BAZZI-CIRINO & CIRINO

[2014] FamCA 920

FAMILY COURT OF AUSTRALIA

BAZZI-CIRINO & CIRINO [2014] FamCA 920

FAMILY LAW – PROPERTY SETTLEMENT IN RELATION TO MARRIAGE – Where the parties cohabited for approximately ten years – Where there are two children of the marriage – Where the wife’s financial contributions and her contributions to the care of the children post separation are greater than the husband’s – Where the children remain in the care of the wife – Where the contributions of the wife are found to be 60 per cent and the contributions of the husband are 30 per cent – Where there is an adjustment made in favour of the wife for 75(2) factors of 5 per cent.

FAMILY LAW – PROPERTY SETTLEMENT IN RELATION TO MARRIAGE – Legal fees – Where the husband seeks that the paid legal fees of both parties and liabilities relating to the legal fees be included in the asset pool as an “add back” – Where the funds expended by the wife on legal fees were sourced from her post separation income – Where the wife’s income was generated by her professional practice – Where the husband asserted that he contributed to the practice during the marriage – Where the husband was not the co-owner or operator of the practice–  Where the income produced by the practice post separation was not referable to the parties’ joint efforts – Where the legal fees and related liabilities were not included in the asset pool but were taken into account under s 75 (2).

Family Law Act 1975 (Cth) ss 75, 79
Family Law Rules 2004 (Cth) Rule 15.49

Chorn & Hopkins (2004) FLC 93-204
Eufrosin & Eufrosin [2014] FamCAFC 191
Rosati & Rosati (1998) FLC 92-804
Stanford v Stanford (2012) 247 CLR 108
Williams & Williams [2007] FamCA 313

APPLICANT: Ms Bazzi-Cirino

RESPONDENT: Mr Cirino

FILE NUMBER: SYC 2528 of 2012

DATE DELIVERED: 27 October 2014

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Rees J

HEARING DATE: 13, 14, 15 October 2014

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Macpherson

SOLICITOR FOR THE APPLICANT: Morton Family Lawyers

COUNSEL FOR THE RESPONDENT: Mr Richards

SOLICITOR FOR THE RESPONDENT: Mills Oakley Lawyers

Orders

IT IS ORDERED

(1)That within three months of the date of these Orders Ms Bazzi-Cirino (“the wife”) pay to Mr Cirino (“the husband”) the sum of $163,000.

(2)That simultaneously with the payment in Order 1, the parties do all acts necessary to transfer to the wife the right title and interest in the property at L Street, Suburb G (“the L property”) being the land in Folio Identifier ….

(3)That from the date of these Orders the wife shall be solely responsible for all outgoings, including but not limited to mortgage payments, in relation to the L property and shall indemnify the husband and hold him safe in respect of all such liabilities.

(4)That the wife shall, if so requested by the husband in writing, cause any mortgage secured over the L property to be discharged.

(5)That in the event that the wife has not made the payment in Order 1 by the due date, the parties shall do all acts required to sell the L propertyand from the proceeds of sale to pay, in the following order and priority:

(a)       Discharge of mortgage;

(b)       Costs of sale;

(c)The sum of $163,000 together with interest from the due date until the date of payment at the rate prescribed by the Family Law Rules to the husband; and

(d)       The balance to the wife.

(6)That the parties do all acts necessary to transfer to the husband the right title and interest in the property at H Street, Suburb D (“the D property”) being the land in Folio Identifier ….

(7)That from the date of these Orders the husband shall be solely responsible for all outgoings, including but not limited to mortgage payments, in relation to the D property and shall indemnify the wife and hold her safe in respect of all such liabilities.

(8)That the husband shall, if so requested by the wife in writing, cause any mortgage secured over the D property to be discharged.

(9)That within 30 days from the date of these Orders, the wife prepare two lists containing those items of the contents of the L property that are not included in the list of items valued by the Single Expert and shall provide such lists to the husband.

(10)The husband shall nominate, within seven days of receiving the lists, which list he chooses and he shall be solely entitled to those items which the wife will make available for collection within seven days.

(11)That, other than as provided in these Orders, each party shall be solely entitled to any item of real or personal property in his or her possession at the date of these Orders.

(12)That other than as provided in these Orders, each party shall be solely responsible for the repayment of any liability for which he or she is legally responsible at the date of these Orders.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Bazzi-Cirino & Cirino has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC 2528/2012

Ms Bazzi-Cirino

Applicant

And

Mr Cirino

Respondent

REASONS FOR JUDGMENT

1.Ms Bazzi-Cirino (“the wife”) and Mr Cirino (“the husband”) commenced co-habitation in 2001 and married in 2002. They separated on 7 August 2010. There are two children of their marriage, A born in 2003 (now aged 11) and N born in 2005 (now aged nine) (“the children”).

