties are owned by the parties and relevant companies
  • Title searches to check ownership, that names are correct, whether held as joint tenants or tenants in common and whether there are mortgages or caveats
  • Copies of mortgages should be obtained to check the borrowers and any guarantors
  • Searches at the Australian Securities & Investments Commission to ascertain the offices held by the parties and the shareholdings of the parties
  • Company searches to check shareholdings, offices held and whether there are any registered charges

If names are incorrectly recorded on the searches (eg due to typographical error, shortening of the name on the marriage certificate or omission or inclusion of middle name), the orders should refer to the alternative name in brackets to ensure clarity and enforceability. For example “Judith Anne Packer (also known as Judy Packer)”.

If there is to be a conveyancing transaction, the client authorisation and the VOI check will need to match the name in the orders and on title. If they don’t the orders should explain “also known as…”

WHEN WILL A COURT DECLINE TO MAKE A CONSENT ORDER? 

The Court may decline to make a property settlement order by consent if the proposed order does not meet the requirements of s 79 or s 90SM. The two main High Court cases which set out the proper approach to be taken are Harris &v Caladine (1991) FLC 92-219 and Stanford v Stanford (2012) FLC 93-518, although the latter case applies to orders made after a contested hearing as well.

Complying with s 79

Harris & Caladine 

In Harris v Caladine (1991) FLC 92-217, a deputy registrar of the Family Court made consent orders under s 79. The wife subsequently sought to withdraw her consent and she filed an application for a review of the exercise of the registrar’s power under O 36A r 7 (now Pt 14.3 of the 2021 Rules). The wife challenged both the constitutional validity of the delegation of power to a registrar of the Family Court to make a property order by consent and the nature of a hearing de novo.

In dealing with these issues the High Court took the opportunity to examine the process which should be undertaken when making property orders by consent.

Chief Justice Mason and Justices Brennan, Deane, Dawson and Toohey held that the considerations set out in s 79(4) must be taken into account when making orders by consent or not by consent. The court must also be satisfied that the orders are “just and equitable” under s 79(2). However, in the case of consent orders, the court will more readily find that the requirements are met simply due to the fact of consent, but there still needs to be relevant material before the court.

Justice Dawson said (at [25]-[26]):

“…The fact that an order is sought by consent does not relieve a court, or a Registrar, from compliance with the requirements of the section, but it may render compliance much less demanding. Provided that a court, or a Registrar, is adequately informed, where the parties are at arm’s length and are properly represented little more than consent may be needed to establish that the requirements of the section have been met… 

… And in the case of an application under s 79, even if there is consent amounting to a contract, that is not enough of itself to entitle the parties to an order. The requirements of the section must be satisfied.”

Justice Brennan said that when a consent order is sought in a s 79 application, it is not necessary to conduct an inquiry into each of the factors in s 79(4). He said (at [11]):

“It does not follow that, when a consent order is sought in a s 79 application, it is necessary to conduct an inquiry into each of those factors. The Court may be satisfied that a provision is proper by reference not only to the material before the Court relating to the factors mentioned in s 79(4) but by reference to the advice available to the respective parties and the consent which they respectively give to the making of the order. In the majority of cases, once it appears that the parties are conscious of the factors mentioned in pars (a) to (f) and have taken them into account before consenting, the provisions ‘with respect to financial matters’ proposed for incorporation in the consent order will be seen to be ‘proper’. The factor mentioned in par.(g) may require independent inquiry by the Court, but that question does not arise in this case. Nevertheless, when an application for a consent order in a s 79(1) matter is made there is a discretion to be exercised with reference to the propriety of the provisions with respect to financial matters. The making of a consent order in a s 79(1) matter is not automatic.”

The court can therefore more readily find that the requirements of s 79 (or s 90SM) are met when consent orders are being made, than it can when making contested orders, but the court must still be satisfied on the basis of evidence.

In Redman & Redman (2013) FLC 93-563, the Full Court of the Family Court, after referring to both Harris & Caladine and Stanford v Stanford (2012) FLC 93-518 (discussed below), dismissed an appeal against a trial judge’s refusal to make consent orders in circumstances where:

  • There was initially no evidence of the parties’ contributions
  • The husband was likely to receive substantial but unidentified assets from his family
  • The order appeared to be of no utility
  • The wife was an Eastern European citizen, had only been in Australia for four years and there was no evidence she had received independent legal advice. The court did not know what her English language skills were
  • The order seemed, on its face, to have a degree of finality, even though, as a matter of law, it might not
  • There was not an apparent principled reason for interfering with the existing legal or equitable interests of the parties to the marriage, which was intact.

An appeal against orders made by consent was unsuccessful in Maxwell & Miltiadis (2015) FLC 93-644. The appellant argued that the judge could not have been satisfied that the orders were just or equitable and the judge did not give adequate reasons.

Both parties were represented when the consent orders were made. The judge was told that the value of the asset pool had not been determined and it was not possible to put a percentage on the proposed division, but the proposed division enabled the mother to have sufficient funds to set up a home and have suitable accommodation for herself and the child.

The Full Court was satisfied that there was cogent evidence that each party was adequately informed of the relevant factors under s 79(4) and had received legal advice. The issue of whether the orders were just and equitable was (at [26]) “subsumed by and merged into the consent” to the orders. An appeal on similar grounds was dismissed in Melville & Melville (No 3) (2020) FLC 93-985. 

In summary, it appears that based on Harris v Caladine and the courts’ consideration of that case:

  1. Consent orders do not need to be investigated by the court as fully as orders not made by consent
  2. The investigation required is less when both parties are represented; 
  3. If the orders on their face appear not to comply with s 79, extra information and/or documentation may be required.

The Just and Equitable Requirement: ss 79(2) and 90SM(3)

Section 79(2) states:

“The court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.”

In Mallet v Mallet (1984) 156 CLR 605, Gibbs CJ said at 608–9: 

“[i]t is necessary for the court, in each case, after having had regard to the matters which the FLA requires it to consider, to do what is just and equitable in all the circumstances of a particular case”.

Section 90SM(3) is worded similarly to s 79(2) except the word “shall” is replaced with “must”. The use of the word “must” in this context has not been considered by the courts but it is generally accepted that “must” is a better word to use than “shall” to show that it is a mandatory requirement. The intention of the legislature was probably the same as when s 79 was enacted but “must” is plainer English and leaves no room for confusion with “may”.

Since a string of decisions by the Full Court of the Family Court ending in Hickey & Hickey (2003) FLC 93-143, s 79(2) was generally considered to be an identifiable fourth or final step. The Full Court in Hickey said (at p 78,386):

“The case law reveals that there is a preferred approach to the determination of an application brought pursuant to the provisions of s 79. That approach involves four inter-related steps. Firstly, the Court should make findings as to the identity and value of the property, liabilities and financial resources of the parties at the date of the hearing. Secondly, the Court should identify and assess the contributions of the parties within the meaning of ss 79(4)(a), (b) and (c) and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties. Thirdly, the Court should identify and assess the relevant matters referred to in ss 79(4)(d), (e), (f) and (g), (‘the other factors’) including, because of s 79(4)(e), the matters referred to in s 75(2) so far as they are relevant and determine the adjustment (if any) that should be made to the contribution based entitlements of the parties established at step two. Fourthly, the Court should consider the effect of those findings and determination and resolve what order is just and equitable in all the circumstances of the case.”

In Stanford v Stanford (2012) FLC 93-518 the High Court provided its views on the proper approach to determining an application under s 79, and the majority emphasised that it is important to read and apply the FLA. In particular, the High Court warned against conflating the requirements of ss 79(2) and 79(4) and highlighted that on the correct interpretation of the FLA, the court must first consider whether it is just and equitable to make the order.

The High Court said (at [39]-42]):

“Because the power to make a property settlement order is not to be exercised in an unprincipled fashion, whether it is “just and equitable” to make the order is not to be answered by assuming that the parties’ rights to or interests in marital property are or should be different from those that then exist. All the more is that so when it is recognised that s 79 of the Act must be applied keeping in mind that “[c]ommunity of ownership arising from marriage has no place in the common law”. Questions between husband and wife about the ownership of property that may be then, or may have been in the past, enjoyed in common are to be “decided according to the same scheme of legal titles and equitable principles as govern the rights of any two persons who are not spouses”. The question presented by s 79 is whether those rights and interests should be altered.

Third, whether making a property settlement order is “just and equitable” is not to be answered by beginning from the assumption that one or other party has the right to have the property of the parties divided between them or has the right to an interest in marital property which is fixed by reference to the various matters (including financial and other contributions) set out in s 79(4). The power to make a property settlement order must be exercised “in accordance with legal principles, including the principles which the Act itself lays down”. To conclude that making an order is “just and equitable” only  because of and by reference to various matters in s 79(4), without a separate consideration of s 79(2), would be to conflate the statutory requirements and ignore the principles laid down by the Act.

Adherence to these fundamental propositions in exercising the power in s 79 gives due recognition to “the need to preserve and protect the institution of marriage” identified in s 43(1)(a) as a principle to be applied by courts in exercising jurisdiction under the Act. If the parties have made a financial agreement about the property of one or both of the parties that is binding under Pt VIIIA of the Act, then, subject to that Part, a court cannot make a property settlement order under s 79. But if the parties to a marriage have expressly considered, but not put in writing in a way that complies with Pt VIIIA, how their property interests should be arranged between them during the continuance of their marriage, the application of these principles accommodates that fact. And if the parties to a marriage have not expressly considered whether or to what extent there is or should be some different arrangement of their property interests in their individual or commonly held assets while the marriage continues, the application of these principles again accommodates that fact. These principles do so by recognising the force of the stated and unstated assumptions between the parties to a marriage that the arrangement of property interests, whatever they are, is sufficient for the purposes of that husband and wife during the continuance of their marriage. The fundamental propositions that have been identified require that a court have a principled reason for interfering with the existing legal and equitable interests of the parties to the marriage and whatever may have been their stated or unstated assumptions and agreements about property interests during the continuance of the marriage.

