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April 6, 2016 Leave a comment
http://www.famlaw.com.au/media/3231/confusion2bigmoneycases.pdf http://www.lawsociety.com.au/cs/groups/public/documents/internetyounglawyers/026377.pdf http://m.theage.com.au/national/husband-loses-1-million-after-family-court-rejects-his-special-skills-20140109-30k5b.html
October 2, 2013 Leave a comment
Section 79 of the Family Law Act (Cth) 1975 essentially deals with the distribution of property when a marriage relationship breaks down.
It was relatively well-settled law that in certain circumstances, a Court exercising jurisdiction under s 79 could notionally ‘add-back’ property which had been prematurely dissipated or ‘wasted’ from the asset pool.*
This is, however, arguably no longer the case.
The recent Full Family Court case of Bevan & Bevan [2013] FamCAFC 116, and the High Court case of Stanford v Stanford [2012] HCA 52 on which the Full Court relies, casts grave doubts as to whether it is at all appropriate for a Court exercising jurisdiction pursuant to s79 to ‘add back’ property to the pool which is no longer in existence.
Pertinently at [79] of Bevan, Thackray J and Bryant CJ observe that:
…“notional property”, which is sometimes “added back” to a list of assets to account for the unilateral disposal of assets, is unlikely to constitute
“property of the parties to the marriage or either of them”, and thus is not
amenable to alteration under s 79. It is important to deal with such disposals
carefully, recognising the assets no longer exist, but that the disposal of them
forms part of the history of the marriage – and potentially an important part.
As the question does not arise here, we need say nothing more on this topic,
save to note that s 79(4) and in particular s 75(2)(o) gives ample scope to
ensure a just and equitable outcome when dealing with the unilateral disposal of property.
(emphasis added).
Further, [160] per Finn J notes, at [160} of Bevan that:
These reminders that the jurisdiction under s 79 is a jurisdiction to alter
individual interests in title to property and that there is no community of
property in this country, might also call into some question the current practices
in relation to the treatment of property which is no longer in existence but
which one party has had the use of (the so called “addbacks”), and perhaps also
of the unsecured liabilities of one or both parties. It may well be that these
matters should more strictly be considered in making findings under s 79(4)(e)
(i.e. s 75(2)), or in an extreme case, when considering the question under
s 79(2) as to whether it is just and equitable to make any order under s 79. But
these questions do not arise in the present case, and are thus for another day.
(emphasis added).
If, therefore, the ‘four-step process’ is still the correct approach for the majority of family law property cases (and this is by no means certain following the High Court’s comments in Stanford) it appears that, rather than dealing with ‘wastage’ in the first step (that is, identifying and valuing the property of the parties), the correct approach is to deal with it during the third step (and, more specifically, with reference to s75(o)).
It may be that if we are being true to the legislation, there is in fact no such thing as a ‘notional asset.’ This is a question that remains unanswered in light of the decision in Bevan.
* See, especially ‘Enlarging the Asset Pool – Adding Back Notional Assets‘ by the Honourable Justice Judy Ryan.
—
Marc Testart
Principal Family Lawyer
Testart Family Lawyers
Experience. Excellence. Compassion.
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July 26, 2013 Leave a comment
When we think of prenuptial agreements in Australia (often misspelled as ‘prenuptual agreements’) or a ‘prenup’ we often think of American television; the courtroom drama with the family law attorney arguing over the terms of the prenup. We often think of Hollywood movie stars like Tom Cruise and Katie Holmes. We often think of how offended one prospective spouse (usually the fiancee) is at the thought that the other does not trust them enough to enter into the marriage without a prenup!
The reality is, however, that we don’t technically have prenuptial agreements in Australia; but we do have what are known as Binding Financial Agreements (or BFAs).
So what is a Binding Financial Agreement (BFA)? Briefly, and put simply, a Binding Financial Agreement is an agreement or contract which determines how assets are divided between the parties in the event that the relationship ends. Or, as the Sydney Morning Herald recently described it:
‘In Australia a pre-nup is simply a binding financial agreement that sits under the Family Law Act. It’s a legal contract that can be entered into by married couples, same-sex couples and those in de facto relationships… an agreement between both parties that requires full disclosure of their financial position and assets at the time, and is designed to provide certainty to both parties before entering into marriage or a long-term relationship.’
Binding Financial Agreements are dealt with in Part VIIIA of the Family Law Act (Cth) 1975. There are, broadly speaking, 3 kinds of BFA:
These are dealt with by sections 90B, 90C and 90D of the Family Law Act respectively.
