In Australian family law, an addback refers to a financial adjustment made to a property settlement calculation, where the court adds back certain assets or financial contributions that were wasted, dissipated, or improperly dealt with by one of the parties.
In this article we dive a little deeper into add backs and how they work in relation to family law.
What is an addback?
An add back was typically treated as assets added back to the property pool to be divided between the separated parties, when one of the parties dissipated or disposed of assets prior to final property settlements.
This usually occurred when Courts made orders to increase the value of amounts which were no longer available.
An add back occurred when one of the parties:
- Gambled funds;
- Gave away property or land to friends or family members;
- Withdrew funds from bank accounts and spent such funds;
- Sold assets below market value; and
- Any alternative means which significantly reduced the asset pool.
What happens if the Court found one of the parties intentionally or recklessly reduced the value of the property pool?
- The dissipated waste could be added back on a notional basis.
- Part of the funds could potentially be added back to the pool if it could be proved that the dissipation of the assets were caused by day-to-day living expenses.
- Another example of day-to-day living ma include decreasing the pool for legal fees, as seen in Chorn & Hopkins [2004] FamCA 633 at [57]: If the funds used existed at separation and are such that both parties can be seen as having an interest in them (on account, for example, of contributions), then such funds should be added back as a notional asset of the party, who has had the benefit of them.
Premature distribution of matrimonial assets
Following separation, there are circumstances where one of the parties may dissipate, spend, or transfer matrimonial assets before final orders are made. Matrimonial assets may include anything financial belonging to the ‘asset pool’, whether it be money in a bank account, shares, or real property, to name a few.
When one party benefits from essentially benefiting from that money, resulting in the other party who anticipated to receive their share, in fact receives less. Given that money has already been spent, upon application, the Court may “add-back” the money into the pool of assets on a notional basis, to allow for the appropriate distribution, which is just and equitable between the parties.
What 4 steps must the Court consider when applying add-backs:
- What are the assets?
- Contribution by the parties?
- What are the current and future needs of the parties?
- Is it just and equitable?
In Townsend v Townsend [1994] FamCA 144, the husband sold his taxi licence for $148,000.00 and retained and spent the proceeds of sale. Considering that would be unjust and unfair, the Court ordered that such funds were to be brought back into the asset pool to distribute accordingly.
What happens when one party has spent all the money?
On occasion, the Court may allow for a higher percentage adjustment in one party’s favour, but the value of the asset already spent will not be added back. In any event, it does not compensate the party who has been disadvantaged.
Section 79(1) and s 90SM(1), respectively of the Family Law Act 1975 allows the Court to make such order as its considers appropriate, given the nature is just and equitable.
Is adding back considered the rule or the exception?
‘the concept of adding monies reasonably disposed of back into the pool ought to be the exception rather than the rule..”
Loans v Gifts
When parties separate, they usually argue that funds which were provided to them by parents, occasionally for the advancement of a deposit of a home for example, one party may argue that such funds were provided as a loan whereby repayment is required, subsequently said sum should appear as a liability on the balance sheet as a debt.
Naturally, the opposing party may argue that the advancement was in fact a gift from the in-laws, to avoid having the debt shared by the spouses during the division of property settlement.
Ordinarily, any funds provided by family members lack loan documentation which essentially becomes complicated in the world of splitting property.
- Numerous arguments circulate particularly:
- Gifts are not required to be paid back.
- Can the debt be called upon if there is a statute of limitations?
- Do your parents really expect us to pay back that money?
Presumption of Advancement is usually presumed that property or money advanced to a child by their parent is in fact a gift. Without overriding evidence, it cannot be expected to be intended as anything other than a gift.
Justice Gordon and Edelman at [106] in Bosanac v Commissioner of Taxation (2022) HCA 34 states:
… the question may be framed in these terms: what were the parties’ words or conduct at the time of the transaction or so immediately thereafter as to constitute part of the transaction – the objective facts.
What if the Court accepts there is no Presumption of Advancement:
If the Court finds the funds were not a gift, then the Court must determine if the loan is statue-barred according to the Limitation Act 1969 (NSW), namely six or twelve years, respectively.
If it is shown the period of time has expired, then the loan becomes extinguished.
Conclusion
In conclusion, addbacks are an important aspect of Australian family law that involves the court adding back certain assets or financial contributions to a property settlement calculation that have been wasted, dissipated, or improperly dealt with. The court will consider several factors when applying addbacks, including assets, current and future needs, contributions by the parties, and whether it is just. While adding back spent funds is not always possible, the court may allow for a higher percentage adjustment in one party’s favor. In addition, the issue of gifts from family members versus loans can be complex and often requires the court to consider the words or behaviour of the parties involved. Ultimately, addbacks aim to ensure that the property settlement is just and equitable between the parties.
¹Gollings & Scott [2007] FamCA 397 the Full Court cited in C & C (1998) FamCA 143 (Nicholson CJ, Ellis and Kay JJ) at [46].
²Section 14 (1)(a) Limitation Act 1969 (NSW).
³Section 16 Limitation Act 1969 (NSW).
