DE FACTO PROPERTY. What Is A De Facto Relationship?

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1 DE FACTO PROPERTY In Western Australia the law relating to the property of de facto partners is very similar to the law relating to the property of parties to a marriage. There are differences in regard to the treatment of superannuation, and time limits, which we will look at in detail later in this paper. This is in contrast to the position in other states, where the law relating to de facto partners may be quite different from that applying to persons who are or have been married to each other. The law relating to de facto relationships in Western Australia is contained in the Family Court Act What Is A De Facto Relationship? In Western Australia a de facto relationship is defined as a relationship other than a legal marriage between two persons who live together in a marriage like relationship (s.13a Interpretation Act 1984). The term applies both to couples of different sex and the same sex, and to people who are legally married to someone else, or are in another de facto relationship. (s. 13 A (3). The Interpretation Act lists nine indicators which may show two people are in a de facto relationship, though the Act says that none of these indicators is essential. They are: a) the length of the relationship between them; b) whether the two persons have resided together; c) the nature and extent of common residence; d) whether there is, or has been, a sexual relationship between them; e) the degree of financial dependence or interdependence, and any arrangements for financial support, between them; f) the ownership, use and acquisition of their property (including property they own individually); g) the degree of mutual commitment by them to a shared life; 1

2 h) whether they care for and support children; i) the reputation, and public aspects, of the relationship between them. Time Limits Western Australian de facto relationship law does not apply to a de facto relationship which ended before Part 5A of the Western Australian Family Court Act commenced. This was 1 December (Family Court Act 205U (2)). Generally, a court will only make orders relating to a de facto relationship that has existed for at least two years. However, there are two exceptions to this twoyear requirement. The first is where there is a child of the relationship under 18 years of age, and refusing to make such an order would result in serious injustice to the person caring for the child. The second exception is where the person applying has made substantial contributions to the property of the parties and failure to make an order would result in serious injustice to the applicant. (Family Court Act 205 Z (1) ). An application for a de facto property settlement may only be brought within one year of the end of the relationship. If a person can show they would suffer hardship if not allowed to proceed, they may seek leave to proceed out of time. (Family Court Act 205 ZB). Geographical Connection As a State law, the Family Court Act only applies to matters within the State s jurisdiction. To make a de facto property or spousal maintenance order, a court must be satisfied that one or both of the parties were resident in Western Australia on the day the application was made; and that both parties have lived in Western Australia for at least one third of the relationship, or that substantial contributions to the acquisition, conservation or improvement of the property of 2

3 the parties, or contributions to the welfare of the de facto family have been made by the applicant in Western Australia. Exclusive Jurisdiction of Family Court Before the commencement of the de facto property provisions in the Family Court Act, parties to a de facto relationship had to go to the Supreme Court to seek orders relating to title to real estate. Section 205V of the Family Court Act now provides that persons who are or were eligible to apply for an order under its de facto property provisions cannot apply to the Supreme Court. This not only channels all present applications to the Family Court, but prevents a person who had a claim but did not pursue it in the Family Court from proceeding in the Supreme Court as a way of circumventing the time limit. A person who could have pursued a claim in the Family Court but did not can only seek to proceed out of time by using the provisions of 205 ZB (2) mentioned above. A person who was in a de facto relationship that ended before 1 December 2002 can still apply to the Supreme Court for orders, subject to the time limit applicable in the Supreme Court, which (depending on how the action is framed) is three or six years. (Limitation Act 2005 WA s. 13 and 27). Different Ways of Obtaining Orders In a de facto property matter, orders can be made by consent, or after proceedings in the Family Court. It is also possible for parties to enter a binding financial agreement before, during or after a de facto relationship. There are also some avenues for dealing with small claims in a relatively inexpensive manner. 3