Despite the confusion around the terminology, prenuptial agreements or Binding Financial Agreements are not just for Hollywood movie stars or American courtroom dramas…
—
Marc Testart
Principal Family Lawyer
Testart Family Lawyers
Experience. Excellence. Compassion.
Useful links:
July 17, 2011 Leave a comment
Interim orders affecting the rights of parties in Family Law matters are common-place, but their impact can be extraordinary. If litigation drags on for 1-2 years (and often longer), the implications of the decisions of the trial judge or federal magistrate before trial are, of course, magnified. The case of Strahan (Leave to Appeal Interim Orders and Appeal Against Costs Orders)* describes the principles applied in making interim (property) orders pursuant to Family Law proceedings.
This appeal arose from the decision of Dawe J, who refused to exercise her discretion to make an interim property settlement of $9 million in favour of the Wife. This seems like an incredible amount of money, but originally the Wife was asking for an interim payment of $24 million, and the Husband had conceded that the asset pool was $78 million (the Wife claimed that there were substantial assets overseas in addition).
Exercising the Discretion to Make Interim Orders Pursuant to s 79(6) of the Family Law Act (Cth) 1975 (‘the Act’)
In dismissing the appeal, the Court (consisting of Coleman, May and Murphy JJ) referred [at 32] to the decision of FM Reithmeuller in Wenz v Archer[2008] FMCAfam 1119 with approval:
‘Her Honour, again, with respect correctly, referred to the “balancing of the risks of unduly limiting the final orders that can be made (or even potentially defeating parties’ claims or legitimate expectations) against the circumstances said to show that it is just and equitable to make interim orders”, as discussed by Federal Magistrate Reithmuller in Wenz…and referred to by the Full Court (per Boland and O’Ryan JJ) in Strahan & Strahan(2009) 42 Fam LR 203.’ (Note the similar case name; they were collateral proceedings!).
In Wenz, the issue was dealt with in incredible depth by the learned Federal Magistrate, who conducted a thorough survey of the authority at the time** (including further still collateral proceedings regarding the ‘Strahans’!***)
Synthesising the principles in the authority, and having regard to s 79 of the Act, FM Reithmuller’s articulated the test at [52], being:
‘Whether it is just and equitable to make interim orders will require a balancing of the risks of unduly limiting the final orders that can be made (or even potentially defeating parties’ claims or legitimate expectations) against the circumstances said to show that it is just and equitable to make interim orders.’
His Honour FM Reithmuller went on to say at [57]:
A review of the legislation and authorities allow for a number of comments to be made concerning the appropriate approach to applications for interim property settlement orders:
– There is power to make interim property orders under s.79, which should be exercised when ‘appropriate’: s.79(1) and (5).
-In order to determine whether it is ‘appropriate’ to exercise the power, the case must be analysed as required by s.79 through the usual 4 step process of identifying the pool, contributions, s.75(2) factors, and whether the ultimate orders are ‘just and equitable’.
– As it is an interim hearing careful consideration must be given to the potential impact of any disputed facts and circumstances. Consideration must be given to the claims of the parties and their legitimate expectations. Whether the orders could later be reversed, bearing in mind the need to ultimately be in a position to make ‘appropriate’ orders that are ‘just and equitable’, will often be a significant, but not necessarily determinative consideration. For example the sale of an asset may not be reversible, but may be inevitable on any version of the facts of the case. In other cases the present needs may be so compelling as to outweigh these risks.
– The reasons for making interim orders must be identified and assessed to allow them to be properly weighed against the risk that interim orders may pose to the parties’ claims or legitimate expectations.
– Orders under s.79 are to provide relief to parties to the marriage by ensuring that they receive ‘appropriate’ shares of the matrimonial resources. It would be naïve to overlook the significant power differential between parties in many cases as a result of access to financial resources in the interim, pending final orders under s.79. It may well be unjust and inequitable for one party to be denied access to matrimonial property for a substantial period whilst awaiting a trial. Similarly, it may be unjust and inequitable to require the sale of a matrimonial home in the interim where a party has no other assets and can not reasonably purchase an alternative home until the quantum of the final orders is determined. In this sense regard must be had to the positions of the parties at the time of the application for interim orders.
