Cameron and Cameron

[2007] FamCA 1115

FAMILY COURT OF AUSTRALIA

CAMERON & CAMERON [2007] FamCA 1115

FAMILY LAW – PROPERTY – Settlement in relation to marriage – Value of property

Family Law Act 1975 (Cth)

APPLICANT: Ms Cameron

RESPONDENT: Mr Cameron

FILE NUMBER: BRF 2682 of 2004

DATE DELIVERED: 13 July 2007

PLACE DELIVERED: Brisbane

JUDGMENT OF: Barry J

HEARING DATE: 11 and 12 September 2006

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Byrne of Counsel appeared for the Applicant Wife

SOLICITOR FOR THE APPLICANT: James Walker, Solicitor

COUNSEL FOR THE RESPONDENT: Mr Hamwood of Counsel appeared for the Respondent Husband

SOLICITOR FOR THE RESPONDENT: Simonidis Shoebridge Lawyers

Orders

IT IS ORDERED BY WAY OF PARTIAL PROPERTY SETTLEMENT THAT:

(1)The Wife is to transfer to the Husband all her right, title and interest in the B property.

(2)In exchange for the transfer documents the Husband is to pay to the Wife the sum of $106,409.

(3)The Wife is to be liable for any capital gains tax on the sale of the M property.

(4)      Each party is to retain assets currently in their possession.

(5)The Wife is to transfer all of her interest in the self managed superannuation fund to the Husband.

(6)A Registrar of the Family Court of Australia is appointed to execute any document in either party’s name and do all acts and things necessary to give validity to any documents required to execute the orders made herein in the event a party refuses to sign when so requested.

(7)      Liberty to apply by either party on seven (7) days notice.

(8)The question of the value of the company, E Pty Ltd is adjourned to a date to be fixed.

IT IS NOTED that publication of this judgment under the pseudonym Cameron & Cameron is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRF2682/2004

MS CAMERON   

Applicant

And

MR CAMERON   

Respondent

REASONS FOR JUDGMENT 

I am asked to determine property settlement issues as between the parties.

1.By way of an amended application for final orders for property settlement filed 22 December 2005 the Wife sought orders as follows:

“1.The Wife to retain the property owned by her at [W] free of mortgage.

2.The other properties owned by the Husband or the Wife jointly or separately or [E] Pty Ltd be sold and any indebtedness to a bank or financial institution be paid as well as adjustments and sale expenses and the proceeds remaining thereafter be 80% to the Wife and 20% to the Husband.

3.The parties’ superannuation fund to be split 80% to the Wife and 20% to the Husband.

4.[E] Pty Ltd to be retained by the Husband solely.

5.The Husband to continue to pay or cause to be paid the money due in the bank loan for the Wife’s car.

6.That the Wife be indemnified by the Husband and [E] Pty Ltd from any guarantee, indemnity or undertaking given by the Wife in respect of [E] Pty Ltd.”

2.In final written submissions made by Counsel for the Wife (page 14) he notes:

“The Wife concedes that the relative contributions of the parties at separation is 50%.

However because the Wife has the children for a greater period than the Husband, the huge disparity in earning capacity of the parties and the other matters in the Summary of Argument, there should be an uplift of 20% in favour of the Wife.”

3.As I understand Counsel’s submission he is contending that the net assets of the parties should be divided 70/30.  He does not particularise how this is to occur but I proceed on the basis that the Wife’s proposals are similar to those set out in her amended application.

4.The Husband filed a further amended response to an application for final orders on 7 September 2006.  In that response document he seeks orders:

“1.      That the Wife’s application be dismissed.

2.That the property of the parties be divided 55% in favour of the Wife and 45% in favour of the Husband.”

5.I find such orders singularly unhelpful.  They give no guidance to the Court as to the nature of the orders the Husband seeks.  Does he propose to retain the company?  Does he concede the Wife should retain the W property?  What is to be done with the self managed superannuation fund?

