Claims by parents in property settlements

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You may not be aware that spouses are not the only parties who can make a claim in property settlement proceedings. Other parties who have made contributions to the marital assets or loaned monies can also make a claim seeking a payment from the property pool. Sartin & Sartin & Anor[1] is an interesting case decided by the Federal Circuit Court of Australia which involved a claim by the mother of a spouse in  property settlement proceedings.

The Story

The parties commenced their relationship in 1979. They have two adult children from the relationship. In October 2010 the parties separated and the husband (“the first respondent”) moved out of the former matrimonial home (Property B). The wife (“the applicant”) and two sons remained living in the former matrimonial home with the wife’s  mother (“the second respondent”).

In May 2010 the husband, along with a former colleague registered a company. Four (4) months before their separation, the husband obtained the wife’s consent to borrow $120,000 secured by Property B, to invest in a new business. At this time the parties were living off the income of Property G (a rental home) and the wife was anxious for the husband’s business to generate income. Two years after the parties’ separation the husband obtained the wife’s consent to a further loan of $25,000. The original loan was thus increased to $145,000 by consent between the parties provided that the husband took responsibility to repay the debt.

At the date of trial, the wife was almost 54 years old. She was not in paid employment and was relying on New start benefits and financial assistance from the second respondent. The husband was almost 54 years old and was employed full time in another country where he was living with his new de facto partner and baby.

The parties sought orders for the alteration of their property interests. In particular:

  • The wife sought various orders including for her mother to receive $648,982.58 from the sale proceeds of Property B and of the remaining property, for her to receive 70% and the Husband to receive 30%.
  • The husband sought various orders including that the wife receive 60% of the proceeds of sale of Property B and a payment to the second respondent.
  • The second respondent sought payment in the sum of $648,982.58 from the husband and the wife.

At  the end of the trial the wife and the husband agreed that Property B should be sold and that the second respondent should receive the sum she claimed.

The issues

The Court was required to determine:

  • Whether a debt of $145,000 secured by Property B, $120,000 borrowed by the parties 4 months prior to separation and $25,000 borrowed nearly two years after separation, should be the sole responsibility of the husband, or of both parties?
  • Each party’s percentage entitlement to the balance of the

(at [6]).

The legal principles relevant to property settlements

Pursuant to s 79 of the Family Law Act 1975 (Cth) the Court has the power to alter the interests of parties to a marriage in respect of the marital assets.  The courts adopt a “4 step process” in applying s 79. This process requires an identification of the pool of assets; assessment of contributions both direct and indirect; assessment of s 75(2) factors (future needs); and consideration of whether the orders are in all the circumstances, just and equitable.

The decision

Whether the husband should be wholly responsible for the debts

The Court held that given that the wife consented to the original loan of $120,000 without conditions, the loan should be the responsibility of both parties. This was despite the husband’s later agreement to accept full responsibility for the whole debt as the Court noted that he was under significant financial stress at the time he signed the agreement. The Court ordered that the husband take full responsibility for the additional $25,000 borrowed.

Contributions

In accordance with section 79(4) the court considered each party’s financial and non-financial contributions, as well as contributions to the welfare of the family during cohabitation and after separation (at [31]).

Financial contributions

The Court found that the wife had made the substantially greater financial contribution to the assets of the marriage. She was the owner of Property G and along with her parents, was the sole financial contributors to the property (at [74]). The husband argued that such contributions were irrelevant now as the property had been sold. The Court rejected this assertion and held that the contributions of the wife and the second respondent added significant value to the existing pool of assets and should therefore be given the appropriate weight.

The Court accepted the second respondent’s evidence that she along with her husband had provided substantial ongoing financial assistance to the spousal parties. Without these contributions, the Court found that the parties would not have held Property B. In addition, whilst the husband was the higher income earner in the household, the Court was satisfied that his poor financial decisions during the marriage had resulted in the spouse parties’ current difficult financial state.

Non financial contributions and contributions to the welfare of family

The Court accepted that the husband had made the greater non-financial contributions to the building of Property B. This however was weighed equally against the finding that the wife had taken the majority of the responsibility for the domestic tasks and care of the children’s emotional and physical support since the separation. The Court’s preliminary assessment of entitlement was 65% to the wife and 35% to the husband.

Section 75(2) factors

The Court took into account the relevant future factors including the financial resources of each spouse, capacity for later employment, support for other persons, eligibility for financial assistance and the justice of the case. The Court found that the husband was in a better position to improve his financial situation and therefore made the required adjustment in favour of the wife to 70% and 30% to the husband. The Court was also satisfied that these orders would effect a just and equitable distribution of the property between the parties. The Court awarded the amount claimed by the second respondent namely $648,982.

Lessons

This case is a reminder that the Court is prepared to award a person other than the spouse parties a payment for their contribution to the marital assets. In addition, the Court will always consider both the financial and non financial contributions of the spouse parties to ensure that the distribution of assets is just and equitable in all the circumstances of the case.

For more information regarding property settlement

Please contact our Business Development Team or call us on (07) 3252 0011 to book an appointment with one of our Family Lawyers today.

Please Note: This is not legal advice but it may help you understand the law. Read more.

[1] [2016] FCCA 800.