BARRY.NILSSON. Lawyers

 – Now you see it, Now you don’t!

Introduction

Ever since Kowaliw,¹ the Full Court has held that notional adjustments to property pools for section 79 determinations have been the exception and not the rule. At least one judicial eyebrow had to be raised in indignation before the unholy trinity of premature distributions, “wastage” (perhaps because “waste” doesn’t sound lawyerly enough) and “add backs” for legal fees, raised their ugly heads. Despite this, claims for notional adjustments in some form or another play a significant role in property proceedings, especially in large pool cases.

In two recent cases, Murphy J has taken a step back to re-examine the manner in which a judge’s discretion should be exercised in determining a notional adjustment. His Honour firstly noted in Kouper v. Kouper² that the discretion in such cases is not fettered, or perhaps only fettered by the true meaning of what is just and equitable for the purposes of section 79. And in Hackshaw & Hackshaw,³ his Honour made the interesting aside that giving consideration to property that no longer exists seems to run contrary to the section whose specific purpose is to deal with property that does exist.

The Discretionary Questions

Notional Adjustments has a long and detailed jurisprudence. Kowaliw, Townsend,⁴ Chorn v. Hopkins⁵ and Omacini⁶ all state and restate careful principles about the manner in which notional adjustments may form part of section 79 proceedings. However, in both Kouper and Hackshaw, Murphy J invites us all to think more carefully about the nature and the quantum of the notional adjustment, having regard to the circumstances of the case. In doing so, his Honour has formed a five question approach:

1. Is it contended that property (including money), that would otherwise be available for distribution between the parties if a section 79 order is made, has been dissipated with a consequential loss to the property otherwise potentially divisible between the parties at the date of trial?;
2. If so, is it alleged that the dissipation of property was in respect of things other than what, in the particular circumstances of this particular marriage, can be classified as “reasonable living expenses”?;
3. If it is asserted that any loss to the divisible property results from dissipation of property other than in respect of such expenses, why is it asserted that the result should be a sharing of that loss by the parties other than equally?
4. If it is contended that this be the result, why should there be an add back (which brings to account, dollar for dollar, such past expenditure in current dollars) as distinct, for example, from there being an adjustment being made pursuant to s 75(2)(o)?; and
5. How should either any “add back”, or adjustment pursuant to s 75(2)(o), be quantified?

This is a new approach, because often the consideration ends at question 2; that is, there has been dissipated property, and it has not been used on “reasonable living expenses”, ergo it must be added back. What these questions do is require the parties to examine the nature of any expenditure which may be the subject of a notional adjustment “by reference to the particular circumstances of the particular marriage.” This is particularly so when investments are made and are said to be imprudent, but no more. Or perhaps where one party spends money which the other party would have encouraged at the start of a marriage, but calls extravagant at the end of it.

It also asks the parties to consider the quantum of the add back too – and whether or not a proper adjustment is not to the pool itself (i.e. dollar-for-dollar or some other figure), but a factor to be considered under section 75(2)(o). In Kouper, his Honour adopted a “global” approach to quantifying the notional adjustment, having considered the level of imprudence of the husband’s investments decisions, and his level of control over them within the context of the marital financial arrangements, but also the fact that a dollar-for-dollar add back would result in the husband receiving nothing of any value, which his Honour considered unjust and inequitable.

Notional adjustments may be the exception, and not the rule. But they abound. It is incumbent on parties to think more carefully about “add backs,” particularly considering the context in which the dissipation occurs, and its ultimate effect, as well as the justice and equity of the quantum.

¹[1981] FLC 91-092
²(No 3) [2009] Fam CA 1080
³[2010] Fam CA 1123
⁴[1995] FLC 92-569
⁵[2004] FLC 93-204
⁶(2005) 33 Fam LR 134

For further information on this topic, please contact our Family Law team.