Ashman & Ashman
[2007] FMCAfam 418
•22 June 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| A & A | [2007] FMCAfam 418 |
| FAMILY LAW – Property – dispute as to valuation of shareholder interests – reduction in husband’s loan account – whether “loss of $253,000 should be “added back” – assessment of husband’s initial contribution – conflict with evidence given in earlier Family Court proceedings in 1993 – husband’s contribution to increase value of business although not “special” deserving of recognition – whether wife’s non-financial contributions made more arduous – just and equitable order. FAMILY LAW – Spousal maintenance – application dismissed. |
| Family Law Act 1975, s.75(2) |
| Hickey (2003) FLC 93-143 Kennon (1997) FLC 92-757 Kowaliw (1981) FLC 91-092 McLay (1996) FLC 92-667 Spagnardi [2003] FamCA 905 |
| Applicant: | G L A |
| Respondent: | F S A |
| File number: | BRM5900/2006 |
| Judgment of: | Baumann FM |
| Hearing date: | 9 February 2007 |
| Delivered at: | Brisbane |
| Delivered on: | 22 June 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr Forrest |
| Solicitors for the Applicant: | J B Stevenson & Company |
| Counsel for the Respondent: | Mr George |
| Solicitors for the Respondent: | Simonidis Shoebridge Lawyers |
ORDERS
That the wife retain the following as her sole property:
(a)Her furniture;
(b)Partial property settlement received from the husband; and
(c)“Gees Serenity” and “Shannonbrook Sheena Gold”.
That the husband pay to the wife within 60 days of the date of this Order the sum of $660,000, less the sums of $3,000 and $6,000 already paid to the wife since trial.
That the husband retain the following as his sole property:-
(a)Nelson Exhaust (Qld) Pty Ltd;
(b)Truck Exhaust Centre Pty Ltd;
(c)Shannonbrook Pastoral Pty Ltd;
(d)His furniture;
(e)His motorcycles; and
(f)His superannuation.
That, except for the purposes of obtaining finance in order to make the payment to the wife referred to in paragraph 2, the husband no sell or encumber or in any way deal with the assets or the shares in Shannonbrook Pastoral Pty Ltd, Truck Exhaust Centre Pty Ltd or Nelson Exhaust (Qld) Pty Ltd or any other property held in his sole or joint name.
That upon the payment to the wife, the injunction referred to in Order 4 be discharged.
That the husband indemnify the wife in respect of any liabilities of Shannonbrrok Pastoral, Nelson Exhaust (Qld) Pty Ltd or Truck Exhaust Centre Pty Ltd.
That each party shall be entitled to retain any property or financial resource in that party’s power, possession or control provided however that the party retaining any property or financial resource shall indemnify the other in respect of any outgoing or liability attaching thereto.
That within 7 days of the date of this Order, the wife collect the horses “Gees Serenity” and “Shannonbrook Sheena Gold”.
That if the husband is unable to obtain finance to pay the wife the sums of money due under these orders then each party have liberty to relist for further directions and orders.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRM5900/2006
| G L A |
Applicant
And
| F S A |
Respondent
REASONS FOR JUDGMENT
Introduction
When the Applicant wife G A and the Respondent husband F A commenced cohabitation in June 1992, the husband gave all the appearance of a financially comfortable businessman. The wife, a widow and prior resident of the United States of America, came to Australia to pursue her relationship with the husband, having met him in 1991 initially whilst travelling.
When the wife arrived in Australia on 16 June 1992, the husband was separated from his first wife.
The relationship between the husband and wife continued past their marriage in October 1994 until a final separation in July 2006. It is common ground that during the course of the 14 year relationship, the husband controlled and managed all the financial affairs and operated some corporate entities which have flourished and, at the time of trial, are profitable.
