Bernet and Bernet
[2018] FamCA 479
•17 May 2018
FAMILY COURT OF AUSTRALIA
| BERNET & BERNET | [2018] FamCA 479 |
| FAMILY LAW – PROPERTY – Farming case – Large farm holdings – Long marriage – Where the main issue is contribution arising from assistance provided by husband’s father and its financial consequences – where contribution found to be significant – where the wife wanted a portion of a large farm excised and given to her – where it is found to be unnecessary and not just to do so – where issues of estate planning were contemplated and rejected by the court as an inappropriate exercise of power – where the farms are all held by entities and tax issues arise from alterations. |
| Evidence Act 1995 (Cth) Family Law Act 1975 (Cth) Income Tax Assessment Act 1997 (Cth) |
Bulleen and Bulleen [2010] FamCA 187
Cabbell and Cabbell [2009] FamCAFC 205
Chorn and Hopkins (2004) FLC 93-204
Dickons v Dickons [2012] FamCAFC 154
Elford and Elford (2016) FLC 93-695
In the Marriage of CP and TL Lee Steere (1985) 10 Fam LR 431
Kennon v Spry (2008) FLC 93-388
Kowaliw and Kowaliw (1981) FLC 91-092
Mallet v Mallet (1984) 156 CLR 605
Money and Money (1994) FLC 92-485
Norman and Norman [2010] FamCAFC 66
Pierce and Pierce (1999) FLC 92-844
Riches v Hogben [1995] 2 QdR 292
Steinbrenner and Steinbrenner [2008] FamCAFC 193
Townsend and Townsend (1995) FLC 92-569
| APPLICANT: | Ms Bernet |
| RESPONDENT: | Mr Bernet |
| FILE NUMBER: | MLC | 6860 | of | 2015 |
| DATE DELIVERED: | 17 May 2018 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Cronin J |
| HEARING DATE: | 7, 8, 9, 10, 14 August 2017 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Panna QC with Mr Meehan |
| SOLICITOR FOR THE APPLICANT: | McKean Park Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Kirkham QC with Dr Ingleby |
| SOLICITOR FOR THE RESPONDENT: | Saxbys Lawyers |
Orders
That subject to any issues of taxation arising from these orders, the husband pay to the wife $8 million and otherwise both parties do all things necessary to effect an alteration of their direct and indirect interests in the properties as follows:
(a)The husband retain, to the exclusion of the wife, the assets referred to in paragraph 144 of the reasons for judgment; and
(b)The wife retain, to the exclusion of the husband, the assets referred to in paragraph 143 of these reasons.
Each party bring to court as soon as practicable, minutes to reflect the said reasons and these orders.
Each party indemnify the other with respect to liabilities arising from the overdraft and other debts under their control as outlined by the said reasons.
All parties have liberty to apply.
Save as to issues of costs and the necessary matters arising from these orders, the respective applications and responses are dismissed.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Bernet & Bernet has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLC 6860 of 2015
| Ms Bernet |
Applicant
And
| Mr Bernet |
Respondent
REASONS FOR JUDGMENT
These reasons relate to disputed property proceedings between Mr Bernet (“the husband”) and Ms Bernet (“the wife”). There are three main issues to be determined:
(a) what is the value of the various parcels of farm lands;
(b)should a portion of a farm known as Property D be excised and transferred to the wife; and
(c)what is the appropriate overall division of the parties’ interests after taking into account their respective contributions; specifically, in the case of the husband, by his initial contributions of a farm and various benefits received from his parents; and, in the case of the wife, by virtue of her farming endeavours and her role as homemaker and parent.
Both the husband and wife are still farming large land holdings. They have three adult children all of whom are also farmers. The children have split allegiances as was evident when each of them was called as a witness. The husband is aged 60 years and the wife 56 years of age. They married in 1987. Their marriage broke down in 2014 and they divorced in August 2016. Their farming activities over the years gives context to the dispute about contributions particularly those of the husband’s father with whom the wife’s relationship was strained.
There are three farms in this dispute known as Property D, Property E and Property F. They are some distance apart. All operations are conducted through a series of corporate entities and trusts. The structures give rise to philosophical arguments about the parties’ contributions. The legal status of those structures creates a dilemma about property ownership and division but also how to deal with the consequent tax obligations. Whilst the farms were the focus of the parties’ arguments, their ownership always lay with the entities. It would be easier to divide the equity of the parties in the structures but this litigation was conducted on the basis that the farms and associated assets belonged to them as individuals. That is how I have approached the resolution but that may give rise to taxation consequences when the entities ultimately shuffle farming land, equipment and income. Because the parties presented that evidence of the consequences, I have taken it into account as best I can.
Property F
Property F was bought by the husband initially with his brother Mr G before the marriage. He bought out his brother to become sole registered proprietor. The finance was provided by a bank but the loan was guaranteed by his parents.
Property F is nearly 372 acres in size, and its value uncontroversial, but neither party showed much interest in it.
Property E
The husband and wife had only been married for a few months when they acquired a 1948 hectare property. To buy Property E, the husband and wife incorporated Property E (Bernet) Pty Ltd to be the trustee of the Property E Trust. This entity became the registered proprietor of Property E and the husband and wife were the directors of the trustee company.
The purchase price of Property E including plant and equipment and livestock was $1.65 million.
Although the parties had only been married for some months, the wife put in her savings of $25,000 and the husband $90,000. That money was deposited into the company that they had incorporated. Such was the commercial approach of the parties that they reflected their contributions by the allocation of shares; in the case of the husband 90,000 and in the case of the wife, 25,000.
One can see how the parties were setting up their asset ownership not just to reflect their contributions but also to obtain benefits in a tax-effective way by acquiring the shares of the vendor entity. There were also specific prices fixed for the acquired livestock, plant and equipment. That calculated approach presumably saved them money.
In addition to the money provided by the husband and wife, or more particularly, their company, this acquisition was funded by a National Australia Bank loan of $315,000, vendor finance of $825,000 and the shortfall was made up by a corporate entity controlled by the husband’s father.
Whatever the precise and correct figure is for what the husband’s father’s company provided, I accept the loan was ultimately either repaid, forgiven in part by the husband’s father or, was part of some contra-dealing. The husband and his parents helped each other out in different ways. Some of the money that shuffled back and forth also appears to relate to income due to the husband by his father or his father’s company.
Time, lack of accounting entries and the husband’s attempts at reconstructing have all made it difficult to be precise about the real impact of what the parties achieved. That does not mean an holistic approach cannot be undertaken to assess whether the parties’ contributions were distinctly different.
In respect of Property E, there is a temptation to say that with the duration of this marriage, and the lapse of time, any disparity in contribution should be ignored particularly where, in a case of a newly-married couple, the husband’s parents who assisted, might be seen as having made a gift to both parties. That was not the case here. It was the wife’s own evidence that her relationship with the husband’s father was poor and she felt excluded. I find the father did what he did because of his relationship with his son.
The approach of each of the parties
The wife’s submission was that each of the parties had contributed equally to the best of their ability to the “acquisition of the extensive assets”. She submitted that this was not a case where it could be said that she made little contribution to the accumulation of those assets beyond raising the children and contributing to the welfare of the family.
In respect of Property E, the wife submitted that both parties were astute at obtaining financial and accounting advice before entering into the “substantial commitments” arising from the purchase of the property. There is little dispute about the precise amounts of money involved in the acquisition of Property E and the wife acknowledged much of the detail that I have set out above. However, I accept that the loans the parties took out as part of the acquisition required the use of Property F as security. In addition, I accept that Property F was a working farm and it was unencumbered. Property F also had equipment that enabled profits to be earned. Although it was a long time ago, the use of the Property F property and the income derived from it must be seen as entirely attributable to the husband at that point in time but it gave the parties the necessary impetus to earn an income from Property E.
Accepting that the purchase price was $1.65 million, virtually all of which was borrowed, a substantial portion of income was required to service the debt. Property F was therefore important. That contribution has to be seen now as less significant not just by effluxion of time but also because of the astuteness of the parties in setting up structures from which both benefited. The wife’s agreement to participate in that structure is a contribution by her in assisting the family through putting her assets into the structure. True it is that on any analysis, the husband did the same and to a greater degree but this is not a simple mathematical exercise and I consider the astuteness of the parties is a non-financial contribution which is hard to measure in dollar terms.
There is a conflict in the evidence about the loan provided by the husband’s parents to acquire Property E. It was the wife’s evidence that a loan was advanced but that it was repaid from income generated by the farming operations. The husband submitted that the debt was forgiven rather than paid out on an informal basis and as a consequence, there was no documentation to corroborate his evidence. The wife asserted that the husband had not told her of this forgiveness until the proceedings began. This led to the parties’ respective attempts to prove things long forgotten.
