Bardsen & Rigg
[2021] FCCA 1464
•30 June 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Bardsen & Rigg [2021] FCCA 1464
File number(s): MLC 5888 of 2019 Judgment of: JUDGE RIETHMULLER Date of judgment: 30 June 2021 Catchwords: FAMIY LAW – property settlement proceedings – section 79 of the Family Law Act 1975 (Cth) – long marriage – loan account – legal fees – contributions – future income – just and equitable outcome – division of 53% in favour of the wife Legislation: Family Law Act 1975 (Cth) ss 75, 79 Cases cited: Best & Best [1993] FamCA 107; (1993) 116 FLR 343; (1993) FLC 92-418; (1993) 16 Fam LR 937
NHC & RCH [2004] FamCA 633; 186 FLR 240; (2004) FLC 93-204; 32 FamLR 518
Rosati and Rosati [1998] FamCA 38; (1998) FLC 92-804; (1998) 23 Fam LR 288
Trevi & Trevi [2018] FamCAFC 173; (2018) FLC 93-858
Dr Anthony Dickey ‘Can professional qualifications constitute “property”?’ (1994) 68 Australian Law Journal 827
Number of paragraphs: 93 Date of last submission: 24 March 2021 Date of hearing: 24 March 2021 Place: Melbourne Solicitor for the Applicant: Lander and Rogers Counsel for the Applicant: Mr D Sweeney Solicitor for the Respondent: Susan Snyder Counsel for the Respondent: Mr D Matta ORDERS
MLC 5888 of 2019 BETWEEN: MR BARDSEN
Applicant
AND: MS RIGG
Respondent
ORDER MADE BY:
JUDGE RIETHMULLER
DATE OF ORDER:
30 JUNE 2021
THE COURT ORDERS THAT:
1.Within 7 days the parties jointly draw a form of orders that reflects the reasons published on this day, and forward same to my Chambers by way of email to: [email protected].
2.In the event that the parties are unable to agree on a set of Orders in compliance with Order 1 herein, then each party provide a proposed set of draft orders to the court and the other party within 14 days.
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment under the pseudonym Bardsen & Rigg is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
BACKGROUND
[3]
ASSETS AND LIABILITIES
[13]
[M] Loan account
[14]
Guarantee of [M] debt facility
[16]
Expenditure since separation
[18]
Legal fees
[22]
Wife’s ANZ accounts
[32]
Wife’s FEE-HELP
[33]
Superannuation
[34]
Inheritances
[35]
Present property and superannuation of the parties
[46]
CONTRIBUTIONS
[47]
Initial contributions
[47]
Earnings contributions during the relationship
[52]
Shares in Company B
[55]
Post-separation
[65]
Conclusions on contributions
[68]
SECTION 75(2) FACTORS
[73]
Income
[74]
Wife’s FEE-HELP
[82]
[M] Loan account and guarantee
[83]
Taxation on shares
[85]
Inheritances
[86]
Adult Children
[87]
Future needs conclusion
[88]
FINDINGS
[92]
JUDGE RIETHMULLER:
The parties seek property settlement orders pursuant to s. 79 of the Family Law Act 1975 (Cth) (‘the Act’). There is no question in this case that it is just and equitable that there be orders for a property settlement, as the parties had a long marriage. The husband seeks approximately an equal split of the parties’ total asset pool, meanwhile the wife seeks a 65/35 split in her favour.
The key issues in dispute in this matter relate to an assessment of contributions, the husband’s loan account, legal fees, and the parties’ future needs.
BACKGROUND
The husband is 57 years old, and working as a partner at a professional firm and the wife is 52 years old, working as an allied health worker.
In 1994, the husband and wife commenced cohabitation, and were married in 1995.
The husband brought two home units to the relationship. Both units were in the same block in the suburb of Suburb C. The first unit was purchased by him in 1990 for $130,000 and renovated for around $30,000. The second unit was purchased in 1992, for $170,000, as an investment property.
In 1997, the husband sold one of the units for $286,400 and settlement occurred on in 1998. The parties moved into the other unit, following renovations.
In 1998, the parties’ first child, B was born (now aged 23).
In 1999, the parties purchased the former matrimonial home (‘the Suburb D Property’) for $720,000. In 1999, the remaining unit at Suburb C was sold for $342,000. The purchase of the Suburb D Property was funded by $284,087.69 (from the proceeds of sale of the units) and $363,805.48 from a joint home loan.
In 2000, the husband’s brother-in-law (his sister’s husband) deposited $34,500 into the husband’s bank account as a gift for the purpose of the husband acquiring 30,000 shares in Company B.
