“Add Back” of Legal Fees?
Are Legal Fees Added Back to the Pool of Assets in Family Law Matters?
It is a matter of discretion for the trial judge whether to notionally add‐ back property into the asset pool – Chorn & Hopkins [2004] FamCA 633 at [56].
Notional property will only be added back in exceptional circumstances. This was confirmed by the Full Court in C v C [1998] FamCA 143 at [46]:
Whilst not seeking to place a fetter upon the exercise of discretion of a trial judge in individual cases, it seems to us that the concept of adding monies reasonably disposed of back into the pool ought to be the exception rather than the rule. The parties are entitled to reasonably conduct their affairs post separation in a manner that is consistent with properly getting on with their lives.
The treatment of funds used to pay legal costs remains ultimately a matter for the discretion of the trial judge.
Even if it is established that a party is entitled to have property added‐ back into the pool, the de minimis doctrine may be applied if the proposed add‐back is trivial in the context of the overall pool. For example, in the case of Shimizu & Tanner [2011] FamCA 271 per Bryant CJ at 84:
- “The wife sought to include in the add-backs some of the $2000 expended on Motor vehicle 4. The motor vehicle was owned by Company 1 and the wife asserts that the expenditure on the vehicle was incurred recklessly or wantonly by virtue of the fact the husband did not own the vehicle and the expenditure on the vehicle could not be recovered because the cost of rebuilding the vehicle would exceed the market value of the rebuilt vehicle. No argument was directed to this item by either party. Ultimately in January 2009 the husband purchased Motor vehicle 4 from Company 1. In the context of this case this sum, and its expenditure appears to me to be de minimis and I do not propose to treat it as an add-back to the net asset pool.”
Pre‐paid legal fees add‐backs are often included. This can also be tied to a policy reason for the adding back of legal fees outlined by the Full Court in DJM v JLM (1998) 23 Fam LR 396 at [11.6]:
“… s 117 provides that each party to proceedings under the Family Law Act shall bear their own costs unless the court otherwise orders. Failing to add‐back moneys expended by parties on costs frequently has the effect of defeating the policy of s 117 by permitting the pool of available assets for distribution between the parties to be diminished by any moneys that either of the parties have managed to spend on their costs up to the date of trial. We are of the view that the normal approach ought be to add costs already paid back into the pool. While there may be cases where that approach is inappropriate, the reasons why it is not taken ought normally be spelt out. We see no reason advanced in this case as to why the costs paid should have been kept out of the pool. This is especially so in light of the costs order which followed requiring the husband to contribute substantially to the wife’s costs. Unless the $30 000 was treated as part of the parties’ property, the costs order had the effect of having the husband pay for costs which had already been allowed for by the refusal to bring these monies back into the calculation.”
Referred to by Ryan, Federal Magistrate Judy — “Enlarging the Asset Pool – Adding Back Notional Assets” (FMCA) [2006] FedJSchol 1, Writing ex judicially Justice Boland said “The principles which emerge from the Full Courts [in Chorn and Hopkins] review of previous decisions can be summarised as follows:Monies reasonably disposed by a party in the conduct of their post-separation lives should not usually be added back.
•The treatment of funds used to pay legal costs remains ultimately a matter for the discretion of the trial judge.
•In determining how to exercise that discretion, regard should be had to the source of funds.
•If the funds used existed at separation and are such that both parties can be seen as having an interest in them (on account, of contributions) then such funds should be added back as a notional asset of the party, who has had the benefit of them.
•If the funds used to pay legal fees have been generated by a party post-separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance), they would generally not be notionally added back as a notional asset; nor would any borrowing undertaken by a party post-separation for payment of fees be taken into account as a liability in the calculation of the net property of the parties.
•Funds generated from assets or businesses to which the other party had made a significant contribution or has an actual legal entitlement may need to be looked at differently from other post-separation income or acquisitions.
•Outstanding legal fees themselves are generally not taken into account as a liability.
In Chorn & Hopkins [2004] FamCA 633 the Full Court outlined four principles to guide the trial judge when using their discretion to add back legal fees:
“[56] In summary we consider that the above mentioned decisions of the Full Court establish that while the treatment of funds used to pay legal costs remains ultimately a matter for the discretion of the trial Judge in determining how to exercise that discretion, regard should be had to the source of the funds.
[57] If the funds used [to pay legal fees] existed at separation, and are such that both parties can be seen as having an interest in them (on account, for example, of contributions) then such funds should be added back as a notional asset of the party, who has had the benefit of them.
[58] If funds used to pay legal fees had been generated by a party post‐separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance), they would generally not be added back as a notional asset; … Funds generated from assets or businesses to which the other party had made a significant contribution or has an actual legal entitlement may need to be looked at differently from other post‐separation income or acquisitions.
[59] Outstanding legal fees themselves are generally not taken into account as a liability.
[60] If, in the exercise of discretion, it is determined that legal fees already paid should be taken into account as a notional asset, then normally any liability associated with the acquisition of the monies used to pay the legal fees should also be taken into account.”
In Calder & Calder [2016] FamCAFC 36 the Full Court (Bryant CJ, Thackray and Macmillan JJ) held at [135]:
The trial judge proceeded on the basis that he “suspect[ed] that the payment of legal fees can in an appropriate case fall into the category of circumstances where an add‐ back of the legal fees into the pool is justified”. His Honour’s suspicion accords with well‐established authority (see for example Chorn and Hopkins at [55]). If there was any doubt that the position might have changed as a result of what was said in Stanford v Stanford or Bevan & Bevan …, that doubt has been removed by what was said by this court in Vass & Vass…
This article relates to family law property settlements in particular legal fees and add backs. This blog does not constitute legal advice and Claire Naidu & Co is not responsible for any reliance upon its contents in the absence of legal advice being provided to you in conference or in writing concerning your specific circumstances.
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