After a separation, people may need to take steps to protect any interest they have in their ex-partners property.
A caveat is a way that a party can record their interest in a property on the certificate of title of that property. The certificate of title is the document that records important information about the property such as the ownership of the property and any encumbrances on the property such as mortgages by a bank etc. Caveats are one option available to people involved in Family Law property disputes.
From our experience, we commonly assist our clients with lodging caveats when the parties have been in a de facto relationship or married, and one party has an interest in the property, yet the property is owned in the other party's name.
For example take Bill and Sally. They have been in a de facto relationship for 8 years. Bill owned a home at the commencement of the relationship. Eventually Sally moved into Bill’s home and sold her own home. She used her money to pay down Bills’ mortgage. Bill’s home always stayed in his name only. They then separate.
This means that when they separate Bill can deal with the property in any way he likes such as:
- Selling the property (even for example to a friend or acquaintance at less than it is worth); or
- Borrowing against the property, referred to as "encumbering" the property (such as borrowing money secured against the property and thereby reducing the equity in it)
In each of the above examples Bill will get access to money from the property which he could then hide or spend. It allows him to prevent Sally from getting access to her entitlements to that property.
If a caveat is registered on the property, Bill will not be able to follow through with any sale as the transfer of the property cannot be processed while the caveat is on the title. Bill would be forced to negotiate with Sally for her to withdraw the caveat to allow any sale to go through.
When lending money, a lender will want to protect the loan to reduce the risk that they won’t be paid back. This process is known as "security" and a mortgage over a property is the preferred form of security for lenders. If Bill wants to borrow money against his property, the lender will check the certificate of title of the property when determining whether to lend him the money. They won’t be able to register a mortgage on the property if there is a caveat on the property and so they won’t lend Bill the money.
In this case, without a caveat, Sally would not be mentioned at all on the certificate of title for the property as it is registered solely in the name of Bill and the lender would have no idea that Sally has an interest in the property. The lender would lend Bill the money and register a mortgage on the title of the property to protect their interests. They are therefore likely to be paid out in preference to Sally if the property was ever sold. This means Sally could be prevented from obtaining her entitlements to the property or any proceeds from the sale of the property.
If you’d like more information on caveats or you wish to obtain advice on getting a caveat put on a property to protect your interests, you should contact our Partner in Family Law, Ryan Thomas.