The issues that remain unresolved include the value to be attributed to the husband’s business interests; the extent of the husband’s initial contributions; the extend to which the husband’s contributions may have a “special character”; whether the wife’s contributions were made more arduous by reason of the conduct and behaviour of the husband during the relationship; and finally what is a just and equitable division of the pool as found and how can that be achieved in a real sense.
At the onset I acknowledge the assistance of Mr Forrest of Counsel for the wife and Mr George of Counsel for the husband. Neither could have said anymore than they did to articulate the case of their client.
Principles
The methods and analysis to be undertaken in a property dispute are not in doubt and were recently and succinctly restated by the Full Court in Hickey (2003) FLC 93-143. It essentially involves a four stage process initially to determine, usually at the time of trial, the assets and liabilities of the parties. Secondly, by reference to s.79(4) to consider the respective contributions of a financial, non-financial, direct and indirect nature. Thirdly, to consider as directed by s.79(4)(e) the relevant s.75(2) factors and finally the Court is required to step back and look at the order it proposes to make to ensure that it does justice and equity to the parties in all the circumstances.
Pool
Whilst during the course of the marriage the husband did own personally some real property, by the time of the hearing, whether by design or otherwise, the financial interests of the husband were almost entirely contained within 3 corporate entities:
N E (Qld) Pty Ltd
T E C Pty Ltd
S P Pty Ltd
The husband is the sole director and shareholder of all these companies. The entities, as they were in existence at November 2006 were the subject of a single expert valuation prepared by John Thynne of Vincents Chartered Accountants. Mr Thynne’s report dated
30 November 2006 is before the Court via his Affidavit filed
19 January 2007. He was not required for cross-examination and his opinions and evidence therefore remain essentially unchallenged. Before summarising the relevant aspects of the report, I note that through the husband’s cross examination he acknowledged he had changed the name of the company SA Pty Ltd to S P Pty Ltd on
20 November 2006. He did not disclose this to the wife, or to the Court, until asked. The change of name stems from a diversification of the company’s activities from purely horses to horses and Santa Getrudis cattle as well. The husband should have disclosed this change to the Court, however I am satisfied the mere change of name does not alter the underlying valuation methodology and opinions adopted by Mr Thynne.
In summary, Mr Thynne values the husband’s interest in the three entities as follows:-
NE (Qld) Pty Ltd
$370,711
T E CPty Ltd
$135,357
S A Pty Ltd
$844,408
Total
$1,350,476
The dispute that arises on the valuation of the husband’s interests involve 3 issues as follows:-
a) Value to be attributed to the husband’s loan account in S
Mr Thynne identified at paragraph 2.2.4 of his report that:
“At 30 June 2006, Mr A has a loan owing to him from S A Pty Ltd with a book value of $1,077,588. In my valuation, this loan has been reduced to the recoverable amount of $844,408.”
The methodology adopted for valuing S was a net realisable assets basis. Annexure 9 to the Report shows the Adopted Balance Sheet/Valuation. As the parties received further independent valuations for the real estate owned by the company (from Herron Todd White) and for various items of farm equipment and horses (from All Asset Appraisals), the asset values from those sources have been adopted by Mr Thynne and incorporated in the valuation rather than adopting the unaudited book values at 30 June 2006. No challenge to that course was raised by the parties.
The contention of the wife, disputed by the husband, is that the loans made to the company by the husband represented by the loan account balance of $1,077,588 should be brought into the Balance Sheet at full value – even though the underlying assets demonstrate the debt is not recoverable beyond $844,408. I do not accept the wife’s submissions for the following reasons:-
a)I am satisfied that the funds which constitute the loans by the husband to S were contributed from the sale proceeds of the South McLean property; and the “early inheritance” from the husband’s father (see Exhibit 2) and other funds/income available to the husband from the business entities N E and T E. These were the only sources, on the evidence before me, the funds could have come from.
b)The costs of establishing the property at 348 (Lot 21) W Road, U and running the property has not to date reflected positively in the balance sheet. I find that whilst the capital has been introduced as identified by Mr Thynne, the entity has used capital so introduced and drawn on it to operate. The clearest example of this occurring is that since the company commenced it has continually accumulated losses in its operation. Annexure 9.3 of Mr Thynne’s report shows losses increasing from $129,449 (at 30 June 2004) to $239, 467 (at 30 June 2006). I am satisfied that this is where the money has gone. The entity is, in all respects, a “hobby farm”. As Mr Thynne observes at paragraph 4.4 of his report “the operations were initially established to develop a S A horse breeding stud. However, to date the operations have not been successful and the future of the business is questionable.”