COMPETING APPLICATIONS

2.The wife seeks a distribution in her favour of 70 per cent of the assets including an adjustment in her favour for s 75(2) factors of 5 per cent.

3.The husband concedes that the wife’s contribution is greater and should be recognised by an apportionment of 55 per cent of the assets and submits that there should be no adjustment for s 75(2) factors.

BACKGROUND

4.Some of the history of the parties’ financial relationship is uncontroversial.

5.At the time of the trial the wife was aged 51 years. She is a health professional and owns her own practice.

6.At the time of the trial the husband was aged 42 years and was in fulltime employment earning about $100,000 per year.

7.When the parties commenced co-habitation the wife owned the property at J Street, Suburb G (“the G property”) from which she operated her professional practice and in which she also resided. She had a new motor vehicle with minimal equity and savings of some $63,368. She had an interest in superannuation of $24,000 approximately.

8.At the commencement of co-habitation the husband was working in the business owned by his family (“CM”) in which he was a director but not a shareholder. He had lent $96,000 to CM and had savings of approximately $19,000. However, it is not controversial that of the $96,000 which was invested in CM, $56,000 was never returned to him or realised and was ultimately lost. Therefore the amount which the husband contributed is limited to the $40,000 which he withdrew from the business at the time the parties purchased their first home and his savings of $19,000.

9.At the commencement of their relationship the parties lived in the property owned by the wife at Suburb G and the wife paid all of the outgoings in relation to that property.

10.In about May of 2002 the parties jointly purchased the property at H Street, Suburb D (“the D property”). In order to finance the deposit the wife contributed $43,000 from her savings and the husband contributed $40,000 which he withdrew from his credit loan account with CM.

11.In 2004 the parties purchased vacant land at L Street, Suburb G (“the L property”). The purchase of the land was financed by borrowings in the amount of $300,000 and the property owned by the wife at Suburb G was collateral security for the borrowings. In 2004 and 2005, the parties constructed a home on the land. The husband stopped work and actively supervised and worked on the construction. During the period of 15 months when the husband was not in paid employment, he had no income and the family had no income other than the income of the wife. Other than for the period of 15 months, when the house was being built, the husband has been in paid employment.

12.It is not disputed that the wife’s income has substantially exceeded that of the husband in the later years of the marriage.

13.It is not disputed that during the period when the parties lived together each of them contributed the whole of their earnings to the enterprise of their family.

14.The parties separated on 7 August 2010. The wife and the children remained living in the L property. Since separation the children have been primarily cared for by the wife although they spend half of their school holidays, Thursday afternoons and alternate weekends with the husband.

15.From about November 2013, the husband has been assessed to pay a total of $10 per month in child support, presumably because of the fact that he has an obligation to support another child who was born shortly after the parties separated.

16.At the time of hearing the husband was earning approximately $100,000 per annum and the wife was earning approximately $222,000 per annum.

VALUATION ISSUES

17.The parties agreed upon the appointment of a single expert, Mr S, to value the wife’s professional practice. The report of Mr S was filed under cover of an affidavit sworn by Mr S on 27 August 2014.

18.The husband, in the course of the preparation of the matter for trial, sought leave to rely upon an adversarial expert, Mr B. The husband had previously filed an affidavit of Mr B, sworn on 27 August 2013, which annexed a copy of his valuation report for the wife’s practice dated 21 August 2013. Directions were made for Mr B and Mr S to confer and a Joint Statement, dated 11 September 2014, was prepared by them following the conference.

19.It was initially the husband’s case that it was necessary to call an adversarial expert because there was a difference in the methodology which was applied by Mr S and by Mr B.

20.Once the Joint Statement of the experts was available, it became clear that there was no variation in methodology and, before me, Counsel for the husband, in seeking to rely upon the evidence of Mr B, relied upon the fact that the real issue between the experts was the reasonable remuneration which should be allowed for the wife. It was submitted on behalf of the husband that the difference in the remunerations adopted by Mr S on the one hand and Mr B on the other gave rise to the discrepancy in the two valuations.

21.Neither Mr S nor Mr B is a remuneration expert.

22.Counsel for the husband relied upon the provisions of rule 15.49 and particularly rule 15.49(2)(b) of the Family Law Rules 2004 (Cth). It was contended on behalf of the husband that Mr B knew of matters not known to Mr S. The matters which, it was submitted, were known to Mr B consisted of material gained by Mr B from discussions with other people on the issue of reasonable remuneration for the wife. Those were not matters in relation to which Mr B could give admissible evidence.

23.I do not accept the submission made on behalf of the husband that the provisions of rule 15.49(2)(b) are satisfied other than by material which is admissible in evidence.

24.Accordingly, I determined that the affidavit of Mr B would not be admitted into evidence.

