What is an “Add Back” in a Family Law Property Settlement?
An “add back” is a financial correction made when formalising a property settlement. In this context, the court reinstates specific assets or financial contributions that were either squandered, spent, or mishandled by one of the involved parties.
Put another way, an add back is a legal mechanism to put back into the pool of assets something that was once part of the assets but has been diminished or misappropriated by one party.
It is usually made on spending that occurred between the separation and finalisation of the property settlement.
Add backs can also be referred to as “negative contributions.”
In what circumstances can I apply for an “add back”?
In the decision of Omacini v Omacini (2005) FLC 93-218, the Court found (without limiting additional categories), that there are 3 cases where the Court has determined it is appropriate to notionally add back assets that no longer exist, namely:
- Where parties have expended money on legal fees;
- In the course of conduct designed to reduce the value of an asset or reckless or negligent conduct (Kowaliw & Kowaliw (1981) FLC 91-092)
- Where there has been a premature distribution of matrimonial assets per Townsend & Townsend (1995) FLC 92-567).
Therefore, we see that the most common scenarios where add backs are considered include:
Spending Monies/Disposing of Asset:
Imagine a situation where one spouse has intentionally spent a significant amount of money or disposed of a valuable asset with the intention of reducing the pool of assets to be divided during a property settlement. In such cases, a party can apply for an add back to restore the value of the asset or funds that were unjustly dissipated.
Example: Sarah and John are going through a divorce. John, knowing that their property settlement is imminent, sells his vintage car for a fraction of its actual value to a friend. Sarah can apply for an add back to include the original value of the car in the asset pool.
Wastage refers to the reckless or deliberate destruction of assets. If one spouse has intentionally damaged or wasted marital property, an add back can be pursued to compensate for the loss incurred.
Example: Lisa and Mark are separating. In a fit of anger, Mark destroys a collection of expensive artwork that they jointly owned. Lisa may seek an add back to account for the value of the destroyed artwork.
Legal fees incurred during the divorce proceedings can be a significant financial burden. If one party has incurred excessive or unnecessary legal fees, the other party may apply for an add back to compensate for these expenses.
Example: Mike engages in a prolonged legal battle with his ex-spouse, incurring substantial legal fees that could have been avoided through negotiation. His ex-spouse, Susan, can consider applying for an add back to recover a portion of these expenses.
What about Gambling?
Gambling was historically thought of as wastage. However, the Court has recently taken a view that some gambling may be a form of entertainment and therefor may not be eligible to be counted as an “add back”.
Approaches different to Add Backs.
There have been recent cases where the Court has expressed their dissatisfaction for “add backs” and have outlined that a different approach should be taken early on in the proceedings. These approaches include:
- Injunctions to protect property
- Freezing of bank accounts or mortgages to prevent withdrawals
- Partial property settlements
Should an add back be pursued in a property settlement?
The decision to pursue an add back in a property settlement should be carefully considered. It’s not a one-size-fits-all solution, and there are various factors to weigh, including:
- The Value of the Add Back: Is the amount or asset in question significant enough to justify the legal effort and expenses associated with pursuing an add back?
- Costs vs. Benefits: Consider the potential costs of legal proceedings to achieve an add back versus the anticipated benefits of recovering the asset or funds.
- Strong Evidence: Assess the strength of your evidence and the likelihood of successfully proving your case. Weak evidence may result in legal fees without a favourable outcome.
- Legal Advice: Consult with a family law attorney to evaluate the viability of an add back in your specific case. They can provide valuable insights into the potential success of your claim.
- Impact on the Settlement: Think about how the inclusion of an add back will impact the overall property settlement. It may be a strategic move if it significantly alters the division of assets in your favor.
- Alternative Dispute Resolution: Consider exploring alternative dispute resolution methods, such as negotiation and mediation, before resorting to legal proceedings. These methods can lead to more amicable and cost-effective resolutions.
What is notional property in family law?
In family law, notional property refers to assets or contributions that may not be directly owned by one party but are considered as part of the property pool for the purpose of property settlements. Notional property can include:
- Superannuation Interests: The superannuation or retirement benefits of either spouse can be considered notional property and subject to division.
- Future Inheritances: Anticipated inheritances, even if not yet received, can be included in the property pool.
- Third-party Contributions: Contributions from family members or friends that have financially benefited the couple may also be treated as notional property.
Notional property is assessed in the interest of achieving a just and equitable property settlement, taking into account the financial circumstances of both parties.
In order to protect your property from potential wasteful expenditure, the use of one of the above preferred approaches will ensure your property is secure until a determination is made either by mediation, negotiations or by the Courts, as to its distributions.
Speak with our friendly lawyers today to discuss what avenues are available and what may be the right path for your current situation.
Book a free 15 minute call
Contact us for an obligation-free, 100% confidential chat.
Need help with your separation?
Our separation packages make the process easier and more affordable.