For the reasons given when dealing with the contributions of the parties, I do not regard this reduction in the value of the loan account of the husband as “wastage” in the Kowaliw ((1981) FLC 91-092) sense. I propose to adopt the valuation of Mr Thynne for the husband’s interest in S at $844,408, subject to what I say below in respect of cattle.
b) Cattle
It is clear that the husband through the entity of S, is focused on improving the Santa Getrudis stock herd owned by the company. At the time of the valuation by Mr Thynne said (at paragraph 4.5) that:-
“In addition, the company owns a small herd of cattle. However, the cattle are infected by lantana poisoning and their worth is minimal.”
The value adopted, on this basis, was $3,400. Under cross examination, the husband conceded the 20 herd of cattle now owned by S had a value of about $40,000. I propose to increase the value of the husband’s interest in S by $36,000 to $881,008 accordingly.
c) Tax Losses
The tax losses of $239,467 can be used in the future by the company against any taxable profits of the company. I agree with Mr Forrest that this is a financial resource available to the company. Mr Forrest says that these losses have a ‘value’ of $71,129 – being a saving on company tax on generated earnings. Of course, the value will only be crystalised if (and when) the company starts turning profitable. There is, on the evidence, no away of predicting when that may occur, although the husband says that is his hope. This benefit, such as it is, becomes in my view a factor to be considered under s.75(2).
I find the pool of assets available for division to be as follows:-
Husband’s interests
Nelson Exhaust (Qld) Pty Ltd
$370,711
Truck Exhaust Centre Pty Ltd
$123,268
Shannonbrook Pastoral Pty Ltd
$881,008
Furniture
Wife
$4050
Husband
$8160
Husband’s Motor Cycles
$22,500
Husband’s Superannuation
$96,281
Add Back
Partial Property Distribution to wife pursuant to Order of 28 August 2006
$25,000
Total
$1,530,978
I have not included in the pool any sum for the values asserted by the wife for the horses “G S” and “S Sh G”, as the husband says he has tried to sell them; has had no offers; thinks they are worth nothing and is happy for the wife to have them. I will so order.
The wife’s car ought be excluded from the pool as it was acquired with the benefit of the partial property distribution. To do otherwise would be to ‘double dip’.
I have excluded the interest in the timeshare interests because I accept a combination of the husband’s evidence and that of this former wife Deidre (who swore an Affidavit but was not required for cross examination) as establishing this interest, held by the husband prior to cohabitation, has been provided to the first wife for the benefit of the children and grandchildren of that marriage. Minimal contributions to the preservation of this asset through this marriage occurred.
Although the husband says he has expended $10,000 in legal fees, I am prepared to accept they have been paid from post separation income he has derived from his business interests.
I will not ‘add back’ the amounts paid by the husband from his income to the wife for spouse maintenance (asserted to be $16,000). Again, I am satisfied such amounts were paid by the husband from post separation earnings. The business values were based (and accepted) on figures as at 30 June 2006, so that the wife has not suffered a diminution in the value of the asset pool because of those payments to her and has not, as Mr Forrest contends, “paid for her own maintenance”.
Contributions
A dispute arises as to the financial position of the husband at the time of cohabitation. The parties are agreed that the wife came to Australia with the equivalent of about A$15,000.
