Family Law “Claw Back” Powers
The Courts in family law matters are afforded a broad discretion when it comes to dealing with the assets and property of separating (or separated) parties.
When assessing how the assets of parties to a marriage, or a de facto relationship, are to be separated, the first step undertaken by the Court is to asset what the assets and liabilities of the parties are, and ascribe a value to same, such that it is clear what is available to be divided. This includes assessment and consideration of a broad range of interests, including real property, shares, funds in the bank, business interests, trust accounts and other major assets such as boats, artwork, antique furniture, jewellery, etc, as well as debts to which the parties are liable. It is irrelevant for the purposes of determining the overall asset pool whether those assets and/or liabilities are held in the parties’ sole names or jointly.
However, determining the total asset pool for division becomes decidedly more complex where the parties have an interest in, or intend to make a claim over, an asset that is not held in either of their names. This is commonly seen where parties panic upon separation and make concerted efforts to quickly sell or ‘hide’ assets that would otherwise have been considered as part of their family law property settlement.
Luckily, Section 106B of the Family Law Act 1975 (Cth) provides the Court with the power to set aside (i.e. reverse) the sale or transfer of an asset of the relationship, in circumstances where:-
- the transfer occurred whilst either family law proceedings were underway; or
- was reasonably anticipated; or
- 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 of the Act, irrespective of the disposing party’s intention at the time of dealing with the asset. By way of example, if around the time of your separation you or your spouse were to sell an asset or a share in a company to a third party as a way to ‘hide’ the interest and prevent the other from obtaining same, it is within the Court’s power to make Orders to join the purchaser to the family law proceedings as a third party and make Orders for the relevant sale or transaction to be reversed or “clawed back”.
It is important to note however that in making such a ‘claw-back’ Order the Court is bound to consider and “have regard to the interests of… a bona fide purchaser or other person interested”. Essentially, this means that the Court must turn its mind to the impact their Orders may have on innocent third parties who entered into the transaction in ‘good faith’. While this consideration may occasionally prevent the Court from reversing a transaction, it is by no means a safe guard for the inappropriate dealings of assets by parties. It is entirely at the Court’s discretion whether to make Orders protecting a purchaser’s interest in an asset over that of the parties, and if so, what those Orders will look like.
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 [1988] 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.
For more information or assistance with your family law matter, do not hesitate to contact a member of our Family Law Team.