25.At the commencement of the hearing, Counsel for the husband sought to rely on a further report of Mr B annexed to an affidavit which had been sworn and filed on 10 October 2014 (on the Friday prior to the commencement of the hearing on Monday) and which, it was agreed, had been provided to the solicitors for the wife at 6.45 pm on that day. This was not the report which had been made available to Mr S at the time of the conference between Mr S and Mr B and, in any event, its admission was flawed on the same basis as was that of Mr B’s earlier report. The husband was not permitted to rely upon the later affidavit of Mr B.

26.On the second day of the hearing, after the cross-examination of the parties and their witnesses had been completed, Counsel for the husband sought to rely upon an affidavit by a single expert, Mr E, who had been instructed to prepare a retrospective valuation of the L property as at the date of co-habitation. Mr E’s valuation had not been filed and no reference was made to it in the case outline document prepared in the husband’s case.

27.Counsel for the husband submitted that it was necessary for the report to be admitted into evidence and for Mr E to be cross-examined because Mr E had valued the property on the assumption that its condition at the time of purchase was similar to its present condition, whereas it was the uncontroversial evidence of both of the parties that substantial work had been done on the property after it was acquired. Counsel then submitted that the purpose of cross-examination of Mr E was to ask Mr E to put a lower value on the property.

28.There was no evidence before the Court about the state of the property at the date of co-habitation, although there was extensive evidence from the husband about the work that he had done during the time the parties lived together to improve the property. Whatever may have been the assumptions that were proposed to be put to Mr E, they could not be put unless the wife had had an opportunity to comment upon them and to either accept or reject those assumptions. In circumstances where her evidence was concluded it was not appropriate to allow such matters to be put to Mr E, therefore the husband was not permitted to rely upon Mr E’s report.

THE EVIDENCE

29.The wife relied on affidavits by herself and her practice manager together with a Financial Statement sworn 22 September 2014.

30.The husband relied on affidavits by himself and Ms R, a book-keeper and an accountant, who gave evidence about the Capital Gains Tax (“CGT”) implications if the D property were sold.

31.The Court was assisted by evidence from the single expert, Mr S.

THE BALANCE SHEET

32.At the commencement of submissions the parties tendered a Joint Balance Sheet which is set out below:

Ownership		Description		Wife’s value	Husband’s value
ASSETS
1	Joint	[L] property (family home)		900,000	900,000
2	Joint	[D] property (rental)		650,000	650,000
3	Wife	[G] property (practice premises)		686,000	686,000
4	Wife	[Professional] Practice (assets less liabilities)		112,500	382,473
5	Wife	IAG Shares – 451 @ $6.04 as at 10/10/2014		2,850	2,850
6	Wife	Mazda … motor vehicle		20,500	20,500
7	Husband	Tools of trade		2,370	2,370
8	Wife	… photo collection		12,000	12,000
9	Wife	Household contents		5,955	5,955
10	Husband	Household contents		2,500	2,500
11	Husband	Hull Boat		1,000	1,000
12	Husband	[X] Boat – 50% interest		50,000	50,000
13	Wife	Jewellery		13,230	13,230
14	Husband	Jewellery		367	367
15	Children	Children’s Trust Funds		26,214	26,214
Total		$2,485,486	$ 2,755,459
LIABILITIES
16	Joint	NAB mortgage over family home		755,547	755,547
17	Joint	NAB mortgage over D property		381,711	381,711
18	Wife	NAB mortgage over G property		168,532	168,532
19	Wife	NAB Line of Credit		0	25,000
20	Wife	NAB Visa		0	0
21	Husband	Boat Loan		7,380	33,269
22	Husband	CBA Mastercard		18,497	38,407
23	Wife	Esanda Finance		20,851	20,851
24	Husband	Capital Gains Tax		Nil	54,039
25	Husband	Personal Loan from Ms V		0	20,000
26	Husband	Personal Loan from Husband’s parents		0	5,000
Total		$1,352,518	$1,502,356
SUPERANNUATION
Member		Name of Fund	Type of Interest	Wife’s value	Husband’s value
27	Husband	Australian Super	Accumulation	82,792	82,792
28	Husband	Mercer	Accumulation	22,192	22,192
29	Wife	HESTA	Accumulation	127,370	127,370
30	Wife	AMP	Accumulation	4,811	4,811
Total		$237,165	$237,165
ADDBACKS
31	Husband	Monies already received from wife		10,000	10,0000
32	Husband	Ute – proceeds of sale		3,000	0
33	Wife	Paid Legal Fees		0	136,663
34	Husband	Paid Legal Fees		0	72,800
Total		$13,000	$219,463
FINANCIAL RESOURCES
Ownership		Description		Wife’s value	Husband’s value
35
Final Total		$1,383,133	$1,709,731

33.The matters in dispute will be dealt with using the item numbers on the Joint Balance Sheet.

