C and C
[2001] FMCAfam 65
•8 October 2001
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| C & C | [2001] FMCA fam 65 |
| FAMILY LAW – Property settlement – Contributions – Valuation of business – Spousal maintenance claim |
| Applicant: | D M C |
| Respondent: | D N C |
| File No: | ZB 3858/00 |
| Delivered on: | 4 June 2001 |
| Delivered at: | Brisbane |
| Hearing Date: | 26 April 2001 |
| Judgment of: | Baumann FM |
REPRESENTATION
| Counsel for the Applicant: | Mr Jarrett |
| Solicitors for the Applicant: | Baker O’Brien & Toll, Solicitors of Bundaberg |
| Counsel for the Respondent: | Mr Burridge |
| Solicitors for the Respondent: | Payne Butler Lang, Solicitors of Bundaberg |
ORDERS
That the Husband transfer to the Wife :
(a)his interest in the home and adjoining land at S Road, C free of encumbrance;
(b)His interest in the shares, cattle proceeds, the Wife’s vehicle and the furniture and chattels in her possession.
The Wife shall retain her bank account proceeds and otherwise she will relinquish any interest in all other property in the possession or control of the Husband and including his superannuation entitlement.
Because of my findings, the Husband shall be entitled to a transfer of the Wife’s interest in the W property provided he: -
(a)Discharges the Wife from any liability under the mortgage;
(b)Pays her contemporaneously with a transfer, the sum of $26,500.
If the Husband is unable, or unwilling to make the payment to the Wife of $26,5000 within 60 days, then the property will need to be sold and an order with an appropriate mechanism for sale made. The parameters of the order will be that the net proceeds of sale, after allowance for sale expenses and the mortgage shall be distributed; -
(a)As to $26,500 to the Wife;
(b)Balance to Husband.
I will hear submissions from the parties in respect of the form of the orders.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
ZB 3858 of 2001
| D M C |
Applicant
And
| D N C |
Respondent
REASONS FOR JUDGMENT
Introduction
In December 2000 D M C (“the Wife”) commenced proceedings for property settlement and lump sum maintenance against D N C (“the Husband”). The parties consented to the jurisdiction of this Court in circumstances where the pool of assets exceeded $300,000.
Issues
After appropriate negotiation between the parties they were able to agree on many matters such that the only factors in issue were: -
a)The value of the Husband’s business IMM Repairs;
b)Whether the Husband’s Motor Vehicle should be “added” to the pool;
c)The assessment of s 79(4) contributions and s 75(2) factors;
d)The Wife’s claim for lump sum spousal maintenance.
Background
The Wife is currently aged 41 years and the Husband is aged 42 years, and separation occurred in August 2000 after a marriage of nearly 20 years. There are 4 children of the marriage, all of whom continue to reside with the Wife, namely C (16 years), S (14 years), K (12 years) and P (8 years).
At the time of marriage the Husband owned land at C F and following the marriage, in 1981 the parties built their first home on the land which they continued to develop until its sale in 1989 for $160,000.
The Wife continued to work as a secretary for a plumbing company until the birth of C whilst the Husband completed his apprenticeship as a mechanic and worked for a number of firms before the parties, in partnership, commenced the business in 1989, which the Husband still operates.
After the sale of the C F property, the parties and their young family move to the C area where they built and develop over time a home at 25 S Road, C on land subdivided from property owned by the Wife’s parents and transferred to the parties jointly for no consideration.
They improved their financial position by purchasing the adjoining vacant land (19 S Road) for $45,000 in 1992 and worked hard to discharge a mortgage on the property before borrowing approximately $89,000 in 1995 to purchase and develop an investment property at 10 C Court, W (land purchased for $50,000 and the home constructed for $84,000).
After separation in August 2000, the wife resided in rented accommodation with the children for 6 months until February this year when she returned to reside (and still does) in the former matrimonial home at C. The Wife is currently employed on a casual basis by a firm and the Husband continues to operate his business.
