ATHERTON & ATHERTON
[2015] FCCA 1448
•1 June 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| ATHERTON & ATHERTON | [2015] FCCA 1448 |
| Catchwords: FAMILY LAW – Property – weight to be given to initial contributions – dispute over valuation of (omitted) business – whether or not recurring income or total income should be taken into account – whether or not husband was effective owner of the (omitted) business or only a third part owner – main asset is the business – property settlement by way of instalments. |
| Legislation: Family Law Act 1975, ss.79(1), 79(2), 79(4), 75(2) |
| Hickey & Hickey & Attorney-General (Intervener) (2003) FLC 93-143 Stanford & Stanford [2012] HCA 52 Watson & Ling (2013) 49 Fam LR 303 Pierce v Pierce (1998) FLC 92-844 Williams & Williams [2007] FamCA 313 C & C (2005) FLC 93-220 Nettle v Nettle [2009] FamCAFC 185 Rosati v Rosati (1998) FLC 92-804 Lenehan v Lenehan (1987) FLC 91-814 |
| Applicant: | MS ATHERTON |
| Respondent: | MR ATHERTON |
| File Number: | MLC 5270 of 2013 |
| Judgment of: | Judge Harland |
| Hearing dates: | 9 & 10 April 2015 |
| Date of Last Submission: | 10 April 2015 |
| Delivered at: | Melbourne |
| Delivered on: | 1 June 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr Hall |
| Solicitors for the Applicant: | Croxford Partners |
| The Respondent appearing in person |
ORDERS
That the wife be declared the sole legal and equitable owner of the following:
(a)Her car;
(b)The amount including any interest in the trust account of Middlemass Solicitors Bendigo;
(c)Her superannuation;
(d)The amount in her account in the vicinity of $96,000;
(e)Chattels in her possession except the diamond engagement ring which is the subject of Orders by Consent.
That the husband be declared the sole legal and equitable owner of the following:
(a)His car;
(b)His superannuation;
(c)(omitted) Pty Ltd;
(d)Chattels in his possession.
That the husband indemnifies the wife against all payments and liability of any kind, including but not limited to any taxation, penalties, interest of any other charge arising out of the period of the relationship regarding any entity that the husband retains, including but not limited to (omitted) Pty Ltd.
That the husband shall pay the wife the sum of $155,000, such sum to be paid by installments of not less than $2,000 per month commencing the 20th day of June 2015 with the right to repay part or the balance in lump sum in full or in part at any time, provided that the full amount shall have been paid on or before the 20th day of November 2021;
The husband shall pay interest in accordance with the Federal Circuit Rules 2001 (Cth) on any amount overdue from the date due until paid in full;
That the husband within 7 days of the date of these orders do all things, and sign and lodge at his expense all necessary documents so as to remove the wife from all positions in any company or trust in which he or the wife has any interest or but for these orders would have any interest including but not limited to her being a director, secretary or public officer, trustee or otherwise.
The wife shall transfer to the husband or his nominee all of her shareholding in (omitted) Pty Ltd once the husband shall have paid the said sum in paragraph 4 hereof together with any interest due in full.
That each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to these orders;
That the parties do all such acts and things and sign all such documents and the wife provide bank account details for payment by monthly credit the sum in paragraph 4 hereof.
That unless otherwise specified in these orders each party be solely entitled to the exclusion of the other to all other property and chattels of whatsoever nature and kind in the possession of such party as at the date of these orders and that for this purpose bank accounts are deemed to be in the possession of the person who appears on the bank's record thereof, insurance policies are deemed to be in the possession of the beneficiary thereof, superannuation entitlements are deemed to be in the possession of the person who is named as the worker whose age or working future provides the condition for payments out of such entitlements.