4 Consent Orders Where parties have reached agreement as to the way they wish to divide their property, they can obtain consent orders from the Family Court (Family Court Act s. 205 ZI (j) ). In this paper this Act is referred to as FC Act. The parties use a Form 11 to seek consent orders from the Court. This Form has provision for the parties to record if they have obtained independent legal advice, but it is not mandatory that parties obtain legal advice. If parties obtain consent orders from the Court, a transfer of property pursuant to the consent order has a privileged status in regard to payment of stamp duty, and is less likely to be overturned if one part to the consent orders later becomes bankrupt. In the case of Official Trustee in Bankruptcy v Mateo 2003 FLC the Full Court of the Federal Court held that consent orders made relating to parties to a marriage by the Family Court have the effect that property is passed from one party to the other by an order under section 79 of the Family Law Act. As the provisions of section 205 ZG of the FC Act are very similar to section 79 of the Family Law Act, it is likely that the same reasoning would apply to consent orders made in a de facto matter. As a consequence the transfer of property is unlikely to be viewed as void against a trustee in bankruptcy under the provisions of sections 120 and 121 of the Bankruptcy Act, if the party transferring property to the other later becomes bankrupt, and the party receiving the property gave consideration of less value than the market value of the property. This principle relates to a legitimate use of consent orders. If parties sought to use consent orders from the Court otherwise, the transaction could be set aside under section 205 ZH of the FC Act. If parties do not obtain consent orders from the Court, but simply transfer property between themselves in a private transaction, if the party transferring property to the other later becomes bankrupt, a trustee in bankruptcy may well 4

5 take the view that the transaction may be void under the provisions of the Bankruptcy Act. De Facto Binding Financial Agreements In Western Australia parties to a de facto relationship that meets the criteria of the Family Court Act WA (FCA s. 205 U, 205 X and 205Z) can enter a financial agreement before beginning a de facto relationship, during a de facto relationship, or after a de factor relationship ends (FCA s. 205 ZN, 205 ZO and 205 ZP). The matters which may be covered are closely similar to those covered by the Family Law Act provisions, with the exception that there are no express provisions relating to superannuation. In a similar way to the Family Law Act while a binding financial agreement is in place, parties cannot apply to the Court for property adjustment orders (FCA s. 205W). Also, a de facto binding financial agreement can be terminated by the agreement of the parties, or by the Court (FCA s 205 ZU and 205 ZV) in certain specified circumstances. Requirement For Legal Advice Both in the case of a marriage and de facto relationship, a binding financial agreement can only be entered by the parties if each has had independent legal advice as to the effect of the agreement on the rights of the party, and the advantages and disadvantages, at the time the advice was provided, to the party of making the agreement. In addition, a certificate signed by each lawyer giving the advice must be annexed to the agreement. (FLA s 90 G and FCA s. 205ZS). Lighter Advice Requirement It is noteworthy that the scope of the advice which must be given by the lawyers to the parties has been significantly reduced from the scope of the advice which the two Acts required in their original form (FLA December 2000 and FCA 5

6 December 2002). Initially each Act required that lawyers had to give the parties advice as to the advantage, financial and otherwise, of entering the agreement; whether or not it was prudent to enter the agreement; and whether the provisions of the agreements were fair and reasonable in the light of circumstances that were reasonably foreseeable at the time. Many lawyers felt it was beyond the scope of their normal work to give financial advice, and that it was very difficult to foresee the future. This led to a reluctance on the part of many lawyers to give parties advice, and provide a certificate in relation to binding financial agreements. The cost of obtaining independent legal advice may deter less affluent parties from going down the path of a binding financial agreement. Binding Financial Agreements Are Not Filed There is no provision in either Act for a binding financial agreement to be filed in the Court. Rather the Acts provide that after the agreement is signed, the original is given to one of the parties, and a copy to the other (FLA s. 90 G (1) (e) and FCA s 205ZS (1) (e) ). Principles Of Property Settlement In regard to both de facto property matters, and property disputes between parties who are or have been married to each other, the principles of property settlement are closely similar. In deciding how property is to be divided between parties the court should take into account certain factors relating to the contributions that each of the parties has made (directly and indirectly) and a number of other factors that might be referred to as the need considerations of the parties. 6