Item 9 – wife’s household contents

34.Although this dispute is not apparent on the Joint Balance Sheet, it was contended on behalf of the husband that not all of the contents of the L property were included in the valuation conducted by the single expert. The husband engaged another valuer who prepared a list of items not valued by the single expert. The wife, in cross-examination, agreed that those items had not been valued. There was no evidence of the number of items missing from the valuation. The husband sought a distribution in specie of the contents of the L property on the basis that if the wife retains the whole of the contents she will receive items not included in the valuation.

35.The wife accepted that the items not included in the valuation should be divided between the parties. In circumstances where I do not know what items have been left out of the valuation, that is a preferable course.

Item 4 – the value of the Professional Practice

36.Mr S valued the practice at $112,500. The husband contended for a higher figure.

37.Mr S in his valuation adopted a commercial salary in 2013 for the wife of $225,441. For the years 2010 to 2012 inclusive he reduced that amount by 3 per cent each year. The methodology adopted by Mr S is explained in notes to his report annexed to an affidavit sworn 1 November 2013 where he says, at page 27:

As the Wife operates the … Practice as a sole trader there is no allowance in the profit and loss statement for a salary to the wife for the work that she performs. In response to my enquiry as to functional and managerial tasks performed by the Wife she stated to me that her role comprises the provision of general [professional] services, general practice management, dealing with [clients’] enquiries and complaints, occupational health and safety management, staff management and the supervision of and assistance to other [professionals] in her employ.

The wife has indicated that in her opinion a reasonable commercial salary for this work would be in the range of approximately $200,000 to $240,000 per annum.

It is my understanding that locum [professionals] can expect to obtain a remuneration of broadly 40% to 45% of [client] fees. Given the [client] fees earned by the Wife in 2011 and 2012 a level of remuneration for the general [professional] component of her work in the range of $175,000 to $200,000 would seem appropriate. To this should be added a loading to account for the other components of her role as noted above. In my view an additional loading of $30,000 would be appropriate given the hours she states are committed to all the responsibilities attaching to the role.

38.In cross-examination, Mr S was asked for the documents upon which he based his conclusion about the fees generated by the wife in 2011 and 2012. Mr S was shown a bundle of documents and asked to concede that the bundle contained all of the documents that had been provided to him. Mr S said that he had received all of the documents in the bundle but that he also had a strong recollection of being provided with a document which set out the fees which the wife had generated.

39.Unfortunately, Mr S said that all of the documents which had been provided to him had been scanned and saved electronically and the originals destroyed. He was unable to retrieve the documents stored electronically. Thus, Mr S was not able to provide a copy of the document upon which he said he relied.

40.A call was made to the solicitors for the wife to provide any document forwarded to Mr S setting out the fees generated by the wife. It was conceded that no such document had been forwarded to Mr S.

41.Thus, there was no evidentiary foundation for Mr S’s opinion about the reasonable level of remuneration for the wife.

42.Mr S conceded in cross-examination that, in performing the exercise of calculating reasonable remuneration for the wife, the appropriate level was 40 per cent  of fees and that, further, the calculation should have referred to fees net of specified expenses.

43.The wife gave evidence that, in calculating a reasonable remuneration for an employed professional, the base was fees generated less the specified expenses.

44.It was put to the wife in cross-examination that the specified expenses represented about 10 per cent of the gross fees of an individual professional. She disagreed and said that in some procedures the cost was as high as 25 per cent. The wife agreed with the proposition that specified fees would constitute not less than 10 per cent and up to 25 per cent of fees.

45.In cross-examination of Mr S, Counsel for the husband put the figure of 10 per cent as a reasonable estimate of specified fees. Mr S disagreed. Mr S said that the actual amount of specified fees for the practice was ascertainable from the balance sheet and was 6 per cent of fees.

46.Mr S agreed that, if the wife’s actual fees earned were known, then his calculation could be adjusted to include the relevant figure arrived at (that is, fees less specified costs multiplied by 40 per cent) to produce the figure for the wife’s reasonable remuneration for her professional services. Mr S said that this was merely a mathematical calculation.

47.There was no challenge to the additional loading of $30,000 for administration.

48.Exhibit 9 in the proceedings was a print out of the wife’s fees for the year ended 30 June 2013. She received $388,594.

49.Counsel for the husband contended that the proper deduction for specified fees should be 10 per cent, reducing the amount for the purpose of the calculation to $349,735. In circumstances where Mr S had calculated the actual specified fees to be 6 per cent of fees, I prefer his evidence to the estimates of the wife or the husband.

50.I am satisfied that the value of the business can be calculated by substituting the wife’s actual fees, less 6 per cent, for the figure in Mr S’s valuation. That exercise has been done by Counsel for the husband and the calculation is reproduced below.