That in the event that either party should fail, neglect or refuse to sign or execute any deed, document or instrument required by or to give effect to these Orders then pursuant to Section 106A Family Law Act 1975 that the Registrar of the Federal Circuit Court of Australia, Melbourne Registry shall be and is hereby authorised, empowered and directed to sign and execute such deed, document or instrument in the place and instead of such party and to thereafter do all things and acts as are necessary to give validity and operation to same.
IT IS NOTED that publication of this judgment under the pseudonym Atherton & Atherton is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLC 5270 of 2013
| MS ATHERTON |
Applicant
And
| MR ATHERTON |
Respondent
REASONS FOR JUDGMENT
This matter concerns a property dispute. There are two major issues in dispute which have prevented the matter from resolving. The parties have three children aged 12, 10 and 7 and they have been able to make arrangements for the care of the children without court orders.
The dispute centres on the husband’s business. The husband is a (occupation omitted). The parties did not agree on a single expert and there was a real difference of opinion amongst the experts in the case.
The issues that parties asked me to determine at the beginning of the hearing are as follows:
a)The weight to be given to initial contributions;
b)the value of the husband’s business;
c)the ownership of the husband’s business;
d)whether the funds in the trust account should be included in the asset pool;
e)The adjustment to be made for section 75(2).
Both parties filed case outlines listing the documents they wished to rely on. The husband filed an affidavit from the trial on 31 March 2015 which totalled 613 pages. The body of the affidavit is 25 pages. Most of the affidavit is annexures. I indicated to the husband at the beginning of the hearing that I would not read the annexures unless he took me to particular annexures which were relevant to the issue in dispute.
The husband is self-represented. After the wife filed an affidavit by an expert I caused the matter to be listed for mention on 7 April 2015 as I was concerned that there were competing valuations on foot and so that the experts would need to confer with one another before the hearing and be available for cross-examination. I was concerned if the matter was left to the date of the hearing that the hearing may have to be adjourned.
There was also a contravention application outstanding. I will return to the contravention application later in this judgment.
The wife is aged 41. The husband is aged 45. The parties started living together in (omitted) 1999 and were married on (omitted) 2000. The parties separated after 14 years of being together on 17 February 2013.
Legal Principles
Part VIII of the Family Law Act1975 is the part of the Act dealing with property, spousal maintenance and maintenance agreement. The major provisions relating to marital property division are contained in sections 79(1); 79(2); 79(4); & 75(2) of the Act.
Pursuant to section 79(1) the Court is authorised to make such order as it considers appropriate in order to alter the interest of the parties to a marriage in relevant property.
The expression “property” is defined in section 4(1) in relation to the parties to a marriage or either of them as meaning “…property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion.”
Pursuant to section 79(2) the Court is actively prevented from making such an order unless it is satisfied that it is just and equitable to do so in all the circumstances prevailing. This follows from the use of the prohibitory words “shall not” in the relevant section.
Section 79(4) provides the mechanics of how a Court is to make an order altering marital property interests.
Paragraphs (a), (b) and (c) categorise contributions made by marital partners, which are relevant. Paragraph (d) directs the Court to take into account of any order regarding the earning capacity of either party to the marriage concerned.
Paragraph (e) directs the Court to consider a list of matters contained in section 75(2), which are germane to spousal maintenance or the prospective positions of the parties concerned by reference to their respective financial resources, means and needs. Finally, paragraphs (f) and (g) apply to child support and previously made parenting orders, as relevant. There is some overlap between these various provisions and not all will be applicable in every case.
Until recently, the position in respect of the process to be applied to the resolution of matrimonial property cases was said to be well settled with a preferred approach as set out by the Full Court in Hickey & Hickey & Attorney-General (Intervener) (2003) FLC 93-143 at 78,386 [39].
The High Court has recently considered the operation of section 79 in the matter of Stanford & Stanford [2012] HCA 52.In the case, the majority stated at [35]-[36] that:
“It will be recalled that s 79(2) provides that "[t]he 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) prescribes matters that must be taken into account in considering what order (if any) should be made under the section. The requirements of the two sub-sections are not to be conflated. In every case in which a property settlement order under s 79 is sought, it is necessary to satisfy the court that, in all the circumstances, it is just and equitable to make the order.
