A sham transaction in Family Law is one that is intended to give the appearance of creating legal rights or obligations that do not actually exist. The purpose of such transactions is often to deceive or mislead, typically to hide assets or evade legal obligations in order to reduce the matrimonial pool of assets available for division between the parties.

Lockhart J in Sharrment Pty Ltd & Ors v Official Trustee in Bankruptcy (1988) FCR 449 at paragraph 16 defined the term ‘sham' as “… something that is intended to be mistaken for something else or that is not what it really purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else, or made to appear to be something which is not. It is something which is false or deceptive”. 

The High Court in Ascot Investments Pty Ltd v Harper [1981] HCA 1 addressed sham transactions, stating that they may always be disregarded. If a company or transaction is completely controlled by one party to a marriage, such that an order against the company is effectively an order against the party, the court may treat the transaction as a sham. This means the court can look beyond the formalities of the transaction to determine the true nature of the parties' financial arrangements.

Section 106B of the Family Law Act 1975 (Cth) address actions aimed at diminishing assets or transferring property and establishes a way to "reverse" any transactions that the Court deems to be a ‘sham' or intended to undermine a spouse's interests.

If you suspect that the other party is hiding assets or engaging in sham transactions, there are several steps Nakil Family Lawyers can take to uncover these:

1.     Request for Disclosure: We can formally request the other party to disclose any suspected hidden assets.

2.  Undertake searches: We can conduct various searches, including a title search to determine ownership of real estate and investment properties, a PPSR search for security interests in personal property, a National Property Ownership search to verify ownership of properties nationwide, a property leasehold search to uncover leasing interests in any properties, an ASIC search to identify any shareholdings and directorships in entities, and an AFSA search to check for bankruptcy.

3.     Examine: We can review the disclosure documents provided by the other party.

4.     Interrogatories: Serve the other party with specific questions under oath, known as interrogatories, which they must answer in an affidavit. This is done pursuant to Part 6.3 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021.

5.     Subpoenas: Issue subpoenas to third parties, such as banks or financial institutions, to produce documents that may reveal hidden assets or transactions.

6.     Engage a Forensic Accountant: These professionals can conduct a detailed analysis of financial records, which can uncover hidden assets or undeclared income and trace funds to identify hidden assets or sham transactions.

7.     Engage a Private Investigator: These professionals can conduct public assistance searches to identify any payments or benefits received from Centrelink or other government departments, bank account searches to locate all bank accounts and brokerage account searches to find any bonds, stocks, or securities.

8.     Court Application: If the other party refuses to disclose the assets or provide the requested information, we can seek orders from the court compelling them to do so.

If sham transactions or hidden assets are uncovered, the party that failed to disclose them may face various legal consequences:

1.     Adverse Inferences and Adjustments: The court may draw adverse inferences against the non-disclosing party. This could lead to the court assuming that the party has more assets than disclosed, resulting in a less favourable property settlement for them. For example, in Weir and Weir [1992] FamCA 69, the court made adjustments due to non-disclosure.

2.     Adjustment in Property Settlement: The court may adjust the property settlement in favour of the other party. In Haines & Radar (No 4) [2022] FedCFamC1F 1008, the court made an adjustment due to one party's failure to disclose financial circumstances.

3.     Setting Aside an Order: Under section 90K of the Family Law Act 1975 (Cth), the court may set aside orders if it is satisfied that the agreement was obtained by fraud, including non-disclosure of a material matter.

4.     Costs Orders: The court may order the non-disclosing party to pay the other party's legal costs, potentially on an indemnity basis, as per section 117(2A) of the Family Law Act 1975 (Cth).

It is important to seek legal advice to ensure your interests are adequately protected.

Don't Let Deception Affect Your Settlement. Contact Nakil Family Lawyers on 0416 871 528 for an obligation free discussion.