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Disposing of assets after separation – “add backs” becoming a thing of the past?

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What is an “add back”?

Until recently, the Family Law Courts often treated property disposed of by a party after separation as notional property and “added back” the value of that property to the pool to be divided. The Court would often take this step if:

1. The asset was deliberately disposed of for the purposes of reducing or minimising the value of the matrimonial assets;

2. One party acted recklessly, negligently or wantonly with matrimonial assets and that reduced the value of those assets or the pool;

3. Money spent on legal fees had come from joint funds;

4. One party “wasted” joint funds or matrimonial assets, e.g. by gambling.

What is the current approach to “add backs”?

In recent cases, the Courts seem to be moving away from the idea of “add backs” and dealing with post-separation disposal of assets in another way. (See, for example, Mayne & Mayne (2011) FLC 93-479), Stanford & Stanford (2012 FLC 93-518 and Bevan & Bevan (2013) FLC 93-545)

From these recent cases, it appears the Courts now prefer to deal with disposal of assets as something to be “taken into account”. The Court has a broad discretion to take account of “any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account”. The Court has the power to make an adjustment against one party to take account of any assets that were disposed of by that party.

For example, if a husband spends $50,000 from joint funds after separation on a luxury holiday, the Court might make an adjustment against the husband such that he will receive less of the property pool than he would have received, if he had not spent that money.

Ultimately, any adjustment made by the Court must be subject to the overarching consideration that it is “just and equitable”.

What does this mean if you are going through a property settlement?

Negotiating and settlement takes time; litigating an outcome can take years. Pending a property settlement, people still need to get on with their lives. Assets disposed of in order to meet “reasonable living expenses” are not likely to be taken into account in an adverse way against the party who utilised those assets.

In the context of a family law property settlement, the issue of how to deal with assets that have been disposed of is complex and it will depend on all of the circumstances involved. It is important to obtain specialist advice to ensure that your property settlement is fair for you.

If you have any queries regarding your property settlement, you can make an appointment to discuss with one of our family law team.

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