One of the common problems facing ex-partners, who approach the Court to decide a property settlement after their relationship has ended, is the expense involved in taking legal action.
Even though both parties to a marriage or a de facto relationship may be working, wage disparity between men and women remains a fact of the Australian workplace. In many cases the husband is the higher income earner and the wife, the homemaker and part-time employee. Sometimes the situation is reversed, as in the 2021 case of Halsted v Baughan [2021] FedCFamC1A 65, where the wife was ordered to fund the husband’s legal costs.
When a substantial inequity in financial resources impairs the ability of one party to a former relationship to negotiate a property settlement both parties may be inhibited in their attempts to move on with their lives.
To address this imbalance a party to a property division can make application to the Federal Circuit and Family Court of Australia for an order by which one party pays the other party’s legal costs while the matter proceeds through the Court. This order is sometimes called a “Hogan Order” or an interim property order.
How does a Hogan order work?
A Hogan order is typically made by the court when it is clear one of the parties to the property settlement proceedings is unable to pay for the same level of legal representation as the other. The Court can order that funds be paid by the partner with greater financial resources into the trust account of the solicitor for the other party. This payment is characterized as an ‘advance’ on the property settlement, with the sum later subtracted from the share of the final property settlement received by the party awarded the Hogan Order.
In the case of Zschokke & Zschokke (1996) FLC 92-693 (‘Zschokke’), three criteria were identified by the full court for the making of this type of order:
- One party to proceedings is in a position of relative financial strength;
- one party has the capacity to fund their own legal expenses; and
- the applicant is unable to fund their legal expenses.
In Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578, Justice Brereton decided that, in addition to the three criteria set out in Zschokke, an applicant should also have ‘at least an arguable case for substantive relief which deserves to be heard’. He also found that an order can be made ‘in respect of costs already incurred as well as of future costs’. Establishing an estimate of future costs requires the applicant to furnish the court with evidence of the legal costs already incurred.
Justice Brereton also stated that any such order should be framed to protect the parties from risk of injustice arising from the manner in which the funds are expended. To achieve this, the order may direct the funds be administered solely by the applicant’s solicitors, only used for expenses specified in the order and the subject of detailed records for review by the Court.
The amount sought by an applicant under a Hogan order to fund litigation must also be less than the amount the applicant is likely to be awarded in a property settlement.
Where the respondent’s wealth is held mostly in assets, the Hogan order can direct the sale of some assets in order to fund the other party’s legal action.
In Zschokke the court agreed with the statement made In the Marriage of Harris (1993) FLC 92-378: that the court’s exercise of the power to make an interim property settlement order ‘should be confined to cases where the circumstances presented at that time are compelling’. In other cases, such as Strahan v Strahan [2009] FamCAFC 166, it has been said that in addition to compelling circumstances, the ‘overarching consideration’ in the exercise of the power is ‘the interests of justice’.
In that case Justice Dawe found it was not in the interests of justice to make an interim property order in favour of the wife because of uncertainty about the likely final property settlement. He did not accept the wife’s explanation for the amount of money she estimated was required for her ongoing legal costs.
In a subsequent application in which the wife sought $3.8m to pay her legal costs, the same judge ordered the husband to pay her $825,000 instead, finding that some of her anticipated legal costs were unreasonable and her evidence to support the requested amount was inconsistent.
The case of Strahan v Strahan confirms that the estimate of future legal costs must be reasonable, taking into account the asset pool and the issues in the case. Additionally, it is important to identify the source of the funds. In Abrams v Abrams [2010] FMCAfam 560, a wife’s application for a partial property settlement of $80,000 was dismissed when the value of the asset pool was questioned. The husband argued it was less than $30,000 while the wife contended it was more than $220,000.
Important considerations in applying for a Hogan order
Making an application for a Hogan order can be expensive and may not be successful. In some cases seeking the consent of the other party for funds to be made available from the asset pool to pay legal fees may be a more viable option. The financially dominant party may also see this as a safer option because the respondent to an application for a Hogan Order may be ordered to pay the legal costs incurred in the making of the application.
The advice of expert family law solicitors is essential in deciding whether to apply for a Hogan order or prevent such an order being made if you are in the position of the respondent. Our family law specialists at Delaney & Delaney have the experience and knowledge to help you better understand the issues raised in this article.