“Clean Hands” in Family Law
Mind your own business and keep out of mine! This may well be how you feel following separation from your spouse, and you wouldn’t be alone! This is especially the case when it comes to your personal and intimate financial affairs. . However, unless and until you have had a property settlement with your spouse following separation, the law requires you to disclose to your spouse all of your financial circumstances, including how much you are earning, how much money you have in the bank, what your superannuation is worth, whether you have any interests in trusts, companies or business entities and if you have sold or acquired a house, car, shares or any other major assets since separation. This obligation can feel overwhelming and burdensome, however is a necessary part of the separation process. 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. This obligation exists in all family law cases dealing with financial and/or property matters, and not just for those matters that are subject to litigation (i.e. Court proceedings have been issued).
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 also applies to any other information that is relevant to the case or is necessary to effect the division of the asset pool as Ordered by the Court or agreed between the parties. 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. If a party breaches any such Order for discovery or continues to skirt their obligation for full and frank disclosure, it may be necessary to issue one or more Subpoenas to third parties (such as an employer, accountant or bank) to force the production of documents and obtain the required information.
It is important to note that 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. A good way to think about this is to think about bank accounts or shares and how quickly the value of those assets can change, especially across the extended course of negotiations and/or litigation. Parties can be frustrated by the need to provide continued 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 some or all of the other party’s legal 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 at its discretion and “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, in making such an Order, 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.