The expression "just and equitable" is a qualitative description of a conclusion reached after examination of a range of potentially competing considerations. It does not admit of exhaustive definition. It is not possible to chart its metes and bounds.” [Footnotes omitted]
The High Court found three fundamental propositions with respect to the application of section 79, which can be summarised as follows:
1.Firstly, in order to ascertain whether it is just and equitable to make a property settlement order, it is necessary to identify the existing legal and equitable interests of the parties in the property. The High Court emphasised the word existing.
2.Secondly, although section 79 gives the court a broad power to make property settlement orders it may not be exercised in an unprincipled fashion. There must be no assumption that the parties’ interests are or should be different to their existing interests.
3.Thirdly, when considering whether making a property settlement order is just and equitable the court must not assume that one or the other party has the right to a property adjustment order. The court must give separate consideration to section 79(2) in addition the matters referred to section 79(4).
In Stanford & Stanford the High Court indicated that, in the vast majority of matrimonial property cases, the requirements of section 79(2) will be readily satisfied, largely as a result of a consideration of the circumstances of the parties concerned, particularly the nature of their separation.
The High Court also pointed out that what is just and equitable is different in every case.
The principles referred to in Stanford & Stanford are equally applicable to de facto property matters: see Watson & Ling (2013) 49 Fam LR 303.
In Pierce v Pierce (1998) FLC 92-844 at para.28 the Full Court said:
“In our opinion it is not so much a matter of erosion of contribution but a question of what weight is to be attached, in all the circumstances, to the initial contribution. It is necessary to weigh the initial contributions by a party with all other relevant contributions of both the husband and the wife. In considering the weight to be attached to the initial contribution, in this case of the husband, regard must be had to the use made by the parties of that contribution.”
In Williams & Williams [2007] FamCA 313 the Full Court states at the paragraph 26:
“We think there is force in the proposition that a reference to the value of an item as at the date of the commencement of cohabitation without reference to its value to the parties at the time it was realised or its value to the parties at the time of trial, if still intact, may not give adequate recognition to the importance of its contribution to the pool of assets ultimately available for distribution between the parties Thus where the pool of assets available for distribution between the parties consists of say an investment portfolio or a block of land or a painting that has risen significantly in value as a result of market forces, it is appropriate to give recognition to its value at the time of hearing of the time it was realised rather than simply pay attention to its initial value at the time of commencement of cohabitation. But in doing so it is equally as important to give recognition to the myriad of other contributions that each of the parties has made during the course of their relationship.”
The leading case with respect to the treatment of superannuation is
C & C(2005) FLC 93-220. Where there is significant superannuation it is often appropriate to use the two pool approach. In this case, the amount of superannuation is so small I will include the parties’ superannuation interests in one pool.
Initial contributions
The parties agree that at the commencement of the relationship the wife owned a house at (omitted) which she sold in 2000 and received net proceeds of $63,500 sale. She also had a Toyota worth $16,000, home contents of $20,000, and she sold a (omitted) business for $9,500.
The parties also agree that the husband had a farm at (omitted) receiving net proceeds in October 2000 of $7,795, a Land Cruiser worth $7,050, home contents of $20,000, a diamond ring gifted to the wife worth $34,000 by his parents.
The husband also contends that he had livestock imported from (country omitted) worth $80,000 and a business interest in an unlisted public company worth $133,333 as at (omitted) 2000 and equity in a property at (omitted) of $12,000. The parties incurred significant losses from the business. The husband bases the value of the business on financial statements for the company prepared as at 30 June 2000 which he says totalled $373,420.
When assessing initial contributions it is not simply a matter of assigning a value to it. It is also necessary to consider how that asset was used.