Conclusion
Ultimately the Wife in Strahan failed, mainly because the trial judge was not satisfied as to the size of the asset pool (see below). Perhaps of note too was the issue that the application was for $24 million and that the $9 million ‘fall back position’ was never actually articulated by Counsel for the wife (at [28]-30]). The proceedings being adversarial, it did not fall to the learned trial judge to award the Wife $9 million dollars, and the Full Family Court declined to impeach her decision (at [31]):
‘The proceedings before the trial Judge were adversarial. The parties were both represented by Senior Counsel. Absent any indication to the contrary, her Honour was entitled to consider the wife’s claim, and was not required to explore possible claims which the wife had not made.’
Further, the Full Family Court held (at [38]) that:
‘Her Honour recorded, again accurately… that there is considerable dispute about the likely final property settlement order because of the dispute about the assets to be considered, the Court cannot at this stage determine that it is in the interests of justice to make a further interim property order. The circumstances which currently exist do not make it appropriate for the Court to exercise the power available to it.’
The appeal was dismissed.
Marc Testart, Principal Family Lawyer
*Strahan & Strahan (Leave to appeal interim orders and appeal against costs order) [2011] FamCAFC 126 (10 June 2011)
** Most notably at [30] refering to:
Further at [33] referring to Bearup and Bearup [1993] FamCA 72 (per Baker J, who spoke of the caution which needs to be exercised before selling matrimonial property);
Further at [34] referring to: Bonisoli and Bonisoli [1996] FamCA 45 (Ellis, with whom Fogarty and MayJJ agreed);
Further at [37] referring to Pedersen and Pedersen [2003] FamCA 625 (per Ellis, Rowlands and Finn JJ); and
Further at [38] refrering to Spoke & Spoke [2008] FamCAFC 59 (per Warnick, May, and Boland JJ).
*** Note the following citations:
At the date of the hearing of Strahan & Strahan (Leave to appeal interim orders and appeal against costs order) [2011] FamCAFC 126, each party had expended in excess of $10 million dollars in legal fees!
June 24, 2011 Leave a comment
Families regularly provide financial assistance to each other. Because they often do it in an informal way, various legal complications can arise. Having the Courts untangle these complications is not a straightforward process. Equity provides us with certain rebuttable presumptions, such as the presumptions of advancement and resulting trust to assist them but in the absence of cogent evidence before the Court, it can be extremely difficult to predict the outcome of a matter.
This post examines the process that the Court would undergo in exercising its jurisdiction under s79 of the Family Law Act(Cth) 1975, and the difficulties it faces in determining the nature of family transfers in the absence of clear evidence of the intention of the transferor. It pays close attention to the application of various presumptions (ie resulting trust and advancement). Ultimately what becomes clear is that if a person wishes to help out their family by way of loan, it is advisable to record the intention clearly and in writing.
The Significance of Ambiguous Family Transfers
Imagine a common scenario involving the transfer of money from a parent or parent-in-law to a married couple over the course of their marriage, who are now involved in property proceedings under s 79 of the Family Law Act. There is now $1 million in the asset pool and we assume that, taking contributions and any s75(2) matters into account, there will be an equal division of property. During the marriage the Wife’s father transfers $500,000 to the Husband and Wife by way of loan to help the parties financially (to put a deposit on a first home, pay their mortgage, send their children to private school etc). There is no paperwork and the Father has since passed away leaving the Wife’s mother as widow and only beneficiary of his estate. The husband admits that the parties received the money over the course of the relationship (ie there’s no dispute as to the amount) but denies that it was by way of loan; he claims rather that the money was a gift.
What does the Court do? On the face of it, whether the money was a loan or a gift (or held on trust) makes a substantial difference. Pursuant to s 79(2) the Court must first determine the size of the asset pool before dividing it2; so it follows that if the wife’s claim is accepted, the debt of $500,000 must be repaid to her Father’s estate (ie her mother) first. Assuming a 50/50 split, this would leave each party with $250,000. But if the Husband’s claim is accepted, the $500,000 is not repaid, and the Husband would receive half of $1 million (ie $500,000). This is a $250,000 ‘windfall’ and if the Wife then has to repay her mother/family the original $500,000, she will end up with essentially nothing from the division of assets. In different terms, if the transfers are to be characterised as gifts, then the Wife’s side of the family (including the Wife) only ends up with $500,000 instead of $750,000.
There are essentially 3 possible ways to characterise the transfers:
a) loan;
b) resulting trust3; and
c) gift.
Because the characterisation ultimately depends upon the intention of the transferor 10, once the Court determines the intention, it will be able to characterise the transfer. Often there will be evidence of the intention which will be used to prove it. So how does the Court give effect to the transferor’s intentions in the absence of evidence? Let us assume that there is no cogent evidence of the transferor’s intentions: there is no documentation, the transferor is deceased, and neither party can satisfy the Court either way on the balance of probabilities. Where does the Court start?
