Can family law property orders require that I pay my former partner more than our net assets are worth?

The practical effect of the family law property orders was that the husband pay the wife the amount of $156,688 and that she receive all of the parties’ superannuation interests was that the wife was to retain all of the property that existed at the time of trial (and more).  The wife was to receive more property than actually existed.  The husband would be left with a debt equal to the amount that he needed to borrow so that he could pay the wife to pay the wife the amount that the primary judge had ordered she was to receive.

On appeal, the Full Court of the Family Court of Australia found amongst other things that that order could not stand.

Property pool

The Full Court found that although the husband had agreed at trial that the amount of $169,688 from the sale of the property should be added to the property of the parties, the husband had not agreed to ignore the liabilities that had been paid of out the proceeds of sale.

The husband could only be treated as having access to the net proceeds of sale if there was evidence that those funds remained at his disposal (ie., if there was evidence that the debts had not been paid from the proceeds of sale) or if the proceeds of sale had been wasted (Kowaliw and Kowaliw [1981] FamCA 2; (1981) FLC 91-092). However, the primary judge had not made any findings of this kind. The primary judge then had made family law property orders on the fictional basis that the husband had access to the funds and had not taken into account debts which the wife herself acknowledged had been paid from the sale proceeds.

The Full Court referred to the approach to the add-back of notional property  discussed by the Full Court in Vass & Vass[2015] FamCAFC 51; (2015) 53 Fam LR 373 at [139]:

“The decisions referred to seek to remind the Court that, however the exercise of discretion might seek to deal with property that is said to be the subject of “add back”, proper consideration must be given to existing interests in property, and the question posed by s 79(2) as a separate inquiry from any adjustment to property interests by reference to s 79(4) if a consideration of s 79(2) reveals that it is just and equitable to alter existing interests in property”.

The Full Court said that the approach taken by the primary judge “did not “give proper consideration” to the parties “existing interests in property”. … A court cannot create property for the purposes of alteration. Section 79 empowers a court to alter interests of the parties to the proceedings in property. Property is defined in s 4 of the Act to mean:

…[In] relation to the parties to a marriage or either of them – means property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion”.

Conclusion of Full Court

The Full Court found that even with the husband’s “concession”, it was not open to the primary judge to alter the interests in the proceeds of sale of which the husband had disposed. The husband did not have an interest in those proceeds, either by way of possession or reversion.

The Full Court therefore accepted the husband’s submission that it was an error to order that he pay the money “added back”.

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