Who Generally Pays Legal Fees in Property Matters?

Section 117 of the Family Law Act 1975 concerns the awarding of costs or payment of legal fees in family law matters. Generally, the principle in family law is that each party pays their legal costs, notwithstanding the outcome of the case. However, there are some circumstances in which a court may make an order that one party pay the other’s legal costs. Already paid legal fees may also be taken into consideration when deciding property matters.

When do courts make costs orders in family matters?

Some situations where a court may make a costs order include:

• Where a court order has been breached by one party and the other party has had to file an application due to the breach;
• When a party needs to file an application in a proceeding that is already before the court due to an ongoing issue, such as the opposing side not disclosing required documents;
• Where an offer to settle a matter is made by one party, and the other party refuses that offer. Then the matter proceeds to court and the order made by the court is not any more favourable to the party who refused the offer.

A court will consider the following when deciding whether to award and when awarding an order about the payment of legal costs:

1. The financial situation of both parties;
2. Whether legal aid is being received by either of the parties;
3. How each party has conducted themselves during the family law proceedings;
4. Whether one of the party’s conduct or failures, such as a failure to follow a court order, meant that the proceedings had to be started or continue;
5. Whether one of the parties was completely unsuccessful in the proceedings;
6. Whether a formal written offer has been made by one party to the other.

If a court does make an order that one party pays the other party’s legal fees, these costs will most likely be awarded on a “party-party” basis. There is a schedule of costs set out in the court rules which sets out how party-party costs are to be awarded. According to this schedule, only a portion of the actual legal costs will be covered by a party-party costs order.

There are some limited situations in which a court will make a costs order on an “indemnity basis”. If such an order is made, it means that all costs are to be covered by the party against whom the order was made.

How are paid legal fees in family law matters dealt with in regards to a property settlement?

Sometimes legal fees are paid in relation to family law matters by parties who are separating or divorced before the parties have reached a final property settlement. The question that arises in such cases is how are the paid legal fees to be treated? Are they to be notionally added back into the asset pool and considered in the assessment for property settlement? Or, should the amount spent on legal fees not be added back into the asset pool but rather taken into account in the assessment? This question arose in the 2018 Family Court matter of Trevi & Trevi.

The facts of that matter were:

• The wife had spent $437,268 on legal fees that she had funded from assets that were in existence at the time of separation;
• The husband had incurred legal fees of $142,587. He was a lawyer and his firm had represented him in the proceedings and so his legal costs were significantly lower.

The trial judge had to decide whether the legal fees should be added back into the asset pool for assessment for the property settlement, or whether the legal fees should be left out of the asset pool but instead taken into account when making the assessment for property settlement. The trial judge decided that the sum was not to be added back into the asset pool.

However, on appeal, the Full Court decided that if legal fees were paid from funds that were in existence at separation and both parties have an interest in these assets, then the funds used should be added back into the pool of assets to be considered for the property settlement. The Full Court cited case law, in particular the 2004 case of Chorn & Hopkins, that supported this position.

As a result of this decision, the wife ended up with a reduced amount in the property settlement. This is because the legal fees she had paid were notionally added back into the property pool and considered to be part of the property pool that she had already received.

One thing that can be learned from this case is that it is important to consider what financial resource one intends to use for paying legal fees in a family law matter. This is because this choice has the potential to affect what is eventually awarded in a property settlement.

If you require legal advice or representation in any legal matter, please contact Armstrong Legal.