Consider this common family law property settlement scenario:-
Party 1 wants to retain the family home and proposes to Party 2 that in exchange for keeping the property they will pay a cash settlement to Party 2 and refinance the associated mortgage into their sole name.
Party 1 plans to refinance the mortgage so that they will have enough money to pay Party 2’s settlement money.
Orders are subsequently made by the Court which provide that Party 1 has 60 days to transfer the property into their sole name, pay Party 2 settlement monies and refinance the mortgage.
Party 1 goes to their bank and is approved for finance, however, day 60 rolls around and Party 1’s Bank is not ready to settle.
What happens now?
When a party fails to make a payment under a Court Order, this is considered a ‘judgement debt’. Under Section 117B of the Family Law Act 1975 interest is payable by the liable party from the date which the Order takes effect until such time as the debt is paid. The interest payable on a judgement debt is calculated as 6% above the current cash rate (e.g., currently 7.85%). Therefore, in the above scenario Party 2 would be able to seek interest from Party 1 for delaying the settlement.
What can you do to avoid the above scenario occurring?
It is important when you are finalising your property settlement to make sure that you understand your banks requirements to ensure that the Orders will give you plenty of time to make sure that you can get your finance sorted.
What happens if you can’t get your finance at all?
If there are no default clauses in your Orders, which set out what is to happen if you cannot get finance, then the Orders will become frustrated and it may be necessary for a further application to the Court if the parties cannot come to an agreement on what should happen. We recommend that to avoid this, parties should ensure that their Orders have default clauses which provide for the sale of property after a period of time if the parties are unable to get finance.
If you have any questions in relation to your property settlement please contact one of our family lawyers today for an appointment.