In many cases where an application is made for a property settlement order, the just and equitable requirement is readily satisfied by observing that, as the result of a choice made by one or both of the parties, the husband and wife are no longer living in a marital relationship. It will be just and equitable to make a property settlement order in such a case because there is not and will not thereafter be the common use of property by the husband and wife. No less importantly, the express and implicit assumptions that underpinned the existing property arrangements have been brought to an end by the voluntary severance of the mutuality of the marital relationship. That is, any express or implicit assumption that the parties may have made to the effect that existing arrangements of marital property interests were sufficient or appropriate during the continuance of their marital relationship is brought to an end with the ending of the marital relationship. And the assumption that any adjustment to those interests could be effected consensually as needed or desired is also brought to an end. Hence it will be just and equitable that the court make a property settlement order. What order, if any, should then be made is determined by applying s 79(4).” [footnotes removed, bold added]

The High Court appeared to be saying in the sections in bold that the just and equitable requirement is a preliminary step or a threshold issue but the Full Court of the Family Court appears to have watered this down in later cases.

In Bevan & Bevan (2013) FLC 93-545 (Bevan #1) the primary issue in the appeal was whether the trial judge had erred in concluding that it was just and equitable to alter existing property interests when the parties had largely lived apart for 18 years and the husband had told the wife she could retain the property.

Following Stanford it must be just and equitable to make an order. However, the extent to which the courts must consider at the end of the process that the terms of the order itself are just and equitable, or even whether it is necessary to expressly make a determination that it is just and equitable to make any order as a preliminary step, are not fully resolved.

The Full Court of the Family Court discussed Stanford and a number of judgments in which the Full Court had discussed the “four step process”. It noted that the High Court in Stanford neither approved nor disapproved of the “four step process” and the decision served to refocus attention on the obligation not to make an order adjusting property interests unless it was just and equitable to do so.

The Full Court found that the trial judge conflated s 79(4) and 79(2). While the trial judge purported to undertake a separate consideration of s 79(2), findings had already been made which prevented him from taking into account all relevant factors.

Justice Finn said (at [166]–[167]):

“The point in the decision making process at which the question of whether it is just and equitable to alter the property interests of either party is to be addressed must depend on the circumstances of each particular case. There can be no hard and fast rule. However, as a general rule it will in my view, be useful to identify at a very early point in a judgment what are the existing property interests of the parties and what are the orders that each party is seeking in relation to those interests?”

Chief Justice Bryant stated (at [9]):

“that it is not a requirement to take account of the matters in s 79(4) when considering the question of whether it is just and equitable to make any order under s 79(2). But as long as they are seen as separate and not conflated, the factors in s 79(4) have the potential to inform the decision under s 79(2), along with all other relevant considerations”.

The Full Court of the Family Court delivered a second judgment in Bevan & Bevan (2013) FLC 93-570 (Bevan #2) after the court received written submissions from the parties. The Full Court chose not to make an order altering property interests.

The Full Court of the Family Court reviewed Bevan #1 and Stanford in Chapman & Chapman (2014) FLC 93-592. Strickland and Murphy JJ said that if the Full Court in Bevan #1 intended to say that considering the s 79(4) matters was mandatory in answering the s 79(2) question, they disagreed. Bryant CJ agreed with Strickland and Murphy JJ that considering the s 79(4) factors was not a requirement, but did not believe that the Full Court in Bevan #1 said that it was. Bryant CJ said (at [5]) that the Court in Bevan #1 was instead making the point:

“that it would be inappropriate to limit the wide discretion conferred by s 79(2) by requiring the court to ignore the matters referred to s 79(4) FLA … because the matters … would be likely to embrace much of the factual substratum on which any exercise of discretion would be based”.

Justices Strickland and Murphy pointed to statements from Stanford where the High Court suggested that s 79(4) matters were not relevant to the s 79(2) question (in [26]):

  • “The ‘… range of potentially competing considerations’ and the consequent impossibility of charting the ‘metes and bounds’ of what is just and equitable (at [36]);
  • The ready satisfaction of the s 79(2) requirement in ‘many cases’ by the fact of separation (at [42]);
  • The statement that ‘it will be just and equitable’ to make an order in ‘many cases’ by reason of the ‘… choice made by one or both of the parties …’ to end the marriage (at [42]);
  • Equally, the statement that ‘it will be just and equitable’ to make an order ‘in many cases’ because ‘… there is not and will not thereafter be the common use of property by the husband and wife’ (at [42], emphasis in original);
  • The reiteration that: ‘… nothing in these reasons should be understood as attempting to chart the metes and bounds of what is “just and equitable”’ (at [46]); and,
  • The further reiteration that nothing in their Honours’ reasons is ‘… intended to deny the importance of considering any countervailing factors which may bear upon what, in all the circumstances of the particular case, is just and equitable’ (at [46]).”

They noted (at [27]) that “crucially” the High Court did not take into account the matters in s 79(4) and ([51] of its judgment) “suggests they eschewed those s 79(4) matters relating to contribution”. If parties concede that the making of an order is just and equitable, this does not relieve the court from considering s 79(2) but might truncate the process. 

The extent to which the courts must consider that the terms of the order itself are just and equitable (as under the previous 4 step process) is still unclear. Justices Strickland and Murphy in the Full Court of the Family Court held that the order was required to be just and equitable in Chapman & Chapman (2014) FLC 93-592. The formulation of all three judges was similar to the so-called “fourth step” under Hickey. Bryant CJ said (at [40]):

“In addition, and important to the arguments in this appeal, a trial judge is obliged to ‘… consider the effect of the findings as to contribution on the respective positions of the parties, before proceeding to determine whether any adjustment was warranted pursuant to section 75(2)’…  In that respect, the nature and form of the property or superannuation interests comprising a party’s entitlement, and not just the dollar value of that entitlements are clearly central to achieving justice and equity as s 79 requires.”

Most recently the proper approach to s 79 was considered by the Full Court of the Federal Circuit Court and Family Court of Australia in Halstron & Halstron (2022) FLC 94-086. The Full Court said the primary judge correctly determined that it was just and equitable to alter the parties’ property interests under s 79(2). The court accepted the “preferred” approach to s 79 set out in “Hickey”:

  • Identify and value property, liabilities and financial resources at the date of the hearing
  • Identify and assess contributions and determine the contributions-based entitlements as a % of the net value of the property
  • Identify and assess the relevant mattes in s 79(4)(e)-(g) including s 75(2) and determine any further adjustment
  • Considering the effect of these findings and determinations, resolve what order is just and equitable in all the circumstances

Recent examples of the application of Stanford

In Hinkler & Anglin [2020] FamCAFC 167 the Full Court of the Family Court held that an order providing that husband receive 15% of the property of the parties by the payment of $38,750 in fortnightly instalments without interest over 10 years was not a just and equitable order.

In Ragusa & Ragusa [2021] FedCFamC2F 470 the parties were aged pensioners. Their marriage had been a long one. The husband had been convicted of cultivating and trafficking a large commercial quality of cannabis, the cultivation of which took place at the Suburb E properties. The husband’s interests in the Suburb E properties was forfeited to the Crown pursuant to the provisions of the Criminal Assets Confiscation Act 2005 (SA). The wife lived in another property which was solely in her name. The wife’s contributions were assessed as 75%/25% in her favour. A consideration of s 75(2) factors did not result in any adjustment to the husband which left the wife with all the property. Judge Brown said (at [118]):

“In my assessment, it would be an affront to any consideration of justice that any part of the proceeds of sale of the Suburb E properties should come back to the husband indirectly given it was his actions which led to the dramatic diminution of the parties’ asset pool.”

Judge Brown reached the same conclusion, being that the wife retain all of the property pool, by the alternative method of applying Stanford, saying at ([120]–[121]):

“In my view, given the wife’s present circumstances and her need to retain the B Street, Suburb C property, it would not be just and equitable to make any order in respect of this property, which remains the wife’s legal property.

Nor, in my view, given the connection between the husband’s criminal activity and the Suburb E properties, would it be just to utilise the wife’s existing interest in these properties, which the South Australian Crown recognise are untainted by any nefarious activity emanating from her, for allocation to the husband, notwithstanding his significant prospective needs.”

In Barrett & Winnie (2022) FLC 94-093 the appellate court upheld the trial judge’s determination that it was not just and equitable to adjust the parties’ existing property interests. The court took into account:

  • the parties’ respective contributions, including that the applicant provided meaningful financial or non-financial support for the child of the marriage beyond 2007 when she was 12 years old
  • the making of an informal property settlement in 2008 and the circumstances of that informal property settlement, and
  • the long delay in the finalisation of the proceedings which the primary judge found was caused mainly by the appellant. During that period the respondents devoted their time and energy to developing their individual property portfolios and the assets of the trusts.

LEGAL REPRESENTATION

Ideally, both parties should be legally represented to lessen the risk of a successful application under s 79A or 90SN FLA.