Principles to be applied
The approach to the determination of an application pursuant to section 79 of the Act is well established by authority, and I refer to a long line of authority (Lee Steer (1985) FLC 91-626; Ferraro (1993) FLC 92-335 and Clauson (1995) FLC 92-595) which requires the adoption of a three-step process: firstly, to determine the extent and value of the property, liabilities and financial resources of the parties at the time of the trial; secondly, to consider what contributions have been made by the parties within section 79(4)(a), (b) and (c); thirdly, to consider what is identified as the other factors, being the matters in section 79(4)(d), (e), (f) and (g), including by reference to 79(4)(e) the matters in section 75(2). Finally, 79(2) of the Act requires the Court to be satisfied that in all circumstances it is just and equitable to make an order.
Valuation of business
Each party offered evidence of an accountant who gave an opinion as to the value of the Business. Each value adopted the same methodology but arrived at a different conclusion, essentially because of a disagreement as to the appropriate capitalisation rate to be adopted and the base net maintainable earnings (after allowance for an agreed wage deduction of $31,200 - $600 gross per week) to be used for the calculation.
Both Mr Russell Maughan (for the Husband) and Mr Grant Hutchins (for the Wife) agreed that: -
a)It appears the business is substantially reliant upon warranty work arising from equipment repairs to equipment used in the sugar industry and two major clients B Engineering and BL Machinery;
b)The sugar industry, in the area of operation of the Husband’s business is “in poor economic health” (Mr Hutchin's words) or “at rock bottom” (Mr Maughan’s words).
In respect of the capitalisation rate to be adopted, the evidence indicates that initially Mr Maughan regarded the appropriate rate to be at least 40%, but then after advice from KPMG Chartered Accountants (detailed in his letter of 9 April 2001) and allowance for a decrease of 5% (because the business is to be retained by the Husband) he says the appropriate rate is between 30% to 40%. Mr Maughan also identified factors which persuade him that the risk factors are such to require a higher capitalisation rate than his initial assessment including the: -
i)personal nature of the business;
ii)limited nature of customers;
iii)decline in the region including the effect on sales of new equipment (and therefore warranty work).
Mr Hutchins acknowledges, quite fairly, that a setting of a capitalisation rate is a “difficult and arbitrary decision”, and during cross examination he accepted that as a result of the nature of the business and its heavy reliance on warranty work from 2 major customers he still regards the rate suggested by Mr Maughan at 35% is at the high end of his reasonable range (20% to 35%) and when pressed he adopted a rate of 30%.
Both Valuers made proper concessions in cross examination which reflected the “arbitrariness” of the adoption of a particular capitalisation rate. Having the benefit if hearing the evidence of both Valuers (who gave their evidence by telephone), I prefer on this aspect the evidence of Mr Hutchins, and I will adopt a capitalisation rate of 30%.
The next factor in the methodology which is in dispute is the net maintainable earnings base to be used. Mr Hutchins says, at paragraph 4 of his letter dated 5 April 2001 to Mr Maughan that: -
“I have used an average of three years incomes including 1998, 1999 and 2000. You have used an average of three years as well, but yours includes 1999, 2000 and an estimate of 2001. As we do not have accurate figures for 2001 I would contend that it is unfair to include the vague information provided by your client. Particularly it seems to coincidentally be some $8,000 less than your 2000 and 1999 figures”.
In response to this contention, Mr Maughan says, in his reply of 9 April 2001 to Mr Hutchins that: -
“My estimate of the profit for the year ended 30 June 2001 is based on actual takings for the eight months to 28 February 2001 and an estimate of the remaining four months. I think you would agree that because the business derives a significant portion of its income from the sugar industry it will suffer a decline in income for 2001 year”.
Mr Hutchins provides a reply to the statement above, in paragraph 10 of his Affidavit filed 24 April 2001, when he says in ordinary circumstances he might agree, but cannot in this matter because: -
“I have not received any evidence of the accuracy of these current income and expense figures. I am hesitant to include figures in a valuation that are based on third party estimates. All the figures that I have seen have been supported by actual tax returns.”
