ABADI & SAFAR
[2019] FCCA 8
•9 January 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| ABADI & SAFAR | [2019] FCCA 8 |
| Catchwords: FAMILY LAW – Property proceedings – small net asset pool – marriage of five years in duration – asset pool consists of property portfolio of negatively geared properties rented to tenants – parties have been separated for five years – husband has maintained properties concerned and retained rents – properties have operated at a loss – loss used to reduce husband’s taxation liability and generate tax refund – wife has retained liability for debt used to provide deposit to purchase one of the real properties – substitution of debtor – matters to be considered – assessment of contributions – prospective needs – just and equitable. |
| Legislation: Family Law Act 1975 (Cth), ss.79(1), 79(2),79(4), 75(2), 90AD, 90AE, 90AK Evidence Act 1995 (Cth), s.140 Acts Interpretation Act 1901 (Cth), s.15AB |
| Cases cited: Stanford v Stanford (2012) 247 CLR 108 |
| Applicant: | MS ABADI |
| Respondent: | MR SAFAR |
| File Number: | ADC 297 of 2015 |
| Judgment of: | Judge Brown |
| Hearing dates: | 3 & 7 September 2018 |
| Date of Last Submission: | 7 September 2018 |
| Delivered at: | Adelaide |
| Delivered on: | 9 January 2019 |
REPRESENTATION
| Counsel for the Applicant: | Ms Read |
| Solicitors for the Applicant: | Belchamber Legal |
| Counsel for the Respondent: | In person |
ORDERS
UPON NOTING, for the reasons published concurrently with the making of these orders, the court proposes to make the following order:
Pursuant to section 90AE(1)(b) of the Family Law Act 1975 in respect of the wife’s (MS ABADI) indebtedness to COMPANY 1 PTY LTD (reference …) in the amount currently estimated to be $50,853.97 together with any further interest which has accrued thereon the husband (MR SAFAR) be substituted for the wife as the debtor and the husband be solely liable to COMPANY 1 PTY LTD for the said debt.
IT IS ORDERED AS FOLLOWS:
The proceeding be adjourned for directions and to deal with any matters arising incidental to the implementation of the orders hereunder and to accord all necessary procedural fairness to the third party named above COMPANY 1 PTY LTD in respect of the making of the order proposed above to 22 February 2019 at 9:30am.
IN SETTLEMENT OF CLAIMS FOR MATRIMONIAL PROPERTY:
Within forty days of the making of the order proposed to be made in order (1) hereof the husband pay to the wife the sum of twenty-seven thousand dollars ($27,000.00).
Pursuant to section 90MT(1)(a) of the Family Law Act, 1975 on a date to be nominated on the adjourned date there be a splitting order, in the sum of twenty-five thousand dollars ($25,000.00), made in the wife’s favour out of the funds currently standing in the husband’s name in Super Fund D (Member number …).
The trustee of the Super Fund D do all things necessary to give effect of order (4) hereof within twenty-eight days (28) of the date provided by such order to rollover the sum to be split in the wife’s favour to the superannuation fund as nominated by the wife.
The solicitor for the wife serve a copy of these orders on the trustee of Super Fund D within twenty-eight days (28) of the date of these orders and thereafter the aforesaid Trustee has liberty to relist the matter in the event that the trustee is unable to comply with order (4) hereof.
The trustee of Super Fund D and the wife in accordance with the Family Law (Superannuation) Regulations 2001 shall do such acts and things and sign all necessary documents as are required to calculate the payment entitlements of the wife in accordance with order (4) hereof.
As and from the date of this order the husband retain for his sole use and benefit, absolutely free from any further claim or demand of the wife:
(a)all furniture and effects in his possession, power and control;
(b)all motor vehicles in his possession;
(c)any savings and investments in his sole name;
(d)any superannuation entitlement, long service leave, annual leave or other work related benefits, subject to the provisions of order (4) hereof;
(e)his personal effects; and
(f)any other personal property and/or financial resources of the husband or in the husband’s name and/or possession not otherwise specified herein; and
Subject to any further direction of the court and provided he pays to the wife the sum specified in order (3) hereof:
(g)the real properties registered in his name and situated at Property A; Property B and Property C registered in his name.
As and from the date of this order the wife retain for her sole use and benefit absolutely free from any further claim or demand of the husband:
(a)all furniture and furnishings in her possession, power and control;
(b)any motor vehicle in her possession;
(c)any savings, shares and investments in her name;
(d)any superannuation entitlement, long service leave, annual leave or other work related benefits;
(e)her personal effects;
(f)any other real and/or personal property and/or financial resources of the wife or in the wife’s name and/or possession not otherwise specified herein.
IT IS NOTED that publication of this judgment under the pseudonym Abadi & Safar is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT ADELAIDE |
ADC 297 of 2015
| MS ABADI |
Applicant
And
| MR SAFAR |
Respondent
REASONS FOR JUDGMENT
Introduction
These proceedings relate to the settlement of matrimonial property issues, following a marriage of five years in duration, in circumstances in which the court is called upon to make orders almost five years after the parties’ concerned stopped living together and sharing their finances.
Ms Abadi “the wife” was born in Australia on …1988. She has a …nationality heritage. Currently she is employed as a professional by Employer. She is modestly paid.
At present, Ms Abadi does not enjoy good health. She has suffered severe abdominal pain since 2017, which seems to be exacerbated by emotional stress. Her symptoms began prior to the parties’ separation. No clear diagnosis has been provided in respect of her condition, which has been likened to irritable bowel syndrome.
She has been prescribed sedatives, anti-depressants and anti-nausea medication to assist with her condition. However, she has been forced to take much time off work, in circumstances in which she has not been eligible for sick pay.
Ms Abadi’s annual salary is $44,500.00. However, last financial year, she earnt less than half this amount, due to her time off work. At present, she lives with her fiancé, Mr K, in Suburb E. He is a tradesman, who earns approximately $50,000.00 per annum.
Mr Safar “the husband” was born in … on …1985. He came to this country, with his parents, in early 1998, when he was around fourteen years of age. As a consequence, he speaks excellent English, as does Ms Abadi.
The parties are both members of the …faith. They met in 2008 and became engaged in …2008, with the blessing of both of their families. Their marriage was solemnised according to the rights of the …faith on …2008.
Ms Abadi’s family live mostly in Melbourne. Mr Safar’s family live mostly in Adelaide. At the commencement of the parties’ marriage, Ms Abadi moved to live in Adelaide. There is no dispute between them that they separated, in emotionally laden circumstances, on 31 December 2013, when the wife was excluded from the parties’ marital home, which was then located at Property B.
The parties were divorced on 20 June 2015. The wife commenced these proceedings on 30 November 2015, with the husband responding in March of 2016. I was initially advised, in December of 2016, that the parties had been able to reach a compromise of the division of their property, following a conciliation conference.
However, this apparent agreement was never reduced into mutually acceptable written terms. Subsequent attempts to reinstate some form of settlement have proved to be fruitless. An earlier trial of the matter, fixed for April 2018, had to be vacated because the wife was unwell.
Mr Safar is an professional. He graduated from the …University in 2008 and has worked in his profession ever since. In 2013, he attained a Qualifications….
He has been employed, as a professional, by Employer, since 2010. He is currently paid approximately $170,000.00 per annum. His current contract is for a period of four years.
After their marriage, the parties originally lived at a property, which had been earlier purchased by the husband at Property A. This property is currently rented to tenants, as is the Property B property and another property at Property C. Each of these three properties is registered in the husband’s sole name.
At present, Mr Safar lives with his elderly parents, who occupy premises rented from the South Australian Housing Trust, at Suburb F, some doors away from the former matrimonial home. It is Mr Safar’s evidence that he pays proper commercial rent to his parents and assists them with the payment of their bills. Ms Abadi does not necessarily agree.
The three properties, owned by Mr Safar, which are relevant to these proceedings, are each negatively geared. That is, the moneys expended by Mr Safar to maintain the properties – in recurrent mortgage payments; rates; insurance; and recurrent maintenance; – are greater than the amount received by him by way of rent. As a consequence, he makes a loss on these investment properties, which can be set against his income as a PAYG tax payer.
There is no controversy about the value of these properties or the amounts which are secured against them by way of mortgage. The equity situation, in respect of the properties, can be summarised as follows:
Property
Purchase date
Purchase price
Current value
Current mortgage
Property A
2008
$335,000
$350,000[1]
$308,750.77[2]
Property B
2012
$375,000
$430,000[3]
$359,313.71[4]
Property C
2015
$275,000
$290,000[5]
$254,090.60[6]
[1] See exhibit B
[2] See exhibit H6
[3] See exhibit C
[4] See exhibit H4
[5] See exhibit A
[6] See exhibit H5
The current values of the various properties, outlined above, were obtained through a process of expert valuation in March of 2018. Mr Safar has provided printouts of his various mortgage accounts as at the beginning of September 2018. Mr Safar has also provided details of the rental agreements in respect of the properties and some information regarding other outgoings relating to them.
Accordingly, on my calculations, as a consequence of these valuations, the three properties in question total $1,070.00 in value and are subject to mortgages totalling $922,155.08, leaving a potential equity, notionally available to Mr Safar, of $147,844.92.
However, such a figure would not take into account any potential selling costs or capital gains accruing as a consequence of any capital increase in the value of the properties concerned, since the date of purchase. The husband does not wish to sell any of the properties, if it can be avoided. I have not been provided with any evidence estimating the likely extent of these expenses.
It is the flavour of the husband’s case that the extent of his borrowings make it extremely difficult for him to realise any of the modest amounts of equity contained in any of the properties concerned and for all three properties to be sold would be a financial disaster.
On the other hand, the wife contends that the husband has kept the level of negative gearing artificially high to frustrate her claim. By necessary implication, she contends that Mr Safar must have salted away significant sums of money generated by the properties in question in order to secure such an outcome or that he has used some form of re-draw facility to siphon money from the mortgage accounts when the principal has been reduced.
It is the husband case that he has made all the necessary financial contributions towards the acquisition of each of these properties, one of which, Property C, was purchased by him after the parties had separated, with the Property B property being purchased approximately 18 months prior to separation.
The marriage between the parties produced no children. It is Mr Safar’s case that during it, he was the couple’s main breadwinner being consistently employed throughout, whilst Ms Abadi had sporadic employment. In addition, he does not accept that she made any significant non-financial contributions, as a home-maker, during the parties’ relatively short marriage.
In these circumstances, he contends that any proper assessment of the parties’ various contributions, made during the marriage towards the acquisition, conservation and improvement of the parties’ property must greatly favour him.
Ms Abadi does not agree. It is her case that she made significant financial and non-financial contributions during the marriage. She contends that she worked whenever she was able, including providing services to the husband’s family, who operated businesses. It is her positon that she baked muffins, which were sold at the business.