The parties consented to an order on 10 April 2015 that the diamond ring shall be passed down to the first of their children to marry. On that basis, it would be double counting to include it as an initial contribution by the husband or to include it in the property pool.
The difficulty I am faced with, with respect to the initial contributions is that the husband’s evidence is unclear.
I accept that the husband had his equity removed from the farm and the (omitted) property.
The husband says he had livestock which was later sold for $65,000 or $70,000. The husband said this during closing submissions. There was little cross-examination about initial contributions.
The initial contributions of significance on the wife’s side are the equity of $63,000 from the sale of her property and the $9,500 proceeds of sale of her business.
On the husband’s side, the initial contributions of significance are the net proceeds of sale of his two properties of $37,500 and $12,000.
I am not satisfied that his interest in a company had the value that the husband attributed to it based on the 2000 financial year statements. The husband was not cross-examined about the (livestock omitted).
The parties made losses on an investment. Neither party suggests that it was due to waste or recklessness.
The wife urged the Court to make a 5% adjustment in her favour. The husband argued both made initial contributions and there should be no adjustment.
I am satisfied that both made initial contributions. I am not satisfied on the state of the evidence that there was such an imbalance between them so as to justify an adjustment being made for initial contributions by either party in the circumstances of this case.
The husband’s business
The Full Court discussed the principles that apply to business valuations in Nettle v Nettle [2009] FamCAFC 185. They referred to the guiding principle established in Spencer v The Commonwealth (1907) 5 CLR 18 whereby a prudent purchaser wishes to pay a not overanxious vendor for the most advantageous purpose. Spencer’s case concerned land but the principle has been extended to apply to other types of valuations.
The Full Court in Nettle v Nettle pointed out that valuation is an indirect science. It involves estimation rather than mathematical precision. The court does not have to accept an expert opinion just because there are no errors in their methodology. This comment is relevant to this case because as will become apparent from the discussion below there are aspects of Mr F’s opinion I do not accept. This is not based on any error in his methodology.
The husband is a (occupation omitted). He is the sole director and shareholder of (omitted) Pty Ltd. The husband is also the sole director of (omitted) Pty Ltd (“(omitted)”). The wife, (business omitted) and (business omitted) are the shareholders. (business omitted) runs the (omitted) business. The husband says that this is his sole source of income.
The dispute with respect to the husband’s business is twofold:
a)The percentage of ownership of the husband;
b)The value of the husband’s interest in the business.
The expert evidence
The wife relied on two experts, Mr S and Mr F. The husband relied on Mr F. All three were cross-examined together. This was an efficient and extremely helpful method of taking their evidence. It would have been much more laborious to cross-examine each expert individually and they potentially would have had to have been recalled.
Mr F prepared a report for the wife dated 8 January 2014. In that report he discusses the two methods (occupations omitted) use to generate fees. (occupations omitted) can earn a commission calculated as a percentage of the (omitted) and commissions based on insurance premiums. Mr F says that (occupations omitted) are moving away from commission based fees to charging a fee for service. A fee for service can be charged for a one off appointment or as annual reviews.
Mr F is an accountant. His report is limited by reason of its age. Mr F is not qualified to express a view about the industry standard to be applied to valuing (omitted) businesses. Mr S and Mr F do have those qualifications.
Mr F did not put a figure on the business because as he said he is not an expert valuer. He was engaged to discuss the structure, (business omitted) and to give an opinion as to how the industry values the (omitted) business. His report was prepared in January 2014 and since then the business has changed provider.
The experts agreed that by looking at the last three years income, the average figure was $139,000. They agreed that the multiples could be applied to the percentage for the (omitted) and a percentage for the insurance income. The financial figures for the last three years were remarkably consistent and therefore a good indicator for the business moving forward. On that basis the experts prepared the calculations.
Mr S is a chartered accountant. His report is dated 25 March 2015. In his report Mr S says that the (omitted) industry standard for valuing a (omitted) business is to apply a multiple of 2.2 to 3.5 times the annual turnover.