It was open to the Wife to call for production of any source records or data utilised by Mr Maughan to derive his estimate of income for the 2001 tax year. Counsel for the Wife said I should not accept the estimate, as it was not sworn. Mr Maughan has been the tax agent for the business for over 10 years and says he is familiar with the books and accounts. In a industry accepted to be economically volatile and where I am assisted by the most current evidence about income, I am comfortable in accepting the statement of Mr Maughan that his estimate (based on actual earnings to 28 February 2001), of anticipated profit of $32,300 (after add backs) is accurate. The average maintainable earnings figure for the last three years (to
30 June 2001) will be adopted by me a $41,732 and after allowance for the owners salary, a net figure to be used is $10,532.
I find the value of the business to be as follows: -
$10,532 x 30% (cap rate) = $35,000
Car
The Husband confirmed that he purchased a 1988 FALCON motor vehicle for $4000 shortly after separation on 26 January 2000. The vehicle was purchased with funds from the business account. Whilst the joint account was previously used as the business working account (to December 2000) with the usual balance fluctuations; the utilisation of joint funds for the acquisition of the car leads me to a conclusion that it is proper for the value of the car to be added back to the pool of assets.
Pool of assets
As a result of my findings together with the concessions agreed by the parties as to values of the remaining items, I estimate the pool of assets as follows: -
S Road, C $189,000 C Court, W 135,000 AMP Shares 16,057 CBA Shares 4,425 Equico Shares 228 Chattels & furniture (S Rd) 6,000 Chattels & furniture (M St) 3,300 Chattels & furniture (C St) 9,295 Wife’s Bank Account 2,500 Husband’s Bank Account 2,700 Cattle Sale proceeds 2,000 Wife’s Vehicle 13,000 Husband’s Vehicle 4,000 AMP Investment Account 14,208 Husband’s Business 35,000 436,713 C C Mortgage 65,815 $370,898
The parties agree the Husband also has an accumulated superannuation entitlement of $21,402.
Contributions under section 79(4)
There was not significant disagreement over the type of contributions made by each of the parties during the course of this long and busy relationship of some 20 years. The cross examination was directed more at the degree and significance of those contributions. This is not unusual where the parties, after a breakdown of a relationship often tend to attempt a “rewriting of the history”. I accept both the Husband and the Wife to be essentially truthful witnesses and where any serious difference on a significant issue has arisen I have made a finding as set out.
One issue that did arise was how I should treat the transfer to the parties jointly, by the parents of the wife, of the vacant land known as 25 S Road, C. The Wife says that in 1989, “my parents gifted to us a block of land” (paragraph 13) and the Husband makes the same assertion (see paragraph 23). No other evidence was before the Court other than the effectiveness of the Transfer. Mr Burridge for the Husband says that the transfer itself is the best evidence of the intention of the donor. There is no evidence to suggest that the Wife did not, at the time of the transfer, enjoy a good relationship with her parents. I do not regard the mere transfer of the land as sufficient evidence to establish it was not the intention of the parent to benefit only their child. (see Kessey and Kessey (1994) FLC 92-495 at 81,150). A gift to both of the parties, as was the effect of the transfer in this matter, may still amount, depending on circumstances, to “a financial contribution made directly … on behalf of the spouse relative” (see Gosper and Gosper (1987) FLC 91-818 at 76,163 –76,168). The Husband bears the onus of rebutting the usual presumption and he has failed to do so. In the circumstances I regard the transfer as a contribution made on behalf of the Wife to the pool of assets.
