Property settlement disputes during separation or divorce can often become contentious, particularly when one party suspects that the other is concealing assets to reduce their share of the marital property pool.
The Family Law Act 1975 (Cth) (‘the Act’) provides mechanisms to ensure transparency and fairness in property settlements. If you believe your ex-partner is hiding assets, there are several legal avenues you can pursue to uncover these assets and protect your financial interests. Indeed, concealing assets can lead to significant penalties from fines to imprisonment. Even if a property settlement matter has been finalised, if one party uncovers evidence of hidden assets, the matter can be re-listed before the court. This article explores the steps you can take to address asset concealment during ongoing property settlement matters.
Why Hide Assets?
Hiding or concealing assets in property settlements matters refers to when one party deliberately hides or undervalues their financial assets in an attempt to avoid the division of property. By not including or undervaluing an asset, the property pool will be smaller and the funds available for distribution will be less. Sometimes, a party will make a mistake and inadvertently omit to make such disclosure but more often than not people do this consciously to:
- Avoid division in property settlements
- Retain more assets
- Exert financial control and/or punishment over their ex-partner
- Reduce any potential spousal maintenance obligations
Common strategies that a party may undertake to conceal their assets can include opening secret bank accounts and not disclosing them, depositing funds into overseas bank accounts or buying property overseas and not disclosing them or even taking out personal loans to increase liabilities.
While a party can attempt to hide assets, it can be quite difficult as there are a number of ways in which an asset can be discovered.
The Duty of Disclosure
Under the Act, both parties in family law proceedings are required to provide full and frank disclosure of their financial circumstances. This includes disclosing all assets, liabilities, income, and financial resources, in their joint and sole names and under their control. Chapter 6 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (‘the Rules’) should be read by each party during to a property settlement matter to ensure that they fully understand their disclosure obligations. Rule 6.06 deals specifically with parties disclosure obligations in relation to property settlement matters. The Court website also has a court brochure which explains the duty of disclosure which you can access here.
Disclosure is an ongoing obligation and continues until the matter is finalised. If your financial circumstances change over the course of the matter, you must provide the other party with updated disclosure evidencing this.
If your court proceedings have been commenced, then you will be required to sign and file an Undertaking as to Disclosure whereby you undertake that you have exchanged full and frank disclosure with the other party in a timely manner.
In terms of what constitutes full and frank disclosure, it involves providing accurate and complete details about:
- Bank statements
- Tax returns and financial statements
- Business interests and valuations
- Details of any real property (whether it is held solely, jointly with the other party or a third party)
- Superannuation funds
- Loans, debts, and liabilities
- Financial interests in trusts or companies
- Motor vehicles or boats
Failure to meet this duty can undermine the fairness of the property settlement process and may lead to the court drawing adverse conclusions against the party concealing information. Penalties to failing to comply with the duty of disclosure are result in the court:
- Reject a party using the information or document as evidence in their case
- Stay or dismiss all or part of their case
- Make a costs order against the non-compliant party
- Fine the non-compliant party or imprison them on being found guilty of contempt of court
If you suspect your ex-partner is hiding assets or being dishonest in their disclosure, you can request further disclosure and particulars from them to clarify what remains missing or suspicious. If they fail to cooperate, you can seek a court order compelling them to provide the missing financial information. However, unfortunately, not even a court order can guarantee a party’s compliance to provide that missing disclosure.
Section 106B – Transactions to defeat claims
One of the most important provisions of the Family Law Act that addresses hidden assets is Section 106B, which deals with transactions intended to defeat or reduce the claims of a spouse or de facto partner during property settlement proceedings. If you can demonstrate that your ex-partner has transferred, disposed of, or otherwise dealt with property in a way that was designed to diminish your claim, the court has the power to set aside or reverse those transactions.
How does Section 106B work? Section 106B is designed to prevent individuals from fraudulently transferring assets to third parties or hiding them in order to reduce the property pool in a property settlement. If the court finds that a transaction was carried out with the intent to avoid or reduce the value of the property pool for division, it can:
- Reverse the transaction or set it aside
- Order the restoration of the asset to the property pool for distribution
- Adjust the property settlement to account for the hidden or transferred asset.
For example, if your ex-partner sells or gifts an asset to a family member just before the property settlement proceedings begin, the court can intervene and reverse the transaction, effectively adding the value of the asset back into the property pool.
Forensic Accounting and Asset Tracing
In cases of suspected asset concealment, a forensic accountant can be an invaluable resource. Forensic accountants specialise in investigating financial records and uncovering hidden assets or fraudulent financial behaviour. They are experts at tracing money, identifying unusual transactions, and investigating businesses, trusts, and other entities that may be used to conceal assets.
What can a forensic accountant do? A forensic accountant can:
- Examine bank statements, tax returns, and other financial records to identify discrepancies or hidden assets
- Investigate unexplained transfers or withdrawals that may indicate attempts to hide or divert assets
- Trace the ownership of assets transferred to third parties, such as family members or friends
- Provide expert evidence in court if necessary, explaining how they arrived at their findings
Hiring a forensic accountant can be particularly useful in complex financial situations, such as when one party has a business, owns shares in a company, or has interests in trusts or overseas assets. Forensic accountants can uncover financial activity that may not be apparent through the ordinary discovery process, providing key evidence for your case.