Mr F’s report is the most detailed. He is a forensic accountant. His report is dated 30 March 2015. He expressed the view that the most appropriate method for valuing the business is the net assets approach and he was of the view that applying the future maintainable earnings approach would produce a negative result.
Mr F says that different multiples should apply to the recurring revenue for (omitted) and the income earned from insurance.
There is no dispute that the husband is the licensed authority holder which is a prerequisite for someone being able to run a (omitted) business. The income from the business is paid to a trust controlled by the husband.
The (omitted) Trust has substantial carry forward losses which the husband benefits from each year as it reduces his taxable income to nil.
The husband agreed that he had only provided Mr F with five months of figures and not 12 and that was because he had spoken to others who had said they would only be interested in the income of an ongoing concern. A five-month period is simply not representative enough of the income earned by the business and that it would be necessary to at least consider a 12 month period to take into account as to whether or not there are dips from one month to another and to allow for any seasonality.
Mr F was instructed to value the company (omitted) which includes the business. Mr F and Ms S were instructed to value the business. When (business omitted) is valued there is a negative asset position. Mr F also made an allowance for tax on the sale of the book of recurring revenue of $75,000. This is why his valuation is so much lower than the others. The purpose of the company is to run the (omitted) business.
The husband does not intend to sell the business. He has worked hard and wants to continue to see it grow. At paragraph 6.36 the Full Court in Rosati v Rosati (1998) FLC 92-804 identified four possible ways of treating potential capital gains tax:
“It appears to us that although there is a degree of confusion, and possibly conflict, in the reported cases as to the proper approach to be adopted by a court in proceedings under s.79 of the Act in relation to the effect of potential capital gains tax, which would be payable upon the sale of an asset, the following general principles may be said to emerge from those cases:-
(1) Whether the incidence of capital gains tax should be taken into account in valuing a particular asset varies according to the circumstances of the case, including the method of valuation applied to the particular asset, the likelihood or otherwise of that asset being realised in the foreseeable future, the circumstances of its acquisition and the evidence of the parties as to their intentions in relation to that asset.
(2) If the Court orders the sale of an asset, or is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings.
(3) If none of the circumstances referred to in (2) applies to a particular asset, but the Court is satisfied that there is a significant risk that the asset will have to be sold in the short to mid term, then the Court, whilst not making allowance for the capital gains tax payable on such a sale in determining the value of the asset, may take that risk into account as a relevant s.75(2) factor, the weight to be attributed to that factor varying according to the degree of the risk and the length of the period within which the sale may occur.
(4) There may be special circumstances in a particular case which, despite the absence of any certainty or even likelihood of a sale of an asset in the foreseeable future, make it appropriate to take the incidence of capital gains tax into account in valuing that asset. In such a case, it may be appropriate to take the capital gains tax into account at its full rate, or at some discounted rate, having regard to the degree of risk of a sale occurring and/or the length of time which is likely to elapse before that occurs”.
Mr F also opined that the husband does not control the business because he is an employee of the company and not a shareholder of the business. He conceded that the company does not do anything other than (omitted business). It is clear from Mr F’s perspective that he was taking a formal review based on the documents and not looking behind the corporate veil. This is not a criticism but it explains the different approaches. In my view it is not appropriate to include assets of assets of the company which Mr F says is $23,000 and then to deduct a further amount of $75,000 for tax when really all the company does is run the (omitted) business and there is no evidence that the husband intends to sell the business. This is consistent with the principles identified by the Full Court in Rosati v Rosati.
Part of the reason that the three experts have different opinions is because two of them were valuing the business and the third; Mr F was valuing (business omitted). Mr F also did not refer to accrued income. He says he did not have that on the documents that he had. He agreed that there is a lag with income earned in December 2014 not paid until January 2015 and that is not in the figures he had been provided.