On the evidence I find the contributions by the parties under s 79(4) (a) (b) and (c) to be as follows: -
a)THE WIFE
i)At co-habitation some furniture, approximately $1,000 in cash and a motor vehicle of minimal value;
ii)Earnings during the course of the marriage in paid employment and as a partner in the business. The direct financial contribution from these sources was less than those of the Husband;
iii)Benefits accruing from the construction of the home and improvements (at cost) at Lot 24 H Road, C F as a result of the Wife’s employment with B&A Constructions;
iv)Non-financial contributions to the maintenance and improvement of the homes owned by the parties, including painting and gardening;
v)Non-financial contribution as a partner/bookkeeper of the business and household money manager for the family finances;
vi)More significant contribution than the Husband as principal carer to the Children, homemaker and full time mother (until 1997);
vii)Contribution of the land at 25 S Road, C in 1989 which I accept had a value at transfer of approximately $25,000.
b)THE HUSBAND
i)Contribution by the Husband of the net equity in the C F land at co-habitation together with a motor vehicle, work tools, tractor and saddle equipment;
ii)Redundancy payment of $5,000 in 1980 from Leyland Australia contributed to the mortgage on the land;
iii)Earnings and wages from consistent full time employment as a mechanic until 1989 when the business was commenced and thereafter as the working partner in IMM Repairs. The Husband’s direct contribution in this form was more significant than the Wife’s contribution from these sources;
iv)Non-financial contributions in the form of construction of improvements, attention to maintenance on the properties owned including fencing, mowing and gardening;
v)Non-financial contribution, although less significant than the Wife, as homemaker, carer for the children and involvement in family financial management.
Both parties shared in the benefit of a Gold Lotto win in 1996 of $8,000, which I infer was a ticket purchased from joint funds.
After a marriage of this length where each of the parties have worked extremely hard in the roles which they agreed each would principally play in the relationship, I believe the weight to be attached to the initial contribution of the Husband (which I do not accept, as urged upon me by his Counsel represents the “wellspring” of their financial security) and the significant gift of property contributed by the Wife are balanced by the weight I should give to the other contributions identified (see Pierce and Pierce (1998) FLC 92-844). At separation I find the contributions are equal.
In the period post separation to trial, the Wife and family lived in rented accommodation until 3 February 2001, when they returned to the family home. Both parties have had the benefit of “rent free” accommodation in the family home (though at different times) since separation. The Husband had paid child support at a level of $150 a week more than the assessment, which was reduced to the assessed amount after commencement of these proceedings. He paid the mortgage on the rental property, however he has received the benefit of the rent.
Considering all factors identified above, I would make no further adjustment, and I assess that each party has made an equal contribution, to trial, in respect of the matrimonial pool of assets.
Section 75(2) factors
The Husband is 42 years of age, enjoys good health and has been consistently engaged since his apprenticeship as a motor mechanic, either as an employee or self employed. Whilst I accept the evidence that the sugar industry is suffering some downturn at the moment (which has affected his specialist warranty business), he has maintained and enhanced his skills during the marriage. He leaves the marriage with a reliable income-earning capacity, which has long been recognised as a most valuable "asset" (see Best (1993) FLC 92-418 @ 80,295). He says his gross income is $900 per week – if he needs to work as an employee he will still generate an income of at least $30,000 per annum (The figure agreed by the Valuers as a reasonable salary factor). His contact to his daughters does not impede his capacity to generate income or develop opportunities to increase it. He has a superannuation entitlement agreed at $21,402, all of which appears to have been accumulated during the marriage. Whilst he meets his child support responsibilities as imposed by administrative assessment there is no evidence that he currently expends any substantial additional funds on his children’s needs.
The Wife is 41 years of age and currently works part time (as she has since 1998) for a friend’s business, G Plumbing. She admits to a “personal relationship” with Mr G but says marriage to him has not been discussed. She sets out her work history (which was unchallenged) as being a full time mother from 1984 to about 1997, when she commenced part time work for a local newspaper. She has few technical skills, apart from those learnt in employment as a receptionist/secretary and thereafter bookkeeper. To improve and update her skills, she completed a computer course at Bundaberg TAFE. She says she wishes to continue to maintain her role as a parent and she details activities involving the support of the children in their school and other activities. She has no substantial financial resources or superannuation entitlements.
