Full Court Found No Error in Court’s Refusal to Notionally Add Back Net Losses Caused by Husband

In the recent case of Charles [2017] FamCAFC 3 (12 January 2017) the Full Court of the Family Court (Bryant CJ, Thackray & Bennett JJ) heard the wife’s appeal against Judge Stewart’s property adjustment orders made after a 10 year marriage. The wife (37) was the primary carer of the parties’ two children (5 and 3), living off child support and Centrelink benefits. The husband (41) was a financial services professional earning $110, 000 a year. The superannuation pool was $209,755 and the net non-superannuation asset pool was $1,665,665.

Initially, the husband received a 60/40 share of the non-superannuation asset pool. According to the findings of Judge Stewart, the contributions throughout the marriage were equal, the husband’s initial contributions were about $390,000 while the wife’s about $70,000. Pursuant to s 75(2) of the Act (dealing with contributions), the court made a 15 per cent adjustment in favour of the wife, such that there was a 55/45 division in favour of the wife of the non-superannuation pool.

The argument of the wife was that the court erred in dismissing her arguments for two notional add-backs. The first being a $40, 000 to $50, 000 loss that the wife said was a result of ‘risky share trading’ by the husband. The second being loss caused by the husband suspending mortgage payments.

In regards to the $20, 000 mortgage loss, Bryant CJ and Bennett J stated that the primary judge accepted that there was a loss of capital of $20,000. In other words, if the mortgage been refinanced the balance at trial would have been $20, 000 lower. Counsel for the wife, however, conceded that this was not the actual loss and that the actual loss was around $7,000 to $8,000.

In the wife’s Outline of Case document, the difference between the mortgage balance at July 2013 and at trial was $8,187.66. The total amount of $20, 000 was calculated as being the potential savings had the mortgage been refinanced and not the actual reduction in the amount owing to the mortgage. The counsel for the wife submitted that her Honour failed to consider the question of wastage and wrongly used Stanford in not accepting this figure as an ‘add back’ to the pool.

The Full Court found, however, that Her Honour was not in error in failing to consider that the husband had negligently and recklessly caused a diminution in the pool of assets available for distribution. In Kowaliw, the Court held that financial losses incurred by the parties throughout the course of the marriage, whether jointly or otherwise should be shared by them, although not necessarily equally. The exception to this rule is where a party by a deliberate act reduced the value of the distribution assets.

In Omacini and Omacini [2005]FamCA 195 the Full Court accepted Kowaliw’s principles and noted that the court’s discretion to add back necessarily extends to circumstances where there has been a premature, although not always negligent distribution of marital assets. Her Honour did not agree that the husband had been negligent or reckless in his failure to refinance the mortgage.

As to the ‘risk share trading” losses, Bryant CJ and Brennett J stated that her Honour found that the husband had not acted recklessly with the parties money. Rather, her Honour regarded him as a competent investor, and in her view, she was not in error by refusing to take the losses into account. This decision is consistent with the case of Browne & Greene [1999] FamCA 1483, where the Full Court held that both parties must share the economic losses incurred in a marriage.

Her Honour’s findings were consistent with the accepted authority and did not constitute an appealable error.  Thackray J agreed that the appeal should be dismissed because the trial judge did not have the benefit of the decision in Vass & Vass [2015] FAmCAFC 51. In Vass, the Full Court stated that there is no error in principle when a court adjusts property interests by notionally ‘adding back’ money or assets which have been dissipated by one of the parties.

The wife was unsuccessful in challenging the contribution and s 75(2) weightings.

The Full Court dismissed the appeal with costs.

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