In a divorce property settlement, one scenario that frequently arises is this: one party may sell assets before the divorce in order to reduce the shared property held within the asset pool. Moreover, the transfer of assets during the marriage is usually carried out without consulting or notifying the other party in advance, which can tilt the overall property settlement in favour of the party who transferred the assets.

Assets may be transferred by sale, assignment, or gift. When considering how to divide matrimonial property, the court must determine which assets and liabilities form the combined asset pool. This includes all property and liabilities held or controlled by either party before, during, or after the relationship.

Can I sell my assets to reduce the asset pool?

Selling assets before divorce is not in itself wrongful. The real question is: what happens to the proceeds after the assets are sold?

For example, if Party A sells a car before the divorce and the proceeds remain in the couple’s joint account, this generally poses no issue, because the value of the asset is still present.

However, if one party sells a property before the divorce and the funds are transferred overseas into the bank account of a family member, the situation becomes much more difficult.

Under Rule 13.01 of the Family Law Rules 2004, parties are required to provide “full, frank and timely disclosure of all information relevant to the case”.

In relation to the disposal of interests in property, Rule 13.04 of the Family Law Rules 2004 provides that where a transaction has taken place within the 12 months before separation, or at any time after separation, the party who disposed of the asset must disclose it to the other party. Disclosure may be made by producing documents, disclosing financial circumstances, or answering relevant questions.

Can I transfer my assets to reduce the asset pool?

Another issue that arises in family law matters is where one party disposes of assets at below market value, or even gives them away for nothing, as a way of reducing the asset pool.

If this occurs, the other party can place evidence of the transaction before the court. If it is established that the transaction attracted no consideration, or consideration below market value, the court can take the shortfall into account and “add back” that value for the other party.

In addition, when calculating a “just and equitable” property division, the court will also take the transaction into account. The court may exercise its discretion to award a larger share of the property to the party who did not dispose of the assets.

What should I do if my spouse is selling assets before the divorce?

Clients often come to us asking, “I’ve discovered that my husband/wife is selling assets before our divorce — what can I do?”

For example, Party A’s husband travels overseas, withdraws AUD $100,000 from their joint account, and uses it to buy a property abroad. In financial disputes arising from divorce proceedings, it is common to see a spouse transfer assets to family or friends after separation, attempting to dispose of assets before the divorce and remove them from the property pool.

Section 106B of the Family Law Act 1975 gives the court power, in family law proceedings, to set aside transactions designed to defeat existing or anticipated divorce proceedings.

For example, if a husband transfers the family home to his brother without the wife’s consent, the court may order that the transaction be set aside.

However, it is important to note that once property begins to be moved overseas, or the money has been spent, if one party disposes of the assets before the divorce proceedings conclude, it becomes very difficult for the court to take effective action.

In summary

The issue that concerns most people in divorce litigation is property division. The court’s property settlement process is based on the principles of fairness and reasonableness, but it is hard to rule out the possibility of encountering a spouse who quietly transfers assets. We have previously written many similar pieces on family law issues in Australia — divorce, property settlement, spousal maintenance, and related matters — so if you are facing these difficulties, we strongly recommend seeking a lawyer’s assistance as early as possible.