When dealing with a financial division between two people, the Family Law Act sets out a variety of factors that the Court takes into account when dividing up the assets, liabilities and financial resources between the parties. Some of the factors it considers include the length of relationship, roles in relationship age, health, inheritance, contributions of the parties to the effect of a division on any third-party creditors.
But what happens when the money or property of the relationship has already been spent and is no longer in existence due to the actions of one of the parties? Maybe a party used matrimonial funds to gamble and lost the money, or maybe a party offered a family member rent free accommodation in an investment property that was part of the matrimonial pool, leading to a loss of rental income. Maybe a party sold a asset and took off with the funds. For these situations, nominal estates (colloquially referred to as add-backs) come in.
An addback arises where one party has acted in a way that has reduced the size of the matrimonial pool to the extent that the just and equitable response of the Court is to treat the money that has been spent by the party, as part of the current pool of assets (added back in). This way, in a division of assets, the ‘innocent party’ does not necessarily have to suffer from the other party’s actions and can have a fair settlement.
There are three main areas of addbacks:
- Where there has been a premature distribution of matrimonial assets:
As stated in the matter of Townsend & Townsend (1994) FamCA 144, the principle is that if a party, without agreement, unilaterally distributes matrimonial funds or assets, what they have actually done is taken something that is in the legal interest of the other party. In the matter of Townsend & Townsend, at separation the Husband sold taxi plates that were and had been part of the matrimonial pool since around the time he and his wife established their relationship. The taxi plates were sold for $148,000 and the Husband kept the money. On appeal, the Court found that the “husband had effectively made a premature distribution of an asset in which the wife had a legitimate interest” and counted the $148,000 that had already been spent by the Husband as part of the assets pool of the marriage.
- Wastage of funds or assets of the matrimonial pool:
The matter of Kowaliw & Kowaliw [1981] FamCA 70 provides a guideline as assessing whether the spending of an asset counts as reckless or wasteful use of matrimonial funds. In this matter, the Husband offered the former matrimonial home to a perspective purchaser who resided in the home for 12 months without rent or any contributions to utilities. The Court found that foregoing the rent was “commercially inept and economically reckless”.
From this case came two established guidelines for establishing an addback due to wastage: [Baker J at first instance]
- Where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of the matrimonial assets; or
- Where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
The Court has also established that legal fees may also be categorised as an addback. In the matter of Trevi & Trevi [2018] FamCAFC, the Wife was a homemaker and the husband worked as a solicitor. Whilst the husband was able to subsidise the costs of the family law proceedings through his income, the wife did not have that luxury and had to seek legal fees out of the existing matrimonial pool. The Court
As noted by the Court in Omacini & Omacini [2005] FLC, ”’adding back’ is a discretionary exercise. When the discretion is exercised in favour of adding back, it reflects a decision that, exceptionally in the particular circumstances of a case, justice and equity requires it.”
Therefore, whether something is counted as an add back or if so, how much weight the addback is given, must be seen in the context of the relationship as a whole. The court will take into account the facts and case law in the matter and apply the necessary judgement.
About the Author
Eleni Tsoromokos, is a Junior Solicitor in the Family Law Practice at Digital Age Lawyers working under the supervision of Katherine Hawes, Principal Solicitor.