In 2000, the parties’ had their second child of the relationship, Z, was born (now aged 21).
The children are both adults but still receive support from their parents and are currently living with the wife.
On 18 February 2019, the parties separated and the husband commenced proceedings in this court. Later that year, the husband’s father passed away.
ASSETS AND LIABILITIES
The parties provided a table of assets, liabilities and superannuation. There are a number of issues in dispute with respect to the table: what will be termed the ‘[M]’ loan account, the guarantee of [M] debt facility, expenditure since separation, whether there should be add backs of legal fees accumulated and paid for post separation, the wife’s ANZ accounts, the wife’s FEE-HELP liability from her studies, superannuation and inheritances.
[M] Loan account
The husband is a partner in a major professional firm, referred to herein as ‘[M]’. He does not have a controlling interest. A requirement of the partnership is that his earnings are held in a partnership loan account. At present, the husband’s loan account has a balance of $619,337 owing to him. These are moneys that he has generated through his work in the partnership and paid tax upon. However, pursuant to the partnership agreement, he is unable to withdraw these funds without the consent of his other partners. He does not expect this to be forthcoming until his retirement. I accept the husband’s evidence in this regard. In these circumstances, this is a significant asset of the husband’s, however, it is not one that he can deal with until he retires. This does not make it a contingent liability. It is property of the husband, of a specified value, which he will ultimately receive. Even though there are limits upon how the husband can deal with this property, it is nonetheless ‘property’, in the same respect that a partnership interest was found to be in the matter of Best & Best [1993] FamCA 107; (1993) 116 FLR 343; [1993] FLC 92-418; (1993) 16 Fam LR 937.
I find that the moneys payable by [M] to the husband are in fact the husband’s property and valued at $619,337. The limits upon access to this property are similar to the limits upon access to the husband’s superannuation. It is appropriate to add it to the pool of assets in order to ensure that appropriate consideration is given to both the direct and indirect contributions of both parties to the accumulation of this asset. That notwithstanding, as is the case with superannuation, the limitations upon access to these funds must be taken into account when considering an appropriate settlement.
Guarantee of [M] debt facility
Another incident of the husband’s membership of the [M] partnership is that he was required to enter into a guarantee, in order to secure partnership liabilities. His exposure on the guarantee is an amount of $217,955. The contingent nature of the guarantee is such that, unless and until it is called upon by the guarantor, the liability to pay this sum will never arise. There is no evidence that the guarantee has, or is likely, to be called upon by the bank.
It appears unlikely that a guarantee of this type, with respect to a major professional firm, would ever be called upon. There is no evidence of any present risk of such. In the circumstances, I do not take this into account as a debt of the husband’s, for the purpose of identifying the assets of the parties, but rather take it into account as a contingent liability of the husband’s, for the purpose of considering the appropriate property settlement orders, when assessing s.75(2) factors below.
Expenditure since separation
During the period of separation, the wife obtained legal advice and assistance and paid the associated fees (in the sum of $40,000), with the husband’s credit card. The husband also obtained legal advice and assistance, at a cost of over $200,000. It appears that all of the legal fees were paid for from earnings of the husband post-separation.
At the time of separation, the wife had $15,638 in an ANZ account, which at trial she said she continues to hold (see discussion below). The husband outlined that there is $70,915 currently in a National Australia Bank (‘NAB’) account, and that he has debts on his Amex and Visa card of $39,565, and a tax debt for the third quarter of the current financial year of $73,341. It appears clear that the husband has had considerable earnings, from which he has supported both the wife and himself throughout the separation period, as well as paying legal fees for both parties.
I am inclined towards the view that the moneys that the husband has accumulated in the NAB account, together with the debts on the credit cards and the current debt for tax, are the consequences of his management of his own finances since separation. Neither party proposed to go through in detail each expense item in order to attempt to reconstruct a list of expenses that were specifically in one category or another. Many expenses were a continuation of financial arrangements or the costs of a second household, for example, rent of over $100,000, superannuation contributions, a car for a child and the fee for a business. The wife’s use of the credit cards over the two years totalled approximately $145,000 for day-to-day expenses, showing considerable access to financial resources of the parties. However, this figure must be seen in light of the overall income of the husband during that period and that in late 2020 the husband cancelled the wife’s access to the cards.
Ultimately, it does not seem to me to be appropriate to take into account either the funds accumulated in the NAB account, which appear to have been accumulated since separation, nor the debts which have accumulated in the credit card accounts or the current tax debt. These largely appear to be incidents of the husband’s finances in recent times. Overall, this results in a slight increase in the total assets as identified by the husband, and a slight decrease in the total as identified by the wife, who sought to add only the savings made during the separation period and exclude the debts that had accumulated during the separation period. Whilst this is a somewhat simplistic approach, it appears appropriate in the absence of any detailed forensic analysis of the finances in the post separation period.