Then it also became clear that Mr F had not been given a complete years’ worth of figures but only part of it. Mr F gave evidence that taking a short time frame like that does not give a true reflective value of the (omitted) business as it is seasonal that most insurance policies are written in March, April, May and June. It becomes very busy for tax planning leading up to the end of the financial year. For those reasons a 12 month period should be examined. Mr F said there was no evidence that this particular business was seasonal. He conceded Table C in his report only included the months of September to January. Mr F was not provided with figures for a 12 month period.
(omitted) Group holds the licence and the authorised representative is the husband. The licensor would have to approve the transfer of the licence to ensure that the business is being sold to someone with the proper qualifications.
It is not necessary to recite the cross-examination in detail because by the end of the cross-examination the experts narrowed the issues in dispute between them considerably.
During the morning tea break the experts conferred and came up with two alternate calculations which were tendered and marked as Exhibit A. They agreed on the calculations, the multiples used and split of income for (omitted) and insurance commissions. They agreed that a higher multiple of 2.9 should be used for the income insurance as that income is more secure as clients tend to be reluctant to change insurers. A lower multiple of 2.6 was applied to the (omitted) because that insurance is not as certain. The same multiples were applied to the second calculation. Having considered their evidence I find that it is proper to apply these calculations to value the (omitted) business.
The first calculation applied the multiples to the total revenue. It resulted in a value for the business of $379,122. I will refer to this as scenario A.
The second calculation applied the multiples to the recurring revenue only. It results in a value for the business of $280,932. I will refer to this as scenario B.
It is not open to me to accept a mid-point between scenario A and scenario B: Lenehan v Lenehan (1987) FLC 91-814.
Is it appropriate to use the total revenue or the recurring revenue for the purposes of the valuation?
Mr F opined that only recurring revenue should be used as that is what a purchaser can rely on as income coming in such is the nature of goodwill or a rent roll for real estate agents. He distinguishes the fee for service payments likening it to personal goodwill as clients often go to see a particular (business omitted). The income is also less reliable as there can be one off appointments.
The husband is the only (occupation omitted) working in the business. (occupations omitted) assist him. Mr F took issue with this distinction as the industry is moving away from commission based fees to fee for service. Some of the one off income could be from the same client each year. It would be possible as part of the due diligence for the purchaser to see which clients had ongoing agreements for fee for service and for how long they had been with the firm.
I find that the husband is the effective owner of the business and that 100% of the value should be included in the matrimonial pool.
Who owns the business?
The other controversial aspect of the business is the ownership of the business. The husband asserts that he owns 33%. Mr F agrees with that assertion. The wife and her valuers assert that the husband is the effective owner of 100% of the business. Neither of the other shareholders have received any dividends. All of the income goes to the husband and Mr F says that’s because the business is making a loss and the husband has to be paid an income as an employee. Of course it is the company that has shareholders not the business. The husband is the sole director of the company.
Mr S and Mr F both expressed the view that the business is fundamentally the husband’s because he is the authorised representative of that business and it cannot operate without him because there were no other (occupations omitted), only (occupations omitted) who can only operate under the husband’s guidance.
The three shareholders of that (business omitted) service are (omitted) Pty Ltd, (omitted) Pty Ltd and the wife.
One of the difficulties in the husband’s case is that his affidavits contained large amounts of hearsay evidence involving his business partners. Neither business partner prepared an affidavit nor were they called as witnesses in the case.
Contributions
Apart from the initial contributions the parties agree that they made equal contributions throughout the marriage in the different views of responsibilities.
Section 75(2) factors
The main issue here is the disparity in the parties’ income. The wife has a (omitted) business which she works in on a very part-time basis and says currently she earns about $100 a week. She gave evidence that she found the breakdown of the relationship and the Court proceedings stressful and I have no doubt that the husband has as well. It is likely that she will be able to earn a higher income than she is currently once these proceedings are over.
The wife wants to retrain. Even when she does she is unlikely to earn an income similar to the husband’s. The husband has earned $85,000 a year from the business and does not have to pay tax on that because of the losses he can carry for the trust.
