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Should the typical sale of business assets prior to separation be required to be “added back” to the asset pool at settlement?

Thursday 16th January 2020

By: Georgina Gregory

The case of Cabadas [2019] was an appeal heard in the Family Court of Australia.

The Judge was considering a previous settlement order made in the Federal Circuit Court of a sum of $901,078.

This sum erroneously included a $130,176 from the Husbands sale of livestock over the prior 5-year period, deeming it to be a notional asset.

The court held that the appellant husband, who used the livestock as part of his stock-in-trade in the regular maintenance of the business, was not required to add its value back to the asset pool.


What are Notional assets?

Notional assets, known colloquially as “add backs”, can be used by the court to assist in the appropriate division of assets between a separated couple. This ordinarily happens under the following circumstances:

(a) where the parties have expended money on legal fees;

(b) where there has been a premature distribution of matrimonial assets; and

(c) waste or wanton, neglect or reckless dissipation of assets.

Addbacks should be exceptional in their usage, especially when the property no longer exists; as is the case here. In no way was the husband found to be prematurely distributing the assets or recklessly dissipating the assets; this was part of regular business practise. 

The appellant Judge found that the primary Judge did not take into consideration the fact that the husband depended upon the livestock as “stock in trade” for the business and that he relied upon the income from that livestock for his livelihood. There was also no accommodation made for business expenses or expenditure offsetting the sale of the livestock over the course of the 5 years.

During the relationship, the parties had utilised both the livestock operation and a property to help financially sustain themselves. Post separation, the finance obtained from the livestock that was sold was used for the upkeep of the property, the operation of the husband’s livelihood and reasonable living necessitates. The utilisation of the finances that occurred post separation was a progression of what had occurred prior to the separation.

Due to these factors, the court held that the proceeds of sale of livestock should not have been added back to the assed pool at settlement.

The appeal of the husband was allowed. The asset pool was adjusted to exclude the amount garnered from the sale of livestock, then it was divided equally between both parties.


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