At paragraph 2.1.1 of his trial Affidavit, the husband asserts his net assets were $264,000. The major contributions to this ‘pool’ said to be introduced to the relationship were:-
N E (Qld) Pty Ltd
$130,000
Cobra Sports Car
$55,000
Timeshare Unit
$15,000
Personal Tools
$20,000
Equity in 87 L O Drive, C
$25,000
An assortment of furniture, firearms, motor vehicles and the like were also in his possession. The C property was purchased in August 1994 after cohabitation and just prior to marriage. It does not therefore; represent an asset contributed initially by the husband as he claims.
The husband says he sold the Cobra motor vehicle in 1995 for $55,000 and contributed those proceeds to the C mortgage. I accept that evidence.
The value of the husband’s business interests at the time, as claimed now, are in stark contrast to what he swore the position to be in earlier Court proceedings conducted in the Family Court of Australia in 1993. Exhibit 3 comprises copies of an Application and Statement of Financial Circumstances containing information sworn to as accurate by the husband on 19 July 1993 and 5 August 1993 respectively. The contents were properly put to the husband in cross examination and his reaction showed significant surprise and uncertainty. Put shortly, what he deposed as the extent of assets at the time of his first property settlement is quite different from what he deposes to in paragraph 2.1.1. now.
He asserted his Cobra motor vehicle was worth $30,000 and his business N E was worth $50,000. He suggested he had a liability associated with ‘G E’ of $180,000. He further said his income for the year ended 30 June 1993 was $17,300 but had increased to $650 a week (gross). Financial statements attached confirmed the husband, by virtue of Orders made by consent with D A, “has agreed to indemnify the wife, with respect to certain debts” which totalled $234,000 (inclusive of personal guarantee liabilities). Although the husband’s Affidavit is silent about any residual effect on meeting these liabilities, and the wife simply did not know about the husband’s business operations, it is reasonable to infer that at least some of the energies devoted to the early reestablishment of the business (after the liquidation of A Industries Pty Ltd) were also directed to recovering his business profile and profitability.
I therefore make the finding that the husband’s net initial contributions, although larger than those made by the wife, are exaggerated in paragraph 2.1.1. and were not more than the Cobra motor vehicle and a new business which had developed from the embers of the old business.
The wife accepts that the businesses operated by the husband, without any significant contribution to them by her, were the source of the funds for the family support and asset acquisition, conservation and improvements. The husband’s business flourished and the wife acknowledges his hand work, long hours and dedication to that task. I do not regard the business acumen applied by the husband, whilst impressive, as failing within that small range of cases categorised as a ‘special contribution’ (see McLay (1996) FLC 92-667). However to build from a very low base, a sizable property pool deserves some recognition.
I regard the husband’s efforts in the business as outweighing the wife’s contributions of a non-financial character during the period of the relationship. I have not doubt that the wife faithfully and with a degree of class, maintained the homes the parties lived in and ensured the husband was more than adequately supported with all domestic tasks performed by her. When called upon to assist the husband in any business support role, the wife did so including entertaining business associates.
As the business income grew, and although the wife says the husband kept strong control over the finances (manifested by him paying everything and providing her merely with funds to cover groceries) she admits to regular trips back to the USA. The wife’s children visited from the USA from time to time, with Alison, then aged about 14, living with the husband and wife for about 6 months.
The husband also made non-financial contributions to the maintenance and improvements (mostly externally) to properties occupied by the parties at C, South M and U. In respect of the chronology of sales and purchases of real property, I am satisfied these are accurately set out in the wife’s Affidavit. The husband acknowledges he is not good “with dates”.
I also take into account what I accept was an extraordinary benefit arising from a gift of real property to the husband and his siblings, and by arrangement the sale of his interest in the property at M for $250,000. The wife says that the husband has not discharged the evidentiary onus in respect of that transaction. The husband’s father and sister could have been called to corroborate the version sworn to by the husband. The evidence as a whole however satisfies me to the requisite standard that the husband did receive the benefit of funds totalling $300,000 as he asserts. Whilst I acknowledge the bank statements (Exhibits 1 and 2) reveal deposits of $50,000 on 20 September 2002 and $250,000 on 27 August 2004 and no origin of those payments, no other source was identified by the wife, to sufficiently challenge the husband’s version.
