Partial property settlements are very commonly sought in property settlement proceedings to help parties to fund the cost of litigation, restablishment expenses and living expenses, where they do not necessarily meet the criteria for a spousal maintenance application.
To learn more about partial property settlements including the elements of an application, check out our article on this topic: What is a partial property settlement and how do I get one?
This article focuses on one element that the Court considers when determining the appropriateness of an order, that being the source of the funds.
Partial Property Settlements – Identification of the Source of funds
In applications for partial property settlements, there must be a clear source of funds to enable the payment proposed by the Applicant.
it is most commonly the case that the source of funds is the most contentious issue. Unless the funds are coming from an account or refinance of a mortgage, an asset may need to be sold, and the sale of that sset, if one party wants to keep it, may be contentious.
In circumstances where the refinance of the mortgage over a property is sought, the Court’s approach has differed from case to case in similar circumstances.
Usually, application is made by the Wife for a partial property settlement, and the Husband will seek to retain the property. The Wife will seek orders for a cash payment to be made by the Husband and in the absence of that cash payment, it may be she proposes that the house be sold.
The difficulty with such an application is that the Husband seeks to retain the property. The Husband’s argument usually in these circumstances is that he should be given the opportunity to retain it, rather than the Court requiring a forced sale to make payment to the Wife.
In relation to the issue of refinance of the mortgage, the practical impediment is that such a refinance would require the Wife’s cooperation, and so the mechanics of the order for the payment in such circumstances would need to provide that the parties jointly apply for a refinance of the home loan secured over the matrimonial home, in order to facilitate an increase of the loan to make payment to the Wife of her partial property settlement.
Some Judges and Registrars may prefer not to make orders which provide for a payment which requires a refinance of the joint mortgage by both parties.
An alternate approach in those circumstances, where there is no other source of funds available to the Husband to make payment is that the property be sold, and the Husband be given the option to purchase that property, in which circumstance, the market will determine the value of the property. If the Husband opts to purchase it, the property will be in the sole name of the Husband at which time he can seek to obtain finance by way of a mortgage in his sole name, to facilitate payment to the Wife.
This type of order may be made more commonly in circumstances where it is clear on the evidence that the person seeking to retain the property does not or may not have the capacity to refinance and pay the other party out, in which case sale of the property is an inevitable consequence.
Kartal & Templeman – option to purchase and refinance
In Kartal & Templeman (2022) FLC 94 – 080, the Husband and the Wife were engaged in property settlement proceedings. The principal asset was the matrimonial home, which the Wife occupied with the parties two children. The mortgage and other debts were at risk of overwhelming the parties net equity in the property.
The Wife sought interim orders granting her sole ownership of the matrimonial home and allowing her to refinance the mortgage by entering into a loan agreement with a relative. The Husband sought that the property be sold to discharge debts and thereafter a partial property settlement of $50,000 to the wife and $25,000 to him.
A Magistrate of a Western Australia Court made interim orders requiring that the matrimonial home be sold and the proceeds be used to pay off the mortgages and sale expenses.
The Wife appealed the decision on several grounds, including but not limited to as follows:
- The Magistrate erred in making orders for sale of the property because those orders usurp the wife’s chance to make good on her application for final relief, whereby she sought to retain the property;
- The Wife did not need leave to appeal because the orders made were final, not interim in nature;
- The Magistrate erred by ordering sale of the property without first being satisfied that the parties had the financial capacity to pay for suitable alternate accomodation for the wife and children;
- The Magistrate erred in the exercise of discretion by failing to take into account the effect of the orders on the children’s mental health.
Justice Austin dismissed the appeal and ordered costs.
Appeal Ground 1: a sale of the matrimonial home precluded her from pressing her application for orders granting her sole ownership of the former matrimonial home at the Trial
The Wife argued that sale orders rendered nugatory her claim to retain the matrimonial home, and that she would suffer a substantial injustice if she were deprived of the home she wished to continue living in with the children.
In relation to this argument, at paragraph [22] Justice Austin said:
“ … If the former family home is sold according to the orders, nothing stops the wife from purchasing the property on the open market with the aid of the same financial assistance she had envisaged … to … acquire the husband’s one-half share. …. While she would then experience the disadvantage of having to compete with other prospective purchasers, any price increase caused by such competition will be mollified by her receipt as a joint vender of one-half share of the increased capital gain.”
There was some discussion in the appeal judgement about the inconsistency of the Wife’s argument, that selling the property would render null and void her claim to retain the matrimonial home, when the Wife’s own application for interim orders was repugnant to the orders ultimately sought by the Husband. Her own application, if successful, pre-empted the outcome of the adjustment proceedings at trial by her acquiring sole title to the single asset of substance, through the restructuring of debt, and in doing so deprived the Husband of access to his share of the net equity.
