15 February 2022, By Niki Schomberg of Hartley Family Law
When reviewing transactions in your ex-partner’s bank statements, it can be a tough pill to swallow seeing them spend significant funds on luxury holidays, fine dining and designer clothes, particularly when you have had to tighten the purse strings post separation before a final settlement is reached.
We are often asked whether this type of discretionary spending can be ‘added back’ into the property pool; the effect being to treat money your ex-spouse has already spent, that no longer exists, as an ‘asset’ they are retaining as part of their final property settlement.
While the Court has the discretion to notionally ‘add back’ assets into the property pool (although this has been questioned in some cases post Stanford), it is generally reluctant to do so.
The Court has historically identified three areas where it may be appropriate to ‘add back’ property which include:
- legal fees spent from the parties’ capital – this is the least contentious add back;
- an asset that a party has prematurely disposed of; and
- where a party has engaged in a course of conduct designed to reduce the value of the property pool or the party’s reckless, negligent, or wanton action has caused a reduction in the value of the pool.
A ‘premature distribution’ is distinguished from the reasonable living expenses of a party, which will not be added back into the property pool.
The Court does not expect ex-spouses to be in a state of ‘suspended economic animation’ once their marriage breaks down but before their settlement is finalised and will not engage in an accounting exercise to scrutinise the minutia of each party’s spending.
The law also imposes no obligation upon ex-spouses to accumulate assets post separation. Subject to meeting obligations of child support and maintenance, the law says that each party is entitled to move on with their life and spend their money independently of each other.
In practical terms, this means that conduct like wining and dining new partners or going for a holiday, although it may seem excessive and be upsetting to the other party, will not generally be added back to the property pool.
As with any property settlement matter, the Court has a large discretion when determining a just and equitable outcome. Even if a notional add back is not taken up in the property pool, to ensure that a just and equitable result is arrived at, the Court can still recognise certain conduct within the assessment of contributions or make percentage adjustments pursuant to section 75(2) of the Family Law Act. The result being, that while a ‘notional asset’ is not taken up dollar for dollar in the property pool, the percentage division that a party retains of the pool may be greater due to transactions undertaken by the other party which are considered by the Court as relevant to the assessment of entitlements.
If you need any assistance in relation to add backs or any aspect of your separation or property settlement, you are most welcome to contact Niki Schomberg, or any of our lawyers to discuss.