Many complex property settlement cases will involve assets that have gone up in value significantly during the course of a relationship, such as properties that show a large increase in value, or businesses that grow in size and value over the years.
A lesser proportion of cases involve assets that lose value over the course of a relationship, such as an investment or a business venture that fails. In those cases, there is often a party who did not choose the investment or did not run the business, who will look to quarantine the loss to the other party.
Generally, the court will treat the losses in the value of assets or losses in business enterprises as being shared equally between the parties. But there are exceptions to this principle, that have developed over quite a few years. In the 1991 case of Kowaliw (1991) FLC 91-092, the court identifies two categories of fact situation where the losses in value would not be shared, as follows:
- Where one of the parties has embarked on a course of conduct designed to reduce or minimize the effective value or worth o matrimonial assets, or
- Where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimized their value.
In Kowaliw, the husband had an interest in a business, which he ran for some 7 years from the date of purchase of that interest. The business then failed. The wife wanted the loans that the husband had take out to acquire the interest in the business to be treated as loan of the husband alone. The court did not find that the husband had acted recklessly, negligently or wantonly in the efforts he had made in running the interest, and treated those loans as joint debts.
At the time of separation, the family home was in the husband’s sole name. The wife moved out. The husband allowed a prospective purchaser to move into that home, but after occupying the property for over 12 months, the prospective purchaser moved out. There was no signed lease and the prospective purchaser had not paid any rent during the time he occupied the property. The husband had made no payments towards the home loan or the rates during the time that the prospective purchaser was in the property. The wife did not know that the prospective purchaser had not signed a lease and was not paying rent, or that the husband was not making any payments towards the home loan or rates. The court had little trouble in finding that the husband’s behaviour was reckless or negligent and found that the increase in the loan balance and the rates arrears were the husband’s sole liability.
In the cases decided following Kowaliw, the emphasis was on the reckless, negligent or wanton behaviour of one party. In Browne & Green [1999] FamCA 1483, the Full Court placed emphasis on the importance of the behaviour being of one of the parties alone. In that case, the husband had decided to pursue a new horse training method. Although the business was that of the husband alone, the wife was aware of it and at times had joined with the husband in promoting the business. Eventually, the business failed, with the loss of quite a few million dollars. The Full Court of the Family Court ruled that the Kowaliw principles did not apply, because the wife was aware of the husband’s business venture and of the training method and did not express any opposition to the husband pursuing the venture using the training method.
Some more recent decisions on Kowali include the following:
Morcos & Lindon (No 2)[2025]FedCFamC1F 7 – the court held that taking a second mortgage against a property, the sole purpose for which was to service repayments under the first mortgage, was waste.
Stueck & Stueck [2025]FedCFamC1A 68 – the court held that over-capitalising a family home, which was intended to be the home that the parties lived in for the rest of their lives, was not waste.
Gollings & Scott (2007) 37 FamLR 428 – where post-separation one of the parents gave $15,000 to one of the parties’ daughters for her to use as a deposit on buying a property, was not treated as waste.
Linford & Ellis (No 2)[2024] FedCFamC2F 1510 – advancing money for the benefit of a new partner and her daughter “to assist with migration requirements is discretionary and may be considered an excess by the respondent, but it cannot in my view be described as wasteful or reckless…”
Kuzmenko & Aarne [2024] FedCFamC1F – a total of $699,000 expended on gambling (in one year), when the other assets had a total value of between $1,125,000 and $1,458,000, was waste.
The way that waste is often dealt with is to “add back” the amount that has been wasted. So, in the case of Kuzmenko referred to above, the sum of $699,000 was added back to the pool of assets as a sum of money in the husband’s name. When the division of property decided on by the court was to be implemented, the husband was treated as having already received an amount of $699,000.
The above cases and others demonstrate that what is waste in one case may well be treated as reasonable expenditure in another. If you are concerned that expenditure by a party in a property settlement context might amount to waste, you should raise it with your lawyer for advice.
Written by
Stephen Rugendyke
Special Counsel
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