The Wife sought an interim order to adjust existing property rights whereas the Husband was simply seeking to extract the net value of their existing interest in the matrimonial home. In the absence of an application by the Wife for exclusive occupation of the property (which was not sought) or an order by the Court transferring the property to the Wife (which was not made), the Husband was entitled to extract at law his one-half share of the equity in it.
Appeal Ground 2: Ordering sale of the matrimonial home was akin to determining the application and it was therefore a ‘final order’
Regarding the alleged finality of a sale order, Justice Austin said:
“The wife considers the sale orders are final because their execution would preclude her from pressing her application for orders granting her sole proprietorship of the former family home at … trial. While it is true the sale orders render otiose her application for final relief … that consequence does not convert interlocutory orders into final orders.
The orders are not ‘final’ because they do not exhaust the Court’s statutory power and are not dispositive of the parties’ respective applications …
The orders for sale of the former family home do not resolve the parties proprietary claims to the property, but rather crystalise their existing rights in it…
[the Husband’s] application was merely facilitative of the parties extraction of the net value of their existing equal proprietary interest in the former matrimonial home.
The essence of finality is disposition of the justiciable dispute.”
Appeal Ground 3: The Magistrate erred by failing to take into account the effect of the orders on the children’s mental health
Justice Austin said that the best interests of the children are only relevant in parenting proceedings, whereas these were property settlement proceedings only.
Furthermore, the appealed orders did not entail any adjustment of the parties rights to property, in which case section 75(2)(o) would have applied.
The asserted fragility of the children’s psychological state was therefore not a relevant factor and could not have affected the Magistrate’s decision.
Even if the children’s psychological state was relevant, the Wife’s uncorroborated opinion about the adverse impact upon the children of being forced to facate the former matrimonial home did not carry any persuasive evidential weight.
Partial Property Settlements – what to do if the other party is refusing to pay me out a partial settlement?
Having a good strategy with your lawyer in partial property settlement applications is vital to the prospects of success of it.
Here are our tips to maximise your prospects:
- Review the other party’s financial statement and affidavit thoroughly to identify any sources that can be used to make payment to you e.g. bank accounts or other assets that can be sold;
- Ask questions of the other party in relation to their financial statement if there are any discrepancies;
- Seek full and frank disclosure at an early stage of the matter and periodically throughout. Sometimes what is in the financial statement does not match what the disclosure documents reveal e.g. check the history of repayment of the mortgage;
- Look for holes in the other party’s argument, by asking questions and seeking relevant documents e.g. in relation to their capacity to refinance;
- Look at the orders the other party is seeking. For example, if the other party is not seeking a final order to retain the property, then there is no reason in those circumstances why the property could not be sold on an interim basis, to crystalise the party’s interests, at which time negotiating a final resolution may be more likely to occur.
- Do not assume things are as the other party says they are. Always ask questions, and ask for documentary evidence of anything asserted to corroborate its truth.
- Make offers early and often. There are usually several sources available to pay for partial property settlements, which the other party can choose from. Think laterally about what sources may be used e.g. is there a redraw on a loan or can the parties jointly approach the bank to seek an increase to the loan, to avoid the necessity of sale.
- Engage a lawyer who is experienced in running partial property settlement applications. These applications need to be very well thought out before they are made, they can be tricky and sometimes technical. The last thing you want is a risk of a costs order against you if it is unsuccessful.
- Brief counsel where possible. The Court has the greatest of respect for barristers. It is important you have a barrister with experience running these types of applications.
- Check which Senior Judicial Registrar you are before! It makes a very big difference to the outcome of your application, knowing who you are before, what they like, what they dislike, and it will impact your lawyer’s strategy on the day.
- Read relevant cases that are applicable to your matter and have cases ready to tender in Court to the Senior Judicial Registrar. Most interim applications until a trial, including partial property settlements, are now heard by Senior Judicial Registrars. In our experience, having case law handy on the day can make a big difference to your prospects, because it gives the Senior Judicial Registrar some legal support for the correctness of your argument, that they will be comforted by, when determining the application, hopefully, in your favour.
What have we learned re partial property settlements?
It is pivotal that a source is clearly identified that can be used to make payment to the applicant of the amount proposed.
If you are unsure what the appropriate source is in your case, we strongly recommend you seek legal advice early on to understand your rights and whether an application for partial property settlement would have prospects.
Contact us today to book a reduced rate initial consultation with one of our experienced family lawyers to discuss your individual circumstances, and we will plot a pathway for you to ensure your application for partial property settlement, has the best chance of success.
