When you separate at the end of a relationship or marriage, you each have an obligation to provide information and documents to the other about your financial situation. This is a positive and ongoing obligation – so, handing over some documents at one point in time does not mean you don’t have to do this again.
The obligation also requires you to be proactive and to advise changes in your financial circumstances as they arise, on an ongoing basis. The obligation does not stop until your financial settlement is finalised.
Hiding Assets Before Divorce
Some people may however decide that hiding assets before separation and divorce is a strategy they are going to pursue – but, failing to disclose financial information and deliberately obscuring your true financial situation can lead to significant legal consequences.
In this article we explore the framework and parameters of financial disclosure and what might happen following non-disclosure of assets held either in Australia or overseas.
Financial Disclosure Requirements in the Property Settlement Process
You will hear the term ‘financial disclosure’ early and often following your separation and during the property settlement process. One of the first steps in any property settlement negotiation is to identify, or ‘disclose’ information which makes it possible to identify (and eventually, to value) the assets, liabilities and financial resources arising from the relationship. This includes joint assets and assets held in a party’s sole name, or jointly with any third party or held by an entity in which a party may have an interest.
The financial disclosure requirements are simple. You are expected to disclose documents which identify and corroborate property, liabilities and resources and the financial circumstances generally of a party (including about income earned and superannuation interests). Documents will be relevant if they:
- Verify your property holdings and interests;
- Verify your financial liabilities and resources;
- Verify your income historically, now or in the future, if relevant; and
- Are related to a dispute about an asset, liability or a financial resource.
When we first speak with our clients we take your instructions as to your understanding of the property pool and the financial circumstances of your relationship. From there, we will assess the information provided by you or publicly available (for example through real property title searches) and embark on a process of collating those documents. The rules of the Courts shape the primary documents which are required to be produced and further disclosure may be needed relating to specific issues or areas of dispute.
Some of the usual documents you are required to produce include:
- Your last three Individual Tax Returns and Notices of Assessment;
- Evidence and documents as to your income, from all sources;
- Documents relating to corporate asset structures in which you have an interest (including Trusts), including but not limited to financial statements, tax returns and business activity statements;
- Documents that show assets you have sold in the 12 months leading up to separation and the use of the proceeds of sale;
- Inheritances you have received or which may be imminent;
- Investment information; and
- Superannuation benefit statements from the fund and a Family Law Information document (form 6) about your interests, prepared by the fund.
The goal of this exercise is to identify and corroborate your financial position and to verify your former spouse’s financial position. This information is often sought to establish the financial situation of each party at the beginning of the relationship and to address relevant changes during the relationship. The specific financial affairs of households will vary and the types of documents and specific issues to be explored and verified are not always the same.
Until a property settlement is finalised, any changes to your financial circumstances must be disclosed and verified by production of documents. Examples of changes that may occur include:
- The maturing of investments, leading to payment of dividends or sale proceeds;
- Receiving otherwise unexpected property – like inheritances;
- The sale of property;
- Changes or updates to superannuation;
- Lotto or gambling winnings;
- If you become a beneficiary of a family trust or receive a distribution from a trust;
Generally speaking, you need to gather those documents which verify your respective financial circumstances and any assertions you make which may not be agreed (for example, to prove the property you had at the beginning of the relationship). Given that your property settlement may take months or years to finalise, any changes must be disclosed as any changes occur.
Failure to Disclose
Even though full disclosure is required and non-disclosure has penalties, it is not uncommon for people to take steps to abridge this process and fail to comply with their disclosure obligations.
While it is possible to hide assets, it’s not wise to do so. Our lawyers are familiar with the common methods and “tricks” to try to hide assets, and where required, further investigation and work with professionals (including forensic accountants) will occur, focussed on tracking and locating assets that have not been disclosed. Where an asset is dissipated or transferred to a location that makes it harder to recover (for example, funds being transferred to a third party outside of Australia), it is common for the Courts to adjust the remaining property pool, to ensure the “innocent” party is not disadvantaged. Costs Orders can be made against the offending party and in more extreme cases, they may face contempt of Court proceedings.