The husband’s position was that he had reconstructed accounts but I am satisfied that that endeavour was unreliable if precision was intended. That is not to say that the husband lied or embellished the story but rather that time has dimmed memories and most importantly, this was a significant amount of money. However, I am satisfied that the farming families assisted one another and there was no strict tallying or written down indebtedness as a consequence. Of the parties’ memories, I found the husband more reliable in endeavouring to explain what happened over the years. When he knew an issue was contentious, he perused his old diary notes. As an example of the difference between approaches, when the wife said in her trial affidavit that the husband did little parenting, he then set out specific details which in cross-examination the wife conceded were correct. I found the husband’s evidence generally more accurate. That is not to say that the wife lied; on the contrary, she did the best she could. She too had diaries but the husband’s evidence was more reliable as to detail. I find that the husband’s father, through his various entities, did provide significant assistance of both a financial but also of a non-financial nature. That contribution albeit difficult to quantify in dollar terms, must be recognised generally as having given the parties a significant start in life and it continued throughout the relationship.
Approaches to the contribution assessment
Counsel for the husband submitted that the court should have regard to the husband’s initial contribution relying upon Pierce and Pierce (1999) FLC 92-844, Norman and Norman [2010] FamCAFC 66 and Cabbell and Cabbell [2009] FamCAFC 205. In my view, those cases do not provide a lot of assistance. In Pierce, there was a clear identifiable sum that acted as a “springboard” and it was still identifiable at the end of the relationship. The boundary was not anywhere near as blurred as in the complicated circumstances here. In Norman, similarly, there was no trust or entity and in any event, the appeal was conducted on the basis that the trial judge had exercised the discretion appropriately.
In Cabbell, the Full Court (Boland, Thackray and O’Ryan JJ) examined how the court’s jurisprudence in respect of initial contributions had developed and said:
[43]The principles enunciated in decisions prior to 1999 are conveniently reviewed in Pierce & Pierce (1999) FLC 92-844 at paragraphs 25 - 27 of that judgment. In those paragraphs the Full Court (Ellis, Baker and O’Ryan JJ) referred to the cases which discussed the concept of an initial contribution being “eroded” or offset to a greater or lesser extent by later contributions during the marriage, and the qualification to or expansion of this concept by Fogarty J in Money & Money (1994) FLC 92-485 at 81,054, namely that later contributions over a long marriage did not need to be greater, but rather those contributions (sometimes referred to as the myriad of other contributions) “offset” the significance which might be placed on greater initial contributions. Their Honours then, at paragraph 28, explained that in assessing contribution (including initial contributions) rather than considering if an initial contribution had been “eroded”, what was relevant was the “weight to be attached, in all the circumstances, to the initial contribution”. Their Honours then explained the initial contribution should be weighed with all other contributions, and in paragraph 30 stressed the need for a trial Judge “not only to identify the relevant contributions, but also to assess them”. That latter statement of principle is consistent with the discussion in Mallet v Mallet (1984) 156 CLR 605 where Mason J said in discussing s 79:
The section contemplates that an order will not be made unless the court is satisfied that it is just and equitable to make the order (s. 79(2)), after taking into account the factors mentioned in (a) to (e) of s. 79(4). The requirement that the court “shall take into account” these factors imposes a duty on the court to evaluate them. Thus, the court must in a given case evaluate the respective contributions of husband and wife under pars. (a) and (b) of sub-s. (4), difficult though that may be in some cases.
Most significantly, in Cabbell the Full Court observed that it was not necessary to give guidelines any further for the discretionary exercise to be undertaken in assessing initial contributions because it had to be done according to the individual facts of a particular case. It made clear that initial contributions could not be ignored and had to be assessed in terms of weight. The guidance lies in the recognition of the importance of that initial contribution being a first step before any consideration is given to whether it has “eroded” in some way (see Money and Money (1994) FLC 92-485). Thus, the Full Court said in Pierce, (at [28]) it is necessary to weigh the initial contributions with all other relevant contributions and, in respect of that initial contribution:
Regard must be had to the use made by the parties of that contribution.
Here I am satisfied that the initial contribution of the husband, in its various forms, was the impetus for the parties’ future wealth creation to the extent that it cannot be ignored even if it is less significant than claimed. Any amelioration of the extent of that contribution is as a result of time and more importantly, the efforts and contribution made by the wife.
There is therefore no precise evidence of the benefits the parties received from the husband’s family or from the husband but the holistic picture indicates that in respect to Property E, the husband’s contribution was greater than that of the wife.
Work on Property D
Subsequent to the acquisition of Property E, both parties worked hard not just on Property F and Property E but also on Property D which was then owned by the husband’s father. This work on Property D was unpaid but benefits were received such as the use of seed, fertilizer, fuel and machinery. Later, the parties benefited by the use of Property D labour but, in the form of an unofficial “offset”, they sent machinery back as part of a mutual assistance program.
The wife argued that Property E machinery went to Property D and did not return but I find it more probable than not that the husband’s version is correct. He said that the machinery was serviced and repaired so again benefits were received by the parties. Either way, the husband and wife benefited more than the husband’s family did.
Children
During these early years, the three children were born. Mr H was born two years after the marriage, Ms J just over a year later and Mr K almost three years later again.
Rather than pull back from farming operations, the wife continued to work and care for the family. She asserted the husband was significantly absent because he was working on Property D and she had to do everything from crutching to droving sheep. The husband was dismissive of the extent of that farming role maintaining that the droving role was minimal and the care of stock was seasonally intensive. I accept his version is more probable based on the precision with which he approached the detail of his evidence and his reference to diaries. I also accept that when commenting upon the farming role fulfilled by the wife, he used his knowledge of farming practices to explain why what the wife said she did, was not as extensive as she would have the court believe.
In my view, it matters not what the parties did precisely because both were working towards the end goal of family wealth and they succeeded. In respect of the homemaking role, the picture portrayed by the wife was inaccurate and her written evidence was misleading. I earlier mentioned the parenting evidence. A fair reading of her affidavit would leave the reader thinking that the husband was not involved in family life. That was bluntly denied by the husband but even after he filed his trial affidavit, the wife remained silent and unresponsive about his assertions of his role at least with the children. The wife waited until cross-examination to explain that she thought she only had to describe what she did during the marriage and whilst true in one sense, the court was being asked here to assess all contributions and would have been justified in drawing an inference that the husband did little with respect to family life and that he was largely absent. That was not true.
When the evidence of the husband’s role with the children was put to the wife, it was not seriously disputed. She acknowledged the husband attended various activities of the children whilst at the same time, they participated extensively in farm activities with their parents.
The evidence of the three children about non-financial contributions
The wife relied upon the evidence of the adult sons Mr H and Mr K both of whom are nearby to the present farming operations. In her outline of case, the wife set out the outline of their evidence. In essence, the evidence of the sons was directed to the parties’ parenting roles, their own non-financial contributions and their mother’s plans to assist them in respect of properties. The wife also addressed the husband’s conduct during the proceedings which I consider was an unnecessary distraction. The relevance of this evidence has to be contemplated having regard to ss 55 and 56 of the Evidence Act 1995 in the context of the wife’s “contentions” in her case outline which, in addition to referring to the various financial contributions, said:
·Her contributions were arduous;
·Both parties worked on Property D in the expectation of being able to acquire it at substantial discount; and
·She was the homemaker and primary caregiver of the children.
The husband said in a case outline that:
·His greater contribution should be recognised because he owned Property F which also had a “springboard” effect to enable the acquisition of other assets; and
·His contribution was also greater because of what his parents gave in the discounted value of Property D, periodic gifts including the use of their plant and equipment.
To the extent that it is therefore relevant at all, the evidence of the children has to be seen in the light of those contentions.
Mr H Bernet
Mr H Bernet is 28 years old. He described his mother as always being busy on either Property E or Property D and that busyness included looking after him and his siblings. Criticising his father, he said his mother attended parent teacher nights whilst his father did not and his mother “nearly always” arranged extra-curricular activities. He thought that unlike his mother, his father undertook few activities on Property E but he also remembered his mother working on Property D. He complained about working for his father for low wages and long shifts as a teenager. There was little or no dispute that this was a farming family and all were expected to participate. He was able to describe all of the farming activities of his mother which I have concluded meant that he agreed she worked long and hard on the farm as well as took on the primary role of parent. He described his father as aggressive and demanding, ignoring pleas for something to eat during these working times when he was a child. That statement must mean that his father worked too.
At paragraph [121] of his trial affidavit sworn in July 2017, the husband set out his parenting activities. Mr H Bernet had an opportunity to deal with some of those allegations (which were ultimately not seriously disputed by the wife and, as I have already observed, she thought she only had to deal in her affidavit with what she did) when he swore a second affidavit on 2 August 2017. He began by acknowledging having read his father’s affidavit, but he did not respond to the husband’s paragraph [121]. I therefore doubt his objectivity.
Whilst he was at pains to observe the “busyness” of his mother, he did not acknowledge the benefits he received from his father’s “busyness”. He was a supporter of his mother. He gave evidence after the wife had already made concessions about the husband and acknowledged her own evidence as incomplete. Mr H Bernet is estranged from his father and described their relationship as “cold”. He was asked why that was the case (and the relevance could only be to credit issues) and it seems he took umbrage at his father starting a new relationship and things declined from there. Such was the decline that he felt it necessary (or those leading the evidence did) to tell the Court that his father had taken out an intervention order against him and had told him at the time to choose between Property D and his now wife.