Commercial Remuneration of Wife
2013	Practice Management	Total Remuneration
Fees Generated by Wife in 2013	388594
Less … Costs being 6 % of Fees	23315.64	6%
Fees Generated less … Costs	365278.36
40% of Fees Generated Less … Costs	40%	146111.344	30000	176111.344
Adjustments to Valuation
2010	2011	2012	2013
Commercial Salary(as found by Mr S)	206125	212,500	218,875.00	225441
Commercial Salary as Found adjusted by 3% from 2013	3%	160732.0687	165703.1636	170828.0037	176111.344
Adjustment of Commercial Salary Found	45392.93134	46,797	48,047.00	49329.656
Adjusted EBIT( by Mr S)	31391	18744	23831	-13879
Adjusted EBIT as Found	76783.93134	65,541	71,878.00	35450.656
Simple Average (2011 to 2013)	57,623
Simple Averaged(2010 to 2012)	71,401
Weighted Average(2011 to 2013)(1,2,3)	52608.13285
Weighted Average(2010 to 2012)(1,2,3)	70583.26553
Capitalisation Rate X 4	282333.0621
Capitalisation Rate X 5	352916.3276
Mean	317624.6949

51.Counsel for the wife agreed that, if the methodology were adopted, then the calculations by the Counsel for the husband are correct.

52.I therefore find that the value of the professional practice is $317,625.

Item 19 – Wife’s line of credit

53.The $50,000 line of credit was used to pay $25,000 in legal fees and the balance was used in the practice. At hearing, the balance owed was $43,262.

54.Because, as is explained later in these reasons, paid legal fees will not be included as an asset in the balance sheet, the portion of the loan which was referrable to legal fees will be disregarded and the line of credit allowed as a liability only for the remainder of $18,262.

Item 21 – husband’s boat loan

55.At hearing the boat loan was $33,269 of which it was agreed that about $25,000 had been used to pay legal fees. The husband gave evidence that the amount of the loan was increased after separation so that he could pay legal fees. For the reasons expressed below, the debt will be included without the amount referable to legal fees, being the amount owed at separation, of $7,380.

Item 22 – Husband’s Mastercard debt

56.At separation the amount owing on the husband’s Mastercard was $18,497. The amount owed at the date of the hearing was $38,407. It was not suggested in the husband’s case that the additional amount was spent on the purposes of the family but rather that it had been spent on living expenses in circumstances where the husband’s expenses were said to exceed his income.

57.In cross-examination, Counsel for the wife put to the husband a number of transactions from his Mastercard statements. Those transactions included restaurant charges, introduction services, marina fees for his boat and expenses which the husband said were incurred on behalf of his employer and later refunded.

58.The transaction also included costs for holidays which the husband took when he was required to travel overseas in the course of his employment. It was his evidence that if he was required to attend meetings for, say, three days, he would then take two or three days holiday on each trip. The amounts were not insignificant. For example, the husband was asked about airfares of $2,000 and $948, a hotel bill of $650 in Singapore, and other hotel bills in China.

59.The husband gave evidence that the expenses which were incurred on behalf of his employer were refunded to him but the refunds were not paid into his Mastercard account but into his savings account. The money refunded was not then paid to reduce the credit card debt.

60.In those circumstances, it is not appropriate to include the current balance of the husband’s Mastercard debt as a liability of the parties but the amount at separation will be included.

Item 24 – Capital Gains Tax (“CGT”)

61.The husband seeks the transfer to him of the D property which has an agreed value of $650,000. The D property was originally purchased as an investment and was tenanted throughout the time the parties lived together.

62.After separation, in about June 2013, the husband moved into the property and it has been his home since then.

63.The husband relied upon a calculation of CGT by an accountant Ms R. It was her unchallenged evidence that, if the D property were sold at the time of the hearing for the agreed value of $650,000, assuming that the husband’s marginal rate of tax remains unchanged, then CGT of $54,039 would be payable.

64.No allowance is made in Ms R’s calculation for the fact that the D property has been the husband’s home since mid 2013.

65.No allowance is made in the calculation for the effect on the CGT calculation if the husband remains in the D property and does not sell it for a substantial period of time.

66.In Rosati & Rosati (1998) FLC 92-804 the Full Court laid down the proper approach to be taken to CGT in the following terms at 85,043:

(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.

67.The D property was acquired as an investment by the parties but its character changed when the husband commenced to occupy it as his home. The husband’s trial affidavit was sworn in September 2014, when he had been living in the property for about 15 months.

68.There is no evidence that the husband intends to sell the D property. There is no evidence upon which it could be determined that the husband will sell the property at some future time and, if so, when.

69.It cannot be assumed that, if the D property were sold after a substantial period of occupation by the husband, any CGT would be payable. There is no evidence that would allow a calculation of an appropriately discounted rate. I cannot find that the D property is likely to be sold in the foreseeable future.

70.In all of those circumstances, it is not appropriate to include a liability for CGT in the balance sheet.

