Knowledge

The long and taxing journey of a family property division is only made worse when you discover (or potentially confirm your suspicion) that your ex-spouse has lost hundreds or thousands of dollars whilst gambling each week. As a result, there are debts on credit cards in both your names and your asset pool may not be as significant as it could otherwise have been. How does the Family Court handle such a complex situation?

The property division process

To be able to properly explain how the Court responds to gambling, it is essential to briefly outline the general process taken in property divisions, whether gambling has occurred or not.

• Determining the asset pool and its value. This involves identifying and valuing all assets and liabilities between the parties.
• Assessing contributions made by each party to the current asset pool. This includes any assets or liabilities that the parties held at the start of the relationship, financial contributions (such as wages or inheritances received), and non-financial contributions (such as caring for children). The court will determine the parties’ respective contributions as a percentage.
• Accounting for the future needs of each party. For example, if one party has primary care of the children, an adjustment may be made by the Court to the percentage determined at step 2 on a prospective basis to account for the future needs of that party. Other factors which can be considered include health, income, and age.
• Making sure that the final division is ‘just and equitable’.

How is gambling considered in the above process?

The most common way that gambling losses are considered in the above process is:

1. As an ‘addback’ to the net asset pool at step 1 to account for the losses made.
   1. In this case, the amount lost through gambling will notionally be added to the asset pool as a sum that the party who gambled will retain. For illustration, if a parties’ gambling losses were $50,000 and the asset pool was $450,000 and the Court determined that each party was to otherwise receive 50% of the asset pool, then:
      1. The asset pool including the notionally added gambling loss would be $500,000
      2. the party who did not gamble would receive $250,000 made up of tangible assets (50% of the asset pool); and
      3. the party who gambled would receive $200,000 in tangible assets and the notionally added $50,000 gambling loss (total $250,000).
      4. Another way to look at this, which is the same result, is that the parties would each retain $225,000 (half of the tangible assets), but the party who gambled would be liable to pay 50% of the gambling loss to the other party ($25,000), such that the party who gambled receives $200,000 overall and the party who did not gamble receives $250,000.

1. As a negative contribution assessed at step 2 which would entitle the other party who did not gamble to a higher percentage of the asset pool.
   
   For example, the Court may consider that a 5% negative contribution apply to the party who gambled such that if the contributions between the parties were otherwise equal, the party who did not gamble would receive 55% of the asset pool and the party who gambled would receive 45%. If the asset pool was again $450,000, then that party who did not gamble would receive $247,500 and the party who gambled would receive $202,500.

Whichever approach is taken, the end result is likely not to be dissimilar.

Gambling is a legitimate form of entertainment…up to a point

It is important to note that not all gambling will be classed as an addback by the Court The Court recognises gambling as a legitimate form of entertainment until it becomes reckless, negligent or wanton. This draws upon the principle outlined in Kowaliw and Kowaliw (1981) FLC 91-092 – that financial losses incurred by parties or either of them in the course of a marriage, should be shared by them, unless:

“a. where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or

1. Where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.”

Some degree of gambling, and the losses that often come with it, will not usually be counted against a party. Where the line will be drawn will ultimately depend on the individual circumstances of each case.

In Hamilton & Thomas [2008] FamCAFC (18 Jan 2008), an amount of $100 gambled by the Wife each week from 1999 to 2003 (this calculates to approximately $20,800) was not considered to be a sufficient amount in the circumstances of the case to be assessed as a factor in the parties’ property settlement. The Court held that “In our view there was nothing so disproportionate in relation to the losses incurred by the parties in the lifestyle that they chose, that would make it appropriate for there to be an adjustment of the available capital upon the breakdown of the marriage. More is required than simply the existence of gambling losses. There needs in our view to be some element of wastage that is disproportionate to the positive contributions being made by each of the parties” The asset pool in this matter was $820,000.

In De Angelis and De Angelis (2003) FLC 93-133 however, the Court held that the Wife’s gambling which totalled $154,000 over the course of the parties’ 33 year relationship, would be considered as an addback in the parties’ property settlement. Ultimately of the $154,000 loss, the Wife was required to pay the Husband $42,000. As to how this sum was calculated, the Wife received $70,000 from her elderly parents during the relationship which was deducted from the gambling loss. The Wife was then held liable to pay the Husband 50% of the remaining $84,000 gambling loss to the Husband thus totalling $42,000. It was held that “notwithstanding that the wife's gambling may have been her form of entertainment or indeed even a result of illness, and also notwithstanding that the husband also spent money on golf, the sums lost by the wife through gambling are very high in the context of the total value of the parties' overall assets”. The asset pool in this matter was about $530,000.

In Crampton and Crampton (2006) FLC93-269, $140,000 in gambling losses by the Wife over 12 month period was ultimately not considered as a factor in the parties’ property settlement which would entitle the Husband to a higher amount. The reason for this was that the Wife was able to show that she had a dysthymic disorder which had caused an episode of pathological gambling over a period of about 12 months. The Husband failed to show that the Wife’s gambling losses were reckless, negligent or wonton in light of a medical explanation for her behaviour. If there has been a history of gambling losses by your spouse, given the above cases, it is important that you obtain advice regarding the impact of those losses upon any entitlement in a property settlement you may have. Every case is different.

Next steps

If you are unsure about how to navigate the issue of gambling or are concerned about how it will affect your entitlements in a property division, please contact us on (02) 9688 6023 to arrange a Free First Conference.

This is not legal advice. 

Written by Jeremy Ball & Ben Woodward