Problems of Proof – Onus and Absence
An absence of evidence is not usually a problem in regular civil claims. Normally the burden and standard of proof determine a cause of action. For example, if a plaintiff fails to prove (on the balance of probabilities) all of the material facts necessary to establish a personal injuries claim, it fails. Similarly, if a plaintiff does prove all of the material facts, but there is a defence available, then it is up to the defendant to prove the material facts necessary to establish the defence (and if the defendant fails to do this, the plaintiff succeeds). The burden and standard of proof become, therefore, our adversarial system’s way of breaking a legal deadlock. In the absence of one party proving their cause, the other party wins. Unfortunately this mechanism for breaking a legal deadlock does not apply to a matrimonial property dispute. Applicants and respondents do not make out elements of a cause of action pursuant to s79 of the Family Law Act. Rather, once an application under s79 comes before the Court, it must make an assessment of what a just and equitable division of property will be. The burden and standard of proof are still relevant4, but the Court lacks the luxury of being able to disqualify a party who fails to vault the particular hurdle, because it is possible that both parties may fail to vault the hurdle (and the Court can’t disqualify them both). Putting it another way, there is no such thing as a ‘no-case submission’ in family law.
To illustrate this conundrum, let us return to our scenario. The first step is to determine whether the transfer was a loan. The onus would be on the Wife to prove this (on the balance of probabilities) given that she is the party which asserts it as fact. Let us assume that she is unable to do so because of the assumptions we have made about a lack of evidence; the Court therefore finds that the transfer was not a loan.
Presumptions of Resulting Trust and Advancement
The next step for the Court is to choose between a gift and a resulting trust. It is in the Wife’s interest that the transfer be characterised as a resulting trust, and the Husband’s that it is a gift. Normally it would be for the Wife to lead evidence in support of proving her contention, and similarly for the Husband to prove his, but we have assumed that there is not enough evidence to satisfy the Court on the balance of probabilities either way. How then, does the Court break the tie? Enter the competing presumptions of resulting trust and advancement. These presumptions, in the words of Murphy J in Calverley v Green [1984] HCA 81: ‘arise from common experience… if common experience is that when one fact exists, another fact also exists, the law sensibly operates on the basis that if the first is proved, the second is presumed.’ The presumption of resulting trust arises in our example because when somebody’s money (here the Father’s) is used to purchase property in somebody else’s name (here his daughter and son-in-law) without consideration it is presumed that he did not intend them to have a beneficial interest in it.5 Finding thus would be significant, depending upon how the money was spent, because a proportion of the family home may be held on trust for the Father’s estate, and as such the Mother would likely be entitled to a proportion of any capital gain thereof.
The application of these presumptions is certainly not without criticism.6 In the words of Lord Upjohn, ‘in reality, the so-called presumption of resulting trust is no more than a long stop to provide the answer when the relevant facts and circumstances fail to yield a solution’7 (as is the case here). A majority of the Ontario Court of Appeal said the proper approach is to first evaluate the evidence of the transferor’s intention and only then, ‘if the intention of the late father remained unclear after this evaluation, then the court should have resorted to an analysis of the application of the presumptions of advancement or resulting trust.’8 Thus the Courts have recognised that these presumptions can be used as a way of breaking the tie in cases such as ours, but that they are not to be a substitute for evidence of the true intention of the transferor.
From Resulting Trust to Gift; Advancement
Having established that the presumption of resulting trust applies, the next step is to determine whether it is displaced. As we have assumed, there is insufficient evidence of the Father’s intention to rebut the presumption. The question is therefore, does the presumption of advancement apply, and, if so, does it displace the presumption of resulting trust? The case law seems to suggest that the answer to the second question is ‘yes.’ To put it in the words of Deane and Gummow JJ in Calverly: ‘[t]he presumption of advancement is perhaps not strictly a presumption at all. Rather, the position is that there are certain relationships from which equity infers that any benefit provided for one party at the cost of the other has been provided for by way of ‘advancement.’ These certain relationships include transfers from husband to wife and parent to child, but most likely exclude transfers between de facto partners (Calverly at 260 per Mason and Brennan JJ) and to step-children (see Re Matthews [1993] 2 NZLR 91 at 94 per Ellis J). The application of the presumption of advancement to our hypothetical situation has its difficulties. On the face of it a transfer from a father to his daughter appears to trigger the presumption. But, when we look at all of the circumstances this would require equity inferring that a father would prioritise the interests of his daughter and son-in-law over the interests of his wife (and later widow). If the scenario were to be changed from a transfer to a married couple to a transfer to a de facto couple the situation may be further obscured.
