When couples separate, often one or both of them will take money out of accounts that form part of the property pool. Sometimes, it is for legitimate expenses like living expenses or legal fees. But sometimes the spending is reckless.
Perhaps they go on a spending spree, buying designer bags and other luxuries…
Gamble away thousands of dollars…
Take a luxury holiday…
Or deliberately reduce the value of the property pool by gifting cars, money or assets to others or selling them at well below their actual value…
Can the other party have the money added back to the property pool?
When this type of reckless spending happens, or when one party attempts to hide assets by gifting or selling them, it may be possible to have the value ‘added back’ to the property pool through an ‘add back’ or for it to be taken into account as part of the distribution of assets.
What is an ‘add back’?
An ‘add back’ is simply an amount of money that gets added back to the asset pool in a family law property settlement. ‘Add backs’ can relate to money spent recklessly both before and after separation.
What spending or actions can be considered for an ‘add back’?
In family law proceedings, each party pays their own legal costs. If money from a joint account or the sale of property that would otherwise be part of the property pool, is used to pay legal fees, it is likely to be treated as an ‘add back’.
Excessive spending or wastage
If one party spends money recklessly or carelessly, it is at the judge’s discretion to determine if an ‘add back’ is appropriate. There have been instances where ‘add backs’ that involved gambling, drugs, cosmetic surgery, purchasing luxury goods and other forms of excessive spending have been applied.
Gifted money or assets
If a party has gifted money, property or assets in an attempt to diminish the property pool or hide assets, the court may determine it appropriate to treat it as an ‘add back’. However, it is, of course, at the judge’s discretion. For example, there have been cases where a parent gifted money to a child for a house deposit, and the court has ruled that that type of gifting is not unusual and, as such, an ‘add back’ is not appropriate.
Sale of property or assets
Where a party has sold assets that would’ve formed part of the property pool and kept or used the proceeds for themselves, there is a high likelihood that the court will ‘add back’ those funds. In instances where assets have been sold well below their value, it may be possible to petition the court for the full value to be added back rather than the sale value.
What types of spending won’t be considered for an ‘add back’?
Anything that is categorised as a reasonable living expense will not be considered for an ‘add back’. That includes things like groceries, utilities, rent, school fees and other reasonable day-to-day living expenses.
If you and your partner are separating and you need advice on your property pool and settlement, the team at Lakey Family Law is here to help. We have extensive experience in all aspects of divorce and property settlements and can assist –contact us for an initial, obligation-free chat.