Legal fees
I have not included the husband’s expenses on legal fees as notional property to be added back to the pool, as these legal fees were not paid for out of the assets available to the parties at the time of separation, but rather, paid for by earnings of the husband after separation. In this sense, the payment of legal fees did not deplete the pool of assets available to the parties in this case.
To add the amounts back to the pool (in the form of ‘addbacks’) would be to take into account assets that did not exist, and to effectively convert the earnings of the husband since separation, to assets of the parties. This is not the approach that has commonly been taken in cases, such as NHC & RCH [2004] FamCA 633; (2004) 186 FLR 240; (2004) FLC 93-204; 32 FamLR 518 (‘NHC & RCH) and Trevi & Trevi [2018] FamCAFC 173; (2018) FLC 93-858 (‘Trevi’). In the latter case, the Full Court of the Family Court (‘Full Court’) said:
(b) Expenditure on Legal Fees
31. To the considerations just discussed must be added the propositions emerging from authority that paid legal fees as a category of addback is imbued with considerations specific to that expenditure. The Full Court said in NHC & RCH:
56. In summary, we consider that the above mentioned decisions of the Full Court establish that, while the treatment of funds used to pay legal costs remains ultimately a matter for the discretion of the trial Judge, in determining how to exercise that discretion, regard should be had to the source of the funds.
57. If the funds used existed at separation, and are such that both parties can be seen as having an interest in them (on account, for example, of contributions), then such funds should be added back as a notional asset of the party, who has had the benefit of them.
58. If funds used to pay legal fees have been generated by a party post-separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance), they would generally not be added back as a notional asset; nor would any borrowing undertaken by a party post-separation to pay legal fees be taken into account as a liability in the calculation of the net property of the parties. Funds generated from assets or businesses to which the other party had made a significant contribution or has an actual legal entitlement may need to be looked at differently from other postseparation income or acquisitions.
Counsel for the wife sought that the legal fees be treated as ‘addbacks’, pursuant to discretionary powers, in reliance upon comments of the Full Court in Trevi, which provides in paragraphs [36] to [39], and further, paragraphs [41] and [42]:
36. Paid legal fees occupy a particular position in the consideration of addbacks by reason of s 117(1) of the Act; a matter not relevant to any other form of expenditure or dissipation of property the subject of an addback claim.
37.An order failing to addback legal costs is a pre-emptive decision about one party paying the other's legal costs. The statutorily prescribed default position is that neither party pays all or some of the other party's costs.
38.If, contrary to the demands of that section, there is to be a payment of costs, the award is dependent upon a finding of justifying circumstances which, in turn, is dependent upon (non-exhaustive) considerations all of which are informed by antecedent events - for example, whether one party has been "wholly unsuccessful" and "the conduct of the parties to the proceedings". An award of the costs of trial, if any, is in the usual run of events made after the respective entitlements of the parties to a settlement of property have been assessed and, importantly, any awarded costs are paid from the assessed entitlement to property received by the paying party.
39.As has been said, legitimate guidelines "guide the exercise of a discretion"; they do not replace it. Guidelines, must "[preserve], so far as it is possible to do so, the capacity … to do justice according to the needs of the individual case". The decision to addback or not addback paid legal fees remains a matter of discretion. But, a finding that it is just and equitable to not addback an amount of legal fees so paid is a finding that it is just and equitable for the other party to contribute to the costs of the first party in that proportion as part of an overall assessment of the justice and equity governing their property division.
…
41. The passages from NHC & RCH, quoted above, draw a distinction between legal costs met from property that would otherwise be available at trial and legal costs met from funds “generated by a party post-separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance)”. The proposition there advanced, that such expenditure “would generally not be added back”, also needs to be seen as a guideline informing the relevant discretion rather than determining it. A further distinction is suggested in NHC & RCH between funds generated in that manner and “[f]unds generated from assets or businesses to which the other party had made a significant contribution or has an actual legal entitlement”.
42. The latter suggestion recognises the discretion inherent in the task and also, perhaps, that in the particular circumstances of a case, adding back sums generated post-separation in the different manners suggested might create injustice as much as it might cure it.
Counsel also relied upon paragraph [58] in NHC & RCH:
58. If funds used to pay legal fees have been generated by a party post-separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance), they would generally not be added back as a notional asset; nor would any borrowing undertaken by a party post-separation to pay legal fees be taken into account as a liability in the calculation of the net property of the parties. Funds generated from assets or businesses to which the other party had made a significant contribution or has an actual legal entitlement may need to be looked at differently from other post-separation income or acquisitions.
