The Risks of Being Uninformed about Marital Finances

Marriage is a dynamic concept, which is unremarkable when one considers the rate of change to our social, economic and cultural mosaic and the impact of this on our values as individuals and as a society.

The meaning of marriage, for the time being, is more than the solemnisation of a loving relationship – many people, not unreasonably, view marriage as a pragmatic partnership and a basis upon which to achieve security, stability and financial advancement.

A common marital scenario is where one spouse’s career is facilitated by having the other on hand as homemaker and primary caregiver for children. This is an example of an effective marital partnership which benefits the spouses individually as well as the family unit as a whole. Needless to say, no two marriages are the same and every ‘marital partnership’ is different in terms of who does what.

As family lawyers know, an unfortunate corollary to the identity of marriage as a ‘partnership’ is the natural propensity for one spouse to relegate varying degrees of financial control to the other and, if full control is given, as it frequently is, a situation is created wherein one spouse has full autonomy to decide the financial future of both spouses whilst the other remains trustingly clueless.

Whilst we do appreciate that this state of affairs may be perfectly sensible for some, for others (and particularly those who we see in our practice) it can have disastrous consequences. It is part and parcel of our work to deal with disputes about debts and financial issues involving spouses who have, to all extents, separated their respective roles to the extent that one spouse has the longstanding primary control over the parties’ finances and the other has minimal or no understanding of it.

When such a ‘partnership’ breaks-down and it comes time to undertake property settlement, the spouse who has placed trust in the other as their ‘partner’ sees only what is able to be seen – the home, the cars etcetera. We frequently have matters where a spouse gets a rude shock upon separation, when it is revealed by the other that all is not as it seems. In some cases, separation causes a long-standing façade to come down, revealing huge debts which can threaten a significant portion (if not the entirety) of the property pool.

Just as there is a vast variation in the types of marital ‘partnerships’ that exist, there is a full spectrum of the division of roles within those partnerships – some relationships may be wholly divided wherein one spouse has full financial control whereas in other relationships, each spouse may have separate financial responsibilities. The list goes on.

If there is one clear and overriding practical tip that we can offer to people who are married or in a de facto relationship from our experiences and from what we read about in the published case authorities, it would be that each and every person ought to take an interest in and be aware of their finances (including the finances of their spouses). This does not mean to say that a money-savvy spouse should be limited or restricted from applying their knowledge and skills to the betterment of both parties. It is simply a warning against complacency. It is said that the key to a happy and long-lasting marriage is communication – spouses ought to ensure that this is a topic that is not neglected to be discussed and should also not rely wholly on what is told to them by the other spouse. A level of individual diligence is required.

A recent case example from the High Court touches on this topic and has had mixed reviews. In Cassegrain v Gerard Cassegrain & Co Pty Ltd [2015] HCA 2, Mr Cassegrain was a director of a company. In that capacity, he authorised the transfer of a Dairy Farm which belonged to the company to himself and his wife as joint tenants. The way in which that transfer was conducted was fraudulent. Mr Cassegrain later transferred the farm so as to be in his wife’s sole name.

Some 8 years later, Mr and Mrs Cassegrain’s children (who were shareholders of the company) sued Mr and Mrs Cassegrain and sought that the property be transferred back to the company from the wife due to the fraudulent transfer carried out by the husband. The children failed at Trial but were successful on appeal. The wife appealed to the High Court and was partly successful (she sought to retain the entirety of the farm and the High Court ruled that she should transfer 50% back to the company).

It is important to note that it was conceded from the outset and throughout the dispute that the wife had no knowledge of the husband’s fraudulent conduct.

Notwithstanding that it conceded the wife had no knowledge of the fraud, the company argued that the husband acted as the wife’s agent when conducting the fraudulent transfers and therefore that she was nonetheless infected by his fraudulent conduct. This was not accepted by the majority of the High Court who weren’t satisfied that the husband could be considered the wife’s agent simply because his conduct was to her ultimate benefit – the High Court regarded the wife a “passive recipient”.

The dilemma created by this decision is the same as that which arises in any discussion about indefeasibility of title and its exceptions – one the one hand, why should the company be deprived of an interest which was removed from it by fraud and on the other hand, why should the wife be deprived of an interest which she had held for the best part of a decade and which she reasonably believed that she had acquired legitimately.

The commentary on the decision seems to prefer the company as the victim. However, if you consider it from the wife’s perspective, neither of the parties have really succeeded as a result of the judgment – the wife had held an asset for eight years which she believed was hers to deal with in the same way as any legal owner of property is entitled. Whilst it is not evident from the published facts in the decisions, the wife very realistically may have structured her financial life around this asset (noting that its value was in the millions of dollars), such that the judgment may impacted severely on her personal financial circumstances at the time and into the future.

This decision illustrates the potential consequences to a spouse of allowing their partner to undertake transactions of which they do not themselves have a working knowledge. In the example mentioned, the wife had removed from her one-half of a significant asset which she considered had been solely hers to do with as she pleased for some 8 years – a belief upon which she may have relied in making decisions about her finances otherwise.

In conclusion, we encourage spouses to individually exercise ongoing diligence in respect of their financial circumstances. Ideally, the measure of diligence to be applied ought to be proportionate to where their marriages fall on the spectrum of role division in marital ‘partnerships’.

It is to be remembered that, whilst Mr Cassegrain was not considered to be Mrs Cassegrain’s agent by the High Court, she nonetheless personally paid a hefty price for his conduct and this is something we unfortunately witness frequently in our practice as family lawyers.

Thanks for reading.