How Does the Court Navigate Large Debts in Property Cases? | Property Dispute Lawyer Melbourne

Property disputes can be incredibly challenging, especially when they involve large debts, negative equity, and contested contribution, as demonstrated in the recent case of Chiu & Shun (No 2) [2024].

Rowan Skinner is a highly experienced property dispute lawyer and family law specialist. Consult with Rowan Skinner for expert family law legal advice and to seek help in navigating your family law and property disputes.

 

The Case | Property Dispute Lawyer Melbourne

This is a case of an appeal of the decision from Justice Harper, decided by Justices Aldridge, Jarrett, and Campton.

The couple in question had a relationship lasting between five and six years, with a marriage of three years, but they had no children together. Their financial situation was dire, with the parties facing negative equity of approximately $550,000.

The wife owned three properties with a total value of $2.6 million, with three third-party mortgages of $2.3 million. Additionally, the wife had loans from friends and family members amounting to $850,000.

The wife, aged 40, was employed as a manager earning $2,800 per week, while the husband, aged 50, was unemployed and homeless. The husband’s case hinged on his claim that he should receive 87% of the net proceeds from the sale of the former matrimonial home, along with a lump sum of $100,000 in spousal maintenance.

The Key Issues

The main issue in dispute was whether a contribution made of $335,000 by the husband to the purchase of the former matrimonial home was regarded as a joint contribution or a contribution solely by the husband.

Additionally, there was a dispute about the commencement date of the relationship and what each party owned at the commencement since each party purchased property Ann and contributed money to deposits for property.

Furthermore, there was a convoluted history about the parties’ property purchases and how they ended up in a negative debt situation.

The Court’s Findings  

After hearing evidence from both parties, the trial judge found both parties to be unreliable.

The Court found:

• “However, I do not accept that the husband’s payment of $335,360 towards the purchase of the Suburb D should be treated as a joint contribution. I have rejected the wife’s claims of contributions to Suburb O and Suburb R. There is no basis in the evidence to sustain an inference that any of the wife’s modest contribution towards Suburb K assisted the husband in raising the $335,360 he contributed to the purchase of Suburb D. I find that this payment was a contribution by the husband alone.”

The husband argued that he retained a significant beneficial interest in the property through a resulting trust, citing the principles in Calverly v Green [1984] HCA 81; (1984) 155 CLR 242. However, the trial judge rejected this argument.

The husband also argued that he was entitled to 86% of the purchase price, asserting that while the wife contributed only 13%, the property was intended to be a joint purchase. He further claimed that his name was wrongfully removed from the contract and the title transfer at settlement.

The trial judge ultimately determined that it was not appropriate to make any orders altering the property interests. The husband’s response was dismissed, and he was allowed to retain his superannuation.

Criticisms of the Trial Judge’s Reasoning

There were a number of criticisms of Justice Harper’s reasoning including:

• Whether he should have adopted an asset-by-asset approach
• Whether the trial judge or two have allowed the wife’s loans from friends and family members as liabilities

This is because:

• The loans were made post-separation;
• There was no evidence as to the “destination of these loans”;
• The loans did not relate to assets of the marriage; and
• In the case of the advance from Mr SS and Ms AA, recovery was barred under s 14(1)(a) of the Limitation Act 1969 (NSW)

Despite these issues, the trial judge found that the loans were genuine liabilities. The $650,000 loan to the wife’s mother was not contested during cross-examination, and a $130,000 loan from the wife’s cousin, used towards the mortgage, was also acknowledged.

Both parties argued for the inclusion of certain add-backs, a term referring to the re-inclusion of certain expenditures into the asset pool. However, His Honour noted that adding back property is exceptional and generally only appropriate in cases where there has been significant expenditure on legal fees, premature distribution of assets, or reckless dissipation of property. This approach is supported by precedents such as Chea & Sok.

Chea & Sok (No 2) [2023) FedCFamC1F 1052 states:

• Adding back property is exceptional and may be appropriate where the parties have expended money on legal fees, where there has been a premature distribution of matrimonial assets, or ‘waste’ or wanton, negligent, or reckless dissipation of assets (Candle & Falkner [2021] FedCFamC1A 102; (2021) FLC 94-069 at [52]–[58]).

Final Court Findings

Regarding contributions, the trial judge was unable to distinguish the parties’ contributions. However, initial financial contributions were more favourable to the husband, while post-separation contributions favoured the wife. Given the brief duration of the relationship and the extended separation, the judge deemed percentage assessment of contributions is very difficult on the evidence and seems to be artificial and pointless in light of the modest property pool.

His honour held:

• “Having carefully considered all the evidence and arguments, I am not satisfied it would be appropriate, just and equitable to make any order altering the property interests of the parties in this case. The wife’s application and the husband’s response should simply be dismissed. This will result in the wife retaining all her property and liabilities. The husband will retain his superannuation. In reaching this conclusion, I have taken account of all the matters discussed in the course of these reasons, including the modest property pool, the fact that the husband may have contributed more cash to the purchase of Suburb D, but the wife shouldered the mortgage debt, certainly after separation. The wife will be left with a substantial deficit of assets over liabilities, but there is no property identified by her from which this could be addressed, even if I was persuaded any adjustment in her favour was warranted, which I am not. Her claim to a superannuation split would not assist in this regard anyway and the husband is considerably older than her making superannuation relatively more important to him.”
• “I am satisfied that there is no secure basis to make any orders altering property interests or splitting superannuation. The claims of the parties for property adjustment will be dismissed.”

 

Contact A Property Dispute Lawyer Today

The case underscores the importance of understanding family law in property disputes, particularly matters involving conflicting claims of contributions, significant debts, and issues related to add-backs.

If you find yourself in a property dispute, it is essential to seek expert legal advice from an experienced property dispute lawyer. At Rowan Skinner & Associates lawyers, we specialise in family law property cases and can provide the support and guidance you need to achieve the best possible outcome.

Contact us today at (03) 9995 9155 for a non-obligatory consultation. Whether you are dealing with issues similar to the Chiu & Sun case, or facing other property-related challenges, our team is here to help.

We service clients in Melbourne, Melbourne Northern Suburbs, such as Northcote, Alphington, Carlton, Fitzroy, North Fitzroy, Kew and Heidelberg, as well as South Melbourne and South Yarra.

 

Case: Chiu & Shun (No 2) [2024] FedCFamC1F 167 (18 March 2024)