Section 106B of the FLA gives the Court the power to set aside or restrain transactions which avoid orders or anticipated orders of the Federal Circuit and Family Court of Australia (“FCCFOA”). This section aims to prevent family law litigants from engaging in transactions that attempt to disperse, hide, undervalue or alter the interests of their spouses or own assets before orders are made or are about to be made about a property settlement. This section ensures that the marital property pool remains intact and prevents transactions that could ultimately affect this pool to the detriment of one party’s interest.
How does s106B work?
Section 106B is a powerful provision which allows the FCCFOA to deal with creditors and third parties in relation to matrimonial assets. This provision attempts to cover the following subject materials being, bankruptcy, insolvency, orders charging money or property for costs, maintenance or payment into court and protection of bona fide purchasers. Please note that the subject materials listed are not exhaustive regarding the types of transactions protected under s106B. For example, when s106B is successfully applied in the context of a debt, the creditor may find itself either unsecured or only partly secured.
This provision gives the Court the ability to set aside or prevent the making of an instrument or disposition made or proposed to be made to defeat an existing or anticipated order which regardless of intention, is likely to defeat that Order. Austin J within Markham & Markham and Ors [2010] FamCA 460 explained that the provision relates “dispositions” which are individual transactions and that the subject disposition is liable to be set aside regardless of intent to defeat a court order, its disadvantageous effect may be enough for the Court to intervene. This disadvantageous effect arising from the disposition is to be assessed objectively not subjectively by the Court.
Types of transactions which may be characterised under s106B?
This provision deals with a broad range of transactions and is best explained through case law. For example, within the case of Ivanovic [1999] FamCA 2087 Lidenmayer J set aside an assignment by a husband who was seeking to assign the remainder of his interest in the matrimonial property to his brother during the course of proceedings. Noting that this order was made under the previous s85 of the FLA, which has since been replaced by s106B.
Another example is in the case of Heath [1984] FamCa 17 whereby the Court set aside a mortgage which was taken out against the matrimonial home by the Husband, which was in breach of his undertaking to the Court as this mortgage would defeat the claim of his wife.
Transactions which are not captured by s106B are transactions which would occur in the normal course of business. For example, within the case of Gelly (No. 2) [1992] FamCa 84 the Court did not set aside distributions made by the Husband to his two adult children from a family trust controlled by the Husband which occurred months before family law proceedings where commence. The Court determined that these distributions did not affect the anticipated orders of the Court as they were categorised as normal and prudent in the course of business and there was no evidence of bad faith by the trustee.
What are some important things to consider?
Family law property orders are made based on shared matrimonial asset pool and are awarded based on contributions to the relationship and future needs of the parties to a marriage among other things.
Section 106B aims to protect the interests of the parties in regards to matrimonial assets to prevent the disposal of assets or alternation of interests in anticipation of orders. Therefore, if you are considering employing any disposition instrument with respect to any part of the matrimonial during family law proceedings seriously consider the effect of the instrument, as section 106B can apply irrespective of any intent or bad faith by a party.
Summing up
Section 106B aims to prevent parties from hiding, undervaluing, or altering assets before orders are made, thereby safeguarding the marital property pool and ensuring fairness. It applies objectively, regardless of intent, allowing the court to intervene if a transaction adversely affects the property settlement.
*This article was prepare with the assistance of Zoey Hayes
If you have any questions contact Special Counsel Stuart Robertson of our Family Law Team on 02 9264 9111