The effect of legal representation was discussed in Heuston & Heuston (1993) FLC 92-382. Justice Mullane said in relation to consent orders (at p 79,957) that:

“… it is reasonable for the court to assume in the absence of evidence to the contrary:

(a) that because the husband is legally represented, he has ensured full and frank disclosure by the other party, and

(b) that because the husband has had legal representation, he has had competent legal advice regarding the proposed orders based on the information available to him.” 

If orders are made after both parties have received legal advice, the court does not need to undertake the enquiry required by Harris v Caladine as rigorously as where one or both parties were unrepresented. 

In Garlick & Garlick (1993) FLC 92-428, the wife applied for the orders to be set aside under s 79A on the ground that there had been a miscarriage of justice. Section 79A(1)(a) states:

“Where, on application by a person affected by an order made by a court under s 79 in property settlement proceedings, the court is satisfied that:

(a)  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.”

The parties reached agreement on a property settlement and the husband arranged for his lawyers to prepare the Minutes of Proposed Consent Orders and a Statement of Agreed Facts. The wife was advised by an experienced family lawyer not to sign the documents on the basis that they were brief and did not set out the husband’s financial circumstances adequately. Throughout this process, the husband provided the wife with assurances that she could trust him. The wife attended upon a further solicitor who was not experienced in family law matters and not informed of the previous advice given to the wife. This lawyer provided no further advice, other than confirming that once signed, the proposed orders would become court orders which were irrevocable. The wife signed the settlement documents and the lawyer witnessed her signature, signing above the words “solicitor for the Wife”. 

Judge Hannon held that the Deputy Registrar who made the orders was misled as to both parties being legally represented and therefore did not conduct further inquiries as to the unrepresented party’s consent. This amounted to a miscarriage of justice for the purposes of s 79A(1)(a). 

In Saleeby & Moon (as executor of the estate of the late Ms Lambros) [2015] FamCA 43 the husband unsuccessfully sought to set aside property settlement orders on 2 grounds including that the Federal Magistrate could not have come to the conclusion that the orders were just and equitable based on the filed material. The Full Court of the Family Court, after quoting from Harris & Caladine, said (at [51]):

“Whilst these passages clearly indicate that a court must undertake an inquiry to satisfy itself of the matters to be taken into account under s 79, they also clearly indicate that the court is entitled to rely upon the fact of the consent itself and that the parties are properly represented. In such a case little more may be required.” 

In Badawi & Badawi [2016] FamCA 804 the husband unsuccessfully sought to set aside property settlement orders. The husband had a legitimate grievance against his solicitor. At the time the orders were made, his solicitor was in a position of conflict as a result of seeking employment in the law firm representing the wife. There was also an issue as to whether his solicitor’s personal relationship with the principal of the firm representing the wife was such that it impacted on the outcome. The husband’s appeal was dismissed in Badawi & Badawi [2017] FamCAFC 129.

REQUIREMENTS FOR THE APPLICATION FOR CONSENT ORDERS FORM

The Application for Consent Orders requires that information be set out in boxes which have little flexibility. To ensure that there is clarity as to the financial information of each party and the court and the other party are not misled, extra information can be inserted:

  1. Estimates — Where a value is approximate then an ‘E’ should be inserted next to the figure so the other party and the court are not misled;
  2. Dates of valuation — These can be inserted next to the estimated values of real estate, superannuation, bank accounts and other property which may fluctuate over the period in which the documents are being negotiated, signed and lodged with the court. 
  1. Multiple assets — Where there are several of a particular type of property — extra boxes can be added or duplicate pages if a party has an interest in more than 2 pieces of real estate. If there are numerous bank accounts etc, it may be less confusing and simpler if the total of all bank accounts is given at item 45 and a list is annexed to the Application setting out each bank account, dates of the account balances, and other information required. The same applies to credit cards and superannuation interests.
  2. Business interests and investments — The application assumes a maximum of only one business and a maximum of 2 investments. The use of the Application for more complex structures, particularly parties with trusts, means that an annexure setting out the interests including the information required to be disclosed by r 6.06(3)(f) may need to be used. A trust interest may be a financial resource to be disclosed at item 67. It may be difficult to untangle trust and corporate interests, but summarising in one item may be misleading.
  3. Personal vs entity ownership — A clear distinction needs to be made between these. Do not include property or liabilities of a company in the parts of the form for personal property and liabilities eg motor vehicles – item 43, bank accounts – item 45, income tax liabilities – item 56.
  4. Valuations — One party may have a view that an item of property such as real estate or a business may be worth more than the “agreed value”. Both figures can be inserted. What obligation does that person have to disclose that view? See above discussion regarding disclosure.
  5. Insurance policies — These must be carefully checked to determine whether they are to be the sole property of the owner or beneficiary. The owner, beneficiary and life insured may be the same person or two or more different people. Usually, the owner of the policy is nominated.
  6. Complex arrangements or seemingly unfair settlements — If it is too difficult to explain in the Application for Consent Orders the financial position of the parties and how the proposed orders are just and equitable, a Statement of Agreed Facts can be used. Discussed below.

In the Statements of Truth, which are at the end of the Application for Consent Orders, each party is required to confirm they have read certain sections of the FLA. It is good practice for a legal practitioner to send their client a letter prior to the client signing the proposed consent orders and the Application for Consent Orders. The letter should:

  1. Explain the orders.
  1. Explain what a Statement of Truth is and the effect of signing it.
  2. Give advice on the client’s rights and entitlements under the FLA if that advice has not already been given. The Statement of Independent Legal Advice in Part K of the Application requires that the legal practitioner confirm that:

“I have given the applicant independent legal advice as to the meaning and effect of the proposed Consent Orders and explained their rights, entitlements and obligations.”

  1. Alert the client to any important dates which the client and/or the other party will have to meet. These may need to be re-confirmed once the orders are made as some dates may be within a certain number of days of the orders being made. 
  2. Enclose the Marriage, Families and Separation brochure. This should already have been provided to the client but giving a copy at this stage ensures the legal practitioner can be confident signing the Statement of Independent Legal Advice in the Application for Consent Orders.
  3. If the parties were married and there are financial orders enclose copies of the following sections of the FLA which the Application of Consent Orders requires be read by each party:
  • Section 72
  • Section 79
  • Section 75(2)
  • Part VIIIB if there is a superannuation interest.
  1. If the parties were in a de-facto relationship and there are financial orders enclose copies of the following sections of the FLA which the Application of Consent Orders requires be read by each party:
  • Section 90SF
  • Section 90SM
  • Part VIIIB if there is a superannuation interest. 
  1. If there is an order or injunction binding on a third party enclose a copy of:
  • Part VIIIA and, in the case of a de facto relationship, also s 90TA.

When filing the Application for Consent Orders and Minutes of Proposed Orders the following may be required:

  1. A filing fee must be paid unless the parties are exempted from the filing fee. This fee is reviewed every year along with other fees in the Family Law Regulations 1984. On 1 July 2022 the fee increased to $180, and it will be reviewed again from 1 July 2023. 
  1. If there is a litigation guardian, an affidavit setting out the facts relied on must be filed to satisfy the court that the order is in the party’s best interests. See r 5.28(3) and note 2 to r 4.09 of the Rules.
  2. If there is a superannuation split, annexe a copy of the letter sent to the fund giving procedural fairness and a copy of any response to show compliance with r 10.06 of the Rules. The court requires these, rather than simply relying on the parties confirming in the Application for Consent Orders that procedural fairness has been provided. 

REQUIREMENTS FOR FORMAT OF DRAFT CONSENT ORDERS

Draft consent orders submitted under the FLA must meet the requirements for documents set out in r 2.14(1) of the Rules. The draft consent orders must:

  • be typed in at least 12 point font size (Times New Roman or equivalent)
  • have left hand, right hand, top and bottom margins of not less than 2.5 cm
  • have line spacing of 1.5
  • be numbered on each page consecutively
  • have a coversheet in the approved form including the court file number distinctive to the proceeding.

Unlike under the Family Law Rules 2004 legible handwritten documents are not expressly permitted.

If lodged in paper format the proposed orders must be:

  • legible and without erasures, blotting out or material disfigurement
  • printed on one side only of white A4 paper, and
  • securely bound or fastened (r 2.14(2)).

If lodged electronically they must be in PDF format (r 2.14(3)).

These requirements do not need to be strictly met if the nature of the document or manner of filing means that strict compliance is impracticable (r 2.14(5)).

WHEN IS A CONSENT ORDER APPROPRIATE? 

In most cases both parties will benefit from having their property settlement formalised whether by way of consent orders or a financial agreement.

There are rare occasions where one party may decide to take the risk of not formalising the agreement because, one or more of the following apply:

  • the informal agreement is so beneficial that the other party will likely seek to re-negotiate
  • the parties have passed a limitation period in that they have been divorced for more than 12 months (s 44(3)) or, if they were in a de facto relationship, separated for more than 2 years (s 44(5))
  • the parties are amicable
  • the parties have not yet passed the relevant limitation period, but will do so in the foreseeable future
  • one party has significant creditors who will need to be notified
  • the legal costs associated with negotiating and formalising the terms of the agreement are disproportionate

These matters may be persuasive for the parties, but the parties should be advised by their legal practitioner of the risks including: 

  • one party’s financial circumstances and the other party’s may deteriorate 
  • the amicable relationship may deteriorate, particularly if one party re-partners
  • the health of a party or a child may deteriorate
  • one party may receive a windfall such as a Tattslotto win or an inheritance

The main choices are a financial agreement or a consent order and the client should be advised as to why a particular option is recommended.