The wife, as previously mentioned says the reduction in the true realisable value of his loan account in S represents wastage. It is not unusual for parties, as they reach more mature years, to covet a lifestyle which fulfils a personal interest or dream. The husband has worked hard building up his business and wanted to take up his interest in breeding Arabian horses. It seems to me on the evidence; the wife also supported this interest – although she may have had little choice but to do so.
Funds were contributed to this lifestyle endeavour to prepare suitable yards and property (including stables). A degree of overcapitalisation might have occurred but in the pursuit of an ambition or desire that is not unusual. I do not see the husband’s actions are falling within those categories of “wanton, reckless or negligent” behaviour sufficient to invoke the Kowaliw principles.
Mr Forrest strongly submits that the evidence of the wife enlived the principles enunciated in Kennon (1997) FLC 92-757. I accept that Courts have also extended the observations in Kennon to conduct other than to physical violence. I am also conscious of the observations made by the Full Court in Spagnardi [2003] FamCA 905 at 47.
The wife’s evidence in support of her Counsel’s submissions can be found at paragraphs 62-65 and 97-101 of her trial Affidavit. These matters were properly put to the husband by the wife’s Counsel. My findings on the evidence are:-
a)The wife claims the husband was very ‘tight’ with money and this method of providing her with barely enough money to buy groceries and meet other nominal household expenses made it very difficult to run the home. Also she says getting funds for any extra ordinary expenses (such as medical procedures) was difficult. The husband categorises his actions as being careful with his expenses. I did not find the evidence sustained the wife’s claim. I accept the husband was careful, and could perhaps have extended a little more trust in these matters to the wife; however he saw it from a perspective that he was earning the money from his business; paying virtually all expenses; and they were having a fairly comfortable lifestyle. That was the arrangement that had applied from the beginning of the relationship which may not have suited many married couples but that is not unusual.
b)Their level of ‘comfort’ took a dive when the husband sold the T Road property and moved into “a shipping container” located on the recently acquired U property. Although in cross examination the husband said he did a lot of work on it to make it habitable with insulation, a large annex and solar powered amenities it was clearly less luxurious than the South M home. What the husband saw as an adventure (remembering he went to work most days) the wife, the simply described as a “hard lifestyle”. Although stables were constructed (the husband says for about $150,000), moving from the container to the stables, whilst an improvement, continued to present emotional challenges to the wife. However, again I do not regard this type of challenge as, of itself, enlivening the principles of Kennon. They lived then together – with the end aim of developing the property. Many people put up with less than comfortable living arrangements to save funds or to assist in achieving a common long term goal.
c)The wife identifies particularly at paragraphs 74-77, examples of how the husband’s “bad temper” exploded into physical violence on at least 3 occasions including the incident at separation in July 2006. The husband admitted in cross examination he had assaulted the wife 3 times during the course of the marriage and also post separation on 18 December 2006 (the incident detailed in the wife’s Affidavit at paragraph 77).
I have formed the view that the husband had the capacity, which he often exercised, to be difficult and controlling. At times he would be abusive. He had a strong view that what he had created and the income he had and was generating had not been contributed to by the wife.
I accept the wife’s evidence that he would retort at times – “if you don’t like it, pack your bags and return to the USA”. His actions in driving the wife to the airport with a one way ticket to the USA and arguing with immigration authorities is indicative of his attitude. Overall I am satisfied that the wife’s contributions were at times made more arduous but any adjustment to the wife would be minimal and certainly not as large as 5% of the pool as identified by me.
