Add backs: how Shinohara v Shinohara is reshaping family law property settlements

If you’re going through a separation, one of the biggest questions is: what happens to money that’s spent before the property settlement is finalised?

For years, courts used a tool called “add backs” to deal with this problem. But a recent court decision of Shinohara v Shinohara[1]  has changed the way family law deals with money spent during separation, prior to a property settlement being finalised.

What are “add backs”?

Property settlements can take months, sometimes years, to resolve. In the meantime, life goes on: bills need to be paid, business values go up and down, and sometimes one partner spends money in ways the other doesn’t agree with – for example:

• Using joint money for legal fees.
• Withdrawing large sums of cash.
• Gambling or wasting money.
• Making other questionable purchases otherwise referred to as “wastage”.

In the past, courts could treat that money as if it was still in the asset pool. This “notional add back” meant the person who spent it unfairly would have it counted against their share of the settlement.

What happened in Shinohara v Shinohara?

In this case, the couple had a five-year marriage and an asset pool of about $616,000. Both agreed that money used for legal fees should be added back into the pool.

But the Full Court took a different approach, in view of recent changes made under the Family Law Amendment Act 2024, specifically to Section 79(3)(a)(i) of the Family Law Act 1975 (Cth). The judges held that because “notional property” (money that’s already gone) doesn’t actually exist, it can’t be added back into the asset pool.

The Full Court held:

“The text of s 79(3)(a)(i) is clear. Only the existing property of the parties is to be identified and only that existing property is to be divided or adjusted.”[2]

The Full Court further noted:

“So that it is clear, s 79 now directs that the categories identified in Omacini [[2005] FamCA 195] pre-amendment that were notionally added back are to be considered in ensuring a just and equitable outcome, either by way of historical contributions, or by way of their relationship to and impact upon the current and future circumstances at the s 79(5) stage…

The holistic approach in assessing and determining contributions and adjustments thereto…remains applicable. Each of the considerations, by either s 79(4) or s 79(5), requires engagement with the circumstances of the disposal of property, the value it achieved, and its use and application being considered and weighed to achieve the mandate of justice and equity that permeates s 79 of the Act.

“As notional property does not exist, it cannot be identified to form part of the balance sheet recording the current items of the parties’ property.” [3]

This means that notional assets cannot be added back to the marital asset pool as they have previously.  Instead, the court must take a holistic approach and focus on:

• Contributions: looking at what each person put into the relationship (financially and otherwise)
• Adjustments: making percentage shifts to ensure the outcome is fair

So, if one person spends joint money unfairly, the court can’t just “add it back”. Instead, the other person may get a bigger share of what’s left.

Why does this matter for separating couples?

This change means that record keeping in the period following separation will be vital.

Parties will be required to plead their evidence regarding excessive spending, payment of legal fees and “wastage”, and provide evidence of when this occurred, and how it has impacted the property pool as part of their case.   In particularly complex matters, expert forensic evidence may be required to quantify the amounts in question and arguments may be required to determine whether there was “wastage” or a negative contribution to the assets.

For legal fees, it may mean that both parties should have access to the same amounts to avoid complications at trial, or both parties may refuse to release funds for legal fees during litigation, relying on litigation funding or other sources of income/assets for payment of their legal fees.

The Shinohara decision marks a big shift in how courts handle property settlements, but the goal remains the same: a fair outcome for both parties.

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[1] Shinohara v Shinohara [2025] FedCFamC1A 126

[2] Ibid at [121].

[3] Ibid at [125]-[127].