The Duty of Disclosure In Family Law: How the Federal Circuit and Family Court of Australia protects you in your property settlement proceedings

Financial Disclosure within Family Law

What is financial disclosure in family law?

Financial disclosure is the act of revealing financial information to another party.  In family law, this is usually done when a marriage or de facto relationship ends and includes revealing assets, income, expenses and debt.  This information is used to determine the division of property, spousal and child support and other financial matters.

The layperson’s basic understanding of the application of the law is too often informed by contemporary pop culture. Family law is no exception to this rule.  What one will experience when going through a divorce or property settlement is markedly different compared to what the media suggests. The movies we watch and the tabloids we read can mislead us into thinking there are no repercussions after a relationship breakdown were you to hide or dissipate assets of the relationship. The Federal Circuit and Family Court of Australia (‘the Court’) deals with these issues by imposing a duty upon parties that they disclose their finances to one another.

Financial disclosure in family law example

If the Court failed to impose this duty of disclosure, the experiences of well-known characters Brenda and Elise in the 1990s classic film The First Wives Club would likely become a reality. In the movie the title character Brenda, played by Bette Midler, discovers her ex-husband Morty had been committing tax fraud throughout their marriage. Brenda only learns of this several years after their divorce and proceeds to use the information against Morty for her own financial gain. In the same token another character Elise, played by Goldie Hawn, sells all her ex-husband’s possessions to a friend for a nominal sum of one (1) dollar and liquidates all his assets through a counterfeit charity auction. Elise undertakes these drastic measures to advance her position and avoid paying spousal maintenance.

While the actions of Brenda and Elise give for an exciting and dramatised viewing experience, the reality of property settlement proceedings is one of much higher stress and consequence. If you imagine it was your money one of these ladies stole or ‘auctioned’ away and that it was your livelihood they dissipated, you would likely very strongly wish that legal protections had existed to prevent them.

Divorce, separation and the division of property are all intimately linked. The Court views a traditional ‘breadwinner’ role equally with that of a traditional ‘homemaker’ role. While these delineated roles are not present in every relationship, what this demonstrates is that the Court acknowledges different financial and non-financial contributions made by parties toward their relationship. As such, the Court protects both roles equally and makes the necessary adjustments for all the iterations in-between.

One such way the Court protects parties in this regard is through the duty of financial disclosure it places upon you and your former spouse or partner. This article will explore the duty of financial disclosure, outline what it means for parties and discuss how it is relevant in property settlements within the context of family law.

Defining the Duty of Disclosure in Family Law

The duty of disclosure in family law is the requirement on each party to provide the court with full and frank disclosure of their financial situation and relevant information to the property proceedings.

A fundamental requirement of property settlement proceedings is that the parties have a general duty of disclosure. It is essential that parties in a relationship breakdown are aware of what this duty entails and the further obligations and consequences that may arise from a failure to adhere to the duty. Another issue of note is that there are limitations on when you may file an application for property settlement. If parties were married they have one (1) year after the date of their divorce, and for de facto couples they have two (2) years after the date of their separation, to file property proceedings. This is something to keep in mind if you are considering property settlement proceedings.

The duty of disclosure applies from the beginning to the end of the property proceedings. There are serious consequences associated with a failure to comply with this duty. Failure to comply may lead to punishment for contempt of court, and the Court may use its discretion to make a costs order against you. This would make you liable to pay your own legal costs associated with the proceedings as well as the other party’s legal costs.

The Court will also require the parties file an undertaking as to disclosure. This is a promise to the Court that you will undertake to comply with your duty. Failure to comply with the undertaking will be treated the same as a breach of a court order, where you may be unable to use information as evidence or the Court may even stay proceedings or dismiss your case.

In the case of Weir and Weir (1993) FLC 92-338, the husband in the proceedings had deliberately failed to disclose a sum of $100,000. Upon appeal the Court discovered these funds and ordered the husband to pay the wife half of the hidden money. As the non-disclosure was deliberate, the Court applied the principle that it should not be unduly cautious in making a finding favourable to the innocent party. This demonstrates the gravity the Court ascribes to parties’ duty of disclosure.

