Can a Partial or Interim Property Settlement ease the Financial Pressure of Separation?

Background

The process of separation and divorce is very difficult. There may be children to consider and financial issues on top of the emotional strain.

When people separate it will normally be necessary to decide how they divide their property (assets) i.e. what they own and what they owe. Where the parties cannot reach agreement, an application can be made to the court for financial orders, including those relating to the division of property and payment of spouse or de facto partner maintenance. A property settlement agreement formalises the final ties between the parties; where no formal agreement is made this can leave a party open to a future claim (subject to relevant time limits). But how does a partial property settlement fit in?

Key issues

There is no prescribed formula for the division of assets, but the Family Law Act 1975 (Cth) sets out the general principles. These principles are the same whether the parties are married or in a de facto relationship. The court can make an order for a property settlement where it is considered fair (‘just and equitable’) to do so. The court assesses the following:

• the assets held solely or jointly;
• the contributions (including non-financial) made by the respective parties to the relationship; and
• the ‘future needs’ of the parties.

However, this process towards a final assessment can be prolonged (between 1-3 years). A possibility for assisting with the financial strain in the interim is by applying for, and receiving, part of the property settlement using the marital ‘asset pool’ before final orders. So, for example, a husband might be relatively well placed financially but the wife might need assistance with cash flow for items such as rent or acquiring a property. Such settlements can sometimes be referred to as an interim property order or a Hogan order.

 The court can be somewhat reluctant to make such partial settlements because the evidence is ‘untested’ i.e. will there be sufficient funds remaining after the interim distribution to meet the entitlements of both parties at final settlement? Nevertheless, such an order can be made where:

• there is a source of funds for payment that can be identified;
• one party has the majority of the control over the assets;
• the payment can be made without risking that the party receiving a partial settlement receives more property than they will ultimately obtain on a final basis;
• there is an adequate explanation as to what the funds are for; and
• it can be established that it is ‘just and equitable’ to make a partial property settlement.

In Sully v Sully (No.2) (2016) the court dismissed a wife’s application for a partial property settlement of $10m because it was not considered ‘just and equitable’ at the time of the application because, among other things, there was no evidence of the value of the husband’s company.

The money received is not ‘free money’. The characterisation of the payment will be deferred to the final hearing or settlement. Characterisation can take the following forms:

• as a debt due to the relatively wealthy partner from the poorer party;
• as part of the poorer party’s entitlement in a final settlement;
• as a maintenance payment to the poorer party;
• as something to be taken into account but for which no adjustment is thought necessary.

What happens to property spent after separation?

In recent years the courts have had to wrestle with the concept of ‘add-backs’ i.e. whether property sold or money spent after separation should be notionally added back to the property pool. In Talbot v Talbot (2015) the husband sold a property for $252,251 post separation and in the following three years spent most of the money received. The wife argued this should be added back and set against the partial property settlement he had received. The court considered that ‘parties are entitled to reasonably conduct their affairs post-separation in a manner that is consistent with properly getting on with their lives and if money is to be “added back” some three years after it was spent, account must be taken of what evidence reveals about what was spent on “ordinary living expenses” and of the financial circumstances of the parties more generally’. The court decided that in this case the husband had spent the monies for the most part on ordinary living expenses so the amount was not to be added back. However, in different circumstances, the monies post-separation may be added back if it is considered just to do so.

What does it mean?

A partial property settlement is a way of receiving part of the expected final settlement earlier in the process to alleviate financial pressures helping with cash flow and meeting essential needs.

A partial property settlement will only be granted if the recipient is going to receive at least that amount at final settlement and if there will be sufficient funds after the interim payment to still meet the entitlements of both parties at final settlement.

A partial settlement provides access to cash but it needs to be accounted for at a later date. Post-separation spending can be contentious.

With so many variables, each case needs to be considered on its individual merits to determine the entitlements of each party.

It is likely to be in the best interest of anyone in this position to obtain legal advice as soon as practicable, which may even be before separating. This will ensure an understanding of what the impact of the decisions may have on the ultimate property settlement.

Contact Szabo & Associates, Solicitors – Expert Family Lawyers

Our highly qualified team of family solicitors can provide you with advice on the wide range of family law matters including divorce and separation, child support, child custody, and spousal maintenance. Please call us today on (02) 9281 5088 or fill in our online contact form.