Bendell and Bendell and Anor

In the matter of *Bendell and Bendell and Anor*, Judge F. Turner of the Family Court of Australia considered a property settlement dispute where one spouse was bankrupt and owed a judgment debt to a creditor, [M] Pty Ltd, who had been joined as a party to the proceedings. The central dispute concerned the extent to which the creditor's interest in the bankrupt spouse's debt should be recognised and satisfied from the marital property pool before distribution between the spouses.

The court was required to determine whether the creditor's interest was secured against the property of both spouses, and if so, whether the creditor was entitled to payment of the debt prior to the division of the remaining property between the husband and wife. Further, the court had to consider the effect of any property orders on the creditor's ability to recover the debt, as mandated by section 75(2)(ha) of the *Family Law Act 1975*. This involved assessing whether to deduct the liability to the creditor, who did not hold security over both spouses' property, from the value of the pool. The court also had to decide whether the creditor was entitled to interest on the judgment debt and whether a caveat lodged by the creditor should be removed.

The court reasoned that while the creditor did not have a direct security interest over the property in the same way a mortgagee does, the circumstances warranted treating the debt as a priority claim against the property pool. This approach was informed by the obligation under section 79 of the *Family Law Act 1975* to consider the impact of orders on creditors. The court ordered the property to be sold, with the proceeds to be applied first to the costs of sale, then to outstanding rates and taxes, followed by the discharge of the mortgage. Crucially, the debt owed to [M] Pty Ltd, including the judgment debt and interest, was to be paid before the remaining balance was distributed between the wife and husband. The wife was ordered to serve a copy of the orders on the Official Trustee in Bankruptcy, and the Trustee was directed to facilitate the execution of the orders.

The final orders directed the sale of the property, with the proceeds to be applied in a specific order of priority: sale costs, rates and taxes, the mortgage, the debt to [M] Pty Ltd (including interest), and then the net balance to be divided 85% to the wife and 15% to the husband. The creditor was ordered to withdraw its caveat. The wife was ordered to pay the costs of [M] Pty Ltd. Each party was to retain other property in their possession, and superannuation entitlements were to remain with the respective individuals.