Dividing assets after a divorce or separation is a difficult process. But a recent case highlighted the court's power to undo transactions where the assets were disposed of when a divorce or separation was only being "anticipated".
A common misconception is that if assets are transferred prior to separation occurring (or even post separation), then the assets are gone forever. This is usually done by the asset holder in an attempt to hide assets or try to defeat the claim of the other spouse or partner.
The Federal Circuit and Family Court of Australia have powers that can overturn or cancel transactions where one party is seeking to move or transfer assets which would ordinarily belong in the asset pool for division between spouses or partners in circumstances where there is an existing or anticipated property settlement.
The case
The case dealt with the question of what is "anticipated". It also highlighted how much time has to pass in the case of Ferguson v Ferguson [2022] FedCFamC2F 1194.
The judge overturned a property transaction, which occurred 21 years prior, which occurred to defeat the wife's claim to matrimonial assets.
The husband, who was happily married at the time, and wife signed their marital home over to the husband's daughter (from a previous marriage). The couple took out a life tenancy over the property.
It is said that the husband's intentions were to isolate the property from a potential family law settlement. The wife signed the documents, not understanding the effect until she sought advice from a solicitor in 2019.
The husband had communicated to his daughter that the purpose of the transfer was to avoid a potential future claim from his wife. Even though the separation was quite some time later the length of time had little bearing on the case. Of importance was that this was the husband's second marriage and it appears that he was taking steps to defeats this currents wife's claim.
The property was transferred to the daughter for no consideration and neither did she pay the stamp duty. Her windfall gain was manifestly contrary to the interest of both spouses.
The court ordered that the wife's position be reinstated and that the title revert to the spouses jointly. There is also provision for "adjustments" to be made so the that the wife's position is reinstated.
Whilst it is common for parties to consider on how to maximise their financial settlement, they should exercise extreme caution in doing so. Selling, disposing or hiding assets from the other party can have serious consequences, which can result in paying a portion of the other parties' legal fees.
There can be may reasons why parties why assets may be transferred, including but not limited to the parties are in their second marriage and more fearful of their financial position in the event of a separation. In blended families', adult children can also assert pressure and are often motivated by self-interest regarding their inheritance.
How do you protect your assets?
You should receive legal advice regarding how to protect your assets in the following circumstances:
- If you are wanting to transfer assets, in particular, to a family member or friend;
- If you are considering ways to protect your assets from a divorce or separation; or
- If you are entering into a serious relationship, such as a de facto relationship or you are about to get married.
It is important to ensure that any asset restructuring is done commercially and for legitimate purposes. Transferring property to avoid it being part of the property pool or out of the reach of a spouse is risky and reversing these transactions can be expensive, time consuming and stressful for all parties.
Property disputes in a separation are often frustrating and highly emotive. Proper planning can be done to set out your assets and ensure that this is minimised.
If you are considering your financial position prior to separating, getting advice is key. This way you will know what to expect and have some clarity about financial future post-divorce or separation.
Our family lawyers have a deep understanding of commercial realities and the needs of clients with varying size property pools. We can help navigate clients through the family court process and deal with complex property settlements. We provide our clients with professional and robust legal advice and representation.
Contact one of our family lawyers today to see how we can help.
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.