Add Back to Assets pool – where waste by one party

21/07/2016

Often the family lawyers at Watson & Watson act for clients who are faced with the question of how the Family Court will deal with waste or negative contributions in relation to the resolution of property settlement following separation of a husband and wife of a marriage or parties to a de facto relationship (including same sex relationships). 

In the case of Miller & Miller the Full Family Court of Australia considered this aspect.  In Miller’s case the Full Court referred to a case of Ajo & Gro (Omacini) (decided by the Family Court in 2005) and Kowaliw’s case (decided in 1981).

The principle of adding back to the net pool of assets a sum to account for a loss by one party relates to:

1. Firstly “increasing” the net pool of assets which would be available for division between the parties by the amount of loss or waste.
2. Secondly allocating the “loss” to the party who “lost” the asset.

If we assume:

1. The add back is $100,000 which say the husband lost or wasted for example by gambling.
2. The total net assets (excluding the gambling loss) are valued at $600,000.
3. The Court decides that the net assets should be 50% to the husband and 50% to the wife.
4. The Court decides that the husband’s gambling loss ($100,000) should be added back to the asset pool and be allocated to the husband.

Then:

1. The net assets (excluding the gambling loss) are $600,000.
2. The net assets after adding back the husband’s gambling loss are $700,000.
3. Each of the husband and the wife will be allocated $350,000.
4. The husband will receive $250,000 (being $350,000 less $100,000 gambling loss) from the actual $600,000 net assets.
5. The wife will receive $350,000 (50% of $700,000) from the actual $600,000 net assets.

If the Court did not add back the gambling loss of $100,000 the $600,000 net assets would be divided on the basis of a 50/50 spilt:

1. $300,000 to the husband; and
2. $300,000 to the wife.

Baker J in Kowaliw & Kowaliw set out general principles and stated:

           “As a statement of general principle I am firmly of the view that financial loss incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability should be shared by them (although not necessarily equally) accept in the following circumstances:

(a)      Where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or

(b)      Where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised there value.

Conduct of this kind referred to in paragraphs (a) and (b) above have economic consequences and is clearly in my view a relevant factor [Section 75(2)(o) of the Family Law Act] to applications for settlement and property instituted under the provisions of Section 79 of the Family Law Act.

Generally living expenses expended even unreasonably or in some circumstances possibly extravagantly, will not be added back”.

If you have any concerns please telephone Richard Watson the experienced family law solicitor to discuss such matters and the effect that they will have on your case, the evidence required to prove waste and negative contributions and the alternatives available including the utilisation of offers which are available under the Family Law Act so as better to protect your position.