6.In written submissions from Counsel for the Husband at page 11 (paragraphs 32, 33 and 34) the submission is made:

“32.It is submitted that a 10% adjustment bring (sic) the divisions to 55/45 in favour of the Wife is appropriate.”

He had earlier suggested that section 79 contributions post-separation should favour the Husband with a 5% adjustment in his favour.

“33.On the pool contended for by the Husband, the Wife would receive on a 55/45 division the sum of $537,450.  This will enable her to keep the house and contents and a further sum of about $54,175.  She should be required to repay to the Husband the sum of $85,825 of the $140,000 received by her.  The Husband would assume the liabilities, retain control of the company and use his best endeavours to have the [W] property released from the security presently held by Westpac.  The Wife would be required to transfer to the Husband all of her interest in the family superannuation fund, and to cause to be paid at the Husband’s direction the balance of the [M property] proceeds, he to indemnify her in relation to the capital gains tax when it is assessed.

34.Such an outcome provides the Wife with an unencumbered property: the Husband retains the former matrimonial home but takes with it substantial liabilities, both personal and corporate - -.”

7.I was informed at the commencement of the hearing that child related issues were settled.

History of Litigation

8.This matter was listed to proceed before me on 11 September and 12 September 2006.  On the morning of 11 September I had to attend to other matters which had been listed.  The matter commenced on the afternoon of 11 September.  Counsel for the Wife was concerned that the updated report from the single expert accountant had only been received that morning.  The report annexed two letters from the Husband’s solicitors to the accountant dated 24 August and 31 August 2006.  Counsel stated that the Wife’s legal advisers had not received copies of those letters at the time they were forwarded to the accountant. 

9.This aspect was disputed.

10.The matter was stood down to proceed on 12 September.  The only witnesses in the case were the parties themselves and Mr T of … Accountants who had been appointed as a single expert to value the Husband’s company, E Pty. Ltd.

11.The matter did not finish in sufficient time to allow oral submissions to be made. 

12.The evidence which was before the Court was quite complex and in some aspects confusing.  The presentation of the material and the cross examination thereof had a ‘de minimis’ air to it.  I reserved my decision but indicated upon receipt of the written submissions from Counsel I would consider three options:

·Deliver Judgment on the evidence available with or without additional oral submissions.

·Adjourn to have the company accountant (Mr R) called to explain anomalies in the company’s financial statements.

·Adjourn the matter until the Husband lodged tax returns for the company and himself for the previous three years.

13.On 22 March 2007 I arranged for this matter to be listed as the Husband had filed an application complaining of arrangements concerning the time he spends with the children. 

14.To meet the convenience of Counsel I arranged to see them in my Chambers.  

15.In relation to the outstanding children’s issues I indicated the parents could go to counselling and having regard to the age of the male child I would elect to see the boy and liaise with the counsellor.

16.Counsel agreed with the suggestion but nothing further has been heard about this issue since that time.

17.I advised Counsel that I would re-read the material in relation to property settlement and if I had any concerns I would communicate those directly to the Barristers with a view to obtaining further submissions on those points or consider whether the evidence should be re-opened.

18.I was informed by Counsel at the commencement of the hearing it was agreed that the contributions as at the date of separation were equal.

Chronology

19.The parties were both born in 1966.  They purchased land in an outer suburb of Brisbane in 1986 and built a home on that property in 1988.  At the time the Husband was a tradesperson and the Wife a bank staff member.  Cohabitation commenced in April 1989.  The parties married in October 1990.  In that year the Husband and Wife entered into a partnership for a trade business which has operated so far as the physical operation of the business was concerned, by the Husband.  The parties’ first child was born in December 1991 and the second child was born in May 1994.  In about 1995 the partnership business was transferred to the company E Pty Ltd.  The Husband was the sole director and sole shareholder of this company.  The parties separated under the one roof in September 2003 but physical separation did not thereafter occur until April 2004.  At that time the Wife left the home and moved to a property recently acquired at W.  The children have resided with her at that address though they see their father on a regular basis.  The Husband continues to occupy the former matrimonial home.  The Husband has continued to operate the company.  The Wife works part-time as a sports instructor.

