Amos and Amos
[2004] FMCAfam 503
•3 December 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| AMOS & AMOS | [2004] FMCAfam 503 |
| FAMILY LAW – Property division – private business debts and drawings – capital gains tax considerations. Family Law Act 1975 (Cth), ss.79, 75(2) In the Marriage of Lee Steere and Lee Steere (1985)FLC 91-626 |
| Applicant: | KAREN MAREE AMOS |
| Respondent: | JOHN LESLEY AMOS |
| File No: | BRM668 of 2003 |
| Delivered on: | 3 December 2004 |
| Delivered at: | Brisbane |
| Hearing date: | 17 June 2004 |
| Judgment of: | Rimmer FM |
REPRESENTATION
| Counsel for the Applicant: | Mr Forrest |
| Solicitors for the Applicant: | J M Parker and Co |
| Counsel for the Respondent: | Mr McGregor |
| Solicitors for the Respondent: | Simmonds Crowley and Galvin |
ORDERS
That within thirty (30) days of the date of this order and simultaneously with each other:-
(a)The husband transfer and/or relinquish to the wife all his right, title and interest in and to the following assets:-
(i)The wife’s Mercedez Benz motor vehicle;
(ii)The wife’s superannuation policies held with HESTA and Colonial Mutual under membership policy numbered 2899836 and 4124081 respectively.
(b)The wife transfer and/or relinquish to the husband all her right, title and interest in and to the following assets:-
(i)The husband’s interest in the accounting practice, Eric C. Butler & Co.
(ii)The husband’s Ford F100 and Porsche motor vehicles.
(iii)The sale proceeds received by the parties from the residential property situated at West Road, Mount Walker.
(c)The wife discharge the husband and thereafter continue to indemnify the husband from any liability for payment of any unpaid holiday pay, leave entitlements or other benefits consequent upon the wife’s previous employment with Eric C. Butler & Co.
(d)The husband discharge the wife and thereafter indemnify the wife from any liability for:-
(i)Repayment of the loan account due by the wife to Eric C. Butler & Co as recorded in the balance sheet for Eric C. Butler & Co.
(ii)Taxation liabilities due on any payments made to the wife from Eric C. Butler & Co for the financial year ending 30 June 2003 and the current financial year up to and including the present date.
(iii)All liability for capital gains tax payable in respect of the sale of the property at Mt. Walker.
(e)The husband use his best endeavours to release the wife from all and any guarantees given by her alone or jointly with others in relation to the activities, operations, property or otherwise of the husband’s operation of Eric C. Butler & Co or of any property or other interest retained by the husband pursuant to these orders and in the event that such guarantees are not released the husband shall indemnify the wife and keep her indemnified in respect of any claim relating thereto with such indemnity being intended to include costs (legal and otherwise) interest and other charges for which she may be liable and/or incur in dealing with any such claim.
(f)The husband indemnify the wife and thereafter keep the wife indemnified in respect of all liabilities due in respect of:-
(i)The husband’s debt to Churinga Investments Pty Ltd and related entitles;
(ii)The husband’s debt to his mother Iris Amos;
(iii)The husband’s debt to Mr and Mrs Finding;
(iv)Any claims, demands, liabilities or debts of whatsoever nature as may exist or arise in respect of the wife’s involvement in any capacity with the husband’s operation of the business Eric C. Butler & Co which have not been paid directly to the wife (payment in this context does not include entries made in books of account by journal or otherwise), provided that such indemnity is limited to any liability which might arise from the operation or activities of the said business from 1 July, 2001.
(g)Save as set out above, the parties acknowledge and agree that each party shall be solely entitled to the exclusion of the other to all property and chattels of any nature and kinds and in the possession of each party as of the date of the making of this order and for this purpose:-
(i)Bank accounts are deemed to be in the possession of the person whose name appears on the bank records;
(ii)Insurance policies are deemed to be in the possession of the payee;
(iii)Each party will indemnify the other and keep the other indemnified in respect of any debts incurred by each of them subsequent to the date of separation;
(iv)Unless specifically stated to the contrary, reference in this order to discharging any party (thereinafter referred to as the ‘liable party’) from any liability under this order shall include an obligation on the party effecting the discharge to also discharge the liable party from any personal guarantee or other ancillary attaching to the liable party or any assets to be retained by the liable party.
That subject to the provisions of paragraph (3) of these orders, within forty-nine (49) days from the date of these orders and simultaneously with each other, the husband and the wife each respectively effect the following transactions:-
(a)The husband transfer and/or relinquish in favour of the wife, all his right, title and interest in and to the residential property situated 6 Braun Close, Middle Park.
(b)The husband cause the wife and any assets to be retained by the wife pursuant to these orders to be discharged from all liabilities due by the wife in respect of:-
(i)CBA Investment Loan Account No. 478801106 formerly encumbering the residence situate at Mount Walker;
(ii)CBA ‘Better Business’ Loan Account No. 06400011087431;
(iii)CBA Overdraft Cheque Account No. 06400300127769;
(iv)All chattels leased and other secured/unsecured liabilities due by the husband in respect of his Porsche and Ford F100 motor vehicles.
(c)That the wife pay to the husband the sum of $100,145.20.
That the husband shall within 14 days from the date of these orders provide to the wife written confirmation of his having attained sufficient finance approval to effect those transactions referred to in paragraph 2 and in the event that the husband fails to provide such written confirmation then the parties shall effect all transactions referred to in paragraph 2 of these orders simultaneously with those transactions referred to in paragraphs 4 and 5 of these orders.
That the husband will do all acts and sign all documents necessary to cause the real property situated at 21 Kivas Street, Taragindi/Ekibin to be sold and by way of consequential orders:
(a)The listing price for the sale of the property shall be as agreed between the parties and if there is no agreement, the listing price shall be the mean price between the listing price advised by two independent real estate agents conducting their principal business in the area of the property as nominated by the Chief Executive Officer for the time being of the Real Estate Institute of Queensland.
(b)The parties shall make and execute all documents necessary to list the property for sale with such real estate agents or agents conducting their principal business in the area of the property as may be agreed between the parties shall make and execute all documents necessary to list the properties with all real estate agents conducting their principal business in the area who shall be advised to the parties by the Chief Executive Officer for the time being of the Real Estate Institute of Queensland.
(c)In the event that the property has not been sold on or before 3 months from the date of issue of these orders, then the husband and the wife shall make all such arrangements and do all such acts and sign all documents and pay all monies equally necessary to procure a sale by public auction of the properties upon the following terms:
(i)The Auctioneer shall be agreed between the parties and in default of agreement shall be nominated by the Chief Executive Officer for the time being of the Real Estate Institute of Queensland.
(ii)The auction shall take place within 5 weeks after the dead-line is set for sale by private treaty.
(iii)The reserve price unless agreed shall be set by the Chief Executive Officer for the time being of the Real Estate Institute of Queensland.
(iv)The husband and wife shall each pay and be responsible for one-half of the auction expenses payable for the properties as auctioned.
(d)In the event that the property is not sold by auction or by private treaty within 28 days of the auction then the husband and the wife shall do all acts and sign all necessary documents and shall pay all monies equally as necessary to procure a second auction within a further period of 5 weeks of that date, otherwise on the same terms as outlined for the first auction.
That upon the sale of Kivas Street, the sale proceeds be distributed as to:
(a)Payment of any real estate agent’s commission and approved advertising, marketing and auction expenses and any legal costs incurred in attending to the settlement of the conveyance; and
(b)With the balance, to be paid to the Commonwealth Bank of Australia in part satisfaction of the husband’s indebtedness to the Bank as secured by registered mortgages over both Kivas Street and the former matrimonial home at 6 Braun Close, Middle Park (if any) and the personal guarantee of the husband and the wife (if any) (“Commonwealth Bank Payment”).
That pending a determination by the Australian Taxation Office of the Capital Gains Tax on Kivas Street, and to facilitate a settlement pursuant to these orders:
(a)From the sum of $100,145.20 to be paid by the wife to the husband pursuant to paragraph 2(b) of these orders the sum of $24,622.80 be retained and invested by the husband’s solicitor in the joint names of the husband and the wife;
(b)At the time that any assessment of Capital Gains Tax is made by the Australian Taxation Office then such sum and any interest accrued thereon is to be utilised to pay the wife’s 60% share of the Capital Gains Tax as assessed;
(c)In the event that the Capital Gains Tax as assessed is greater than $41,038.00 then the wife is to forthwith pay to the husband a sum equivalent to the difference between the assessed Capital Gains Tax and the sum of $41,038.00;
(d)In the event that the Capital Gains Tax as assessed is less than $41,038.00 then the husband is to forthwith pay to the wife a sum equivalent to 40% of the difference between the sum of $41,038.00 and the assessed amount of Capital Gains Tax;
(e)The husband shall discharge all liabilities for periodic payments due in respect to any and all of those liabilities referred to in paragraph 2(b) of these orders and shall indemnify the wife with respect of such liability.
That any liability for the payment of Capital Gains Tax incurred by the husband as a consequence of the sale of the property situate at 21 Kivas Street, be discharged by the husband and the wife in the proportion of 60% and 40% respectively and by way of consequential orders to give full effect to this order:
(a)The husband shall provide to the wife with an estimate of expected capital gains tax liability together with full disclosure of all calculations and source documents upon which that estimate has been made at least 3 calendar months before the taxation return in which the taxable gains is declared to the Australian Taxation Office.
(b)The wife shall be given liberty to apply to the Court for further orders (including an order seeking to vary this paragraph) in the event that the wife is in disagreement of the husband’s calculations as to capital gains tax.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRM668 of 2003
| KAREN MAREE AMOS |
Applicant
And
| JOHN LESLEY AMOS |
Respondent
REASONS FOR JUDGMENT
Proceedings
These proceedings arise where the husband John Lesley Amos and the wife Karen Maree Amos are unable to resolve their property division under s.79 of the Family Law Act 1975.
Applications
The wife filed her application for property settlement and lump sum spousal maintenance on the 10 April 2003. In that she seeks that she receive 70% of the matrimonial assets and the husband receive 30%.
The matter was re-opened on the husband’s application in that he had determined that he was unable to retain an investment property at Kivas Street, Ekibin. As this had an impact upon a significant issue between the parties at the hearing by way of the treatment of the capital gains tax which would accrue on such sale, the matter was re-opened. At that time the wife handed to the Court a proposed minute of orders that she sought be made.
