Defending Family Law Property Claims

On 1 August 2024 Judge Street, sitting in Division 2 of the Federal Circuit and Family Court in Parramatta, handed down a decision illustrating the difficulty of protecting property settlement claims when a party dissipates assets.

What is Section 106B?

Section 106B of the Family Law Act 1975 (Cth) allows the Family Court to ‘claw back’ assets by setting aside or restraining transactions intended to defeat another party's claims in family law proceedings, particularly in property and financial settlements. This section is typically invoked when one party to a marriage or de facto relationship tries to dispose of, transfer, or alter ownership of property in a way that reduces the assets available for division, potentially harming the other party’s entitlements.

For example, you might see a husband with sell off a share portfolio and transfer to the proceeds to a parent or friend, or artificialy divest themselves of an interest in a business. Section 106B provides the court the ability to effectively reverse that transaction.

What happened in this case?

In the recent case of Wasem & Nasser (No 5) [2024] FedCFamC2F 1063 the main asset held by the parties was a partially completed development registered in the husband’s sole name and subject to a loan with Westpac, as well as other caveats securing debts to creditors as part of the construction.

Orders were made restraining the husband from dealing with the property, other than to borrow an additional $160,000 to complete construction.

Despite this restraint, and unknown to the wife until it was too late, the husband refinanced the loans and paid out creditors secured over the property, borrowing additional funds of $1.4 million. He then withdrew these funds in cash, expending it all without any proper explanation.

By the time of trial, the husband was not working, and had no assets left to meet the wife’s property settlement claim of potentially more than $1 million.

It is a tragedy in the present case that the husband managed to defeat the Court being able to make proper property adjustment orders in favouring of the wife. It is little satisfaction for the wife to be told that the law relating to caveats has not been satisfactorily amended as identified above. It is an awful outcome for the wife and her children that property which should have been available for the alteration of property interests has been effectively dissipated in breach of an injunction of this Court, and the wife and the children are left with no effective remedy by this Court in relation to s 79 of the Act.

When asked by the Court, "What have you done with the $1.4 million?", the husband said, "They don't exist. They are not available," and in the course of that hearing, the husband said, "The funds have been used. The funds have all gone, and they are not available," and said that the Court could make such orders as it wished.

The court held that the refinancing of the property could not be set aside under Section 106B because there was no evidence that the mortgagee had acted deliberately or with notice that advancing the funds and taking the mortgage would defeat the wife’s claim.

‘Accordingly, although the Court is very sympathetic to the terrible plight that the wife has been placed in by the conduct of the husband, the Court is not satisfied that it can make orders under s 106B of the Act in favour of the wife. Accordingly, the Court dismisses the wife’s claim under s 106B against the second respondent.

What about the husband’s breach of the injunction?

The Court had earlier indicated given the child-focused nature of these proceedings, with five children, that the contempt contravention application would be heard after the outcome of the property proceedings, which would also permit determination of the gravity of the losses. Mindful of the five children, and outstanding parenting issues, the Court indicated, that if convicted, the Court would not impose a custodial sentence. The Court was conscious of the very serious consequences potentially hanging over the husband, with ongoing parenting responsibilities, and the delay likely to occur before determination of the contravention application. The Court described the conduct of the husband in disregarding the injunction order made on 5 August 2021 by Newbrun J was, at a minimum, egregious and, if convicted, was criminal conduct.

The court did order the husband to pay all of the wife’s legal costs, however it is quite likely that she will be unable to actually recover those fees from him.

So what does this mean?

If you are separating from your spouse it is critical to consult with a solicitor at the earliest possible time regarding your likely entitlement from the property, and what steps you need to take to protect your interests in that property.

Whether a caveat or another protective step is available depends on the legal interest, the circumstances and the applicable law. It should not be assumed that lodging a caveat is available or would guarantee a particular outcome.

If you are wanting to protect your family business and assets from a family property claim, it is critical that you consult as early as possible with an experienced family lawyer with in depth knowledge of not only the family law act, but also the land titles act, the property law act, and the corporations act to ensure you are aware of the opportunities and risks involved.