Written by Lucas McCallum. 

Trust is the true yardstick for every relationship.  How does your relationship measure up? 

In this Article, we discuss the recent decision by the Family Court of Australia in Khalif & Khalif and Anor [2020] FamCA 39

Catchwords: Constructive Trust, Common Intention Constructive Trust, Property Settlement, Family Law Act 1975 (Cth)

Everyone takes a gamble when they choose to arrange their finances with another person, business or entity.  The recent case of Khalif & Khalif and Anor highlights the complex legal issues that can arise when spouses choose to arrange their finances with members of their families and later separate.

The spouses in Khalif, were married and began living together as husband and wife in 2003.  They had their first child in 2006 and their second child in 2008.  In 2009, a property was purchased and became the parties’ home.

The crucial issue in this case arose because the home was purchased by and in the name of the husband’s brother, and not the parties themselves. The wife told the Court that when she queried the husband about those arrangements, he said to her at the time:

“Because we can’t get the loan in our name, this is [my brother]’s way of paying me back for all of my help I gave him prior to him purchasing [one of his businesses]. During that time I was driving taxis and giving him the money I earnt.”

[at 109]

The husband’s brother purchased the property for approximately 1.45million, fully funded by a loan obtained by the husband’s brother.

From around the time of the purchase in 2009 the parties began to live in the property and it became their home until their separation in 2016, during which time, they had their third child (in 2011).  The parties paid council and water rates and utilities in respect of the property and together they renovated and improved their home.

Over the course of their marriage, the parties, through various corporate entities controlled by the husband and his brother, paid periodic payments totaling approximately $800,000, during their occupation of their home.  The wife, based on the things said to her and done by the husband, understood those payments created a real interest in their home, much more than a right of occupation, which a mere tenant would enjoy.

Following the parties’ decision to separate in 2016, the husband vacated the home, leaving the wife and the children. Shortly thereafter and perhaps to her great shock, the wife received from her brother-in-law a Notice to Vacate, on the basis she was a tenant of the property.

A constellation of issues arose for the wife, including:

• Was she required to leave the home?
• Did she or her husband have any right to or interest in the home?
• Consequent on the answer to the issue in the preceding point, what would she be entitled to as a property settlement with her husband?

Dealing with these questions in turn, firstly, there were initially proceedings under NSW tenancy laws in the New South Wales Civil and Administrative Tribunal.  In those proceedings, the husband’s brother sought to evict the wife from her home.  The husband’s brother was not successful in those proceedings, following which, the wife obtained an order from the family law courts for sole occupation of the home and orders preventing its sale pending a property settlement between the husband and wife.

The next issue became the central issue in Khalif: what, if any, was the interest of the husband or the wife in the home?

The husband’s answer was that his brother was the legal owner of the property and that neither he nor his wife had any interest in it.  The wife’s answer was that the husband’s brother held a part of his interest in the property on trust for the husband.

For the reasons above, it was necessary to involve the husband’s brother in the proceedings, and so he became a party to the issue between husband and wife.

Ultimately, the Court looked to the common intention of the parties during their marriage and their respective evidence and contentions about how those intentions were formed and implemented.

The Court was critical of the husband and his brother in relation to the evidence they gave in respect of those matters and generally accepted the evidence of the wife where the husband and his brother’s evidence were in contest with the wife’s.

The Court determined that the husband’s brother held on trust for the husband an interest in the property equivalent to the sums paid by the husband to his brother during the course of the parties’ marriage and occupation of their home – $892,500.  The Court expressed this sum as a percentage of the purchase price paid for the home, and the husband was found to have a 61.25% interest in the home.

In family law proceedings for property settlement between separated spouses, the first step is identify (and where necessary or possible, value) the assets, liabilities and financial resources of each party.  This becomes legally complex when third parties, like the husband’s brother, are involved, and results in cost and delay for the parties.

For the wife, this involved the determination of these preliminary issues before the Court could decide the property settlement between the husband and wife – which is the third and final question, yet to be reported by the Courts.

For reasons which are made abundantly clear in this case, the most sensible course is to obtain specialist family law advice before arranging your financial affairs with your spouse.