In family law proceedings, the Court considers the value of property in which ex-spouses have an interest in, as at the time of trial. But what happens when one of the parties makes a financial contribution that has wasted, rather than increased, the value of the asset pool prior to hearing?
When it comes to the Court’s ability to consider assets lost or disposed of prior to hearing, the case of Kowaliw & Kowaliw (1981) FLC 91-092 (Kowaliw) is the start of a line of authority. In Kowaliw, the husband allowed prospective buyers of the matrimonial home to occupy the home rent free for 12 months. The wife submitted that this amounted to 12 months of lost income. It was ultimately decided that this action was commercially and economically reckless, and the husband should be solely responsible for the consequent loss.
Justice Baker, the trial judge in the case of Kowaliw, put the principle in the following terms:
As a statement of general principle, I am firmly of the view that financial loss incurred by the parties in the course of the marriage … should be shared by them (although not necessarily equally) except in the following circumstances:
(a) where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets; or
(b) 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.
Subsequent decisions have recognised specific examples of wastage, where a party has followed a course of conduct designed to reduce the value of the parties’ assets, or engaged in reckless or negligent conduct – such as allowing a person to live in the parties’ property rent-free for a year, excessive gambling, or undermining the profitability of a business or investments.
The issue of gambling as wastage was considered by the Court in AB & GB (No.2) [2005] FMCAfam 402 (AB & GB). One of the key issues in AB & GB concerned whether the Court should notionally add back a significant portion of the husband’s savings. The wife submitted that, through gambling, the husband had dissipated $160,000 supposedly invested to provide for the children’s education; she sought that the funds “wasted” by the husband be added back into the pool of assets.
Considering the economic consequences of the husband’s gambling when quantifying the asset pool, the trial judge found it appropriate to make an adjustment in the wife’s favour of 25 per cent.
In contrast to AB & GB, where the gambling of the husband was taken into account and an addback followed, the case of Crampton (2005) FAMCA 883 provided a different perspective on how the Court may consider gambling as wastage. The trial judge in the Crampton case accepted an independent medical specialist’s diagnosis of a “dysthymic disorder” as causing the wife’s “pathological gambling” during the marriage. This was sufficient to satisfy the trial judge that, although the wife’s illness may not have caused her to do what she did, it did deprive her actions of the degree of “wantonness negligence or recklessness” required for a Kowaliw claim to succeed.
In declining to reflect the substantial losses incurred by the wife’s gambling during the time of her illness in the contribution arena, the trial judge identified how important it was to his decision to have the evidence available from the medical specialist. On appeal, the Full Court agreed with the trial judge and his approach to declining the addback.
The above cases illustrate that, even in situations where a party’s actions cause a financial “loss”, the Court must consider the nexus between a spouse’s conduct and the effect of that conduct, and whether that party acted “recklessly, negligently or wantonly”, before deviating from the principle that a financial loss is shared by the parties.
Thanks to Jonathan Tartaglia (Law Clerk) for his contribution to this article.
This article first appeared in the March – April 2024 edition of Medicus Journal. Medicus Journal is the AMA (WA)’s award-winning journal distributed bimonthly to more than 4,000 doctors and decision-makers throughout Western Australia. The Australian Medical Association (AMA) is the peak professional body for doctors in Australia.