The Facts
Assets divided following break-up of marriage
A couple moved in together in 1992 and married in 1997, but ultimately separated and were divorced in 2005. In July 2005, they reached an agreement on how to divide their property and jointly applied for consent orders, which were made by the Family Court.
The consent orders provided that the wife would receive payment of $185,000 and title to one property (property V), while the husband would receive title to two properties (property D and property T) and shares in an unprofitable business.
Division of assets based on estimate values given by parties
Notations to the consent orders recorded that the husband also expected to obtain a 50% shareholding in another company (company E) with a total share value of $200,000. The husband disclosed that this company had made a profit of $50,408 in 2004 and that there was no expectation of a significant increase in income over the next few years.
The husband and wife did not obtain professional valuations in relation to the various assets, instead agreeing to accept estimate values. For the purpose of the property division, the parties agreed to values for each of the properties at $280,000 for property V, $205,000 for property T and $550,000 for property D.
Full and frank disclosure required under Australian law
Under family law legislation in Australia, separating couples who enter into a property settlement must give “full and frank disclosure” to each other and to the court. (Please see Disclosure requirements in family law – what am I meant to provide?)
When full disclosure is not provided and that results in a miscarriage of justice for one of the parties, the court has the power to vary and/or set aside earlier consent orders.
Dispute over non-disclosure of information
Several years after the property settlement, the ex-wife became aware of information that she had not known at the time she signed the consent orders. She brought proceedings in the Family Court, alleging that a miscarriage of justice had occurred because her ex-husband had failed to give full disclosure about the true value of various assets.
Specifically, she alleged, amongst other things, that at the time of signing the consent orders the husband had not disclosed to her that:
- He had recently represented to a bank that the estimated value of the property D was $700,000 (not $550,000).
- The negotiations he was undertaking at the time for the purchase of 50% of the shares in company E valued his shares at more than $500,000 (not $200,000).
- Company E had recorded earnings of $757,144 and a net profit of $623,000 for the part financial year to 31 January 2005 (a significant improvement in the disclosed net profit for the financial year to 30 June 2004 of $50,408).
It was for the court to determine whether the consent orders should now be varied, and an additional amount paid to the ex-wife.
Expert commentary on the court's decision
Full Court of the Family Court of Australia finds in favour of wife
At the initial trial held some 10 years after the original property settlement, the judge in Pearce & Pearce [2014] FamCA 1120 found there had been a miscarriage of justice under section 79A of the Family Law Act 1975, as the husband had failed to disclose information and made false representations in relation to the value of property D and company E.
Section 79A allows a court to set aside previous orders where there has been a miscarriage of justice. Had the wife been provided with accurate information about D and E, she would have made further inquires as to their true value. The trial judge set aside the original consent orders and made an award in the wife’s favour of almost $2 million more than what the parties had originally agreed.
Husband appeals trial judge’s finding of miscarriage of justice
The husband appealed the decision of the trial judge and the Full Court of the Family Court of Australia dealt with the appeal in Pearce & Pearce [2016] FamCAFC 14.
The basis of the husband’s appeal was that there was no relevance to the retrospective valuations and therefore there could not be grounds for a finding of a miscarriage of justice. The husband argued that something more is required because otherwise there had not been a non-disclosure.
The Full Court of the Family Court dismissed the appeal and the husband was ordered to pay the wife’s costs of and incidental to the appeal.
Wife not given opportunity to undertake further investigations
Significantly, the court emphasised that the problem was not with the difference in value of property D and company E, but rather that the wife was not afforded the opportunity to undertake further investigations and had the information been available to her, then she would have done so.
In property matters parties are required to make full and frank disclosure pursuant to rule 13.04 of the Family Law Rules 2004. This disclosure is critically important for any family law settlement.
This case identifies that even when an agreement is formalised by way of consent orders and several years have passed, if you do not properly disclose financial information, there is a risk that the orders will be set aside. This could have significant consequences.