It was argued that the husband’s income as a professional had developed over the time of the marriage, and that his income from the partnership should therefore be treated as if it were income generated from a business, to which both of the parties had made contributions towards, or had a legal entitlement to.
The argument carefully avoids a move toward United States of America (‘USA’) cases that treat professional qualifications as the property of a party, as this is not the law in Australia: see generally the Note in Dr Anthony Dickey ‘Can professional qualifications constitute “property”?’ (1994) 68 Australian Law Journal 827. In many cases involving businesses, the valuations proceed upon the basis of a value assigned to a manager, being paid a market rate of pay, in order to determine the additional profit that the business could generate, if a manager were employed and the parties no longer took an active role in the business. In such a case, the super-profits of the business would be earnings on the assets of the parties, just as would rent on an investment property or dividends from shares.
The difficulty in this case is that the husband’s interest in the [M] partnership is not saleable, nor can his work be delegated to others or an employee. Whilst it is a major partnership, there is no evidence to show that part of the husband’s earnings could be considered remuneration as a professional and part as the part owner of a firm.
The substance of the argument for the wife is to the effect that the husband is required to augment the property of the parties from his earnings following separation, which is not the current law. Rather, he is obliged to avoid diminishing the assets of the parties, save for expenses that would otherwise be ordinarily within the ambit of the relationship, such as meeting the mortgage expenses on the home that the parties live in, and day-to-day living expenses, to the extent that a party is not able to fund those expenses from their day-to-day income. The natural extension of the argument, as put, would be that any expenditure by the husband beyond his necessary commitments in maintaining himself and the property of the parties ought be accumulated and added to the property pool. That approach effectively treats income as property and it is not what is required under section 79 of the Act. In this case it also ignores the substantial access to resources that the wife has had since separation.
In these circumstances, I am not persuaded that I ought to notionally add the value of the husband’s legal expenses to the assets of the parties.
A more difficult question could have arisen with respect to the wife’s legal expenses, which had been paid for by the husband after separation, however, the husband did not press for them to be added back to the property pool and I do not so add them.
Wife’s ANZ accounts
The wife has two ANZ accounts. In cross-examination she said that her financial statement was accurate. The financial statement showed her ANZ accounts having balances of $1,137 and $15,638. I accept these figures.
Wife’s FEE-HELP
The wife has recently been engaged in university studies and has a current liability under the government’s FEE-HELP scheme of $2,850. However, the wife must complete two further units in her course to obtain the degree for which she is studying. This will increase her FEE-HELP debt to a total of $8,625. I take into account the present liability as part of the pool of assets and liabilities. The balance is a relevant factor in considering the appropriate property settlement orders.
Superannuation
Neither party sought to have superannuation dealt with as a separate pool and in the circumstances of this case, it appears appropriate that the division of superannuation be calculated on the same basis as the division of other assets. To the extent that either of the parties had superannuation before they met, it would have been modest and there is nothing to indicate it would not have been similar.
Inheritances
The husband is a beneficiary under a testamentary trust of the estate of his late father and the wife is a direct beneficiary under the will of her father who suffers dementia.
Counsel for the husband suggested that the respective circumstance together create a ‘nil-all draw’, as neither party valued the assets within the estates based on a previous conversation between the parties not to include their inherited assets. The wife asserts that these discussions were not intended to be legally binding: see T8.05.
The wife was cross-examined about the conversation between the parties to leave each other’s inheritance aside. The wife agreed that such conversation had occurred. It was also was put to her that neither party had formally valued any of the properties or assets within either trust. The wife agreed that no property or any other asset in the trust of the husband’s father or her father had been formally valued by the husband or herself.
The husband deposed at paragraph [93] of his trial Affidavit (filed on 3 March 2021) that his inheritance from his late father is in a testamentary trust, in which he is one of three beneficiaries. The husband is included in the beneficiaries under the trust which include his sister and five grandchildren, amongst others. The husband was not cross-examined on this point.
Counsel for the wife suggested at the end of the case that the husband will obtain the inheritance from his late father’s estate, which will put him in a position to make payment to the wife. Counsel suggested that there is a difference between moneys available to the husband, as he is a co-trustee with his sister and brother-in-law and a specified beneficiary of the testamentary trust. In comparison, the wife’s father is 85 years of age and there is no evidence from an actuary as to how long he may continue to live.