Items 25 and 26 – Husband’s personal loans

71.The $25,000 borrowed by the husband from Ms V and from his parents was used by him to pay legal fees. As outlined later in these reasons, because the legal fees of the husband will not be taken into account in the final balance sheet, these loans will likewise not be included in the calculation of the net asset pool but will be considered in determining whether there should be any adjustment pursuant to s 75(2).  

Items 31 and 32 – money received by husband

72.It is not disputed that the husband has received and spent the proceeds of the sale of a utility vehicle and that the sum of $10,000 was paid to him by the wife when he represented to her that he needed money to fund living costs.

73.Consistently with the approach to legal fees dealt with later in these reasons, it is appropriate that those monies be dealt with in the consideration of s75(2) adjustments rather than by creating a notional pool or “add back”.

Items 33 and 34 – Paid legal fees

74.The wife has paid legal fees of $136,663. The payments came from three sources.

75.Some payments were made from the wife’s income.

76.$25,000 was paid from a line of credit in the sum of $50,000. The balance was used for the practice.

77.Some payments came from money referred to during the hearing as “the children’s accounts”. The wife had maintained accounts “As trustee for” each child since their births. She paid at least $50 per week into the accounts and, in addition, deposited money received for the childcare rebate, medical benefit rebates and the like. It was agreed that those accounts were to be treated as the wife’s property. She treated the money as her own and used it, either for the children’s expenses or her own, as she chose.

78.At separation the balance of A’s account was $23,751 and of N’s account, $18,958. After separation, the husband had no access to those accounts.

79.The wife, from time to time, withdrew money from the children’s accounts and paid those sums to her lawyers. She asserted that she repaid all the money by increasing the weekly payment into the children’s accounts until the whole amount had been refunded. The wife was unable to demonstrate, from the statements of the accounts, that she had repaid all the amounts she withdrew.

80.There is no evidence of the amounts the wife withdrew from the children’s accounts and used to pay legal fees and there is no evidence of the amounts she repaid to those accounts.

81.However, the wife in her affidavit deposed to the total withdrawals from A’s account being $12,541 and from N’s account being $13,334. The withdrawals totalled $25,875. In the same period, the wife said paid expenses for the children from those accounts for school fees, tutoring, occupational therapy and the like, totalling $25,875. That evidence was not challenged.

82.In those circumstances, it is not possible to conclude that the wife used money from the children’s accounts to pay legal fees which she did not refund to the accounts.

83.Therefore the identifiable sources for the payment of the wife’s legal fees are her earnings from the practice and the line of credit.

84.The husband has paid $72,800, of which $50,000 was borrowed. He identifies $25,000 drawn from the boat loan and a further $25,000 borrowed from his sister and parents.

85.It was the wife’s case that legal fees paid by both parties should not be included on the balance sheet and the loans they had each taken out should similarly be disregarded.

86.The husband’s case was that the legal fees should be added back and the loans included as liabilities.

87.In Chorn & Hopkins (2004) FLC 93-204, the Full Court, after confirming previous authorities on this issue, stated at 79,322-3 that:

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 post-separation income or acquisitions.

88.In the present case, the “business” from which the funds were generated is the wife’s professional practice.

89.It is not in dispute that the husband made a contribution to the practice (as distinct from the premises) during co-habitation in that he gave some assistance in early years with book-keeping and assisted in setting up the accounting system and did minor repairs to equipment.

90.However, this was not a business where the husband and the wife worked together as owners and operators of the business so that the income produced by the business after separation, although retained by one of them, was directly referable to their joint efforts in running the business.

91.Neither is it the case that the husband was a co-owner, shareholder or partner in the practice. The husband at all times was otherwise in employment or very actively engaged in the construction of the L property.

92.In Eufrosin & Eufrosin [2014] FamCAFC 191, the Full Court, dealing with a lottery win by the wife where the husband contended that the source of funds for the purchase of the ticket was a business that had been primarily run by him before separation, said at paragraph 11:

As this Court in Zyk made clear, the source of funds should not “determine the issue” of how a lottery win should be treated for s 79 purposes. What is relevant, in our view, is the nature of the parties’ relationship at the time the lottery ticket was purchased. In our view, the authorities just cited, together with what was said by the High Court in Stanford regarding the “common use” of property, is sufficient to dispose of the husband’s contention that her Honour erred in failing to find that he contributed to the wife’s lottery win. At the time the wife purchased the ticket, regardless of the source of the funds, the “joint endeavour” that had been the parties’ marriage had dissolved; there was no longer a “common use” of property. Rather, the parties were applying funds for their respective individual purposes.

93.At the time when the wife used funds generated from her practice to pay her legal fees, there was no common use of property and the parties were each using their income for their individual purposes.

94.The  preferable course is to disregard the paid legal fees and the loans taken out for the purpose of legal fees but to take into account, in considering any adjustment pursuant to s75(2), the fact that liabilities referable to legal fees have to be repaid.