She now seeks the following final orders be made:
(1)That within thirty days of the date of the orders and simultaneously with each other:-
a)That the husband transfer and/or relinquish to the wife all his right title and interest in and to the following assets:-
i)The wife’s Mercedes Benz motor vehicle:
ii)The wife’s superannuation policies held with HESTA and Colonial Mutual under membership policy numbered 2899836 and 4124081 respectively.
b)The wife transfer and/or relinquish to the husband all her right, title and interest in and to the following assets:-
i)The husbands interest in the accounting practice, Eric C Butler & Co;
ii)The husband’s Ford F100 and Porsche motor vehicles;
iii)The sale proceeds received by the parties from the residential property situated at West Road, Mount Walker.
c)The wife discharge and thereafter continue to indemnify the husband from any liability for the payment of any unpaid holiday pay, leave entitlements or other benefits consequent upon her previous employment with Eric C Butler & Co.
d)The husband discharge the wife and thereafter indemnify the wife from any liability for :-
i)Repayment of the loan account due by the wife to Eric C Butler & Co as recorder in the balance sheets for Eric C Butler & Co;
ii)Taxation liabilities due on any payments made to the wife from Eric C Butler & Co for the financial year ending 30 June 2003 and the current financial year up to and including the date of the orders:
iii)All liability for capital gains tax payable in respect of the sale of the property at Mt Walker.
e)The husband use his best endeavours to release the wife from all and any guarantees given by her alone or jointly with others in relation to the activities, operations, property or otherwise of the husband’s operation of Eric C Butler & Co or of any property or other interest retained by the husband pursuant to these orders and in the event that such guarantees are not released the husband shall indemnify the wife and keep her indemnified in respect of any claim relating thereto with such indemnity being intended to include costs (legal and otherwise) interest and other charges for which she may be liable and/or incur in dealing with such claim.
f)The husband indemnify the wife and thereafter keep the wife indemnified in respect of all liabilities due in respect of:-
i)The husband’s debt to Churinga Investments Pty Ltd and related entities;
ii)The husband’s debt to his mother Iris Amos;
iii)The husband’s debt to Mr and Mrs Finding;
iv)Any claims, demands, liabilities or debts of whatsoever nature as may exist or arise in respect of the wife’s involvement in any capacity with the husband’s operation of the business Eric C Butler & Co which have not been paid directly to the wife (payment in this context does not include entries made in the books of account by journal or otherwise), provided that such indemnity is limited to any liability which might arise from the operation or activities of the said business from 1 July 2001.
g)Save as set out above, the parties acknowledge and agree that each party shall be solely entitled to the exclusion of the other to all property and chattels of any nature and kinds and in the possession of each party as of the date of the making of this order and for this purpose:-
i)Bank accounts are deemed to be in the possession of the person whose name appears on the bank records:
ii)Insurance pollices are deemed to be in the possession of the payee;
iii)Each party will indemnify the other and keep the other indemnified in respect of any debts incurred by each of them subsequent to the date of separation;
iv)Unless specifically stated to the contrary, reference in this Order to discharging any party from any liability under this order shall include an obligation on the party effecting the discharge to also discharge the other party from any personal guarantee or other ancillary security attaching to the other party or any assets to be retained by the other party.
(2)Subject to the provisions of paragraph (3) of these Orders, within 49 days from the date of these orders and simultaneously with each other, the husband and the wife each respectively do all acts and things necessary to effect the following transactions:
a)The husband transfer to the wife all his right, title and interest in and to the residential property situated at 6 Braun Close, Middle Park;
b)The husband cause the wife and any assets to be retained by the wife pursuant to these orders to be discharged from all liabilities due by the wife in respect of:-
i)CBA Investment loan account no. 478801106 formerly encumbering the residence situated at Mount Walker;
ii)CBA ‘Better Business’ loan account no. 06400011087431;
iii)CBA Overdraft cheque account no.06400300127769;
iv)All chattel leases and other secured/unsecured liabilities due by the husband in respect of his Porsche and Ford F100 motor vehicles.
c)That the husband pay to the wife the sum as ordered by the Court.
3)That the husband shall within 14 days from the date of these orders provide to the wife written confirmation of his having attained sufficient finance approval to effect those transactions referred to in paragraph two (2) and in the event that the husband fails to provide such written conformation then the parties shall effect all transactions referred to in paragraph two (2) of these orders simultaneously with those transactions referred to in paragraphs four (4) and five (5) of these orders.
4)That the husband and wife shall do all acts and sign all documents necessary to cause the real property situate at 21 Kivas Street, Tarragindi/Ekibin to be sold and by way of consequential orders:
a)The listing price for the sale of the property shall be as agreed between the parties and if there is no agreement, the listing price shall be the mean price between the listing price advised by two independent real estate agents conducting their principal business in the area of the property as nominated by the Chief Executive Officer for the time being of the Real Estate Institute of Queensland.
b)The parties shall make and execute all documents necessary to list the property for sale with such real estate agents or agents conducting their principal business in the area of the property as may be agreed between the parties and in default of such agreement the parties shall sign all documents necessary to lost the property with all real estate agents who shall be nominated and advised to the parties by the CEO of the REIQ.
c)In the event that the property has not been sold on or before 3 months from the date that these orders issue from the court, then the husband and the wife shall make all such arrangements and sign all documents as are necessary to procure a sale by public auction. Each party shall pay all monies for such auction equally and the auction shall be on the following terms:
v)The Auctioneer shall be agreed between the parties and in default of agreement shall be nominated by the CEO of the REIQ;
vi)The auction shall take place within 5 weeks after the dead-line is set by private treaty sale;
vii)The reserve price unless agreed shall be set by the CEO of the REIQ;
viii)The parties shall each be responsible for one-half of the auction expenses payable for the properties auctioned.
d)In the event that the property is not sold by auction or by private treaty within 28 days of the auction then the parties shall each so all things and sign all necessary documents and shall pay all monies equally as necessary to procure a second auction within a further period of 5 weeks from that date, otherwise on the same terms and conditions as outlined for the first auction.
(5)Upon the sale of the Kivas Street property, the sale proceeds shall be distributed as to:-
a)Payment of any real estate agents commission and approved advertising, marketing and auction expenses and any legal costs incurred in attending to the settlement of the conveyance; and
b)With the balance to be paid to the Commonwealth Bank of Australia in part satisfaction of the husband’s indebtedness to the Bank as secured by registered mortgages over both the Kivas Street and the Braun Close properties (if any) and the personal guarantee of the husband and the wife (if any) (“Commonwealth Bank payment”).
(6)Pending the sale of the Kivas Street property and to facilitate a settlement pursuant to these orders:
a)The sale price for Kivas Street shall be deemed to be $335,000.00; from which the anticipated net sale proceeds after payment of real estate commission and all costs of sale shall be deemed to be $325,292.00.
b)The husband shall discharge all liabilities for periodic payments due with respect to any and all liabilities referred to in paragraph 2(b) of these orders and shall indemnify the wife with respect to such liability.
(7)That any liability for the payment of Capital Gains Tax incurred by the Husband as a consequence of the sale of the property situate at 21 Kivas Street shall be discharged by the husband and the wife in the percentage division as determined by the Court and by way of consequential orders to give full effect to this Order:
a)The husband shall provide to the wife with an estimate of the expected capital gains tax liability together with full disclosure of all calculations and source documents upon which that estimate has been made at least three calendar months before the taxation return in which the taxable gain is declared to the Australian Taxation Office.
b)The wife shall be given liberty to apply to this Court for further orders (including an order to vary this paragraph) in the event that the wife in not in agreement with the Husband’s calculations as to capital gains tax.
c)As security for payments of the wife’s contributions to the husband’s capital gains tax liability pursuant to this paragraph the wife’s interest in the residential property at 6 Braun Close Middle Park is hereby charged with the amount of such payment provided that such charge shall take second priority to any mortgage liability obtained by the wife to secure the payment of those monies referred to in paragraph 2(c).
(8)In the event that the Kivas Street property is ultimately sold for a price greater than the anticipated net proceeds referred to in paragraph 6 (a) hereof then:-
a)In the event that the figure is less than the amount of $325,292.00, the wife shall pay to the husband an additional sum of money representing a percentage as determined by the court as the husband’s overall percentage entitlement to property division.
b)In the event that the figure is less than the amount of $325,292.00, the husband shall pay to the wife an additional sum of money representing a percentage as determined by the court as the wife’s overall percentage entitlement to property division.
c)As security for payment of either of those sums of money required to be paid pursuant to paragraphs 8 (a) or (b), the husband and wife each respectively give to the other a charge over each and every asset which is otherwise to be retained by them.
The husband filed his response on 27 June 2003. However by the date of the hearing due to changes in the assets owned by the parties the husband sought different final orders as set out in his Summary of Argument document. At that time he sought that he transfer to the wife the Mercedes Benz vehicle, the home at Middle Park, her superannuation policies and that she transfer to him his interest in the accounting practice, the Ford F100 and Porsche vehicles, the sale proceeds of the Mount Walker property and the rental property at Kivas St, Tarragindi. He further sought a payment from the wife of an amount that represents 60% of the difference in the value of assets retained by the wife be paid to her and that certain liabilities be discharged.
Overall he sought that the net property be divided 60/40 in favour of the wife. He sought that the capital gains tax payable on both the Mt Walker and Kivas St properties and taxation liabilities due on any payments that have been made to the wife from his accounting practice be taken into account as joint liabilities and deducted from the pool of assets. He did not provide any evidence as to any estimates of the taxation liability that would arise as a result of the payments to the wife from his accounting practice. The expected capital gains tax on the Mount Walker property was ultimately agreed between the parties.
At the hearing as I have already indicated a major issue to be determined was how the court should treat the capital gains tax on the Kivas Street property as the husband’s case was that he would endeavour to retain that property if at all possible but as that was by no means something that he could guarantee he could sustain on his financial situation, he sought that the capital gains tax be included as a joint liability and be deducted from the gross pool of assets to be divided between the parties. The wife opposed that outcome. As a result of the evidence of the husband at the application to re-open the evidence, it was conceded that that property would be sold. The parties had agreed as to the likely estimate of the capital gains tax on an agreed value of the property of $310,000.00. They do not agree as to the formulation of the orders for the sale of the property and how they will do the final accounting of the capital gains tax.
In his second amended response filed on 12 November 2004 the husband now seeks the following orders:-
(1)That the husband transfer and/or relinquish to the wife all his right title and interest in and to the following assets:-
a)The wife’s Mercedes Benz motor vehicle;
b)The wife’s superannuation policies held with HESTA and Colonial Mutual under membership policy numbered 2899836 and 4124081 respectively.
(2)The wife transfer and/or relinquish to the husband all her right, title and interest in and to the following assets:-
a)The husbands interest in the accounting practice, Eric C Butler & Co;
b)The husband’s Ford F100 and Porsche motor vehicles;
c)The sale proceeds received by the parties from the residential property situated at West Road, Mount Walker.
d)The rental property at 21 Kivas Street, Tarragindi in accordance with the provisions for its sale in order 3 hereof.
(3)The rental property situate at 21 Kivas St, Tarragindi described as lot 188 on RP 60917 in the County of Stanley, Parish of Yeerongpilly currently registered in the name of the husband (“Kivas Street”) be sold and:-
a)Upon sale of Kivas Street, the proceeds of sale be distributed as to:-
i)Payment of any real estate agents commission and approved advertising, marketing and auction expenses and any legal costs incurred in attending to the settlement of the conveyance; and
ii)With the balance, to be paid to the Commonwealth Bank of Australia in part satisfaction of the Husband’s indebtedness to the Bank as secured by the registered mortgages over both Kivas Street and the property at 6 Braun Close, Middle Park and the personal guarantees of the husband and the wife (“Commonwealth Bank payment”) and;
b)Pending a Sale of the Kivas Street, and to facilitate a settlement pursuant to the orders made by the Court:-
v)the sale price for Kivas Street be deemed to be $335,000.00.
vi)the sum of $25,783.41 be retained from any payment made by the wife to the husband pursuant to order 4, and invested by the husband solicitors in the joint names of the parties, such sum (together with any accrued interest), to thereafter be distributed between the husband and the wife in accordance with the attached schedule and in proportion to the percentage division determined by the Court.
vii)For the purposes of Order 3(b)(ii), the Court specify the applicable percentage distribution.
c)For the purpose of these proceedings, the Commonwealth Bank Payment less the husband’s liability for Capital Gains Tax which arises upon the sale of Kivas Street will:-
i)Be taken to be the value of Kivas Street in determining the value of the property pool, and
iii)Comprise a partial distribution to the husband.
