Does your former partner have to add back to the asset pool assets that they have disposed of? For those who have been in a de facto or married relationship and have separated, many wonder if the other party’s conduct has an impact on their final property settlement. Until 2012 the Courts had found in some cases that where a party had deliberately or recklessly embarked on a course of conduct with the intention of reducing the assets available between the parties, an amount in respect of what had been effectively wasted could be added back to the asset pool available to be divided. However, as recent cases mentioned below show, the Courts are moving away from the principle that certain assets spent, dissipated, or wasted after separation can be added back to the total asset pool at final settlement.
What are “add backs”?
When determining how assets will be divided between two parties, the Courts use the following process:
- What assets are available to be divided between parties?
- How did the parties contribute, both financially and non-financially, to acquiring, improving, and conserving the assets?
- What are each party’s current circumstances and future needs?
- Is the result just and equitable?
A dispute may arise over funds that were held in accounts at separation but which are spent by one of the parties for their own benefit after separation. In the past, the Courts have found in some cases that the current total of the total asset pool should be increased by the value of assets which have been used by one party for their own benefit since separation. For example:
- Legal fees, if a party used joint funds to pay legal fees;
- Wasting funds or assets, e.g. funds withdrawn and spent from bank accounts/credit cards, funds gambled or lost in poor investments; and
- Spending of monies or disposing of assets such as land or jewellery given away to friends and/or family members or assets sold for below market price.
Those assets were treated as added back to the pool (called an “add back”) and considered as an asset that the party had already received. However, a trend against add backs has emerged in more recent years in the family courts, such as Dobbs v Dobbs  FamCA 66 (“Dobbs”) and Owens v Owens  FCCA 2823 (“Owens”). These decisions indicate that Courts are becoming increasingly reluctant to add the value of assets distributed prior to final settlement back to the total asset pool, despite the parties’ conduct post-separation.
Recent Court decisions on add backs
Following the High Court case of Stanford v Stanford  HCA 52 (“Stanford”) the recent case of Owens demonstrated that it is no longer considered appropriate to treat dissipated funds as an add back. However, it can considered in relation to subsection 75(2)(o) Family Law Act 1975 (“Act”).
In Owens, the wife inherited a sum of $305,000 shortly after separation, which she then divided between their children. Applying the decision in the Stanford case, Her Honour Judge Riley determined that it was no longer appropriate to treat dissipated funds as add backs. However, Her Honour earlier confirmed following the case of Bevan v Bevan  FamCAFC 116 that funds could be taken into account as a relevant consideration when deciding what adjustment, if any, the Court should make in one party’s favour on the current net property assets. Her Honour also noted it is important to deal with such disposals of assets carefully by recognising the asset no longer exists but allowing sufficient scope to ensure a just and equitable outcome when considering the disposal of property at final settlement.
The principle against add backs continued in the more recent case of Dobbs, where evidence of add backs to the current total property pool was considered an exception in a financial settlement, but not an applicable rule. His Honour Judge Cronin stated:
If property no longer exists… (whether spent on legal costs or otherwise), the best the court can do is somehow work out a way of taking into account the fact that the property once did exist.
Therefore, current case law suggests that the value of assets which have been dissipated after separation will not be added back, regardless of whether those assets have been dissipated deliberately and recklessly by a party’s conduct with the sole intention of reducing the total net assets available for distribution. However, the fact of such disposal having occurred may be taken in to account by the court when determining what adjustments in favour a party may be just and equitable in the circumstances of those parties.
What does this mean for you?
Formalising a property settlement as soon as possible can give you peace of mind. It is important to obtain legal advice concerning your particular circumstances to enable you to make the most informed decisions how to resolve your family law issues.
For more information, contact our experienced Brisbane family lawyers at LGM Family Law on (07) 3506 3651.
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