Chose in Action in Family Law

In family law matters in Australia, the division of property includes not only tangible assets, such as real estate and vehicles, but also more intangible assets. A “chose in action” is an example of a unique type of asset that may be included in the asset pool for division in property settlements. While it is usually relatively simple to identify the tangible assets of a relationship, it can be more challenging to identify and value choses in action because of their intangible nature and the element of uncertainty around their realisation. This article defines this complex type of asset, how it is treated in family law matters, and the practical considerations in proceedings involving this asset class.

How is property divided in a family law matter?

In Australia, the Family Law Act 1975 governs the division of property for separating spouses and de facto partners. The term “property” in the Act has a wide meaning, referring to any asset to which either party has ownership or entitlement. This includes things that are not usually thought of as property, such as family pets. Both parties have a legal obligation in family law matters to fully disclose all their property and financial resources, including choses in action. Failing to disclose a pending bonus, potential legal claim or other intangible right can have significant legal consequences, including the overturning of property settlement orders.

Though former partners can agree to a family law property settlement privately, they can also apply to the Federal Circuit and Family court (or the Family Court of Western Australia) for financial or property orders. The property settlement process involves identifying the asset pool of the relationship, valuing these assets, and listing the liabilities and financial resources of both parties. The pool is subsequently divided between the parties on a fair and equitable basis, given the financial and non-financial contribution of each party, and their anticipated future needs.

How do you divide a Chose in Action?

A chose in action is a legal right to something that can only be realised through future legal action. Common examples of choses in action include:

• debts owed by other people
• stock options
• future entitlements to bonuses, tax refunds, and inheritances
• proceeds from pending legal claims or insurance payouts
• intellectual property rights such as patents and copyrights
• legal claims for compensation for breach of contract or damages in a personal injury lawsuit, and
• claims to a share in marital assets, child support and spousal maintenance.

The law treats choses in action as property rights that can be sold, transferred or assigned to another person. In family law matters, these legal rights that may have future value can form part of the asset pool for division between separating parties. Consequently, any choses in action involved in a family law property settlement must be identified and valued.

For example, if one party is eligible for a significant bonus at work, or suing another party for damages, their future rights may be included in the asset pool for division in the property settlement. However, the court must assess the likelihood that the chose in action will be realised. If someone anticipates they will inherit property on the death of a family member, but the family member is still living, then this entitlement exists only in the future. It is also very uncertain, because the testator may rewrite their will to disinherit them. Unless the inheritance is imminent, it is unlikely to significantly impact a family law property division.

The court will identify whether any chose of action is sufficiently certain for inclusion in the asset pool, assign it a value, and determine how to divide the value in a way that is fair to both parties (considering the likelihood of realisation and the potential time frame). The court might assign a notional value to the chose in action or decide that its value is too uncertain and therefore exclude it from the immediate division of assets. However, even if the value of the chose in action is highly uncertain, the court does have the discretion to adjust the property settlement to account for the potential value when making final orders.

The court may require expert evidence, such as an actuarial or financial assessment, to accurately value a chose in action. In cases where it is difficult to place a value on a chose in action, parties might negotiate a settlement that takes account of the potential risks and rewards. They may even agree on a future adjustment if a pending legal claim is successful.

Choses in action are an important and sometimes overlooked aspect of Australian family law. While they are intangible assets, their inclusion in the asset pool can significantly impact the outcome of a property division. The treatment of a chose in action requires a careful balance between recognising potential rights and accounting for their uncertainty. For more information about choses in action in family law proceedings, contact Go To Court on 1300 636 846.