However, we note that forensic accountants can be very expensive so the cost of engaging a forensic accountant must be carefully balanced against the overall property pool, value of the hidden asset and prospects of success in having that asset added back in to the pool.
Subpoenas
Another powerful tool in uncovering hidden assets is the use of subpoenas to obtain information from third parties. If you suspect that your ex-partner has transferred assets or hidden funds with the assistance of family members, business partners, or other individuals or institutions, you can apply to the court for subpoenas to obtain documents and information from these third parties.
How do subpoenas work? A subpoena is a legal order that requires a third party to produce specific documents or provide evidence in court. In family law cases, subpoenas are commonly issued to:
- Banks and financial institutions to obtain statements, account details, or transaction records
- Employers to obtain details of income and benefits
- Business partners or trustees to provide information about assets, debts, or financial arrangements
- The Australian Taxation Office to obtain copies of tax returns
Using subpoenas can help uncover assets that are being hidden through complex financial arrangements or under the control of third parties. It is particularly effective when your ex-partner has used intermediaries or entities to obscure the true ownership of assets.
However, while subpoenas are useful tools, you cannot use a subpoena to conduct a fishing expedition – there must be a relevant basis as to why you want to subpoena a third party. There are specific grounds on which a third party may object to the subpoena, including if it is too vague or unclear or if there was no legitimate purpose of the subpoena. If the third party is successful in their objection, then the subpoena will be null and void and they will not have to produce the requested documents.
Can you settle these disputes outside of Court?
While legal action is often necessary to address or uncover hidden assets, it is also possible to resolve disputes through negotiation or mediation. In some cases, once hidden assets are discovered, parties may come to a settlement agreement that resolves the matter without the need for prolonged litigation.
Mediation is a form of alternative dispute resolution where both parties work with a neutral third party (the mediator) to negotiate a fair settlement. If you suspect asset concealment, mediation can be a way to address the issue directly and attempt to reach a resolution without the adversarial nature of court proceedings.
However, if mediation does not result in a fair resolution or if your ex-partner continues to deliberately hide assets or attempt to diminish your claims in a property settlement, the court may be required to intervene and make a determination.
Consequences of Hiding Assets
If it is proven that your ex-partner has hidden assets or provided false financial disclosure, there can be serious consequences. These may include:
- Adverse Inferences: The court may draw negative conclusions from the concealment of assets, which can affect the division of property in your favour
- Cost Orders: The court may order your ex-partner to pay your legal costs due to their dishonesty or failure to comply with their disclosure obligations
- Penalties: In extreme cases, asset concealment can lead to contempt of court charges, fines, or even imprisonment
Case Examples
Sutton & Lasko & Anor (No.5) [2020] FCCA 2183
This case involves a property dispute between the Applicant and First Respondent who were in a de facto relationship. The court found that the Applicant had failed to make full and frank financial disclosure as well as provided falsified documents throughout the proceedings. Furthermore, the First Respondent has significant financial needs as she was the primary carer of their two (2) children and as a result required financial support from the Applicant.
At paragraph 77 of the judgment, the court stated, “…she [First Respondent] will receive the benefit of the nondisclosure by the Applicant and that she will have access to those assets that the Court presumes have not been disclosed by the Applicant in these proceedings”.
The court ordered that the shares in the company held by the Applicant were to be transferred to the First Respondent and funds held in trust were to be transferred to the First Respondent in partial payment of the costs order made in her favour. Further, due to the conduct of the Applicant, namely his failure to provide full and frank disclosure and disclosing fraudulent and falsified documents over the course of the proceedings, an order was made referring the matter to the Department of Public Prosecutions (DPP) for consideration as to whether he should be prosecuted.
This case is significant as it demonstrates there is real and serious penalties that apply where a party has failed to provide full and frank disclosure and where they have deliberately falsified documents to mislead the court.
Rooks v Padley [2014] FamCA 444
In Rooks v Padley, the Respondent failed to adequately or accurately disclose the proceeds of the sale of gold and silver nor could the Respondent confirm how the sale proceeds had been applied. It was found that some of the funds had to have been applied to his legal fees but the amount of approximately $340,000 was left unaccounted for. The Judge was satisfied, on the balance of probabilities, that the Respondent had undisclosed funds of approximately $340,000 in his possession and under his control and added that sum back into the property pool.
Summary
Hiding assets during property settlement proceedings is a serious issue in family law cases. If you suspect your ex-partner is attempting to conceal assets, the Family Law Act provides several mechanisms to ensure fairness in the property settlement process. These include formal discovery, section 106B for setting aside fraudulent transactions, the use of forensic accountants, subpoenas, and court intervention.
It is essential to consult with an experienced family lawyer who can help you navigate the legal complexities of asset concealment and ensure that your rights are protected. By utilising these legal tools, you can uncover hidden assets and secure a fair and equitable property settlement.
RAMSDEN FAMILY LAW – HOW WE CAN HELP
If you are concerned that your ex-partner may be hiding assets from you, please consult our experienced family law specialists at Ramsden Family Law. We are available to provide you with the necessary legal support and guidance to protect your best interests during this time.
Our team of dedicated family law specialists brings extensive experience to the table.
The content of this article is intended to provide general guidance to the subject matter and must not be relied on as legal advice. Specific advice should be sought about your circumstances.
