A question that sometimes arises for a separated couple in dividing their existing property interests is whether one party can “add back” money expended by the other on legal fees.
What is an “Add Back”?
The idea of an “add back” is that money expended by one party should be added to the value of existing property interests and credited to the spending party as part of their entitlement.
Three categories of “add backs” have been identified:
- expenditure on legal fees;
- premature distribution of matrimonial assets; and
- wanton, negligent or reckless dissipation of assets.
It is generally accepted that reasonably incurred expenditure does not fall within one of these categories.
Can One Party “Add Back” Money Expended by the Other On Legal Fees?
This was one of the central questions to be determined in the recent case of Trevi & Trevi.
Mr Trevi argued that the amount of $437,628 paid by Ms Trevi on legal fees should be added back to their existing property interests and credited to her as part of her entitlement.
The primary judge decided not to add back the amount paid by Ms Trevi on legal fees.
Mr Trevi appealed.
The Full Court of the Family Court (Murphy J with Alstergren DCJ and Kent J concurring) found that the primary judge erred in failing to add back the amount paid by the wife on her legal fees.
The Full Court made it clear in reaching their decision that an add back does not necessarily occur whenever a party has expended money that existed at the date of separation.
Adding back is “the exception rather than the rule.”
The decision to add back or not add back paid legal fees is always a matter for the discretion of the trial judge. The trial judge, in exercising this discretion, may have regard to the source of the funds.
The Full Court referred to the decision of Chorn and Hopkins in which it was said:
If the funds used existed at separation and are such that both parties can be seen as having an interest in them… then such funds should be added back as a notional asset of the party, who has the benefit of them.
If 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… they would generally not be added back as a notional asset…”
It was noted that the discussion in Chorn was meant to be a guideline only – not a binding principle of law.
The exercise of this discretion will reflect a broader decision that in the particular circumstances of a case, justice and equity required the exercise of the discretion.