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Beware of the Unsatisfied Creditor – Full and Frank Disclosure in the Family Court

14/06/2021

The Family Court of Australia and the Federal Circuit Court of Australia operate in accordance with the provisions of the Family Law Act 1975.  In property division cases the Family Court and Federal Circuit Court balances the interests of the parties to the proceedings. The Courts also take into account the interests of third parties such as creditors or a Trustee in Bankruptcy of one of the parties.

The Court requires the parties to provide full and frank financial disclosure to each other and to the Court.  This includes disclosing to the other party and to the Family Court/Federal Circuit Court, the existence of debts and creditors.  A Creditor is a person or company to whom money is owed and who has the right to recover money owed “a debt”. If there is a debt then the value of the property that is available to divide is reduced.  There can be arguments between the parties as to who should be responsible for payment of debt but the requirement to give full and frank financial disclose is fundamental.

Recent Case – Cantrell v North – Consequences of trying to avoid or exclude a Creditor

In this case the parties had been separated for some years by the time they made Application to the Family Court of Australia for approval of Consent Orders.  The parties owned a number of properties in Sydney and there were assets in Vietnam.  Prior to the husband and wife making the Application for Approval of Consent Orders, the husband had been involved in proceedings in a different Court. That Court had entered a Judgment against the husband in favour of a creditor.

When the parties came to prepare and file their Application for Consent Orders neither party disclosed in the Application for Consent Orders, the existence of this creditor and the Judgment Debt in favour of that creditor. The Family Court made the Consent Orders and the effect of the making of the Orders was that the real estate was transferred to the wife. The creditor was denied the opportunity to enforce its Judgment against the Husband as the assets were by then in the Wife’s name.

The creditor commenced proceedings in the Supreme Court of New South Wales and obtained orders setting aside the transfer by the husband to the wife of property in Sydney.  The effect was that the property in Sydney then became available for satisfaction of the creditor’s claim against the husband.

The wife (and the husband) appealed to the Full Family Court of Australia.  The Full Family Court dealt with a number of technical arguments but ultimately found that both the husband and the wife had not properly completed the Application for Consent Orders. They had not disclosed to the Court, the existence of the Creditor and that be reason of the failure to disclose the debt, the Consent Orders were not properly made. The Family Court of Australia regarded the actions as being an attempt to avoid paying the creditor.

The Court set aside the Consent Orders and the assets (that had been transferred to the wife) became available to the creditor for satisfaction of its Judgment Debt.

If you are in the process of or proposing financial/property settlement with your spouse or partner, you need to be aware of all pitfalls and challenges that may impact on you achieving an equitable financial/property settlement.  Our experienced Family Law Solicitors can assist you in this process to ensure that you receive an unbiased settlement.  Please contact Richard Watson Senior Family Law Solicitor or his Personal Assistant Shereen Da Gloria to discuss your matter and seek appropriate and timely advice.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.

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