The “reasonableness” of addbacks
Addbacks: Say your ex has spent matrimonial funds on defending themselves in an unrelated legal matter. When it comes time for your property settlement to be worked out, shouldn’t the family courts place that liability squarely on the shoulders of your ex, since their legal troubles are their own? Why should you have to share your ex’s costs in that regard? Can you ask the family court to take that expenditure into account by dealing with it as an addback on the balance sheet? Let’s take a closer look at the subject of addbacks in property settlements and how courts go about handling such a situation.
“Addbacks” occur in property settlements when a court adds back funds (or other property) to the balance sheet. While the Family Law Act does not define the categories that are suitable for such an alteration in property interests, three common categories have been identified in the case law. These are:
- the payment of legal fees for family law matters;
- the premature distribution of property; and
- conduct designed to reduce the value of an asset, or reckless or negligent conduct (e.g. gambling away funds, or using funds to pay for gifts in extramarital affairs).
Legal costs paid for family law from what would otherwise be joint assets are generally always added back. The amounts are simply added back to the value of the property pool, and taken into account as a distribution to the party who spent them.
However, expenses “reasonably incurred” do not fall into the category of potential addbacks. So even if it appears on the face of it that legal fees and costs might be able to be added back, much turns on the idea of whether those costs were “reasonably incurred”. And this is open to interpretation by a trial judge, since the case law on addbacks has also established that trial judges have the discretion to decide whether to add back legal costs based on the unique facts of a case and with regard to delivering a just and equitable outcome.
In the case of Farnell & Farnell (court-appointed pseudonyms) heard recently in Sydney, a wife unsuccessfully asked the court to add back her ex-husband’s legal costs which he had incurred in defending criminal proceedings.
The husband had been accused of assaults and indecent assaults on a child but was acquitted of the charges. In defending himself in local court proceedings, the husband had incurred $273,968 in costs. He funded these costs using a drawdown on a mortgage, borrowing $196,000 on the security of the property, as well as the sale of shares which had been matrimonial property.
While numerous courts have approved the legal principle of adding back paid legal fees for family law proceedings if the source of the fees was joint funds, in this case the legal fees were for the husband’s criminal proceedings. The issue was whether those legal fees were “reasonably incurred expenditure”. If they were “reasonably incurred”, then (as the husband argued) they ought not be added back.
And that’s what happened in this case. In deciding whether to add the husband’s legal fees for the criminal proceedings back into the matrimonial pool as a liability, the court ruled that those costs were reasonably incurred, and declined to add them back.
The court said: “[The husband] had no choice but to defend the charges… There was no evidence that there was any other source of funds available to him to fund his defence.”
So here’s an interesting question. If the husband in this matter had been found guilty in his criminal proceedings, would the family court have still found his legal expenses in those proceedings “reasonably incurred”? One can imagine that an innocent person who had been forced to defend themselves against unfounded allegations and was acquitted, could have their legal expenses seen as “reasonably incurred”, as they were necessary to be spent through no fault of their own. But a person found guilty? Their legal expenses might no longer be seen as “reasonably incurred”, since the funds were spent essentially “unreasonably” defending a guilty person.
You can read this case here.
If you need assistance with a property settlement or any other family law matter, please contact Canberra family lawyer Cristina Huesch or one of our other experienced solicitors here at Alliance Family Law on (02) 6223 2400.
Please note our blogs are not legal advice. For information on how to obtain the correct legal advice, please contact Alliance Family Law.