Medicus April 2016

F A M I L Y L AW

To add back or not to add back, that is the question Framy Anne Browne explores the Family Court’s approach when dealing with dissipated assets during a family law dispute

A recent decision¹ in the Family Court (Court) addresses the uncertainty with how the Court deals with someone unilaterally dissipating the assets of the marriage. It is not uncommon for one party in a family law dispute to allege that another person has disposed of or distributed assets, which would otherwise be included in the asset pool available for division. These situations can occur when one party unilaterally does any of the following:

• where there has been a premature distribution of assets; or • where one party has been found to have “wasted” funds. Uncertainty and confusion This approach was generally followed as the unwritten rule until the case of Stanford (2012) HCA 52 . This case effectively created much doubt and uncertainty about whether add backs could be warranted. In Stanford, the Court found section 79 of the Family

Framy Anne Browne

Law Act 1975 was concerned with the alteration of “the parties’ existing current legal and equitable interests in property”. The term “existing” caused many in the profession to conclude add backs should not form part of the asset pool because the parties no longer have an existing interest in that specific asset. This was later confirmed in the case of Bevan v Bevan (2013) FLC 93-545 which stated at paragraph 79: It appeared to most that the matter was settled and that no notional property would be included in the matrimonial asset pool. Instead it would be dealt with as a relevant consideration when the Court decided what adjustment they would make in one party’s favour of the current net asset pool. There were concerns this new approach had diminished the Court’s power to hold the offending party properly accountable for the entire disposal. The concern was there may not be an exact dollar for dollar replacement of the asset or funds and the specific amount could be lost in the broad discretionary adjustment of all the assets. This approach also raised questions in situations where the majority of the asset pool funds had been depleted and the current remaining assets could not be adjusted even in their entirety to achieve a just and equitable outcome for the innocent party.

• withdraws funds from bank accounts, and spends them; • gives away assets to friends, family members, new partners; • gambles and loses funds; or • sells assets for well below cost price. Traditional approach In many cases, the Family Court took the approach that if it was proved a party had deliberately or recklessly embarked on a course of conduct designed to minimise the value of the asset pool, then the amount dissipated or wasted could be included in the pool of assets on a notional basis. The person who dissipated the asset would simply be credited with the value of the asset as part of the final settlement, even though no such asset existed at the date of the final order. The Court would refer to this as “add backs” because they were effectively adding the non-existent asset back into the asset pool. In Omacini (2005) FLC 93-218 , the Full Court classified three categories in which add backs may occur, namely: • where parties have depleted funds to meet the cost of their own legal fees (this is contrary to the legislation which states parties need to meet their own legal fees);

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