Claiming an ‘add back’ for legal fees

 

As a family law firm who specialises in property settlements, we are often asked by clients if the funds expended on legal fees by either party can affect what each party receives at the finalisation of the matter. In this article, Hannah Van Wyk discusses what the Court considers when determining whether an ‘add back’ for legal fees should occur and the recent appeal decision of Trevi & Trevi [2018] FamCAFC 173 – a case which considered the adding back of legal fees spent by the Wife during the course of the parties’ property settlement matter.

 

“What is an add back?”

An ‘add back’ is a sum of money that the Court adds back to the property pool for the purposes of property settlement. The moneys that are added back are funds that one party has used or spent which has reduced the matrimonial assets. Examples of add backs include legal fees, disposal of assets and waste (e.g. reckless or negligent spending).

 

Legal fees are defined as notional property – property that does not form part of the property pool but can be added back at the Court’s discretion for the purposes of property settlement. In determining whether an add back is appropriate, the Court essentially considers:

  1. But for the expenditure on the add back in question, would those monies or that property dissipated have otherwise been available for distribution between the parties;

  2. Whether that money or property was spent or disposed of for anything other than reasonable living expenses; and

  3. How much, if any, the other party should contribute to the expenditure.

In Trevi & Trevi, the Wife expended $437,628 on legal fees using funds she had received from the sale of the former matrimonial home. At the final hearing, the Husband claimed that the Wife’s expenditure on legal fees should be added back to the property pool because she had paid her legal fees using funds that would have otherwise formed part of the property pool.

 

On appeal, Justice Murphy, with whom Judge Alstergren and Judge Kent agreed, accepted the Husband’s argument and held:

“An order failing to add back legal costs is a pre-emptive decision about one party paying [or contributing to] the other’s legal costs [whereas] the statutorily prescribed default position is that neither party pays all or some of the other party’s costs.”

 

Thus, the money spent by the Wife on legal fees was added back to the property pool. The ‘add back’ resulted in a $175,000 saving to the Husband.