Family law proceedings are lengthy, costly and emotionally draining, commonly taking twelve months to two years to finalise. It is in these circumstances that it is becoming more common for parties to apply to receive a sum of money, referred to as a partial property settlement, early, sometimes for spousal maintenance, or otherwise, to fund proceedings or to to enable both parties to negotiate on a level playing field, particularly where one party is earning a substantially higher income or has control over all the assets.
Click here for more information on the factors the Court looks at when considering whether to make a partial property settlement order.
Our experienced family lawyers make applications regularly for receipt of a lump sum either way way of spousal maintenance or to pay for legal fees, because we often represent a party who has no income or assets. This strategic step assists to prevent our clients from feeling pressured and coerced into a settlement agreement because of a financial power imbalance that exists, it enables them to pay their living expenses and to negotiate on equal footing.
But how does the court characterise the sum received at the Interim Hearing and at Trial?
Characterisation of money received by way of partial property settlement at an Interim Hearing
The case of Strahan is the big ticket case when it comes to partial property settlements. Strahan highlights the importance of the identification of the jurisdictional basis for the order being made i.e.:
- Partial Property Settlement Order (s80(1)(h) & s79 / s90SM
- Litigation Funding (Costs) Order: s117(2)
- Spousal maintenance: s74 & s72 or s90SE & 90SF
Unless the payment is sought for spousal maintenance purposes, in the large majority of cases it will be sought as a partial property settlement.
For example:
Jenny and Jo are in the middle of court proceedings. Jenny files an application for a partial property settlement of $100,000, with those funds to come from an offset account in the parties joint names.
It is uncontroversial that Jenny is entitled to at least 60% of the net matrimonial property pool of the $1,000,000 (i.e. $600,000 of that pool).
Jenny is successful in her application for $100,000 by way of partial property settlement. The interim order says:
- The Wife be at liberty to withdraw the sum of $100,000 from the parties joint offset account #1234.
- That the sum received by the wife is to be characterised as a partial property settlement.
Notably, there is no requirement of the Court that property or money ordered to be received by Jenny on an interim basis be characterised e.g. as spousal maintenance or a partial property settlement (i.e. order 2 is not required for the court to exercise the power to give Jenny the money early).
If a payment is ultimately characterised as a partial property settlement, this means that it comes off the top of what you get in your property settlement.
What this means for Jenny is that if Jenny’s entitlement is $600,000 from the property pool, then given she has received $100,000 early, she is entitled to a further $500,000 in her property settlement. The $100,000 she has received early effectively comes off the top of what Jenny ultimately gets (like a notional asset / addback on Jenny’s side of the ledger).
However, is the Trial Judge bound by a characterisation of money received at an interim hearing, as a partial property settlement?
Characterisation of money received by way of partial property settlement at a Trial
Even though at an interim hearing the Court may have characterised a sum received by a party as a ‘partial property settlement’ the Court has the power to re-characterise the payment as something else at the Trial.
This was made clear in the cases of Marchant & Marchant [2012] FamCAFC 181 and Harry & Harry (No 4) [2023] FedCFamC2F 1288 where it was held that the Trial Judge is not bound by the earlier characterisation of a part property settlement.
The general logic of this principle is that it is only the final order made at trial which deals on a final basis with the property of the parties. Any earlier made order therefore cannot be binding so as to limit the discretion of the Trial Judge and is capable of being reversed/altered at the Trial.
When considering whether to include or not include in the property pool, a partial property settlement as part of the assets already received by a party, the Court will focus heavily on the way in which the money was used.
For example:
Jenny and Jo go to Trial, at which time Jenny has used the $100,000 received by her as follows:
$50,000 legal fees
$30,000 living expenses
$20,000 in a bank account
At the Trial, Jo’s lawyer argues that the whole $100,000 be added back to the property pool as a notional asset, despite how it was used, noting it was characterised as a partial property settlement by the Judge at the Interim Hearing.
Jenny’s lawyers argue that only the $70,000 used for her legal fees or remaining in her bank account should be included in the pool and that the money that Jenny used to support herself ($30,000) should not be added back to the property pool given it was used for her living expenses.
The Court ultimately agrees with Jenny’s lawyer’s argument, given the way Jenny utilised the funds she received, and the Court does not include as an addback in the property pool the $30,000 that Jenny used to support herself.
What factors are relevant to whether a court will re-characterise a partial property settlement as something else at Trial?
When a Court is required to determine at Trial whether or not to reverse earlier orders and re-characterise a partial property settlement as something else, in other words, is it an addback in the property pool for the party in receipt of the funds or not, the Court will focus on:
- The way in which the money was used;
- the length of time since the orders were made;
- The extent to which the parties relied upon those orders in their later conduct (e.g. if Jo refinanced a loan to pay Jenny the sum and would it be inequitable having regard to his refinance capacity, to disregard the sums received early by Jenny?)
- Whether the orders were made by consent or by the Court (if the order was made by consent – in our view it is less likely the Court will re-characterise the sum if both parties acted in reliance upon that order).
Contact us to discuss a partial property settlement
If you would like further information on whether you are entitled to apply for a partial property settlement, contact us to book a reduced rate consultation with one of our experienced family lawyers, to discuss your individual circumstances.
