Debt after separation: what are your rights?

If it can be proved that the dissipation of the asset pool by one or both parties was deliberate, the financial settlement will be altered to reimburse the wronged party with an appropriate percentage value of the wasted funds.

It's worth noting that whilst one party may suspect that wasteful spending by the other party has taken place, it's quite hard to prove.

There are five main scenarios where willful dissipation of assets or income may be suspected:

• Spending on legal fees
• Giving away assets for free, or allowing them to be used free-of-charge
• Gambling
• Reasonable living expense
• Selling assets and spending the proceeds

Spending on Legal Advice and Family Court Fees

Generally, legal fees are seen as a reasonable expense, as both parties will usually incur approximately the same level of fees. Where one side has disproportionately higher costs, the judge will consider factors such as:

• what the legal costs relate to;
• what proportion of the costs were incurred prior to the current divorce proceedings (so was the matter ongoing);
• who will be the beneficiaries of a successful conclusion to the matter on which legal fees are being incurred;
• and whether the litigation requiring legal expenses may be seen as vexatious.

The judge may take into account the findings from Farrell v Farrell (1996) in determining whether legal costs should be deemed an unreasonable depletion of funds.

Giving away a property settlement for free, or allowing them to be used for no charge

Useful clarification on this issue is provided by the findings from Kowaliw and Kowaliw (1981) FLC 91-092. In this divorce case, the husband allowed an individual who was potentially going to purchase the family home to live in the net property pool, free of rent, for more than a year. The individual was also not required to pay a contribution to cover any living expenses. In addition, the husband's business incurred taxi contributed significant income or losses on-property pool, not all of which appeared to be coincidental to the property settlement time limit.

From the evidence given, it appeared to the judge, that Mr Kowaliw had decided to reduce his income as much as possible following the property acquired post-separation, in a deliberate attempt to reduce the value of property pool assets to be considered as part of the divorce, and property settlement.

Gambling post-separation assets

Although, at first sight, gambling may appear to be a clearly unreasonable waste of assets and income, a judge will take the individual circumstances of the case into account before determining whether assets that have been gambled away have been disposed of with the intention of depriving the other party of funds. 

Much of the case in family law used when deliberating on gambling derives from Crampton v Crampton. In this case, the wife admitted gambling away around $100,000. It was later found that this figure was as high as $140,000. The wife's legal team were able to produce evidence that she had suffered from a gambling problem during the course of her married life and had sought treatment for it. Evidence was also produced from medical specialists, who indicated that her gambling addiction was long-term and difficult to treat. Taking these circumstances into account, the judge ruled that her gambling spend wasn't incurred with the aim of depriving her husband of divorce proceeds. 

In contrast, in the case of AB & GB (No. 2) [2005] FMCAfam 402, the judge found that the husband had squandered around $80,000 of a $400,000 compensation package on gambling. It was decided that, rather than being the result of an addiction, the gambling had occurred because the husband was deliberately seeking to squander the money so that his wife couldn't get access to it through the divorce settlement.

Reasonably incurred living expenses

As the name suggests, reasonably incurred living expenses will not be judged as being a deliberate dissipation of assets or income. Although there have been various legal cases brought in the past that have contested whether a particular expense is "reasonable", there is a need for considerable evidence before a living expense can be judged "unreasonable".

Selling property pool assets and spending the proceeds

Townsend (1994) 18 Fam LR 505: FC is the case law that is often cited. In this case, the husband sold a taxi, worth $148,000, then spent the proceeds. It was argued that selling the taxi (which was used as a business vehicle to provide income) was premature, and done with the intention of reducing the amount of income available for distribution between the two parties, as well as with a view to reducing the amount of capital available. In this case, $148,000 was transferred from the husband's settlement figure to the wife's.

Conclusion

Deciding whether gambling debts or joint debts incurred after separation should be viewed as reckless and preventable, or reasonable, is a complex matter. Timely legal advice is essential in order to make sure that you end up with what you're entitled to under the Family law. KMB Legal is an established legal firm that can assist with all legal matters pertaining to divorce, including separation, financial matters, child custody and access. Seek legal advice early - Contact us for more information.