The parties, as is often the case in matters which proceed to trial in this court, do not trust one another and suspect that their respective former spouse is intent on deceiving them to gain financial advantage. No doubt, this unhappy circumstance arises as a consequence of the difficult emotional circumstances, which their separation precipitated and the protracted and abortive process of attempted settlement which followed.
Mr Safar, an intelligent and articulate person, has represented himself throughout these proceedings. Ms Abadi has been legally represented throughout. In so doing, she has incurred outstanding legal fees of approximately $66,000.00 to date, which she can ill afford. I am gravely concerned about the quantum of those fees, when the potential subject matter of these proceedings is considered.
Apart from psychological issues relating to the end of their marriage, the major sources of the parties, mistrust for one another, particularly in the context of these proceedings, can be summarised in the following way:
·It is the wife’s position that the husband unfairly and inequitably retained the parties’ household contents following separation.
·This included a motor vehicle, purchased for her which the husband subsequently sold for far less than it was worth and retained the proceeds;
·The husband asserts that he purchased most of the household contents and, in any event, Ms Abadi took a number of significant items on separation.
·No accurate tabulation of the value of household items has been obtained for these proceedings;
·In addition, the husband asserts that the motor vehicle was purchased entirely on finance in 2010 and he made all the necessary payments in respect of it, both before and after separation, prior to its sale in 2016, as a consequence of financial necessity;
·The wife asserts that, by dint of his superior income and frugal living arrangements, the husband has been creaming off the rent from the various properties concerned and the recurrent tax refunds received by him for his own benefit;
·Essentially, she contends the husband has kept the properties as negatively geared as possible, whilst pocketing all the cash generated by them in order to disadvantage her financially in these proceedings;
·In this context, Ms Abadi asserts that Mr Safar has failed to make a full and frank disclosure of his financial circumstances both to her and the court;
·The husband denies that this is the case. It is his position that there is no subterfuge in respect of the negatively geared properties and he has not been secreting any significant sums from the wife or indeed acquired any undisclosed items of property in the not insignificant period since the parties separate;.
·In any event, he contends that he has made all the necessary financial contributions towards the investment properties concerned, in the five years since the parties separated and, in these circumstances, he was entitled to keep them negatively geared;
·In addition, he refutes any contention that there is some element of subterfuge in respect of how he has managed the properties in question;
·It is his position that he has been compelled to utilise all moneys generated by the properties for their maintenance and to support himself;
·The husband asserts that the wife has a significant interest in a property located at Suburb G, in suburban Melbourne, which was bequeathed to her by her late mother who died in 2003;
·By her will made in 2003, Ms Abadi’s mother left her a forty percent share in the net value of this property when she attained twenty-five years of age. Mr Safar has calculated this amount to be approximately $292,000.00;
·It is Ms Abadi’s case that she has renounced her interest in her late mother’s estate because her grandfather continues to live in the Suburb G property and has historically paid the vast proportion of the moneys required to build the property constructed on the land and maintain the mortgage registered against it;
·In these circumstances, it is her evidence that she has no quantifiable interest in the property concerned;
·When the Property B property was purchased, in 2012, the wife took out a personal loan with the Commonwealth Bank in an amount of $40,000.00;
·This personal loan was utilised as a deposit to secure the purchase of the property concerned;
·Thereafter, the parties agree that the remainder of the funds necessary to purchase the property was also borrowed from the CBA, with both the title and mortgage registered in the husband’s sole name;
·At the time, it is axiomatic Mr Safar had limited equity in the parties’ then home in Property A, which Mr Safar had purchased with assistance through the first home owners purchase scheme, with mortgage finance through the ANZ Bank;
·In these circumstances, it was unorthodox, to say the least, that the parties effectively borrowed the entire sum required to purchase Property B property, through a personal loan in Ms Abadi’s name;
·The transaction was procured through a mortgage broker known to Mr Safar;
·Ms Abadi has subsequently complained to relevant authorities, within the bank, about the propriety of the transaction concerned and the conduct of the mortgage broker, so far as her interests are concerned;
·Since separation, neither Mr Safar nor Ms Abadi have paid any moneys in respect of the personal loan concerned to the CBA, which has factored the debt to Company 1 credit;
·The amount now owing is approximately $50,000.00;
·However, given the circumstances surrounding the matter, Company 1 have agreed to hold it in abeyance until July 2019;
·For obvious reasons, Ms Abadi feels that it is deeply unfair that she was left with this significant debt, whilst Mr Safar had the benefit of owning the property concerned and receiving all the rent in respect of it;
·From her perspective, the debt is emblematic of Mr Safar’s disingenuous and manipulative conduct, of which she has been the victim.
By dint of his superior income and more consistent employment in the workforce, Mr Safar has significantly more superannuation than has Ms Abadi. Recent records indicate that Mr Safar has approximately $125,000.00;[7] whilst Ms Abadi has approximately $15,000.00.[8]
[7] See exhibit D
[8] See exhibit E
In these circumstances, it is the wife’s position that considerations of justice and equity dictate that there be an equalisation of the parties’ respective superannuation holdings to reflect her lesser preparedness for retirement, when compared to the husband. Needless to say, Mr Safar does not agree.
It is his position that he alone has made contributions towards his superannuation holdings in the context of a relatively short marriage in which he contends he did not receive a significant level of support. Accordingly, it is his position that, at the maximum, the amount to be split from his superannuation, in the wife’s favour, should be $20,000.00.
In order to safeguard her position in respect of the three real properties registered in Mr Safar’s name, Ms Abadi has registered caveats against each of the titles of these properties to prevent any further dealings with them.
However, a title search undertaken by her solicitor has revealed that the Property B property is subject to a charge, in an amount of $10,000.00. This sum relates to an unsatisfied judgment debt, obtained by Company 2, in the Magistrates’ Court at Adelaide, against the husband trading as Company 2.
The competing applications of the parties
The final orders, sought by the wife, have been fluid, to say the least. In her amended application filed on 6 April 2018, she sought orders which can be summarised as follows:
·an order pursuant to section 90AE(1)(c) of the Family Law Act 1975[9] that the debt to Company 1 currently standing in her name be transferred to the husband;
[9] Hereinafter referred to as “the Act” or “the Family Law Act”
·the husband pay her the sum of $35,000.00;
·if these two things occur, she will release the caveats registered by her, particularly against the Property C property.
In the alternative, she proposed as follows:
·the husband transfer his interest in the Property B property to her and she refinance the property in her sole name;
·subject to the proviso that the husband satisfy the charge in favour of Company 2;
·in these circumstances, she will release any applicable caveats.
Otherwise, in either eventuality:
·an order be made to achieve an equalisation of the parties’ superannuation;
·each party retain the property registered in his/her name and/or under his/her control on in his/her possession.
More recently, in the closing submissions of her counsel, Mrs Read, the wife has sought the transfer of the Property B property to her client. She will assume responsibility for the mortgage secured against the property but will be entitled to collect the rent realised by the property. She will also retain responsibility for the debt to Company 1.
In addition, the wife has sought the payment to her of the sum of $93,820.00, in default of which the properties registered in the name of the husband at both Property B and Property C be sold. She seeks a split of superannuation, from the husband, in an amount of $55,000.00. In effect, she seeks either the entirety of the asset pool or a roughly equivalent cash sum.
In her written submissions, Mrs Read asserts as follows:
“In view of the small asset pool and the husband’s ability to support himself the wife seeks the entirety of the equity in the asset pool together with taking over the Property B property and the debts in relation to that acquisition to ANZ and Commonwealth. On that basis the wife calculates that she is entitled to a cash payment to her by the husband, achievable by refinancing either of the two remaining properties.”[10]
[10] See counsel for the wife’s written submission at page 5
In his only responding document, which was professionally prepared prior to the withdrawal of his solicitor, the husband proposed a 70/30 division of the parties’ net assets, in his favour. His application was silent in respect of superannuation issues.[11] This does not appear to be his current position.
[11] See husband’s response filed 3 March 2016
As best I can understand it, he seeks to retain all the real properties registered in his name. He will indemnify Ms Abadi in respect of each of the mortgages registered against these properties. He recognises that it is unfair that Ms Abadi is liable in respect of the debt to Company 1, which partly financed the purchase of Property B.
However, it is his position that he alone has subsidised the losses, which each properties has generated and these losses need to be set against the Company 1 liability for which Ms Abadi is currently legally liable.
On Mr Safar’s calculations, in total, the three properties create a loss of $12,493.00 per annum. He has further calculated that, since separation, all three properties have generated a loss of $54,799.00. In these circumstances, he submits that it would not be fair for him to have to pay any sum of money to Ms Abadi.
In addition, he submits that the greater proportion of his superannuation was acquired after the parties separated. In these circumstances, he submits that it would not be just for there to be any split made from his superannuation, in Ms Abadi’s favour, but if any such split is made, it should be modest, amounting to no more than $25,000.00.
It is also Mr Safar’s case that the wife’s net interest in the Suburb G property, bequeathed to her by her late mother, is valued in an amount of $292,000.00 and this sum should be regarded as a joint matrimonial asset. He also calculates that the property was capable of generating rent of $200,000.00, since the parties separated, some portion of which should be allocated to him.
Again, he seeks the inclusion of these amounts in the parties’ pool of assets. In these circumstances, he would ask the court to calculate a sum due to him, from the wife, by reference to these sums, which he asserts should be in the order of $160,000.00.
Accordingly, the parties fundamentally disagree about the appropriate outcome of these proceedings. The only thing they have in common is their view that the other should in essence not receive or retain anything of value as a consequence of these proceedings. In addition, it would seem probable that the wife’s position is strongly influenced by the extent of her legal fees thus far incurred. An issue which does not confront the husband, given that he is self-represented.
The evidence
As the respective orders proposed by each party indicates, their positions are polarised in the extreme. As a consequence, neither seems to have been able to focus, with any degree of stringency, on the reality of their financial position.
Rather, each seems fixated on mirage like assets, in the hope that these can be added back into the parties’ pool of assets, to ensure that either he or she (but not necessarily the other) will be able to leave the proceedings with some cash. In this sense, at times, the proceedings seemed to me to resemble a game of pea and thimble.
This tendency seemed more pronounced in the wife’s case than that of the husband. She remains aggrieved at what she perceives to be the fundamental unfairness of the husband retaining all the real estate assets, whilst she has nothing. The underpinning of her case is that he has been able to strip the income generated by these assets to her detriment.
Mr Safar acknowledged that he had visited the property in Suburb G on no more than a handful of occasions. He also indicated that he and the wife had never had any significant conversations about the property. Essentially, he deposed that all he knew about the property was the Ms Abadi had a 40% interest in it. Whether his focus on this issue was to divert attention away from the assets in his name or because he genuinely believes the wife has some actual interest in the property is unclear to me.
In this context, at the outset, in my view, it is important to emphasise what the High Court said in Stanford v Stanford[12] Pursuant to section 79(2) of the Family Law Act, the court is prohibited from making an order altering property interests, between separated spouses, unless it is just and equitable to do so.