20.The methodology adopted in determining property settlement issues is well known.  It consists of a five stage process:

i.Determine the assets and liabilities of the parties and ascribe a value to same.

ii.Determine in what proportion the property should be divided having regard to the matters set out in section 79 of the legislation.

iii.Determine what further adjustment, if any, is required having regard to the matters set out in section 75(2) of the legislation.

iv.Determine whether there is any further adjustment on account of superannuation interests.

v.Be satisfied that the result arrived at by the above process is overall a just and equitable result.

21.The parties were only partially able to agree on the list of assets and liabilities. 

The Assets and Liabilities of the Parties

Wife’s List

22.Refer page 15 of submission by Wife’s Counsel:

“Assets

[B property]:  $  750,000

[W property]:  $  470,000

Contents Wife:  $    13,275

Contents Husband:  $    17,850

[Cameron] Super Fund:  $  382,733

[E Pty Ltd]:  $  282,000

Total  $1,915,85

Addbacks

Funds received by Wife:   $  139,616

Monies due from sale of [M] property:      $     66,000

Interest due on [M] property:  $       3,825

Wastage on [B] property:  $    20,000

Total  $   229,441

Total of Assets  $2,185,299

Liabilities

Westpac Visa Credit Card (Husband):  $     19,000

Investment loan – Husband and Wife:  $   391,446

Capital gain: [M property]:  $     22,000

Capital Gain: [S property]:  $       6,000

Total  $   438,446

Grand Total  $1,706,853”

Husband’s List of Assets and Liabilities

23.Refer schedule “A” to submissions of Counsel for the Husband:

Assets	Value
[B property]	$  750,000	Agreed
[W property]	$  470,000	Agreed
Wife’s contents	$    13,275	Agreed
Husband’s contents	$    17,850	Agreed
Funds received by Wife in April 2004	$   140,000	Not agreed
Monies to be received from sale of [M] property	$     68,000
Interest on outstanding [M] property monies	$       3,825
Total Assets	$1,462,950
Liabilities
[E] Pty Ltd	$  (402,055)
Westpac Visa credit card – Husband	$    30,000
Investment loan – joint	$  391,446
CGT – [M property]	E$ 45,000
Total Liabilities	$ (868,501)
Net Assets:	$  594,449
[Cameron] Family Super Fund	$  382,733
Grand Total	$  977,182

Issues to Be Determined

24.

i)The value of the company, E Pty Ltd.

ii)Assess the contributions:

a.        pursuant to section 79 since the date of separation;

b.whether any further adjustment to the contributions is required having regard to the matters set out in section 75(2) of the Family Law Act.

iii)Determine the issue of disputed add backs.

iv)Determine the issue of disputed liabilities.

Value of E Pty Ltd

Introduction

25.In the giving of his evidence the Husband presented as upset, angry and nervous. 

26.In her affidavit the Wife deposes to the fact she attended to the bookkeeping, the paying of accounts and other duties relating to the operation of the business for a period of about 13 years.  This ceased apparently in about January 2004.  Her evidence was to the effect the company always operated without an overdraft. 

27.At paragraph 13 of her affidavit she says:

“13.The Respondent Husband would also perform work on the weekends which was organised directly with him through his mobile and which, according to the Respondent’s statements to me during the relationship, was earning from $500 to $5,000 when weekend work was performed.  On average the Respondent Husband would work at least one day every weekend and receive cash payments from this work.”

28.The Husband’s evidence was that he continued to do weekend work when he wasn’t spending time with the children.  There is no evidence whether the gross receipts of the company disclosed in the financial statements include any allowance for cash payments.  Having regard to the manner in which the Husband has conducted his financial affairs generally I would be extremely sceptical of any such payments being disclosed.