In addition, and adding to the lack of objectivity, there is a commercial farming operation arrangement between Mr H Bernet and the wife. For example, he said that he began a share farming operation with his mother on Property F and she was to receive 30 per cent and the balance. The husband was apparently not consulted. That property is an asset of the parties and it would seem that machinery, in which the husband had an interest, was also used. The husband did not seek to interfere but neither did Mr H Bernet acknowledge that he was obtaining the benefit of his father’s assets and efforts.
Mr H Bernet’s evidence went on to say that his father had “promised” him Property D and that succession planning was a subject around the kitchen table “many times a year”. Leaving aside relevance to this proceeding, there is no application before the Court for an order to devolve property on the children nor is there a claim in equity before the court. What these parents do after the Court determines a just and equitable outcome as between them, remains their decision.
The evidence about kitchen table discussions and plans of happier days (although in this case, that does not seem to have been the case) have no relevance now that the parties have moved on with their respective lives.
Mr K Bernet
Mr K Bernet is the parties’ youngest son. His evidence was similar to that of his brother particularly relating to how hard his mother worked and her role as a parent. His perception of his father, whose parenting activities by comparison to his mother, he described as “rare”, was much the same as his brother. Unlike his brother, he had read the husband’s paragraph [121] and his response was that it was generally correct. Like the concession of his mother, it was most unfortunate that that concession had to be made in cross-examination.
This son’s evidence was hardly controversial and of little importance in what could only be described as a long marriage where the parameters of the dispute had already been determined by the outlines of both parties.
Ms J Bernet
The third sibling witness, but this time called by the husband, was Ms J Bernet who is the 26 year old daughter of the parties. She is married. Indicative of the nature of her present relationship with her mother is the fact that she has a child whom the wife (at least at the hearing) had not met.
Ms Bernet gave evidence in which she complained that her mother’s “starving Property E cattle” pushed over a fence and crossed into her adjoining property and “ate a massive proportion of our feed”. There is not much more to say about the mother and daughter relationship.
The wife did not respond to much of Ms Bernet’s affidavit evidence. The relevant parts of the daughter’s evidence were directed to such things as the fact that her mother referred to Property D as the property of the husband. Apparently as a farmer, Ms Bernet was able to say that half of Property E’s pastures were not good whereas those of Property D were. She detailed the work of Property D employees on Property E. Her evidence corroborates the significant role of the husband on all farms and that the wife distanced herself (which I deal with below) from the responsibility and ownership of Property D. This evidence corroborates the non-financial contribution by the husband.
In relation to the role of her respective parents during child-raising years, this witness had a different view to that of her brothers. Like her brothers, her perception as a child must be taken cautiously. Unlike her brothers, she was critical of her mother’s care but I find most of the detail was unhelpful for the same reasons I found about the evidence of the sons. Where there is, as here, a loss of objectivity, a revisionist approach to what happened in childhood and particularly teenage years does not assist. That is particularly so where both parents worked long and hard to achieve their present wealth. More significantly, as already observed, the wife acknowledged that she had not accurately portrayed the husband’s role in the lives of the children.
Ms Bernet was asked some questions about the benefits she received from her father but I challenged the cross-examiner to indicate the relevance having regard to the fact that his client had not expressed concerns about that largesse. The cross-examination then ended.
The conclusion as to the children’s evidence
A more balanced reading of the affidavits of all three children would make one think they had a deprived childhood but they are now all farmers in their own right and have enjoyed the benefits (and presumably the work ethic) of their parents. The example of the son entering into a farming arrangement with his mother without reference to his father is a good example of how this family all made use of whatever resources were available to them for their own benefit.
I therefore find the evidence of all three children a distraction and apart from Ms J Bernet’s largely unchallenged evidence about her mother’s view about Property D, I was not assisted.
I find that in respect of the homemaker and parent contributions, the wife fulfilled the major role but I accept the husband’s evidence that the wife was able to do that because of the less demanding farming activities on Property E.
I find both parties worked hard and contributed their best efforts to the joint venture but in different degrees. That does not necessarily mean that the wife enthusiastically adopted the venture of the husband in the acquisition of Property D. I return to that in a moment.
Property F and Property E operations
A large amount of the evidence of the husband was not challenged by the wife enabling the following description to be seen as fact.
The Property E Trust also derived benefit from Property F such that the farms were merged and the money seen as one operation until the year 2000. The loan that gave rise to the purchase of Property E was paid by the conclusion of ten years after its borrowing. Plant and equipment of the husband’s father’s entity was used to enable both properties to be cropped. In addition to the use of the father’s plant and equipment, the husband owned a tractor at the commencement of the marriage recognition of which can be seen in the Property E accounts at $23,500. The use of the parents’ plant and equipment cannot be ignored when assessing contributions because both of the properties not only held livestock, they ran cropping activities all of which required machinery.
I accept the husband’s evidence that his parents’ assistance was a substantial benefit to the parties. It was not completely offset by the work done by the husband on his parents’ farms nor by the use of Property E plant and equipment on the father’s property. A contribution by labour and plant and equipment to the parents’ property might be of little significance if the husband had neglected Property E and Property F. I accept that the husband’s continued interest and involvement in Property E was much more significant than the wife would give him credit for. In addition, the evidence of the wife as to the role she fulfilled on Property E such as in droving, does not enable a finding that that contribution was constant and continuous. Whilst the husband maintained that the work on Property E was modest, I accept that the wife was largely responsible for the day to day management of it whilst he was at Property D but I find the husband returned at the critical periods of time to be involved in farming activities.
Thus, I find that the use of the parents’ resources at Property E was a benefit that the parties received to enable them to enjoy the wealth they now have. I accept that there were various arrangements both as to money and produce. I find that the parties benefitted more than in a sense of remuneration for work done. I accept the husband’s evidence that in relation to payments the parties received, income was declared for tax purposes. The benefits that the parties received included the input of seed, fertilizer and chemicals which formed the foundation for the cropping operation. Whilst this too appears to have been for a discrete period of the year, the unchallenged evidence of the husband is that it was a significant benefit.
Property E also ran livestock. Indicative of the nature of the husband’s role was that he asserted that for between three and ten days at important parts of the year, he was involved at Property E. The wife was asked whether this assertion was “essentially correct” and she replied that it was. The husband was able to produce records of what happened to stock and produce. He fulfilled a significant role notwithstanding the assertion of the wife that he was absent.
Remarkably, the husband kept diaries (as did the wife) and in the anticipation of this hearing, the husband went through them. He reconstructed the hours that he spent on Property E as distinct from Property D. Having regard to the many years over which these records were retained, it was curious as to why they had been so kept in the first place. But they were kept, were not seriously challenged and, most importantly, showed the lengths to which the husband went to endeavour to show his evidence was correct. I accept his evidence which indicates that he spent considerable time on Property E undertaking farming activities.
The diary also refers to the hours that his parents’ labourers were provided on Property E and Property F over the years. When the wife was cross-examined about this she said that she had never seen his diaries but she did not deny the extent of what he had said.
The husband said that his father gave guidance and advice in relation to management decisions about stock and cropping. It is not clear whether the wife was denying her father in law’s involvement by saying that she managed Property E by herself. If that was her assertion, I do not accept that that was a fair analysis of what occurred.
Thus I accept the husband’s overall assertion about the extensive use of the parents’ resources at Property E and Property F. More precise details which were also provided by the husband were also put to the wife in cross-examination and she either acknowledged that she did not know of the amounts of money involved or that that was what she understood was happening from discussions with the husband.
All of this evidence leads to a finding that the parties benefited significantly from the assistance they received from the husband’s family and that up until the purchase of Property D, they both worked very hard at whatever tasks were being undertaken.
Property D
Property D is 6956 hectares in size and had been owned by the husband’s family for many years. All members of the family worked on it but particularly the husband. It is some distance from the other properties such that when working there, the husband did not return home each day to Property E. He was accommodated at Property D.
In 1998, the husband was offered the opportunity by his parents to buy Property D. Property D had been his family home. The wife was not enthused about further increases in debt that would arise from the acquisition of Property D. The husband saw her reticence as bringing about the end of their relationship and I accept he was correct.
The wife insisted that if Property D was bought, it had to be a separate venture from Property E. The ultimate agreement was that the husband would continue to operate Property F as well as Property D. That required different financial operations and accounting but it also required the creation of a new entity. Whilst both parties maintained the formal legal control over both of the relevant entities, the wife’s focus was on Property E and the husband on Property D. I find the husband continued his role at Property E and that included the joint management of the entities even if bookkeeping was not his strength. Both parties were astute at looking after their joint interests.
Having initially been offered the opportunity to acquire Property D, the husband leased it for the 1998-1999 cropping season at a nominal rent. A different arrangement was made in the following season.
The purchase of Property D was controversial and the parties did not agree on how it came about.
Property D was offered to the husband by his father. As part of the negotiations, the father told him that he needed to take out a loan for $2 million from the father on the basis of which, he had to find another $2 million.