[12] See Stanford v Stanford [2102] 247 CLR 108
In Stanford the High Court emphasised as fundamental that a consideration of whether it is just and equitable to make a property settlement order begins by “identifying, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property.”[13] The High Court placed a particular level of emphasis on the word existing in relation to marital assets.
[13] Ibid at 120 [37]
Accordingly, in the vast majority of property cases, the court’s focus is on what assets the parties have at the date of trial. Sums should be added back into the pool of assets, available to be divided, only in exceptional circumstances and only to ensure justice is done between the parties concerned. The court must take the property of a party to the marriage as it finds it at trial.
Notwithstanding the divergent positions of the parties, during the case, I assess each of them to be a basically honest person, who tried to tell the truth, about the financial issues in their marriage as best they could. The evidentiary issues, in the case, such as they are, arise as a consequence of what each believes, in my view, on somewhat insubstantial grounds, in respect of the asset holdings of the other.
The wife is not a financially sophisticated person. She does not trust the husband. She seems to regard him as some sort of financial Svengali. In these circumstances, it is easy for her to jump to the conclusion that Mr Safar has been able to cream off significant funds for himself to her detriment.
Mr Safar is a more sophisticated person, in a financial sense, than Ms Abadi. He also seemed to me to be a hard-working and somewhat ambitious person. However, I do not consider that he has attempted to conceal his financial position from either the court or the wife.
To the contrary, in my view, he has provided all the relevant documents required to establish what he owes; what he receives by way of rent; and what he pays by way of outgoings in respect of each of the relevant properties. If he is to be criticised at all it is on the grounds that this was not done at an earlier stage.
In this context, Mr Safar has compiled a spreadsheet on which he has broken down his recurrent income and expenses on both a weekly and monthly basis.[14] This may be seen as self-serving, but in my view, demonstrates that he approaches his financial affairs with a degree of rigour. In addition, if correct, it demonstrates that Mr Safar has a modest ability to save each month. As such, I do not regard it as an inherently unreliable document.
[14] See husband’s affidavit filed 5 April 2018 at annexure H
It is Ms Abadi’s case that it is grossly unfair that the husband has retained control of all of the parties’ assets following separation. It is the flavour of her case that this has enabled him to lead a comfortable life, particularly given that she believes he lives in subsidised circumstances, with his parents.
However, apart from her suspicions, Ms Abadi is not able to identify any destination controlled by Mr Safar, for any ill-gotten profits alleged to be derived by him from any of the properties concerned, either from the rent or, as alleged, from keeping the negative gearing on them artificially high.
The circumstances surrounding the untimely death of Ms Abadi’s mother and her financial situation, at the time of her death, are for obvious reasons, emotionally laden for the wife. They are also controversial from Mr Safar’s point of view.
I accept Ms Abadi’s evidence that she has no actual or realisable interest in her mother’s estate, which is capable of being translated into cash. As with Ms Abadi’s suspicions about him, Mr Safar is unable to trace his suspicions concerning Ms Abadi into any physical aspect of property.
In these reasons for judgment, findings of fact are made on the balance of probabilities, from my observation of the demeanour of each of the witnesses concerned.[15] I have tried to reach my conclusions on credibility and reliability on the basis of contemporary materials, objectively established facts and importantly, on the apparent logic of events.[16]
[15] See Evidence Act1995 (Cth) at section 140
[16] See Fox v Percy (2003) 214 CLR 118 at 129 [31] per Gleeson CJ, Gummow and Kirby JJ
a) The Suburb G property
Ms Abadi’s mother, Ms L, died of cancer in 2003. This was five years prior to the parties commencing their relationship. She was a self-employed tradesperson. Ms Abadi’s father is a tradesperson. He has remarried.
The late Ms L purchased land at Suburb G in 1999. It was her intention to build premises, on the land, which would provide both accommodation for her family and a premises from which to conduct her business.
It is unclear, at this distant juncture, what was the purchase price of the land concerned and what expenses were incurred in building the dwelling and business premises conducted on it. It does however appear to be the case that she borrowed approximately $300,000.00, from the ANZ Bank, to complete the enterprise.
In 1999, Ms Abadi was around eleven years of age. She was a teenager, at school, when her mother died. In all these circumstances, I am satisfied that she made no direct financial contribution towards the acquisition of the property in question. Ms Abadi has no siblings.
When Ms L fell ill, her parents moved from … to care for both their daughter and granddaughter. At this stage, the Suburb G property was not complete. Ms Abadi’s grandfather sold a business in … and utilised his life savings to come to Australia. He borrowed money to complete the dwelling being constructed on the Suburb G land and to keep up the necessary mortgage payments. He also paid Ms L’s funeral expenses. These were significant.
From July 2002 onwards, Ms Abadi’s grandparents lived at the Suburb G property. Mr M (the grandfather) was responsible for all the outgoings incurred in respect of this property. From time to time, the business premises were leased out. However, the rental received was utilised to pay outgoings, including the mortgage, relating to the property. Ms Abadi herself made no direct financial contributions towards the property and left the care of her grandfather when she was aged around eighteen years of age.
Mr M continues to live in the property, which he regards both as his home and his investment. His wife has since died. The amount secured by mortgage in favour of the ANZ Bank remains in the vicinity of $300,000.00.
Probate of Ms L’s will was granted in the Supreme Court of Victoria in November of 2003. She appointed her father as her executor and bequeathed her estate, including the Suburb G property in the following manner:
·Ms Abadi was to receive forty percent of the residue of the estate;
·The grandparents were to receive thirty-two percent of the residue of the estate;
·The …faith were to receive nineteen percent of the residue of the estate; and
·Ms L’s brother was to receive nine percent of the residue of the estate.
Significantly, the will made provision for the grandparents to be able to live in the Suburb G property until Ms Abadi attained twenty-five years of age, on condition that they maintain the mortgage on the property. Mr Safar is not able to call any evidence to indicate that Ms Abadi has ever sought to enforce this aspect of the Will.
In addition, Mr Safar is not in a position to establish what was the value of the late Ms L’s interest in the property, at the time of her death. I am satisfied that, were it not for the contributions of Mr M, the Suburb G property would not have been completed and the mortgage maintained.
In all these circumstances, Ms Abadi describes her interest in her late mother’s estate as being “notional”. I accept that this is an appropriate description of the wife’s interest, which has no value and no relevance to these proceedings. In her trial affidavit, she describes the property in the following terms:
“The house has been my grandfather’s home since he left … to come to care for my mother and I (sic) in it. I never regarded myself as having any moral entitlement to it, in effect, I have relinquished any beneficial entitlement. … I have no intention of forcing the sale of the property or insisting on an accounting. Apart from my grandfather selling up in … and coming to Australia to care for us and to take over the completion of the house, no doubt it would have been sold to fund my mother’s institutional care, then funeral expenses.”[17]
[17] See wife’s affidavit filed 13 August 2018 at [77] – [78]
Mr Safar has not been able to advance any evidence to rebut these assertions. I have no reason to disbelieve the wife’s evidence in respect of this evidence. For these reasons, I have reached the conclusion that whatever interest the wife may have in the Suburb G property, it is not relevant to the court’s task arising either under section 79(4) or section 75(2) of the Family Law Act 1975,
b) The parties respective working careers and qualifications
Ms Abadi was studying … and was working, as a tradesperson when she met Mr Safar in 2008. At the time, Mr Safar was in the final year of his …studies and was working as a professional for Employer.
Mr Safar graduated, with a … degree in 2008. Around this time, Ms Abadi was able to transfer her employment, as a tradesperson, from her employer in Melbourne to Adelaide.
Following his graduation, Mr Safar continued to work at Employer, as a professional, on a salary of approximately $48,000.00 per annum. Ms Abadi’s employment did not work out and she was retrenched in controversial circumstances. It is not necessary for me to make any findings in respect of this issue.
It is Mr Safar’s evidence that, in the early years of the parties’ marriage, he was the family’s main breadwinner, whilst Ms Abadi’s employment was irregular and unreliable. He asserts that they struggled to support themselves adequately on his modest salary. At the same time, Mr Safar had commenced graduate studies, at University.
In 2010, Mr Safar took up a position, as professional, at Employer, where he continues to work. He completed his qualifications at University, in 2013. In addition, he has obtained qualifications from TAFE.
I accept that Mr Safar worked extremely hard during the parties’ marriage and afterwards. He has also been focussed on improving his qualifications. During this period, his income has steadily increased. When he joined Employer, his salary increased to $68,000.00 per annum. In 2012, it increased again to $87,000.00. In addition, he often availed himself of overtime and weekend work, which at the time of separation, left him with a salary of around $128,000.00.
On the other hand, the evidence indicates that Ms Abadi has struggled to find a source of employment, which was both conducive to her abilities and attractive to her. Her longest employment, during the marriage, was at Employer, where she was employed for approximately 18 months.
It is Ms Abadi’s evidence that her health began to seriously deteriorate in the latter stages of the parties’ marriage, which precluded her from being in full-time employment. This seems to have been a source of conflict between the parties.
In these circumstances, it is Mr Safar’s evidence that his income was exclusively utilised to fund the parties real estate investments and to discharge their living arrangements, whilst Ms Abadi’s more intermittent income was utilised to fund her personal expenditure, which has not translated into any identifiable assets of utility for these proceedings.
In general terms, I accept that Mr Safar’s evidence in this regard is likely to be more reliable. In my assessment, he is a career centred person, who is focussed on improving his financial position. This is not my impression of Ms Abadi, who as previously indicated, did not strike me as having any great financial acumen.
In these circumstances, she is likely to have an inflated view of the value of the properties acquired during the parties’ relationship and little appreciation of the costs incurred in respect of managing the debt relating to them.
I accept that she did, from time to time, allocate some of her income to joint purposes, including to the Property B property, when it was the parties’ marital home. But on balance, I consider it more probable than not that the husband was the family’s main provider of direct financial support.
c) Indirect and other contributions
It is a flavour of Mr Safar’s case that, during the parties’ marriage, they lived beyond their means. He is critical of Ms Abadi for being somewhat profligate in regards to her expenditure, particularly on personal matters. The tenor of his affidavit evidence, regarding Ms Abadi’s contributions, both financial and non-financial, during their marriage, is entirely negative.
Mr Safar is critical that Ms Abadi made few contributions, in a homemaking capacity, during the marriage. He asserts that they ate out frequently, or at his parents’ home. By necessary implication, he concedes that he personally did not perform many household tasks, largely because he was working long hours and studying.
For her part, Ms Abadi asserts that she assisted in the care of Mr Safar’s parents, as well as cooking and cleaning at home. In addition, it is her evidence that she baked muffins, which were sold at the business owned by Mr Safar’s family, for which she received only token payment.
