Overview of Section 106B of the Family Law Act 1975

8 July 2024

By Bethany Moller

Section 106B of the Family Law Act 1975 is a critical provision designed to prevent parties from manipulating the asset pool in anticipation of family law proceedings.

This element of the act grants the Family Court of Western Australia and Federal Circuit and Family Court of Australia the authority to set aside or restrain transactions that are intended to defeat an existing or anticipated family law order.

Key features of Section 106B

1. Scope of application

Section 106B applies to various types of transactions that could potentially reduce the asset pool available for division between parties in family law proceedings. These transactions can include transferring property to another person, transferring property to a company or trust, creating mortgages over property, forgiving debts, and other similar financial manoeuvres.

2. Who can apply?

The application for an order under Section 106B is not limited to the parties involved in the family law proceedings. Creditors of a party, or any other person whose interests might be affected by the transaction, can also apply. This broad eligibility is designed to protect the interests of all parties affected by such transactions.

3. Burden of proof

The party or person applying for an order under Section 106B carries the burden of proof. They must demonstrate that the transaction was intended to, or likely to or did, defeat a family law order. The court then uses its discretion to decide whether to set aside the transaction.

4. Discretionary powers of the court

The court has considerable discretionary powers under Section 106B. It evaluates the circumstances surrounding the transaction and the overall context of the case to make a decision. The interests of bona fide purchasers or other third parties are also considered, ensuring that any order made protects their rights.

Case studies and legal interpretations

Ferguson & Ferguson (2022)

In the case of Ferguson & Ferguson (2022), the court set aside a property transfer that occurred more than 20 years prior to the proceedings.

Despite the significant time lapse and the fact that both parties had initially consented to the transfer, the court found that the transaction was intended to defeat an anticipated family law order.

In this case, the husband had transferred his interest in a property to his daughter in 2001, around 19 years before the family law proceedings commenced. The transfer was made with the consent of the wife at the time.

However, during the proceedings, the wife argued that the transfer should be set aside under Section 106B as it was done to defeat her claim over the property in any future family law proceedings.

The key factors that led the court to set aside the transfer were:

  • The significant change in circumstances between 2001 and 2022, including a deterioration in the marital relationship and the husband’s health issues.
  • Evidence that the husband had expressed an intention to defeat any future claim by the wife over the property.
  • The fact that the transfer left the husband with no significant assets in his name, which would disadvantage the wife in any property settlement.
  • The court found that despite the wife’s initial consent and the long time lapse, the transfer was made with the intention to defeat an anticipated family law order, thus meeting the criteria under Section 106B.

The case highlighted the court’s willingness to scrutinise past transactions closely, especially when there’s a significant change in circumstances, such as a deterioration in health or marital relationship.

Practical implications

For individuals undergoing separation or considering family law proceedings, it is crucial to understand that any attempt to manipulate the asset pool through transfers or disposals can be challenged under Section 106B. Legal advice should be sought to ensure that all actions comply with the law and do not inadvertently trigger legal challenges that could complicate or undermine the proceedings.

Section 106B of the Family Law Act 1975 serves as a robust mechanism to ensure fairness and transparency in the division of assets during family law proceedings. It underscores the importance of maintaining integrity in financial dealings before and during such proceedings to prevent any party from being disadvantaged by strategic financial manoeuvres.

At O’Sullivan Davies, our experienced family lawyers can guide you through the process and ensure your rights are protected.

Contact us today to arrange an initial consultation.