With respect to the husband’s late father’s estate, Counsel for the wife referred to paragraph [94] of the husband’s Affidavit, which sets out that:
Grant of probate was obtained in respect of my late father’s will, records, assets comprising a home in Suburb E valued at approximately 3.5 million and a bank account with funds approximately 867,473.
Counsel noted there would be a total of $4,367,473 to be divided between the husband and his sister, around $2.16m each.
In terms of the wife’s father’s estate, Counsel referred to paragraph [103] of the husband’s Affidavit:
(a) real property situated in Suburb F in the State of Victoria of approximately at $3,900,000;
(b) personal share portfolio with a market value of approximately $240,000;
…
(d) term deposit of approximately $160,000;
…
Counsel identified that the total would be $4.8m and that therefore the positions are similar. However, the wife’s interest (at some time in the future) will be divided three ways between herself and her siblings, leaving her with around $1.6m, somewhat less than the husband expected amount.
In any event, the assets in the father’s estates were not valued and it appeared the parties had approached the case on the basis of ultimately receiving similar amounts.
As the husband’s inheritance is only recent, and the wife will not receive hers in the immediate future, it appears appropriate to adopt an approach of treating the inheritances separately as a factor relevant to the s. 75(2) considerations.
Present property and superannuation of the parties
I therefore find that the presently owned property and superannuation entitlements of the parties are as follows:
Asset Owner Value ($) G Street, Suburb D Joint 3,500,000 [M] partnership loan account Husband 619,337 NAB account (Bardsen Trust) #...17 Husband 0 NAB Account (Bardsen Trust) #...44 Husband 0 NAB Account (G Pty Ltd) #...73 Husband 118 ANZ Access Advantage #...32 Wife 1,137 ANZ Online Saver #...15 Wife 15,638 Motor Vehicle 1 Husband 51,000 Motor Vehicle 2 Wife 16,000 Company B - 50,000 shares Joint 2,174,000 Company H - 438 shares Joint 1,406 Company H - 438 shares Wife 1,406 Company H - 3,200 shares Husband 10,272 Company J - 8,000 shares Joint 480 Company K - 723 shares Wife 9,898 Company L Wife 9,936 Wife’s rental bond Wife 4,750 Chattels Husband 118,830 Chattels Wife 19,800 Total assets 6,554,008 Liabilities NAB Account (Joint) #...19 Joint 138,807 NAB account (G Pty Ltd) #...11 G 780,828 NAB account (Bardsen) #...23 Husband 165,120 NAB account (Bardsen Trust) #...11 Husband RG Trust 471,942 Motor Vehicle 1 Finance debt Husband 50,344 Current FEE-HELP liability Wife 2,850 Total liabilities 1,609,891 Total property (excluding superannuation) 4,944,117 Superannuation G Pty Ltd Self-Managed Superannuation Fund Husband 912,484 G Pty Ltd Self-Managed Superannuation Fund Wife 679,515 Super Fund M Husband 155,350 Super Fund M Wife 22,794 Total superannuation 1,770,143 Total property (including superannuation) 6,714,260 CONTRIBUTIONS
Initial contributions
On the wife’s case, the parties commenced living together in 1994, although little appears to turn on this difference, given the length of the marriage.
At the time the parties commenced cohabitation, the husband had already purchased two units at Suburb C for $130,000 and $170,000 respectively. The first was purchased in 1990 and the second in 1992. Unsurprisingly, there are no longer records available that set out the precise details of those transactions, although I note that the husband said in evidence that he thought that approximately $23,000 was owing on the units at the time that the parties commenced living together. One unit was established with the intention of negatively gearing it as an investment for tax advantages, and the husband had commenced living in the other unit.
Over time, the units were renovated and ultimately sold, one being sold for $286,400 in 1997 and the other for $342,000 in 1999. The money from the sale of the first unit was used to renovate the second unit and applied to a deposit of $72,000 for the purchase of the Suburb D property by the parties in 1999. The net proceeds from the sale of the second Suburb C unit was $307,746.12, which was used to pay the mortgage account, and the balance, some $284,087.69 was applied towards the purchase of the Suburb D property.
It appears that the units, which were purchased for around $300,000 ultimately netted the parties $356,087.69, after their renovations and sales. Both parties were involved in the renovations and both had used one of the units for accommodation. At the time of their sale they had been cohabitating or married for around four to five years.
On any view, this was a significant initial contribution to the assets of the parties, particularly when one notes that the Suburb D property was purchased for $720,000 in 1999 and is now valued at $3.5 million.