29.The Wife’s evidence is that the parties operated an investment property account with a limit of $505,000.  This account was drawn down from time to time to acquire properties.  It was an interest only account.

30.The Husband’s evidence is that at no time did he operate a personal bank account.  I assume all of his personal expenses were paid either by credit card (which appears to have been in his name), by cash received from cash income for work done on weekends, or by drawings on the company account.  There is evidence there were credit cards issued in the name of the company.  Whether there were any further drawings for personal expenses on that card I am unable to say.

31.The Husband was the sole director and sole shareholder of the company.

32.For present purposes I am prepared to find the company was simply the alter ego of the Husband.

33.Before dealing with the evidence relating to the value of the company I propose to make some observations on the Husband’s credibility particularly in the manner in which he has operated the company and his presentation of financial information generally:

a)D & L Pty Ltd

This was a company which acted as a form of agency for distributing work to shareholders of the company who all operated construction businesses.  The Husband had had a significant number of shares at one stage.  As I understand the evidence the company presently holds 100 shares.  The Husband purported to value these shares at $100.  Having regard to the amounts he has received from the sale of shares in this entity on previous occasions a more realistic figure for the value of the 100 shares is $30,000 to $40,000.  The Husband’s evidence was that he had previously sold 100 shares for $40,000 with a machine but he couldn’t nominate a value for the machine in that transaction.

Counsel for the Husband in his summary of assets and liabilities concedes $30,000 should be deducted as an asset of the company from the negative value attributed to E Pty Ltd.  On the evidence I would have thought a more realistic figure was $40,000.  It reflects poorly on the Husband’s credit that he should attempt to value the shares at a minimal value only.

b)Husband’s Financial Statement

In his financial statement the Husband discloses a total personal income of $500 per week ($26,000 per year).  In the books of account the Husband is shown as receiving director’s fees of $50,000 per year.  Additionally the accounts reveal details of a loan account which presumably could only be the Husband’s loan account.  The evidence was the Husband didn’t actually receive the $50,000 but that amount was offset against drawings he had made on the company.  Additional drawings over and above the $50,000 would appear in the loan account.  It would appear the Husband had additional drawings on the loan account in the year ending 30 June 2004 of $52,586.  For the year ending 30 June 2005 the amount on the loan account was $74,794.  This would indicate on one view that the Husband has the use of an additional $22,000 in funds for his personal use over and above the $50,000 director’s fees in the relevant period.

The loan account for 30 June 2006 ballooned out to $366,460.  I will consider the significance of this entry shortly.

Counsel for the Husband produced a schedule of moneys paid by the Husband for the period April 2004 to September 2006.  That document is in the following terms:

“Monies paid

Interest on investment property home loan:

April 2004 – February 2005                   $948,952@ 6.47%             $   56,280

March 2005 – November 2005      $948,952 @ 6.72%            $   47,827

December 2005 – February 2006  $578,349 @ 6.72%            $     9,716

April 2006 – September 2006       $390,000 @ 6.72%            $   13,104

$126,927

Medibank

September 2003-September 2006 rounded @ $210 per month          $   7,560

Her car

April 2004 – September 2006 $900 per month  $ 16,100

[M Property]

September 2003 – March 2006 average $2,300  $ 69,000

Children

April 2004 – December 2004 @ $450 each  $ 15,600

January 2005 – September 2006 @ $300  $ 27,300

$272,487”

The total expenditure for the period April 2004 to September 2006 is $272,487.  This does not reveal any details for the Husband’s personal expenditure.

In his financial statement the only personal expenditure revealed is $300 per week being payments made for the children.

Extracting figures from the schedule for the year ending 30 June 2005, I make the following calculations:

Interest on investment property home loan:

July 2004 – February 2005

7 months @ $5,000 per month (approx)  $ 35,000

March 2005 – June 2005

4 months @ $5,000 per month  $ 20,000

Medibank

12 months @ $210  $   2,520

Wife’s car

12 months @ $900 per month  $ 10,800

M property

12 months average $2,300 per month  $ 27,600

Children

6 months @ $450 per week  $ 11,700

6 months @ $300 per week  $   7,800

Total  $115,420

The total of the loan account for the relevant period is $74,794 without any allowance for any expenditure items personal to the Husband such as his motor vehicle, food, domestic expenses such as power bills, alcohol and the like. 

