What is Wastage in Property Settlements?

In family law Wastage is where one spouse deliberately wastes money that results in lowering the value of the couple’s assets. 

In a property settlement, the law treats “waste” differently from ordinary spending or usage of marital property. 

Waste versus ordinary debts and expenditure

The general rule, in divorce settlements, is that financial losses and debts incurred by either or both spouses should be shared between the parties. 

In other words, the financial consequences of expenditure which has reduced the value of the property of the relationship should be felt by both parties and reflected in their respective entitlements as determined by the court. 

Waste is an important exception to this rule. 

The law views waste, being any intentional or reckless dealing that wrongfully eats into the marital property, as a “negative contribution” to the pool of property available for division. Waste is to be distinguished from reasonably incurred living expenses. 

As a matter of fairness, wastage – spending by one party which reaches a certain threshold of unreasonableness – is considered a burden that the innocent spouse should not be forced to bear. 

Examples of waste 

Some common examples of waste include: 

• Gambling
• Reckless spending
• Bad investments or commercial dealings
• Certain lifestyle expenses 
• Lavish gifts or expenses on an extramarital partner

Gambling

Gambling activity by one spouse is the subject of many waste complaints. 

Where large sums are blown and losses incurred as a result of one partner’s recreational or problem gambling, this can lead to a corresponding reduction in the pool of funds available for division upon divorce. 

The courts have been willing to recognise excessive gambling as waste that should result in adjusting the parties’ entitlements, particularly where the losses are financially damaging when considered in relation to the parties incomes.

Commercial and property dealings

Commercial undertakings and dealings with property that are economically reckless or imprudent may result in wastage. An example would be selling an asset of the relationship at a substantial undervalue. Another example would be entering into an inherently risky business venture or making an objectively bad investment. 

Other spending 

The court may make a finding of wastage where one spouse has spent significant amounts of money on luxury items, services or experiences, whether for themselves or for others as gifts. 

In general, the expenditure will need to be extravagant, exorbitant and/or unjustified, far beyond what might be classed as reasonable living expenses. 

The court is even more likely to treat excessive spending as wastage where it occurs in defiance of the other spouse’s wishes or without the other spouse’s knowledge.

How does waste affect property settlements? 

If the court finds that a party has committed waste, there is likely to be some adjustment made to the parties’ entitlements. The amount wasted may be added back into the pool of property available for division.

Alternatively, the court may make any adjustment that, in its opinion, justice requires, having regard to all the circumstances of the case. For instance, the court may award the innocent party a higher percentage of the remaining pool of assets. 

Either way, the party responsible for the waste will get less out of the property settlement than they would have had they not committed waste. Ultimately, how waste is dealt with in the course of property settlement proceedings and how it will affect the final division of property is a matter for the court’s discretion. 

What to do if you suspect your former partner has committed waste

If you believe that your former partner may have deliberately or recklessly used up money, it is important that you are armed with cogent evidence to prove the fact and extent of the wastage. 

It is for the aggrieved party to raise the issue of waste and to substantiate the allegation in divorce settlement proceedings. A good way to prepare is to gather any documentary evidence of your former spouse’s financial activities, such as receipts and records of bank account transfers or withdrawals which reveal a pattern of excessive spending. 

Some relevant Court Cases

1. Kowaliw & Kowaliw (1981)

This case is a landmark decision on the issue of wastage. The Family Court established principles for determining when conduct amounts to wastage:

• Wastage includes losses incurred recklessly, negligently, or wantonly.
• The loss must be significant enough to warrant consideration in property division.

Full transcript

2. Townsend & Townsend (1995)

In this case, the husband sold a family-owned taxi for $148,000 and used the proceeds primarily for his personal benefit. This taxi was a key source of income for the family, making the sale of this asset wasteful.

The court found the spending to be reckless and unreasonable, concluding that it constituted a premature distribution of joint property. As a result, the court determined that the funds should be added back to the property pool to ensure a fair settlement.

Full transript

Wastage and the Family Law Act

The Family Law Act 1975 (Cth) does not explicitly mention the term “wastage” or provide a specific section that directly addresses wastage. However, the principles related to wastage are derived from the general provisions concerning the alteration of property interests under the Act. The most relevant section that provides the framework within which wastage is considered is:

Section 79 – Alteration of Property Interests

Section 79 of the Family Law Act 1975 allows the court to make orders altering the interests of parties in property. This section provides the legal basis for property settlements and includes considerations that can encompass wastage:

Key Points from Section 79:

1. Subsection 79(1): The court may make such order as it considers appropriate in relation to the property of the parties to the marriage or either of them.
2. Subsection 79(2): The court must not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.
3. Subsection 79(4): In considering what order (if any) should be made under this section, the court shall take into account the following:
   • The financial contributions made directly or indirectly by or on behalf of a party to the marriage to the acquisition, conservation, or improvement of any of the property of the parties.
   • The contributions (other than financial) made by a party to the marriage to the welfare of the family, including any contribution made in the capacity of homemaker or parent.
   • The effect of any proposed order upon the earning capacity of either party.

Key takeaways

• Waste is a legal concept referring to activity that reduces or minimises the value of property. 
• In the context of divorce settlements, certain intentional, reckless or wanton financial activities by one party may constitute wastage of marital assets. 
• The court has a discretion to adjust the parties’ entitlements in light of such wastage, in order to achieve a just and equitable division of property. 

For answers to all your property settlement queries, please contact us to speak with one of our experienced family lawyers.