News

Unravelling Intertwined Corporate Structures in Family Law

Jodylee Bartal & Georgia Agar

The family law team at Aitken Partners is often faced with the task of unravelling intertwined corporate structures. Matters involving large asset pools can involve complex trust and company structures, established for a variety of reasons, sometimes without the end in mind (particularly when the end is brought about by relationship breakdown).

It is important to remember that the Family Law Act has far reaching powers. It can alter parties’ interests in real and personal property and can override other laws, trust deeds, and other instruments to ensure that a division of property is just an equitable. Aitken Partners’ family law team are skilled at looking beyond the corporate veil to properly identify the divisible asset pool and to take full advantage of those powers for our clients.

If there are insufficient personal assets to satisfy a client’s claim, joining a corporate entity or trust to proceedings may be required to achieve a just and equitable division of property. However, it can be difficult to determine the assets and associated liabilities of the trust or company and that can make particularising a claim more difficult. A clear and careful strategy is required to ensure that joinder is not premature or found to be for an “improper purpose”. Obtaining the right information is key.

The recent decision in Rigby & Kingston & Ors, highlighted the importance of carefully drafted subpoenas and precisely drawn court documents, together with a well thought out litigation strategy.

In 1991 prior to marrying, the husband and wife entered into a prenuptial agreement. As a result of that agreement, the husband and wife kept their finances completely separate throughout the entirety of the marriage. They maintained ledgers recording day to day spending that were reconciled each month and expenses relating to the children were divided equally. At times when the husband was unable to meet his share of the expenses, the wife would lend him funds pursuant to loan agreements, which he would then repay.

During the course of marriage, the wife received significant gifts and an inheritance and ultimately asserted the value of her property to be approximately $7,500,000. She was employed on a full-time basis throughout the marriage by her father’s business, referred to as the Kingston Group in the proceedings, and at the time of this proceeding, she was the managing director.

The wife also received distributions through the Kingston Group and she had an interest in a testamentary trust established after her father’s death. The Kingston Group was estimated to be worth in excess of $150,000,000.

The husband’s assets comprised of savings of approximately $60,000, a motorcycle and superannuation of about $200,000. Throughout the marriage, the husband experienced periods of unemployment, part-time work, home marker duties and ultimately full-time employment at the time of the proceedings.

Justifiably, the husband sought financial disclosure from the wife as to her interests in the Kingston Group however the wife resisted, claiming that those financial documents were not hers to provide.

The Husband issued subpoenas compelling the Kingston Group to produce financial material. Despite objections, the subpoenas were ultimately complied with and the documents were released for inspection by the parties.

The husband subsequently filed an Application in a Case to join the Kingston Group comprising of some 30 corporate entities as third parties to the proceedings between himself and the wife. The basis for the joinder was that the Husband’s claim for 35% of the asset pool could not be satisfied by the Wife’s personal assets alone. The third parties opposed their joinder stating that no arguable case was brought against them for injunctive relief and that they had been joined for the “impermissible purpose of making them subject to interparty discovery”.

The problem for the husband was that he did not, and on his case was not able to, specify the exact orders sought on a final basis against each of the proposed third party respondents and thus, he failed to establish the essential elements of a successful joinder. He claimed he was not able to particularise the relief sought from the proposed third parties as full financial disclosure had not been provided. In response, the proposed third parties argued that until precise orders were sought against them, they should not be put to the cost of being joined to the proceedings. Put colloquially, the argument was akin to chicken vs egg.

Joining a party to a proceeding for the sole purpose of obtaining financial disclosure is improper and has been found to be vexatious. Costs orders can also be made in favour of a third party who successfully argues for their dis-joinder.

Ultimately, the husband was not able to identify any other basis on which the entities had been joined save for obtaining disclosure. The Court noted that the rights of each third party may well be directly affected by an issue in the case and, at that point, their joinder would be necessary. However, the Husband had not established a necessity at the time of joinder. Accordingly, the entities were released from the proceedings and the husband ordered to pay $25,000 towards proposed third party respondents’ legal costs.

In summary, despite the potential pitfalls, there can also be significant benefits to joining third parties to family law proceedings. Timing is important, and information even more so.