It may be that a property was sold and the moneys paid to the company to offset the loan account.  If that was the case, it does not show up in the company accounts.

The tentative view I have formed is the Husband has not provided his accountant with sufficient information to allow proper breakdown between expenditure on the company’s behalf, expenditure on his own behalf and expenditure on the family’s behalf.

The Husband claims a credit card debt at the present time of about $36,000.  This is not shown in the financial statement nor do any repayments on the card show up on the profit and loss statement although the Husband claims that certain expenditure on the card was for business purposes.  It may be that the individual entries in the profit and loss statement reflect entries on the card.

Suffice it to say I have concluded the Husband’s financial statement has no evidentiary value whatsoever.

This would not be a problem if the information was available in reliable form elsewhere. Unfortunately I am unable to conclude it is.

c)The Husband has not lodged company tax returns for the years ending 30 June 2004, 2005 and 2006.

d)The Husband has not lodged personal tax returns for the past five or so years.

e)Accounts have been prepared on a cash basis.  The evidence of the single expert was to the effect he would expect for a business of this size the accounts would be prepared on an accruals basis – so that proper allowance could be made for work in progress, trade creditors and trade debtors.

f)In her affidavit the Wife (paragraphs 34 and 35) deposes to the fact:

“34.The Respondent Husband has threatened on many occasions that I will get nothing from the relationship and that he will spend all of the money of the relationship by protracting these proceedings so that not only will my costs increase but the lesser available resources of the matrimonial relationship will ensure that I receive nothing.

35.      - - He has threatened that he is going to close the business and he    will see me in the gutter.  The Respondent Husband continuously           threatens me in this way and says that I will end up with nothing -     -”

This evidence of the Wife was not challenged.  In the context of the other evidence in this matter I find it is likely such statements were made.

g)I am sceptical of the fact that in the latter half of the financial year ending 30 June 2006 the Husband acquired eight items of new equipment which led to additional depreciation of $65,175.  The total depreciation for the year on all equipment was $261,065 according to the financial statements.

The Husband had undertaken major projects within the construction industry in South East Queensland.  He claimed that work had since ceased and there had been a downturn in the company’s income. 

If that be the case, it is unusual that the Husband would acquire such an extensive amount of new equipment in the circumstances as claimed.  I appreciate that in some instances equipment may wear out after a much shorter period than might be expected but given the Husband’s expressed attitudes to the Wife, given the fact he has been less than forthcoming with the true financial picture of his affairs, I am sceptical of his motives in acquiring the new machinery shortly prior to the hearing of this matter.

I am somewhat sceptical of the Husband’s claims of a work downturn given that the economy of South East Queensland is booming and there is an enormous amount of construction taking place.  The Husband appears to have been a reliable supplier of work for local government and major corporations in the past.

Treatment of Acquisition in Company Accounts of S property

34.In paragraph 18(d) of her affidavit the Wife deposes to the fact that a property was acquired at S in November 2002 for $305,000.  It was purchased in the company’s name using private funds from the investment property loan but the interest was paid by E Pty Ltd of approximately $1,800 per month.  In paragraph 18(e) she notes:

“18(e)The purchase of [the S property] increased the investment account to $330,000.”

In paragraph 18(c) she notes that:

“18(c)By November 1992 (it would appear this should read 2002) the loan investment account balance on the purchase of [U Property] was reduced to approximately $25,000 in November 2002”.

Nowhere in the financial statements for the year ended 30 June 2003 is there an entry which would reveal an advance by the parties to the company of a sum of approximately $300,000.

The inference is open on the Wife’s evidence that the whole amount was borrowed to acquire the S property.