Because of taxation implications for the husband’s father, the purchase price was fixed at $5 million but with a gift of $1 million effectively back to the husband by the father’s entities. That meant that the husband and wife were given $1 million towards Property D. They then obtained bank finance for $2 million and incurred a debt of $2 million in favour of the parents, repayable over five years at 5 per cent interest.
There were taxation implications for the parents in relation to the $2 million so that loan was split into two parts, one of which was $1 million from the father’s company which attracted an interest rate of 6.5 per cent and a personal loan from the parents of $1 million upon which there was interest fixed at 5 per cent.
The former of those $1 million loans was orchestrated by the husband receiving 1644 shares in Property D Pty Ltd without payment which he then sold and transferred back to the parents’ company for a consideration of $1 million. There were various professional costs associated with this arrangement all of which were paid by the father or his entities.
New entities had to be set up to satisfy the wife’s insistence upon keeping Property D and Property E separate. A variety of trusts were then settled, the trustee of which was a company. Despite the wife’s resistance to, or lack of enthusiasm in, this venture, both she and the husband were the directors of that company and each held one of two issued shares.
Around March 2000, both husband and wife signed the contract of sale to enable the purchase of Property D to proceed. By a variety of transactions, although the husband and wife were the purchasers personally, they then transferred their equity in Property D to a company on the basis that each of the three trusts that they had settled, held a one third interest.
The loan to the father’s company was secured by second mortgage which required the trustee of the three trusts to make a commitment and execute documents. The execution of the documents was undertaken by both parties. However, in addition to the loan, a guarantee was required which was given by the husband but, as corroboration of the wife’s reticence, not by her.
In respect of the second tranche of borrowings of $2 million, the mortgagor was Commonwealth Bank. It took a mortgage over Property D. The wife refused to permit the use of Property E as security for the Commonwealth Bank. In any event, she gave a personal guarantee which would have ultimately placed her interest in Property E at risk had there been a failure to meet obligations.
Machinery for use on Property D was acquired from the father’s company. The parties required a ruling as to the admissibility of evidence by the husband about that value. I ruled (and gave separate reasons) allowing the husband to give that evidence based on his experience relating to values. I accept the husband obtained machinery from his parents at $166,000 based on values calculated in 1998 but that the real value was much higher. That must be seen as a contribution by the husband.
Eighteen years after the acquisition of Property D, the valuations to which I now turn show that a substantial portion of the parties’ wealth lies in Property D. The wife gave the husband credit for his good operation of Property D which was corroborated by a discussion amongst the valuers.
On any view, the husband worked hard on Property D but the parties could not have what they now disclose without the father’s assistance. I find that assistance significant.
The valuers
A number of valuers became involved in the proceedings. Illness hampered conferences and the filing of reports. I took the view that the dispute about quantum of values and the complexities of what underpinned them, required the court to have as much information as possible.
The task of the court in this unusual case was to decide what value was fair having regard to the evidence presented.
To overcome the difficulties, I suggested (and the parties agreed) that the valuers should confer. Two of the valuers who were the adversarial experts of the parties, did confer and agreement was reached that Property E was worth $7.1 million and the wife’s house at M Town was valued at $385,000. The wife has an interest in that property which she acquired with the sons.
After the valuers met, they did not agree on the value of Property D and Property F.
The single expert witness along with the adversarial witnesses were all called simultaneously. Perhaps novel in this court, the approach was very helpful because the contentious issues were all the focus of concentrated minds and comment. It made the task easier.
As the experts’ qualifications were not challenged, the issues were what values were to be used and based upon what methodology or factors. The disputed discrepancies have been determined on the balance of probabilities.
Mr L, the wife’s valuer, is based in M Town. He has had 35 years’ experience as a valuer, 27 years of which have been as a certified practising valuer. Mr N is also based in M Town and has had more than 40 years’ experience valuing property in the western district of Victoria. He was the husband’s valuer.
Mr O is based in M Town and has had about 37 years’ experience valuing property. He was the single expert witness.
In January 2016, Mr O valued Property D at $27.5 million, Property F at $1.48 million and Property E at $6.825 million. Twenty months later and before any conference occurred, Mr N valued Property D at $29.285 million whilst Mr L valued it at $35 million. They conferred but did not agree on a compromise.
In respect of Property E, Mr N came up with a value of $7 million whilst Mr L thought it was worth $7.355 million. After a joint conference between them, they settled on $7.1 million.
In respect of Property F, their respective positions were $1.606 (Mr N) and $2.07 million (Mr L). They conferred but did not agree however Mr L reduced his value to $1.8 million.
Mr L began the “hot tubbing” by saying that the principal issues related to the value of soils and what could be drawn from comparable sales. In respect of the latter, he said that valuers try to get as close to the subject property as they can.
Mr L described Property D as one of the better improved properties in the district. He said it had been intensely improved for cropping land with many planned drains to remove excess water.
Comparable sales outlined by Mr L were examined in some detail with counsel for the husband relying upon a map to show the various distances of the properties from each other.
Mr L had one property drawn to his attention by Mr N and when he made inquiries about it, he understood that the sale had not settled because the rate collector told him that the transfer of the ownership (according to municipal records) had not taken place. However, he accepted that there had been a contract of sale because Mr N had a copy of it.
Unfortunately, one of the sales had been previously described by another valuer and Mr L had taken the details from that report and drawn assumptions.
As I shall discuss in a moment, although Mr L recognised that a fundamental issue was the soil types, he acknowledged he did not understand the technical detail of the difference between sodosol and vertosol. Both Mr N and Mr O did understand that difference and were able to explain their importance to the valuation process.
Mr N described the distinction as lying in the soil found north and south of M Town. He said it was self-mulching but there was a problem around P Town where Property D is to be found. In laymen’s terms, he described the problem occurring when water lands on the sodosol; the water disperses. As such, sodosol needs more work than vertosol for the purposes of productivity. This science meant that it was important to know about the soils because they affected productivity and hence value.
Mr O confirmed that in respect of the valuer with whom he had had a conference, and whose details Mr L had used, there was a disagreement about soil factors. They had however, also disagreed about comparable sales. According to Mr N, the reason for the differences in values lay in the soil factors.
At the conference between Mr N and Mr L, they discussed the soil factors and Mr L telephoned the parties’ son Mr H to inquire about the type of soil found in land that had not, at that point (from his perspective), been sold. Mr L was asked why he telephoned the son rather than the solicitors and whilst I have some concerns about the appropriateness of that conversation, bearing in mind that the son is antagonistic towards his father, I am not convinced that Mr L was influenced by what he was told. He said that the son suggested that there were plenty of sales to support the figure that Mr L was using but even so, by that time, he was prepared to reduce his value. According to Mr L, the son’s response was that it was Mr L’s decision anyway. When asked why the call was made at all, his response was equivocal. He said it was just in the conversation and that he felt that his own calculations were “high”. This was an unusual response because it did not seem particularly scientific.
I am satisfied that Mr L’s valuation was not influenced by the parties and that he approached the issue objectively. Of the two valuers, I consider Mr N’s approach is the more indepth and logical.
Unlike Mr N, Mr L had had previous involvement with another valuer in relation to these properties but had made no mention of that fact. He conceded that in hindsight, he probably should have mentioned those matters. This was another unusual approach.
When Mr L was asked why his value came down, he gave a number of explanations. One was the fact that his attention was drawn to the sale mentioned by Mr N but another was that he just felt that he was too high initially. The difficulty with that explanation is that it highlights a subjective approach whereas Mr N’s approach seemed to me to be very objective relying upon soils that affect productivity all of which were drawn from comparable sales.
Mr N looked at the various sales in the context of the quality of the soil. He was able to describe those that were “a bit wet” which were in his view, comparable to the poorer class soils on Property D. He was able to identify a sale in which he pointed to mixed clay soil which was the same as Property D.
There was some debate between Mr L and Mr N about one of the sales in which Mr L indicated that the purchaser was the vendor’s cousin and by inference, some sort of less-than-market value was obtained. Mr N was quick to dismiss that saying that he considered it as a commercial sale. He told the court that in respect of a property known as Property Q, he had valued it a number of times and considered the last disposal was an arm’s length transaction. Mr O contributed here by indicating that he had made inquiries and the vendor had told him that he was very happy with the sale. He said the purchaser did not volunteer anything of a similar nature other than that there had been an agreement about water. Accordingly, the fact that that particular property had not been exposed to market forces, is irrelevant.
A property very close to Property D was suggested to Mr L as a comparable sale because of the comparison of soil types. Mr L dismissed that by saying that he had spoken to the agent who told him that the sale had been a disappointing one on the day. He said that it did not matter because the property was nowhere near improved as much as Property D. This issue was the important one for Mr L. He said that in respect of Property D, it being so well improved, the market would pay a “premium”. He said there was no property in the R Region that was as contiguous and that from his perspective, it was a standout property in Victoria.
Mr N however described the soil types as similar and whilst agreeing that Property D was a large property, dismissed the concept of it being the best property around. He said there were plenty of large farms all of which were attracting interest from superannuation funds. Mr O adopted a similar position to Mr N.