Earnings contributions during the relationship
During the marriage the parties raised their two children of the relationship. The wife worked from time to time as a professional, earning relatively modest remuneration, and late in the marriage decided to have a change in career and commenced studies towards becoming an allied health worker. She then studied and obtained a graduate diploma in arts 2017 and a graduate diploma in allied health care, and is now pursuing a Master’s degree.
The wife explained in her Affidavit material that she had worked as a professional between 1993 and 1998 when the first child was born and then worked part-time between 2002 and 2011. When self-employed, she said that she was not well-equipped, as she found herself “not well suited to the documentation and construction administration which took up most of my working life”, as she was primarily interested in art. She then developed an interest in allied health and pursued her studies in this regard. She no longer has current qualifications as a professional and does not intend to return to that profession. There is no evidence before me as to what she would be able to earn as a professional if she chose to return to that profession. In her current profession, it appears that she will earn in the vicinity of $65,000 to $70,000 per annum. I accept that this is her current earning capacity and that it is unlikely to increase significantly.
The husband has worked as a professional throughout his working life and is now a partner at a major professional firm. His income is received as drawings from the firm and then distributed through family trusts. For the purpose of this hearing, it is not necessary to go to the detail of the family trust structure and taxation arrangements, as it is accepted that his income is now on average around $580,000 per annum.
Shares in Company B
During the course of the relationship, 30,000 shares in Company B were gifted to the husband from his brother-in-law (his sister’s brother) during an initial public offering of the company in 2000. At the time of the gift, the shares had a value of $34,500. Thereafter, the parties purchased 20,000 shares in the company. The gift and subsequent investment have produced a considerable capital gain. The shares were trading at $43.48 as at 19 March 2021, giving them a value in the vicinity of $2.174 million.
The shares have risen remarkably in value in the time that the parties have held them. Whether they will continue to hold that value or not is a difficult question, and certainly not one for the court. Given the speculative nature of the shares, and the potential for them to change dramatically in value (as they have already done), at the conclusion of the hearing before me I made interim property orders distributing the shares equally to the parties, so that they could each deal with half of the shares individually, as they saw fit to make their own investment decisions.
The wife says that she will undoubtedly sell her shares as soon as possible in order to convert them to a cash amount to assist her in purchasing a new home. Her Counsel said that she would do so immediately, although it appeared to me (as I indicated at the hearing) that it may well be far more tax-effective for her to sell some part of the shares at the commencement of the next financial year, given her low tax threshold from her modest income. Of course, these are matters for her based upon her tax advice and the level of risk she considers appropriate with such speculative shares. With respect to the husband, this year and next year he will earn more than the top tax threshold and therefore it matters little when he sells his shares, at least from a taxation perspective.
The shares have all been owned for more than 12 months and therefore the tax will be treated as a capital gains tax (‘CGT’) amount, based upon the difference between their base value, as calculated under the tax legislation and the value at which they are sold. No specific evidence was put before me as to the effect of taxation on the shares. Counsel for the wife, at the end of the trial, proposed to provide some post-trial taxation evidence, although no further documentation has been provided to Chambers post-hearing.
Counsel for the wife argued that the shares held by the husband should be treated as having a different value to the shares held by the wife, on the basis that the wife will forthwith sell her shares and crystallise the CGT liability, therefore showing that the shares in her hands have a lesser value to her, as a result of the obligation to pay the taxation that will crystallise: see Rosati and Rosati [1998] FamCA 38; (1998) FLC 92-804; (1998) 23 Fam LR 288 (‘Rosati’) at [6.36]. In contrast, the husband will continue to earn returns (if there are any) upon that part of the value of the asset that would be payable in CGT. There is, however, no evidence by way of calculations of the taxation liabilities that may accrue.
In this case, it is not suggested that the shares were purchased for a long-term investment unlike a house, a commercial property or blue chip shares. The shares are not in a business that is operated by the parties, and have already undertaken a spectacular rise in value. Given that shares are a particularly fungible asset, there is no difficulty in the parties selling them and purchasing them again immediately in order to crystallise CGT, if that is suitable. Indeed, this is not an uncommon scenario if a party has a low taxable income in a given year. The husband was not cross-examined as to when he would sell the shares. I accept that the wife will likely sell her shares in the near future, but am unable to form a view as to the likely sale date for the husband’s shares. I am not persuaded that the husband is more likely than not to hold his shares in the longer term, given their speculative nature and their meteoric rise to date. Indeed, if he does hold his shares for a longer period he also runs a real risk of a decrease in the value of the shares.
