Introduction
Q1: My partner's business failed. Can I refuse to share assets with them?
A: You generally cannot refuse. Financial losses during a marriage are shared by both parties. The court will not penalise your partner for a business that did not work out, as long as the intent was to build wealth for the family. Reference: Kowaliw & Kowaliw [1981] FamCA 70
Q2: My partner invested our savings without telling me and lost everything. Is that wastage?
A: Not knowing about the investment does not automatically make it wastage. The court treats the loss as a shared commercial risk if the investment itself was reasonable. Your partner's failure to consult you may affect other adjustments, but it does not turn a legitimate loss into wastage. Reference: Idoni & Idoni [2013] FamCA 874
Q3: Does a failed business count as a negative contribution?
A: A failed business does not cancel out your partner's contributions. The court values the effort and work put into the marriage, not just the financial result. A competent investor who loses money in a downturn has still contributed. Reference: Charles & Charles [2017] FamCAFC 3
What is the legal test for wastage in family law?
This rule comes from Kowaliw & Kowaliw [1981] FamCA 70, which established a straightforward principle: financial losses incurred during a relationship should be borne by both parties. The only exception is when one person reduced the asset pool through a deliberate act or through economic recklessness.
In our practice, we often see clients who believe their partner never made any money and therefore should not receive a share. The reality is different. If both parties shared in the profits when business was good, they must also share the losses when things go wrong. The court will not make one spouse bear the debt alone simply because the other spouse did not know about the investment decision. The exception is when the decision was reckless or malicious.
The Full Court confirmed this in Charles & Charles [2017] FamCAFC 3. Parties generally expect to share the economic profits of a marriage. Because of this, there must be good and substantial reasons before the court will depart from the principle that losses should also be shared.
"There must be good and substantial reasons for departing from the principle that where there are economic losses incurred in a marriage, those losses should be shared."
Since the Family Law Amendment Act 2024, this principle is now written into the legislation. Section 79(5)(d) explicitly directs the court to consider whether a party has engaged in wastage of property or financial resources when deciding a family law separation of assets.
During an 11-year de facto relationship, the wife withdrew $90,000 from her superannuation to start a new business despite having no prior experience in running one. The venture failed and the money was lost.
Her partner argued the $90,000 should be added back to the property pool. He said it was lost through conduct that was reckless, negligent, or wanton. He had no part in the decision and no opportunity to assess the risks.
Outcome: The court declined to find wastage. The judge found that while the wife was perhaps naive, she was attempting to enhance the value of her assets, not reduce them. Because the success of the venture was not shown to be impossible or even improbable, the loss was treated as a shared financial misfortune.
When does a failed investment cross the line into wastage?
To prove wastage in family law, you must show the conduct was reckless, negligent, or wanton. A bad result on its own is not enough. You need to demonstrate that your partner disregarded risks that a reasonable person would have avoided, because the court judges the decision-making process, not the investment outcome.
The clearest example of crossing this line is when someone ignores repeated warnings and keeps losing money.
An 86-year-old wife lost $360,000 after investing with fraudulent offshore brokers. The money came from the sale of the matrimonial home.
She had multiple opportunities to stop. Her financial planner told her to choose safe options. Her bank sent messages about suspicious dealings on her account. Her account was even credited with a refund labelled Fraud Refund Event. She ignored all of these and continued sending money.
Outcome: The court found her conduct was reckless. Because the sum was clearly identifiable, the court added the lost $360,000 back into the property pool. This protected the other party from bearing the cost of her reckless decisions.
"I am satisfied the wife's conduct was reckless and comes within the second category of behaviour contemplated by Baker J in Kowaliw."
The judge also noted that the wife had signed documents containing risk warnings that she read but failed to heed. Emotional distress did not excuse her from the consequences of ignoring professional advice and clear red flags.
When is a failed investment NOT wastage in family law?
The court distinguishes between a calculated risk that went wrong and conduct that is truly reckless. If your partner made a decision that most people in their position would consider sensible at the time, you will both share that loss regardless of the outcome.
The husband, a qualified financial professional, took out a $1 million margin loan from Macquarie Bank to invest in blue chip shares just before the Global Financial Crisis, ultimately losing over $518,000. The wife was not told about the investment and only learned of the losses after they occurred.
The wife argued these were risky investments and sought significant adjustments to the property split. She said the losses should be treated as wastage.
Outcome: The court found this was a commercial risk, not wastage. The husband had relevant expertise and the investment was reasonable at the time. The Global Financial Crisis was an event that neither the husband nor the broader community could have foreseen. The loss was shared by both parties.
"I am satisfied that the husband engaged in a commercial risk but it was neither reckless nor wanton on his part, having regard to his qualifications and his expertise at that time."