Matters to consider include:

  1. By using a financial agreement, parties can “contract out” of property rights and, to some extent, spousal maintenance entitlements under the FLA.
  2. A financial agreement can be or incorporate a superannuation agreement (s 90XH) with terms which are more flexible in their operation than ss 79 or 90SM orders.
  3. A financial agreement may incorporate “matters incidental or ancillary to” property and spousal maintenance and, in relation to Pt VIIIA FLA only, “other matters”. One example arises in New South Wales where parties can include a release under the Family Law Provision Act 1982 (NSW). 
  4. A financial agreement may be used after separation to effect an interim distribution of property if the parties do not want to determine property and maintenance matters on a final basis. For example, they may be elderly and want to keep a farm or business together for their children. Whilst court orders made can be used in the same way, a financial agreement may be a simpler process.
  5. The protection of a court order under s 121 may not be enough for one or both parties. They may prefer the greater anonymity and privacy of a financial agreement.
  6. A financial agreement may be used where the parties have agreed to a deal which may not be seen by the court to be just and equitable.
  7. A financial agreement does not give rise to a right of appeal to the Full Court (if orders made by a judge) or a review with a hearing de novo (if orders made by a registrar) so there is less risk of buyer’s remorse.
  1. A financial agreement can oust the right of a party to seek spousal maintenance. Any spousal maintenance provision in a court order, no matter how worded, cannot be final. It may be varied or extended. 

The process of drafting and advising on a financial agreement may take longer and be more expensive than court orders. Each party requires very specific and detailed independent legal advice. The strict requirements for a financial agreement and the broad grounds upon which they can be set aside usually make them more costly to negotiate, prepare and advise on than ss 79 and 90SN FLA orders. The legal advice requirements for court orders are less detailed and comprehensive than for financial agreements. A detailed letter of advice is still preferable but will likely be much shorter. Substantial documentation is however required to comply with Harris v Caladine (1991) FLC 92-217.

  1. A financial agreement carries greater risks of professional negligence claims against the legal practitioner as there is no involvement of the court.
  2. There is no process for registration of financial agreements with a court with jurisdiction under the FLA. This could be problematic if both parties lose their copies of the agreement and copies held by their legal practitioners cannot be located or have been destroyed.
  3. Orders are approved by the court, so they are arguably more difficult to set aside than a financial agreement.
  1. There is no express disclosure requirement in Pt VIIIA or Div 4 of Pt VIIIAB FLA, but non-disclosure or inadequate disclosure in a financial agreement will increase the risk of the agreement being set side under s 90K or s 90UM.
  2. Spousal maintenance provisions in a financial agreement continue after the death of the payer or payee or re-marriage unless the agreement specifically provides otherwise (ss 90H and 90UK FLA). However, in court orders they will normally cease upon re-marriage of the payee s 82((4) or the death of the payee (s 82(1)).
  3. Court orders can be set aside for failure to disclose “relevant information” which is broader than a “material matter” required to set aside a financial agreement. 
  4. For court orders, the change of circumstances ground in relation to a child requires an “exceptional” change rather than a “material” change as is required to set aside a financial agreement.

DRAFTING ORDERS

The general rules of drafting practice apply to property settlement orders under the FLA. Before drafting orders consideration needs to be given to the following:

  • What is to be done?
  • How is it to be done?
  • Who is to do it?
  • When is it to be done? 
  • Is there to be a default provision in case it is not done?

The provisions of the orders must be expressed as if they were orders so as to be capable of enforcement under s 105 FLA. To be enforceable an order must be in personam, ie requiring a person to do something (eg Hickey & Hickey and Attorney-General for the Commonwealth (2003) FLC 93-143). This means that the orders must be drafted so as to require a party to do something such as sign a document or pay a sum of money. If they are not drafted in this manner they cannot be enforced. Justice Nygh said in Maddocks & Maddocks (1981) FLC 91-031 (at p 76,295):

“It cannot be said that a person has refused or neglected to comply with a direction unless that obligation of that person has been clearly spelt out. For that reason, I hold that there must be a specific order directing the wife to execute a deed or instrument before s 84(1) [now s 105] can operate.”

For example, if one party is to transfer their interest in a particular real property to the other party, there should be an order that the transferring party will execute the appropriate transfer. Ideally, each transaction should be drafted as a specific obligation, for example:

“The Applicant do all acts and things necessary at the expense of the Applicant to transfer their interest in the real property (which needs to be described fully here, if not already described) to the Respondent.”

The property which is to be transferred should be clearly identified. It is a common drafting practice to give short forms of description to real estate, companies and any other property or entities with otherwise lengthy descriptions. Real estate should be described by reference to address and title and then given a short form of description such as “the real property”. If there is more than one property they can also be described by suburb or street name, eg “the Blackburn property” so they can be later referred to succinctly. Make sure you check the title particulars and check against the VOI check and PEXA client authorisation.

By way of example:

Incorrect order — 

Within 14 days the property at 24 Belle Ave Brighton be listed for sale by auction.

Correct order

Within 14 days the parties do all things necessary to list the property at 24 Belle Ave Brighton and being the land more particularly described in Certificate of Title Volume 1111 Folio 222 (the Brighton property) for sale by auction on the following terms and conditions.

Where the orders provide that a party resign from offices in a company, the company should be named in full. If there is only one company it can be described after the full name in short form as “the company”. If there are several companies and they are all to be dealt with in the same way on a particular issue (eg transfer of shares or an indemnity of one party from liability) they can be described as “the companies”. If they are to be dealt with in different ways (eg one party holds different offices in different companies and/or does not have shareholdings in all companies) and they are described in short form then they will need longer names, eg John Smith Nominees Pty Ltd could be described as “Smith”, “John Smith”, “Nominees”, or “John Smith Nominees” depending upon the names of the parties and the other companies.

A date or time on which or by which each obligation is to be performed should be specified. If no date is included the default r 15.07 of the Rules applies which states:

“A person ordered to do an act or thing or to pay money into court must do so:

(a) In the time specified in the order;

(b) If no time is specified in the order – within 14 days after the service of the order on the person”

This is a change from the position under the Family Law Rules 2004 (2004 Rules) which was:

“If a rule or order requires a person to take an action but does not specify a time by which the action is to be taken, the person must take action as soon as practicable” (r 1.15).

Somewhat inconsistently with r 15.07, r 10.19(2) states: 

“An order takes effect on the date when it is made, unless otherwise stated”. 

It appears to be the case that if no time is stated for the action to occur, the innocent party needs to serve a copy of the order on the defaulting party to ensure the 14 day period starts to run even if the defaulting party signed the proposed order and/or was present in court when the order was made.

It may cause problems if an action is to occur prior to the date on which the orders are made. If for some reason the orders are not made, the action carried out may not be able to be undone. This may considerably disadvantage one of the parties. The preferable approach is to draft the orders in such a way that no action is taken by either party until after the orders are made. 

If urgent action is required by one or both of the parties the court should be requested to make the orders urgently. A letter explaining the reason for the urgency is usually sufficient.

Ideally, any amendments are initialled by all parties and, if the legal representatives are signing the minutes, then by the legal representatives as well. This reduces the likelihood of any later confusion or disputes as to the terms of the orders consented to and made.

Orders for sale of real property

If a real property is to be sold pursuant to property settlement orders under the FLA, consideration should be given to the following matters when drafting the orders:

  1. There should be a time-frame for the sale. The property should be listed for sale by a certain date or within a certain time-period. “Forthwith” has been interpreted as meaning “as soon as practicable” rather than “within a reasonable time” (Rubie & Rubie (1991) FLC 92-253). A set date or time period is preferable to “forthwith”.
  2. Whether the property is to be auctioned or sold privately should be specified.
  3. The terms and conditions of the sale including price should be specified and/or a method for them to be determined if agreement is not reached.
  4. The date for listing the property for sale should be variable by agreement between the parties. Words such as “or such other date as may be may be agreed between the parties in writing” can be inserted. These words avoid any uncertainty about whether the date of sale is a machinery provision. They may also alleviate any concerns that a party has about whether or not there is an enforceable order if they agree to a delayed sale at the request of the other party. This type of clause is particularly useful in times when property prices are fluctuating and/or falling.
  5. There should be a default provision setting out what is to occur if the property is not sold. It is not fatal if this is not included, because the parties could return to court on either an express or implied liberty to apply provision or on an application to vary the machinery provision. However, drafting more complete orders increases certainty, encourages compliance and reduces the costs and stress for the parties by reducing the likelihood that the parties have to return to court if there are enforcement issues.
  6. The orders should set out what is to occur in the interim before the sale. A common phrase used is “Pending the sale the parties hold their interests in the real property upon trust pursuant to these orders.” In some circumstances this may not be the best option. Matters to consider include:
  • If there is a delay before the sale, should any joint tenancy be expressly severed, and perhaps the parties’ interest as tenants in common in equal or unequal shares be registered?
  • If one of the spouses dies before the orders are implemented, the question arises whether the order or agreement had the effect of severing the joint tenancy. If it did, the half-interest of the deceased spouse becomes part of their estate. If it did not, the surviving spouse takes the deceased’s interest by the right of survivorship.
  • The procedures for severing a joint tenancy varies from state to state and reference must be made to the relevant state law. 
  • If the property is held on trust pursuant to the orders or a joint tenancy is expressly severed does this:
  • Create a trust?
  • Trigger capital gains tax?
  • Impact the principal residence/CGT exemption?
  • Raise issues as to whether a mortgagor will consent to the registration of the transfer?

