Why you need to formalise your property settlement

Many people are aware of the fact that there are limitations on the time periods in which claims for property settlement can be made in family law matters.

In the case of de facto matters in South Australia, the limitation period is 2 years from the date of separation.

In the case of a marriage, the limitation period is 12 months from the date the Divorce Order takes effect.

However, even if the limitation period has passed, a party may still be able to make a claim for property settlement if the Court agrees to grant the party leave to apply out of time.

Section 44(4) of the Family Law Act states that “The court shall not grant leave … unless it is satisfied … that hardship would be caused to a party to the relevant marriage or a child if leave were not granted…”.

In the recent case of Edmunds & Edmunds [2018] FamCAFC 121 (6 July 2018) the Full Court of the Family Court granted the wife leave to issue proceedings for property settlement over 6 years after the parties’ divorce took effect.

The parties had separated in 2006 or 2007, and their divorce was finalised on 16 January 2009, meaning that any property settlement application should have been made on or before 16 January 2010. The wife however sought leave to make such an application on 17 October 2016.

The primary Judge in the Federal Circuit Court, Judge Obradovic, refused the wife’s application for leave to seek property orders out of time on 19 October 2017.

The wife then appealed to the Full Court of the Family Court.

The wife was successful in her appeal on a number of grounds, including the following.

Was there adequate reason for the delay in instituting proceedings?

In this case there was no dispute that the parties reached an informal oral agreement about the distribution of their property shortly after separation, however there was disagreement about the exact terms of the agreement.

Specifically, the wife believed that part of the agreement was that she was to permanently retain Property B (as it was known) in which she and the 3 children of the marriage lived. It was not until September 2016 that the husband first made a claim (by text message to the wife) for 50% of the equity in Property B.

Shortly thereafter, as it became clear to the wife that the husband was not adhering to the terms of the agreement as she had understood them to be, the wife filed an application for property settlement notwithstanding she was technically more than 6 years late in doing so.

The Full Court accepted this as a reasonable explanation as to why the wife did not issue proceedings earlier, as she had been under the reasonable belief that she did not need to do so if the parties continued to adhere to the agreement she believed had been made.

Is there hardship?

The Full Court considered that there would be hardship to the wife if she were not given leave to proceed with the application for property settlement.

The Full Court noted that the wife was currently in possession of around 32% of the assets of the relationship and that there was a real probability that the wife had a case for a property division that was somewhere between her current position of 32%, and the outcome of 57% to 61% she was seeking.

The Court also noted that the wife did not earn a high income, and owed debts to her parents and a family friend for monies borrowed to pay the children’s school fees (in the absence of child support from the husband for several years).

The Full Court therefore granted leave to the wife to commence proceedings for property settlement.

Other take away points from this case

Another matter of interest in this case was the fact that the primary Judge accepted the husband’s assertions that the increase in his superannuation of $480,000.00 in the 10 years since separation were due to “his continued employment and contributions”.

However the Full Court found that there was simply no evidence for this, especially in circumstances where:

The husband’s employment had been terminated less than 3 years after separation;

The husband was thereafter self-employed and said he currently made $30,000.00 per annum;

The husband did not make disclosure about his previous years’ earnings;

The husband’s 2016 contributions tax liability was $5.46 suggesting contributions made by him had been insignificant in that year.

Absent any further evidence (and there was none) the Full Court inferred that the growth of the husband’s superannuation fund post-separation was largely attributable to the contributions made during the parties’ long relationship, which therefore meant the wife was deemed to have made non-financial contributions to that interest.

Protection against applications out of time

The most critical thing to remember is that even if you think you have an agreement with your former partner, the only way you can be protected from exposure to a claim for property settlement, at any stage post-separation, is to formalise this agreement in a Consent Order from the Family Court or to enter into a Binding Financial Agreement.

There is certainly no guarantee that, in the absence of a Consent Order or Binding Financial Agreement, you are free from the risk of a claim once the relevant limitation period passes, such as this case highlights.

If both parties genuinely agree on the terms of their settlement, then legally formalising that agreement with the assistance of an experienced family lawyer can be a relatively stress-free and cost effective way for both parties to move on with their lives, knowing that their financial positions are clear and their assets are protected.

Shelley O’Connell

August 2018