The Involvement of Third Parties in Family Law Matters
The complexity of matrimonial property pools is increasing. Third party interests are intertwined in property settlement disputes between married and often de facto couples. This is usually a result of a spouse’s commercial interests through family trusts, companies or debts to creditors.
The Court is empowered under Part VIIIAA of the Family Law Act 1975 (Cth) to bind third parties by making any order or granting any injunction directing a “third party to do a thing in relation to the property of a party to the marriage” or to “alter the rights, liabilities or property interests of a third party in relation to a marriage”.
Joining a third party to proceedings
The Federal Circuit and Family Court of Australia (Family Law) Rules 2021 governs the joinder of third parties together with the Family Law Act. It permits any person whose rights may be directly affected by an issue in the proceedings to participate as a party in order for the Court to determine all issues in dispute.
This means that any spouse seeking relief against a third party pursuant to the Family Law Act 1975 (Cth) must join that party as a respondent to the proceedings. The type of relief that can be sought against third parties is set out in detail below.
Alternatively, the Court may allow third parties to intervene in proceedings in various circumstances in accordance with section 92 of the Family Law Act. If leave (permission) is granted by the Court for a person or creditor to intervene in proceedings, they are considered a third party to the proceedings and are treated as a party.
Who is considered a third party?
A third party is any person or creditor who is not party to the proceedings. The Court in Commissioner of Taxation v Tomaras  HCA 62 at  confirmed that third parties can be involved in family law proceedings arising out of various arrangements such as ‘…ownership of life insurance products, shares in corporate entities and the creditors of the parties to a marriage whether they are family, friends or financial institutions’.
In Commissioner of Taxation & Worsnop and Anor (2009) FLC 93-932, the Commissioner for the ATO was joined as an intervenor in the proceedings. The Husband had a tax liability greater than the value of the matrimonial assets as between the parties. The Court held that the Wife was not required to make any contribution towards the debt and ordered for the proceeds from the sale of the matrimonial home to be divided between the Wife and the ATO. The Court sought to balance the interests of the debtor party’s spouse and the third party and confirmed that a weighing up of interests will be done ‘even where that spouse is “innocent” and the liability to the [creditor] exceeds the assets.
The type of orders the court can make
Under section 90AE of the Family Law Act, the Court can make the following orders to bind a third party:-
- an order directed to a creditor of the parties to substitute one party for both parties in relation to the debt;
- an order directed to a creditor of one party to substitute the other party, or both parties, in relation to the debt;
- an order directed to a creditor of the parties that the parties be liable for a different proportion of the debt; or
- an order directed to a director of a company or to a company to register a transfer of shares from one party to the other party.
Pursuant to section 90AF of the Family Law Act , where proceedings under section 114 are on foot, the Court may make an order “restraining a person from repossessing property to a marriage” or from “commencing legal proceedings against a party to a marriage”.
Conditions before a third party’s interests can be altered by the court
Before making an order or injunction that effects a third party, the Court must be satisfied that conditions have been met including the following which are set out under section 90AE of the Family Law Act:
- That the order or injunction is reasonably necessary, or reasonably appropriate and adapted to effect a division of property between the parties to the marriage:
- If the order or injunction relates to a debt, that it is not foreseeable that to make the order or grant the injunction would result in the debt not being paid; and
- The third party has been given procedural fairness as to the making of the or injunction.
The Court is also required to take into account the following discretionary considerations:
- taxation effects;
- social security effects;
- administrative costs;
- the capacity of the party to repay any debt; and
- economic or the legal or other capacity of the third party to comply before making any order binding a third party.
As a mechanism for protecting third parties, section 90AH of the Family Law Act ensures that a third party will not be deemed liable for loss or damage suffered by any person as a result of things done (or not done) by the third party so long as that third party was acting ‘in good faith in reliance on an order or injunction made or granted by a court’.
Family law matters involving third parties can be multifaceted, often involving aspects of equity and trusts and commercial matters. If you are involved in a property settlement dispute and require further information about the impact of family law matters on third parties, Dorter Family Lawyers & Mediators are experienced family lawyers and can assist you.
Call us on 02 9929 8840 or book a consultation to discuss your matter here.