Whilst there was evidence of an increase in property values in the area over the years, Mr N opined that the increases depended upon which district was under consideration. Importantly, he said that in the P Town area, in which Property D stands, the evidence was not available.
In one dispute between the adversarial witnesses, Mr L asserted that there had been a 30 per cent increase in property values north of M Town and he opined that people were not doing well and therefore not selling. Mr N dismissed that as simple speculation. In his view, the appropriate way to deal with the issue was to examine a sale even if it was in 2015 and then factor in increases and decreases but not apply a random number. In his view, there was a sale immediately comparable because it was on the “doorstep” of the property to be valued. That sale was only a year before. Mr N had spoken to the owners who described some of the land as second class country whereas parts of Property D were third class. He said that he then applied a dollar value per hectare to the percentage of unusable or non-arable land.
In relation to the size of Property D, Mr N said that there were arguments for and against. As he observed, because some purchasers were beholden to superannuation funds, they would look at what percentage of the land was non-arable. In the case of Property D, 24 per cent is non-arable.
Unlike Mr L, Mr N thought that whilst some times bigger was better, a premium would also be paid for a smaller allotment because of productivity.
There was much debate between Mr L and Mr N about buyers but Mr N stood his ground and indicated that Property D is a good property but, as he described it, not out of this world. There were things such as the placement of trees on various hectares that acted as a deterrent to cropping and there were other properties in the north of M Town where no such problems occurred.
Mr O added little to the discussion but was very interested in a sale at S Town in June 2015 because the property that Mr N had drawn Mr L’s attention to, adjoined it. The two properties combined showed a limited value increase in that period. Mr N and Mr L also gave evidence about Property F and the same concepts about the value of the soil were canvassed in their respective pieces of written evidence. Mr L’s view was that Property F had been improved beyond other properties but Mr N’s view was that one still had to look at the type of soil and the productivity. Whilst subjectivity clearly is a significant part of the assessment of value, the valuers were still examining what an arms-length purchaser would pay if they knew of the quality of the soil, its productivity and the amount of arable land involved but also taking into account the size of the market having regard to the acreage involved. However, they also said they had to take into account the size of the market having regard to the acreage involved which might attract the investor rather than the local farmer.
Of the three valuers, Mr N and Mr O were the closest in assessments. Both Mr N and Mr O conceded that the 2017 sale which indicated an increase on its adjoining property sold in 2015 was a very good indication of value. Much of what Mr L said was speculation. He did not seem to know the soils as well as Mr N and Mr O. Mr L conceded that his initial valuation was too high and that can be seen in the fact that in respect of Property E, he came down much more than what Mr N went up. In respect of Property F, his valuation came down significantly whilst Mr N did not alter at all.
Mr L did not know of the 2017 sale until it was drawn to his attention by Mr N who ultimately made inquiries such as to be able to provide a copy of the contract of sale. All of these valuers have substantial experience in the market place but I have a lot more confidence in Mr N than I do in the evidence of Mr L. Mr N was able to explain his methodology simply and with a focussed concentration on the soil types. He had undertaken an examination of the location of the various soils and was able to distinguish not just them but also the sales that arose from those areas. In my view, Mr N’s examination of comparable sales was much more convincing than that of Mr L whose pursuit of comparable sales was cast widely to include properties where the soil was not comparable. On the balance of probabilities, I prefer Mr N’s valuations.
Accordingly, I find the value of Property D to be $29.285 million, Property E $7.1 million and Property F $1.606 million.
Dividing Property D?
The wife sought an order that the husband effectively transfer a number of titles of Property D known as U Fields to her. There are complicated drafting issues here because of the various trust structure of the parties but I propose to ignore those because it is common ground that there is no issue of control.
The immediate question is whether a portion of Property D should be separated from the main farm to satisfy the justice and equity requirements of any final order of the court.
In her evidence, the wife said that throughout the marriage, she and the husband were developing the farms for their future but also for their children. She said that over the previous ten years, there were discussions about dividing assets amongst the children. There seems little dispute about this. From her perspective, the son Mr H was to receive Property D “or part of it” depending upon whether the daughter Ms J chose to take some portion of Property D.
The husband denied there was any agreement about the distribution of the farms including in relation to his daughter. He said there were several discussion over many years “brainstorming” lots of different ways to help the children. It is understandable in the circumstances when antipathy creeps in that one might hesitate about such help.
The husband’s evidence descended to an assertion that the wife told him that if he did not put Property D into the son’s name, she would divorce him and seek 50 per cent of the assets. I accept the parties’ relationship had descended to such acrimony and that, on the balance of probabilities, the wife did make that statement but I do not accept that it is of any relevance to the determination here of what is just and equitable.
The husband conceded that he spoke to the parties’ son Mr H and told him that one day after he was “finished”, Mr H could have Property D but he needed to show that he was “committed and responsible” in his farming “and life behaviours”. I have already set out how Mr H and the husband have had such a serious falling out that it has involved separate court proceedings. Accordingly, one could well understand why previously contemplated generosity would now be different. Remarkable in all of this, Mr H acquired a farm near Property D and was assisted by at least the husband in the purchase by Property F being offered as security but also a cash guarantee of $300,000 to secure the loan. The husband was involved in negotiations about further security for Mr H and for reasons that are perplexing, that seemed to cause angst with Mr H. The arrangements all fell apart. Again, none of this is relevant to the ultimate determination here.
The wife’s evidence was that Mr H’s purchase of 510 acres adjoins Property D and somehow, she saw that as important.
The husband’s view however was that Property D was historically significant and he did not wish to break it up. The wife did not address the question of the historical significance to the husband and his family and her major interest was to assist her son Mr H.
The wife’s position also was that she had an expectation of assisting the children noting that Ms J had already received a significant “entitlement”. I have already mentioned the cross-examination about that issue and it again highlights the distraction which has nothing to do with this determination. Whatever arrangements the parties had made by way of estate planning, my view is the court ought not be involved. Notwithstanding what I have said, the husband’s evidence was that he hoped one day to resolve the issue that he has with Mr H.
There is no basis for the court to be involved in estate planning unless specific orders are sought to that effect. Section 79 of the Act empowers the court to make such an order but that is not what the wife wanted. Her evidence was that she wanted the property transferred to her and she would then make arrangements as she saw fit.
A solicitor, Ms T gave undisputed evidence that the U Fields could be transferred without subdivision subject only to the relevant registration and legal costs.
How to work out what is just and equitable in relation to splitting Property D
Section 79(1) of the Act provides that the court may make such order as it considers appropriate but s 79(2) mandates that the court shall not make an order unless it is satisfied that in all of the circumstances, it is just and equitable to make that order. There is no definition of what is “just and equitable” and as Gummow and Hayne JJ explained in Kennon v Spry (2008) FLC 93-388 (at [95]) commenting upon s 79(2), the phrase appeared to have its origins in the principles of equity which had been developed from the dissolution of partnerships. In Riches v Hogben [1995] 2 QdR 292 McPherson J looked at the conduct of a party involved in a representation which gave rise to the person acting upon the representation. His Honour noted that the distinguishing feature which attracted equity was not the promise but the expectation. Here, the only finding I could make is that there was much discussion around the kitchen table about what was to happen in the future in respect of the farming properties and that each of the parties intended to assist their offspring as best they could. The husband’s evidence which I accept is that he had already assisted Mr H. He also seems to have assisted Ms J and the wife had not been resistant. The evidence also supports the conclusion that the wife intends to assist Mr H because his property adjoins Property D. The husband has not excluded that possibility, but clearly has made his determination, having regard to the current problems within the family.
Accepting that equity principles are reflected to prevent unconscionable conduct, nothing in the husband’s evidence would indicate that he was making representations that Property D was going to belong to one of the children specifically such as would give rise to the intervention of equity. There is certainly no application by any of the children based on such equitable principles. Nothing in the evidence of the wife indicates that the discussion led to some form of beneficial interest being created by her in favour of anyone.
Thus, it would not be just and equitable here to make some order based upon notions of estate planning arising out of an asserted agreement at a time when the relationship between the parties was better than it currently is. Nothing in the wife’s evidence indicates that there is any other basis for her to have U Field and accordingly, I see no reason to reject the husband’s submission that he has an historical association with Property D such that he would be distressed to see it split. Of course, if he is unable to fund the entitlement of the wife, a partitioning of Property D may very well be the most appropriate course of action. I decline therefore to make an order that the wife have the property U Fields.
The M Town and P Town property
There are two properties that the parties have included in the list of assets and liabilities.
The first property is at M Town which is owned by the wife and the parties’ two sons. It has been valued at $385,000. The property is in the names of the wife and the sons as tenants in common. It is not suggested that any alteration should be made to the interests of the wife in this property and it has been included at $385,000 notwithstanding the other tenants.
The M Town property was acquired in March 2015 and it appears encumbered by a mortgage to the National Australia Bank according to the title but no reference was otherwise made to that mortgage by the parties.