In the absence of independent and objective evidence, this conflicting evidence regarding indirect contribution issues, are difficult to resolve in the context of these proceedings. In the latter stage of the parties’ marriage, they seemed to have had little in common and to have been deeply unhappy. Currently, they view each other through a distorting prism of hostility. These circumstances are not conducive for either being able to make appropriate concessions in respect of the contributions of the other.
Doing the best, with the evidence available to me, on balance, I have come to the view that the husband’s financial contributions were far superior to those of the wife. As previously indicated, he was focussed on maximising his salary entitlements and on supporting the parties’ property portfolio.
On the other hand, whilst Ms Abadi undoubtedly did make some contributions, both indirectly and as a homemaker, I do not consider that these can be regarded as complimentary to those of the husband. Rather, it is my view that the parties pursued disparate objectives during their marriage, particular in its latter stages, when each was unhappy and dissatisfied.
As a consequence of these considerations, in my view, this is not a case which turns significantly on any necessity to assess homemaking and non-financial contributions. The marriage between the parties was a relatively short one (around five years). It produced no children. Apart from the heavily negatively geared properties, the parties’ efforts did not produce any items of property of significant value. This is not a case in which the homemaking efforts of one party, freed up the other to be able to pursue career and financial opportunities.
d) The purchase of Property A
Mr Safar purchased Property A, in 2008, approximately nine months prior to the parties’ marriage. It became their first home. The purchase price was $335,000.00. Mr Safar borrowed the sum of $325,000.00, secured by way of mortgage, to complete the purchase. The remaining funds required were furnished from his personal savings.
On the basis of the valuation provided, the property has modestly increased in value, since its purchase, by about 4%. The mortgage has also reduced slightly. It is currently tenanted at a rental of $300.00 per week. The minimum loan repayment is $1,250.00 per months. In these circumstances, I find that the property does not produce any regular income stream for Mr Safar.
e) The purchase of Property B
It is Mr Safar’s evidence that Ms Abadi was anxious to secure another home for the parties to live in. It is Ms Abadi’s evidence that the Property A property was tenanted from 2011 onwards. At this stage, she asserts that she and the husband moved in with Mr Safar’s parents, in order to save money to enable them to purchase another home. This may have been the parties’ intention, but there is no evidence to indicate that it was successfully implemented.
The Property B property was purchased in 2011 for $375,000.00. The sum of $363,877.00 was borrowed from the Commonwealth Bank to secure the purchase. Accordingly, the parties had little if any equity in the property.
In addition, at this stage, Ms Abadi borrowed the sum of $40,000.00, again from the Commonwealth Bank, by way of a personal loan. Both the mortgage and the personal loan were negotiated through the same mortgage broker, who suggested that Ms Abadi gift the sum of $40,000.00 to Mr Safar so that he would qualify for the mortgage finance required. As previously indicated, this loan has never been repaid and Ms Abadi remains liable for it.
It is Mr Safar’s evidence that he purchased furniture and white goods for the Property B property and paid for the installation of a pergola there. I accept that this is likely to be the case, but no evidence has been provided as to the value of these items currently. In addition, the parties disagree as to how they were divided on their separation. The husband asserting that the wife took a significant proportion of them; Ms Abadi asserting otherwise.
In these circumstances, I am not in a position to resolve these issues on the basis of credit alone. As such, it is not possible for these items to be included in any table of assets to be divided between them. It is likely that both parties feel hard done by in respect of this aspect of their separation.
At the present time, the Property B property is rented out at a weekly amount of $400.00. This equates to a monthly rental income of around $1,733.00. The minimum payment required to service the mortgage is $2,033.00 per month. In these circumstances, I am satisfied that the property is negatively geared and so does not produce a direct income stream for Mr Safar. Rather, he is out of pocket each month.
f) The purchase of Property C
Mr Safar purchased the Property C property following the parties divorce. The evidence available to me indicates that he borrowed the entire sum required to purchase this property through the same strategy utilised to purchase the Property B property, namely he took out a personal loan to pay a deposit and thereafter borrowed the remainder secured by way of mortgage registered against the property.
The purchase price of the Property C property was $275,000.00. The purchase was completed on 19 June 2015. In late May of 2015, Mr Safar borrowed $25,000.00 by way of personal loan, which he utilised to pay a deposit on the property. He borrowed a further sum of $266,724.00 in order to complete the purchase.
At the date of hearing, an amount of $254,090.60 remained outstanding to the mortgagee. It is Mr Safar’s evidence that he continues to owe $14,445.34 in respect of the personal loan utilised to secure the property.
At present, the Property C property is leased at a weekly rent of $310.00 per week, which equates to a monthly figure of $1,343.00. At present, the sum required to service the mortgage is $1,432.07.
Again, the evidence indicates that both the Property B and Property C properties have modestly increased in value since their purchase – the former by approximately 13%; the latter by approximately 5%. The mortgages in each case have also slightly reduced in the periods in question.
g) Wedding expenses
The parties wedding was expensive. They agree that Mr Safar took out a personal loan to fund it but disagree about the amount of the loan in question. The husband asserts it was around $30,000.00; whilst the wife asserts it was $18,500.00. Mr Safar complains that Ms Abadi did not contribute towards any repayments required for this loan. On the other hand, Ms Abadi complains that contributions made by her family, by way of cash wedding gifts, have not been accounted for.
I accept that these are matters of significant personal importance to the parties concerned. However, in my assessment, they are not relevant to the court’s responsibilities in this case. Although of great importance, the wedding reception was an ephemeral event, which has not added to the parties’ store of assets or other financial resources.
The same considerations apply to the various holidays taken by the parties, during their marriage. The husband complains that the wife frequently visited her family in Melbourne, which was an expensive exercise funded by his salary. In addition, he asserts that the wife wished to undertake expensive overseas holidays from time to time. Again, in my assessment, these are issues which have no relevance to the court’s obligations under Part VIII of the Family Law Act.
h) Motor cars
Ms Abadi contends that two motor vehicles are relevant to these proceedings. Firstly, a Motor Vehicle 1, which was purchased in 2010. The vehicle was purchased through a finance plan at an initial cost of $18,000.00. The parties agree that the cost of the finance, over the life of the agreement, was around $30,000.00.
Mr Safar sold the vehicle, in 2016, for the sum of $5,000.00. From Ms Abadi’s perspective, this was significantly less than it was worth, which she estimates to be $12,000.00. It is her position that the vehicle should be added back into the parties’ pool of assets at a value of $12,000.00.
Secondly, Ms Abadi seeks the inclusion of a Motor Vehicle 2, which remains in Mr Safar’s possession. It was purchased, again on finance, in 2013, for the sum of $46,000.00. The sum currently owing to Motor Vehicle Finance, in respect of the finance agreement, is $18,357.45.[18] Neither party has provided a current value in respect of the vehicle.
[18] See Annexure B to the husband’s affidavit filed 5 April 2018
It is Mr Safar’s evidence, which I accept, that during the parties’ marriage and afterwards, he paid the relevant finance company the sums required to keep the accounts in respect of both the Motor Vehicle 1 and the Motor Vehicle 2 in credit. Ms Abadi submits that the Motor Vehicle 2 should be added back into the parties’ pool of assets at what she asserts was its value at separation and the sum, credited to the husband in the calculation of any property to be retained by him.
i) The wife’s Commonwealth Bank personal loan
As previously indicated, the wife took out a personal loan, from the Commonwealth Bank in an amount of $40,000.00 in order to enable the parties to purchase the Property B property. The debt has been declared derelict, by the Bank and factored to Company 1. It currently stands at $50,853.97.[19]
[19] See wife’s affidavit filed 13 August 2018 at [107]
Due to the controversy surrounding the circumstances leading to the advance being made, Company 1 have agreed to a moratorium on collection of the debt until mid-2019 and have agreed to waive further interest accumulating on the debt until that time.[20]
[20] See exhibit G
I can appreciate why Ms Abadi feels deeply aggrieved that she has been left with this significant personal liability, with significant implications for her future credit worthiness, given she has received no tangible benefits relating to the loan in question. She has proposed two possible solutions to deal with the issue.
Firstly, liability for the debt be transferred to Mr Safar pursuant to the provisions contained in Part VIIIAA of the Family Law Act. Secondly, the Property B property be transferred to her and she through a process of refinancing consolidate the mortgage and personal loan into one account in her name.
The object of Part VIIIAA is contained in section 90AA. It is to enable the court to make an order in relation to the property of a party to a marriage, under either section 79 or 114 (the injunction power) of the Family Law Act, which is directed to or alters the rights, liabilities or property interests of third parties.
Company 1 is such a third party. One of Ms Abadi’s proposals would be to alter its contractual agreement with her in respect of the moneys she legally owes to it and substitute Mr Safar as Company 1’s debtor. Part VIIIAA provides mechanisms through which this can occur.
Pursuant to section 90AD, the definition of property is extended so that it includes a debt owed by a party to a marriage.
The machinery section of Part VIIIAA, so far as orders made by the court under section 79 which bind third parties, is section 90AE. Specific powers are set out in subsection (1), more general powers in subsection (2). The section authorizes the court to make any of the following orders:
·an order directing a creditor of the parties to a marriage to substitute one party for both in respect of that debt [section 90AE (1)(a)];
·an order directing a creditor to one party of a marriage to substitute the other party in respect of that debt [section 90AE(1)(b)];
·an order directing a creditor of the parties to a marriage to alter the proportion of liability each party has in respect of that debt [section 90AE(1)(c)];
·an order directed to a director of a company or a company itself requiring the transfer of shares between the parties to a marriage [section 90AE(1)(d)];
·generally direct a third party to do anything in respect of the property to a marriage (which includes a debt) [section 90AE(2)(a)];
·generally alter the rights, liabilities or property interests of third parties in relation to a marriage.
The court’s authority to make any order altering or affecting the rights of a third party is subject to the satisfaction of a number of conditions which are set out in subsection (3). Each such condition must be separately satisfied. They are as follows:
·the making of the order must either reasonably necessary or appropriate and adapted to effect a division of the marital partners concerned [3(a)];
·further, if the order concerns a debt of one of the parties or both of them, it is not foreseeable, at the time that the order is made, that it will result in the debt not being paid in full [3(b)];
·the third party affected has been accorded procedural fairness [3(c)];
·the court is satisfied that it is just and equitable to make the order concerned [3(d)];
·a number of other matters which are set out in subsection (4) and which relate to other expenses which may result to others arising from such a third party order. These matters include the taxation and social security implications of the order and the administration costs of the creditor concerned by the order [section 90AE(4)(a)(b)(c) & (d)];
·importantly, in the context of this case, if the order concern a debt of one of the parties, the court must consider the capacity of that party to repay the debt in the period after the order is made [section 90AE(4)(e)].
Accordingly, the powers available to the court under Part VIIIAA, so far as they affect the rights of third parties, are subject to a number of strict preconditions for their use, which can be summarised as follows.
