Post-separation expenditure - what is acceptable?


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Post-separation expenditure - what is acceptable?

Separation of long marriage with significant financial division

A recent case heard in the Newcastle registry of the Federal Circuit Court of Australia dealt with a long marriage of some 19 years and an asset pool of $4million.

The husband had been somewhat of an entrepreneur and negotiated the lucrative sale of a business during the marriage for some $8million. Unfortunately, he had subsequently engaged in share trading and had sustained significant losses. As at the date of hearing the net pool had reduced to approximately $4million.

Contributions of the parties where considered in light of the husband’s significant share trading losses.

The wife sought a 15% adjustment in her favour due to her future needs and her ongoing role as the primary carer of the four children of the marriage. Ultimately, the wife sought that she retain $2.84million and the husband retain $1.17million of the available pool.

Submissions were made by the wife that she would receive minimal child support or assistance in respect of the children from the husband in the future and that she has become used to living a particular kind of lifestyle.

The husband’s position was that he should receive 65% of the pool because of the windfall in respect of the sale of the business during the relationship. He asserted that this windfall of some $8million came as a result of his family connections.

Further, the wife sought that a significant amount of funds expended by the husband following separation should be added back to the pool as ‘notional add-backs’. This would result in the husband retaining far less of the pool than actually remained in “real terms”.

The wife sought that assets disposed of or funds expended by the husband should be notionally added-back to the pool including:

  1. $308,000 which the husband had retained from the sale of a boat in September 2011 and then paid to a credit line before withdrawing $275,000 and placing it in a share trading account;
  2. $61,000 removed by the husband from a bank account in June 2012;
  3. $140,000 given to the husband by his brothers in August 2012; and
  4. $153,000 received by the husband post separation from the sale of a boat, motor vehicle, caravan and dirt bike.

Notional add-backs

Notional add-back are a hot topic in Family Law Matters. Prior to the decision of Stanford in 2012 it was common in property cases for monies used by one party particularly in respect of legal fees to be added back. Since Stanford there has been debate about whether funds expended by one party which would otherwise have been available for distribution between the parties, should be added back to the pool.

In this recent decision, the wife’s lawyer argued that the funds should be added back.

The judge considered that in certain matters it was still appropriate to add monies back dollar for dollar where one party has unilaterally disposed of such monies after separation in order to ensure that the outcome is just and equitable. However this must be tempered since Stanford. The court must consider whether perhaps it is more appropriate to consider such post-separation expenditure in respect to adjusting the end outcome. The court cited case authorities noting that add-backs of notional monies to the pool are the ‘exception rather than the rule’.

The judge found the appropriate course was not to add-back any of the amounts but rather to consider the loss of these monies pursuant to section 75(2)(o).

Party contribution to relationship – Judge’s decision

The judge found that each party contributed in different ways during the relationship in respect of employment, parenting, home making etc. The court did not find that either party was lazy and found that overall the contributions were generally equal.

The court did find though, that the monies received from the sale of the business of $8million in 2006 should be treated as a contribution by the husband and in that regard they were a significant financial contribution. The court acknowledged that there were significant share losses due to the husband’s share trading. However the assets remaining in the pool as a result of the money received by the husband still equated to some 68% of the pool. The trial judge found that although the husband acted as the share trader, there was no evidence from the wife that she was opposed to this activity or that the husband initially set out in engaging in risky share trading.

The wife’s evidence was that in June 2011 she gave the husband an ultimatum to cease share trading but he continued. The trial judge held that the parties had an 18 year relationship and that the husband’s initial contributions were greater than those of the wife but these were not of any great significance. The parties contributed equally during the first 13 years of the relationship which was two-thirds of the relationship. The husband did bring in a significant amount into the pool due to his family connections – some 68% derives from this contribution (the sale of the business) in 2006. The trial judge found that the husband should not bear sole responsibility for the share losses as there was no evidence that the husband initially engaged in risky trading and the GFC did affect share prices. However, the trial judge found that the impact of the husband’s large financial contribution in 2006 was balanced by his actions from late 2010 onwards resulting in a loss of $1.5million from the pool despite the wife’s efforts to have him cease trading. Absent of such behaviour the husband would have received 65% by way of contributions. In light of the husband’s behaviour these contributions were assessed as 57.5% in favour of the husband.

Consideration was then given to future needs factors (section 75(2) factors) and the wife received an adjustment in her favour due to the ongoing needs of the four children. Further, the wife and children were used to living at a certain level of comfort and attending private schools and engaging in extracurricular activities. The judge awarded a 12.5% adjustment in favour of the wife. This meant the wife received overall 55% of the pool or $2.2million and the husband 45% of the pool or $1.8million.