What happens if I hide assets?

In a decision handed down by Justice Brown sitting in the Federal Circuit Court of Australia in the case of Haggerty & Brown[2013}FCCA, the following was stated:

125. The parties to property proceedings, brought under the Family Law Act, in this court, are under a duty to make a “full and frank disclosure” of their financial circumstances[ This duty has been described as being “fundamental to the whole operation of the Family Law Act in financial cases...”.[

In Weir & Weir the Full Court of the Family Court said as follows:

o “...the failure to disclose undermines the whole process of adjudication of proceedings for a settlement of property in that the court is unable to identify the property of the parties, to properly assess contributions, or to properly assess section 75(2) factors.”

127. Accordingly, the duty to make a full and frank disclosure, in financial matters brought under the Family Law Act , does not arise merely by virtue of the rules or practice of the court but rather is a fundamental rule of law, which arises because of the necessity for the court, in each property proceeding arising before it, to consider all aspects of the financial circumstances of the parties concerned.
128. In appropriate cases, there may be adverse consequences for a party, if it can be shown that he or she has deliberately failed to make a proper disclosure of some material financial fact. Such a non-disclosure may result in the court drawing an adverse inference against the party, who has not made a proper disclosure.

In Weir & Weir the Full Court said as follows:

o “It seems to us that once it has been established that there has been a deliberate non-disclosure...then the court should not be unduly cautious about making findings in the favour of the innocent party. To do otherwise might be thought to provide a charter for fraud in proceedings of this nature...We should have thought that the courts jurisdiction to make an order going beyond the identified property arises once there is sufficient evidence to support a finding that the party has not made a full disclosure of his or her assets.”

A prospective client recently came to see me and his opening question was surrounding what would happen if he failed to disclose an asset. I warned him immediately that our discussion should not proceed much further. Quite apart from the manner in which a Court deals with this particular issue as noted in the above quotation, what is often not known to a client is the obligation a lawyer has to the court. 

Clients seem to be fairly well acquainted with the fact that a lawyer owes the client a duty of care and on most matters, discussions between a lawyer and his client are privileged. What the client however is often unaware of is the duty the lawyer has to the Court. In many instances this is an overriding duty as is the case in family law proceedings. If for example a client advised the solicitor that he owned an asset but his partner would not be aware of it, and the client was not willing to disclose this information to the Court the relationship between solicitor and client has been compromised. The solicitor is aware of the Courts obligation to make orders in family law property matters based on each of the parties providing full disclosure. As such, the solicitor, in the writer’s opinion, would be aiding and abetting his client in effectively undermining the court process.

Further, in property matters, parties are ordinarily obliged to swear as true and correct and then to file a financial statement. Such a document makes specific reference, if proceedings are in the Family Court to Rule 13.04, and if in the Federal Circuit Court, Rule 24.03, wherein the client swears an affidavit to the effect that the client is aware that by law:

“I have an obligation to make a full and Frank disclosure of my financial circumstances to the Court and each other party. In particular. I have disclosed in this document all matters I am required to disclose…..”

If in fact the solicitor witnesses this affidavit, I believe it would be tantamount to professional misconduct if, in the circumstances, the solicitor was aware that in fact his client had not disclosed everything that was required to be disclosed.

The prospective client then sought the writer’s advice on whether the problem could be resolved by entering into a financial agreement. These agreements are designed to finalise property matters as between married or de facto partners. The prospective client was warned that whilst there was no overriding obligation to the court, the integrity of the financial agreement could be in question if there was a failure to disclose. Such a failure could well result in a person adversely affected by the nondisclosure making an Application to the Court to set the agreement aside. As this would be undertaken through an Application to the Court and noting the quotation which appears at the start of this article, it is clear that the court would have little sympathy towards the person who has not disclosed if ultimately it is so proven.

Having acquainted the prospective client in relation to these issues, it was of no surprise that he has not returned for any further assistance.

The principal as to the obligation on each party regarding disclosure was recently the subject of consideration by the Full Court in the case of Pearce v. Pearce which was handed down on 11 February 2016. This was an Appeal by the husband against Orders made by Justice Dawe which had the effect of setting aside a previous final property order. Although such Property Order had been made by consent by the husband and wife, the wife argued that there had been a miscarriage of justice. The major issue considered by Her Honour was the husbands obligation regarding disclosure. Her Honour found a material failure to disclose information by the husband and set aside the Property Orders. The husband duly appealed to the Full Court. The Full Court noted that the conclusion reached by Her Honour was that the husband had failed to comply with his obligation regarding disclosure. The Full Court in the judgement noting that her Honour had made a finding that the Husband had failed “to make a full and frank disclosure of all material facts to the other party and to the court”[1] in five specified respects and concluded (at [236]) that “[w]hen considered together these factors establish that there was significant information available to the husband which was not disclosed to the wife prior to the Consent Order being made” left the order in place as made by Her Honour thus exposing the husband to a new hearing regarding a property settlement

Peter Le Souef
Family Lawyer