95.This approach is more likely to accord with the emphasis of the High Court in Stanford & Stanford (2012) 247 CLR 108 on the identification of the legal and equitable interests of the parties in the property at the date of hearing rather than the creation of a notional pool of assets.

96.I therefore find that the assets and liabilities of the parties are:

ASSETS
Description		Value
Joint	L roperty (family home)		900,000
Joint	D property (rental)		650,000
Wife	G property (practice premises)		686,000
Wife	Professional Practice		317,625
Wife	IAG Shares – 451 @ $6.04 as at 10/10/2014		2,850
Wife	Mazda … motor vehicle		20,500
Husband	Tools of trade		2,370
Wife	… photo collection		12,000
Wife	Household contents		5,955
Husband	Household contents		2,500
Husband	Hull Boat		1,000
Husband	X Boat – 50 per cent  interest		50,000
Wife	Jewellery		13,230
Husband	Jewellery		367
Wife	Children’s Trust Funds		26,214
TOTAL			$2,690,611
LIABILITIES		Value
Joint	NAB mortgage over L property		755,547
Joint	NAB mortgage over D property		381,711
Wife	NAB mortgage over G property		168,532
Wife	NAB Line of Credit		18,262
Husband	Boat Loan		7,380
Husband	CBA Mastercard		18,497
Wife	Esanda Finance		20,851
TOTAL			$1,370,780
NET ASSETS			$1,319,831
SUPERANNUATION
Name of Fund		Type of Interest	Value
Husband	Australian Super	Accumulation	82,792
Husband	Mercer	Accumulation	22,192
Wife	HESTA	Accumulation	127,370
Wife	AMP	Accumulation	4,811
TOTAL			$237,165

SECTION 79(2)

97.Both parties agree, and I find, that, in circumstances where they can no longer jointly use their jointly acquired assets, it is just and equitable that the assets should be divided between them.

CONTRIBUTIONS

98.At the commencement of co-habitation the husband had a credit loan account with CM of $96,000. Those funds remained with CM until the parties purchased the D property in July 2002 when the husband withdrew $40,000 and contributed those funds to the deposit.

99.The remaining $56,000 was left with CM which ultimately failed and the funds were never repaid to the husband. Therefore the husband’s initial contribution is limited to the funds which were made available by him to the marriage being the $40,000 referred to above and $19,000 in savings.

100.The husband deposed to having superannuation entitlements at the commencement of cohabitation but there is no evidence of the amount.

101.The wife was the owner of her professional practice and the premises from which it operated at Suburb G. The wife gave evidence that she treated the purchase of the practice and the real property as one transaction and that she was unable to say how much had been paid for the real estate and how much was paid for the practice.

102.In cross-examination she said that the combined purchase price was $485,000 and that part of the purchase price had been borrowed.

103.The wife’s evidence in relation to the amount outstanding on the loan at the date of co-habitation was confused. She said, variously, that it was $230,000 or that it was $320,000.

104.The parties both say they commenced their co-habitation in 2001. Neither is more precise as to the date.

105.Mr S in his valuation of the practice as at 30 June 2001 states that the loan outstanding was $230,189. He produced no document to substantiate that figure.

106.Bank statements tendered show the balance of the loan at 4 August 2001 to be $266,342. Payments of $4,033 were being made and the interest component, although it varied, was about $1,200 on average. Therefore the loan was being reduced by about $2,800 per month. It is safe to assume that the balance at 30 June 2001 was about $268,000. Since that is the only amount substantiated by documentary evidence I will adopt that amount as the balance outstanding.

107.There is no evidence of the value of the real property of the premises of the professional practice. Mr S in his valuation notes the acquisition cost of the G property to be $388,350.

108.The wife paid a total of $485,000. Her equity was in excess of $200,000 but there is no evidence that allows any more exact finding.

109.In addition, the wife had savings of $63,368 and superannuation of $24,000.  

110.The wife’s initial contributions were substantially greater than those of the husband.

111.It is of significance that the practice and Suburb G real estate which were the wife’s initial contributions now represent assets valued at $1,003,625 in a total net asset pool of $1,319,831.

112.It is also of significance that when, in 2004, the parties purchased the land on which the L property was constructed, they borrowed 100 per cent of the purchase price and were able to do so because the lender took collateral security over the G property and the professional practice.

113.In Williams & Williams [2007] FamCA 313 the Full Court said at paragraph 26:

We think that 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 towards 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 or the time it was realised rather than simply pay attention to its initial value at the time of commencement of cohabitation.  But in so doing 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. 

114.During the time that the parties lived together, they each applied themselves and their earnings to the joint enterprises of their marriage and their family.

115.The wife was the greater wage earner. The husband did substantial physical work in relation to the conservation and improvement of both the G property and the D property. The husband devoted 15 months to the construction of the L property as owner/builder.

