Australia: Disclosure obligations and consequences of non-disclosure in Family Court proceedings

A common concern following the breakdown of a relationship is that the other party may be attempting to hide assets available for distribution or their earnings or income. This is often as a result of the breakdown of trust between the parties at the end of the relationship.

Sometimes the concern is warranted, as parties may attempt to hide assets or minimise their true value to benefit their positon. At other times it is more an exercise in satisfying the suspicious party that all assets have been disclosed together with their true value.

Accordingly, both parties have an ongoing duty of financial discourse to each other and the Court.

So what is Your Duty for Disclosure?

The duty of disclosure is your obligation to provide, to the other party and to the Court, information about your financial position and copies of all documents relevant to the issues in the case. These general duties of disclosure begin with compliance with the Family Court's pre-action procedures and are set out in the Family Court Rules 2004.

Your obligation for disclosure in relation to property settlement matters requires you to provide full and frank disclosure of all sources of earnings, interest, income, property and other financial resources. This applies whether the property, financial resources and earnings are in the name of the parties, held by or on behalf of one of the parties or are held in family trusts, companies or other such structures. You are also required to disclose information about any property disposal (whether by sale, transfer, assignment or gift) that was made in the year immediately before the separation of the parties or since the final separation and that may affect, defeat or deplete a claim.

Disclosure of information includes information recorded in a paper document or stored by some other means such as a computer storage device and also includes documents that the other party may not know about.

Complying with Your Duty

There are different ways in which you can comply with your disclosure. Generally compliance occurs through an exchange of a List of Disclosure documents followed by an exchange of any documents requested. However, Chapter 13 of the Family Law Rules provides alternate methods of compliance which includes:

  • production of documents [Part 13.2];
  • inspection of documents [Part 13.2];
  • copying of documents [Part 13.2];
  • list of documents [Rule 13.20];
  • orders for disclosure [Rule 13.22]; and
  • answers to specific questions [Part 13.3].

An Ongoing Duty

Your duty for disclosure continues until your case is finalised. That is, should your financial circumstances change during the course of the matter, you have an obligation to update the other party and the Court of this and provide evidence as to the same.

Consequences of Non-Disclosure

In the event that you fail to comply with your duty to disclose or file an undertaking or file a false undertaking the Court may:

  • refuse to give you permission to use that information or document as evidence in your case;
  • stay or dismiss all or part of your case;
  • order costs against you;
  • fine or imprison you on being found guilty of contempt of Court for not disclosing the document or for breaching your undertaking to provide disclosure to the Court; and
  • assume and assign a value to your interest in any property in which you have an interest so as to determine the net asset pool of the relationship.

Where a party has failed to make full and frank disclosure, or there is evidence that a party has lied in relation to their income, property or financial resources, it will result in the Court using their discretion which is ultimately likely to be adverse to that party's position.

Looking Practically at Suspected Non-Disclosure

Often with 'big money matters' where tens of millions of dollars are at stake the temptation to hide or 'dispose' of assets can heighten.

Parties can engage experts, such as forensic accountants to try and track hiding or disposal of assets in a complex game of hide and seek.

The most common methods parties attempt to hide assets are by hiding them off-shore in foreign bank accounts, creating a web of companies, hiding behind a corporate veil, family trusts, giving away assets by putting assets in the name of other family members, new partners, businesses/companies, or creating dubious debts to family members, trusts, companies etc.

In recent times the courts have become more forceful in dealing with non-disclosing parties.

Case Study: Serious Non-Disclosure of Income by Husband

In the matter of Booth [2010], the Court heard a property application after a 25 year relationship where the only significant asset available for distribution was the former matrimonial home, which the husband had brought into the relationship unencumbered.

The parties otherwise had four children, only two of which were minors (under the age of 18) and who lived with and were financially reliant upon the Husband.

The Court ultimately found that all financial and non-financial contributions of the parties during the relationship should be assessed as equal. The significant difference only being the husband's initial contribution of the former matrimonial home which the significance of the initial contribution diminished over the 25 year relationship.

It was the Husband's case that his post separation contributions were higher than the wife as he cared for the two minor children from 18 months following separation with little financial contribution from the wife.

The Court found that it was reasonable to access contributions as 61% to the Husband and 39% to the Wife, attributing a 1% adjustment in favour of the Husband for his post separation contributions for care of the children.

Therefore, the remaining significant consideration was section 75(2) factors, which included in this case the parties' future income earning capacities. The Wife was 24 years younger than the Husband and therefore likely to be in a position to work longer than him. The Court found that the Wife was likely to obtain only unskilled work, took into account his future care of the children and likely minimal financial assistance from the Wife.

However, the Court was unable to make a finding about the Husband's income earning capacity after finding that he had first hid (not disclosed) that fact that he was earning an income (cash jobs here and there) and then when it was revealed, he made limited submissions about the remuneration he was actually receiving.

Ultimately the Husband's income earning capacity was unknown and despite in theory the wife having a longer working life than the Husband and the Wife otherwise be re-entering the workforce, the immediate future could be that the Husband rather than the wife makes better financial head-way despite his care of the children.

Accordingly, the court used its discretion and found that there should be no Section 75(2) adjustment, as sought by the Husband in relation to the above because of the Husband's unknown financial position.

Had the Husband disclosed his cash jobs, the Court would have been in a position to confidently say they were aware of the parties' financial positions and may have in fact made a Section 75(2) adjustment as sought by the Husband. However, due to his failure to provide full and frank disclosure, the court made a finding adverse to his position.

Your obligation to provide disclosure is designed to ensure that assets cannot be hidden, disposed of unbeknownst to the other party or undervalued in an effort to better your financial position. This in turn, encourages parties to negotiate and / or the Courts to make orders with the confidence that the asset pool available for distribution is accurate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Alison Brooks
 
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