The purchase of M Town arose sometime after May 2008 when the wife’s father died. He too was a farmer and his estate went to the mother of the wife. According to the unchallenged evidence of the wife, upon the sale of the farm, she received $460,000 of which she gave one of the sons $100,000 and the balance went towards the acquisition of M Town. This seems to have all occurred around the time of the parties’ relationship coming to an end but as both parties listed the total value of M Town, I shall do likewise but take into account the fact that the wife is retaining that property and that it arose largely from her own resources.
Similarly, the husband purchased a property at P Town which has an agreed value of $75,000. Little attention was paid to where that came from but I have presumed that, as it was acquired in or around the time of separation, the husband drew down from family resources on the assumption that he had no other source of capital. In the scheme of things, it is a modest sum.
The add-back concept
The husband also added into his list of assets and liabilities the sum of $103,742 taken by the wife. Consequent upon her father’s death, the wife’s mother became the sole beneficiary of his estate. Her mother then died and the only beneficiaries were the wife and her sister. In a letter which was said to have been written in 2015, the wife told her sister that because of the sister’s care of the mother, she was leaving half of whatever interest the wife had, to the sister. In other words, the estate of the mother was to be divided as to three-quarters to the sister and one-quarter to the wife. Indeed, the wife ultimately received that portion and the husband asserted that amount should be included “in full in the matrimonial asset pool”. I am not entirely sure what he was referring to as the “matrimonial asset pool” because, as is well now explained by authority, s 79 of the Act alters the interests of parties regardless of whether it is “matrimonial” property or not.
Even if I were to accept that the wife has given away $103,000, there can be no doubt that its receipt arose from her mother’s estate. The husband did not challenge that. Rather than include it as an asset however, the husband included it as an “add-back”.
There are a number of possibilities as to how the court can deal with property that potentially no longer exists. In this case, I am not sure what has happened to the money. It may be a premature distribution in the sense of the decision of Townsend and Townsend (1995) FLC 92-569 or a wastage of property in the Kowaliw and Kowaliw (1981) FLC 91-092 or the Chorn and Hopkins (2004) FLC 93-204 sense relating to legal fees.
To be in the Kowaliw situation, the expenditure by the wife would have to be something like reckless, wanton, negligent or wasteful. If it fitted into those categories or any of them, justice and equity could demand that it be included but not necessarily as property that still existed. One solution to that problem would be to treat it as having been received and then make an adjustment for the purposes of s 75(2)(o).
In this case, it is not only a modest sum but was clearly traceable to a source entirely unrelated to the husband and more importantly, received sometime after separation. In my view, the appropriate course of action is not to include it as an “add-back” because I cannot be satisfied that it still exists but rather, take it into account as something that the wife has had the benefit of and conceivably been used possibly even for legal fees in the Chorn sense.
Other property
The parties had undertaken valuations of livestock, plant and equipment and they also set out a variety of things that were not controversial as between themselves. For example, each of them had dealt with what grain was on hand and what trade debtors were owed to the husband’s main entity. There were also shares presumably associated with fertilizer. Where the figures are not controversial, I have accepted them.
Loan to Mr K
In his asset list, the husband included a loan of $100,000 said to be a loan to the son Mr K. Curiously, this sum seems to have emanated from the evidence of the daughter Ms J. Ms J asserted that her mother had told her that she had financed Mr K’s farm in 2013 and she therefore estimated the value of the purchase from knowing how much the purchase price was per acre. The wife responded by saying that she gave Mr K $100,000 for his farm and that Property E gave him $100,000. The $100,000 gift from the wife is referred to in her affidavit but that money can be seen to have emanated from the money the wife received from her mother upon the sale of her father’s farm. The first I can see of any evidence of any further sum arises from the wife’s own affidavit where she said that Property E gave him $100,000. She then said:
[131]I advanced these moneys on the basis that [Mr K] could repay me, if and when he was able, without interest.
I do not know whether this is a debt owing to Property E in its corporate form and if it was, and it occurred in 2013, then it may have been taken into account when working out the balance sheets of the relevant entity. The $100,000 gift from the wife personally seems to me to be entirely from the resources of her father and in the circumstances, I propose to ignore it completely on the basis that I am not at all clear what finding can be made about it.
What are the assets and liabilities?
Each party submitted a different list of assets and liabilities and the evidence was often not targeted to those figures as distinct from the assets themselves. I have searched through the various documents provided. For example, in respect of the plant and equipment and the values attributed to such things as grain and debtors, it has been difficult to reconcile disparities. In the end, I have done the best I can.
As to values, it will also be apparent that I have adopted those of Mr N.
Time has also passed since the hearing concluded and my commitments have unfortunately delayed these reasons but neither party has requested that the figures to which I shall now turn should not be used because of the effluxion of time. Thus, I find the assets and liabilities are as now set out and where necessary, the figures have been rounded out.
The assets and liabilities are:
Property D $29,315,000
Property E 7,100,000
Property F 1,606,000
P Town 75,000
M Town 385,000
Livestock 456,000
Plant and equipment 6,044,000
Cash at bank 19,000
Shares 33,000
Grain and debtors 572,000
Wood on hand 25,000
Subtotal 45,630,000
Less husband’s overdraft 134,000
(taking into account
Accepted legal fees)
Wife’s overdraft 898,000 1,032,000
(taking into account
Accepted legal fees)Total $44,598,000
What should each party keep?
As will be now apparent, I do not intend to divide up Property D and the husband is the party seeking to retain it. I have concluded that neither party wants Property F but it seems more logical for the wife to retain it and if necessary dispose of it because it is closer to Property E and she can sell it if she desires. On the other hand, it is further away from Property D and has not been part of the husband’s most recent focus. In my view, it is sensible for the wife to at least take the value of it unless she desires to sell it in which case arrangements can be made between the parties.
Thus, the wife will retain Property F, Property E, the M Town interest, the livestock, the plant and equipment interests under her control, the cash, the shares under her control, the produce but then she has the overdraft. Taking the figures from the list above, I find the wife’s assets and liabilities total approximately $9.9 million.
The husband will retain Property D, his plant and equipment, the shares under his control and the grain and debtors under his control as well. By the time the relevant overdraft as adjusted is taken into account, the husband has assets of $34.6 million or thereabouts.
Tax problems?
The parties provided an expert report provided by V Pty Ltd which was comprehensively designed to address a whole raft of possible outcomes.
The expert understood the various entities and structures and had been provided with various scenarios relating to valuation. A number of assumptions were made. The first assumption was that the trading entities would qualify for the small business entity corporate tax rate of 27.5 per cent and the franking credits attached to any dividends that were paid would be limited. When the opinion was written, there was draft legislation in the pipeline. I am not sure whether there is now any alteration to that position.
A second assumption was that where an asset was transferred inter parties under a “consent order” under the Act, no capital proceedings would be received and the expert prepared advice on the basis that the transferor would be taken to have received full market value consideration for the purposes of capital gains tax but for which there was a potential for an exemption or rollover relief. That too requires a consideration which the expert was unable to address with any finality.
This case also gives rise to income tax provisions under Division 7A of the Income Tax Assessment Act 1997 (Cth) relating to various loans of the entities and how a debt forgiveness and/or dividends would be treated by the Commissioner. The expert considered the various applications depending on the various transactions that the parties contemplated. In my view, it is difficult for me to assess the likely consequences of the orders that I propose.
A number of possibilities arise from the transfer of interests in the various entities as between the parties and it seems that the parties themselves see some advantage in structuring the changes for their benefit. If any transfers were in personam, there would be difficulties with tax because of the transfers of ownerships between entities and the individuals. But so too, the shares in Property E Bernet may give rise to a liability to the wife if there was a distribution of retained profits. I am unsure whether that is going to occur.
The Property E farm seems likely to remain in the control of the wife so there is little likelihood of any transfer in personam but it will have to be dealt with within the various entities.
The same applies to a number of shares and trusts which the expert thought would not incur immediate tax consequences but that was on the basis that shares and assets remained within the entities. The obvious problem arises if on the basis of the orders I make, the husband has to sell property rather than borrow it, and that incurs tax consequences. If the husband was to retain Property D and the structure that owns and controls it, the experts said that there would be no immediate tax consequences. There would be tax consequences in the future if those assets were transferred but neither party at this stage has anticipated that happening. True it is that there is evidence from the wife’s side including the children, that they anticipated some estate planning to be done and there would be consequential transfers. In my view, those matters are not relevant now.
The Property F farm is one that I propose be transferred to the wife for her to do as she pleases and the experts’ advice was that there was no immediate tax liability whichever way the court dealt with the matter and no future tax liability because the land precedes the capital gains tax legislation.
The investment trust and the investments company face a number of possibilities. If there was a winding up of one of those trusts, there would be an immediate tax liability of in excess of $1.1 million. Neither party has contemplated that at this stage. If there was a transfer of control of the trust to one of the parties, the expert thought there would be no immediate tax liability but a future tax liability would accrue on distribution of the retained profits. That too is a matter that the parties can contemplate between themselves.
The family trust will apparently remain within the control of the husband and there are no immediate tax consequences for that.
That leaves the superannuation of the parties. I have dealt with that separately in these reasons but there are no tax consequences on the basis that there is an adjustment as between the parties of their respective member accounts and other interests in superannuation such as to satisfy orders.