In some circumstances, the parties may agree that a party not on title may be entitled to lodge a caveat to protect their interest. If so, the orders should expressly create a caveatable interest.

  1. The orders should be specific about the division of the proceeds. The question as to whether the net proceeds should be divided between the parties on a percentage basis or a set sum should be specified to be paid to one of the parties is discussed below.
  2. Who is to bear costs of sale, preparing for sale, etc? The agent may want funds in advance. If a party pays for works to be done as recommended by agent may need order to be recompensed. 
  3. In states and territories with electronic conveyancing such as PEXA, the orders should address whether each party pays own their PEXA fees or the party bearing the cost of the transfer, should pay all the fees (which may be the easiest option) as the PEXA fees are paid from a trust account. 

Bear in mind that PEXA fees for a transfer are payable from the lawyer’s trust account rather than from the office account so sufficient funds need to be in trust and the person signing off on the transaction should have the authority to deal with trust money. Some legal practices may make different arrangements, but a legal practitioner who can deal with trust money should still check the transaction.

Unique state based factors also require consideration (see Lane & Owen (2015) FLC 93-672 which deals with limitation periods and statutory warranties pursuant to the Home Building Act 1989 (NSW)).

Timing of Transfers, Payments and Other Transactions

It is important that, where possible, the parties to property settlement orders made under the FLA be required to perform their substantive obligations at the same time. If their obligations arise independently of each other there is more likelihood of enforcement proceedings being required. The aim should be to avoid the possibility of one party being in breach for not performing their obligations when the other party has not yet been required to perform their obligations.

An example of the problem occurred in Donolato & Donolato (1997) FLC 92-730. The payment to the husband was “in consideration of” the transfer of the husband’s interests in the property to the wife. Justice Mullane rejected the wife’s argument that her obligations were dependent upon the husband performing his obligations for several reasons. The wife’s interpretation was not the usual meaning of the words. In contract law, consideration is not always paid contemporaneously with the service provided. The wife was required to make one large initial instalment and 10 smaller instalments rather than one payment so it was not easy to imply that the wife’s obligations were dependent upon the performance of the husband’s obligations. The wording of the order setting out the wife’s instalments did not refer back to the husband’s obligations. Another order provided for the registrar to sign relevant documents in the event of default by the husband for more than 14 days. Justice Mullane considered that it was the wife’s responsibility to ensure that the documents were presented to the husband sufficiently early to allow time for the husband to default on his obligations and then the documents to be submitted to the registrar to be signed before her payments were due. She had not allowed sufficient time.

In Donolato the difficulty arose in part because the husband’s obligations were not all to be performed at the one time. Should a party’s obligations be dependent upon the performance of the first or the final obligation of the other? This will depend upon the particular circumstances of the case. Issues to consider are:

  • Is one obligation more substantial than the others?
  • Must a particular obligation occur before others?
  • Is it desirable that a party end their involvement in a trust, corporate entity or partnership promptly (to reduce personal liability to creditors) or in the current financial year (for simplicity and for tax reasons)?
  • Is it desirable that one party continue their involvement in a trust, corporate entity or partnership until certain orders have been complied with, to reduce the risk of the other party defaulting on certain obligations, to protect the assets held by the trust, corporate entity or partnership and to reduce or avoid the cost of enforcement proceedings?

McMahon & McMahon (1995) FLC 92-606 is an example of orders drafted so that a payment was dependent upon action being done by the recipient. The wife was required to make a payment to the husband “upon the husband executing the documents necessary to transfer the interest of the husband and wife to the wife in the property referred to” in the previous orders (p 82,045).

The wording usually used to ensure that actions occur at the same time is “contemporaneously with”. The word “simultaneously” has been interpreted as “contemporaneously with” (Bugg & Bugg (1990) FLC 92-110). When final orders are made, any interim and interlocutory orders will automatically be discharged and be of no effect (r 5.01) but it is good practice to expressly discharge them. If an order is to continue it must be re-made as part of the final order.

If the “substantive” action required to be taken under the orders does not occur because of the default of one party there may be interim orders which should not continue in the event of the default. For example, a wife may be required to pay a certain sum to the husband in return for a transfer of his interest in the former matrimonial home. In the interim, the husband is required to pay the mortgage. If the wife is late in making the payment, then is the husband still required to pay the mortgage? If the orders provide for interest in default, the interest (paid by the wife) may offset or even be less than the mortgage payments (paid by the husband). Ideally, it should not be necessary for the innocent party to obtain a further court order to ensure that the defaulting party does not benefit from their own default.

Protecting assets before sale, payment or transfer

In drafting property settlement orders under the FLA it is important, particularly if no interim orders have previously been made, to make orders which protect the positions of the parties until such time as all payments, transfers or sales have been effected.

Total reliance on orders, whether interim or final, is usually not wise. Other actions which may be appropriate depending on the particular circumstances include:

  • lodging a caveat on title to protect an interest by way of constructive trust, pursuant to an order etc
  • notifying a third party affected by proposed orders that although not bound by the orders (once they are made) they are on notice about the orders and the rights of the party, thus making an application under s 106B easier
  • asking a bank or other financial institution that a joint account or investment only be actioned with the signatures of both parties. Frequently either the signatures of both parties or a court order is required for this to occur
  • a flagging order may be made under s 90XU to stop superannuation entitlements being withdrawn without an order lifting the flagging order. Flagging orders are particularly useful if a party is close to or has already met a condition of release such as age

A claim under s 79 or 90SM is not a caveatable interest (Stevens & Stevens (1991) FLC 92-250; Fisher v Fisher (1986) FLC 91-701). Before an order is made under one of those sections, a party has no legal or equitable interest in a property as a result of the right to make a claim. See also Pethrick & Folmar [2022] FedCFamC1F 905, an equitable interest (such as under a constructive trust) can co-exist with the inchoate interests which arise under ss 79 (eg Re Sabri; ex parte Brien (1997) FLC 92-732).

Care must be taken to comply with the law of the relevant state or territory before lodging a caveat. Failure to do so may result in a costs order being made against the legal practitioner who lodged the caveat.

Common Mistakes in Drafting Orders

The Legal Practitioners’ Liability Committee (LPLC) in the August 2020 edition of Focusing on Family Law (see https://lplc.com.au/resources/practice-risk-guides/focusing-on-family-law#drafting-errors)  warned about claims arising from drafting errors:

“• typographical errors, oversights or ambiguous wording coupled with failing to proofread or road test the document to ensure it says what was intended…

  • failing to achieve what the client intended, either because the practitioner misunderstood the client or because there was inadequate communication with the client about what could be achieved.”

The types of mistakes identified by the LPLC include:

  • failing to allocate assets to the right person
  • incorrect wording or formulae for apportionment of assets between parties 
  • failing to state who pays tax or capital gains tax (CGT) 
  • orders not specific enough that a mortgage is to be discharged
  • inadequate default provisions
  • no independent legal advice

Other important matters to address are:

  • time limits for sales and transfers
  • apportionment and responsibility for liabilities
  • third party actions and consents
  • use separate paragraphs or sub-paragraphs for each action

9. DECLARATIONS, NOTATIONS, RECITALS & STATEMENTS OF AGREED FACTS

Section 81 and 90ST Declarations

There is a “clean-break principle” in property settlement proceedings. For married relationships it is in s 81 FLA which states:

“In proceedings under this Part, other than proceedings under s 78 or proceedings with respect to maintenance payable during the subsistence of a marriage, the court shall, as far as practicable, make such orders as will finally determine the financial relationships between the parties to the marriage and avoid further proceedings between them.”

Section 90ST is similarly worded and applies to de facto relationships.

It is common for a “s 81 notation” to be included in consent orders:

“THE COURT NOTES:

That the parties intend these orders shall be as far as practicable finally determine the financial relationship between them and avoid further proceedings between them.”

In Mullane v Mullane (1983) FLC 91-303 the High Court did not place any weight on the presence of s 81 in determining whether orders made under s 79 should be treated as final. This suggests that the practice of including a s 81 notation in minutes of proposed orders is superfluous. The orders are final regardless of whether the notation is included. When a court makes orders after a contested hearing or a judge makes orders in open court a s 81 notation is usually not included. 

An example of a case where the s 79 order made by the trial judge offended s 81 was Hinkler & Anglin [2020] FamCAFC 167. The trial judge ordered that the husband receive 15% of the property of the parties and that the payment of $38,750 be paid by fortnightly instalments without interest over 10 years. The Full Court of the Family Court said (at [3]):

“The order, of itself, is flawed, first because it fails to afford the parties finality of proceedings as required by s 81 of the Family Law Act 1975 (Cth) (“the Act”) and secondly because it could not be said, in these circumstances, or perhaps any, that an order which effect payment in instalments over ten years could be considered just and equitable as between the parties (s 79(2) of the Act).”

In summary, ss 81 and 90ST do not require a court to make an order which achieves finality. It must endeavour to do so “as far as practicable”. A court may use s 81 or s 90ST to justify a particular course of action, such as:

  • order a lump sum payment rather than periodical payments
  • capitalise maintenance obligations
  • make an order based on current assets rather than financial resources
  • separate the finances of the parties

Notations

Notations are not orders. Breach of a notation does not attract consequences such as enforcement orders. They are commonly used where one party wants to ensure that it is clear to the court and to the other party that they entered into the orders on the basis of a particular aspect of disclosure, so as to assist them in the event if a s 79A application is later made. 

