Family Law “Claw Back” Powers
Section 106B of The Family Law Act 1975 (Cth) (“The Act”) provides the Court with a wide range of “claw back” powers to deal with (and potentially alter) separated parties’ interests in property.
Provided the Court is satisfied that it is just and equitable in all the circumstances to make any property order, the first step for the court is to identify (and value) the parties’ current interest in net assets. Property may include real estate, funds in the bank, shares, business interests and the like, irrespective of whether the asset is held in either name or the joint names of the parties.
What if that property has been transferred to a third party or otherwise disposed of by a party to family court proceedings?
Section 106B of the Act provides the court with the power to set aside (i.e. reverse) a sale or transfer of an asset of the relationship, in circumstances where:-
- the transfer occurred whilst either family court proceedings were underway; or
- were reasonably anticipated; and
- the disposition of the property is ‘likely to defeat’ an existing or anticipated court order.
The court is empowered to reverse a transaction pursuant to section 106B, irrespective of the disposing party’s intentions. For example, if around the time of your separation you were to sell your property or sell your share in a company to a third party, it is within the court’s power to make orders to join the purchaser to the proceedings (once underway) and order for the sale or transaction to be reversed or “clawed back”.
While section 106B(3) of the Act requires the court to “have regard to the interests of… a bona fide purchaser or other person interested” this is no sure safe guard. Although it is mandatory that the court consider the purchaser’s interest, it is at the court’s discretion whether it makes any orders to protect the purchaser’s interest, and if so, what orders will be made.
A bona fide purchaser is someone who purchases an asset for value and without prior notice of another party (e.g. the vendor’s spouse) having an interest in the asset.
While the court will generally try to avoid interfering with the commercial interests of genuine third party purchasers, the court will be minded to reverse a transaction where it prejudices a just and equitable outcome in the family court proceedings. Further, as the court held in Balnaves v Balnaves  FamCA 6 the court will not allow a “blatant sham transaction to defeat the operation of the [Family Law] Act”.
Parties (and third party purchasers who are on notice of an impending family law matter) should take care when dealing with their property interests in the wake of a separation.