(4)The wife pay to the husband such sum as this Court considers represents the balance of the husband’s fair and equitable distribution and share of the matrimonial property, after taking into account the effect of any other orders made.
(5)The husband cause the wife to be discharged from all liabilities due by the wife in respect of:-
a)CBA Investment Loan account no 478801106;
b)CBA “Better Business” Loan account no 06400011087431;
c)All chattel lease and other secured/unsecured liabilities due by the husband in respect of his Porsche and Ford F100 motor vehicles.
(6)The wife discharge the husband and thereafter continue to indemnify the husband from any liability for payment of any unpaid holiday pay, leave entitlements or other benefits consequent upon the wife’s previous employment with Eric C Butler & Co.
(7)The husband discharge the wife and thereafter indemnify the wife from any liability for:-
a)Repayment of the loan account due by the wife to Eric C Butler & Co as recorded in the balance sheet for Eric C Butler & Co;
b)Taxation liability due on any payments made to the wife from Eric C Butler & Co for the financial year ended 30th June 2003 and the current financial year up to and including the present date;
c)All liability for capital gains tax payable in respect of the sale of either the Mount Walker or Kivas Street properties.
(8)The husband use his best endeavours to release the wife form all and any guarantees given by her alone or jointly with others in relation to the activities, operations, property or otherwise of the husband’s operation of Eric C Butler & Co or of any property or other interest retained by the husband pursuant to these orders and in the event that such guarantees are not released the husband shall indemnify the wife and keep her indemnified in respect of any claim relating thereto with such indemnity intended to include costs (legal and otherwise) interest and other charges for which she may be liable and/or incur in dealing with such claim.
(9)That the husband indemnify the wife and thereafter keep the wife indemnified in respect of all liabilities due in respect of:-
a)The husband’s debt to Churinga Investments Pty Ltd and related entities;
b)The husband’s debt to his mother Iris Amos;
c)The husband’s debt to Mr and Mrs Finding.
d)Any claims, demands, liabilities or debts of whatsoever nature as may exist or arise in respect of the wife’s involvement in any capacity with the husband’s operation of the business Eric C Butler & Co which have not been paid directly to the wife (payment in this context does not include entries made in books of account by journal or otherwise) provided that such indemnity is limited to any liability which might arise from the operation or activities of the said business from 1 July 2001.
(10)Save as set out above, the parties acknowledge and agree that each party shall be solely entitled to the exclusion of the other to all property and chattels of any nature and kind in the possession of each party as at the date of these orders and for this purpose :-
a)bank accounts are deemed to be in the possession of the person whose name appears on the bank records;
b)insurances policies are deemed to be in the possession of the possession;
c)each party will indemnify the other and keep the other indemnified in respect of any debts incurred by each of them subsequent to the date of separation;
d)unless specifically stated to the contrary, reference in this order to discharging any party (herein referred to as the liable party) from any liability under this offer shall include an obligation on the party effecting the discharge to also discharge the liable party from any personal guarantee or other ancillary security attaching to the liable party or any assets to be retained by the liable party.
Short History
The wife was born on 27 July 1956 and is 48 years of age.
The husband was born on 18 December 1953 and is 50 years of age.
The parties commenced cohabitation on 19 December 1983 and married on 30 December 1985 and separated on or about 10 November 2001.
A decree nisi for the dissolution of marriage was granted on 20 May 2003.
There is one child of the marriage, namely James Amos, born
22 January 1993. He is currently aged 11 years. He resides with the wife in the former matrimonial home and enjoys regular contact with the husband.
The husband was previously married for seven years and divorced in 1983.
The wife was previously in a de facto relationship, but not married.
The husband is a qualified accountant and has been for 10 years. He has worked for approximately eight years as a partner in the accounting practices of Eric C Butler and Co, Chartered Accountants for about 18 months. The husband has a new relationship and he and his defacto wife Robyn have a young daughter Sinead, who was born on 11 October 2003. He is responsible for the support of both his defacto wife and their child.
The wife is employed on a part-time basis for Pathologists, Sullivan and Nicolaides. She has the child James in her full-time care.
In February 1986 the parties purchased an old home at Kivas Street, Ekibin. At the end of 1989 the parties purchased a small acreage property at Mt Walker outside Ipswich and the parties moved into that property in February of 1990.
In 1992 the wife fell pregnant and ceased her employment three months before James was born.
In 1995 the parties purchased and moved to a home in Middle Park in the western suburbs of Brisbane.
In November 1997 when James was only four, the parties separated for a period of approximately six months but then reconciled.
In September 2001, the parties' relationship deteriorated to an extent that it became apparent the marriage was at an end. They then agreed to end the marriage and separate but lived separated in the same residence at Middle Park. This continued to be the case, for practical reasons until February 2002, when the husband moved from that residence and commenced living with his current partner, Robyn Ann Johnson, at her Gold Coast home.
The husband lives with his family on the Gold Coast and James lives with them for five days each fortnight.
The wife continues to reside with the child James at 6 Braun Close, Middle Park, one of the properties acquired by the parties during the course of the marriage.
The issues
The major issues that require my determination are identified as follows:
·Whether the alleged debt to Churinga Investments Pty Ltd in the sum of $104,972.00 should be excluded from the asset pool because it is a sham, because it is conduct engaged in by the husband in a reckless and negligent way such as to reduce or minimise the value of the assets or because it was a liability arising in such circumstances that in the justice and equity of this matter should not be included as a joint liability so as to reduce the value of the parties’ assets available for division.
·Whether the court should add back to the asset pool the sum of $63,000.00 being the husband’s drawings from the practice in excess of income since separation which the husband has had the benefit of approximately 70% and the wife 30%.
·Section 75(2) factors and particularly the disparity in the earning capacity of each party and the effect of any other findings the court may make.
·The method for providing in orders as to how the Capital Gains Tax on the Kivas Street property should be provided for, ie. whether it should be as sought by the wife paid for by the parties on the appropriate percentage once the liability is actually assessed or as sought by the husband the wife’s notional share be paid by her at the time of the transfer of the matrimonial home to her sole name, be retained in a joint investment account with a proper accounting to be undertaken once the CGT is assessed by the Tax Office in mid 2005 with any necessary adjustments being made to it at that time.
·What orders should ultimately be made to achieve a just and equitable outcome under section 79(2) of the Act including the actual machinery provisions in such orders where the parties’ proposed orders are different.
Documents relied upon by the parties
The wife relies on the following affidavit material:
e)affidavit of evidence-in-chief filed 10 June 2004;
f)updated financial statement filed 10 June 2004;
g)affidavit of John Thynne of Forensic Accountant Services filed 10 June 2004.
The husband relies on the following affidavit material:
a)his affidavit of evidence-in-chief filed 15 June 2004;
b)the affidavit of Keith Norman Parsons filed 4 June 2004;
c)affidavit of Iris Lillian Jane Amos filed 16 June 2004;
d)affidavit of Jean Edna Finding filed 16 June 2004;
e)affidavit of Dorothy Sze-Pui Chan filed 16 June 2004;
f)affidavit of Jonathon Jeffrey Martin filed 15 June 2004.
At the re-opening of the evidence on 12 November 2004 the husband relied on two further documents being his amended response and affidavit filed on 10 November 2004 and the wife relied on a form of orders sought as handed to the court on 12 November 2004.
Assets owned by the parties at the date of separation
At the time of separation, the following assets were available for division between the parties:
a)the matrimonial home at 21 Kivas Street;
b)Ekibin property at Lot 38 Mt Walker West Road;
c)Mt Walker property at 6 Braun Close;
d)Middle Park;
e)the husband's accountancy practice at Eric C Butler and Co;
f)the husband's Porsche motor vehicle;
g)the husband's Ford F100 motor vehicle;
h)the wife's Mercedes Benz motor vehicle;
i)the horse float and furniture;
j)two personal superannuation funds held by the wife with Hesta and Colonial Mutual.
Further, the wife also asserts that the husband, during their cohabitation, acquired a .05 carat investment diamond, which was a legacy from his previous marriage, but now claims he does not have that in his possession. The wife says that she does not have that in her possession. At the conclusion of the hearing the parties agreed that this asset should be left out of the property pool.
Matters agreed at the hearing
The parties were able to agree on most of the actual values to be ascribed to their property and later in these reasons I will identify the areas of agreement and dispute where applicable. The parties also agreed that the contributions that each of them have made are to be treated as equal. Therefore the questions for the court centre around the question of what will constitute the pool of assets for division and the treatment of relevant factors in favour of each of the parties under section 75(2) of the Act.
The Law
Section 79 of the Family Law Act defines the Court’s powers in determining applications for property settlement. Sub-section 2 of Section 79 provides that:
“The Court shall not make an Order under this Section unless it is satisfied that, in all the circumstances, it is just and equitable to make the Order.”
Section 79(4) sets out the matters the Court must take into account when considering what orders should be made for the alteration of the interest of the parties in property. Those matters include:
a)The financial and non-financial contributions made directly or indirectly by or on behalf of each party or by a child to the acquisition, conservation or improvement of any property of the parties;
b)The contribution made by a party to the welfare of the family including any contribution made in the capacity of homemaker or parent;
c)The effect of any proposed order upon the earning capacity of either party;
d)The matters referred to in sub-section 75(2) as far as they are relevant;
e)Any other order made under the Family Law Act affecting a party to the marriage or a child of the marriage; and
f)Any child support payable.
The approach to the determination of an application under Section 79 is well established by authority (In the Marriage of Lee Steere and Lee Steere (1985) FLC 91-626; In the Marriage of Ferraro (1993) FLC 92-335; In the Marriage of Clauson (1995) FLC 92-595) the process ordinarily involves a multiple part procedure. Firstly, identifying the property, liabilities and financial resources of the parties at the time of the hearing. Secondly, evaluating the contributions made by the parties as defined in section 79(4)(a) to (c). Thirdly, evaluating the matters contained in section 75(2) in so far as they are relevant.
In determining what order the court should make under section 79, the court must be satisfied in all the circumstances that it is just and equitable to do so [Section 79(2)]. It is the justice and equity of the actual orders that the court must consider. Russell v Russell (1999) FLC 92-877.
Section 75(2) of the Family Law Act sets out the matters which must be taken into account by the Court when determining applications with respect to maintenance. This is the prospective element of the determination of the application for property settlement. The assessment of contributions during the marriage is the retrospective element.
In the Marriage of Ferraro 16 Fam LR 1 the Full Court said at page 23:
“A now well established line of authority in this Court indicates the approach normally to be taken in the exercise of the discretion in Section 79 proceedings. That approach is firstly to ascertain the property of the parties at the time of the hearing, then to consider “contributions” of the parties within paragraphs (a) – (c) of Section 79(4) and then consider the matters in paragraphs (d) – (g), more especially paragraph (e) which takes up by reference the provisions of Section 75(2) which are generally referred to as the “Section 75 Factors.”