Recitals or Statement of Agreed Facts — to lessen the risk of property settlement orders being set aside

Recitals may be included in property settlement orders in an attempt to reduce the risk that a court may later set aside the orders under s 79A or 90SN FLA or otherwise unsettle their apparent finality. Caution is required when deciding whether or not to include such clauses and further caution is required in drafting them. The judicial powers to set aside orders under s 79A(1)(a) cannot be contractually modified. The fact, however, that each party has received independent legal advice can be recited in an endeavour to make it more difficult to establish fraud or duress under s 79A(1)(a). 

If recitals are included, they should set out the background information to explain how the orders are proper, appropriate and just and equitable within s 79 or s 90SM. If they need to be particularly detailed, it may be more appropriate to include these in a Statement of Agreed Facts signed by both parties and lodged with the court.

BINDING THIRD PARTIES

It may be appropriate for people and entities such as a company, the trustee of a family trust and any person or entity owed a debt to be joined to a case for property settlement orders under the FLA. If a dispute settles, the third party can consent to the orders. The third party can be included in the Application for Consent Orders procedure. 

Sections 79(10(a) and 90SM(10)(a) permit creditors to be parties to the proceeding if the creditor may not be able to recover their debt if the order were made.

Section 79(11) requires a court to join a trustee in bankruptcy to property settlement proceedings if the court is satisfied that the interests of the bankrupt’s creditors may be affected by the making of an order under s 79 FLA.

Sections 79(10)(aa) and (ab) and 90SM(10)(b)–(e) FLA allow a party to a Pt VIIIA or Pt VIIIAB FLA financial agreement and a party to a de facto relationship or marriage other than the relationship before the court, who is entitled to apply for orders under s 79 or 90SM or declarations under s 78 FLA or 90SL FLA, to become a party to the proceedings.

A creditor who may not be able to recover the debt if an order is made can be a party to the proceedings (ss 79(10)(a) and 90SM(10)(a)).

The Rules provide for the circumstances in which third parties must be notified of applications under Pt VIII, including applications for orders to be made by consent. Examples include:

  • r 10.06 — superannuation trustee
  • rr 3.213.25(2) — bankruptcy trustee
  • r 1.12(1)(4) — creditor under s 79(10)
  • r 3.06 — potential third party

Under Pt VIIIAA the court may make orders under s 79 or 90SM which bind a third party including an order directed to a creditor of the parties to the marriage to substitute one party for both parties in relation to the debt owed to the creditor. The court may only make orders under Pt VIIIAA if all of the requirements set out in s 90AE(3) are met.

LUMP SUM OR PERCENTAGE INTEREST IN PROPERTY

In determining the entitlements of the parties under s 79 or 90SM FLA, the court will usually calculate the division of property it considers to be just and equitable in percentage terms. This may be converted to a lump sum figure if, say, one party is to transfer their interest in the former matrimonial home in return for a payment. Sometimes it is preferable for a party to receive a lump sum. In other circumstances a percentage interest is more advantageous. A percentage interest is particularly likely to be appropriate where there is to be a sale. The courts generally favour giving the parties a percentage interest upon the sale of an asset, rather than a fixed sum. The Full Court of the Family Court upheld this principle in Trask & Westlake (2015) FLC 93-662 and recommended using orders which give full effect to this principle.

In Trask & Westlake, the Full Court of the Family Court explained the form of orders which should be made when real properties are to be sold. The orders made by the Full Court used a mathematical formula to give a more precise percentage outcome. The Full Court in Trask followed Noetel & Quealey (2005) FLC 93-230 (and other authorities), but extended the principle. Simply, the principle in Noetel is that when a real property is to be sold, the parties should usually each be entitled to a percentage of the proceeds of sale rather than set dollar figures because the sale price may not be the same as the valuation. 

The Full Court in Noetel described this as a “well established principle” and “a clear guideline for the exercise of discretion under s 79 of the Act” (at [143] quoting Sinclair & Sinclair [2000] FamCA 262 at 108) that the court should order the sale of the real property and the apportionment of the proceeds between the parties, rather than require one party to pay to the other a fixed sum representing a notional proportion of the assessed value of the real property.

The Full Court in Trask extended the principle saying that orders should be drafted to reflect the possibility that the parties’ percentage entitlements to the overall pool may be different than the court’s intentions if the sale price is different from the valuation relied upon by the court. The Court was critical of orders which assumed that the percentage division after real properties had been sold would be the same as the percentage division of the pool to which the parties were found to be entitled based on the valuations relied upon in the judgment. As stated in Noetel, there will often be a discrepancy for reasons such as a delay between the judgment date and the sale date, a volatile market or a contentious valuation. Although neither the Full Courts in Noetel or Trask referred to the difficulty of predicting and taking into account sale costs, the delay between the date of the valuation and the date of the hearing and the delay between the date of the hearing and the judgment, these can also impact.

As a simple example of the problem discussed in Trask, a division of the net sale proceeds in the proportions 55%/45% in favour of the wife in orders which were drafted to achieve an overall division of 60%/40%, will not have that effect unless the ultimate net sale proceeds are exactly the same as the figure used by the court.

Section 79 requires the court to make “appropriate” orders which are “just and equitable”. The Full Court’s view was that the orders would not comply with these requirements if the percentage division in the orders did not reflect the percentage division in the judgment.

If the variation is minor or the court gives adequate reasons to make it abundantly clear that the outcome may not be the same as the percentage division in the judgment, then the Full Court said this was acceptable. However, it noted that in many cases the orders do not reflect the judgment with precision.

The values of the real properties which were to be sold in Trask had been agreed between the parties as being valued at $2,319,000. At trial, however, the husband contended that they were actually worth $3,150,000. The trial judge found that the wife was entitled to a 60/40 division of the property in her favour. Under the orders, the wife was to receive 87.43% of the assumed sale prices at the agreed values. This resulted in an overall division of 60/40 in her favour if the two real properties were sold at their agreed valuations.

However, if the real properties sold for the figures the husband contended, the wife would receive $2,745,045 from the sales rather than $2,027,511 which the trial judge had calculated using the earlier agreed values. She would therefore receive, inconsistently with the trial judge’s findings, 62.8% rather than 60% of the overall pool.

Using the husband’s figures for illustrative purposes the disparity was, as the Full Court pointed out, $1,422,000 in favour of the wife, or an increase of 25.77%. This was potentially not a minor variation from the intended outcome.

The new orders made by the Full Court were:

“(f) The wife be paid an amount $X calculated in accordance with the following formula —

$X = [A plus $4,795,101) x 60%] − $2,241,154

Where:

  • A is the balance remaining consequent upon compliance with the sales and payments required by paragraphs 1 & 2(a) to (e) of these orders;
  • $4,795,101 is the total value of the property and superannuation interests of the parties as found excluding the assumed value of the two properties the subject of sale; and
  • $2,241,154 is the value of the property retained by the wife as found;

(g) The husband be paid the balance.”

Orders should be drafted carefully regardless of whether the parties propose that they be made by consent or after a contested hearing. Although not considered in Trask, the principle seems to extend to consent orders, whether made in open court or by a Registrar in chambers relying on an Application for Consent Orders. The parties and their lawyers tell the court or Registrar that there is a particular percentage division reflected in the orders but in fact that percentage division might be quite different after real properties have been sold.

The principle also seems to extend to all assets which the orders require to be sold, such as shares, not just to real properties. The principle does not appear to have been expressly applied to superannuation, however, the value of the superannuation entitlement may be different at the time of the superannuation split than when it was valued. While a superannuation splitting order can be a percentage split, the usual basis on which a split occurs and procedural fairness is given to a superannuation fund is instead with a dollar figure specified as a base amount. The superannuation fund may adjust this figure from the operative date until the payment split is made so the potential discrepancy may be minor. If the fund has fallen in value since the valuation the legislative scheme still requires that the base amount be increased. The percentage split will therefore give a fairer outcome and assuming the parties agree on the percentage split early, procedural fairness can be given to the fund before financial agreement is reached in relation to non-superannuation property. 

There could be liabilities, such as estimated tax, which may change the percentage division once the actual figures are known.

Following Trask, more complex orders with mathematical formulas will often need to be drafted to allow for a more precise alteration of property interests in dollar terms to reflect the proposed percentage division after the uncertain values of assets and liabilities are known.

If assets are to be sold or there are other uncertain amounts which will later become certain, lawyers should draft orders along the lines of the orders made in Trask & Westlake. The orders should take into account that the sale price of assets (and the sale proceeds) or liabilities may be different to any agreed valuations of assets or estimates of liabilities, unless the variation is likely to be minor or the court is told that the parties are aware of and accept the potential discrepancy.

It is important that the defaulting party should not profit by their default and that the innocent party’s financial position should be protected. If property prices are relatively stagnant or, as in the early 1990’s and in 2022-2023, they are falling, then it is probably preferable to provide for interest on a fixed lump sum. If, however, property prices are rising and/or inflation is high, it is preferable to provide that the parties each receive a percentage interest in the sale proceeds.

The Full Court of the Family Court pointed out in Turner & Turner (2016) FLC 93-719 that the wife’s failure to seek a sale and division on a percentage basis and the trial judge making orders for a lump sum ($12m within 30 days, after which interest accrued) meant that the orders were onerous and unfair to the husband. The argument that the orders were not just and equitable would have been more difficult to succeed if the wife had sought a sale and percentage division. It was accepted by the Full Court that any sale would take some time and probably require the support of other shareholders to implement the payment to the wife.