Counsel for the wife sought to improve the argument with respect to the matters set out in Rosati’s case by seeking an order that the parties be required to sell the shares forthwith, in order to have them calculated at an after-tax value. As I indicated to Counsel at the trial, I was not persuaded that I ought to impose some degree of control over how the parties manage their shares: the shares have already changed considerably in value over time and it is a matter for the parties to make their financial investment decisions as to the precise point at which they sell them, rather than being forced to do so by the court.
Whilst I accept that the wife is most likely to sell her shares immediately, that more likely means within six months (having regard to the potential tax benefits of holding off selling part of the shares until 1 July 2021). I accept that the husband is likely to sell the shares at a point in the not distant future, given the nature of the shares and his life circumstances.
I am not persuaded that the circumstances of this case are such as to require me to disregard the CGT implication with respect to the shares in the husband’s hands, compared to those in the wife’s hands. Rather, it appears that the wife will pay CGT in the near future following sale of her half of the shares. The husband’s CGT liability will necessarily be larger (due to his much higher marginal tax rate), although he has greater flexibility as to the sale date, if he takes the risk of holding the shares longer. There is no evidence on the likely CGT liability for either party, which will necessarily be different given their different earnings.
In the unusual circumstances of this case, these matters are factors that are best considered as part of the s. 75(2) factors, considered below.
Post-separation
Following separation, the husband continued to support the wife, both through direct financial support and by providing access to a second card on his Amex account and Visa card account. The amounts involved were considerable. He also contributed to his superannuation.
This support to the wife was provided over a duration of two years, although one must also bear in mind the very high income of the husband during this period.
A dispute arose between the parties after the wife charged $20,000 to a credit card, leading to letters requesting that she not do so without first obtaining the consent or approval of the husband. When this occurred for a second time, the husband cancelled the wife’s access to the cards in late 2020: paragraph [84] of the Husband’s trial Affidavit. No application was ever made to the court for spousal support or an interim property order. The amounts that the wife had access to overall during the period could only be described as generous.
Conclusions on contributions
The husband brought property to the relationship at its commencement. Thereafter, the husband also received a gift from his brother-in-law of a bundle of shares, during the course of the relationship.
The [M] loan account appears to have been generated whilst the parties were in a relationship. It is not argued that any significant part of the superannuation was generated prior to the relationship. All of their superannuation is as a result of the earnings of the parties through many years. In this case I am not persuaded that their contributions to superannuation are anything but equal.
Both parties committed their efforts to the relationship and family over the years. Following separation both parties have worked. The adult children have lived with the wife. The husband has provided considerable financial support for the wife.
Overall, it appears that the contributions are largely equal, save for the initial contribution of property of the husband and the gift to him of the shares, which at the time had only a relatively modest value.
In the circumstances, I would assess the contributions at 53/47 percentage split in favour of the husband.
SECTION 75(2) FACTORS
Whilst both parties are healthy and able to work, I note the difference in their age (around 5 years) which affects not only their working life but also their future needs.
Income
The wife says she does not expect her income of around $65,000 per annum to increase significantly in the future, as she will likely continue a relatively junior allied health worker for the remainder of her working life, given her late career change. However, the wife does have a tax benefit of being able to salary sacrifice $15,000 of her income to effectively obtain those moneys without paying tax. Nonetheless, it leaves her on a far smaller income than that of the husband.
The husband’s income was agreed to be about $580,000 per annum. He deposed in his trial Affidavit that:
106. I am currently 57 years of age and [the wife] is 52 years of age. We both enjoy good health.
107. I am a partner of [M]. I intend to reduce my workload by the time I am 60 years of age, if not earlier. This was a topic of discussion prior to our separation. As I had supported [the wife]’s decision to change her career and hours during our marriage, she indicated her support for me doing likewise. We each accepted that I was working under considerable stress in attempting to meet the ongoing demands of my work. I communicated that intention to [the wife] and to my children and to others, in the presence of [the wife’s] well prior to our separation. The general tenor of my stated intention was to reduce my work hours and to devote more time to philanthropic work.
The husband was not cross-examined about this. I accept that he intends to reduce his workload by the time he is aged sixty, which is in around three years. However, given his high income as a partner, and even though he may have a reduced workload (and no longer be a partner of the firm, if he chooses not to continue as such), he is still likely to earn a greater amount than that of the wife.
As set out above, Counsel for the wife also noted that she will receive inheritance an at some point in the future, however there is no evidence as to when that will be.
Counsel for the wife argued that I should proceed on the basis that the husband has the capacity to continue earning the same amount into the future, suggesting that I proceed on the basis of a retirement age based upon when citizens without independent-means are eligible to apply for the age pension, and pressed that I should proceed on the assumption that he will continue to earn the same amount until that date.
