Legal Fees Added Back into the Asset Pool

Background

In lengthy litigious proceedings parties can accumulate large legal fees. The question is can these legal fees form part of the asset pool in a property settlement? In the recent decision of Trevi & Trevi (18 May2017), the Full Court of the Family Court allowed the appellant husband to add back to the asset pool the wife’s legal fees which had accumulated to $437,000.

In November 2015 Mr. and Mrs. Trevi commenced a property trial before Justice Thornton which continued for 12 days spanning over almost 12 months. The trial took place approximately 8 years after the parties had separated. Mr. Trevi, the husband, was a very successful lawyer earning approximately $30,000 per week. Consequently, the asset pool was extensive and equated to approximately $9.5 million dollars.

Court Analysis

Orders for property settlement were made. Her Honour concluded that the contributions of the parties should be assessed as equal and that the wife should receive an additional 10% of the property and superannuation interests when account was taken of the factors specified in section 75(2) of the Family Law Act. The effect of this was that the wife received property and superannuation to the value of $5,720,132 and the husband $3,813,421, an approximately $2 million disparity. The husband was ordered to pay the wife a lump sum of approximately $1.9 million. The husband then appealed those orders to the Full Court of the Family Court.

At trial each party contended that significant amounts expended by the other should be added back in that party’s existing property interests and credited against the other party. Justice Thornton did not add back either of the sums claimed by the parties.

Full Court Analysis

On appeal, it was found that her Honour erred in failing to add back against the wife the approximately $437,000 expended by her on legal fees. On appeal, the Full Court referred to the judgement of Omacini and Omacin, which established that add backs fall into three clear categories:
1. Where the parties have expended money on legal fees;
2. Where there has been a premature distribution of matrimonial assets, and
3. Where there has been waste or reckless dissipation of assets.

It was also emphasized in this judgement that add backs involve an element of discretion and only occur in exceptional circumstances.

This matter fell into the first of the above categories. The Full Court then turned to the case of Chorn which specifically dealt with addbacks relating to legal fee expenditure. In that case it was held that when funds used existed at separation, such that both parties had an interest in them, then those funds should be added back. The wife used the proceeds from the sale of the family home to pay her legal fees.

Orders

Ultimately, the husband’s appeal was allowed, the wife’s legal fees were added back into the asset pool and it was ordered that the amount payable to the wife be reduced accordingly.

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