Arranging financial affairs to avoid a future family law claim is not uncommon, however, the court has the power to overturn these transactions, potentially going back well before a separation was ever contemplated.
The Federal Circuit and Family Court of Australia (the court) has the power under section 106B to undo transactions made to defeat an existing or anticipated order for property settlement.
It is not uncommon, when faced with the threat of a family law property settlement claim, for a party to dispose of assets to third parties, in an effort to quarantine those assets from claim by the other party.
This can sometimes trigger a challenge to these transactions, especially when transferred to related parties such as adult children or other relatives/friends on less than commercial terms. In these circumstances, establishing the transaction is made to defeat an existing or anticipated order may not be overly difficult.
However, what happens when an asset is disposed of while parties are happily married, there is no intention to separate, and therefore no anticipated order?
Is the potential for the parties to one day separate enough to satisfy the test of an order being “anticipated”?
This was the question dealt with by the court in the recent decision of Ferguson & Ferguson [2022] FedCFamC2F 1194.
18 years before separation, and while the parties were happily married, the husband and wife transferred their home to the husband’s adult daughter from a previous relationship, in exchange for a life interest. The husband and wife both signed the transfer of land, however, the wife alleged she did not realise the consequences of what she was signing at the time.
Part of the reason for the transfer was that the husband wanted to avoid a claim against the property by his estranged adult son in the event of his death. However, in her evidence to the court, perhaps inadvertently, the daughter admitted another reason was his concern that the wife would potentially try to take the property and leave him homeless.
This was sufficient for the court to find the transfer of the property was made to defeat an anticipated property settlement order and was therefore set aside, bringing the home back into the asset pool for distribution between the husband and the wife.
It is very common for parties to second marriages, often fuelled by adult children who see a threat to their future inheritance, to restructure their financial affairs when entering into second marriages, to protect those assets from claim in the event of a separation.
This case demonstrates the importance of ensuring that such restructuring is undertaken commercially and for legitimate reasons, other than to remove the assets from the reach of a new spouse. It is also important to include the other spouse as much as possible so there can be little argument that such transactions were done without the knowledge or consent of the other party.
For a party who may be suspicious of assets being transferred out of the control of their spouse to avoid any potential property settlement claim, even if happily married, then prevention is better than cure. Mrs Ferguson may not have been successful had the daughter not inadvertently provided evidence to the court which supported her case. She would have been best placed, and avoided significant dispute and legal fees, had she sought to better understand the transaction in the first place.