In summary therefore the expert made a valiant attempt to give guidance to the court in circumstances where the parties’ respective positions were taken into account and the valuations were roughly known. However, in my view, it is unwise for the court to be taking into account speculation and I consider that I can determine the matter on the basis that no tax is payable at this time. However as I shall return to the issue below, it seems to me that if there is a tax consequence in relation to the husband having to meet the obligation that I propose, the tax issue may need to be reconsidered.
The initial contentions of the parties as to an outcome
The wife proposes that there should be an equal division of property based on the parties’ contributions and if that finding was made, there would be no further “needs based adjustment”. She contended that if that approach was adopted by the court she would receive Property E, the relevant corporate structure, the portion of Property D that I have rejected above and a cash sum from the husband that would give effect to an alteration of property interests as to equality. She also sought a superannuation splitting order and I shall deal with that separately. The wife then sought ancillary orders including the efficacious winding-up of companies and trusts to “minimise any total adverse taxation consequences” of such transfers and closures. In my view, equality is not justified here.
In my view, two matters are complicated by the approach adopted by the wife. The first is that virtually all of the properties are owned by corporate entities. The second issue concerns the parties’ apparent general consensus that they would endeavour to transfer interests so as to minimise their own taxation consequences. I raise doubts about the power or propriety of the court making such an order but on the basis that each party wanted to approach the matter that way, I shall make the usual general findings and indicate what I consider to be an appropriate payment by the husband whereupon the parties can draft the necessary orders in respect of the second issue just mentioned as they see fit. I acknowledge the risk in that approach lies in the fact that the ultimate questions may affect the figures but as the parties litigated on the basis that all of this property was, in reality, theirs, if they cannot reach agreement about the form of the orders, I would make orders of the court that would undoubtedly not take into account their tax minimisation arrangements but they may have to come back and make further submissions on the taxation consequences including capital gains tax and Division 7A problems.
The husband’s position was more specific but overall, he sought to effect a division of property as to 70 per cent to him and 30 per cent to the wife giving him elections to pay up to $4.205 million in part satisfaction pursuant to some tax minimisation arrangement. In my view that would not be just.
The submissions of the parties
Subsequent to the conclusion of the hearing in August 2017, the parties each filed comprehensive written submissions by the end of September. In the case of the wife, her submissions including proposed orders ran to 69 pages whereas those of the husband ran to 57 pages. It is not necessary that I deal with all of those as I have dealt with the matters raised by the parties as these reasons have progressed.
The wife’s submissions
The wife’s submission dealt with the law which I consider uncontroversial. It was submitted that there are no special rules that apply for farming properties quoting In the Marriage of CP and TL Lee Steere (1985) 10 Fam LR 431. That is not a consideration here from either parties’ perspective except that the husband has maintained that he desires to keep Property D together and I do not consider that is the same issue as in Lee Steere.
Counsel for the wife pointed to the various entities and structures which illuminate control but it was conceded that neither the husband nor the wife holds Property D or Property E in their personal capacities. It was submitted that the parties deliberately set up a trust structure for the holding of family assets and as I have already observed in relation to the taxation issue, the parties will need to work out how it is in their best interests to resolve the orders based on the findings that I have made.
Counsel for the wife approached the issue of the determination under s 79 as involving considerations of at least four sets of factors. It not being controversial that the parties agree there needs to be an alteration of interests, those four considerations are relevant.
It was submitted that each of the parties had contributed equally to the best of their ability in relation to the acquisition of the assets. For some reason, counsel for the wife considered it necessary to say that the wife’s contribution was more than just raising of children and her contribution to the welfare of the family. Albeit the husband argued about the extent of the wife’s farming contribution, he did not dispute her contribution was significant in either category.
It was submitted on behalf of the wife that the parties were partners in building up of their assets and that when assessing the contribution of the parties to the accumulation of assets, the court “may” begin with a view that marriage is an economic unit between equals. Whilst that might be an acceptable approach, the assessment of the determination as argued by counsel for the wife was more directed to a four steps approach. To be clear, the court is not permitted to start from a position of equality but rather, must make an assessment of the respective contributions over the totality of the relationship.
It was submitted that the husband and the wife had made equal contributions but the court ought not be distracted by the fact that Property E had appreciated less than Property D in value. All of those matters relate to the assessment task.
Much was made by counsel for the wife that the court had to be cautious not to give less significance or weight to the role of the wife as the “primary caregiver” of the children and manager of the household. The husband did not dispute that her role was significant but it was only when she was challenged about not having made any concession about his role, a slightly different view was obtained. In my view, the non-financial issues are as important as the financial ones and can be assessed as part of the assessment process.
It was submitted that the quality of the parties’ respective contributions and accumulation of assets over 28 years was of “a high order and varied in nature”. I accept that submission.
Counsel for the wife then dealt with each of the acquisitions much of which I have dealt with in the findings that I have made. It was submitted that the husband had attempted to reconstruct financial and other dealings between the parties and his parents over a 20 year period, the inference to be drawn being that his evidence was unreliable. I have been critical of some of the material which was inaccurate on the husband’s part but there can be no dispute about a number of matters to which I have already referred and to which I shall refer again. I prefer his evidence over that of the wife.
In relation to the assistance that the parties received from the husband’s family, it was submitted that there was much exchanged and the respective parties intermingled their interests from time to time and that one might conclude that the families all ran one operation and each helped the other when needed. Undoubtedly, that is what farming families do but what stands out in this case is that the parties could not have achieved what they did without substantial assistance from outside the marriage through the husband’s family.
I have taken into account the submissions of counsel for the wife that there was intermingling of assets and money. I have made an assessment based upon the evidence taking into account what each party submitted. It was submitted for the wife that it was not surprising that there was a heavy burden of raising children falling to her but her concession that the husband was involved has to also factor in that she benefited from his absence because the parties’ wealth increased substantially. There is no better observation that I can make than the purchase price of Property D over a relatively modest number of years has now skyrocketed to the value that it now is. True it is that the husband was missing from some of those years of the children’s schooling but the evidence enables me to find that he did have a role in the children’s raising.
Counsel for the wife focussed on the correspondence between the husband and his parents to indicate that to the extent that the husband received any benefit from his father, he had paid the price for it by the work that he had done over the years. It was submitted that the husband had endeavoured to give the impression that his father had never promised him anything about passing him Property D. I accept the husband’s evidence that he had not given proper consideration to the benefits he was then receiving and had received from his father but even if it is accepted that the letters reflected his subjective intent at the time, the evidence over many more years establishes that the parties still received a substantial benefit having regard to the generosity of the husband’s father. The acquisition of Property D was an arm’s length transaction but with a gift-back from the father. Counsel submitted that it was “arguable” that there was no substantial or true discount as to the price because what was paid was ultimately intended to reflect the use of unpaid labour contributed by both husband and wife. I do not accept that.
When Property D was purchased, the husband’s evidence was that the wife was resistant to being involved. Counsel for the wife wrote this in the submission:
[224]There was a substantial dispute between the parties as to circumstances surrounding the purchase of [Property D].
[225]There was an acrimonious dispute between the respondent and his father over the purchase price which is clearly documented in the letters…where the husband complains about the purchase price.
In my view, that does not do justice to what actually occurred. It is clear that the wife did not want to commit herself to Property D. The husband took a different view and to the extent that he was gambling with the financial future of the parties, he made the correct decision. In my view the assessment of what the parties achieved as a result of that venture and the discount provided by the husband’s father is a significant issue in this case.
In conclusion, counsel for the wife submitted that after consideration of the relevant factors to which I have also referred, it would be just and equitable to divide the “net asset pool” equally between the parties. That submission is difficult to follow having regard to the earlier submissions in relation to the need for caution because of the respective entities but at the same time, the need to treat these assets as belonging to the husband and the wife. It was submitted that in view of the 28 year marriage, the contributions should be treated as equal and in any event, no allowance should be made favouring the husband arising out of the contributions of his parents. If that submission was rejected, it was submitted that the allowance ought be no more than 5 per cent or indeed a 10 per cent variation between the husband and the wife. It was submitted that any greater allowance in favour of the husband would not be just and equitable having regard to the 28 year period of the relationship and the contributions made by the wife.
Submissions of the husband
Counsel for the husband submitted that the pre-marital acquisition of Property F constituted a significantly greater initial financial contribution on the part of the husband than the wife and that it was instrumental in the acquisition and maintenance of the Property E and Property D properties. Counsel submitted that the manner of its utilisation was of significance and relied on Pierce and Pierce (1999) FLC 92-844, Norman and Norman [2010] FamCAFC 66, Bulleen and Bulleen [2010] FamCA 187 and Cabbell and Cabbell [2009] FamCAFC 205. I have dealt with some of those earlier. The unusual feature of this case is that everything was done by the parties through entities.