Firstly their use is subject to an objective standard of reasonableness. Secondly it is just and equitable to make the order concerned. Thirdly it cannot be foreseen that the making of the order will result in any debt affected not being paid in full. Fourthly the third party debtor affected is given a right to be heard about the consequences of the order sought which concerns its rights. Finally regard must be had to financial consequences for others, including government instrumentalities, of the making of the order.
Essentially, the powers available to the court under Part VIIIAA are closely circumscribed and their use should not result in the loss of any substantive rights by a third party, who is extraneous to the matrimonial relationship before the court.
The principle mechanism by which a statute is to be interpreted is of course the wording of the statute itself. However in order to confirm the meaning of any particular piece of legislation or to resolve obscurities or ambiguities in respect of it, it is permissible for the court to have regard to certain specified pieces of extrinsic material.[21]
[21] See Acts Interpretation Act 1901 (Cwlth) at section 15AB
Two such extrinsic sources are any explanatory memorandum, which related to the legislation when it was in bill form; and the second reading speech made by the relevant minister to the legislature. The examination of such extrinsic material is often a useful exercise for the court to follow, particularly in respect of novel pieces of legislation.
In the case of the Family Law Amendment Bill 2003 the then Attorney-General, Mr Williams said as follows in the bill’s second reading speech:
“Of major significance are the provisions in schedule 6 of the bill that will allow the court to make orders binding third parties to give effect to property settlement proceedings under the act. These provisions will apply to all creditors of the parties to the marriage, whether they are family, friends or financial institutions. In limited circumstances, where it is considered necessary, the court will be able to alter the terms of a contract between the parties to a marriage and a creditor. For example, the court could adjust the proportion of debt that each party of a marriage owes a creditor or order that the liability for a debts belongs to just one of the parties. The changes do not affect the underlying substantive rights of creditors and provide creditors with procedural rights.
The relevant passage of the explanatory memorandum reads as follows:
“Schedule 6 of the Bill provides for the Family Court to be given power to bind third parties in order to give effect to property settlements. This will apply for any creditor of a party to a marriage irrespective of whether the creditor is a friend, relative or financial institution. Procedural rights will be given to third parties to ensure that the changes do affect the underlaying substantive property rights of the creditor.”
These sources confirm that the court is not to utilise the provisions of Part VIIIAA of the Act in such a way that affects the “underlying substantive property rights” of any creditor.
In addition, the court is directed to construe each piece of legislation, which it is empowered to apply, subject to the powers contained in the Constitution.[22] Specifically, pursuant to section 90AK of the Family Law Act, the court is prohibited from making any order pursuant to Part VIIIAA which would result in the acquisition of property from some other person other than on just terms. Reference is made to the provisions of paragraph 51 (xxxi) of the Constitution.
[22] ibid at section 15A
I regard a debt owed to a creditor as being a species of property to which the provisions of section 90AK apply. Accordingly, in applying the provisions of Part VIIIAA, the court is not entitled to act in such a way that the substantive property rights of any third party are affected.
Although Company 1 is aware in general terms of the issues which confront Ms Abadi in respect of the significant sum of money owed by her to the company, it has not been provided with procedural fairness in respect of Ms Abadi’s formal application to substitute Mr Safar for her as its debtor.
j) The wife’s current financial circumstances
The wife does not have any tertiary qualifications. She was unable to complete her studies but would like to return to them at some stage in the future. She has approximately nine months of course work to complete in this regard.
I accept that life was difficult for Ms Abadi in the period following the parties’ separation. She was forced to find accommodation for herself, in Melbourne and struggled to find employment, particularly as she suffered bouts of ill health. She has been employed by Employer since September of 2017. Her base pay is $44,563.00 per annum. In the years prior to 2017, her tax assessments indicate that she earned significantly less than this amount in 2015 and up to June 2017.
Her medical condition is uncertain as no definite diagnosis has been provided for her ongoing abdominal pain, which has been under the care of a colorectal surgeon. The most likely diagnosis is an irritable bowel syndrome. Ms Abadi’s condition appears to be exacerbated by stress.
Ms Abadi is engaged to be married. She lives with her fiancé in Suburb E. He is a tradesman, who earns approximately $50,000.00 per annum. In addition to her significant legal costs, Ms Abadi has a number of other debts, which relate to her medical treatment and some orthodontic work, which she required.
She owes approximately $18,000.00 to family members in respect of her legal fees; $4,100.00 to her fiancé for her orthodontic treatment; and $1,800.00 for an electricity bill. She has modest superannuation of $15,720.80; was gifted a motor vehicle by her fiancé, which has a modest value; and has some items of furniture. She has no savings to speak of.
k) The husband’s financial circumstances
Ms Abadi is critical of Mr Safar for not providing a complete disclosure of his financial circumstances. He has provided the current mortgage balances on each of the properties concerned and copies of his tax returns for the financial years ending 30 June 2016 and 2017. At the time of hearing, he had not completed his return for the recently ended financial year.
In addition, there appears to be no controversy that his income, as a professional, is $170,000.00 per annum. Certainly, this is the quantum disclosed in his 2017 taxation return. Mr Safar has also provided copies of the various lease agreements relevant to the three properties concerned. I have no reason to consider that the leasing arrangements, which they reflect, are sham in any way or that the rents disclosed are anything other than commercial in nature.
Mr Safar asserts that the loan to value, in respect of each of the properties when purchased, was 93.6% in respect of the Property A property, 96% in respect of the Property B property; and 97% in respect of the Property C property. Essentially, he asserts that very little equity was provided for any of the properties concerned and necessarily the cost of servicing the relevant mortgages was high.
The most recent rental property schedule, annexed to Mr Safar’s last tax return, indicates that each property concerned generated a loss for taxation purposes. The relevant figures are as follows:
Property A
Property B
Property C
Gross rent
15,600.00
20,020.00
16,120.00
Rates
1,053.00
1,400.00
950.00
Interest
13,245.00
16,451.00
12,419.00
Total Loss
3,781.00
10,014.00
63.00
In the financial year ending 2017, Mr Safar received a tax refund of $8,972.55. The previous year, his refund was $16,603.80.[23] It would appear probable that he will receive some form of tax refund for the financial year ending 30 June 2018.
[23] See exhibit F
It is Ms Abadi’s position that these refunds represent a significant financial resource for the husband, which he has not properly accounted for to her. It is also Ms Abadi’s case that Mr Safar has exaggerated his level of expenditure, which is likely to be modest because he lives with his parents and, in these circumstances, he has diverted his surplus income away from the mortgages concerned in order to ensure that his equity in them is kept to a minimum. In addition, as previously indicated, she alleges that he has regularly withdrawn sums from the mortgage accounts to achieve the same objective.
In his spreadsheet of his recurrent finances, Mr Safar indicates a net income from his employment of $2,100.00 per week. He discloses paying rent of $300.00; contributing to household bills, including those relating to his parents, in an amount of $550.00 per week; having entertainment expenses of $115.00 per week; and grocery costs of $46.00 per week. Expenditure relating to his motor vehicle costs him a further $276.00 per week.
My impression of Mr Safar is that he leads a modest lifestyle. It is also likely that he is able to reduce his living expenses by living with his parents. In these circumstances, some of his expenses may have been inflated, but I accept that he is also likely to assist his parents to a significant degree with their living expenses. As such, I accept that he is likely to have some capacity to save. However, if so and what has been the destination of any such saving remains a matter of conjecture for me.
The task, which I am required to undertake pursuant to section 79 of the Family Law Act, is not analogous to an audit or some other accounting exercise. Nor is Mr Safar required to go into a state of suspended economic animation; after the parties’ separation and account to Ms Abadi for every dollar received and dispersed by him.[24] He is entitled to incur reasonable expenditure without the necessity for such expenditure to be added back in some way for the purpose of property proceedings.
[24] See Marker & Marker [1998] FamCA 42
It is the favour of Ms Abadi’s case that she wishes, in some way, for Mr Safar’s surplus income or his alleged drawings from the mortgage accounts, to be taken into account in these proceedings. The Full Court has identified three areas in which it is appropriate for the court to consider the add back, into a pool of marital property, assets which do not exist or cannot be proved to be still existing. These circumstances are as follows:
·where matrimonial assets have been utilised to pay the parties’ legal fees, thus diminishing the pool of assets available to be distributed between them and so creating a situation where the normal rule whereby each party should bear his or her own costs is defeated.[25]
·where there has been a premature distribution of matrimonial assets.[26]
·where one of the parties has embarked on a course of conduct, either recklessly or with the direct intent to reduce or minimise the effective value of some item of matrimonial property.[27]
[25] See In the Marriage of DJM and JLM (1998) 23 Fam LR 396
[26] See In the Marriage of Townsend (1994) 18 Fam LR 505
[27] See In the Marriage of Kowaliw (1981) FLC 91-092 at 76,644
Recently, in Trevi & Trevi[28] the Full Court has reiterated that the court’s authority to add back is both a discretionary and exceptional in nature. The court said as follows:
“Two fundamental premises emerge from Omacini and the authorities preceding it. First, “adding back” is a discretionary exercise. When the discretion is exercised in favour of adding back, it reflects a decision that, exceptionally, in the particular circumstances of a case, justice and equity requires it. The second premise is its corollary: in cases that are not “exceptional” justice and equity can be achieved, not by adding back, but by the exercise of a different discretion – usually by taking up the same as a relevant s 75(2) factor. Indeed, it has been said that the latter is “a course which is, perhaps, technically more correct” than adding back to the list of existing interests in property.”
[28] Trevi & Trevi [2018] FamCAFC 173 at [30]
In a case such as the current one, I do not believe that there are sufficiently exceptional circumstances which would necessitate the actual adding back of any sums asserted to have been received by Mr Safar. However, I also accept that since the parties separated his financial situation has been more secure than that of the wife. In my view, this is a factor which can be considered under the provisions provided by section 75(2)(o) of the Act.
As previously indicated, Mr Safar has significantly more superannuation than Ms Abadi. His most recent statement indicates a balance of $125,763.82 as at 15 June 2018. This reflected an approximately $24,000.00 increase from 1 July 2017. Given the parties’ separated in early 2013, there is some substance to Mr Safar’s contention that a significant proportion of his current superannuation balance must have been acquired after the parties’ separation.
The legal principles applicable
Part VIII of the Family Law Act is the part of the Act dealing with property, spousal maintenance and maintenance agreement. The major provisions relating to marital property division are contained in sections 79(1); 79(2); 79(4); & 75(2) of the Act.
Pursuant to section 79(1) the court is authorised to make such order as it considers appropriate in order to alter the interest of the parties to a marriage in relevant property.
The expression “property” is defined in section 4(1) in relation to the parties to a marriage or either of them as meaning “…property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion.”
Pursuant to section 79(2) the court is actively prevented from making such an order unless it is satisfied that it is just and equitable to do so in all the circumstances prevailing. This follows from the use of the prohibitive words “shall not” in the relevant section.
Section 79(4) provides the mechanics of how a court is to make an order altering marital property interests. It provides seven matters [in paragraphs (a) – (g)] to be considered, as relevant.
