Add-backs are an important legal consideration for divorcing couples who are dividing their finances. It is crucial to understand what an add-back is, when a Court will consider making one and the practical difference it can make to how assets are divided.
When Might I Encounter an Add-Back?
In financial remedy proceedings, the key questions are: what assets make up the matrimonial ‘pot’, and how should that pot be divided between the parties? Sometimes, there can be delay between separation and the time it takes to resolve financial matters, meaning the value of the pot may increase or decrease. Couples are not expected to stop all their spending from the point of separation – it’s entirely normal for money to continue to be spent by both parties. However, any significant spending is open to scrutiny, as both parties are required by law to keep each other updated about any changes to their financial position as Court proceedings progress.
In some instances, parties can appear to be spending money from the pot with a complete disregard for the other’s share. For example, they may be gambling heavily, taking out large sums of cash, or transferring money to third parties for no apparent reason.
In these situations, it may be possible to argue that some or all of that money should be added back to the matrimonial pot, so that they receive a fair share of the overall assets. This is known as an ‘add-back’ argument.
What Is an ‘Add Back’ Argument?
An add-back argument allows a party to ask the Court to treat recklessly spent money as though it still forms part of the shared pot, even though it has been dissipated. The key case is Vaughan v Vaughan [2007], which established that the Court will only take this step where there has been ‘wanton dissipation of assets’.
For this to be the case, the spending must be both reckless or irresponsible and deliberately undertaken. Spending that is simply unfortunate (for example, a failed business investment) will not result in an add-back.
There must also be clear evidence to support an add-back argument. The Court sets the bar high, so the evidence must be strong and clear. Bank statements, receipts, or any documents that reveal the other party’s intentions are all useful in presenting a case to the Court.
What Is the Effect of an Add-Back?
If a party successfully makes out their case for an add-back, the Court will treat the spent money as though it is still available for the shared pot and will consider it during any division exercise.
In practice, this works by increasing the theoretical total of the shared pot by the amount that was recklessly spent. The Court will determine this figure following evidence and arguments from both parties. That amount is then treated as having already been paid out to the spending party, which means they receive a smaller share of the remaining assets on division.
What Happens If the Assets Are Hidden Rather Than Dissipated?
If the money or assets are still in the other party’s possession, the Court can still add their value back to the shared pot.
This situation arose in Tsvetkov v Khayrova [2023] where the assets (unlike the Vaughan case) were still in the other party’s hands and had not actually been spent, meaning they could, in theory, still be used. The Court did add the value back to the pot, but it was based on the real, existing value of those assets rather than a notional figure, since the money had not in fact disappeared.
What Happens if the Money is Needed?
There is an important limit to the add-back argument – the Court will not apply it if it results in either party being unable to meet their needs. So, if applying an add-back would mean that the spending party is left without enough to live on or rehouse themselves, the Court may reduce the add-back or discount it entirely. Understandably, this may feel unfair to the party whose money was wasted, but the Court treats parties’ ‘needs’ as a priority, such that it can go beyond the principle of fair ‘sharing’.
In practice, this means that where the matrimonial pot is modest and the remaining assets are only enough to cover both parties’ basic needs, the Court is unlikely to be persuaded by an add-back argument.
What Can I Do?
If you are worried that your spouse may be spending, hiding, or moving assets that should form part of the shared pot, it is vital to seek specialist legal advice as soon as possible. Getting advice early will help you identify and preserve the evidence needed to protect your financial position. Please do not hesitate to contact our specialist Family team at Farleys, who would be happy to discuss your situation with you in confidence. Call 01254 606008, get in touch by email, or use the online chat below.
