Post-separation spending: What will it really cost you?
If you could buy anything in the world, what would it be? A new luxury car? An expensive designer hand bag? A block of land to build your dream home?
When parties to a relationship separate, there generally follows the uncertain period of time where each party is unsure about how they should manage their expenditure. Can you make decisions about purchases independently, or do you still need to consult your estranged partner in relation to your expenditure? What kinds of expenses can you, or should you, be able to meet whilst your financial matters are being finalised?
These questions are all important matters that should be considered in the event that you separate from your spouse.
When making a decision about the division of property after separation, the Court is required to determine the size of your asset pool. If your asset pool has been diminished as a result of one party engaging in excessive discretionary spending, these funds are no longer available to be included in your asset pool. It can therefore be tempting to spend your funds on items that you seek to enjoy for yourself following the emotional turmoil of a separation.
However, before you throw caution to the wind, it is vital that you consider the ultimate cost that impulsive or emotional post separation spending could cause to you.
In recent years, the Court has grappled with the concept of “add backs” to the property pool. Historically parties sought to “add back” into the pool of assets items that may no longer exist, most commonly the parties joint cash savings which were subsequently spent after separation. This was especially where the money was spent without the consent of both parties. However, the High Court in Stanford & Stanford[1] suggested that the Court can only split assets between parties to which they have a “legal or equitable interest”. Therefore, the concern was if the money is spent, there is no interest to divide. This brought an end to what had been an established practice of adding back property into the matrimonial pool to notionally divide between the parties.
So does this mean you can now spend without repercussion? No.
In the 2016 case of Grier & Malphas [2], both the Husband and the Wife received and used funds after separation but before their final property settlement. The Wife claimed that the Husband’s post separation expenditure far exceeded her expenditure, and sought an adjustment to take into account what the Wife deemed to be the Husband’s excessive spending. The Court heard that the Wife spent some $1 million dollars after separation compared with Husband’s $1.7 million. Chief Justice Bryant of the Family Court determined that this was a “significant disparity” in the parties’ expenditure and held that the Husband’s additional expenditure should have be considered by the Court pursuant to section 75(2)(o) of the Family Law Act.
Section 75(2)(o) enables the Court to take into account any fact or circumstance which, in the opinion of the Court, the justice of the case requires to be taken into account in determining the division of property between parties.
Accordingly, while the Court may not agree to notionally add back property to the asset pool of the relationship, the broad reach of s75(2)(o) can put you at risk of an adverse property adjustment if the Court determined that your post separation spending is not “fair”. In essence the Court can just make a greater adjustment of the property that does exist at the time of the hearing in favour of the other party who has not gone on a post separation spending spree.
[1] (2012) FLC 93-495
[2] (2016) FamCAFC 84
It ultimately pays to be cautious in respect of your post separation spending. If you have any queries about how to best manage your post separation financial position, please contact a member of the Family Law team.