The Court is therefore required to determine the following matters:
a)The assets, liabilities and financial resources of the parties to the marriage;
b)The relevant contributions of each of the parties;
c)The means and needs of each of the parties and the other prospective components to the claims of each of the parties pursuant to section 75(2) and then to identify if any alteration should be made to the entitlements of either of the parties having regard to the section 75(2) factors.
After determining the entitlement of each of the parties in relation to the alteration of property interests, the Court must then consider any application for spousal maintenance if relevant.
Post Separation dealings with assets
Following separation the parties made an agreement to sell the property at Mt Walker for a contract price of $287,500.00 which, after selling expenses, has netted $281,862.00.
All other remaining assets have been retained intact. The wife indicated at the hearing that she does not wish to retain the Mercedes Benz which she has had the use of since separation. It is anticipated that the vehicle will sell for around $511,000.00. However at the re-opened hearing the wife and the husband both sought identical orders in relation to this vehicle and that is that it be transferred to the wife.
Assets of each party at cohabitation
It is the husband's case that when the wife and he commenced cohabitation, he owned or had an interest in substantial property. He says that he had a half-share as partner in the chartered accountancy practice of Eric C Butler and Co at Milton. The husband had commenced employed in 1973 as an accountant with the firm and later in June 1982 became a partner with the then principle, Eric Butler. The husband says that this came about as it was a suitable arrangement for Mr Butler, given that he was planning to retire and wanted someone to take over and continue the practice.
The husband says that whilst he is not aware of his value of his share in the partnership back in December 1983 when he commenced cohabitation with the wife, it did however, provide a strong financial base for their financial future. The husband says that at this stage he had established a wide client base and was subsequently able to retain virtually all of Mr Butler's clients when he retired in June 1986. Since then the husband contends that he has continued to run the practice as a sole practitioner and that he has been the major financial contributor to the lifestyle that the parties enjoyed throughout their relationship. He says that the practice income has supported the parties and meant that they have had the ability to acquire various real property. These acquisitions of realty, he says were intended by the parties to form the basis of his future superannuation.
The husband had a beneficial interest under a discretionary trust, which he established to purchase an interest in a commercial unit at Milton, from which the accountancy practice has since been conducted. As at December 1983 the unit had an approximate value of $65,000.00.
The husband also had a quantity of furniture and other chattels which he estimated had an approximate valued of $5,000.00. He owned a second hand 1981 Porsche motor vehicle, subject to a lease, the notional equity of which would have been nominal.
The wife had worked for so many years prior to her overseas trip, when she returned to Australia she did not have a great deal of these savings and did not have any assets of significant value. When the started cohabiting, the husband assisted the wife in completing tax returns which resulted in her receiving a tax refund of approximately $2,700.00 in June 1984.
The husband also says that he paid for the wife's share of rent and then all of her other expenses till such time as she obtained a job some two to three months after cohabitation commenced.
Contributions during the relationship
The husband says that until the child James was born in 1993, the wife and the husband enjoyed a fairly relaxed arrangement about finances, and apart from a personal budget which he had established for their fixed expenses, each of the parties had unrestricted access to their joint funds for their own personal expenses.
The husband's case is that during this time the wife was a free spender and despite a reluctance to adhere to the budget, he did not recall any serious arguments over money.
In February 1986, after the parties were married, the husband sold his beneficial interest in the Milton commercial property to his mother for $65,000. He subsequently used these funds and with the support of his accountancy practice borrowed sufficient funds from the Commonwealth Bank to enable the parties to purchase significant real property as follows:
·property at Kivas Street, Ekibin which was purchased in 1986 for a purchase price $52,000.00. This property was funded by the payment of cash in the sum of $32,000.00 and he then borrowed the sum of $20,000.00;
·property at Matlock Street, Ashgrove which was purchased in 1986 for a purchase price $65,000.00. This property was funded by a payment of cash in the sum of $33,000.00 and he borrowed the balance required in the sum of $32,000.00.
The total purchase price of both the properties was $117,000.00. To effect the purchases cash of $65,000.00 was paid and the parties borrowed the balance amount required of $52,000.00.
Shortly after the purchase of the Kivas Street property the parties moved from their rented accommodation to reside in that property and arranged for rental of the Matlock Street property. The rent then from that property assisted in repaying the Commonwealth Bank loan and other necessary outgoings on the property.
In June 1986, Mr Butler of the husband's accountancy practice formalised his earlier decision made in June 1985 to retire and since then the husband has conducted the practice on his own behalf. The arrangement between Mr Butler and the husband upon his retirement was that the husband took over the practice as a going concern, he assumed responsibility for the practice debts and retained all plant, equipment and furniture. The husband says that as a result of his long association with Mr Butler, first as an employee and later as his partner and given that he by that time he had established his own client base, Mr Butler did not seek any consideration for goodwill from the husband.
The husband then commenced to use an overdraft facility to provide a working capital base for the operation of the practice, from the Commonwealth Bank. This facility was secured over the equity in the Kivas and Matlock Street properties. The wife was a co-owner of these properties and was a party to the mortgages. She was involved in the establishment of the overdraft facility and the earlier loans.
In 1989 the parties purchased an 83 acre property at Mt Walker for approximately $135,000.00. This property was originally purchased in the joint names of the parties, however it was subsequently transferred into the husband's name only when the parties later purchased another matrimonial home at Middle Park and planned that this property would be rented. This was done as it was necessary to maximise the tax advantages for the husband who was the major income earner.
To assist the parties in the purchase of the Mt Walker property, they sold the Matlock Street property for approximately $104,000.00 and after repaying some of the loan owing to the Commonwealth Bank, they were left with approximately $70,000.00 cash. They used these funds, together with a further loan of approximately $65,000.00 from the Commonwealth Bank, to finalise the Mt Walker property purchase. The loan was negotiated as result of the income earnt in the husband’s accountancy practice.
The Mt Walker property became the parties’ new matrimonial home in about March 1990 and from that time they rented the Kivas Street property, which remains rented at the present time.
The husband's evidence is that prior to moving into the Mt Walker property the parties had extensive renovations undertaken to the property.
According to the husband the costs of the renovations went considerably over the original budget anticipated. They had a budget of in the order of $50,000.00 but the renovation cost in the order of $70,000.00. The husband asserts that he was able to manage these additional expenses in the short term but had to subsequently borrow money from his mother to finalise the renovations. He says he was required to borrow the sum of from his mother.
In order that the parties could enjoy Mt Walker and their interest in horses the husband leased a second hand F100 tray back vehicle which cost about $19,000.00 and horse float which cost about $4,500.00. They also purchased two horses and saddles and riding gear for approximately $3,000.00. The husband says he paid for these items out of the accounting practice overdraft along with the initial lease payments on the F100 and horse float.
The husband says that he and the wife continued to enjoy a very good lifestyle in that they regularly ate out at restaurants and spent weekends away at the Coast. The parties talked about whether the wife would return to work after James was born; but decided jointly against this so that she could spend more time with James during his formative years.
The support of the parties and the additional costs associated with the renovations on the Mt Walker property, put pressure on his ability to meet ongoing costs of running the accountancy practice and funding the parties’ lifestyle. The overdraft facility with the Commonwealth bank was extended to $140,000.00 but this was as far as the bank would let it go with the level of security they were able to provide by way of Mt Walker and Kivas Street properties. The husband says that he then approached his mother and asked her if she was prepared to lend him some moneys to overcome what he considered at the time to be a short term financial difficulty.
The husband's mother agreed to lending him an initial $20,000.00 and he commenced paying her weekly interest at the rate of 15% per annum. This loan of $20,000.00 was drawn by his mother from her Queensland Police Credit Union account and deposited into the practice overdraft account on 9 October 1991. The husband says that this amount was contributed to assist the parties manage the financial burden which arose as a result of the additional renovation costs on the Mt Walker property.
The Mt Walker property could carry approximately 20 to 25 head of young cattle and during the time the parties were there they bought on sold on two occasions approximately 20 young steers which were fattened. The husband recalls that the parties paid approximately $4,000.00 on each occasion and sold them for about $8,000.00 making a small profit.
The income the parties derived from the accounting business was used to meet all the major expenses including the loan repayments and all expenses associated with maintaining the various properties. Until the wife stopped working in about October 1992 the parties shared the general living expenses by way of contribution by the wife of her salary and a contribution by the husband from the practice which all went into a joint account.
At the end of 1993 when James was about nine months old the parties decided that it was necessary to fence the swimming pool for safety purposes and they also wanted to prepare the landscaping around the pool. Extensive paving and landscaping was undertaken along with the fencing and cost the parties approximately $15,000.00 and that this was initially paid for out of the practice overdraft account.
At this time the husband obtained a further $20,000.00 loan from his mother. On 1 October 1993 the husband's mother provided him with a further cheque which was deposited into the practice overdraft account.
Since October 1993 the husband has paid his mother regularly weekly interest payments of $76.92 representing a 10% interest on the two loans totalling $40,000.00. The husband says that he has not been able to repay his mother any of the principal moneys but has fully acknowledged the obligation and will be required to do so in the future.
About this time the relationship between the parties became stressed and they then discussed the possibility of moving back to Brisbane. The wife located a home for them to purchase in the western suburbs of Brisbane at 6 Braun Close, Middle Park. They purchased that property in late 1995 for approximately $253,000.00. The husband approached the Commonwealth Bank and obtained a housing loan of $280,000.00 and a personal loan of $30,000.00. These funds were used to complete the purchase at Middle Park, completely furnish it and pay the stamp duty and legal expenses including additional stamp duty to transfer the wife's interest in Mt Walker to the husband as an investment property so as to maximise the tax deductibility of the loan.
The Middle Park property was the parties’ matrimonial home until the husband moved out in February 2002. It is the husband’s contention that he was busy in the accounting practice at the time the parties separated and that he left it to the wife to organise the rental of Mt Walker. The husband had arranged for some brochures to be printed and made some inquiries suggesting the parties might be able to get $800.00 per week as a farm stay tourist type accommodation or alternatively about $250.00 per week on a permanent rental basis.
The husband says that the Mt Walker property remained substantially un-rented apart from a couple of short term rentals until it was subsequently sold in August 2003 for $295,000.00. As a result of this all of the loan repayments and maintenance costs were paid from the accountancy practice without receipt of any significant rental. It is the case that since separation until the property was sold the husband paid these expenses without any assistance from the wife from the practice income and use of the business overdraft.
The husband paid all the fixed expenses of the parties on loans and for their properties through the practice and the joint cheque account was maintained basically for living expenses and for the wife's own personal use.
There is a significant issue raised by the wife as to whether the husband has acted with reckless disregard for the proper preservation of the accounting practice and its profitability as a result of his continuing to drive a Porsche after separation incurring significant liability in the lease payments. The husband says that this was just a continuation of the way the parties had lived there life during the marriage and in any event he would have incurred such a loss on the sale of the Porsche that it did not make any commercial sense to dispose of it.
It is clear that when the parties met in 1992 the husband drove a 1981 Porsche and the wife had access to his company car. When the wife ceased employment after becoming pregnant with James the husband purchased a Honda Accord for about $28,000.00 for the wife. This vehicle was leased and paid for through the accountancy practice.
