Protect Your Property and Assets After Separation

Since the identification and value of property is usually considered as at the date of the final hearing, a common issue in property settlement after separation is how to prevent the dissipation of assets. Ultimately prevention is the best medicine – the sooner a property settlement can be achieved, whether by consent or by final hearing, the better. What can you do in the meantime?

This article will discuss three things:

  1. Add-backs to the property pool for property which has already been dissipated;

  2. Using urgent interim injunctions to protect assets and property;

  3. Using a caveat to protect real property such as a house or land.

Add-backs of Dissipated Property

Dissipation happens when the ex-partner or spouse spends some or all the joint funds, before property settlement has been finalised, or when the other party disposes of an asset that existed before separation and uses the proceeds for his/her sole benefit. This is a complicated area of the law concerned with what are called “add backs” of “notional property”. It is called “notional property” because the dissipated property no longer exists!

The court has power under section 79(1) of the Family Law Act 1975 to alter the parties’ interests in all their property, regardless of when or how it was acquired and whose name it is owned: Farmer & Bramley [2000] FamCA 1615. The identification and value of property is usually considered as at the date of the final hearing: Hickey [2003] FamCA 1615. Any premature distributions of propety made to either party before then, or assets unaccounted for, are included by being “added back” notionally to the asset pool.

The Full Court in AJO & GRO (Omacini) [2005] FamCa 195 held that there are three categories of cases where an asset that no longer exists will be notionally added back into the pool:

  1. Paid legal fees (unless paid not from joint funds but from a party’s post-separation income or money received in their own right e.g. inheritance or gift);

  2. Where a party has made a premature distribution of matrimonial assets by selling, and benefiting from the proceeds of sale of, an asset in which the other party had a legitimate interest. But…

    a) it is “unduly simplistic” to proceed on the basis that the mere fact that a party spent money obtained from a distribution of assets which had existed at separation would result in such expenditure being added back – it is necessary for the court to “make some assessment of the reasonableness or otherwise of the expenditure”: Omancini

    b) the court must examine whether the expenditure was “beyond that which funded a reasonable standard of living and necessary outgoings”: SL & EHL [2005] FamCA 132

    c) subject to considerations of maintenance, support and waste – separated parties are entitled to get on with their lives independently of each other: Gollings & Scott [2007] Fam CA 397

    d) Wastage or financial loss resulting from a party’s conduct designed to reduce the value of matrimonial assets or a party’s reckless, negligent or wanton actions which have reduced that value: Kowaliw [1981] FamCA 70, in the absence of such waste losses should be shared, marriage being “an economic partnership”: Browne & Greene [1999] FamCA 1483

However, in Layton & Layton [2014] FamCAFC 126 at [37] the Full Court held that Omacini did not suggest no further categories of such cases might be identified. It is a matter of discretion for the trial judge whether to notionally add‐back property into the asset pool but notional property will only be added back in exceptional circumstances.

Using an Interim Injunction to Protect Assets and Property

There are a number of grounds on which an interim injunction may be sought but for the purposes of this article let us consider injunctions under section 114 of the Family Law Act 1975 and Rule 14.05 of the Family Law Rules.

Under Rule 14.05, an order may be made restraining another person from removing property from Australia, or dealing with property in or outside Australia. The intention is to prevent a person from dissipating his or her assets with the intention or effect of frustrating enforcement of a prospective judgement or settlement.

There are alternatives to applying for an injunction especially where the risk of disposal relates to an asset of lower value relative to the asset pool e.g. a car or a boat. An appropriate result can sometimes be achieved by having your solicitor put the other party on notice and either agreeing or disagreeing with the proposed disposal and setting out the consequences from the proposed conduct.

There are certain situations in which you should NOT apply for an injunction. Your solicitor will be able to advise you whether your situation is appropriate to apply for an interim injunction against disposal of assets. It is very important that the affidavit filed in support of such an application is expertly drafted and perhaps even settled by counsel.

Remember that lodging a caveat is generally quicker than seeking an injunction. This will be discussed next.

Using a Caveat to Protect Real Property Such as Your House or Land

Family lawyer regularly use caveats as a protective tool. caveats are an accessible and cost-effective means of protecting interests in real property. A caveat operates as a statutory injunction, preventing the registration on title of dealings contrary to the asserted interest and affording the caveator an opportunity to invoke judicial intervention to preserve their interest. Basically, a caveat is a document that any person with a legal interest in a property can lodge. After recording, a caveat note appears on the title giving anyone with interest notice that a third party claims rights over the property.

Usually the caveat lodged on behalf of a spouse who is not a registered proprietor of land (i.e. who is not on the property title). The situations is a little complex in that a property application under section 79 or section 90SM of the Family Law Act 1975 does not give rise to an equitable or other interest capable of being caveated. The Family Law Act 1975 confers a bare statutory right to make a claim for property adjustment. It does not, in and of itself, generate an interest in property, unless and until the court adjusts the property holdings of the parties to create such interests. It is up to your solicitor to identify the correct caveatable interest claimed and set out the grounds for the caveat.

After a caveat has been lodged, it is important to ensure that the caveat does not automatically lapse, this is done by issuing proceedings under the Family Law Act 1975.