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Can legal fees be added back into the asset pool?

In lengthy litigious proceedings parties can accumulate large legal fees. The question is can these legal fees form party of the asset pool in a property settlement? In the recent decision of Trevi & Trevi the Full Court allowed the appellant husband to add back to the asset pool the wife’s legal fees which had accumulated to $437,000.

In November 2015 Mr. and Mrs. Trevi commenced a property trial before Justice Thornton which continued for 12 days spanning over almost 12 months. The trial took place approximately 8 years after the parties had separated. Mr. Trevi the husband was a very successful lawyer earning approximately $30,000 per week. Consequently, the asset pool was extensive and equated to approximately $9.5 million dollars.

Orders for property settlement were made. Her Honour concluded that the contributions of the parties should be assessed as equal and that the wife should receive an additional 10% of the property and superannuation interests when account was taken of the s 75(2) factors. The effect being that the wife received property and superannuation to the value of $5,720,132 and the husband $3,813,421, an approximately $2 million disparity. The husband was ordered to pay the wife a lump sum of approximately $1.9 million.  The husband then appealed those orders to the Full Court.

At trial each party contended that significant amounts expended by the other should be added back in to the parties existing property interests and credited against the other party. Justice Thornton did not addback either of the sums claimed by the parties. On appeal it was found that her Honour erred in failing to addback against the wife the approximately $437,000 expended by her on legal feels. On appeal the court referred to the judgement of Omacini and Omacini which established that addbacks fall into three clear categories:

  1. Where the parties have expended money on legal fees
  2. Where there has been a premature distribution of matrimonial assets, and
  3. Where there has been waste or reckless dissipation of assets

It was also emphasized in this judgement that addback involve an element of discretion and only occur in exceptional circumstances.

This matter fell into the first of the above categories. The Full Court then turned to the case of Chorn which specifically dealt with addbacks relating to legal fee expenditure. In that case it was held that when funds used existed at separation, such that both parties had an interest in them, then those funds should be added back. The wife used the proceeds from the sale of the family home to pay her legal fees.

Ultimately, the husband’s appeal was allowed, the wife’s legal fees were added back into the asset pool and it was ordered that the amount payable to the wife be reduced accordingly.

 

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