The Wife was cross-examined on the steps she has taken to find more regular employment than the 6.5 hours per week for G Plumbing business. She confirmed the difficulties and limited opportunities available to her in the rural community that has been the base for this family for many years. She says she reads the local newspaper’s job advertisements but her skills, and her commitment to the children diminish the real opportunities for better and longer employment. I accept her evidence in this regard which included a concession that she was anxious to pursue training in management. The parties youngest child P is 8 and the age of K (12 years) together with her swimming commitments suggest the Wife may not be in a position to achieve a reasonable income for some years.
Although the Wife does receive Child Support of $164.44 per week together with the benefit of private MBF cover (paid by the Husband), this contribution does not meet the needs of the 4 children and the Wife, from her government assistance and minimal wage, supports the childrens’ needs as well.
The matters set out above persuade me that the factors under
s 75(2), heavily favour the Wife. This however is not a case where the Husband has a substantial income or will be left with a significant division of property. The Husband says an additional provision of 15% of the pool is appropriate – the Wife’s Counsel submits that 25 – 30% is reasonable. I believe an adjustment of a further 20% is proper.
Effect of order
The effect of this division will mean that, before consideration of the claim for spousal maintenance, the Wife shall be entitled to 70% of the net pool of assets or $259,628.
Spouse maintenance
The Wife’s amended application seeks spouse maintenance, which in her Case Outline document is quantified as either: -
a)$41.30 per week for 4 years; or
b)lump sum of $8,066 which represents $41.30 per week capitalised at 3% for 4 years.
Where spousal maintenance is sought in addition to a property settlement it becomes, in effect, the fourth step in the process after the 3 previous steps have been completed. Like any spouse maintenance application, s 74 empowers the Court and s 72 delineates the circumstances in which the power may be exercised. The Court must determine the amount in question as a periodic sum before a lump sum payment (which is only a capitalisation of such sum for a period) is ordered (see Clauson (1995) FLC 92-595).
s 72 requires a requires a threshold finding that the Wife is unable to support herself before undertaking the further steps identified in Bevan (1995) FLC 92-600.
In this matter the Wife will receive the following property as a result of the division I have found to be just and equitable namely: -
S Road, C
$189,000 AMP Shares 16,057 CBA Shares 4,425 Equico Shares 228 Chattels & furniture (S Rd) 6,000 Bank Account 2,500 Cattle Sale proceeds 2,000 Wife’s Vehicle 13,000 Cash from Husband (or sale proceeds of W) say 25,500* $259,710
I have no evidence before me of what deductions would be made from the realisable assets above (marked with an asterisk) for legal expenses or capital gains tax and brokerage on the shares. I am, as a result left with a gross sum from those realisable assets of $51,710. The Wife’s Case Outline suggests a rate of 5% can be achieved, which computes to a gross income from this source, of $2582 per annum or approximately $50.00 per week.
The Wife’s amended financial statement estimates her weekly needs at $137.00. Allowing for her current income from her part time employment of $95.70 per week and the available investment income I find that the Wife has not satisfied me that she is unable to support herself. There will be no order for spouse maintenance.
I will order that: -
a)That the Husband transfer to the Wife -
i)His interest in the home and adjoining land at S Road, C free of encumbrance;
ii)His interest in the shares, cattle proceeds, the Wife’s vehicle and the furniture and chattels in her possession.
b)The Wife shall retain her bank account proceeds and otherwise she will relinquish any interest in all other property in the possession or control of the Husband and including his superannuation entitlement;
c)Because of my findings, the Husband shall be entitled to a transfer of the Wife’s interest in the W property provided he: -
i)Discharges the Wife from any liability under the mortgage;
ii)Pays her contemporaneously with a transfer, the sum of $26,500.
d)If the Husband is unable, or unwilling to make the payment to the Wife of $26,5000 within 60 days, then the property will need to be sold and an order with an appropriate mechanism for sale made. The parameters of the order will be that the net proceeds of sale, after allowance for sale expenses and the mortgage shall be distributed; -
i)As to $26,500 to the Wife;
ii)Balance to Husband.
I will hear submissions from the parties in respect of the form of the orders.
I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of Baumann FM
Associate:
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