Financial Documents to Disclose

The Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (‘the Rules’) details a comprehensive non-exhaustive list of the types of documents parties are expected to disclose including:-

1.    Tax Returns and Notices of Assessment;
2.    Payslips or recordings of earnings;
3.    Bank account statements;
4.    Loan statements, including personal loans and mortgages;
5.    Evidence of any other earnings, including income that is paid or assigned to another party, person or legal entity;
6.    Credit cards, finance or store hire purchase statements;
7.    Share statements and particulars of all shares in any public company;
8.    Particulars in relation to any trust in which a party has an interest in, including the Trust Deed (and documents relating to any movement of funds within the Trust or to a beneficiary);
9.    Particulars for any partnership in which a party has an interest in, including the Partnership Agreement;
10.    Particulars of any property disposed of by sale, transfer, assignment or gift; and
11.    Financial Statements and Business Activity Statements for any corporation, business, trust, partnership or other commercial entity in which a party has an interest in (for example, as a  director or shareholder).

This list indicates the necessary level of detail that parties’ must first disclose regarding their finances. They are also obliged to respond to any further and reasonable requests for financial disclosure that are relevant to the proceedings. The duty of disclosure does not finish with one (1) exchange of financial documents, as it is an ongoing duty through the length of the proceedings.

Applying the Duty of Disclosure to Brenda and Elise

By way of example, in The First Wives Club, Morty should have disclosed all his documents relating to his businesses prior to any settlement negotiations taking place. If there were any observable discrepancies in company records and taxation documents, this would have enabled Brenda to request further information from Morty in relation to his company and business dealings. Similarly, Elise had a duty to disclose to her ex-husband that she disposed of the parties’ assets after they separated.

If Brenda, Elise and their respective ex-partners exchanged their financial disclosure prior to dealing with any of the assets, then Brenda

would have become aware of Morty’s dealings much earlier on. Elise would have also been exposed for dissipating all her ex-partners assets, as her ex-partner would likely have asked for further particulars of the sale of the items and the one (1) dollar purchase price would have come to light.

Financial disclosure would have invariably resulted in further implications for the parties and for their overall property settlement. While this issue is not explored in this article, Elise’s actions may have also given rise to a claim by the ex-husband that the value of the disposed property should be ‘added-back’ into the property pool. This is an example of another consequence facilitated through the duty of disclosure, allowing for a just and equitable outcome.

Conclusions

Financial disclosure in family law allows the parties to properly negotiate their property settlement with all their cards on the table. The duty of disclosure is integral in allowing parties to properly ascertain and identify the total assets available for distribution. Without this duty, parties would be unable to accurately determine the net asset pool which would in turn prevent a just and equitable determination of how the property should be divided.

As the Court stated in the recent case of Stamatou & Stamatou [2022] FedCFamC1F 241, failure to disclose relevant information:-

 “…undermines the process of adjudication for a settlement of property because non-disclosure stymies the Court’s ability to identify the property of the parties…”

If you are ever on the fence as to whether to disclose information in your property settlement, the answer to this question is undoubtedly always ‘yes’.

If you are considering a separation or divorce or have a Family Law enquiry, please contact us on (02) 9437 0010 or email at enquiries@familylawyersdw.com.au  to discuss your matter with no obligation, in complete confidence. 

At Doolan Wagner Family Lawyers we specialise in complex family law matters and are conveniently located in St Leonards, on Sydney’s North Shore. We have a team of accredited and experienced family lawyers available to help guide you through the emotional and financial challenges of separation and divorce. 

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About the Authors: 

This article was initially written by Carlie Ikonomou in conjunction with Emilia Turnbull and Lisa Wagner.

 Lisa Wagner is Managing Director and Principal of Doolan Wagner Family Lawyers. Lisa is an Accredited Family Law specialist holding honours degrees in economics and law. She is also a Collaboratively trained Family Lawyer, a Family Dispute Resolution Practitioner, and a Parenting Coordinator. Lisa has over 30 years’ experience as a specialist family lawyer, experienced litigator and skilful negotiator in all family law matters; working for the majority of that time in Sydney’s CBD as well as on Sydney’s lower North Shore and Northern Beaches.

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Emilia Turnbull holds a Bachelor of Laws and a Bachelor of Security Studies from Macquarie University and a Master of Laws specialising in International Human Rights Law from the University of NSW. She has experience in a range of property and parenting matters and has a background in Wills & Estates law as well as Family Provision litigation.  Having studied International Law, Emilia has a strong focus on upholding community values and in having an empathetic approach to client concerns. Her communication skills and high attention to detail allow her to diligently work with other senior lawyers at Doolan Wagner Family Lawyers.

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