Much of the evidence about Property F was uncontroversial because it was acquired prior to the marriage. Also uncontroversial was that the husband had money in the bank and a tractor. That greater financial strength was also reflected in the ultimate shares set up for the acquisition of Property E. Although it was submitted that the wife’s work on Property E made little or no direct or indirect financial contribution to the acquisition, conservation or improvement of Property D or the farming enterprise conducted thereon, I consider that because of the intermingling of the parties’ finances, the length of the relationship and the fact that they set up structures for the distribution of income to their own advantage a global approach or an holistic assessment is the only fair way to assess contributions.
Counsel for the husband drew my attention to the nature of the work undertaken by the respective parties but it is inappropriate in such a long relationship to try and isolate specific contributions of the parties themselves. It is also not necessary to do so because each of the parties worked towards their joint long term benefit save for the reticence of the wife about Property D. As I shall later observe, the significant difference between the parties lies in the benefits that they receive from the husband’s family.
Counsel for the husband submitted that the wife had chosen not to respond to significant and relevant matters raised by the husband and there was no better example of that than the issue about her parenting role against that of the husband.
Counsel for the husband dealt with the taxation implications of the orders sought but I have already dealt with that on the basis that it is difficult for me to have any understanding of the impact because much depends on how the husband pays the wife. Ultimately, counsel for the husband submitted as follows:
[71]The (wife’s) claim for 50 per cent of the parties’ assets as allegedly a fair representation of her contribution is fanciful given the enormity of the acknowledged contributions by the (husband’s) family.
It was submitted that on the husband’s calculations, that contribution was in excess of $4.8 million. The submission went on to say that if the wife was awarded between 30-35 per cent of the parties’ assets, she would end up with assets of between $13.3 million and $15.5 million. That submissions meant that by the time various assets were taken into account including superannuation, a payment of between $3.4 million and $5.7 million would enable the wife to continue her cropping operations on an unencumbered property and utilise the balance of assets either to assist in her cropping operations or otherwise to invest.
In my view, the submissions of the husband are much more realistic than those of the wife but I will assess below that I think a just and equitable outcome requires a payment slightly more than that suggested by the husband.
Superannuation
I have not otherwise dealt with the parties’ interests in superannuation. Because the parties have no apparent expressed intention of retiring in the near term, it did not seem appropriate to me to place their superannuation interests in the same category as the other assets. Each of the parties treated superannuation as a separate category of assets. They agree that the total interests amount to $386,525.
The wife’s submission proposed that a base amount $65,845 be allocated out of the husband’s interest in the self-managed superannuation fund. That would achieve equality. The husband’s proposed order was that the parties effectively leave things as they are and the husband roll out his entitlement to a fund of his choice. If that was to happen, he would have just on two-thirds.
In many ways, that reflects what I shall shortly find is the appropriate assessment albeit it not entirely the same, in respect of the non-superannuation assets. Unlike the latter, superannuation received little attention but it will be evident that the source of the funds that became the respective superannuation interests, came from the income earning efforts of the parties through the various trusts and entities that conducted the farming operations. The parties were quite willing apparently at least until separation, to share in the profits even if they are not prepared now to share in the capital. In my view, there is no basis here to include the superannuation assets in the same assessment process as I intend to undertake in relation to the non-superannuation assets primarily because of the basis upon which the superannuation interests came into existence. They came from income rather than from capital. Presumably although the evidence does not say so, various contributions to the funds were made for taxation benefit purposes. In my view, there is no basis to distinguish between the parties’ superannuation interests and having regard to the fact that each is otherwise receiving substantial capital benefits from the breakup of the marriage, there are no factors under s 75(2) of the Act that would make me make any alteration to that equality of division in respect of superannuation. Accordingly, in my view, the appropriate order is that the superannuation be divided equally.
The assessment as to contributions
I have already found that at the commencement of the relationship, the husband’s contribution was greater than that of the wife. That was a long time ago but the contributions after that time continued to favour the husband generally. There is no doubt that the wife’s homemaker and parent role was greater than the husband but that is not to say that it was substantially greater. Offset against that role is the fact that the wife fulfilled the homemaker and parenting role whilst sharing in the income stream for tax purposes because the parties had been astute enough to set up the various structures. This was a long marriage where, albeit in different ways, the parties contributed almost equally to the conservation and improvement of the assets that were under their control or within the control of them indirectly through these various trusts.
What stands out however is that the benefits that the wife received indirectly from the husband’s family’s generosity, the use she was able to make of Property F, and the benefit of the trust structures particularly in relation to Property D where the husband was astute enough to work out a favourable arrangement with his father. The contribution by the husband must be recognised as being greater than that of the wife directly contributed to the significant wealth of the parties as at today. That is particularly relevant in relation to Property D as it is now valued at $29 million having been acquired for $5 million (notionally). That increase in value must to a very large degree be attributable to market forces but the evidence of the valuers also shows that the husband has put a lot of effort into the property to make it what it is and the wife’s involvement after the purchase of Property D was modest. That is not to in any way reduce the importance of her role as a homemaker and parent during those years in raising the children and being involved in the other properties.
The legal issues
In assessing the contributions, I am conscious of what Coleman J said in Steinbrenner and Steinbrenner [2008] FamCAFC 193 that at some point the court has to move from a qualitative to a quantitative approach. I am also conscious that it is important to link contributions to the present wealth of the parties taking into account the nature and form of the assets. Here, the Property D farm is significantly more valuable and earns a significant amount more of income but by the time a payment to the wife is factored in, that value will be less significant.
In Dickons v Dickons [2012] FamCAFC 154, the Full Court said:
[15]The search for a causal link might be seen to come instinctively to the necessary inquiry and all the more so when regard is had to s 79(4)(a) which refers to financial contributions made “…directly or indirectly…” “…to the acquisition, conservation or improvement of any of the property …” and goes on to also refer to the financial contribution made “…otherwise in relation to any of that last-mentioned property…” The terms of that sub-paragraph might, naturally enough, be seen to suggest a causal link between those contributions and the “financial product” which those contributions of that type are said to have produced. That same requirement might also be seen to suggest that relevant contributions of that type can be seen to be quantifiable – or, at least, conceptualised – in monetary terms, in contradistinction to contributions made pursuant to s 79(4)(c).
[16]While that apparent “causal connection” might be seen in s 79(4)(a) (and (b)), no such connection is apparent from the terms of s 79(4)(c); contributions of that latter type are not Od by the words of the sub-paragraph to the “…acquisition, conservation or improvement of any of the property…” or, indeed, to “property” at all. This is not a legislative oversight; the 1983 amendments to the Act which inserted the current s 79(4)(c) were specifically intended, relevantly, to remove any suggestion that there needed to be a causal link between contributions of that type and any particular asset or property. The Explanatory Memorandum to the Family Law Act Amendment Bill 1983 provides, at Clause 36, that a specific purpose of the re-casting of s 79(4) was, relevantly, to:
… revise sub-section 79(4) to remove the possibility of an interpretation of the sub-section requiring that there be a nexus between a spouse’s contribution and a specific item of property in section 79 proceedings …
The approach to the assessment should be done holistically by analysing the nature, form, characteristics and origin of the property to which s 79 applies by reference to the nature, form and extent of the contributions contemplated by s 79 (see Dickons [21]).
In Elford and Elford (2016) FLC 93-695 the Full Court referred to the discretionary nature of the assessment exercise and in particular, to how the High Court viewed challenges to that approach in Mallet v Mallet (1984) 156 CLR 605 where Gibbs CJ at 608-610 said:
... The Act does not indicate the relative weight that should be given to different circumstances, or how a conflict between opposing considerations should be resolved – those things are left to the court's discretion, which must, of course, be exercised judicially.
With those matters in mind, the following is my analysis of how the respective contributions should be treated.
When all of those matters are balanced, they justify a disparity between the parties’ respective contributions of something in the vicinity of 20 per cent or in other words, a division of 60 per cent to the husband and 40 per cent to the wife. However, percentages can be very misleading and in my view when I consider what each of the parties is taking out of the totality of the assets, the only just and equitable alteration should be a payment by the husband to the wife of $8 million taking into account the wife otherwise retains the assets to which I have earlier referred. In addition, she would have the benefit of the modest superannuation interest.
Section 79(4)(e) requires the court to contemplate the matters in s 75(2) of the Act insofar as they are relevant. When each of those factors is considered, they address the future economic circumstances of the parties. Having regard to the size of the assets to be divided and what I consider reflects the parties’ respective contributions, the only factor which I consider relevant is that referring to the terms of the order because there would be a disparity of almost $9 million between the parties with the payment by the husband. Notwithstanding that disparity, I consider the wife will be in a very comfortable financial position with the assets that I have decided she should retain and there is no further basis for any further adjustment back in her favour.
Orders
Ultimately, the question of how these orders are constructed is a matter for the parties. I am prepared to allow them to draft those and in the event that there is a dispute as to the timing of the payment or the methodology for its collection, the parties can come back to have that issue determined along with any tax issues. If indeed there are taxation consequences, that $8 million payment will have to be reconsidered in the light of any necessary changes as a consequence but an adjustment on the basis of a percentage reflecting what I have set out is just and equitable.
I certify that the preceding one hundred and ninety-three (193) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on.
Associate:
Date: 17 May 2018
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