Hidden treasure? There are consequences to hiding assets during divorce proceedings

Even though hiding assets and sources of income in divorce proceedings can have serious consequences, there are those that prepared to take that risk. Property settlement negotiations can only really begin seriously once both parties have fully disclosed their financial position to each other.

Under the Family Law Rules, each party to family law proceedings is under an ongoing duty of disclosure. This means that each party must provide all relevant information and documents. This duty lasts from the time that the parties begin discussing a property settlement until the matter is finalised.

The duty of disclosure in family proceedings

During divorce proceedings, both parties are expected to make a ’full and frank’ disclosure of their finances. Hiding assets or income in separation and divorce goes directly against this principle.

While the temptation to hide assets may exist, particularly where the split is acrimonious, it is not easy. In order to conceal assets, a party might move money between bank accounts, invest in new ventures, or overpay bills to deplete a bank account. However, as part of the disclosure process, each party will be expected to provide all relevant information and evidence, including tax returns, payslips, bank statements, superannuation, any inheritances received, information about any trusts they have an interest in and any other documents or information relevant to establishing the full financial picture. If a party refuses or fails to disclose financial documents, then the other party can apply to the Family Court for an order compelling them to make the disclosure.

If disclosure is still suspected to be insufficient, then one or both parties can engage a forensic accountant to determine whether any assets have been concealed or undervalued. This would normally only be undertaken if considered worthwhile given the costs involved.

Rule changes improving disclosure of superannuation assets in property settlement matters

In April 2022, new measures were introduced to assist transparency in property settlements regarding superannuation.

Superannuation is often one of the most significant assets held by an individual. The changes prevented under-reporting by enabling a secure electronic information-sharing mechanism between the Family Law Courts and the Australian Tax Office. This means the Court has visibility of the superannuation information held by the tax authorities, so these assets cannot be easily concealed.

Transferring assets in anticipation prior to separation

The Family Courts have powers to overturn transactions made in anticipation of separation where one party tries to move assets which would otherwise belong in the asset pool.

The recent case of Ferguson v Ferguson (2022) considered the question of anticipation with the Court overturning a property transaction that occurred as long as 21 years earlier. A married couple signed their marital home over to the husband’s daughter from a previous marriage for no consideration while remaining in the home as life tenants. The Court concluded that the husband had taken the step to avoid a potential future claim from his wife. His wife had signed the documents without understanding the consequences until she was advised by a solicitor in 2019. The Court ordered the reinstatement of the wife’s position as joint owner.

Penalties for non-disclosure

Hiding or the under-valuing of assets increases the costs for the other party who have to take steps to locate the assets, frustrating and drawing out the legal proceedings.

If a party does not comply with their duty of disclosure, the Court can impose a range of penalties. These sanctions can include:

• dismissal of all or part of their case;
• make an order that the party pay a portion of the other party’s costs;
• issuing a fine;
• sentencing the party to imprisonment for contempt of Court.

Timing Matters in a property settlement

The parties have 12 months from the date of divorce to settle property matters or apply to the Family Courts for orders to be made. De facto couples have 24 months from the date of separation to settle property matters.

What does it mean?

If both parties to a divorce are open and honest about their financial situation, it can help to ensure that negotiations are effective and timely, increasing the chances of reaching a solution without the expense of going to Court. If one party is hiding money in a divorce, this could result in the negotiations breaking down and going to Court left as the only option.

The Court will use a ‘stepped’ process to determine each person’s ‘just and equitable’ entitlement in making a settlement. Fundamental to such a determination is a complete understanding of the property held by each party, jointly and separately, along with the contributions each has made to the relationship.

It is incorrect that any financial decisions will not be factored into a property settlement after separation. It is necessary to disclose relevant financial information up to the point that the property settlement is finalised. This is the primary reason why it is usually recommended the parties settle property matters as soon as possible once the relationship has broken down. Divorce is not necessary to finalise a property settlement, and it can be done immediately following separation. Parties can then move on independently without ramifications for the future financial decisions that each party will undoubtedly need to make.

Anyone failing to provide ‘full and frank’ disclosure in family law proceedings can be charged with contempt, resulting in a significant fine or even imprisonment in egregious cases.

Contact our Family Law Solicitors in Sydney, NSW

When a relationship breaks down, obtaining expert legal advice as soon as possible is important to understand how best to protect your interests and formalise a property settlement as quickly as possible. The team at Szabo & Associates Solicitors are experienced practitioners in all family law matters, including parenting arrangements, child custody disputes, child support and spousal maintenance, and property settlements. Please contact us on 02 9281 5088 or complete our online contact form.