The failure to make proper financial disclosure is taken seriously by the Courts. The Courts may take a robust approach to the assessment of the relevant asset pool (to favour the view asserted by the compliant party) if the other party has failed to make full and frank disclosure. An agreed settlement can be set aside if a party has failed to make disclosure.
How to Find Hidden Assets
We know that there may be times when one party to a financial settlement says they do not have an asset and the other party believes they do. Usually we find that people have a good idea of what is missing in the disclosure process and the pathways of investigation are able to be identified by your lawyer.
There are several ways to work towards uncovering those matters.
Title Searches
Title searches on property, both historical and current in the country the asset is believed to be held, can readily be undertaken. Similarly, ASIC searches in the name of the party are a starting point to determine those entities in which a party may have an interest and offices they may hold in a company.
Forensic Analysis
When further investigation of financial transactions and the operation of businesses is required, including about the transactions between entities, a forensic accountant may be engaged. A forensic accountant may look at bank account statements and other financial documents to identify anomalies and to track the movement of funds. A forensic accountant can also help find missing or hidden accounts.
That being said, a forensic accountant is an expert in the field and will state in their report if they did not receive a document they requested or if documents were left out by the other party. Such an assessment may be damning and lead to costs orders and a range of adverse outcomes for the non-compliant party.
Subpoena Documents or People
We also have the option of issuing subpoenas to produce documents, give evidence or or both. Subpoenas are like orders or the Court directing a person/organisation to do things and compliance with them is expected.
Documents typically subpoenaed include:
- Bank records
- Accounting records
- Company records
Where required, we can also subpoena individuals to give evidence who have monitored or worked with those assets. These may include:
- Accountants
- Advisors
- Commercial lawyers
If the evidence to explain the disposal or application of property is inadequate (because of the failure of disclosure) the Court may infer that the asset still exists and will take it into account.
These processes are serious and there needs to be a proper evidentiary basis to support the issuing of subpoenas. The Courts won’t allow speculative investigation through subpoenas, or ‘fishing expeditions’. There must be a specific asset and or line of enquiry that an investigation relates to validate the issue of the subpoena.
If additional property is discovered after the property settlement was finalised, then the orders may be set aside and costs penalties may follow. In some instances, a party may be referred to the DPP for consideration of prosecution for perjury.
The Penalty for Hiding Assets in Divorce and the Property Settlement Process
If either party to the property settlement hide assets of any kind, the consequences may include:
- A ‘stay’ (halt) or dismissal of proceedings;
- Inferences against the credit and trustworthiness of a party where other issues of fact arise (with consequences that extend outside the disclosure realm). The evidence of the non-offending party may be preferred by the Court;
- An inference that the offending party does have access to or possession of an asset they failed to disclose, with adjustment on a final basis made to the benefit of the compliant party and to detriment of the other, in the final determination made by the Court;
- An order to pay the legal costs of the other party; and
- If non-disclosure discovered after the property settlement was finalised, the Court Order (detailing the terms of the agreement) may be set aside and the entire property settlement process starts again from the beginning.
This list is not exhaustive, but it does give you an idea of why it is crucial to fully disclose all relevant information and documents. The Courts have the powers to penalise someone who is not as co-operative and forthcoming as they should be. Perhaps the most significant consequence is that both parties will lose certainty and control of the process and outcome, and the opportunity to resolve their family law matter in a more time- and cost-effective way.
Related Articles: Mistakes to Avoid when Separating – A focus on Property Settlements
Dealing with Divorce with Children: 7 tips to Minimise the Impact on Children
DDCS Lawyers specialise in all aspects of family law including providing advice and support with property settlements and concerns about hidden assets. If you need assistance, contact our team on (02) 6212 7600 to book a consultation.