When I weigh up all the contributions referred to above, summarised as:
a)Significantly larger initial contribution by the husband;
b)Superior homekeeping contributions by the wife;
c)Almost entirely all the direct financial contributions by the husband from his business;
d)The additional funds from the husband’s father (indirectly) which came late in the relationship;
e)The husband’s non-financial contributions to the external maintenance and improvement of the properties;
f)The, at times, more arduous nature of the wife’s non-financial contributions;
g)The length of the relationship to separation.
I would assess contributions favour the husband in the order of 65% to 35% - or put another way, the husband would be entitled to the first 30% of the pool – or $460,000.
Section 75(2) factors
The husband, through his Counsel, does not contend that these factors do not favour an adjustment to the wife. Both parties were 59 at trial. The overwhelming advantage the husband has is that he has a business which generates significant profits which he has the capacity to flexibly distribute as he wishes. The two businesses of the husband employ a total of 15 people. He still works hard but is not obliged to spend the hours he has previously engaged in the business. He has the benefit of the accumulated losses in S at his disposal over time.
The wife’s capacity for employment appears limited to shop assistant type roles. That is what she is seeking. She has not worked in paid employment since coming to Australia in 1992. Her working life, like that of the husband, may be limited because of age. However, unlike the husband, she has no business or technical skills or qualifications to enhance her employment or income generating options.
I take into account the ultimate division of property the wife will received from this decision and that, unlike the husband, she will be essentially debt free. I also accept that part of the husband’s entitlements will be constituted by superannuation – although as he turns 60 years this year, he may be able to access those funds (tax free) in a short period of time.
The wife’s Counsel contends for an adjustment of 10% of the pool – essentially a further payment of approximately $150,000. I regard such an adjustment as proper.
Just and Equitable
If the pool of assets identified as $1,530,978 was divided as to 55% to the husband and 45% to the wife, the husband would be obliged to raise funds totalling at least $660,000 to pay same to the wife, calculated as follows:-
45% of $1,530,978 = $688,940
Furniture
$4050
Partial property settlement
$25,000
Payment to the wife
$659,890
Total
$688,940
The husband’s 55% share of the pool amounts to $842,037 made up as follows:-
Business Interests
$1,374,987
Furniture
$8,160
Motorcycles
$22,500
Superannuation
$96,281
Subtotal
$1,501,928
Less payment to the wife
$659,890
Total
$842,038
At the time of trial the husband, via S Pastoral held a term deposit of $120,000. S had also lent funds to other entities associated with the husband (eg. loan to T E C Pty Ltd of $103,314). S Pastoral Pty Ltd owns the property at U free of any secured liabilities.
When I consider these factors I am confident the husband will be able to source the funds sufficient to pay the sum of $660,000 (rounded up) to the wife within 60 days. I intend to so order.
At the time of trial Mr Forrest provided a draft minute of order which included some machinery provisions for securing repayment of the sum sought by the wife. It also provided for the two horses earlier referred to in these reasons to be made available to the wife. I will hear from the parties as to the form of the order before formally pronouncing them.
Spouse maintenance
The wife seeks an order for periodic maintenance in the sum of $200 a week.
Before the wife is entitled to an award for spouse maintenance she must satisfy the threshold test set by s.72 of the Act, namely being unable to adequately support herself.
The wife estimates her weekly needs (Part N of her Financial Statement) at $571.75 per week. She has a dog and currently rents a home for $290 a week in J. Her expenses would total in the range of $850-900 a week renting.
With the benefit of the payment from the husband, and after discharge of her current small debts of about $3000; legal fees of this litigation; and purchase of a home as she desires – I estimate the wife will have a fund available for investment of around $300,000.
Depending on the risks on investment she is prepared to accept – a return of 8-10% would be achievable and if that were supplemented by some part time employment I am satisfied the wife would be able to adequately support herself.
Accordingly I propose to dismiss the wife’s claim for spouse maintenance.
I certify that the preceding fifty-five (55) paragraphs are a true copy of the reasons for judgment of Baumann FM
Associate:
Date:
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