The parents care for the children equally. The parents are of similar ages and they do not have any health difficulties. The parties were married for 13 years.
The wife’s counsel submits that she is entitled to an adjustment to these factors of between 5% and 10%. The husband acknowledges that there is a disparity in their incomes and that will be the case in the future but says the adjustment should not be as high as 10% as she is not exercising the full extent of her earning capacity.
The party’s legal and equitable interests
The parties agree that as at the date of hearing there is the sum of $69,185 held in Middlemass lawyers trust account. The wife has $96,000 in her account. The wife has $12,000 in superannuation and the husband has $1,000 in superannuation. The parties do not agree about the valuation of the motor vehicles and relied on differing red book valuations. By far the major asset of the relationship is the (omitted) business.
The husband gave guarantee for $33,000. There is no dispute that the guarantee exists. Rather the dispute is about whether or not it is likely to be called upon. There was no evidence about this and as such, I do not propose to include the guarantee as a liability as it is too uncertain.
The husband asserts that the $69,185 in the Middlemass trust account is in fact money belonging to his parents. The difficulty with the husband’s argument is that he has not called either of his parents to give evidence. Neither of his parents have sought to join the proceedings and in those circumstances I cannot be satisfied that the money belongs to them and I propose to include it in the pool to be divided.
There was a dispute about the jewellery and in particular, jewellery that the husband’s parents gave to the wife. Those items of jewellery have not been valued. Sensibly the parties came to an agreement whereby those rings will be passed on to their children and on that basis the parties agreed not to include the jewellery in the pool.
It became clear during the course of the husband’s cross-examination that the other two shareholders apart from the wife operate and receive income from another business.
As the husband’s trust carries forward substantial losses each year he does not pay tax on his income. That has had the effect of having been assessed as not having a child support liability.
There was an amount of $25,000 owing from the business but it is clear from the husband’s evidence in cross-examination that that amount has been put back into the trust and spent.
The wife issued subpoenas to the business partners for Atherton and Mr J. It became apparent during the hearing that the husband had not inspected the documents. He was given an opportunity to inspect those documents over the luncheon adjournment and to tender documents if he thought they were relevant to his case. Exhibit C is an email from Mr Atherton dated 19 September 2011. This exhibit is historical and does not assist the husband’s case.
The husband tendered red book valuations he obtained on the parties’ car. He conceded that he had estimated the kilometre usage on the wife’s car. The wife accepted the red book valuation for the husband’s car to the sum of $11,800 but disputes the red book valuation of her car $28,100 saying that she had attempted to trade the car in and had been offered only $18,000 and even less at another dealer. That is the best evidence of value before the Court. In my view it is appropriate to use the red book valuations for both cars.
The pool is a fairly modest one.
(omitted) business $379,122
Funds in the Middlemass trust account $69,185
Wife’s bank account $96,000
Wife’s Mazda $28,100
Husband's Toyota (omitted) $11,800
Wife’s superannuation $12,000
Husband’s superannuation $1,400
$597,607
The wife will retain or receive:
Funds in Middlmass trust account $69,185
Funds in her bank account $96,000
Mazda $28,100
Superannuation $12,000
$205,285
The husband will retain:
The business $379,122
Toyota (omitted) $11,800
Superannuation $1,400
$392,322
The wife has 34% of the assets. In order to receive her entitlements, the husband will have to make monthly payments.
Contravention application
The contravention relates to the husband’s arrears of maintenance payments. The husband consented to pay the wife $3,000 a month pursuant to paragraph 19 of the orders made on 29 July 2013. The husband admits that he is in arrears of $15,200.
The husband says he could not afford to keep up the payments. He seeks that the arrears be discharged. The wife seeks an order that the husband be required to pay the arrears.