A year later the parties were offered the opportunity to purchase an almost new 1989 Mercedes Benz which they decided to purchase for $55,000.00. Again this vehicle which was leased and paid for via the practice account.
The husband says this became a family car but was mainly driven by the wife. The Honda Accord was not sold before the purchase of the Mercedes Benz and shortly afterwards the wife was involved in an accident whilst driving with the child and the car was written off. The insurance pay-out from that effectively paid out the lease and the wife continued to drive the Mercedes Benz for a considerable period of time and the husband continued to use his old 1981 Porsche.
In 1998 the husband decided that the Porsche had reached a stage where the cost of repairs began to make it uneconomical. The husband always had a strong interest in the Porsche and was eager to purchase another one because of its reliability. The husband says that he and the wife had numerous discussions about this and according to the husband the wife seemed satisfied that their finances were in order and told him that he deserved to have a nice car because he had worked so hard.
The husband then arranged to lease a new Porsche at a monthly payment of approximately $2,500.00. The initial lease on the Porsche expired in early 2004 with a residual of approximately $100,000.00 and the husband renewed this lease for a further term, primarily on the basis that he had been told that to sell or trade the Porsche in he could only reasonably expect to get somewhere in the order of $75,000.00. These new lease payments have continued at approximately the same rate to the current time.
The husband says that due to his financial constraints after separation and up until the proceedings he could simply not justify nor did he have the capacity or incur a loss of some $25,000.00 which would be incurred by selling the vehicle and leasing another one.
The husband says that during the marriage the wife enjoyed driving the Porsche with the husband. They continued to enjoy a good lifestyle and would use the Porsche to drive to the Coast and stay for two or three nights in one of the better hotels. The husband says that the wife never complained about him having the Porsche or the cost of it until after separation and in particular until after the commencement of proceedings in this Court. In effect the husband says that it was not a viable financial option for him to sell the Porsche because he could not afford to pay the residual on the lease. In any event he further maintains that this was the vehicle that he and the wife had purchased in 1998 while they were married and it was not simply an extravagance that he imposed upon their finances post separation.
Around the end of 1998 the wife decided to return to the workforce on a part-time basis and obtained employment with Sullivan Nicolaides Pathology. To the husband's knowledge the wife continues to work for Sullivan Nicolaides to the present time on a part-time basis. He says also she has had other part-time employment. As revealed from the tax returns the wife has disclosed, income from external sources and not including any moneys paid to her by the husband through the accounting practice in the 1999/2000 tax year $27,500.00, in the 2000/2001 financial year $29,650.00, in the 2001/2002 $28,074.00 and in the 2002/2003 year $27,012.00.
Her evidence at the hearing was that she was seeking to obtain a position that was not casual but permanent part time which would increase her hourly rate and give her other benefits such as paid holidays and sick leave entitlements. Since separation she has undertaken some study to upgrade her work skills. The cost was $5,000 and was paid from the joint account.
In 1997 the parties had a brief separation and the husband absented himself from Middle Park and then the parties embarked upon relationship counselling. The parties eventually reconciled in early 1998. During this period of separation, the husband continued to meet all of the fixed commitments together with all necessary living and other expenses for the wife and James.
The parties agree that by and large when the wife was employed, she covered her own personal expenses. After James was born the husband says that the parties continued to live in a similar lifestyle, but he was now also having to meet the added expenses of having a child and all of the wife's personal expenses as she was not employed.
He says there were expenses incurred in moving to Middle Park and the lack of income from Mt Walker and all of this eventually had an effect on his financial capacity and he found it necessary to borrow from Mr and Mrs Robinson the amount of $30,000.00 in 1999 to alleviate a short term cash flow problem. This debt was repaid reasonably quickly with interest.
In February 2000 the husband was approached by a client, Mrs Jean Edna Finding who wanted him to establish a trust, the Alfred Trust for the benefit of her family as a result of a bequest under a deceased estate. The client had been a client of the husband for some time and he was appointed trustee of the trust and received instructions to invest the trust funds. The husband had a general discretion as to how these funds were invested.
The husband says although he managed to repay Mr and Mrs Robinson he did continue to struggle financially and when he obtained instructions further Mrs Finding in relation to arranging a satisfactory investment for the trust, he approached her and inquired whether she considered it appropriate that he personally borrow from the trust.
Mrs Finding agreed to the husband's proposal. He then progressively borrowed over the period between March to June 2000, a total of $60,000.00. And on 16 June 2000 he wrote to Mrs Finding confirming the borrowings he had made and his agreement to pay interest at 7%.
At present the husband has not been in a position to repay the trust any of the moneys he has borrowed, or indeed any interest. He remains indebted to the trust in the sum of $60,000.00 plus accrued and capitalised interest at the rate of 7% per annum. He intends to fully honour his obligations and repay the trust when he can. These moneys are repayable on demand and may be required by Mrs Finding at any time to make repayment if distribution has to be made to the family beneficiaries.
Evidence as to post-separation contributions — monies received by each party and the alleged debt to Churinga Investments Pty Ltd
Since separation, the husband has continued to conduct his accountancy practise in an endeavour to generate sufficient income to meet all of his ongoing financial responsibilities and expenses which he says have increased since separation. He continues to meet all the fixed expenses comprising loan repayments, rates, insurance, telephone, electricity and car expenses and including the Middle Park and for the wife's vehicle.
He has also paid the wife $390.00 per week in lieu of a formal child support assessment. This was reduced to $200.00 per week in about May 2003. The wife has utilised these payments in order to assist her in meeting the living expenses for she and James. The husband has continued to contribute to James' school expenses at Jamboree Heights State school where he is currently in grade 6. He has also to meet the living and other expenses of himself, his new partner and their daughter, Sinead.
The wife continued to access the parties’ credit cards and was able to use approximately $6,000.00 for the period June 2003 to January 2004 at which time the husband cancelled the card.
The husband has made some attempt to review his practise cheque account records and credit card statements for the period 1 February 2002 when he left the Middle Park property to the current time and has identified certain items of expenditure which he now relates to the payment of such things as rates and electricity on the Middle Park property for the wife and James' benefit, and also charges which he is satisfied were incurred by the wife without his knowledge or consent. This schedule also indicates the loan repayments during this period in respect of the Kivas Street and Mt Walker investment home loans.
The wife maintains that since separation the husband has withdrawn monies from the accounting practice, not from profits but by extending the overdraft facility which is secured by the Kivas St property. She maintains that he has done this recklessly and without regard to the fact that he was diminishing the available assets now for the benefit of the parties.
The records reveal that since separation a large part of the amount the wife says should be added back into the pool in this manner arise as a result of the payment of the lease payments on his Porsche vehicle.
In particular the wife says that whist both she and the husband have derived the benefit of some of these borrowing’s, that the husband has had the benefit of the sum of $44,100 and she has had the benefit of the sum of $18,900.00. It is her contention that the total sum of $63,000.00 should be added back into the pool and that each party should be credited with the amount that can be identified as having been applied for the benefit of that party since they separated. I will set out my findings about this matter in some detail later in these reasons.
There is a second major evidentiary issue to be determined in this matter which relates to an alleged agreement that the husband has entered into between he and a major client of his accounting practice Churinga Investments Pty Ltd. The background to this on the husband’s case is that he says that his accountancy practise includes a number of large clients, some of them having been clients of Eric C Butler & Co when he first joined them. One of these clients is Churinga Investments Pty Ltd and a number of related entities.
The husband says that from time to time the directors of Churinga, Mr Keith Parsons and Mr Keith Jones questioned his accounts, but after some discussions he was able to resolve the issues between them. He says that towards the end of 2001 financial year however, on one of his visits to Churinga's offices to undertake some accounting activities, Mr Keith Parsons the director of Churinga raised with him the issue of fees and the concerns he and his codirectors had about his accessibility.
Christine Connor had been handling all of the work for their entities and did not react well to the fact of Ms Connor's resignation. He says that before Ms Connor took over the handling of their work they had not been happy with the service they had been provided by him as they felt that he had been too busy to give them the sort of attention that they required. They wanted to know who was going to look after their work, given their complaints about his accessibility to him in the past.
The husband had a meeting with Mr Keith Parsons shortly after Ms Connor's resignation and he informed the husband that after learning of Ms Connor's resignation earlier in the year, he had been making inquiries about alternative arrangements to have their accountancy work undertaken and had come to the view that they could probably get it done a lot cheaper elsewhere. The husband made all attempts to try and secure this client. The client represents a very substantial overall percentage of the fee base for his practice and he was extremely concerned to address their concerns and retain them as a client.
Mr Parsons then turned to the issue of fees and said that he and Keith Jones felt that they had been paying the husband too much for the work that he had done for them and it was too expensive. Mr Parsons suggested to the husband that they had paid an enormous amount of fees in the past 12 months. The husband says that he strenuously disputed this but that he felt he had no alternative but to address there concerns in a real way as he made it obvious to him that they would take their business elsewhere if the issue was not addressed to their satisfaction. It was established that Churinga Investments and its associated entities had paid fees of $90,721.98 over the past 12 months.
The husband’s evidence is that he attempted to explain to Mr Parsons that there was a lot of work involved, that he felt the fees were reasonable and that he did not believe that he could get their work done as well any cheaper anywhere else, particularly given the complexity of their accounts. Mr Parsons indicated to the husband that that they intended taking their business elsewhere unless he was prepared to do something serious about the fees.
The husband says that Mr Parsons did not say that he wanted the husband to do the work, but took the tone of the discussion as that he had to come up with something pretty substantial, otherwise they were going to walk. The husband indicated to Mr Parsons that he may be able to repay him approximately one year's fees which he thought at the time was a little more than the figure he had suggested to him. But he said he would be prepared to somehow repay $90,721.98, but would not be in a position to do this straight away. Mr Parsons left this with the husband to think about.
This discussion is alleged to have taken place between the husband and Mr Parsons in April 2001.
It is the husband’s case that at the end of the 2002 financial year, Keith Parsons of Churinga contacted Christine Connor, former practice manager of the husband's accountancy practice and a discussion with her. He then informed the husband that she and/or her new employer had given them certain assurances about their capacity to service Churinga's accounts and look after their affairs at an acceptable fee. Notwithstanding the offer from Ms Connor's employer, he told the husband that he was still happy with his prior proposal to reimburse, in effect, a year's fees although when reviewing their fees, felt that the amount previously proposed was a bit light and they wanted another $14,250.00.
The husband did not want to lose the Churinga account and told them that he would agree to the extra amount, but would need a further 12 months to repay this. Keith Parsons phoned the husband in July 2002 and asked him about interest and how they could be satisfied as to the discounting process that the husband had proposed.
The husband came to a figure and regarded the amount of $104,971.98 (taking in to account the original agreed discount of fees of $90,721.98 and the additionally agreed amount of $14,250.00) and this was offered to Mr Parsons by the husband so as to fully satisfy their claims and so as to retain Churinga Investments as a client.
It is the husband’s case that this amount now owned in fees is to be repaid by the discounting against future fees of Churinga Investments and it is a legitimate debt owing to Churinga recorded in the books of account at Eric C Butler and Co. He has claimed it as a reduction of the income earnt by the practice for the purposes of assessment of taxation.
