How do gambling debts affect divorce settlements?

How do gambling debts affect divorce settlements?

By cropped movement legal

· Read time: 5 minutes

The process of dividing up assets in the wake of separation or divorce can be enormously complex. Matters are especially complicated where there are significant amounts of debt to be reckoned with. In divorce settlements, the starting position is that financial losses and debts incurred by either or both spouses should be shared between the parties. That is, the financial consequences of spending that has eaten into the value of the marital assets should be borne by both parties and reflected in their respective entitlements as determined by the court. An exception applies where one party has substantially reduced the value of the matrimonial property through unreasonable and unjustifiable expenditure or debt accumulation, such as in the course of gambling. The law regards such conduct as waste, and the court will factor this in to arrive at a just and equitable division. As discussed below, special considerations apply where waste takes the form of gambling debts. 

The four step process in property settlements

To understand exactly when and how gambling debts are taken into account in property settlement proceedings, it is important to recall the four step process that the Family Court follows in determining financial disputes: 

  1. Identifying the pool of property available for division 
  2. Assessing the parties’ (financial and non-financial) contributions to that pool
  3. Determining the future needs of each party
  4. Dividing the property between the parties accordingly

Step 2 of this formula involves an assessment and comparison of each of the parties’ respective financial and non-financial contributions to the property of the relationship. At this stage, the court will consider positive contributions, such as real estate, the generation of wealth through investment in shares, money held in onshore or offshore bank accounts, assets like vehicles and even pets. However, the court will also take into account negative contributions, meaning anything that subtracts value from the property pool. 

Gambling debts as “negative contributions” 

Gambling debts are considered negative contributions and a common form of waste, complaints about which frequently come before the Family Court. As discussed elsewhere, certain intentional, reckless or wanton financial activities by one spouse may constitute waste, warranting some adjustment to the parties’ respective “pieces of the pie” in property settlement cases. This is on the basis that one spouse’s unreasonable and excessive spending – spending which goes beyond what might be seen as acceptable expenditure for the purposes of recreation or entertainment – should not mean financial ruin for the innocent spouse when it comes to distributing the (now significantly reduced) assets of the marriage.  

Factoring in gambling debts

So, how do the courts achieve a just and equitable division where one party’s gambling expenditure has taken a huge chunk out of the property pool? As within any case involving waste, the court has discretion to adjust the distribution of property as it sees fit. The court may “add back” the value of the gambling debts into the pool. It may make an adjustment in favour of the innocent party, awarding him or her a larger proportion of the assets that remain. In addition to the criterion of “what justice requires” in the individual circumstances of the case, the court may also have regard to: 

  • The degree to which the gambler acted negligently, recklessly or wantonly in depleting the matrimonial assets;
  • Whether the gambling behaviour is aberrant and/or whether it can be explained by reference to medical or psychiatric expert evidence;
  • Whether the nature of the gambling is pathological;
  • If no, whether the gambler has sought treatment or assistance; 
  • The fact that gambling is a lawful form of entertainment;
  • The magnitude of the gambling losses when compared to the parties’ incomes and income earning capacities;
  • The probative value of any evidence led as to the gambling behaviour and debts accumulated.

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For instance, if the gambler’s conduct can be traced to psychiatric illness for which he or she has made real efforts to seek treatment, the court may be less willing to make adverse adjustments. Altogether, how the court will respond in property disputes involving gambling debts is very fact-dependent, although the central objective will always be to arrive at a just and equitable division of the marital assets. 

Key takeaways

  • In the context of divorce settlements, gambling debts may be taken into account as “negative contributions” or waste.
  • The Family Court has a discretion to adjust the parties’ respective shares in the asset pool in accordance with what justice and fairness to both parties require.
  • How the court will exercise this discretion ultimately depends on the individual facts of the case. 

If you are concerned about how gambling debts, accumulated by your former partner or by you yourself, may impact the outcome of your property settlement, don’t hesitate to get in touch with us.

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