The husband consented to the order. He was in a position to know what his financial circumstances were at the time and his income has remained steady. In my view in those circumstances it would be unjust to the wife to simply discharge the arrears.
The wife did not ask the Court to make orders formally finding the husband contravened the orders and that a penalty be imposed. She simply seeks arrears quantified in the sum of $15,200.
I will order that the husband pay the arrears in the sum of $15,200 to the wife that amount will be added on to the amount that he otherwise has to pay the wife by way of property settlement.
Submissions
The wife’s counsel submitted that scenario A is the appropriate figure to apply because the business has earned an average income of $139,000 a year for the past three years and that income is made up of both types of income. Scenario B ignored one type of income therefore undervalued the business.
The complicating factor in this case is that the main asset of the parties is the business. Neither party is seeking that the business be sold as they have worked hard in the business and it is the husband’s sole source of income. They agree that this means the husband will have to make periodic payments to the wife.
The wife’s counsel submitted that there should be an order that the husband pay the money owed by way of property settlement by monthly amounts but that in the alternative he has the option to pay by way of lump sum should he be in a position to do so. The wife acknowledges that there is no security for this order as it relies on the husband continuing to earn the income that he is.
This is one of those cases where section 81 of the Family Law Act should not be applied to the detriment of the wife. To finalise the financial relationship between these parties now would lead to a property outcome that is not just and equitable and to the husband’s credit, he is not seeking that I do that.
He submitted that the Court should accept scenario B. He very much emphasised that of the three experts Mr F’s valuation complies with the family law. Certainly his report was the most comprehensive and detailed. However, the issue really came down to which income figure to use and which multiples to apply. It was clear that Mr F only had five months’ worth of figures that he bases his calculation on. Some of the experts agreed on the use of the appropriate multiples. The issue for the Court to determine is whether the figure in scenario A or B should be used as the value of the business. The income for the business has consistently been $139,000 a year and that is the figure that scenario A is based on. It is not justifiable to take off the one-off revenue which resulted in a significantly lesser value given that the actual income that has been coming into the business has been so consistently at the $139,000 figure for 3 years.
The husband also urged the Court to divide the value of the business by three to allow for the fact that the husband has only a third interest in it. Again the evidence does not support that contention. There is a difference between the company and the business. It is clear from the evidence that the husband is entitled to the income received from the business. I am not satisfied that Mr J and Mr Atherton have any active involvement in the (omitted business). In fact, the evidence was that they have a separate business that was recently liquidated. This Court looks behind the legal structures and the corporate veil to look at the substance of the arrangement and the person who has control. In these circumstances, I am of the view that the husband owns the whole of the (omitted) business. This is distinct from the group of companies. The other company deals with managed funds and Mr J and Mr Atherton took drawings each month from that company.
In my assessment it is appropriate to make an adjustment of 7.5% in favour of the wife for section 75(2) factors.
The wife will need to receive a payment from the husband of $138,339.02 plus the arrears of $15,200 totalling $153,539.02. I will round that figure up to $155,000.
The wife asks that the husband make the monthly payments of $2000. The husband seeks that he makes monthly payments of $1500. The husband will no longer be making the $3000 monthly payments. At a rate of $2000 per month, if the husband makes no advance payments, it will take him 77 months to pay the wife. If the husband was to make payment at $1500 per month without advance payments, it would take him 104 months to pay the wife.
It either case, it is a long term arrangement whereby the wife has to wait for her property entitlements and where the husband has the commitment to pay by instalments.
On balance, I think it is appropriate to order the husband to make monthly payments of $2,000. The wife will remain a shareholder until she has received the whole amount. The order proposed by the wife’s counsel enables the husband to make advance payments if he wishes to do so. I am satisfied that this is the best outcome to achieve justice and equity between the parties.
For these reasons I make the orders set out at the beginning of this judgment.
I certify that the preceding one hundred and five (105) paragraphs are a true copy of the reasons for judgment of Judge Harland
Associate:
Date: 1 June 2015
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