How Addbacks Can Affect Your Separation

In family law property settlements, parties in a marriage or de facto relationship follow the same 4-step process, namely:

1. What are the assets available for division?
2. How did the parties contribute, whether financially or non-financially, to acquiring, improving or conserving the matrimonial assets?
3. What are each party’s current circumstances, and should there be an adjustment made in a party’s favour; and
4. Is the agreement ‘just and equitable (i.e. fair)?

While most disputes centre around how the parties contributed during the relationship, and what (if any) adjustments should be made to a party depending on their current circumstances, there are some disputes which focus on the dissipation of certain assets before separation. In some of those cases, a Court might find it appropriate to “notionally add back” those assets into the property pool.

However, ever since the case of Kowaliw, the Full Court has repeatedly held that notional adjustments or addbacks are the exception and not the rule. The general rule, in that case, states that financial losses incurred by the parties throughout the relationship (whether jointly or otherwise) should be shared by the parties. However, where one party has deliberately or recklessly disposed of the assets before a final property settlement but after separation, then the value of those assets can be addback back into the property pool.

Types of Addbacks

There are other types of “Addbacks” which are generally accepted by the Court, these include:

• Legal fees – the Family Law Act states that each party should pay their own legal costs. If a party uses matrimonial funds to pay their legal fees, then there is a strong case for those funds to be considered already “received” by the expending party. If a party can demonstrate through objective evidence that a party has used joint funds to pay their legal fees, this can often result in the other party’s legal fees being addback into the pool.
• Wastage – this concept stems from a party that has intentionally acted to reduce the asset pool or acted recklessly and thereby caused a reduction in the asset pool. For example, if a party has gambled excessively such that it has significantly reduced the property pool, then a Court may consider adding back those wasted funds.
• Spending monies or disposing of assets – if one party spends monies at separation or disposes of property (sometimes at the below-market rate) and thereby depleting the asset pool, the value of the asset or the monies at separation can be added back to that party.

While Courts do not wish for parties to stop “living their lives” or expect their finances to be “frozen” from the date of separation, parties should be careful about the conduct of their spending. There have been several cases where a Court has penalised a party for gambling or even offering the use of an asset for no charge or below market raise.

It is important to mention again, that addbacks are the exception and not the rule. The Courts whilst do have the discretionary power to notionally add lost funds and/or assets back into the pool, it is generally reluctant to do so unless in exceptional circumstances. In the case of Charles & Charles (2017), the wife asserted that money lost by the husband in unprofitable share sharing should be added back into the asset pool. The wife argued that but for the husband’s conduct, there could have been more money available for division between them. However, in this case, the Full Court found that the husband’s share trading had not been designed to reduce or minimise the parties’ wealth and that he did not act “recklessly or negligently” and therefore dismissed the wife’s application.

If you or someone you know is going through a property settlement and would like further information, contact one of our expert Family Lawyers who will be able to assist.