Such loan, if made to the company, would appear as a liability.  It does not do so.  It does not appear as a fixed asset. 

It appears that for the financial statements for the year ended 30 June 2004 it has been picked up as a fixed asset at a cost of $300,000, which entry remains the same for the following year.

35.In the Husband’s affidavit (paragraphs 27 – 31) he states:

“27.[Mr T’s] report lists a block of land at [S] as a fixed asset of the company with a value of $368,050.

28.      That land was sold for $380,000 in late 2005.

29.On the advice of my bank manager, the proceeds of the sale of the land was used to reduce joint loans of [the Wife] and I.

30.My solicitors have advised me it is likely the valuation of the business will need to be reconsidered to account for the sale of the [S] land.

31.I am also investigating whether the sale of the [S] property will have any taxation consequences for [the Wife] and I.”

36.In the financial statements the loan accounts for the Husband and the Wife are shown as follows:

Year ended 30 June 2003  $162,381

Year ended 30 June 2004  $  52,586

Year ended 30 June 2005  $  74,794

Year ended 30 June 2006  $366,460

37.It would seem from the Husband’s affidavit material that the company has paid the proceeds of sale in or about November 2005 to the parties and that is the source of the loan account entry of $366,460.

It may be that some of the moneys were retained by the company but approximately $300,000 was used as a repayment on the property investment loan account.  This entry totally overlooks the fact that the parties had advanced that money to the company in the first place.  I appreciate that if a loan of $305,000 had been shown as a liability for say the year ended 30 June 2004 it would have been approximately self cancelling for the fixed asset and would thus have reduced the net assets of the company to negative figures.  A similar result would have occurred for the figures for the financial year ending 2005.

38.An alternative interpretation is that the fixed asset entry for the years 2004/2005 correctly relates to the S property but the loan account relates to the type of expenditure set out in the schedule to which I have earlier made reference as produced by Counsel for the Husband.  If this be the case, until the details of the loan account are known it is not appropriate to bring it into account in the manner that Mr T has done.

By way of example, it could and presumably does include living expenses.  It could include wastage of assets by expensive holidays, gambling and payment of luxury items which would not normally be brought into account.

39.The situation is analogous to a commonly found position in property settlement proceedings where a party seeks to have a credit card liability brought into account.  The Court needs to be satisfied that the liability relates to genuine matrimonial expenses.  If the expenses have been incurred by a party for that party’s own benefit post-separation, why should it be brought into account as a genuine liability of the parties?

40.There is insufficient evidence before the Court to allow me to safely conclude that the loan account of $388,000 in whatever form it be is a proper deduction to be made however it be treated in the books of account of the company.

Reports of Single Expert, Mr T

First Report Mr T

41.The first report is dated 6 April 2006.  It values the company at $23,823.  The accounts reveal a loan account for the Husband of $181,894 for the year ended 30 June 2005.

42.I note that in Mr T’s second report the same loan account for the same period has been reduced without explanation to $74,794.

43.At paragraph 4.1 of the valuation under the heading ‘Summary of Opinion’ Mr T values the parties’ interest at -$158,071 being the loan account of $181,894 less the value of the company at $23,823.

44.Mr T originally proposed to value the company on a capitalisation of future maintainable earnings basis.  However as the future maintainable earnings was assessed as negative he concluded the value of the business is limited to the net tangible assets and proceeded to value it accordingly from the financial statements.

45.In making these observations I am in no way critical of Mr T or the methodology he has adopted.  Mr T regularly gives evidence in this jurisdiction and is well respected.

46.Mr T was in turn in no way critical of the company accountant, Mr R.  He had no basis for challenging the accounts but accepted that the accounts as prepared by Mr R could only be as reliable as the information supplied to him by the Husband.  Mr T had not had the opportunity to peruse any source documents.

Second Report, Mr T

47.The second report of Mr T is dated 8 September 2006.  I have previously commented how Counsel for the Wife was concerned at the late delivery of the second report.