The evidence of the Husband is that he did this as he felt that he had no choice. The evidence of the wife’s forensic account Mr Thynne established that Churinga Investments represent approximately 26% of the total fees that the accounting practice earns. The husband says that he was prepared to enter into this arrangement because he could not lose Churinga as a client and it was made clear to him that this would not happen if he did not come up with a substantial offer that was satisfactory to both Parsons and Jones.
The wife does not accept that this arrangement that the husband says has been entered into between Churinga and the husband is real and she contends that it should be found to be a sham that has been concocted between the husband and Mr Keith Parsons so as to minimise her available claim against the assets of the accounting practice. This of course, is a most serious allegation that she makes against the husband.
The wife called Ms Christine Connor by way of subpoena to give evidence about the conversation and dealings that she had with Mr Keith Parsons in relation to a proposal that she and her new practice take over Churinga Investments and its associated entities as a client. Ms Connor’s evidence is that she was contacted by Mr Keith Jones after she had left the husband’s accounting practice and that this telephone call was followed up with a meeting with Mr Jones and a further meeting with both Mr Jones and Mr Keith Parsons. The meeting with Jones and Parsons occurred she says, on the 28 May 2002 and the meeting with Jones was a couple of weeks before that. Ms Connor gave evidence that she did not really know and she could not remember whether she had any contact with them both or either of them in 2001. [1]
[1] Paragraph 10, Page 5 of the Transcript of Proceedings 17 June 2004.
The wife’s case is that there is a conflict in the evidence of Ms Connor and that of Mr Keith Parsons as sworn to by him in his affidavit filed on 4 June 2004 and the evidence given above by Ms Connor. In his affidavit Mr Parsons stated in paragraphs 7 and 8 as follows:
"When Christine Connor left Eric C Butler & Co however in early 2001, the level of communication we had come to expect in dealing through her, virtually disappeared overnight, and the previous was experienced, John once again was difficult to contact and the service deteriorated.
I and my director had been very happy with the way in which Christine Connor had looked after our business, and when we became aware that she had moved to another firm of accountants, Keith Jones tracked her down and invited her to talk to us about taking over all of our accounting requirements."
Then again in paragraph 12 he goes on to say:
"John generally came to see me and the other directors towards the end of the financial year to discuss the preparation of accounts, and at the end of May, 2001 on one of his visits, I confronted him about the concerns that Keith Jones and I had about the standard of his services and the difficulties we encountered in communicating with him. I also raised my concern about the level of his fees relative to the extent of work being undertaken, and that we were proposing to take our business elsewhere.”
He says that it was after he and Jones met with Christine Connor that he approached the husband to raise his concerns and advise him of what he and Jones intended to do. He says that Keith Jones wanted to make an immediate change to Christine Connor but he insisted on raising the concerns they had with the husband and discussing it with him. His affidavit evidence certainly then gives the impression that this all occurred in about May 2001.
This is in direct conflict with the evidence of Christine Connor who says that she met with Parsons and Jones in May 2002. The husband’s evidence is in line with the evidence given by Mr Parsons that the initial concerns were raised with him by Mr Parsons in May 2001 and that as a result of those discussions the first agreement as to a discount of the years fees of $90,721.98 was offered by him and agreed to by Parsons.
The husband says that he then started preparing a letter to Parsons to this effect on 30 April 2001. He says that he eventually sent this letter in final form to Parsons dated 29 May 2001. He says that he cannot recall whether he received a response at that time from Parsons but that towards the end of the 2002 financial year on one of his annual visits to Churinga to finalise the end of year accounts the subject was raised with him that they had had discussions with Christine Conner and that while they were happy with his earlier offer of the discount of fees they required a further discount to their fees of the sum of $14,250, which he agreed to on the condition he was granted another 12 months to repay.
Both the husband and Mr Parsons agree that t husband had not, to the time of the hearing, made any reduction of this debt either by way of discounting fees or by repayment.
When he gave evidence at the hearing Mr Parsons stated that he may have made a mistake with his dates as he was not good with things like that and it was a long time ago. He then confirmed in his evidence that his meeting with Jones and Christine Connor had occurred in May 2002 and not in May 2001. He confirmed that the chain of events had occurred as the husband said that they had with him first raising the concerns that he and Jones had with the level of service and the excessive fees being charged in May 2001 not May 2002 and the subsequent agreement of $14,250 did arise in May 2002.
The husband has not yet made any reimbursement either by way of direct payment or the discounting of Churinga's ongoing fees. The husband says that over the last 12 months, it has been extremely difficult for him in trying to manage the accounting practice with the escalating debt, covering all expenses associated with the Middle Park and Kivas Street properties and providing financial support for the wife and James. At the same time, he has had to support himself, his new partner and their new daughter, Sinead. He says that this has had an enormous impact on his practice. He further states that given the parties’ separation it has been essential for James that he make a commitment to his relationship with James and this has involved extensive travelling and which takes away the time he is able to commit to generating income through his practice. He says that because of all of these financial pressures and his level of debt, he has not had the capacity to repay any part of this debt.
The evidence of Mr Parsons was that he understood the financial difficulties that the husband was facing and that because of this and his companies long standing association with the husband’s accounting practice, he has been prepared to wait for repayment until the husband’s financial position had improved.
There was further the evidence adduced by the husband as to the two letters which were created on the husband’s hard drive from Eric C Butler & Co, one which was addressed to Keith Parsons and dated
29 May 2001 and one dated 1 July 2002 and addressed to Churinga Investments. The first one is Annexure DS- PC1 to the affidavit of Dorothy Chan and the second one is Annexure DS-PC2 to the same affidavit. There is a third letter from Eric C Butler & Co dated 4 July 2002 which forms part of Exhibit 3 in these proceedings.
The evidence of Ms Chan also outlines the results of the computer properties searches for the two letters annexed to her affidavit. There is no such property search is available for the third letter.
The first letter is said by the husband to have been posted to Mr Parsons on 29 May 2001. The properties searches show that the document was created on 30 April 2001, modified on 22 September 2003 and printed 22 September 2003 and that it had been revised six times over a total of 40 minutes. When a copy of this letter was sent to the wife’s solicitor on 27 April 2004 it was sent on letter head for the form of Eric C Butler that the husband concedes was not in existence at the 29 May 2001. He agreed that this letter head was only created for the firm Eric C Butler on 3 April 2002. This letter is signed by the husband and by Keith Parsons. Mr Parsons gave evidence that he had only signed one copy of this letter after receipt of it from the husband and then returned it. He said he would have kept a copy but had not been able to find it to produce to the Court. Neither the husband nor Mr Parsons gave any evidence to explain how it was that these clear inconsistencies in the evidence were explicable.
Further this letter refers specifically to the fact that Mr Parsons had told the husband that he had had advice from another accountant that the work in relation to your group can be done a lot cheaper. The only evidence given by Mr Parsons about advice he had received from another accountant about the price of the husband’s accounting services was from Christine Connor. Ms Connors evidence was that this advice was given by her in May 2002 and not May 2001. Mr Parson conceded that he had been mistaken as to his dates when he originally said that this was May 2001. I will set out my findings in relation to this issue in detail later in these reasons.
The Mt Walker property was sold in August 2003. The net proceeds were used to reduce the husband's debt in the practice, including approximately $80,000.00 tax, a superannuation guarantee and other outstanding commitments. The balance proceeds are currently retained in trust for the parties pending the finalisation of these proceedings. The wife initially proposed that she retain the Middle Park property and that the husband retain the Kivas Street fully encumbered where it will be sold to defray debt. She now agrees that Kivas Street will be sold. Both parties agree that the wife should retain the Middle Park property. What is not agreed is the amount that the wife should pay to the husband to retain this asset.
The husband gave evidence at the hearing that in order for him to secure a release of the bank's encumbrance on the Middle Park property so it can be transferred to the wife unencumbered, he would need to reduce his debt to the Commonwealth Bank to approximately $240,000.00, representing 80% of the bank's value of the Kivas Street property.
It is now agreed, at the time of re-opening of the evidence that the Kivas Street properties will be sold and there will then be significant consequences in payment of the capital gains tax that will arise on the sale of the Kivas Street property. If the property sells at the agreed value of $310,000.00 this will be$41,038, which should be taken into account in these proceedings. It is the evidence of the husband at the re-opening that he has been advised by real estate agents that the property is likely to sell for $335,000.00, which will increase this debt.
Further the sale of these two properties or the transfer of the Middle Park property to the wife and the sale of Kivas St will leave the husband without any collateral to maintain the bank overdraft facility for the ongoing conduct of his practice.
There is also an already crystallised capital gains tax liability following the sale of the Mt Walker property which the parties now agree to be in the order of $16,000.00. While the precise amount of this capital gains tax has not yet been assessed the evidence of Mr Thynne the wife’s accountant is that it will be at best nothing and at worst $20,000. Upon the sale of the Kivas Street property the husband’s indebtedness to the CBA will be reduced however a capital gains tax liability will arise in the order of approximately $40,000.00.
Assets and liabilities of the parties
The following table sets out the assets and liabilities of the parties but identifying the particular assets and liabilities that the parties have been able to agree should be included in the pool and the agreed value as appropriate to their respective cases. Where the parties do not agree either as to whether a particular asset or liability should be included or if that is agreed, they do not agree as to the value that should be ascribed to that asset or liability that fact is identified. It is useful to set out these matters in some detail before I make my precise finding on each matter in dispute so that all these issues can be properly identified.
Assets and liabilities of the accounting practice showing areas of agreement or disagreement
ASSETS
Cash on hand (agreed)
$ 239.00
Trade Debtors (agreed)
$114,510.00
Motor vehicles (agreed)
Porsche (with husband) (agreed)
$ 78,000.00
Ford F100 (with husband) (agreed)
$ 8,000.00
Mercedes (to be sold) (agreed)
$ 11,000.00
Office equipment (agreed)
$ 16,255.00
Leased computer & photocopying equipment
(agreed)
$ 6,700.00
Furniture & fittings (agreed)
$ 6,430.00
Goodwill (agreed)
$ 75,000.00
Input Tax creditors (agreed)
$ 2,024.00
Sub-total (agreed)
$318,158.00
LIABILITIES
Loan from Commonwealth Bank (agreed)
$ 87,568.00
Trade Creditors (agreed)
$ 25,729.00
Other Creditors (agreed)
$ 247.00
GST payable (agreed)
$ 6,914.00
Hire purchase liability for cars (agreed)
$ 72,202.00
Lease liability for photocopying and computer equipment (agreed)
$ 17,928.00
Loan from Mrs I Amos (agreed)
$ 40,000.00
Churinga debt (Not agreed to by the wife) Wife’s position being it should be disregarded totally as a sham
$ 104,000.00
Other assets and liabilities of the parties showing areas of agreement or disagreement
ASSETS
Remaining proceeds of sale of Mt Walker (agreed)
$ 61,699.00
Bruan Close real property (agreed)
$342,500.00
Kivas Street investment property(agreed)
$310,000.00
Horse float (with husband) (agreed)
$ 3,000.00
Wife’s superannuation interests (agreed)
$ 15,969.00
Add Backs (Not agreed to by the husband)
Post separation diminution in assets by husband’s excessive drawings – on husband’s part. (Not agreed to by the husband. Husband’s position is that this should be left out entirely from the calculation of the net pool)
$ 44,100.00
Post separation diminution in assets by husband’s excessive drawings – on wife’s part. (Not agreed to by the husband. Husband’s position is that this should be left out entirely from the calculation of the net pool)
$ 18,900.00
LIABILITIES
Findings debt – principal (agreed)
$ 60,000.00
Findings debt – interest (agreed)
$ 15,000.00
Commonwealth bank mortgage (agreed)
$219,827.00
Capital gains tax liability for Mt Walker (husband’s) (agreed)
$ 16,000.00
Capital gains tax Kivas Street property (Not agreed to by the wife as to the method of retention for payment by the husband to the ATO
$ 41,038.00
The add back of the sum of $63,000.
