In this video, special counsel Leeann Murphy explains how losses are treated in property settlement matters and, more specifically, how they're treated when the losses have been caused by the reckless conduct of one of the parties.

Video transcript

Hi, I'm Leeann Murphy. I'm a member of the family law team at Cooper Grace Ward Lawyers.

What to do when there are losses

In a property settlement case, what do we do when there are losses? Specifically, what do we do when the losses have been caused by one of the parties' reckless conduct? In some cases, this conduct will be recognised in a meaningful way. However, it is the exception rather than the rule in property settlement cases and more often than not, losses will be shared.

Heng and Xiang case

In a 2022 case of Heng and Xiang this matter was considered. In this case, the wife submitted that the husband's share losses of $364,000 should be borne solely by the husband by way of property settlement. The husband used a $400,000 line of credit in order to obtain shares without the wife's express knowledge or consent. At this time, the husband lost his job and was unable to meet the interest repayments on the line of credit. As a result, the share portfolio had to be sold. The sale of the shares coincided with the COVID market fall. The general principle regarding losses in family law matters is that it should be shared between the parties. The exception to this rule is where the loss has resulted from one of the parties' reckless or negligent conduct. In this case, the court determined that the husband's failure to foresee that interest repayments on the line of credit would be required if the sale of shares was necessary, was predictable and foreseeable. Interestingly, the court also determined that although the wife didn't have express knowledge and had not given consent to these transactions, it was imprudent of her not to make inquiries about financial affairs on a general basis. Overall, however, the court determined that the responsibility for the losses should lie with the husband.

Lessons to take away from this case

There are many lessons that we can learn from this case. If you are aware that your partner is in control of the wealth, making investments, determining decisions regarding joint businesses and assets, then you must make sure that you make inquiries as to how that is progressing. You must make reasonable inquiries at regular intervals to make sure that you are kept informed. If you are the party that is in control and making the decisions regarding family finances, you must make sure that you keep your spouse informed about all steps being taken. You must also seek professional advice from accountants and advisers to ensure that any high risk strategy is appropriate in the circumstances. You should take all reasonable steps to make sure your investments are not left vulnerable in an unsteady market.

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