7 Contributions are analysed from the point of view of the financial contribution made by a party to the acquisition, conservation or improvement of the property, the contribution other than a financial contribution made by either to the acquisition, conservation or improvement of any property, and the contribution made by a party to the welfare of the family, including any contribution made in the capacity of home maker or parent. (Family Court Act s. 205 ZG (4) ). In regard to the need factors, the matters focused on are the effect of any proposed order on the earning capacity of either party, and matters including the age and state of health of each of the de facto partners, the income, property and financial resources of each, whether either has the control or care of a child of the relationship who has not attained the age of 18 years, and a number of other detailed factors which are set out in section 205 ZD of the Family Court Act. Pre Action Procedures Before beginning an application for a property settlement, a party must normally use the pre action procedures set out in Schedule 1 of the Family Law Rules. These are adopted for use in de facto matters by rule 12 (1) of the Family Court Rules 1998 (WA). The pre action procedures are intended to encourage parties to use primary dispute resolution procedures, such as a clear examination of each party s case, and a genuine attempt to resolve a matter by negotiation rather than court proceedings. Parties must exchange a notice of intention to claim, explore options for settlement by correspondence, and comply with the duty of disclosure. There are some situations in which parties do not need to comply with pre action procedures. These include situations in which a time limit is near to expiry, or other situation of urgency; if there are allegations of fraud or family violence; or if 7

8 a party is likely to be disadvantaged by another party having advance notice of their intention to start a case. Pre action procedures should not be confused with compulsory family dispute resolution, which is applicable only to matters in which parenting orders are sought. Superannuation Since December 2002 the Family Court has had power to deal with the superannuation interests of parties who are or have been married to each other. The court can deal with such interests in much the same way as if they were property. The Western Australian Parliament has passed the Commonwealth Powers (De Facto Relationships) Act, which refers to the Commonwealth the power of the State in regard to the superannuation interests of de facto partners whose relationship has broken down. It relates only to heterosexual de facto couples, not to same sex de facto couples. It appears likely that in the future the Family Court of Western Australia will be able to make orders relating to the superannuation interests of heterosexual de facto couples in a way similar to that applicable to married situations. Orders Binding Third Parties The Family Court Act of Western Australia was amended in 2006 to enable the Family Court to make orders in relation to the property of a de facto partner that alters the rights, liabilities or property interests of a third person (FC Act s 205 ZLA). A third party is anyone who is not one of the de facto partners (FC Act 205 ZLB). This provision overrides anything to the contrary in any Western Australian 8

9 law, or anything in a court deed or other document (FC Act s. 205 ZLC). The word property includes a debt (FC Act s 205 ZLD). There are parallel provisions in the Family Law Act relating to parties to a marriage. This is a remarkable power. It means that the Family Court can direct a creditor to substitute one de facto partner for the other, or for both, in relation to a debt. (s. 205 ZLF (1) (a) and (b)). The Court can direct that de facto partners be liable for different proportions of a debt and can order a company to register a transfer of shares from one de facto partner to the other (s. 205 ZLF (1) (c) and (d) ). Under section 205 ZLG the Family Court can issue an injunction restraining a third party from repossessing property of, or commencing legal proceedings against, a de facto partner (s. 205 ZLG (1) (a ) and (b) ). These are very powerful provisions, with the rights and liabilities of persons or organizations, such as banks, finance companies, members of the family of origin of the parties, companies and trusts being changed by the Family Court order. Perhaps with the possible losses of third parties, which could follow from orders of this sort, in mind, there are a number of limits on orders which can be made. The first is that the order must be directed to the property of the parties to the de facto relationship, including their debts. (FC Act s 205 ZLA) The second is that an order can only be made if it is reasonably necessary to effect a division of property between the parties to a de facto relationship. (FC Act s. 205 ZLF (3) (a) and 205 ZLG (3) (a) ). 9

