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06 October 2014

Notional Property and ‘Add Backs’

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Before the Court can finalise financial disputes after the breakdown of a marriage or de facto relationship, it must first determine the property pool.

Unless the particular proceedings are complicated, this will involve calculating (as at the date of hearing) the parties’ assets and liabilities – whether held in joint or sole names – to reveal the parties’ net financial position.  The obvious examples of assets include the family home, household chattels, monies in bank accounts and investments such as shares.  Liabilities include mortgages, loans and credit card debt.

But what about Notional Property?

Notional property refers to property which is either not in existence (for example it has been unilaterally disposed of by one party or property not disclosed or accounted for) or cannot be quantified.

Traditionally, where circumstances such as the above arose and the Court accepted that that property should have been in the property pool but for the actions of the ‘offending’ party, the Court would exercise its discretion and “add” this property back into the pool as notional property.  These arguments are, however, the exception, not the rule.

To justify whether property will be added back, the Court will assess whether or not the expenditure or disposal of that property is reasonable and in what capacity such expenditure should be assessed.  To assist in determining same, we summarise the questions posed by Murphy J in Hackshaw v Hackshaw [2010] FamCA 1123:-

  1. Is it contended that the property (that would otherwise be available for distribution) has been dissipated with a consequential loss to the property otherwise potentially divisible between the parties?
  2. If so, is it alleged that the dissipation of property was in relation to things other than “reasonable living expenses”?
  3. If yes, why is it asserted the result of the loss should be that the parties share same other than equally?
  4. If the loss should not be shared equally, why should there be an add-back instead of an adjustment in accordance with the parties’ contributions to same?
  5. How should the add-back or adjustment be quantified?

As such, the first hurdle to overcome is, but for the ‘offending’ party’s expenditure, would those monies or that property dissipated have otherwise been available for distribution?  The second step is to determine whether that money or property was spent or disposed of for anything other than “reasonable living expenses”.  How much, if any, the ‘non-offending’ party should contribute to same will be at the Court’s discretion.  The Court will examine, in the circumstances of the particular proceedings, how such expenditure and diminution of the property pool should be treated, in light of the principles of justice and equity.

In summary, there is no guarantee that the Court will agree that an add back is appropriate.  If it instead takes the view that a section 75(2) (contributions) adjustment is appropriate, this may not necessary equate to a “dollar for dollar” substitution of the monies spent and/or property disposed of by the ‘offending’ party.

Do you want to know more about how notional property affects your property matter?  Contact our office to make an appointment with one of our solicitors today.

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