What these cases show is that the court cares more about intent than outcome. In Martin & Wilson, the wife had no business experience but genuinely tried to build something. In Idoni & Idoni, the husband was an expert making a professional judgment call. In both cases, the court found no wastage because the person was trying to grow wealth, not destroy it.
| Factor | Idoni & Idoni [2013] | Anaya [2019] |
|---|---|---|
| Investment type | Blue chip shares via margin loan | Fraudulent offshore brokers |
| Warnings ignored | None. The GFC was unforeseeable | Ignored bank warnings, financial planner advice, and a Fraud Refund Event |
| Expertise | Qualified financial professional | No investment expertise |
| Total loss | $518,863 | $360,000 |
| Court finding | Commercial risk. Loss shared | Reckless wastage. Added back to pool |
Does a failed business reduce your contribution in a separation of assets?
Under section 79(4), the court looks at the effort you put in, not just the dollar amount you made. A person who works hard in a business that eventually fails has still contributed, and the court values the attempt to support and grow the family's wealth.
This matters because many people confuse financial outcome with legal contribution. Your partner might have spent years running a business that ultimately lost money. That does not erase the work they did during the marriage or their non-financial contributions like caring for children and maintaining the home.
The husband lost significant money through share trading during the marriage. The wife wanted the court to treat these losses as a negative contribution. She argued the losses should offset the assets he originally brought into the marriage.
The husband said the investments were made in good faith and both parties would have shared the gains if the trades had been successful.
Outcome: The Full Court refused to treat the trading losses as a negative contribution. The judges found the husband was a competent investor. Because both partners would have shared the profits if trading was successful, they must also share the losses. The losses did not reduce the husband's overall contribution assessment.
"There must be good and substantial reasons for departing from the principle that where there are economic losses incurred in a marriage, those losses should be shared."
The same principle applied in Martin & Wilson [2016] FCCA 235. The wife's failed business did not change the initial contribution split, which remained 60:40 in her favour. The court assessed her overall contributions to the relationship separately from the outcome of one business venture.
How does the court handle business debt and divorce after 2024?
Before 2024, courts often used a method called add-back, where lost or wasted money was placed back on the balance sheet as if it were still there. This created problems because it distorted the actual value of assets available for division.
The Full Court put an end to this in Shinohara & Shinohara [2025] FedCFamC1A 126. The court ruled that you cannot divide property that no longer exists. Only assets that actually exist at the time of the hearing go on the balance sheet.
"Only the existing property of the parties is to be identified and only that existing property is to be divided or adjusted."
This does not mean wastage is ignored. The court now handles it in two ways. First, under section 79(4), the court looks at how each party used and disposed of money during the relationship as part of the contribution assessment. Second, section 79(5)(d) explicitly directs the court to consider the impact of wastage on each party's current and future financial circumstances. In practice, this means that if your partner wasted money, you are likely to receive a higher percentage of whatever assets actually remain.
Jakobsson (No 2) [2025] FedCFamC1A 137 confirmed this approach. The Full Court stated that amounts previously treated as add-backs should now be considered as part of the overall history of the marriage, not as line items on the asset list.
Both parties agreed on an asset list that included $589,155 in actual property from a house sale. The list also included add-back items: $239,992 attributed to the father and $352,776 attributed to the mother. These amounts had already been spent on legal fees and partial settlements. The trial judge refused to include the add-backs on the balance sheet. The mother appealed.
The mother argued the add-backs should be included because the old method treated them as part of the pool. Without them, she said the division was unfair.
Outcome: The Full Court upheld the principle that notional property cannot be placed on the balance sheet because it does not exist. But the court found the trial judge should have better accounted for these amounts when setting the percentage split. The court exercised its own discretion and divided the actual assets 67.5% to the mother and 32.5% to the father.
For a deeper look at the 2024 reform and how courts handle wasted assets today, see Spouse Wasted Assets? What Australian Courts Do Now. For gambling-specific wastage, see Is Gambling Considered Wastage in Australian Divorce?. For post-separation spending, see When Does Post-Separation Spending Become Waste?.
Summary
Financial losses are generally shared. The law expects you to share the bad times just like you shared the good times. You cannot refuse to split assets simply because your partner's business did not succeed.
The court looks at intent, not outcome. If the goal was to build wealth for the family, a failure is usually not considered wastage. The test is whether the decision was reckless, not whether it made money.
A failed business does not erase your contributions. The court values the effort put in during the marriage. A competent person who tried and failed has still contributed.
Recklessness is the line. You must prove your partner ignored clear warnings or acted with total disregard for the family savings. A calculated risk that goes wrong is not recklessness.
Add-backs are gone. Since 2024, the court only divides assets that actually exist. Wastage is handled by adjusting the percentage split, not by adding phantom money to the balance sheet.