10 The third is that an order can only be made if it is not foreseeable at the time the orders are made that the result would be the debt was not paid in full. This provision would prevent the Court from making an order that a property be transferred to a person and that person became the sole mortgagor in relation to a mortgage on it, if that person was not working and did not have the income to make the payments required to pay the mortgage debt in full. (FC Act s. 205 ZLF (3) (b) and s. 205 ZLG (3) (b)). The fourth is that the Court must consider the tax and social security effects of any order made on the parties to the de facto relationship, and the administrative costs of the third party. (FC Act s. 205 ZLF (4) and s. 205 ZLG (4). Normally, the costs of the third party in complying with the order will be borne equally by the parties. Orders under this power may include preventing a creditor repossessing goods, or seizing land, under the provisions of a mortgage. An order can also be made preventing a creditor suing for the debt. The requirement that a third party must be accorded procedural fairness means the third party should be named as a party to the case, served with all relevant documents, and given adequate notice. The third party becomes a party to the proceedings, and accordingly is able to appear, be represented, present evidence, arguments, and examine witnesses. These provisions could lead to some actions becoming more complicated and costly, with three parties legal costs to be considered. Bankruptcy and De Facto Property In proceedings between parties who are or have been married to each other, the Family Court can make orders under the Bankruptcy Act (Bankruptcy Act s. 35 and Family Law Act s.4 (1) definition of matrimonial cause includes some 10

11 bankruptcy issues). There are no parallel provisions in the Family Court Act. The Western Australian Parliament does not have power to make orders relating to bankruptcy. Section 51 (xvii) of the Australian Constitution gives power to the Commonwealth to make laws relating to bankruptcy and insolvency. Small Claims in the Family Court If a party to a de facto relationship is concerned that an ordinary application in the Family Court may prove costly, and out of proportion to the value of the property in dispute, the person can consider requesting the Family Court to deal with the matter as a small claim. The rules do not specify a dollar limit for a matter to be dealt with as a small claim. Rule of the Family Law Rules 2004 creates special provisions for claims relating to an item of property of modest value, such as a car or furniture, or a case in which there is minimal property, or only personal property. The Family Law Rules are adopted for use in the Family Court of Western Australia, and courts of summary jurisdiction in this state, exercising power under the Family Court Act (WA) (Family Court Rules: r. 12). Accordingly, these provisions are applicable to both married and de facto matters in this state. If the court determines to deal with a matter as a small claim, the procedure is considerably simplified. This is a significant advantage for a person who wants to make a claim on their own, without legal representation. If a lawyer acts for a person in a small claim, the lawyer is limited to recovering 80% of the scale fee otherwise applicable (Family Law Rules 19.40). The simplification of procedure for a matter dealt with by the court as a small claim includes: 11

12 * the parties cannot call witnesses, other than themselves, without the court s permission: * evidence must be given orally (rather than by affidavit); * each party must produce all relevant documents Magistrates Court Claims If parties are in a remote area, where the Magistrates Court is more geographically accessible than the Family Court, parties who do not have proceedings before the Family Court can consider bringing a claim for recovery of a particular piece of property in the Magistrates Court. The Magistrates Court (Civil Proceedings) Act 2004 gives the Court power to deal with a claim to recover possession of property that is unlawfully detained (s.6 (1) (d)). If the only major dispute between the parties was that one was holding a vehicle or furniture which lawfully belonged to the other party, the party seeking to recover possession of their property could bring a Magistrates Court claim. If the value of the property is not more than $7,500 (or $10,000 on and after 1 January 2009) the person can bring a claim under the Minor Cases Procedure in the Magistrates Court (Magistrates Court (Civil Proceedings) Act 2004 sections 3 and 26). This has the advantage of a simplified procedure (Magistrates Court Minor Cases Procedure Rules 2005), the fact that parties cannot normally be represented by a lawyer or anyone else (Magistrates Court (Civil Proceedings) Act 2004 s. 30), and legal costs are normally not awarded against a party. Only the allowable costs of filing and serving documents, and enforcing a judgement, are normally awarded. (Magistrates Court (Civil Proceedings) Act 2004 s. 31). It should be emphasized that a Magistrates Court proceeding is appropriate only when one party has clear legal ownership of property, and the other side is 12

13 unlawfully holding the property. An example is a vehicle bought and paid for by one party before a relationship began, but held by the other party after the relationship has ended. A matter in which joint household funds were used to buy property would more appropriately be pursued in the Family Court. Ian Macdonald Solicitor FCRP July