Who is at Fault for Financial Losses in a Marriage?

As a general principle, financial losses incurred by the parties in the course of their marriage or de-facto relationship should be shared between them regardless of whether these were the fault of only one person in the relationship. Exceptions however are made where one of the parties has deliberately embarked upon a course of action to reduce the value of an asset, or has acted recklessly or negligently with a matrimonial asset with the overall effect of minimising its value. The typical example is gambling.

In circumstances of waste or premature distribution of property, the Court has the discretion to notionally ‘add back’ the value of the property into the pool of assets.

Traditionally, the three main categories where the Court will consider adding an asset back to the pool of assets, include:

Financial Losses

In Kowaliw (1981) FLC 91-092, following separation the husband allowed a prospective purchaser to occupy the former matrimonial home rent free for 12 months and during this time the husband did not live in the property and made no repayments toward the mortgage or rates. The prospective purchaser subsequently changed his mind and did not purchase the property. The husband sold the property and invested the proceeds.  The wife argued that this was twelve months of lost income. The court said that the Husband’s actions in allowing no payment of rent as economically reckless and therefore was found solely responsible for that part of the liabilities comprising the rates and mortgage repayments.

Premature Distribution of Assets

Where there has been a premature distribution of “matrimonial assets” in favour of one party. In Townsend v Townsend [1994] FamCA 144, following separation the husband sold his taxi for $148,000.00 and retained all of the net proceeds of sale. The court found that the Husband prematurely disposed of a matrimonial asset to which the wife had a legitimate interest in. The Court ‘added back’ the sale proceeds into the pool of assets available for distribution.

Joint Money is used to pay for Legal Fees before separation

Where a party uses matrimonial money to pay for their legal fees (DJM v JLM [1998] FamCA 97) but if legal fees were paid from monies earned post separation, then they would generally not be added back (Chorn and Hopkins [2004] FamCA 633)

A more recent High Court decision, Stanford v Stanford [2012] HCA 52, raises some questions about how the Court should consider these types of deliberate use or wastage of assets by one party. Ultimately, it still remains a matter of discretion for the Court in each case.

For more information, contact:

Carlos Turini e: cturini@elringtons.com.au | p: 02 6206 1300 http://elringtons.com.au/wp-content/uploads/2011/07/Specialist-accreditaion.jpg