48.At 4.1 of the report Mr T values the company on an asset backing basis at $-65,594.  The loan account of the Husband is $366,460.  He concludes that the parties’ interests are to be valued at -$432,055.

49.Counsel for the Husband in his written submissions urges the Court to adopt the figure of -$402,055.  The reason for the reduction of $30,000 is the revaluation of the 100 shares the company holds in D & L Pty Ltd.   

I have previously made comment on this.

50.Counsel for the Wife in his statement of assets and liabilities urges the Court to adopt a value for the company of $282,000.  This submission is made on the basis of a letter of 8 June 2006 by his instructing solicitor to the company accountant.  That letter is in the following terms:

“I refer to your valuation of the above business dated 6 April 2006.  Could you advise what good will value you would have given to the company if the income for the previous three years or whatever number you take as an appropriate averaging period had been:

a.        $200,000;

b.        $250,000;

c.        $300,000;

d.        $350,000.”

51.Mr T replied by email on 15 June 2006 in the following terms:

“In preparing these calculations I note the following:

- I have assumed that the assumed net income figures are actually the maintainable earnings figures after allowing for commercial remuneration of [the Husband];

-         I have prepared the calculations on a before financing basis;

-         The core net assets have been based on the 30 June 2005 figures;

-         Working capital has been assumed at a level of $20,000; and

-         Assume $21,000 is the ongoing GST/PAYG liability.”

52.In the schedule for scenario 3 he assesses good will at $138,717 and in scenario 4: $281,574.

53.Counsel for the Wife has simply adopted scenario 4 and rounded it off to $282,000.

54.There is no evidence whatsoever that the average income of the company was $350,000 in any relevant period.  The profit and loss statement would show that the net profit before income tax for the year ended 30 June 2003 was $222,000 and for the year ended 30 June 2004 was $20,000.

55.To adopt the methodology proposed by Counsel for the Wife is to simply select a figure out of thin air with no apparent reason for doing so.

56.I reject this approach.

57.As an interim measure I propose to adopt a value of zero for the value of the company.  I will treat the company as a separate property pool having no value.  I will then proceed to make a property settlement determination based on Pool A – the assets of which are largely agreed.  I will adjourn the matter for further consideration and at that time either party can make submissions as to the approach adopted.  If the parties cannot agree the alternative would be for me to request Mr T to conduct a full audit of the company for the years in question – to bring the financial statements up to date and to differentiate between strictly business accounts and personal expenditure of the Husband.

58.My reasons for adopting this course are as follows:

a)Whilst I am in no way critical of Mr R or Mr T, I am not accepting of the reliability of the information the Husband has given the Accountant for preparation of the financial statements.

I am conscious of the fact that the Husband may have a significant liability for personal income tax together with additional penalties.  There may be capital gains tax payable on the S property.  The company may well be liable for penalties and interest rate charges from the Australian Taxation Office for late lodgement of tax although if there was no tax payable the evidence as I understood it was that such penalties were unlikely to be imposed.

b)The final result for the Husband may be better or may be worse but the Husband has to take responsibility for the fact that it is largely his conduct which has bought the present situation about.  He has not lodged company or personal tax returns for relevant years knowing full well that this litigation was pending.  He has not attempted to properly differentiate the nature of expenses as shown in the company loan account.  If he wishes to operate his financial affairs in that way it is incumbent on him to produce a dissection from the source documents of what the loan account represents.

c)I accept that separation would appear to have been traumatic for the Husband.  I accept that he has worked hard.  I accept that he has been the sole income provider and the expenses incurred since separation have been significant.  To his credit he has largely paid those. 

d)The bottom line is I am not prepared to adopt a value of -$400,000 for a company which appears to have a significant number of employees, a high level of almost brand new equipment, where there are extensive construction contracts available within the region.

59.If either party wishes to challenge the approach that I have adopted in attributing no value to the company it will necessitate a further hearing.  This would be unfortunate but I am not prepared to make a finding in positive terms on the value of the company on the present unsatisfactory state of the evidence.