116.Both parties agreed that their contributions during that time should be regarded as equal.

117.The parties separated on 7 August 2010. After that date, the wife and the children had the benefit of the occupation of the L property but the wife paid all of the outgoings. She has also been solely responsible for the outgoings on the G property.

118.Until July 2013, when the husband moved into the D property, the wife also paid the outgoings on the D property. Consent orders were made on 11 September 2012 to the effect that the husband was to occupy the D property and be responsible for the outgoings. The wife gave notice to the tenants who moved out in about December 2012. The husband did not move into the D property until July 2013. It is not necessary to examine the reasons. The effect was that the wife continued to pay the outgoings on the D property, without the benefit of rent, until July 2013.

119.Since separation in 2010 the wife has been the primary carer for the children. As the husband pointed out, she cares for them 73 per cent of the time.

120.She has also been primarily responsible for the financial care of the children.

121.The husband’s income since separation has been about $100,000 per annum.

122.Although he could not provide any documents substantiating the amount of child support he had paid, the husband estimated that the most he paid was about $240 per month in total for both children.

123.The children are in private Catholic schools. They attend after school care and have private tutoring. The wife has been able to use the money in the children’s accounts, accumulated during the marriage, to pay some of their school fees, tutoring expenses, costs of therapy and the like and she has accounted for expenses paid from the children’s accounts totalling $25,875.

124.The day to day expenses of the children have otherwise been met from her income with the exception of the child support contributed by the husband.

125.From November 2013, the husband was assessed to pay child support of $10.17 per month in total for both children. That remains the assessment.

126.Self-evidently, since November 2013, all of the children’s day to day costs have been met by the wife.

127.Taking into account the wife’s significantly greater initial contributions, including the contributions of the professional practice and the G property, the use of those assets as collateral in the purchase of the land on which the L property was constructed, the greater contributions to the care of the children after separation and the wife’s greater financial contributions after separation both to the outgoings on real property and to the financial care of the children, contributions should assessed in her favour at 60 per cent.

SECTION 75(2)

128.The wife currently earns $222,000 gross per annum and the husband earns $100,000 gross.

129.The wife is 51 years of age and the husband is 42 years of age. Her capacity for future employment is less than his.

130.The husband has had the use of $10,000 paid to him by the wife and $3,000 from the sale of the utility vehicle.

131.Both parties have debts relating to money borrowed for legal fees. The wife has to repay $25,000 from the line of credit. The husband has to repay $25,000 to his sister and his parents and $25,000 drawn from the boat loan.

132.Taking into account the money he has received, the difference in their liabilities for legal fees is about $12,000.

133.The husband will have to pay his Mastercard debts incurred after separation. That spending, in so far as it relates to his lifestyle, was entirely discretionary. He chose not to apply money refunded to him by his employer to reduce the debt incurred on his employer’s behalf.

134.The husband does not seek any adjustment in his favour and, in the circumstances which are outlined, no adjustment would be appropriate.

135.The wife seeks an adjustment in her favour and relies on the husband’s lack of financial support for the children.

136.Nothing in the husband’s evidence suggested that there is any likelihood that his contribution to the children’s support will increase in the foreseeable future. Since the third child for whom he pays child support is substantially younger than the parties’ children, it is unlikely that he will cease supporting that child before these children reach their majority.

137.The parties expect that the children will continue to be privately educated. The husband agreed that the money the wife had spent on school fees, therapy, tutoring and the like was reasonable. The child N is dyslexic and needs spectacles. In 2013 and 2014 he has needed speech therapy and occupational therapy and the services of an educational psychologist. The child A will start high school at O College in 2015. The wife will bear all of these costs.

138.A has six more years of high school and N has about nine years of schooling to come.

139.There should be an adjustment in favour of the wife to take that burden into account. The adjustment will be 5 per cent. Looked at in the context of the net asset pool, the adjustment represents a modest amount when compared with the actual costs she will incur in 17 years of child care.

CONCLUSION

140.The wife will receive 65 per cent of the non-superannuation  net asset pool and the husband will receive 35 per cent.

141.The husband seeks a splitting order in relation to superannuation. He has superannuation totalling $104,984. The wife has superannuation totalling $132,181.

142.If their combined superannuation entitlements were split 65 per cent to the wife and 35 per cent to the husband, he would be required to transfer about $22,000 to the wife.

143.She does not seek such an order and I propose to leave the superannuation where it lies.

144.The husband will receive the D property. He will then have assets (excluding superannuation) with a gross value of $706,237 and will assume liabilities of $407,588 leaving him with net assets of $298,649.

145.35 per cent of the net non-superannuation assets is $461,940. Therefore the wife will pay to the husband $163,291 which I will round off to $163,000.  

I certify that the preceding one hundred and forty-five (145) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Rees delivered on 27 October 2014.

Associate: 

Date:  27/10/2014