Shinohara Decision Ends the Practice of ‘Add Backs’ in Family Law Property Settlements

The Full Court of the Federal Circuit and Family Court of Australia (Division 1) has handed down a landmark decision that changes the way property settlements are approached under the Family Law Act 1975. In Shinohara & Shinohara (No 2) [2025] FedCFamC1F, the Court confirmed that the long-standing practice of “add backs” — where certain spent or dissipated funds were notionally added back into the property pool — no longer applies following the recent legislative amendments.

This decision not only redefines the calculation of the divisible asset pool but also alters how practitioners must frame arguments about property that no longer exists at the time of trial.

Background to the Case

The Shinohara proceedings arose from a dispute between separating parties who had sold multiple properties during the course of their separation:

• The husband’s Suburb EE unit
• The wife’s Suburb FF unit
• Their joint Suburb BB home

The combined proceeds from these sales were largely depleted through legal fees and other expenditures. At an earlier stage in the matter, both parties agreed to record “add backs” in the balance sheet — a mechanism where funds that had been spent before trial were notionally treated as if they still existed for the purposes of dividing property. The agreed add backs totalled approximately $592,768.

At trial, however, the primary judge declined to include these notional amounts in the asset pool. Instead, the divisible property was limited to assets that still existed at the time of trial — approximately $589,155 in trust funds, plus vehicles, an e-bike, and a small shareholding.

Positions on Appeal

The case reached the Full Court on appeal, with each party advancing different legal arguments:

• Mother’s position: She alleged procedural unfairness, stating that the trial judge ignored the parties’ mutual position on the inclusion of add backs. Her submissions assumed the agreed amounts were part of the balance sheet.
• Father’s position: He contended that the 2025 amendments to s 79 simply codified the pre-existing judicial discretion on add backs under the Omacini line of authority, meaning that notional property could still be included in the asset pool.

The Legislative Context – June 2025 Amendments

On 10 June 2025, amendments to s 79 of the Family Law Act 1975 came into effect. The section now expressly requires the Court to determine only the “existing legal and equitable rights and interests” in property at the time of trial. This language is critical — it narrows the scope of the asset pool to what physically or legally exists at that point.

Before these amendments, the law permitted Courts to include certain categories of add backs — such as funds spent on legal fees, premature distributions, or waste — in the balance sheet. This allowed a mathematical approach where dissipated property was treated as if it still existed, thereby altering the percentage division between parties.

The Full Court’s Analysis

From paragraph [115] onwards, the Full Court analysed the effect of the legislative changes. The Court rejected the argument that s 79(3) preserved discretion to notionally add back property. The statutory wording is clear — only existing property can be included.

The Court also found no support in the explanatory memorandum for the continuation of add backs. Instead, the reasoning in Omacini and related cases must now be reframed under the contribution and needs provisions of the Act:

• Section 79(4): The dissipation of property may form part of the contribution history, allowing the Court to consider how the proceeds were used when weighing each party’s contributions.
• Section 79(5): Dissipation may also be relevant to assessing the parties’ current and future circumstances, particularly where waste or litigation funding impacts their needs.

This represents a structural redirection rather than an outright dismissal of the principles behind add backs. The historic categories remain relevant, but they are no longer expressed as “property” in the balance sheet.

Outcome in Shinohara

The Full Court allowed the appeal, finding that the trial judge had failed to address the parties’ mutual assumption about add backs, resulting in procedural unfairness.

On re-exercising discretion, the Court recalculated contributions and needs without placing the notional amounts into the asset pool. Instead, it assessed the use of the dissipated assets under ss 79(4) and (5). This approach complied with the new legislative requirements while still recognising the impact of the parties’ prior dealings with property.

Legal Principle Moving Forward

The key takeaway from Shinohara is that add backs, as a component of the divisible property pool, are no longer permitted. The term “notional property” may well disappear from family law practice.

For practitioners, the shift is both procedural and strategic:

1. Evidence is paramount. Lawyers must present clear, detailed evidence of how dissipated assets were applied.
2. Argument focus changes. The debate is no longer about inflating the pool but about persuading the Court on contribution weightings or needs-based adjustments.
3. Greater transparency. The removal of add backs from the balance sheet eliminates a device that could obscure the true nature of the existing property pool.

Practical Implications for Clients

For separating couples, the decision has immediate consequences:

• No more mathematical re-creations of the pool. If assets have been spent before trial, they will not be added back.
• Impact still possible. The way those assets were used can still influence the outcome through contribution and needs arguments.
• Record keeping is critical. Parties should maintain detailed records of all asset sales and expenditure, especially during separation, to support their position in Court.

The Shinohara decision confirms that the 2025 amendments to the Family Law Act 1975 have fundamentally altered the structure of property settlement proceedings. Courts are now restricted to considering existing property, with dissipation issues addressed within the framework of contributions and needs.

For practitioners, this marks the end of the “add back” as a balance sheet item and the beginning of a new era where evidentiary detail and statutory framing will be decisive. For clients, it underscores the importance of careful financial management and legal advice during separation.

If you require advice on how these changes could affect your matter, Melbourne Family Lawyers has the experience and expertise to guide you through this evolving area of family law.