“For duty, duty must be done.
The rule applies to everyone.
And painful though that duty be …”
– WS Gilbert and Arthur Sullivan
Full and frank disclosure of your financial position during property settlement negotiations is an integral part of the process used to help finalise financial relationships between parties.
The various courts within the family law jurisdiction have similar rules relating to the provision of documents which are used to verify a party’s financial position. The principle of full and frank disclosure also applies to negotiations prior to court proceedings when parties are attempting to reach an agreement by consent.
I have often been asked why, after separation, a client is required to provide a high level of disclosure about their financial affairs, including documents such as:
- bank statements
- pay slips
- business activity statements
- credit card statements.
I often hear clients say that they believe having to provide this level of documentation after separation is an invasion of privacy and there is often resistance to providing the documents.
Whilst I appreciate that this may seem the case, the provision of disclosure documents to verify a party’s financial position is essential to enable us to provide appropriate advice about prospective future needs and entitlements such as child support in the future.
As part of negotiations or proceedings, you are generally required to provide a statement of your financial circumstances which must be made on oath or affirmation. In addition you must confirm that you have provided all relevant information about your financial circumstances, and your understanding that the duty of disclosure is an ongoing duty until your matter is finalised either by consent or by an order of a court.
The financial statement is generally prepared by a solicitor or, in some cases (where there are complex structures and entities), it may be prepared by an accountant. To enable us to properly complete the financial statement and verify the information that we are including in the financial statement is correct, we require the source documents so that we, as officers of the court, are able to independently verify the information that you are providing. As a financial statement is a verified document, the other party is entitled to ask for the production of the original documents upon which the financial statement has been prepared.
The financial statement requires you to disclose all sources of income, interest, property or financial resources. This includes any property that is owned with other unrelated parties or where you have an interest in a trust. The court requires information to be broken down into weekly income and expenses, and this can be an issue for people who are paid monthly or who pay their expenses such as registration and then have to calculate back to a weekly amount.
You are also required to disclose information about the sale or disposal of any property, including where property has been sold on the open market, transferred, or gifted to third parties. Information is required about items that have been disposed of as one party may be attempting to deplete the property pool and stop a party from receiving their appropriate entitlements.
If your matter has progressed to court proceedings, the court is likely to order the production of certain documents, which include:
- the parties’ three most recent taxation returns and assessments;
- the parties’ three most recent wage/salary certificates/pay slips;
- any superannuation documents for each superannuation interest of the party including:
- the completed superannuation information form;
- for a self-managed superannuation fund, the trust deed and the last three financial statements;
- for a corporation (business), trust or partnership where the party has an interest:
- financial statements for each (including balance sheets, profit and loss accounts, depreciation schedules and taxation returns) for the three last financial years;
- any business activity statement for the 12 months ending immediately before the first court date;
- for any corporation, its most recent annual return, listing directors and shareholders, and the corporation’s memorandum and articles of association;
- for any trust, the trust deed;
- for any partnership, the partnership agreement;
- all documents containing evidence about:
- the financial matters mentioned in a party’s financial statement;
- the financial contributions made at the commencement of cohabitation;
- any inheritances, gifts or compensation payments received during cohabitation;
- any purchase or disposal of property in the 12 months prior to and since separation;
- any increase or reduction of liabilities since separation;
- the value of any superannuation interest of a party, including the basis on which the value has been calculated and any documents used to calculate the value.
In relation to the documents referred to above, these shall include but not be limited to:
- in relation to accounts in any financial institutions (including but not limited to banks), details of account numbers, passbooks and bank statements for the previous 12 months;
- written records of any investments including stocks and shares;
- social security pension information or payment details;
- details/records of long service leave accrued;
- details/records of overtime worked in the previous 12 months;
- records/details of any life assurance or disability insurance;
- details/records of any of the above in relation to children;
- medical or psychiatric reports that relate the a person’s medical history that may need to be considered by the court.
In certain cases, other documents can be requested by writing to the other party and providing notice that you require certain documents or a class of documents.
The rules relating to disclosure do not permit a party to interrogate the other party about transactions generally. However, if there is a concern that money is being hived off or that joint funds are being used for improper purpose, the court may move to the next process called “discovery”. Discovery is a more intensive form of financial disclosure and allows for specific questions to be asked and for further documents to be provided, including information about relevant transactions.
Financial disclosure can often occur by one party issuing a subpoena for the provision of certain documents after the general class of disclosure documents has been provided. However, there is an obligation on all parties to provide documents that have been requested in writing or that are required under the rules to be exchanged.
In the event that disclosure does not occur, there can be various cost implications, including:
- the payment of costs relating to subpoenas that may be issued by a party;
- the payment of legal costs relating to any application to the court for documents to be disclosed;
- the court drawing adverse inferences against someone on the basis of non-disclosure.
There are a number of decided cases which the courts use to determine whether someone has complied with their duty of full and frank disclosure and, in the event that they haven’t, whether adverse inferences about their willingness to provide full and frank disclosure should be made. Generally, a court can:
- make findings of fact about the existence (or, in some cases, non-existence) of property;
- look at transactions relating to property that have occurred and can reverse transactions to ensure that a party is able to obtain their appropriate entitlements under the Family Law Act;
- notionally include property in the property pool that may have been dissipated prematurely; or
- make orders for the adjustment of known property and financial resources in favour of a party.
There are further penalties that apply for failing to disclose financial documents or for providing false financial statements. These include:
- costs orders which can be made against the defaulting party;
- refusing to allow the use of certain information or documents as part of proceedings;
- being found in contempt of court and being subject to sanctions such as fines, good behaviour bonds or, in most extreme cases, imprisonment.
In my experience, whilst you may think it is mind-bogglingly boring task to look through someone’s bank statements and other disclosure documents, the disclosure process is a useful tool for verifying a party’s financial circumstances and where money may be going if they are crying poor.
Now that most financial institutions allow you to access transaction histories and bank statements online, there is generally not a good excuse for saying that you do not have certain documents in your possession, power or control. A number of the major banks provide facilities where you can obtain your last seven years’ worth of bank statements electronically. This is particularly helpful in terms of disclosure (and also at tax time where you can’t find that one bank statement that your accountant needs to finalise your tax return).
Information about shareholdings can easily be obtained from share registries is electronic form and is generally emailed by the share registry to the appropriate party after the provision of a holder identification number (HIN).
Most superannuation funds will allow online access to their systems, which means that you can print superannuation fund statements at any point in time and not have to rely upon the statements issued by the funds on 30 June and 31 December each year.
Most employers now email pay slips rather than providing them in paper copies and some employers even have online systems that will allow you to access past pay slips.
Oftentimes people are concerned about the cost of providing disclosure documents. Where possible, we prefer to provide disclosure documents to another party electronically through the use of an online portal such as Dropbox or by providing a physical USB device to the other party.
Toowoomba Family Lawyers at Best Wilson Buckley Family Law is currently developing our own secure online portal to streamline the process of providing disclosure documents. The portal will allow documents to be uploaded in real time using a secure file transfer protocol. This will allow you to upload your personal documents and for us to be able to deliver disclosure documents to other parties or practitioners without the need to print and collate volumes of documents.
As painful as the duty of disclosure may be, you need to do your duty and not shirk that task.