‘He/she has gone to Thailand, transferred our investment property to a friend/family member and withdrawn $100,000 from the joint bank account.’
It may sound crazy, but we have had similar conversations with new clients seeking urgent legal advice.
In high conflict financial disputes, it is not uncommon to see former spouses transfer assets to their family and friends post separation in a bid to remove those assets from the property pool available for division or hide them from the other spouse. There are some options available when seeking relief against an ex-spouse gone rogue.
Setting aside a transaction
Section 106B of the Family Law Act 1975 provides that the court can set aside a transaction that is designed to defeat an existing or anticipated order in family law proceedings.
For example, after a long relationship where the husband was the primary breadwinner and the wife the primary carer for three children, the parties separate. Property settlement proceedings are on foot and, while the matter has not yet been decided, it is not disputed that the wife is entitled to between 55 to 65% of the property pool. The former matrimonial home in the husband’s sole name is worth 80% of the property pool. The husband transfers the home to his brother without the consent or prior knowledge of the wife. In such circumstances, the court could order, pursuant to section 106B, that the transfer of the home to the husband’s brother be set aside.
The section will not provide relief in every circumstance where a former spouse has disposed of assets, because the party seeking the relief must show that their entitlements have been ‘defeated’ and not just ‘reduced’ by the transaction. This can be difficult to prove.
Notional add backs
Before the High Court’s decision in Stanford (2012), if a party had deliberately or recklessly wasted property, or where there had been a premature distribution of property to one of the parties, that property could be ‘added back’ into the parties’ pool of assets and treated as ‘notional property’ for the purposes of property settlement.
For instance, if a party had bet $100,000 on red at the casino and the chips fell on black, while that $100,000 was gone, its dollar value could be added into the property pool as an asset of the gambling spouse, such that they would receive less of the remaining assets available for division between the parties.
Post Stanford, the Federal Circuit and Family Court is much more reluctant to add back ‘notional’ property to the asset pool as the High Court said that only existing legal and equitable interests in property should be identified.
Later cases have shown, however, that notionally adding back property is still possible but only in exceptional circumstances. It is therefore crucial that the right evidence is presented to the court to substantiate the add back.
Where courts don’t add back property, they can still exercise their discretion to consider the deliberate or reckless waste of property as a relevant factor that should be considered pursuant to section 75(2)(o) of the Act.
This won’t mean a dollar for dollar adjustment to account for the property that has been dissipated, rather a party’s conduct in wasting assets will be one of the factors the court considers when making orders that are just and equitable.
A freezing injunction or order stops a person from disposing of or dealing with an asset. The order is usually made without notice to the respondent party and will only remain in place until the next court hearing when the respondent has an opportunity to be heard.
The order will generally only be granted prior to final property settlement orders being made where it is necessary to prevent the subsequent orders of the court from being rendered otiose. The value of assets covered by a freezing order should not be greater than the applicant’s claim to a property settlement.
If a spiteful ex-spouse has already taken $100,000 and absconded to Thailand, it may be a bit late for a freezing order unless there are other assets to preserve.
Protecting other assets as a practical measure
It is best to ensure assets are preserved from the get-go where possible, rather than try to recover them after they have been misappropriated. If there is real property in a party’s sole name, there may be grounds to register a caveat over the title of that property. If there are significant amounts in joint bank accounts, a party can request the bank require joint signatures for any withdrawals, and the same goes for any redraw facilities.
The relief sought will depend upon the circumstances of each case and the above avenues are just some of the ways the court can deal with the dissipation of assets after separation.