Paragraphs (a); (b); and (c); categorise contributions made by marital partners, which are relevant. Paragraph (d) directs the court to take into account the effect of any order upon the earning capacity of either party to the marriage concerned.
Paragraph (e) directs the court to consider a list of matters contained in section 75(2), which are germane to spousal maintenance or the prospective positions of the parties concerned by reference to their respective financial resources, means and needs.
Finally, Paragraphs (f) and (g) apply to child support and previously made parenting orders, as relevant. There is some overlap between these various provisions and not all will be applicable in every case.
Until Stanford, the position in respect of the process to be applied to the resolution of matrimonial property cases was said to be well settled, as it required the application of a preferred approach. This approach entailed a four step process, described by the Full Court as follows:
· identification and valuation of the property of the parties;
· identification and evaluation of contributions to the property (including property no longer owned by the parties) – the contribution phase – section 79(4) (a) to (c);
· identification and assessment of the various matters in section 79(4)(d) to (g) including to the extent they are relevant, the matters in section 75(2) – the prospective needs phase;
· considerations of justice and equity.[29]
[29] See Hickey & Hickey & Attorney-General (Intervener) (2003) FLC 93-143 at 78,386 [39] and Bevan & Bevan [2013] FamCAFC 116 at [60]
In Bevan the majority of the Full Court (Bryant CJ and Thackeray J) said as follows:
“Although the High Court did not disapprove the four step process, we accept it did not approve it either... However, the High Court’s decision serves to refocus attention on the obligation not to make an order adjusting property interests unless it is just and equitable to do so.
…
Stanford will also serve as a reminder that the four step process ‘merely illuminates the path to the ultimate result’.”[30]
[30] See Bevan (supra) at [65] and [71]
From this, I take it, the four step process remains a valid approach in the vast majority of cases, provided care is taken not to overlook the requirement that all orders altering property interests in proceedings arising under the Act be justice and equitable.
In these circumstances, I am satisfied that it is appropriate to adopt the four step process in this case and it is in accordance with notions of justice and equity that the court proceeds to make orders pursuant to section 79 of the Act, in respect of the parties’ various proprietorial interests.
As was discussed by the Full Court in Bevan, whether it is just and equitable to make any particular property order is invariably inextricably interwoven with questions of contribution arising under section 79(4) and the parties’ financial and relationship history with one another.
Although the court must be careful not to combine issues arising under section 79(2) with the exercise arising under section 79(4), it is artificial to divorce them from each other. Section 79(2) does not, however, represent a formal threshold to be crossed prior to the undertaking of the section 79(4) exercise.
Rather, the overall task is a holistic one, to be informed by the idiosyncratic circumstances of each case concerned. However, in most cases, it will be readily apparent that it is just and equitable to make an order altering the property interests of the parties concerned because of their circumstances or the manner in which each has presented their case and the orders sought.
The “overriding requirement” of section 79 is that considerations of justice and equity should inform the process envisaged therein. The exercise I must undertake is not a “process of social engineering”[31] or of equalisation of assets or financial resources. Considerations of this type inform the so-called fourth step, as well as providing the determination as to how the court should approach issues such as notional property. The court must make the orders it considers just and equitable.
[31] See Waters & Jurek (1995) FLC 92-635
As such, I am at pains to point out to the parties that the task I must undertake is not a simple accounting or arithmetical task. In the jargon of the times, I cannot “crunch the numbers” to come up with a division of their property, which is not open to challenge or incapable of different interpretation. My responsibility is to exercise the discretion reposing in me according to considerations of justice and equity.
Marriage is by and large a joint enterprise. How much buffer spouses must give one another, when financial setbacks occur, must depend on the degree of consultation and acquiescence in their relationship.[32]
[32] See Danielian & Danielian [2003] FamCA 473 at paragraph 49
The task, set out for me in this case, requires me to balance and compare contributions, which are by their nature different, within the framework of a marriage. Many contributions in a marriage, such as being a homemaker, do not result in the direct acquisition of assets. They are also difficult to value. The discretion I have is a wide one. It is however not an exercise in “palm tree justice”.[33]
[33] See In re: Watson: ex parte Armstrong (1976) FLC 90-059 at 75,270
In this context, the following comments of Gibbs CJ in Mallett & Mallett[34] are apposite:
“Decisions in particular cases of that kind can, however, do no more than provide a guide; they cannot put fetters on the discretionary power which the Parliament has left largely unfettered. It is necessary for the Court, in each case, after having had regard to the matters which the Act requires it to consider, to do what is just and equitable in all the circumstances of the particular case.”
[34] Mallett & Mallett (1984) FLC 91-507
Pursuant to section 90MC of the Family Law Act, superannuation interests are to be treated as property. As such, they attract the provisions of section 79(4) of the Act. This is important given the status of superannuation as a different “species of asset” from other forms of property. [35]
[35] See Coghlan & Coghlan (2005) FLC 93-220
This is because superannuation, particularly in its accumulation phase, cannot be easily translated into cash, unlike other more “conventional” assets, such as land and personal property, the value of which can be accurately determined by sale on the open market. Superannuation cannot be sold.
Superannuation is a form of compulsory saving for retirement. As such, it must be preserved until its crystallisation on the occurrence of some specified event, usually permanent retirement from the workforce. In its early stages of acquisition, it has modest value. It relies on the combined forces of compound interest; preservation; and regular contributions; to grow in value. Given these factors, it is a long term investment.
In Coghlan, the majority of the Full Court of the Family Court held that a trial judge has a discretion as to how superannuation interests will be treated in each particular case. It remains, however, necessary to determine and consider the following matters in the exercise of that discretion:
·The value of the superannuation as determined by any regulatory process stipulated by Regulation or otherwise;
·The type of contributions made to the superannuation pursuant to section 79(4);
·Consider whether it is just and equitable to make a splitting or other order;
·In terms of contribution issues, it is likely to be relevant to consider the length of the relationship concerned, particular when considered in the context of when the person concerned joined the relevant fund and when the relationship ended.
The rationale behind the majority’s reasoning in Coghlan appears to be that, by reason of its special nature, it is often appropriate to assess contributions to superannuation interests separately to contributions made towards other more “conventional” assets.
This is so one or other of the parties’ contributions to that superannuation may be given “proper recognition”. In order to ensure this “proper recognition”, it is necessary for the court to consider what is the “real nature” of the relevant superannuation interest – namely whether it is likely to be received as a recurrent pension or a lump sum or in some other manner.
I propose placing the parties’ superannuation assets in a separate pool and assessing their respective contributions to the pool in a global manner. The basis of the pool will be the contemporaneous value of each of the parties’ superannuation. It will be necessary for me to examine what contributions have been made both before and after the parties separated, as well as during their marriage. Given the long term nature of superannuation, the parties’ respective ages are also relevant.
Step one – the pool of assets
The calculation of the relevant pool of assets is not a complex task. The value of each of the real properties is agreed and the amount owing in respect of them is readily identifiable. In addition, each party is a member of an accumulation superannuation fund, which has provided a current statement.
The only other relevant assets are motor vehicles, one of which is no longer in the possession of either of the parties – the Motor Vehicle 1. I decline to add back the value of the vehicle into the parties’ pool of assets for the following reasons.
Firstly, I do not know what its current value is. Secondly, and more importantly, Mr Safar sold it and has utilised its proceeds to fund his living expenses. As such, I do not think it can be regarded as a premature distribution of assets.
In these circumstances, I do not consider that it would be fair to take the vehicle’s uncertain value into account in a direct arithmetical manner as I regard this as being highly artificial. In general terms, however, the manner in which the parties have utilised assets, in the not inconsiderable period since their separation, is a matter which I will take into account under section 75(2)(0). This also includes the negatively geared real properties.
I propose to take a similar approach in respect of the Motor Vehicle 2 currently in the husband’s possession. It is subject to finance, which Mr Safar has maintained and will continue to do so. The wife has made no direct financial contribution towards the vehicle and, given it has not been valued, the current level of equity in it is uncertain but not likely to be significant.
The debt to Company 1, currently in the wife’s sole name, is to be regarded as a joint debt of the parties. In my view, the most equitable way to approach this debt is pursuant to the provisions contained in Part VIIIAA of the Act and substitute the husband as Company 1’s debtor in lieu of the wife. I will return to this aspect of the case in due course.
The parties each have debts in respect of credit cards and the wife has a significant liability for legal fees. They have been separated for approximately five years, during which period their finances have been entirely separated. Whatever sum is owed to Company 2 was incurred long after the parties separated and is the husband’s sole responsibility. In these circumstances, I do not consider that any other debts should be included in the parties’ pool of assets, which I calculated as follows:
Assets Property A $350,000.00 Property B $430,000.00 Property C $290,000.00 Gross Assets 1,070,00.00 Liabilities Mortgage on Property A property $308,750.77 Mortgage on Property B property $359,313.71 Mortgage on Property C property $254,090.60 Company 1 personal loan $50,853.97 Total Debts $973,009.05 Net Assets $96,990.95 Superannuation Husband’s superannuation $125,763.82 Wife’s superannuation $15,720.80 Total Superannuation $141,484.62
For obvious reasons, at the completion of this exercise, my concerns about the extent of the wife’s legal fees, within the context of her overall financial situation, can only intensify. In my assessment, the pool of assets, a significant proportion of which was acquired after the parties’ separation, is extremely modest. The parties’ financial situation, almost exclusively engineered by the husband, is one characterised by debt. In these circumstances, liberated any of the capital, so it may be provided to the wife, is extremely problematic.
Step two – assessment of contributions
The marriage between the parties was one of five years in duration. It produced no children. The parties began their relationship when they were each in their twenties. Neither brought assets of significant value into the relationship.
During their marriage, the husband acquired qualifications and embarked upon his career as an professional. The wife’s employment history was spasmodic. The parties seem to have enjoyed a comfortable lifestyle marked by travel and the purchase of all necessary household comforts. This is not a case in which there have been significant homemaking contributions made by either party.
In the main, their financial relationship has been marked by the acquisition of real estate through the avenue of easy access to credit. As a tactic to the acquisition of wealth, it depends on the appreciation of the asset in question, whilst it generates some level of income to defray the necessary borrowing costs. It needs to be borne in mind, however, that the strategy in question, as adopted by the parties, results in a technical loss. This loss being able to reduce taxation liability for income earned from other sources.
I accept the husband’s evidence that each of the properties in question is highly geared. The Property A property has been in the husband’s possession for the longest period of time and was, for significant period of time, the parties’ home. It has appreciated in value only modestly during the ten years in question.
The evidence indicates that the husband’s direct contributions towards the preservation of this property have been greater than those of the wife, particularly in the past five years, during which the parties have been separated. In this period, the wife has made no contribution towards the property whatsoever.
The wife made some contributions towards the property in the period of the parties’ marriage, but in concrete terms, these contributions have added little, if any wealth to the parties’ situation. It is my finding that it was the husband’s income which primarily supported the family.
