What if my sneaky spouse wastes assets?

In property settlement proceedings the general rule is that you take the value of the asset pool for distribution as of the date of the hearing/agreement.

There may be issues, however, when one party has diminished the asset pool unilaterally by say, selling a property grossly undervalue, purchasing assets from a joint bank account that aren’t disclosed, or even gifting motor vehicles to family members.

These are types of premature distributions, and in some cases may be added back into the value of the asset pool. We will address several examples where the assets may be “added back” into the pool.

Reasonably incurred living expenses

One of the first things that must be considered, is whether the distribution of funds was necessary to facilitate reasonable living expenses. Any money distributed to provide for reasonable costs of living, such as rent, utilities, groceries and other expenses that should be considered “reasonable” will not be added back into the asset pool.

InGallings & Scott (2007) FLC 93-319 the Full Court held at [68] that “parties are entitled to live their lives independently of the other”.

Wastage

Where one party has wasted assets of the relationship, the courts have ruled in several prominent cases that it is possible to add back the value of the wasted property.

In the Marriage of Kowaliw (1981) FLC 91-092 it was held that, where one party embarks on a course of conduct designed to reduce or minimise the value of the asset pool, or has acted recklessly, negligently or wantonly with matrimonial assets, the effect of which is that the asset pool has been diminished, then the court has the discretion to add back the value of the assets that have been wasted.

However, it is worth noting that arguments as to wastage are difficult to succeed with, as the courts have indicated that there is no presumption of adding back an asset, and the discretion lies solely with the Judge.

Legal costs

When determining whether legal costs should be added back into the pool, the source of the funds used to pay for the said legal costs needs to be analysed. The case of Chorn & Hopkins[2004] FamCA 633, provides some useful commentary summarised below:

1-     If the source of the funds could be said to be a joint asset of the parties, such as monies from a bank account that existed at separation, then the legal costs should be added back into the pool;

2-     If the source of the funds is not a joint asset of the parties, then it is unlikely to be added back into the pool. This may arise where a party has opened a bank account post separation with post separation income funding the legal costs, or where one party has been gifted money to pay for their fees.

Sale of assets

Where one party sells assets that form part of the asset pool it is often the case that the other party seeks to have the proceeds of sale added back into the asset pool. If the sale of the asset can be proven, then those monies may be discretionally added back by a Judge. In the case of Townsend (1995) FLC 92-569, Chief Justice Nicholson added back the sum of money received from the sale of a taxi license. His Honour held in summary, that the license was purchased during the relationship, with relationship funds, and therefore the sale proceeds should be added back to the asset pool.

Final note

It must be added to any readers, that ultimately the discretion to “add-back” an asset or value back into the asset pool resides with the Judge, and all of the above information has been taken from previous cases. It will be the facts of the case that determine whether an argument to “add-back” an asset into the pool will be successful.

Following the High Court decision of Stanford [2012] HCA 52, which determined that it is the existing legal and equitable interests that are to be considered, there is debate about just how readily Judges are willing to “add-back” assets into the pool, where they no longer exist.  It is therefore very important to obtain legal advice from a lawyer who specialises in family law, to assist you with any queries you may have regarding your financial separation, whether it’s about proving hidden assets in divorce, dissipation of assets or other intricate matters.