GUARANTEES & INDEMNITIES

Guarantees

One party may seek to be released from guarantees given by them for a liability in relation to an asset which is to be retained by the other party. Usually this is in relation to a business. Care must be taken in drafting such a provision in property settlement orders under s 79 or 90SM FLA as the party obliged to obtain the release must try to obtain it from a third party. Unless the third party is a party to the orders, the provision may be unenforceable.

The party seeking to be released from the guarantee may understandably want greater protection than this. If so, they should not agree to comply with part or all of their obligations under the orders unless and until the release from the guarantee is confirmed in writing by the entity who is to provide the release. The other party should be put on notice that a full release is required so that enquiries can be made prior to the signing of the orders.

It may be possible to seek orders under Pt VIIIA, to require a creditor to release a party from a guarantee or at least from the debt which supports the guarantee.

If a release is obtained it should be an unconditional release. Some releases are subject to the terms of the guarantee. For example, the guarantee may provide that the party released is still liable for a period of three or six months after the guarantee is terminated. The terms of the guarantee should be checked before the orders are drafted.

Indemnities

An indemnity is an agreement to reimburse another party for a loss. The most common example is where one party transfers their interest in the former matrimonial home to the other subject to the existing mortgage. The transferee indemnifies the transferor in relation to the mortgage. If the transferee defaults in the mortgage payments there is nothing to prevent the mortgagor taking action against the transferor. It is irrelevant that the transferor no longer has any legal or beneficial interest in the property. If the transferor makes any payments to the mortgagor they have the right to be indemnified by the transferee to the extent of the payments made. The transferor can also seek to be indemnified in relation to any legal costs incurred in seeking reimbursement (for payments made) from the transferee pursuant to the indemnity. An indemnity is of no use if the party giving the indemnity cannot pay the debt in full. 

Usually, if it can be achieved, it is far preferable for the transferor that the orders provide that the existing mortgageliability be discharged and the transferee take out a new mortgageliability in their sole name. Often the financial institution will insist upon this but the transferor cannot depend upon the attitude of the financial institution.

An indemnity should be sought by the transferor from the transferee in relation to the existing mortgage even if the transferee is obtaining a discharge of the existing mortgage and taking out a fresh mortgage. This ensures that any liabilities in relation to the existing mortgage of which the parties are unaware (eg due to a miscalculation of the existing debt to the financial institution) are borne, if possible, by the party who retains the property.

An indemnity is not desirable where there is a risk that the party giving it will become bankruptnot be able to pay. If the parties owe money to a private company or trust, the debt should preferably be repaid and reborrowed in the sole name of the party who will remain liable. An indemnity in relation to such a debt will be worth very little if the company goes into liquidation and the indemnifying party cannot repay the debt.

Indemnities which are worded generally are more difficult to enforce than those with specificity about the precise nature of the debt.

An indemnity is usually in relation to the whole debt but a debt can be “split” and each party indemnify the other in relation to their “share”. This occurred in Anderson & Anderson (1981) FLC 91-104. The sum of $6,000 had been advanced by the husband’s father to the parties. The court ordered that the wife, who was receiving 70% of the net proceeds of sale of the former matrimonial home, indemnify the husband as to 70% of the parties’ liability to the husband’s father. The husband, who was receiving the other 30%, was ordered to indemnify the wife as to 30% of the parties’ liability to the husband’s father. It is simpler, however, if the assets of the parties are sufficient, to leave one party liable for the whole of the debt.

The court in Anderson required the parties to indemnify each other in a written document separate to the orders. It is more common for the indemnity to be merely in the order itself.

A liability does not need to be certain or ascertainable for one party to give an indemnity in respect of it. Indemnities may be sought in relation to liabilities which are uncertain such as capital gains tax, business debts or litigation. Obviously, the party giving an indemnity assumes greater risk in these situations. For example, in Franklin & McLeod (1994) FLC 92-481 the husband indemnified the wife against their Lloyd’s liability. The liability turned out to be substantially greater than the parties expected. The court held that this was not a ground to set aside the orders under s 79A.

A party who is being indemnified with respect to a liability should receive both a verbal and written explanation from their solicitor prior to signing any consent orders as to the effect on that party of being given an indemnity rather than the liability being discharged.

The issue of indemnities also arises in relation to self-managed superannuation funds. If one party was a trustee of the fund but rolls out their interest, they will likely seek an indemnity from the party who remains a trustee as the trustees are jointly and severally liable for any taxation and penalties. There may be circumstances where the indemnity is worded to cover the period when the departing trustee was a member. Indemnities in relation to SMSFs are below. 

FURNITURE

Disputes about furniture under the FLA are particularly difficult for courts and legal advisers. It is very tempting to avoid the problem altogether and be quite dismissive of the parties’ desire to negotiate about furniture, particularly as the legal costs the parties incur in relation to such disputes are likely to be disproportionate to the market value of the items.

Furniture, like other assets, is valued at its market value rather than its purchase price, insured value or replacement value. Frequently, a party will have emotional attachment to, or sentimental association with, particular items of furniture. This gives them an importance to the party far exceeding their value in monetary terms. Additionally, for one party to replace a household of furniture and chattels may cost $50-$100,000, but its market value might be only $10,000. The monetary value to the parties is, for this reason, greater than its market value even without taking into account emotional issues. Some parties agree to value furniture in a different way (eg replacement value) to take account of this. There is nothing to stop the parties from reaching such an agreement.

Another difficulty is that discussions about furniture often take place at the end of lengthy negotiations at court or outside of court about more substantive issues. Parties may feel they have compromised sufficiently already and that to compromise about items of furniture to which they are emotionally attached is “the last straw”. On the other hand, their legal representatives may be relieved that agreement on the substantive issues has been reached. They may have less energy to deal with disputes about seemingly less important issues than they did earlier.

A further difficulty is that if a party does not comply with an order to deliver up furniture or delivers it up in a damaged state, the cost of enforcement proceedings may be disproportionate to the loss suffered by the party entitled to the benefit of the order. Parties may take matters into their own hands. Items may be removed, damaged or retained so as to effect what that party sees as a more “equitable” division. Once parties have possession of items to which they are not entitled it may not be cost-effective for enforcement proceedings to be issued to rectify the situation. This needs to be borne in mind when drafting the orders. The orders should be drafted in a way which encourages compliance by linking satisfactory completion of that order to another order in favour of the party delivering up the furniture.

The question of the division of furniture is generally approached in one of the following ways:

  1. By finding a particular reason why one of the parties should have the benefit of substantially all of the furniture;
  2. By trying to effect a division of the furniture between the parties in some inexpensive manner such as the “pick a pile” method;
  3. By declaring that each party retain the items they currently have in their possession and ordering that any discrepancy in their market value be adjusted by a payment of money from one party to the other;
  4. By ordering that the furniture be divided between the parties “as agreed” and reserving liability to apply in the event that agreement is not reached.

The “pick a pile” method must be used very carefully. It will not be appropriate in all cases. It has certain advantages including:

  1. Avoiding legal costs;
  2. Avoiding the requirement that parties and the court compile and consider evidence of value and tortuously effect an equitable division;
  3. Providing the appearance of a just division;
  4. Giving the party preparing the lists a strong incentive to make the lists of equal value.

The “pick a pile” method also has certain disadvantages including:

  1. It can be used unfairly. For example, the party who prepares the inventories may be aware that certain items are of very great emotional or sentimental importance to the other party. Those items may be included in one inventory and the value of items on that inventory total significantly less than the items in the other inventory.
  2. It can be used quite vindictively. For example, the party preparing the inventories may want to retain particular items which are of considerable value to that party and therefore places them all in one inventory. The other inventory can be made more attractive to the other party either by “loading” it with items which are of emotional or sentimental value to that party or by making the total financial value of the items on that list greater. The other party may, quite vindictively, select the inventory which is not intended for him or her although it includes items which they do not really want.
  3. Items can be left off both inventories by mistake or deliberately. This could cause disputes either at the time of division or later when the existence of the items is recalled.

Making a monetary adjustment for a discrepancy in values between the items of furniture retained by the parties requires the parties either to agree on the value of furniture retained by each party or have it all valued. Unless the parties own antiques it is rarely worthwhile to have furniture valued. If the parties or the valuers cannot agree on values, it may be quite difficult and costly to implement this method as there may be an argument about the value of each item of furniture.

An order that the furniture be divided between the parties “as agreed” reserving liberty to apply will often result in the parties sitting down to try to resolve the dispute themselves to avoid incurring further legal costs. The major disadvantage of this type of order is that if agreement is not reached, the cost of returning to court may be greater than if the issue was resolved in the original hearing or negotiations.

TRANSFER OF PROPERTY TO A CHILD

In the early days of the FLA, s 79 or 90SM orders in favour of children were more common than they are now (eg Groutsch & Groutsch (1978) FLC 90-461).

Sections 79(1) and 90SM(1) specifically provide that in property settlement proceedings the court may make an order requiring either or both of the parties to make, for the benefit of … a child of the marriage or the de facto relationship.

In determining whether such an order should be made the court is required to take into account:

  • the matters set out in s 79(4) or 90SM(4) such as the financial and non-financial contributions made by the child to the property of the parties
  • the matters referred to in s 75(2) or 90SF(3)
  • any other order made under the FLA which affects the child. Child maintenance orders and any property order in favour of the spouse with whom the child resides would be relevant.

