If I transfer assets out of my name, does that mean my former partner can’t have a claim to it?
Jair Lovata comes to see you with a look on his face that he has a secret to tell you. Intrigued, you lean in and say to Jair, “How you going Jair, what’s on your mind?”
Jair goes on to tell you about his concerns that he has with his partner, how he feels that the spark of the relationship has died and that his children both 16 and 17 are close to finishing high school. Jair tells you that he has just met this beautiful younger lady friend, who has brought back the spark in his life, enjoying great coffees and dinner dates, which has got him thinking that he wants to get divorced.
You have known Jair for many years and have seen his wealth increase with the accumulation of investment properties and share portfolios through his family trust which were purchased through the income generated through his father’s family business, which he took over 15 years ago together with his brother Dean Lovata.
Jair tells you that his wife has not worked a day during their marriage and he wants you to assist him with transferring his interest in the family business and his family trust out of his name now so that by next year when he separates from his wife, he can tell her that he has no assets and she won’t be able to claim anything.
What should Jair be told?
It is important that Jair be told that the Family Court follows a process under the Family Law Act 1975 (Cth), whereby the Court will look at the respective contributions made by each party to the relationship, which includes financial contributions and non-financial contributions to determine the net pool of assets. So, despite Jair believing that his wife has not worked a day during the marriage, she will most probably have made homemaker contributions such as cooking and cleaning which indirectly contributed to the accumulation net pool of assets, including the family business and the family home.
Transactions to Defeat Claims – Section 106B of the Family Law Act 1975 (Cth)
During discussions regarding property, parties are required to make full and frank financial disclosure to the other party, including disclosing assets previously held and the details of the transactions. Third parties, including advisors could potentially be subpoenaed to produce information or documents which they hold in relation to financial information relevant to property interests of a party to the proceedings.
The Family Courts are well equipped to deal with the attempts by parties to seek to reduce the net property pool and prevent access to a property by claiming that they have either sold the asset, gifted it or simply transferred that property to another party.
Section 106B(1) of the Family Law Act 1975 (Cth) provides that:
“in proceedings under this Act, the Court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by a direction in the interest of, a party, which is made or proposed to be made, to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat such an order.”
The word ‘disposition’ is defined in section 106B(5) to include a sale and a gift. That section also defines ‘disposition’ to include ‘the issue, grant, creation, transfer or cancellation of, or a variation of the rights attaching to, an interest in a company or a trust’.
The transfer of assets to third parties, whether or not a third party is a bona fide purchaser and truly independent of the party effecting the transfer, will be closely examined by the Family Court. Where the transferee is a company or trust, the Family Courts will look behind the company structure and ascertain who really exercises control over that entity.
If you are concerned about the risk of losing your assets during a divorce, there may likely be no advantage to you in transferring assets to a third person in response to, or in anticipation of a claim from your spouse partner under the Family Law Act.
If a party was to take steps to transfer the assets, the Family Court may order the return of the funds or reversal of the transfer. The Family Court also has the power to ‘add back’ the money into the property pool and apply a credit to the net asset pool as if the property has not been transferred.
In these circumstances, it is paramount that family law advice is obtained to assist a party with preparing their family law matter and showing that they have provided a significantly higher financial contribution to the accumulation of the assets. This in turn can allow a party to retain a higher value of the share of the asset pool.
In the event a party attempts to dissipate assets out of the property pool, this would most likely significantly impact the way in which the Family Court will consider the character of the person during the proceedings. This can also impact parenting proceedings.
Considering the complex rules of the Family Law Act and the obligation of the parties to provide full and frank disclosure, it is paramount that your clients are proactive in thinking about strategies to protect their rights in relation to the property pool as early as possible if there is likelihood of separation or divorce in the future.
Get in touch with our Family Law team to assist you in preparing an action plan to achieve the best solution for your clients.
Bhavesh Mistry is a principal with expertise in the areas of asset protection, estate planning, litigation and commercial law. He also has experience in family law matters that involve complex financial issues, including property settlements.