“Clean Hands” in Family Law
By Briana Kotzapavlidis
24 October 2017
If you have separated from your spouse, you may feel that your financial affairs are no longer any of your spouse’s business. However, unless and until you have had a property settlement, you are obliged to tell your spouse how much you are earning, how much money you have in the bank, what your superannuation is worth and if you have sold a house, car or shares. This obligation can feel overwhelming and burdensome. Early independent legal advice will assist you to better understand your rights and obligations, generally, in relation to your property settlement and in respect of the disclosure of financial information and documents.
The Court has long held that, “in order for there to be a just and equitable order altering the interests of the parties in property, there must be full and frank disclosure between the parties of all circumstances which may be relevant to determine their true financial positions both presently and in the foreseeable future.”
The Court Rules expressly provide that each party has an obligation to make full and frank disclosure in relation to their respective financial circumstances, in a timely manner.
In order to comply, the party will ordinarily need to produce his or her tax returns (and financial statements, in relation to any relevant trust or company), trust deeds, superannuation statement(s), bank and credit card statements, contract of employment (if applicable), pay slips and documents relating to the disposal of any asset in the 12 months prior to or since separation. This is a positive obligation and not one that only exists when documents are requested by the other party.
The obligation to disclose applies to all information which is relevant to the case. The Court has said that the production of “general discovery” will no longer suffice. “The requirement to disclose “directly relevant” documents will introduce a higher standard of assessment in the sifting and examination of a client’s documents. This will oblige parties and lawyers to focus attention at an early stage upon the real issues in dispute and the documentary evidence that goes directly to those issues.”
If the parties do not agree as to what documents need to be produced and/or are relevant to an issue in the case or whether the obligation has been met, the Court may make specific orders relating to discovery and/or a Subpoena may be issued to a third party (such as an employer, accountant or bank) for the production of documents.
The duty of disclosure is an ongoing one, which starts with the pre-action procedure for a case and continues until the case is finalised . Parties can be frustrated by the need to provide updated information during the running of a case, including recently lodged tax returns, up to date bank and superannuation statements, notice of a new job, pay raise or redundancy. However, the risks and potential consequences associated with non-disclosure can be significant.
The potential ramifications include the Court drawing adverse inferences against the non-disclosing party and/or making a detrimental finding in respect of that party’s credibility as a witness and potential punishment for contempt of Court. The non-disclosing may be precluded from relying on documents, which have not been produced in compliance with their obligation, at Trial , a case may be dismissed and/or the non-disclosing party may be ordered to pay the other party’s costs . Material non-disclosure might also result in final property orders or a Financial Agreement subsequently being set aside.
It is abundantly clear that failure to comply with the obligation for full and frank disclosure is likely to be prejudicial to the non-disclosing party’s case. The Court may even award the compliant party a larger share of the property pool. “Where the Court is satisfied the whole truth has not come out it might readily conclude the asset pool is greater than demonstrated. In those circumstances it may be appropriate to err on the side of generosity to the party who has made full and frank disclosure”. Further, it does not matter if the non-disclosure is “wilful or accidental, is a result of misfeasance, or malfeasance or nonfeasance”.
The duty of disclosure “is absolute” and a failure to comply “has the potential for grave consequences”. We invite you to contact our Family Law team to seek further advice.