Is three a crowd? Third parties and your property matter

The breakdown of a relationship is deeply personal. It follows that family law matters – whether parenting disputes or property settlements – are usually kept private. Most couples don’t anticipate the involvement of anyone other than themselves in their family law matter. However, involvement of a third party in property matters is actually quite common.

Scenarios involving the joining of parents, family members or new partners are often presented to the Family Court. For example:

• Where parents have loaned a couple money and the loan is yet to be paid back in full, the parents may have an interest in the outcome of proceedings and seek to be joined.
• Where it is alleged that the former matrimonial home, which is legally owned by another family member, is the beneficial property of a couple thus forming part of their matrimonial asset pool, the separating parties may seek to join the family member.
• Where finances of one party and their new spouse have become intertwined and marital funds are being “warehoused” in that new spouse’s accounts, the other party may seek to join that new spouse.

Third parties don’t have to be relatives. Third parties can take a family law matter into the realms of equity, trusts, corporations law, tax law, wills and estates and of course, bankruptcy, which was explored in our blog “Bankruptcy and your family law matter: What you need to know”.

This blog will explore the role of third party property involvement in family law matters and the procedural requirements that shape their involvement.

Who can become a third party in my property matter?

Section 92 of the Family Law Act 1975 (Cth) permits “any person” to apply for permission to intervene in property proceedings between separated parties to a marriage. Section 208 of the Family Court Act 1997 (WA) contains mirrored provisions, applying to property proceedings between separated de facto couples.

In addition, Rule 6.02 of the Family Law Rules 2004 requires a person to be included as a party where that person’s rights may be “directly affected by an issue in a case, and whose participation as a party is necessary for the Court to determine all issues in dispute in the case”.

Third parties can include:

• Third party creditors;
• Individuals who are alleged to be third party creditors;
• Individuals who have a legal or equitable interest in the property that comprises the asset pool;
• Individuals who are business partners or associates of one or both of the separating parties;
• Bankruptcy trustees;
• The Commissioner of Taxation;
• Individuals with ownership, the power of appointment, or who act as trustee of a trust;
• Trustee companies;
• Legal personal representatives (such as an executor or administrator of a deceased estate); and
• Claimants in civil proceedings.

Depending on the circumstances, proceedings might involve only one of these types of third parties or they might involve a combination. There is no limit to who may be joined as a third party, so long as the legislative requirements for joining are met.

How does a third party join the proceedings?

This can by initiated in two ways:

1. An existing party to proceedings may seek to add the third party.

This is done by amending their existing Form 1 Initiating Application or Form 1A Response to Initiating Application with supporting affidavit material.

2. A potential third party to proceedings may seek to join themselves.

This is done by filing a Form 2 Application in a Case with supporting affidavit material.

In both instances, the parties are only “applying” for a third party to join the proceedings and the ultimate decision to accept or dismiss the application lies with the Court. This is why it is so important for the supporting affidavit material to demonstrate exactly why involvement of the third party is so necessary – or in the case of opposing, why it is not.

What types of Orders can be made in proceedings involving third parties?

Both the Family Law Act 1975 (Cth) and the Family Court Act 1997 (WA) allow the Court to may make Orders that bind a third party. Specifically, the Court may make Orders:

1. for a creditor of the parties to the marriage or de facto relationship to substitute one party for both parties in relation to the debt owed to the creditor;
2. for a creditor of one party to a marriage or de facto relationship to substitute the other party, or both parties, for that party in relation to the debt;
3. for a creditor of the parties to the marriage or de facto relationship that the parties be liable for a different proportion of the debt; or
4. for a company to register a transfer of shares from one party to the marriage or de facto relationship to the other party.

Additionally, the Court to make any other Order that “directs a third party to do a thing in relation to the property of a party to the marriage” or de facto relationship; “or alters the rights, liabilities or property interests of a third party in relation to the marriage” or de facto relationship. This is provision demonstrates just how varied such Orders can be.

Case law provides a number of examples of these varied Orders:

• Setting aside (or declaring null and void) various loan agreements, guarantees and deeds;
• Property division between the third party and one or both of the separating parties;
• Declarations about beneficial ownership of property; and
• Severing joint tenancies.

The Court may also make injunctions binding a third party.

Are there any limitations on Orders that can be made?

The Court can only make an Order binding a third party if:

1. The Order is reasonably necessary or appropriate to bring about a property division;
2. The Order would not foreseeably result in the debt not being paid in full;
3. The third party has been given procedural fairness;
4. It is just and equitable to make the Order; and
5. The Order takes into account the following matters:
   1. the taxation effect on the separating parties;
   2. the taxation effect on the third party;
   3. the social security effect on the separating parties;
   4. the third party’s administrative costs in relation to the Order;
   5. the capacity of the separating parties to repay the debt;
   6. the economic, legal or other capacity of the third party to comply with the Order;
   7. any matter raised by the third party; and
   8. any other relevant matter.

What are the obligations of a third party?

Both the Family Law Act 1975 (Cth) and Family Court Act 1997 (WA) provide third parties “with all the right, duties, and liabilities of a party” once joined to proceedings, unless the Court orders otherwise.

For example, third parties are under the same obligation as existing parties to give full and frank disclosure of all financial information relevant to the case.

Should I seek to join – or oppose the joining of – a third party in my property matter?

Joining a third party complicates the resolution of a matter and more often than not, has a significant impact upon the outcome of proceedings. When determining whether or not to join a third party, the necessary considerations will differ depending on the nature of the third party and their relationship with the separating parties. Unfortunately, there is no cookie cut answer.

It is important to keep in mind that some third parties must be joined due to their representative capacity or where their involvement is necessary for the proposed orders to be carried out.

If you are involved in a property matter involving a third party or potential third party, we recommend seeking legal advice about your options.

If you are not sure about how this could apply to your situation, please call us now on (08) 6381 0208 or fill out this form to schedule your first 30-min free telephone appointment.

Posted in: Property & Financial  Separation & Divorce