Whatever contributions the wife made went to serve the debt secured on the property. She provided some assistance to the husband’s family’s business, but this was not, in my view, a significant factor. In addition, it seems probable that the husband’s parents assisted the parties to stay above water, in financial terms, by providing them with accommodation to allow the property to be tenanted.
The Property B property was purchased in the latter stages of the parties’ marriage. I accept that the wife found the property more attractive that the Property A home, which had been tenanted. If the relevant mortgagee had been properly appraised of the parties’ financial situation, at the time of its acquisition, it may well have been the care that finance would have been refused.
If the Company 1 debt is taken into account, it leaves only modest equity in the property. I accept that, without the personal loan, the property would not have acquired. The wife has not been able to service the loan and given the prevailing circumstances, it would have been grossly unfair for her to have to do so, given she received no benefit whatsoever from the property concerned.
The current creditor has been willing to hold the loan in abeyance but will not do so indefinitely. In addition, the debt continues to accrue interest. Ultimately, the piper will have to be paid. I have determined that Mr Safar should, subject to Company 1 being accorded procedural fairness, assume responsibility for the debt and interest concerned. To my mind, this would be fair because he was the motivating force behind the device.
Given when the Property B property was purchased, it cannot be the case that the wife made any significant financial contributions towards its acquisition. The same is certainly so in terms of the Property C property, which the husband acquired after the parties separated. It too is burdened with a significant level of debt.
In all these circumstances, any assessment of contribution significantly favours the husband. He was the guiding hand behind the strategy in question, which, in my assessment, cannot be regarded as being a particularly successful one. However, during the marriage, the wife was content to go along with it, although it seems clear that she did not give it a great deal of thought.
It is artificial do so, but in generic terms, I would assess the parties’ respective contributions as being somewhere in the vicinity of 25/75% in favour of the husband. However, the nicety of that assessment must await the final stage of the court’s deliberation, when consideration is given to how property and debts are to be allocated between the parties to accord a just and equitable outcome overall.
Similar considerations arise in respect of the parties’ superannuation, which, for the reasons noted above, I have recorded separately, in order to ensure that both contribution factors and considerations arising under section 75(2) are assessed independently, given the different nature of this property from other conventional assets and more importantly the fact that is has not as yet crystallised.
In this case, the husband joined his fund in 2008, a few months prior to the parties commencing their relationship. The wife’s more modest levels of superannuation reflect her less consistent involvement in the workforce and her more modest remuneration. It seems incontrovertible that the husband has made the major component of his contribution towards his superannuation in the period of five years after the parties separated, which coincided with increases in his salary.
In these circumstances, it is my finding that the wife’s contributions to the accumulation of the husband’s superannuation must be regarded as being modest. As such, the extent of any split from the husband’s superannuation, into hers, is to be determined by reference to section 75(2) factors.
Step 3 – section 75(2) – the prospective needs of the parties
I am now required to consider the various matters set out in section 75(2) and in particular to consider whether any further adjustment should be made in favour of either party. The section 75(2) factors are mainly, but not only, prospective in nature. They are as follows:
(a) the age and state of health of each of the parties;
(b) the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment;
(c) whether either party has the care or control of a child of the marriage who has not attained the age of 18 years;
(d) commitments of each of the parties that are necessary to enable the party to support:
(i)himself or herself; and
(ii)a child or another person that the party has a duty to maintain;
(e) the responsibilities of either party to support any other person;
(f) subject to subsection (3) the eligibility of either party for a pension, allowance or benefit under -
(i)any law of the Commonwealth, of a State or Territory or of another country; or
(ii) any superannuation fund or scheme, whether the fund or scheme was established, or operates, within or outside Australia,
and the rate of any such pension, allowance or benefit being paid to either party;
(g) where the parties have separated or divorced, a standard of living that in all the circumstances is reasonable;
(h) the extent to which the payment of maintenance to the party whose maintenance is under consideration would increase the earning capacity of that party by enabling that party to undertake a course of education or training or to establish himself or herself in a business or otherwise to obtain adequate income;
(ha)the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant; and
(j)the extent to which the party whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other party;
(k)the duration of the marriage and the extent to which it has affected the earning capacity of the party whose maintenance is under consideration;
(l)the need to protect a party who wishes to continue that party’s role as a parent;
(m)if either party is cohabiting with another person – the financial circumstances relating to the cohabitation;
(n)the terms of any order made or proposed to be made under section 79 in relation to:
(i) the property of the parties; or
(ii) vested bankruptcy property in relation to a bankrupt party; and
(naa)the terms of any order or declaration made, or proposed to be made, under Part VIIIAB in relation to:
(i) a party to the marriage; or
(ii) a person who is a party to a de facto relationship with a party to the marriage; or
(iii) the property of a person covered by subparagraph (i) and of a person covered by subparagraph (ii), or of either of them; or
(iv) vested bankruptcy property in relation to a person covered by subparagraph (i) or (ii); and
(na)any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage; and
(o)any other fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account; and
(p)the terms of any financial agreement that is binding on the parties.
I will address the section 75(2) factors, as relevant.
Paragraph (a) – the husband was born on …1985. He enjoys good health. Accordingly, he is likely to have many more productive and well-remunerated years in the paid workforce.
The wife was born on …1988. She does not enjoy good health, suffering from as yet clearly diagnosed but serious alimentary tract complaints. She is a sensitive and emotionally vulnerable person, who has been stressed by the proceedings. However, she is now engaged to be married and her life seems to have regained some level of emotional equilibrium. In these circumstances, it does not seem an unduly optimistic prediction that she too is likely to have very many productive years before her.
Paragraph (b) – this is one of the more significant considerations relevant to the parties’ situation. The husband has tertiary qualifications in …employment industries. He presented in court as highly capable and intelligent, with a determination to get on. In my assessment, he is a self-starter with a bright future before him. Currently, his salary is a comfortable one of $170,000.00 per annum
On the other hand, the wife has no qualifications and work experience is relatively un-skilled industries. Her work history is patchy, due in part to her ill health. Her prospective employment opportunities are nowhere near as rosy as those awaiting the husband. I hope she completes her studies but whether this will provide her with a steady and reliable income stream is not known to me.
It has been said, by the Full Court, that the most valuable “asset” a party can take out of a marriage is “a substantial, reliable income-earning capacity”.[36] In my view, the evidence indicates that the husband possess such a capacity, but the wife does not. This is a factor which militates in favour of Ms Abadi to a significant degree.
[36] See Clauson & Clauson (1995) FLC92-595 at 81,911
In the context of superannuation and retirement planning, given their respective ages, these cannot currently be pressing concerns for either party. However, it seems incontrovertible that the husband has a far greater capacity to garner away superannuation than the wife by dint of his far superior income earning capacity.
Although the relationship between the parties was brief in comparison to the length of time each is likely to be a part of the paid workforce and so be able to contribute to the acquisition of superannuation, this is a factor which favours a reasonable level of split from the husband’s superannuation. However, I consider that any equalisation, given the amount of superannuation attributable to the reasonably lengthy period after the parties separated, to be unjust and inequitable.
Paragraph (c) – this is not a relevant consideration. There are no relevant children of the marriage under eighteen years.
Paragraph (d) & (e) – Neither party currently has a legal obligation to support any other person. In addition, neither party seems to have any exceptional commitments in respect of personal support. The husband lives frugally. I suspect he overstates the level of support he provides to his parents.
The wife suspects that he is salting away monies in a location unknown to her because his living expenses are likely to be so modest and his income, from her perspective, is so lavish. On the basis of the evidence available to me, I am not prepared to make such a finding. However, I am satisfied that the husband’s financial situation, notwithstanding his significant level of indebtedness is markedly more comfortable than that of the wife.
The wife’s situation has been eased by her engagement. However, neither she nor her fiancé are legally liable to support one another. It seems she has been helped financially by her family and her fiancé during the difficult period following the parties’ separation.
Paragraph (f) – As previously noted, there is a marked discrepancy in the parties’ respective superannuation holdings. However, given each of their ages, both in their thirties, neither is likely to have to consider access to superannuation for very many years.
Paragraph (g) – One inevitable consequence of the end of the majority of marriages, is a drop in the standard of living of one or sometimes both the parties concerned. It is trite, but true nonetheless, that two household cannot usually live as comfortably as one. What is important, in respect of this paragraph, is that any drop in living standards should not be borne disproportionately by one party.
The husband, as a consequence of his comfortable wage; the support of his family; and his capacity to live cheaply; has been able to weather the financial vicissitudes precipitated by the end of the parties’ marriage. It has been far more challenging for the wife, who finds herself with very little and mired in debt.
The parties currently face quite different financial futures. The husband is secure in terms of his employment and, if he is successful in his application, will leave the proceedings with assets which he hopes will increase in value. It would seem to be the case that he selected the various properties concerned because he saw such potential. However, no one can guarantee his aspirations will bear such fruit in the longer term.
If the wife had not become engaged, her financial future would not be particularly assured. However, she has employment and is in a committed long term relationship. She is now able to enjoy a reasonably comfortable lifestyle. However it is one marked by debt. At this juncture, it is difficult to see how she can repay her fiancé and family the monies advanced by them and pay her outstanding legal fees.
This aspect of the case is marked by a significant degree of asymmetry. The husband has chosen to represent himself and minimise his exposure to legal fees. In the context of her mistrust of him, the wife has spent ever more on legal fees in the hope, perhaps, of discovering some source of funds concealed from her by the husband. These efforts have not been successful.
For the reasons provided, there was no proper basis for the husband to seek to include the wife’s interest in the estate of her late mother in the parties’ pool of evidence. At best, he was mistaken and misguided about the issue, at worse, he was intent on putting Ms Abadi to unwarranted expense. Be that as it may, the issue was easily resolved.
There is no evidence available to me to support the assertion that the husband has concealed funds or assets from the wife or has not provided a sufficient level of discovery. In my assessment, this is not a particularly complex case. It is highly regrettable that the earlier settlement evaporated.
Just as in guerrilla warfare, a cheap rifle can be a more effective weapon than an expensive tank, so it has proven to be in this case. The husband’s approach to the litigation has been far more sensible (apart from his approach to the Suburb G property) and cost effective than that of the wife. As such, considerations of justice and equity do not dictate that there should be any adjustment made as a consequence of the level of debt acquired by the wife as a consequence of pursing these proceedings.
Paragraphs (h), (ha), (j), (k), (l), (m), (n), (naa), (na), (p) & (q) – These paragraphs are not generally relevant to the present case other than I will give specific consideration to the effect of substituting the husband’s name, for that of the wife, in respect of the debt owed to Company 1.
I have also given some consideration to the financial support provided to Ms Abadi by her fiancé. The gentleman concerned cannot be regarded as a wealthy person nor can the standard of living which he and the wife currently enjoy be regarded as a lavish one.