Such orders are normally made only where the child has made a contribution to the property of the parties. The needs of the child are more appropriately met by a child support assessment or child maintenance order (Egan & Egan (1985) FLC 91-608) and/or a property order in favour of the spouse with whom the child resides. A property settlement order can, under s 75(2) or 90SF(3), take account of the fact that the spouse has the care of children under eighteen (s 75(2)(c) or 90SF(3)) or older children (s 75(2)(d)(ii) or 90SF(3)(d)(ii)).

Chief Justice Mason, Wilson and Dawson JJ in the High Court in Dougherty v Dougherty (1987) FLC 91-823 considered (at p 76,196) the circumstances in which a child would be successful:

“Nevertheless, we incline to the view that the circumstances which will support a claim by or on behalf of an adult child of the marriage will be exceptional. The fact of a relationship of parent and child may not suffice. If it were to do so, the Family Court would have jurisdiction extending to claims unconnected with the marriage between the parents and so beyond the competence of the Parliament. The Family Court is empowered to make an order under that section where it is satisfied that in all the circumstances it is just and equitable to do so, but the circumstances must be such that the claim arises out of, or has a sufficient connection with, the marriage relationship If s 79 is to be a law with respect to marriage, and for that reason to be within power, it must be because of the connection between the jurisdiction which it confers and the relationship of marriage.”

Orders for the reinstatement of the bank accounts of teenage children and the transfer of the control of the accounts to the husband as trustee for the children (from the wife as trustee) were made in Tillman & Tillman (No 4) [2016] FamCA 691, under Pt VII of the Act exercising the Court’s parens patriae jurisdiction over the property of children rather than under Pt VIII.

SUPERANNUATION

It is beyond the scope of this paper to discuss superannuation in detail but a couple of points to remember are:

  1. Small superannuation accounts interest — These are listed as an option in the Application for Consent Orders. These are not accumulation accounts with low value. This is a common error made in completing the Application for Consent Orders. They are a special type of fund under the Small Superannuation Accounts Act 1995 (Cth). They are fairly rare.
  2. Consider carefully whether a split should be a base amount. Obviously percentage splits are often used for pensions. Percentage splits are also useful when parties want to ensure a precise 50/50 division of their superannuation, particularly in a self-managed superannuation fund (SMSF). Baines & Baines [2016] FCCA 1017 is an example of a complex splitting order. To ensure that the superannuation entitlements were split equally, Scarlett J adopted the “cross split order” proposed by the single expert. The wife’s entitlement in the self-managed fund was split 100% to the husband and then the husband’s entitlements were split 50% to the wife. 

This type of order can be used where there are multiple funds to ensure that the total of all the funds is split in the desired amount may end up being unfair to one of the parties as the value of 

each fund can fluctuate from the date on which a base amount is calculated, due to:

  • a delay between the valuation being obtained and agreement being reached
  • a delay between an agreement being reached and orders being made
  • a delay in providing procedural fairness to the trustee

Some legal practitioners and clients may oppose this method due to the extra work involved, but ultimately it will give a more equitable outcome. The other advantage is that if superannuation is to be equalised, procedural fairness can be given to all funds at an early stage of the negotiations or proceedings and it does not need to be further obtained – perhaps at short notice – when the matter resolves, using updated base amounts.

  1. Be particularly wary when dealing with defined benefit funds and self-managed superannuation funds. Advice from a superannuation expert or accountant may be required. The directors of the corporate trustee or the parties if they are trustees should confirm their status and that they consent to the order being made.
  2. If procedural fairness has not been given as required by r 10.06, then the options are:
  • wait to lodge orders until procedural fairness has been provided
  • if the orders are being made in open court the judicial officer may:
  • make orders and give the trustee the right to object before they come into effect; or
  • delay making orders until procedural fairness has been provided

EXECUTION OF INSTRUMENTS UNDER s 106A(1)

An order that a person execute a document can be enforced by an order under s 106A(1) FLA which allows an order to be made for an officer of the court or another person to execute the document and do all acts and things necessary to give validity and operation of the document.

Justice Nygh in Maddocks & Maddocks (1981) FLC 91-031 said (at p 76,295) that for s 106A(1) (then s 84(1)) to operate it cannot be said:

“that a person has refused or neglected to comply with a direction unless that obligation of that person has been clearly spelt out. For that reason, I hold that there must be a specific order directing the wife to execute a deed or instrument before s [106A(1)] can operate.”

An order requiring a party “to do all acts and things necessary” or “to sign all documents necessary” to effect a particular action must be made before an order can be made under s 106A(1). If the party defaults in performing the primary obligation the other party can issue enforcement proceedings seeking an order under s 106A(1).

Prior to their merger on 1 September 2021, the Family Court of Australia and the Federal Circuit Court of Australia jointly published a Fact Sheet in relation to the requirements for complying with s 106A(1). Although as of 1 October 2022, this document had not been updated and placed on the website of the FCFCOA which commenced operation on 1 September 2021, it appears to still be a useful guide to the requisite steps. 

If the transaction involves extra steps, such as an electronic conveyancing transaction or the verification of identity, the court will not accept that a Registrar can be appointed to sign on behalf of the defaulting party but will view that a lawyer for one of the parties should be appointed.

The FCFCOA has published a Fact Sheet on “Finances and property: Compliance and enforcement”. This fact sheet sets out that the affidavit in support of the application or a s 106A order must set out the relevant facts which will usually include:

  • what the defaulting party was required to do;
  • what steps were taken to facilitate the defaulting party’s compliance;
  • what the defaulting party has refused and/ or failed to sign the document.

The pre-September 2021 Fact Sheet set out with greater clarity the documents to be produced to the court with the required document or deed to be signed:

“1. A certified copy of a current up to date search of the relevant title of land, share certificate etc. is to be produced to the Court from the appropriate State Titles Office or other relevant body.

  1. An affidavit is filed setting out the following:
  2. Attaching a copy of the relevant order which was made granting the power under Section 106A to the Registrar to sign the document or deed.
  3. The attempts made to obtain the defaulting party’s signature to the document or deed and the facts relied upon to show their refusal to execute the document.
  4. Proof of compliance with any other pre condition set out in the relevant court order before s 106A applies.
  5. The proper signing clause to be typed on the document or deed for execution by the Registrar is as follows (updated and amended for the FCFCOA):

‘Signed for and behalf of XXXX in their name by a Registrar of the [Federal Circuit and Family Court of Australia] pursuant to orders made in proceedings number MLC      of 20…………on the……day of……20.’”

For real estate transactions, remember that a Judicial Registrar is not going to sign a PEXA transaction. Normally the party in default will be the other party or a lawyer.

LUMP SUM SPOUSAL MAINTENANCE PROVISIONS: s 77A AND 90SH

Sections 77A, 66R and 87A were added to the FLA in 1988 to give effect to declared government policies to increase maintenance for children and spouses and reduce claims upon the public purse and social services (eg Baxter & Baxter (1988) FLC 91-905). 

Where there is a lump sum payment or transfer of property which has spousal maintenance as its purpose or one of its purposes, ss 77A and 90SH (which is the equivalent section for de facto relationships) requires that the proportion of the payment which is spousal maintenance be specified.

There remains considerable uncertainty as to the interpretation of ss 77A and 87A. Justice Gee said in Penza & Penza (1988) FLC 91-949 (at p 76,861) that s 77A was “ambiguous and obscure”. The Full Court of the Family Court in Dein & Dein (1989) FLC 92-014 agreed.

The courts have declined opportunities to broaden the meaning and effect of s 77A. Justice Moss in Evans & Spicer (1992) FLC 92-320 considered the effect of an order that the husband pay the wife $400,000 of which $150,000 was pursuant to s 77A. He said (at [13]-[14]):

“The form of wording places no obligation on either party to do or refrain from doing anything. It is not a declaration. It is not a direction. In particular, it is not an order for the payment of money. It cannot be said to be or to reflect a decision by the Court on a question at issue between the parties in the proceedings…, and while not all Orders require enforcement, eg an Order determining status or a Decree of Divorce…, it is not such an Order.”

Justice Moss looked at the Second Reading Speech and was struck by the words “in satisfaction of maintenance” which appeared there but did not appear in s 77A. He commented (at p 79,411) that the section “might have been made plainer if they did”.

Regardless of the effect of ss 77A and 90SH there are good reasons for categorising obligations specified in orders as either a maintenance provision or a provision for the division of property. These include:

  • Different consequences attach to maintenance and property obligations concerning their respective enforceability after the death of one or both parties (ss 82(1), (2) and 79(8)(c)).
  • Maintenance provisions are capable of variation under ss 83 and 90SI whereas property provisions cannot be varied.
  • Maintenance rights have special protection in the event of a bankruptcy.

Section 77A fits in with the social security maintenance income test. For the prescription of “income tested pension, allowance or benefits” in s 4(1) of the FLA see reg 12A of the Family Law Regulations. For a discussion of social security and lump sum spousal maintenance, see ¶43-570.

An example of the effect of non-compliance with s 77A arose in Gatsby & Gatsby [2011] FamCA 1042, there was no attempt to comply with s 77A in the body of the orders although there was a notation specifically referring to the intention of the parties to finalise “all financial matters, including but not limited to, weekly spousal maintenance payments and lump sum payments”. Justice Collier held that the wife’s application for spousal maintenance was able to proceed. 

Conclusion

Entering into consent orders for property seems a deceptively simple way for parties to finalise their financial affairs but there are many traps. It is important to check the applicable legislation and the Rules and draft the orders in a manner which ensures they are enforceable, and any Application for Consent Orders in a manner which does not mislead the court or the other party

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