The Significance of a Gift and Advancement
There is a wealth of Family Court authority regarding the treatment of funds once it is determined whether they are gifts or loans. Having said this, in the absence of evidence that it is a loan, the Court will draw certain inferences regarding whether it is a gift, and if so, the intention of the donor and what type of gift it is. (The cases of Poulos v Svoboda (2005) 33 Fam LR 458, Gosper and Kessey illustrate this; see also In the Marriage of Rainbird (1977) 3 Fam LR 11,368; In the Marriage of Matthew (1980) 6 Fam LR 142; W and W [1980] FLC 90-872; In the Marriage of Underwood (1981) 8 Fam LR 152; and In the Marriage of Freeman (1979) 5 Fam LN 16. 23) One important principle arising from these cases is that:
then the transfer can be treated as a financial contribution made directly to the acquisition, conservation and improvement of property by the spouse relative. (See Gosper at p160; Poulos at [61]). What does this mean? To put it in terms of our example, because it was the Wife’s father who made the transfer, the Court would treat it as a contribution to the asset pool from the Wife herself, because in the words of Fogarty J, the:
‘gift was made only because of that relationship and in reality as a means of benefiting that relative in that marriage. It was made because she was a daughter of that family…’ (Gosper at p 610, quoting W at 75,527.)
Even though the Court in these cases does not specifically mention it, this appears to be an application of the presumption of advancement. But applying these principles to our situation has problems. In Poulos, the Court found that the transfer in question was in fact a loan. In Kessey the advance was the building of an extension onto the matrimonial home, clearly not a loan. In Gosper it appears implicit that the advance in question (a transfer of real property from the wife’s parents) was a gift.
These authorities do not seem to consider the issue of resulting trust at all. Further, our example is distinguished from these authorities as we lack evidence and therefore must rely on one of the equitable presumptions. Perhaps the most that we can glean from these authorities then is that if the transfer is to be characterised as a gift, then it can be seen as a contribution from the wife; but it doesn’t necessarily settle the fundamental question before us. Nevertheless these authorities still have some significance for our example. It follows that if the Court finds that the presumption of advancement applies, displacing the presumption of resulting trust, then the Wife may find comfort in this line of Family Court authority because it treats gifts from one side of the family as contributions from that party. (see again Af Petersens v Af Petersens (1981) FLC 91–095 and Biltoft v Biltoft (1995) FLC 92–614 ). The Husband would not get the full benefit of the gift in the asset pool before division, and the Wife’s side of the family would get credit for the transfer, even though the funds would not be paid back from the asset pool before division.
But again, this is not a simple exercise. Factors such as whether the Court found that the Father intended to give the money to just the Wife or the Husband and the Wife, as well as any s75(2) which act after contributions are taken into account, could act to diminish the Wife’s (and by extension, her family’s) share of the property.
Conclusion
In the absence of clear documentation, Courts can use equitable presumptions to determine the nature of money transferred within families. By themselves, these ‘standardised inferences’ (as Murphy J called them in Calverly), while allowing the Family Court to make findings of fact where there might otherwise be a vacuum, have severe limitations. They are best used as a supplement in conjunction with evidence of the transferor’s intention. It is important, therefore that wherever possible, family transfers are formalised to protect the parties to a transaction from future uncertainty in the wake of a relationship breakdown.
1And its new mirrors in Part VIII AB which relate to same sex and de facto couples. 2See Af Petersens v Af Petersens (1981) FLC 91–095 and Biltoft v Biltoft (1995) FLC 92–614 3Sometimes there may be an argument that there is an express or constructive trust, but for simplicity we will limit our discussion to resulting trusts. 4Here the burden of proof generally falls on the party seeking to assert the particular fact. See generally CR Williams 'Burdens and Standards in Civil Litigation' 25(2) SydLR 165. 5See especiallyCalverlyat 246 per Gibbs CJ and at 257 per Mason and Brennan JJ and Gibbs CJ in Nelson 602. Of course this presumption can be rebutted by evidence of a contrary intention or, arguably, by the presumption of advancement (see below). 6See for example McHugh J in Nelson at 602, Murphy in Calverly at 264. 7Vandervell v Inland Revenue Commissioners [1967] 2 AC 291 at 313.
8Saylor v Madsen Estate (2005) 261 DLR (4th) 597 at [32].
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