What happens when one party wastes the finances after separation?
Gambling, reckless spending behaviour and ill-considered business dealings, giving away assets or free rent and underselling assets are all examples of behaviour we sometimes see in family law property matter and they also are circumstances the Court has determined as wasting the family finances and are taken into account by the Court in determining Family Law proceedings.
Sadly, we see this type of behaviour in family breakdown. Disagreement about finances is a key cause of relationship breakdown and often we see the issues amplified after separation. Preserving the relationship’s property pool is crucial for each party to receive a fair disbursement at the end of the relationship. I often see on social media sites where, particularly women (because those are the groups I am apart of) ask what is normal and how family finances are ‘supposed’ to work? There is no cookie cutter answer. However at Voice Lawyers we regularly work with our clients and engage with a team of financial professionals including investment advisers, financial planners, forensic accountants and valuers to ensure our clients are receiving the best outcome and to are aware of the financial optimal outcomes for them moving forward. We believe it is important to have a financially informed approach when embarking on property settlement at the end of a relationship.
In some family law cases one party will deliberately minimise or waste the family assets either in spite or recklessness and this is addressed by the Court and termed wastage in family law matters.
Once you have separated and waiting for a property settlement to be affected you have an obligation to preserve the marital assets.
Issues such as gambling, making reckless investments, excessive spending, renting a home out for no rent or significantly less than it is worth, and causing an asset to be sold for less than it is worth for example distributing adverse information to the market at an auction are all examples the court has pointed to as wastage in Family law and unfortunately it is a difficult time and many motivations other than logic can come in to play.
In Kowaliw v Kowaliw the husband allowed a prospective purchaser to live in the marital home rent free for 12 months. More recently in a 2019 case the wife lost $360,000 after investing money with fraudulent brokers. The Court determined that making a poor investment at a time when, the court noted that, she was likely to be angry and depressed about the separation meant that the investment was considered reckless.
The standard position in Family Law is that where financial losses are incurred by the parties in the course of a marriage they are shared jointly, however, when one of the parties embarks on a course of conduct designed to minimise the value of the matrimonial assets, or if they are reckless, or negligent the Court has the discretion to add back the value lost or wasted to the marital pool. This then may result in the ‘non-reckless’ party receiving a greater portion of the assets.
It should be mentioned that the reasonable costs of living e.g. rent and utilities are not added back into the asset pool.