It is clear from the evidence provided Mr Thynne that there have been drawings from the accounting practice in the years ended 30 June 2002 and 30 June 2003 in excess of the profits in the sum of $23,037 in 2002 year and the sum of $40,108 in the 2003 year. The wife contends that these amounts should be added back into the total value of the assets now available for division. The husband contends that this was necessary expenditure to maintain the payment of all of the expenses and liabilities of the parties as they owned them at separation and that it should not be added back to the available pool. The wife has had the benefit of the sum of $18,900 of these funds and the husband the sum of $44,100.
It is clear from the evidence of both the husband and Mr Thynne that these funds have come from use of the husband’s practice overdraft. It is also clear that the parties have lived beyond their means both prior to separation and since. The wife’s counsel submits that the husband has had over these two years the benefit of the reduction in the capital of the parties in an amount which is about 67% and it is a proper exercise of the court’s discretion to add the total reduction of capital back to the asset pool to be divided and take into account that which the parties have already had the benefit of.
It is submitted on behalf of the husband that in order to establish that this should be an add back it clear that the wife must be able to demonstrate that the husband has embarked on a course of conduct designed to reduce or minimise the effective worth of the matrimonial assets and that he has acted in a manner that was reckless and negligent so as to constitute waste of the parties’ assets as was found by the Full Court of the Family Court in the decision of Kowaliw (1981) FLC 91-092.
I am not satisfied that the evidence demonstrates that the husband has acted in such a manner. At separation the parties had a number of assets that needed to be maintained both with respect to the ongoing costs and the payment of mortgages. The husband was the sole earner for the family until the wife commenced work. He continued to support all three properties and also paid significant amounts towards maintaining the wife and James. The parties had expensive motor vehicles that they had purchased or leased while married. The only evidence I have before me is that if the husband had chosen to sell the Porsche he would have incurred a liability of approximately $25,000 in meeting the residual. He would still have needed a vehicle suitable to the needs of his practice and the needs of his family. This would have meant he would have incurred additional costs.
I am satisfied that the Walker St property was a heavy drain on the practice until it was sold. Very little income was earned from rental to assist in defraying the costs. The amounts used by the husband over a two year period were not excessive given the heavy financial burdens he was meeting for the benefit of both parties. I find therefore that the claim of the wife to add back the sum of $63,000 is not supported by the evidence or the principles of law to be applied and I do not accept that it is appropriate to exercise my discretion as she seeks.
The alleged debt of the accounting practice to Churinga Investments Pty Ltd
It is submitted on behalf of the wife that the evidence before me both from the computer records in relation to the creation and amendment of the letter which was commenced on the 30 April 2001 and the evidence of the husband and Mr Parsons when seen alongside of the evidence of Christine Connor would lead me to conclude that the alleged agreement of the debt of approximately $90,000 of May 2001 and the further alleged agreement for the repayment of $14,250 in about May/ June 2002 were a sham created between the husband and Mr Parsons and should be disregarded.
The submissions of the husband are that such a finding would be to the effect that the husband has joined together with a client of his accounting practice to perpetrate a fraud not only on the court and the wife but on the tax department. It is submitted that the evidence does not support such a finding. In effect it is submitted that what I am being asked to find is that the husband went to his computer and found a document bearing the date of 30 April 2001 and then altered it so that it would reflect evidence of a fraudulent agreement between the husband and Churinga Investments so as to reduce the wife’s claim to property settlement and then to support this to have a client give false evidence to support this alleged agreement. It is submitted that the wife has not brought any application to the court to set aside this transaction.
It is the submission of the wife that this arrangement is a sham, that the husband and Mr Parson’s have in effect conspired to perpetrate a fraud upon the wife and the court by manufacturing this debt and their evidence associated with it. It is submitted that given the inconsistencies in the evidence of the husband, Ms Chan’s evidence as to the computer properties searches, the letter which form part of Exhibit 3, the evidence of Christine Connors and that of Mr Parsons all are indicative of this contention and support the court making such a finding.
It is submitted on behalf of the husband that in circumstances where the court is asked by a party to make such a serious finding as that sought by the wife, then the court must be satisfied at the highest level that the evidence before it supports such a serious finding against the husband. It is submitted on behalf of the husband that it does not in this case. It is submitted that the computer records from the husband’s hard drive do no more than allow the court to find that on a particular date the husband created a document which he says was a letter to Churinga Investments to confirm the original agreement between he and Churinga and that subsequently, in some unidentified manner this document was amended and later printed. It is submitted that while there are some inconsistencies in the evidence of Mr Parsons, the husband and Ms Connors, and about the creation of the letters in Exhibit 3, that the court had heard from Mr Parsons that he was confused and mistaken about the dates between May 2002 and May 2001 and that these facts alone was not sufficient to allow the Court to make such a serious finding against the husband, a finding that would have very serious consequences for him as an accountant.
I find that the evidence of the computer data does not permit me to find other than a document which was created on the 30 April 2001 was amended at times as shown in the properties of that document. The wife did not adduce evidence of any expert in computers who had analysed the computer hard drive to establish what those changes were. They could have been minor alterations to the document of no significance at all. This is a most serious allegation and that evidence is far from conclusive.
The evidence of Mr Parsons was at times confusing. It was clear that he is not a sophisticated man. He admitted freely that he had most likely confused his dates and that Christine Connor would have had an accurate record of when she met with he and Keith Jones. However I do not find that his evidence nor the evidence of the husband and Ms Connor nor the evidence as to the generation of the documents on the computer and subsequent later printing of them is sufficient to permit the court to make such a serious finding of fraudulent conduct on the part of the husband and in collusion with Mr Parsons.
Having heard the husband and Mr Parsons give their evidence and be subjected to strenuous cross-examination, I am not satisfied that this court can make a serious finding that they have conspired to create a sham debt arrangement as submitted on behalf of the wife. As I have clearly set out above the evidence is certainly deficient in many respects and it is to say the least confusing and contradictory in many ways. It does not in my view do so far as to permit me to make a finding that the husband has committed a fraud on the wife and the court.
However, I do not find that this is the finding that is necessary. What is required is that the court make a finding that the evidence presented by the husband is sufficient to allow the court to determine in the justice and equity of this matter that this particular debt which the wife was not privy to and which was entered into by him after the parties’ separation is properly one which should be accepted as a joint liability that should be deducted from the asset pool available for division between these parties.
The decided authorities which are relevant to my determination of how this loan and any appropriate interest should be treated in the overall decision as to the appropriate alteration of the parties’ property interests are Antmann and Antmann (1980) FLC 90-908, Af Petersens and Af Petersons (1981) FLC 91-905, Biltoft and Biltoft (1995) FLC 92-614 and Honda and Honda (2001) FCA unreported.
In Biltoft and Biltoft supra, the Full Court said at 82-124:-
"A general practice has developed over the years that, in relation to applications pursuant to the provisions of s79, the Court ascertains the value of the property of the parties to a marriage by deducting from the value of their assets the value of their total liabilities. In the case of encumbered assets, the value thereof is ascertained by deducting the amount of the secured liability from the gross value of the asset. See, Ascot Investments Pty Ltd v Harper & Anor (1981) 148 CLR 337 where Gibbs J. (as he then was) pointed out at p 355 that the Court “must take the property of a party to the marriage as it finds it. The Family Court cannot ignore the interests of third parties in the property, nor the existence of conditions and covenants that limit the rights of the party who owns it”. Where the assets are not encumbered and moneys are owed by the parties or one of them to unsecured creditors, the court ascertains the value of their property by deducting from the value of their assets the value of their total liabilities, including the unsecured liabilities."
Further at page 82-125 the Full Court held as follows:
"The assessment of debts and liabilities is not necessarily arrived at by a strict mathematical or accountancy approach in all cases. While some liabilities are charges on the property which can be accurately assessed at a certain date, others are at large, or have not been precisely determined, eg tax liabilities (Kelly and Kelly (No 2) (1981) FLC 91-108 p. 76, 801). In some cases the amount of the liability can only be estimated generally (Albany (supra), p. 75, 717). The Court can make allowance for a particular liability if appropriate to do so. In some cases there are sufficient uncertainties as to the alleged liability to lead the Court to disregard it entirely or in part (eg. a loan from a parent not likely to be enforced; Af. Petersons (supra); Quirk (1983) unreported). In other cases, the Court may take the view that because of the circumstances surrounding the incurring of the liability it ought in justice and equity to be wholly or partly disregarded in determining the appropriate order to make under sec. 79 as between the parties to the marriage."
The Full Court then goes on to say later on the same page as follows:
"Of course, the Court cannot ignore the fact that there is or may be a liability; the effect is simply that it does not consider that the other souse should be called upon to in effect ‘contribute’ to the liability by having that spouse’s fair share in the parties’ property reduced by virtue of its existence. The effect is that the party who has incurred the liability will be left to meet it out of whatever funds remain to that party after satisfying the property order made under s 79" (Af Petersens supra).
Given the evidence before me as outlined above, I am satisfied that the husband did not tell the wife of the existence of the loan between Eric C Butler & Co and Churinga Investments in about May 2001 or thereafter. I am satisfied that she was unaware of its existence until well after the parties separated. The husband’s evidence was that the parties’ marriage was strained at the time and although he thought he would have informed her about this debt, he was unable to recall if he had done so. The wife’s evidence is that she did not know of the existence of the debt.
The evidence presented by the husband as I have said is unsatisfactory in a number of important respects as to when it was exactly that the husband and Mr Parson agreed to the first sum of $90,721.98 to be paid as a discount on past and future fees. I find the given it is the husband who alleges that the debt in fact exists that the onus of proving that it was in fact properly and reasonably incurred as a business debt falls to the husband. In these circumstances I find that because of the circumstances surrounding the incurring of the first liability of $90,721.98 in May 2001 and the second liability of $14,250.00 in July 2002 ought in justice and equity to be wholly disregarded in determining the appropriate order to make under s.79 as between the parties to the marriage.
That is not to say that I find that the debt does not in fact exist as between the husband and Churinga Investments. My finding is that the evidence as to the circumstances surrounding the creation of these two debts is not sufficient in justice and equity to treat this as a joint liability which has the effect of diminishing the available pool of assets for division between these parties under section 79.
I accept that on the balance of probabilities, given the evidence given by both Mr Parson and the husband together with the fact that the husband has claimed a deduction on his taxation for the reduced fees that the husband is now bound to repay the sum of $104,000 to Churinga Investments. This is something which I must still take into account on behalf of the husband under the s.75(2) factors and not as a reduction of the overall assets available for division.
