An issue that frequently arises during property settlement proceedings is how to treat legal fees that have been paid by parties. Most commonly, this occurs in the context of one party arguing that paid legal fees should be notionally added back into the asset pool. This increases the size of the asset pool available for division between the parties. Such an addition may make an important difference if one of the parties has paid significantly more towards their legal fees than the other. It may also be appropriate where parties have paid their legal fees using capital.
Section 117(1) of the Family Law Act states that subject to certain exceptions, each party to proceedings shall bear their own costs.
However, an order can be made for costs after consideration of the following:
- the financial circumstances of each party;
- whether any party is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance;
- the conduct of the parties including in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;
- whether the proceedings were necessitated by the failure of a party to comply with previous orders of the court;
- whether any party has been wholly unsuccessful in the proceedings;
- whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
- other matters the court considers relevant
When a party seeks an order from the court that paid legal costs not be added back to the asset pool, they are asking the court to make a pre-emptive decision about one party’s paying the other’s legal costs. Because Section 117(1) establishes that the default position is that neither party pays the other’s legal costs unless the above considerations are met, if there is to be payment of legal costs, it will need to be based on the particular circumstances of the case.
Trevi v Trevi
In the 2018 decision of Trevi v Trevi, the wife claimed that $587,032 in paid legal fees should be added back to the asset pool. The husband claimed $913,772 should be added back, including $437,628 in paid legal fees.
During the appeal, some concessions were made, and the issue remained whether $437,000 (being the wife’s paid legal fees) should be added back. The husband was a lawyer and his costs were absorbed in-house by his firm. In that context, the court held that it was not clear that the husband would ever have to pay the bulk of his legal fees although be had paid legal fees of $142,587 from his income. As such, the court held this should be taken into account under s75(2)(o).
The Family Court found that the trial judge had erred as she did not consider the funds expended on legal fees when exercising the discretion nor did she consider the dollar impact of not adding back the legal fees. The effect of the orders was that the husband had to meet 60% of the wife’s fees without the court providing any explanation of how that was just and equitable.
The Family Court held the following:
- The decision to add back legal fees remains a matter of discretion for the court. This discretion will be exercised where the court finds that it is just and equitable for the court not to add back an amount of legal fees paid because it is also just and equitable that the other party contribute to the costs of the other in the same proportions an overall assessment of their property division.
- The court also considered cases of Omacini (2005) FLC 93-218 and Chorn and Hopkins (2004) FLC 93-204, noting that in cases where legal fees are not added back, it is open for the court to consider this issue in the context of the discretion to make an award of spousal maintenance after a consideration of the factors listed in Section s75(2). The court also noted that it is more technically correct to consider this issue under s75(2) factors than as addbacks.
- A distinction must be made between legal costs paid from the asset pool otherwise available for division between the parties (especially funds from assets or businesses to which the other party has made a significant contribution) and funds acquired post-separation or received as a gift or inheritance. The latter would usually not be added back.
If you require legal advice or representation in a family law matter or in any other legal matter, please contact Go To Court Lawyers.