Paragraph (o) – Although the litigation in this case has been characterised by mistrust and bitterness, I have not found that the husband engaged in any course of deliberate non-disclosure in respect of his financial circumstances. Rather, he has asserted throughout that he loses money on the various properties concerned, when the expenses incurred in respect of them, is factored in.
I accept that this is so. However, he is also able to reduce his tax liability as a PAYG taxpayer by virtue of the losses he incurs in respect of each of the properties. He also is able to live simply and cheaply as a consequence of living with his parents. There is nothing illegal or underhand about this approach to his finances, which in my view is perfectly legitimate.
It is an approach which enables him to receive an influx of cash, each year, by way of refund on tax paid by him, when he completes his annual return. He has been engaged in this process for the five years following the end of the marriage between the parties.
Given that he has been responsible for paying the mortgages on the properties concerned and other outgoings, whilst collecting the rent generated by them, which has been less than the outgoings concerned, such tax refunds, in my view, cannot be regarded as some form of windfall in respect of which the husband must account to the wife.
In general terms however, there can be no doubt that it has been beneficial for the husband to have remained in control of the parties’ assets, in the form of the Property A and Property B properties, since the parties separated. In effect, he has been able to continue the investment strategy adopted by him during the marriage.
Too a large extent, he has been able to do so because of the personal loan held in the name of Ms Abadi, which he has not serviced but which has been the source of great personal anguish for her. In my view, this is the sort of consideration which is amenable to the application of section 75(2)(o).
Ms Abadi is not a sophisticated person in respect of financial matters. It was extremely imprudent of her to have taken out the loan in question. It seems highly likely that she did so because of her then relationship with the husband and her hope that it will all turn out alright in the long run. Such is often the case in respect of debt transmitted through the conduit of an intimate relationship.
Since the parties separated, in my view, Mr Safar has continued to take advantage of Ms Abadi’s financial naivety. He has had the benefit of the loan without incurring any responsibilities in respect of it. This is clearly unfair to Ms Abadi and needs to be rectified. Above all, she has no need of any further level of debt. These proceedings have proven to be ruinously expensive for her.
Conclusions on section 75(2) factors
The parties are each young. Given the likely future extent of their respective lives, the marriage between them is to be regard as a comparatively brief and unhappy interlude. The evidence indicates that the husband recovered more quickly from the marriage than did the wife. This has been both because of his greater physical resilience and his superior income and financial resources.
Undoubtedly Mr Safar adapted quicker to the changed circumstances than did Ms Abadi. It also seems to me that he has a rosier financial future than that of the wife. Her future cannot be regarded as being entirely bleak, given she has a job she likes and is engaged to be married. However, she has had a more challenging five years than has the husband, whose situation was buttressed by his comfortable income.
These factors, when combined with the husband’s post separation conduct, which have been characterised by him retaining control of the entirety of the parties’ marital assets, whilst highhandedly attempting to abrogate his responsibility for the Company 1 loan onto the wife, who was patently ill-equipped to deal with it, dictate that there should be a modest apportionment in favour of the wife attributable to section 75(2). I assess this as being in the realms of 5%.
There should also be a split in the wife’s favour, from the husband’s superannuation, on account of both contribution factors and section 75(2) considerations in an amount of $30,000.00 or about $6,000.00 for each year of marriage. This would leave the husband with an amount approaching $100,000.00 in superannuation; and the wife with about $40,000.00. Given the length of their marriage; their respective level of income during it; and what has occurred since by way of contributions to superannuation; this seems to me to be a just and equitable outcome.
Part VIIIAA application
The High Court has recently considered the application of Part VIIIAA in Commissioner of Taxation v Tomaras.[37] In the case, Gordon J described the relevant provisions as being both facultative and protective, after having considered the relevant explanatory memoranda provided to both the House of Representative and the Senate. She said as follows:
“Section 90AE was intended to cover, and covers, a range of possible arrangements that a party to the marriage may have which involve a third party, including ownership of life insurance products, shares in corporate entities and the creditors of the parties to a marriage whether they are family, friends or financial institutions. The range of available orders was "intended to be broad and include[d] substitution of the party liable for a debt, adjusting the proportion of a debt that each party is liable for or ordering the transfer of shares between the parties to the marriage".
However, the circumstances in which the orders may be made against a third party are confined. Relevantly for the purposes of this appeal, the court may only make an order concerning a debt of a party to a marriage which binds a third party if "it is not foreseeable at the time that the order is made that to make the order would result in the debt not being paid in full…"[38]
[37] Commissioner of Taxation v Tomaras [2018] HCA 62
[38] Ibid at [71] – [72]
In a separate judgment, Edelman J usefully catalogued the matters required to be satisfied before a party could be substituted as a debtor for another party pursuant to the provisions of section 90AE. They are as follows:
·The making of such a substitution order was reasonably necessary or reasonably appropriate and adapted to effect a division of property between parties to a marriage;
·If such an order concerned a debt of a party to the marriage – it was not reasonably foreseeable, at the time of the making of the order, that the debt would not be paid in full;
·The third party debtor had been accorded procedural fairness in relation to the making of the order;
·The court was satisfied that it was just and equitable to make the order;
·The matters listed in section 90AE(4) had been taken into account.[39]
[39] Ibid at [127]
In this case, in my view, it is necessary for Ms Abadi to be relieved of liability in respect of the debt to Company 1 in order to achieve a just and equitable outcome. Regardless of the legal position, Mr Safar was the organising force behind the granting of the loan to Ms Abadi so that the Property B property could be acquired by him and ultimately registered in his sole name. The manoeuver has ultimately proven to be advantageous to him and highly disadvantageous to Ms Abadi. It is fundamentally unfair and unjust.
The alternative proposal – to transfer the Property B property to Ms Abadi, with its current burden of debt, including the Company 1 loan, appears to me to be fraught with difficulties, not the least of which is Ms Abadi’s ability to service such a level of debt in the longer term, albeit I recognise that it is her case that she can depend on the assistance of her fiancé in this regard.
In addition, I do not consider that such an outcome would be fair to Mr Safar, given the fact that he has maintained the property since the parties separated and has much invested in it, in both financial and emotional terms. For the reasons already detailed, in my view, it is patently fair that he assume responsibility for the loan, which he engineered in the first place.
One of the underlying difficulties in this case is the fact that Mr Safar is significantly in debt. I have not been provided with any evidence regarding his borrowing capacity, at present, in these circumstances. I am required to consider whether, if the Company 1 debt is transferred to him, it is not foreseeable the debt will be repaid.
Given Mr Safar is in paid employment and owns significant, albeit highly geared assets, it cannot be the case that it is entirely unforeseeable that the debt to Company 1 will not be repaid, if it is transferred to him. To the contrary, it seems more likely that he will repay it than Ms Abadi, given the questions surrounding the probity of the CBA granting her the loan in the first place.
However, Company 1 has not been formally notified of the proposed substitution and, as such, has not been given an opportunity to voice any prejudice it may suffer if it occurs or to advise the court and the parties of any potential difficulties which may arise. I propose to adjourn the proceedings so that Company 1 can be formally advised and, if it wishes to so, been given an opportunity to be heard by the court.
It seems apparent that there are no taxation or social security implications implicit in the substitution proposed and any administrative costs to be incurred by Company 1 are likely to be modest. Although the issue has not been canvassed directly with Mr Safar, given his current level of salary, it would seem to be the case that he has the on-going capacity to maintain the debt and ultimately repay it [see section 90AE(4)].
Conclusions
The most significant feature of this case is that the asset pool is one characterised by a significant level of debt. As such, in dollar terms, there is not a large sum of money available to be distributed between the parties. Regrettably, the wife has expended a significant sum of money, which has been disproportionate to the sum she will recoup or was likely to recoup.
The level of the husband’s indebtedness and how it is secured also render it problematic and uncertain how the sum calculated to be due to the wife is to be liberated. If any or all of the properties are sold, there will be selling costs and the proceeds generated will attract capital gains tax, given each of the relevant properties has been utilised for investment purposes. Potentially, this will also diminish the pool of assets to the joint detriment of the parties concerned.
Any capital gains tax will be calculated by reference to the husband’s personal rate of tax, with a 50% discount. In Rosati v Rosati[40] the Full Court delineated four principles in respect of how the court was to approach issues related to capital gains tax, which can be summarised as follows:
·Whether capital gains tax is to be taken account depends on the circumstances of the case concerned, which include how and when the asset was acquired; and when it is likely to be realised;
·If it is inevitable that an asset was acquired solely for investment purposes and its sale is imminent, allowance should be made for capital gains tax;
·If the asset is to be sold in the midterm and will then attract capital gains tax, it may be a factor relevant under section 75(2);
·In special cases, it may be necessary to take capital gains tax into account at a discounted rate, particularly if there is a level of uncertainty surrounding the disposal of the asset in question.
[40] See Rosati v Rosati (1998) FLC 92-804 at 85,043
The range between twenty five and thirty percent of the net asset pool is represented by the sums of $24,247.73 and $29,097.28. Given the extent of Ms Abadi’s legal fees, these are not significant sums. However, in my assessment, Mr Safar’s contributions have been markedly superior, within the context of a short marriage.
I propose that Mr Safar pay Ms Abadi the sum of $27,000.00 in settlement of matrimonial property claims and that there be a split from his superannuation, in her favour, in an amount of $25,000.00. In addition, subject to any matters to be raised by Company 1, Mr Safar will be become liable for the debt to Company 1.
How Mr Safar proposes to raise this sum is unknown to me. In particular, whether it will be necessary for one or more of the properties concerned to be sold and what will be the financial implications of such sale or sales is unclear to me. Given what I know of Mr Safar, it seems probable that he would want to retain each of the properties but whether this will be accommodated by his various financiers is also unknown to me.
In these circumstances, I will make an order that he pay the sum in question within forty-two days of today’s date. I will adjourn the proceedings until after this date, to accord procedural fairness to Company 1. On the adjourned date, consideration can be given as to how the sum is to be realised through asset sale or transfer to Ms Abadi, if it has not already been paid.
I found this to be a perplexing case, which has not been well served by the court process. The case has taken too long and absorbed too much of the parties’ scarce resources. At the end of the day, it was a case concerning a $100,000.00 asset pool acquired in the course of a five year marriage.
Given all the circumstances, the result of the case is likely to be painful for both Mr Safar and Ms Abadi. I am satisfied that the outcome proposed by me represents a just and equitable arrived at in difficult circumstances.
For all these reasons, the orders of the court will be as set out at the commencement of these reasons for judgment.
I certify that the preceding two hundred and fifty-six (256) paragraphs are a true copy of the reasons for judgment of Judge Brown
Date: 9 January 2019
Key Legal Topics
Areas of Law
-
Family Law
-
Equity & Trusts
Legal Concepts
-
Remedies
-
Procedural Fairness
-
Costs
-
Jurisdiction
-
Natural Justice
0
5
4