During a separation it is common for the Family Court to make property settlement orders to ensure that the distribution of assets between the parties is ‘just and equitable’. However, there are instances where property has been transferred or disposed of by one party to the separation proceedings.
In some instances, section 106B of the Family Law Act 1975 operates as an anti-avoidance provision. It functions to stop parties from entering transactions which hinder or circumvent Family Court orders during property settlements. Essentially it allows that the court can reverse transactions including the transfer of land in certain situations. Section 106B allows a court to do this when:
- a transfer of land occurs during family court proceedings; or
- during a time when the proceedings were reasonably anticipated; and
- the disposition is likely going to defeat existing or anticipated court orders.
The operation of section 106B does not require that the party selling the asset specifically intended to defeat the existing or anticipated orders of the court. It is merely enough to show that the sale or transfer of the asset would have the effect of doing so. For example, the reduction of the available pool of assets in a property settlement may be enough to satisfy a likelihood that a court may not be able to make adequate orders. It should be noted that section 106B does not only apply to sales of property or assets but also to gifts and the issuing of rights which attach to interests in a company or a trust.
For example, if around the time of separation an ex decides to sell their assets or gifts them to a family member the court has the power to reverse that transaction. These situations are complicated by instances where a third-party bona fide purchaser is involved. That is someone who purchases an asset from a party for value without having knowledge of any other parties’ interests. Whilst the court will generally have regard to the interests of a bona fide purchaser and can make orders to protect them, this does not provide them with an absolute safeguard.
The Family Court still has the discretion to make orders reversing a transaction which negatively impacts a just and equitable outcome. The Court is particularly minded to reverse transactions which are clear ‘shams’ attempting to defeat the operation of the Family Law Act. When dealing with a bona fide purchaser, the Family Court may consider whether at the time of the disposition the purchaser:
- was aware of the other party’s interest;
- should and would have been made aware if they made all the proper enquiries; and
- whether the disposition would be likely to defeat the claim of the party in whose favour the order was existing or anticipated.
In exercising its discretion to set aside instruments and dispositions, the Family Court may also take into account the length of time between the disposition and the proceedings, and between the discovery of the disposition and the proceedings to set aside the disposition.
Parties to a dispute should use caution when dealing with property interests in the wake of Family Court separation proceedings. Third-parties who suspect impending family law matters should also take care when purchasing property and ensure all proper enquiries are made.
As well as section 106B of the Family Law Act 1975, there are several other ways that this may be dealt with.
Do you need Legal advice concerning a family law property settlement? Our Lawyers can provide you with comprehensive legal advice. Please contact our Office for an appointment.
Please note that the above is general information and should not be relied upon as legal advice. All situations are different and legal advice must always be tailored to the specific situation.