Addbacks in Family Law Property Settlement Proceedings
In a recent decision handed down by the Full Court of the Family Court of Australia on 6 September 2018, the issue of “addbacks” was addressed. Addbacks are amounts of money spent by one or both parties after separation which the other party argues should not have been spent and should be “added back” to the asset pool.
In that case listed as Trevi and Trevi  FamCAFC 173, the case involved final property orders being made eight and a half years after the parties separated. Both parties claimed that various sums of money should be added back into the asset pool to be divided between the parties. The wife claimed the sum of $587,032.00 should be added back against the husband and the husband claimed that an amount of $913,772.00 should be added back against the wife which included an amount of $437,628.00 in paid legal fees. The Judge refused to add back any of the sums claimed by either party. The husband was an equity partner at a law firm that represented him and the preparation for trial and attendant legal work was conducted in-house. The Judge found that there was no clear evidence the husband would ever have to pay his own legal fees.
In this particular case, the Full Court referred to two separate decisions relating to the question of addbacks. The first case they referred to was Omacini  FamCA 195 http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FamCA/2005/195.html;  FLC 93-218. In that case, three clear categories of addbacks were identified, being:
(a) where the parties have expended money on legal fees;
(b) where there has been a premature distribution of matrimonial assets; and
(c) waste or wanton, neglect or reckless dissipation of assets.
It is important to note that in most cases addbacks are not accepted by a Judge and are considered exceptional. It was also pointed out that an important parallel proposition is that the parties do not “go into a state of suspended economic animation” after separation and thus reasonably incurred expenditures does not usually come within accepted categories of addback.
The second case that the Full Court referred to is the case of Chorn and Hopkins  FamCA 633, (2004) FLC 93-204. In that case, it was stated that while the treatment of funds used to pay legal costs remains ultimately a matter for the discretion of the Trial Judge, if the funds used existed at separation are such that both parties can be seen as having an interest in them, then such funds should be added back as a notional asset of the party who has had the benefit of them. Further, if funds used to pay legal fees have been generated by a party following separation from his or her own endeavours or received in his or her own right, they would generally not be added back as a notional asset, nor would any borrowing undertaken by a party post separation to pay legal fees be taken into account.
Therefore, careful consideration must be given to whether your client should spend money or dispose of assets that existed at the time of separation from his/her spouse and how the payment of legal fees in various property settlement matters before the Federal Circuit Court or the Family Court of Australia are to be dealt with in negotiations and in Court proceedings at a Trial.