Capital Gains Tax on Kivas Street
The wife wishes to leave any form of payment to the husband for this contingent liability until it has crystallised by way of the sale of the Kivas Street property and the assessment by the Taxation Office. The husband wishes an amount as calculated on his projected schedules on a deemed price for Kivas Street to be paid by each party in the percentage share as determined by the court as just and equitable to be held in an investment trust account by his solicitor, with the wife to pay her share at the same time as she receives the benefit of the property she is to receive under the property orders and at the same time as she makes any payment as is necessary for her to retain the former matrimonial home.
The wife argues that she should not have to borrow and pay an amount that is in no way certain and cannot be even assessed for some considerable period of time in mid-2005, at the earliest. She proposes providing security for her share of this payment as an unsecured charge on the former matrimonial home at Mt Walker once it is transferred to her sole name.
The husband argues that as the Kivas Street property is registered in his sole name, this liability will only attach to him so far as the Taxation authorities are concerned and therefore if he is to be required to transfer his valuable interest in the Mt Walker property to the wife before the capital gains tax is able to be determined than the wife should be required to pay her share of this liability at the same time as he is required to do this, calculating her share of this liability in the best and fairest way possible.
I have considered each of the parties’ arguments in relation to this issue. I am satisfied that justice and equity in this matter requires that orders be made by the Court that do not in their effect delay putting into effect as many of the provisions of the orders as possible. That being the case, I am of the view that the husband should not be required to transfer all of his interest in the matrimonial home to the wife without her being required to properly make provision for the future liability she will be required to pay for her share of the capital gains tax on the Kivas Street property. If this sum were now due and owing, it would be deducted from the matrimonial pool of assets as a deduction before she received the total benefit of her share of the property.
I am satisfied that the appropriate manner in which to provide for this is to use the figure that both parties agree was appropriate as the calculation of the capital gains tax after the evidence of the wife’s accountant, Mr Thynne. This was the sum of $41,038.00 and was based on a value for Kivas Street of $310,000.00. I propose to include this figure as a notional personal liabilities to be taken into account in determining the net pool of assets for division between the parties. If a greater sale price is achieved and ultimately the capital gains tax is greater than that amount than the orders will provide for the wife to pay the husband an adjusted amount at the time that the capital gains tax is properly assessed. If the sale price achieved for the property is less than $310,000.00 than the orders will provide for the husband to pay the wife an adjusted amount at the time that the capital gains tax is properly assessed.
This will allow the wife to properly assess her capacity to borrow a sufficient sum to both pay the husband his share of the property settlement and to provide for the majority if not all of her share of the capital gains tax liability. It will allow the husband the security of knowledge that when he transfers his interest in the matrimonial home to the wife that he is secure in relation to the payment of the wife’s share of the future capital gains tax, given that it will be liability for which only he would be held accountable by the taxation authorities.
Therefore overall I find that the net matrimonial pool of assets available for division between the parties consists of the following:
Business Assets
Cash on hand (agreed)
$ 239.00
Trade Debtors (agreed)
$114,510.00
Motor vehicles (agreed)
Porsche (with husband) (agreed)
$ 78,000.00
Ford F100 (with husband) (agreed)
$ 8,000.00
Mercedes (to be sold) (agreed)
$ 11,000.00
Office equipment (agreed)
$ 16,255.00
Leased computer & photocopying equipment
(agreed)
$ 6,700.00
Furniture & fittings (agreed)
$ 6,430.00
Goodwill (agreed)
$ 75,000.00
Input Tax creditors (agreed)
$ 2,024.00
Sub-total (agreed)
$318,158.00
Business Liabilities
Loan from Commonwealth Bank (agreed)
$ 87,568.00
Trade Creditors (agreed)
$ 25,729.00
Other Creditors (agreed)
$ 247.00
GST payable (agreed)
$ 6,914.00
Hire purchase liability for cars (agreed)
$ 72,202.00
Lease liability for photocopying and computer equipment (agreed)
$ 17,928.00
Loan from Mrs I Amos (agreed)
$ 40,000.00
Total Business liabilities
$250,588.00
Other Assets of the parties
Remaining proceeds of sale of Mt Walker (agreed)
$ 61,699.00
Bruan Close real property (agreed)
$342,500.00
Kivas Street investment property(agreed)
$310,000.00
Horse float (with husband) (agreed)
$ 3,000.00
Wife’s superannuation interests (agreed)
$ 15,969.00
Total personal assets of parties
$733,168.00
Other Liabilities of the parties
Findings debt – principal (agreed)
$ 60,000.00
Findings debt – interest (agreed)
$ 15,000.00
Commonwealth bank mortgage (agreed)
$219,827.00
Capital Gains Tax for Mr Walker property (agreed)
$ 16,000.00
Notional amount for capital gains tax for the Kivas Street property based on the agreed value of $310,000.00
$41,038.00
Total personal liabilities of the parties
$310,827.00
Total net business assets of the parties
$67,570.00
Total net value of other assets of the parties
$422,341.00
Overall net assets of the parties available for division
$448,873.00
Contributions
The parties agree that their respective contributions should be treated as equal throughout the marriage and up until the hearing. I am satisfied that the evidence given by each of them supports this agreement. Therefore the parties’ contributions are found to be equal.
Section 75(2) factors
Both parties are in good health. The husband is 50 years of age and the wife is 48 years of age. Both parties have the capacity to earn an income. Both parties have the capacity to continue ongoing employment. It is clear from the evidence in this case that the husband, before and during the marriage and after separation, has contributed financially far greater than the wife.
The wife has at times been employed on a full time and part time basis. She has the full time care of the child who now resides with her. He is now 11. James attends Jindalee State School. He is in grade 6. He appears to be progressing satisfactorily.
The husband is a self employed accountant and has practised in that capacity since 1982. He is the sole practitioner of Eric C Butler and Co. He relies heavily upon the income generated from his practice to support himself financially, his new partner and child, James and the ongoing loan repayments on the properties of the parties. Since separation he initially paid the wife $390.00 a week but this was later reduced to $200.00 a week in May 2003. The husband has been responsible largely for James' additional school expenses and other extra curricular activities. The husband's new partner has not worked since the birth of their daughter. It is the husband's evidence that she is fully dependent on him financially.
The husband continues to enjoy a good and regular relationship with James. The child stays with the husband and his new partner five nights out of every 14, together with one half of all school holiday periods. The husband lives on the Gold Coast with his new partner and he works in Brisbane. James lives with his mother at Middle Park. Therefore to remain involved in James’s life and activities in the manner that he has means he has had to travel extensively to make sure that James and he continue a relationship.
The husband says that he has made proposals on more than one occasion to extend his commitment to enable the wife to undertake more full-time employment or to enable her to enjoy social and other personal activities from time to time. The husband continues to attend James' school and extracurricular activities and contributes to these and other school and extracurricular related activities over and above his direct financial contribution which he pays to the wife.
I accept that the husband since separation has been put in a financial situation that has imposed a substantial strain and that it has been stressful for him to provide continued support for the wife and James at the levels that he has done as well as maintaining the repayments and other outgoings associated with the matrimonial home, Kivas Street, the Mt Walker property and the accounting business in circumstances whereby he has had to support himself, his new partner and their young child.
I accept that the wife has responsibility for the care of James but take into account that she is assisted greatly in this regard by the husband, both as to the amount of time that James is in his father’s care and the high level of financial support that he has always provided in the past and I am satisfied will continue to provide in the future.
I also find that the wife has the ability, necessary skills and experience to obtain reasonably well paid employment. She demonstrates the capacity to secure a higher paid employment arrangement due to her qualifications and experience. James is now in grade 6 and attends school. There is, I find, no impediment to her in obtaining full- time employment in the future should she choose to do so I accept however that there will remain a significant disparity between her income earning capacity and that of the husband into the future. I further take into account that she will be called upon to borrow money to retain the matrimonial home and pay her joint share of the capital gains tax on Kivas Street when it is assessed.
The husband expressed the concern that there is a possibility that he could not survive financially and this could lead to his ultimate bankruptcy and that he would lose his right to practise as a member of the Institute of Chartered Accountants. This would then impact upon his present capacity to continue to substantially assist the wife in the support of James. I find that the husband has the potential to earn a high level of income but that his financial circumstances in light of the debts that he has and the present commitments he has to support others he has a duty and obligation to support have placed him in tenuous financial situation that is likely to take him some time to work his way out of. In this regard, I take into account that although I have not included the debt of approximately $104,000.00 to Churinga Investments as a joint liability, it is debt that I am satisfied must be taken into account as a factor in relation to the husband’s overall financial position under s.75(2).
Overall taking into account all of these factors for each of the parties under section 75(2) I find that a further adjustment should be made in favour of the wife of 10% if the net asset pool.
Overall then on the basis of the parties’ agreements or my findings as to their respective contributions and the assessment of the 75(2) factors results in an overall division of the net property of the parties as to 60% to the wife and 40% to the husband
The just and equitable effect of orders
In the draft orders sought by each party at the re-opened hearing, the parties sought orders that were substantially similar in their actual form. Whilst the wife sought far more detailed orders as to the sale provisions for Kivas Street and her involvement in such sale, in submissions the husband indicated that he did not oppose orders that provided such particularity as to the mechanics of the sale of the property or for the orders to provide that the wife be involved in the sale. I have already determined that the bulk of the future capital gains tax to be assessed on Kivas Street be deducted from the gross value of the overall pool of assets for division and the orders will provide for any payment of adjustment to either party as applicable upon the tax assessment being made as sought by the husband.
The total net pool for division between the parties is the sum of $448,873.00. The wife is to receive 60% of that or assets to the value of $269,323.80. In the orders they now seek each party agrees that the wife is to retain three assets, the Mercedes Benz vehicle in her possession at $11,000.00, her two superannuation policies at $15,969.00 and the former matrimonial home at Braun Close, Middle Park at $342,500.00. It is agreed that the husband will provide this to the wife free of the present encumbrances and the wife will re-finance this in order to pay the husband his share of the property pool. If the wife keeps these three assets she will have to pay to the husband (including her share of the CGT @ $41,038.00) the sum of $100,145.20.
From this sum the husband will receive as part of his share of the property division, the sum of $59,107.00. The balance of 41,038.00 will be held invested in trust to secure the payment of the CGT on Kivas Street. Overall the husband is entitled to receive 40% of the overall net assets or assets with a net value of $179,549.20. He will receive the net value of the business Eric C Butler & Co, the proceeds of sale remaining from Mt Walker, the payment by the wife and he will be responsible for the payment of all outstanding liabilities.
In this matter I am more than satisfied that this brings about a just and equitable result. The husband will retain his business. He will have some funds with which to reduce his indebtedness and to ensure that the matrimonial home goes to the wife free from all its present encumbrances. The wife will retain the home she and James live in, her car which she can then decide to keep or sell as she choses and her superannuation interests. She will pay a sum which should be within her capacity to borrow in order to do this.
Accordingly, I make the orders set out at the commencement of these reasons.
I certify that the preceding one hundred and seventy-three (173) paragraphs are a true copy of the reasons for judgment of Rimmer FM
Deputy Associate: T. Thomson
Date: 3 December 2004
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