I am not persuaded that the date at which a social security entitlement may become available for those of limited means is the appropriate yardstick for determining a case such as this. The parties in this case have sufficient assets that either of them could choose to retire immediately and live very comfortably compared to the vast majority of the members of society. Similarly, each are in professions where, should they enjoy their work and wish to continue with it, they could continue beyond the date on which low income earners would receive an age pension.
I do not accept that as the husband ages he will continue to be able to generate the fees necessary to remain a partner with a large number of partnership units (which affect his income) into the future. The history of the matter shows that he had reached 100 units in his career, then fell to 70 units and now has fallen to 45 units. Whilst it is feasible that he could sustain the 45 units, he indicated that he was not confident this would be the case, due to the billable fees and there is also the consideration that it will become increasingly difficult as he ages.
I have regard to the different tax brackets that would apply to each of their incomes, as well as the salary sacrificing which the wife is able to engage in for $15,000 her income, effectively making that amount of her income tax-free, and thereby saving a modest amount in tax. However, the reality is that there is a very significant difference between the husband’s income and that of the wife.
Wife’s FEE-HELP
I accept that the wife will incur further FEE-HELP debts as outlined above in order to complete her studies. It is appropriate that I take the further debt that she will incur, projected to be $8,625, into account, as it will support her earning capacity.
[M] Loan account and guarantee
The loan account, which I have included in the assets of the parties, is similar to superannuation, however it cannot be formally split, as the professional firm is not a party to the proceedings, nor would it seem likely to be appropriate to require them to pay out part of this money, which is no doubt held with respect to each partner in order to manage the finances of a large firm. The husband will retain the loan account, and the restrictions upon accessing it must be taken into account.
The guarantee is a contingent liability of the husband. However, I am not persuaded that there is any real prospect of him being called upon with respect to the guarantee. Whilst I take it into account, little weight can be attributed to this factor.
Taxation on shares
I have outlined the position with the shares above. If both parties sell their shares in the near future then they are of a greater value in the hands of the wife, as she will pay far less tax (if she holds off until 1 July 2021). If the husband waits to sell his half of the shares in the future he potentially earns a return on that part of their value that would be payable in tax if they were sold immediately. Ultimately, I am not persuaded that the difference in position of the husband and wife with respect to the shares will be significant, even if the husband delays selling them for several years, due to his higher taxation rates unless he sells them after he retires. However, the husband’s financial position gives him greater options with respect to when he sells his shares.
Inheritances
The husband will soon receive his inheritance. The wife will not receive hers until her father passes. The practical difference is that the husband is presently in a much stronger financial position and the wife will not ultimately receive her inheritance for an unknown period. Both will receive significant sums, it appears in excess of $1.5 million each.
Adult Children
Both parties continue to provide financial support to the children, who currently live with the wife, although spend time with each parent.
Future needs conclusion
Counsel for the wife argues that an adjustment should be made resulting in a 65/35 percentage split of the total pool in favour of the wife, which would result in her receiving around $2 million more out of the asset pool than the husband. This would represent an amount of more than 5 years of the difference in the future earnings of the parties (assuming that the husband was able to continue to work at the current rate until 62 years of age). I do not accept that this is an appropriate basis upon which to approach the case.
Counsel for the husband suggests an adjustment of no more than five per cent, which would result in a difference of around $660,000 on the property division, the equivalent of a little over two years of the difference in income of the parties paid as a lump sum.
As with most family law cases, the adjustment to be made with respect to the future needs of the parties is not something that can be calculated with actuarial precision and is dependent upon many variables that cannot be known precisely.
Considering all of the various factors in this case holistically, I am persuaded that an adjustment of 6% is appropriate, resulting in a split of 53/47 in favour of the wife.
FINDINGS
In this matter a property settlement of 53/47 in favour of the wife results in her retaining assets and superannuation of $3,558,557.80 of which around $938,175.79 will be held in superannuation and $2,620,382.01 in presently available assets (subject to her CGT liability on selling the half of the shares she has received). The husband will retain $3,155,702.19 comprising $831,967.21 in superannuation, the partnership loan account of $619,337 and presently available assets of $1,704,397.98 (subject to the CGT liability with respect to the shares). Whilst this leaves the husband with far less in presently available assets, he has access to his inheritance and a far greater earning capacity. Ultimately, I am satisfied that such an adjustment is appropriate and just and equitable within the meaning of the statute.
I will direct the parties to provide draft orders reflecting the terms of this judgment within 7 days.
I certify that the preceding ninety-three (93) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Riethmuller. Associate:
Dated: 30 June 2021
Key Legal Topics
Areas of Law
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Family Law
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Property Law
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