Shinohara & Shinohara – No more add-backs in property settlements

The family law case of Shinohara & Shinohara [2025] FedCFamC1A 126 has had a significant impact on property settlements.

The Court interpreted new changes to the Family Law Act 1975 in a way that directly affects situations where one party has inappropriately used or disposed of property that would otherwise be available for division between the parties.

This article explains the change, and what it means for parties who are undergoing a property settlement.

“Adding back” property

Below is a very basic example of a property division. Two parties have $1,000,000 to divide between them, nothing more, and the court has determined they are entitled to 50% each. The maths is fairly basic; each party receives $500,000.

For the purpose of the example that follows, the division is expressed like this:

But what happens if a party inappropriately deals with property, spending it or transferring it to a third party or another entity, so that there is less property available to divide than there should be at the time of settlement?

Under the law previously, misappropriated property could be notionally “added back”, which meant that it was counted as property in a party’s possession for the purpose of the division.

To illustrate, let’s update our example from above. This time, party 1 has inappropriately spent $100,000 that would otherwise be available to divide. Adding that property back would look like this:

The extra funds aren’t actually available for division at the time, they are only “notionally” included. The actual funds available are still only $1,000,000. But if you add up what the parties actually receive (shown in red), this adds up to $1,000,000. Party 2 gets $50,000 more and Party 1 $50,000 less, so the $100,000 spent by Party 1 is effectively divided between them equally.

No more add-backs – Shinohara & Shinohara

The case of Shinohara & Shinohara, however, established that notionally adding back property like the example above, is no longer permitted.

This is because the Court interpreted recent changes to the Family Law Act 1975 as only allowing the division of property that is actually available to divide at the time of settlement. In other words, you cannot split something which no longer exists to be split.

Bearing the above example in mind, the change may seem unfair. When only one party had the benefit of the property, notionally allocating it to them in the final division may seem an appropriate way to compensate the party who lost the benefit of the property.

But the above example is very simple. Real world examples are invariably more complex. For example, the law previously provided that not every type of misappropriation could be added back. This gave rise to potential unfairness, for example, when both parties disposed of funds, but only one did so in way that allowed them to be added back.

Allocating property to parties that they no longer have also runs the risk of creating an unfair outcome. Whereas the Court is required to ensure that the final outcome reached is just and equitable to both parties, which includes considering the practical effects of the division.

Add-backs may look fair on paper, but if one party is not actually receiving a substantial amount of the property allocated to them, they could be left in a very difficult position, potentially even unable to support themselves, notwithstanding that it was their wrongdoing that triggered the add-back in the first place.

The way forward

The law has not left us without a solution in relation to add-backs. The updates to the Family Law Act 1975 also involved other changes, which allow the type of conduct dealt with by add-backs to be addressed in different ways.

The two primary considerations when determining a party’s entitlement to property in a settlement are their contributions to the property available for division, and their current and future circumstances. Briefly:

1. Contributions: the more a party has contributed to the property available for division, the more they are likely entitled to.

This is not as simple as adding up the financial contributions dollar-for-dollar, which would likely ignore the value of stay-at-home partners and parents, however. “Contributions” means all contributions to the property of the relationship, including contributions of a non-financial nature, and contributions as homemaker or parent.

2. Current and future circumstances: if a party’s current or future circumstances are such that they will clearly need more (or less) than the other party, the division may be adjusted accordingly. Examples include:
   1. Where one party has a significantly higher or lower income earning capacity than the other;
   2. Where one party will have the majority of the care any children, which will likely subject them to more expenses;
   3. Where one party is older or younger than the other, with accordingly more or less time left in the workforce; and
   4. Where one party has a chronic health issue, which may cost money to manage.

The law currently allows the Court to consider misappropriation of property through both lenses:

1. A contributions-based approach: it could be viewed as a “negative” contribution, which reduces a party’s entitlement accordingly; and
2. A current and future circumstances-based approach: the benefit to the party who misappropriated the property might mean they need less of what is actually available, or the cost of misappropriation to the other party might mean they need more of what is actually available.

In this second regard, the amendments to the Family Law Act mean that current and future circumstances now specifically include “the effect of any material wastage, caused intentionally or recklessly by a party to the marriage” and “any liabilities incurred by either of the parties to the marriage, including the nature of the liabilities and the circumstances relating to them”.

Practical considerations

One of the complaints about this change is that parties no longer receive a dollar-for-dollar add back value where property is misappropriated.

What this means is that previously, if funds were added back, the exact value of what was misappropriated was often added back, so the injured party was compensated for exactly what they had lost. When making adjustments based on contributions and current/future circumstances, however, in practice the Court may not make an adjustment that reflects the exact value, or cost, of the conduct warranting the adjustment.

This is because the Court generally will not conduct an accounting exercise and make individual adjustments to compensate individual factors or issues. Rather, the adjustment will be an overall movement in consideration of all the relevant circumstances. The effect of this tends to be that if you broke down the adjustments, you may find that adjustments to compensate misappropriation do not reflect the full value of the misappropriation.

As a result, parties who do the right thing and refrain from misappropriating property are arguably worse off under the new regime.

The answer to this is not to make off with as much property as possible ahead of the settlement. The Court has powers to address dissipation of property that is done knowingly to minimise what is otherwise available for division.

Rather, the best thing you can do is make sure that nobody can unilaterally deal with property pending your final property settlement, unless otherwise agreed.  The Family & Relationship Law team can assist with advice and strategies to protect you in this regard and ensure that you receive the settlement that you are rightly entitled to.

Contact us

If you have questions about these issues or are undergoing a property settlement, the Family & Relationship Law team at Coulter Legal can provide you with expert advice and representation. Contact us on 03 5273 5273 or email info@coulterlegal.com.au.