In a separate article we detailed the many matters which must be considered when determining property entitlements. But, before those matters can be considered, the facts relating to the parties’ financial circumstances must be established. For example:
- What assets each party owns;
- What debts exist;
- Whether the parties have superannuation and, if so, how much it is worth;
- The financial circumstances of each party at the commencement of the relationship;
- The income earned by the parties during the relationship;
- The value of any financial contributions made by or behalf of the parties during the relationship;
- How much each person earns;
- What expenses each person has;
- If either party is living in a de facto relationship, the financial arrangements between that party and his or her partner;
- Whether either party has a medical condition, which prevents him or her from working.
Commonly, each party only has personal knowledge of his or her own financial circumstances. Therefore, is necessary for the parties to make financial disclosure to one another. The parties and their solicitors need this information to calculate the parties’ property entitlements.
Financial disclosure can be provided by the parties exchanging sworn statements of financial circumstances, if both parties are satisfied that the other will complete the statement accurately. However, in family law matters there is often a lack of trust between the parties. Therefore, the parties usually make financial disclosure by producing documents relating to their income, expenses, assets, debts and superannuation entitlements. For example, bank statements, share certificates, vehicle registration documents, contracts for the purchase of properties, settlement statements relating to the sale of properties, member statements for superannuation funds, letters confirming pay out figures for finance, credit card statements, tax returns and assessments, pay slips, and so on.
The importance of both parties providing full and frank financial disclosure is emphasised in the rules of both the Family and Federal Circuit Courts. The rules which apply in the Family Court are found in chapter 13 of the Family Law Rules (FLR) and those which apply in the FCC are in part 24 of the FCC rules (FCCR). Both sets of rules specify the information which parties are required to provide – see rules 13.04 of the FLR and 24.03 of the FCCR.
If court proceedings are on foot, a party who fails to make proper financial disclosure can find it difficult to achieve a good outcome. Firstly because, if there has not been full financial disclosure, the other party is less likely to settle the case out of court. If the case cannot be settled, it must proceed to a trial before a judge, which is expensive, stressful and time consuming for both parties. Secondly if a matter proceeds to trial and the judge agrees that a party has not provided adequate financial disclosure, the judge can draw an inference that the information being withheld goes against that party’s case. Further, the judge is allowed to make decisions and orders which ensure the withholding party does not receive an unfair advantage. For example, if a judge reasonably believes that one party has deliberately failed to disclose the existence of funds held in a bank account, the judge can make a finding that the bank account exists, decide the estimated amount of funds held and then include this in the property pool. This will have the effect of increasing the size of the property pool and specifically, the other party’s share of the other assets in the pool.
The adverse impacts on the non-disclosing party do not end there. If it is found that a party has deliberately failed to make financial disclosure, the court can order that party to pay the other party’s legal costs. In extreme cases, the court can hold a party in contempt of court for failing to make financial disclosure and punish that party accordingly.
Considering the serious consequences of failing to make financial disclosure, an ethical and pragmatic solicitor should advise his or her client to produce all relevant information requested by the other party without delay. Doing so, will assist the solicitor to settle the case as quickly as possible and might avoid the other party commencing court proceedings.
However, it is important to note that in cases where both parties are satisfied that they have a clear and complete understanding of the other party’s financial circumstances and all facts relevant to the settlement, there is NO legal requirement for the parties to exchange large numbers of documents just for the sake of completeness.
You should always take your lawyer’s advice in relation to your financial disclosure obligations and make every effort to produce the documents he or she requests at the earliest opportunity.