60.I turn to consider the remaining issues.

Assessment of Contributions

Section 79 Factors - Post Separation

61.As previously noted the parties are agreed that contributions to the date of separation were equal.

62.Since that time the Wife has had the ongoing care of the two children aged 15 and 13.

63.The Husband made payments of $450 per week for the period April 2004 to December 2004.  Additionally he paid $300 per week for the period from January 2005 to September 2006.  I proceed on the basis that he has been making payments of $300 per week to the present time since the hearing of this matter in September 2006.

64.The Wife’s evidence was that she earns income of $144 per week as a sports instructor working some eighteen hours per week.  I find merit in the submission made by Counsel for the Husband that the Wife could undertake work as a bookkeeper with computer skills.  For whatever reason she has elected not to exercise that option, but that is a matter for which she must take responsibility.

65.For the Wife it was argued that because she has the children for a greater period than the Husband (10 nights out of 14) and because of the disparity in earning capacity there should be some adjustment in her favour.  The Wife further argued because the Husband had newly acquired machinery he has the potential to earn greater income.  The only observation that could be made in relation to that is because of the level of debt the Husband has to service he will need to have the potential to earn greater income. 

66.On behalf of the Wife it was submitted an adjustment of 20% on account of post-separation factors under section 79 was called for.

Husband’s Submissions – Section 79 Post-Separation

67.Counsel for the Husband notes in his written submissions:

“10.However, her Financial Statement filed on 18 April 2006 disclosed a personal income of $517 per week.  This she admitted was understated because she had failed to disclose the receipt of family tax benefits in the amount of approximately $60 per week.  Even though she had been receiving those funds at the end of 2005 she was unable to explain why she failed to declare it as income.  She also has been receiving, as noted in Part 10 of the Financial Statements, $72 per week interest on the funds that she has held.

11.In Part N on page 11 of the Financial Statement she sets out the children’s weekly expenses at $361 per week – this is met by the husband’s $300 per week payment together with the family tax benefit payment from the Commonwealth government. She sets out her own needs at $136 per week which are more than met by her salary and investment interest.  Although she asserts a MasterCard payment liability of $150 per week she does not specify any amount of outstanding liability for that credit card.

12.It is also apparent that the wife has made virtually no effort to find employment although she is an experienced bookkeeper familiar with computerised bookkeeping.  Her assertion that she ought to be allowed to deduct some $60,000 of the monies she received from the parties’ credit line is not supported by any evidence of either her need or the appropriate application of those funds.  The full amount of $140,000 should be brought in under the Townsend principle.

13.As to the liabilities it is submitted that consistent with the evidence of [Mr T of …] Accounting, the company should be brought in at a negative value of $432,055, but adjusted to $402,055 to bring in the D & L shares.  It is likely that the company will in the event be required to meet a tax liability which is larger than that provided for in Annexure 7 of [Mr T’s] report of 11 September 2006 – he estimates PAYG payable and super payable at $402,885 and GST liability of $58,975.

27.By contrast, the husband in the post-separation period has continued to operate the business of [E] Pty Ltd and has maintained the wife’s lifestyle paying either directly or through the company in excess of $270,000 to support, inter alia, the borrowings to buy the [W] property and to fund the wife’s partial property settlement.”

68.Mr Hamwood argued that there should be a 5% adjustment in the Husband’s favour because of the lengthy hours he had worked in endeavouring to further the parties’ financial position.

Superannuation Fund

69.The parties have a self managed fund valued at $382,733.  As I understand it this consists of a property in Brisbane valued at approximately $300,000 and a cash sum of $80,000.  I propose to order that the Husband retain control of this superannuation fund.  Neither party has sought a splitting order in relation to the fund.  It is not practical or feasible to expect the parties to self manage the fund when their finances will be entirely separate in the future.

70.Recent changes to taxation legislation would appear to make it beneficial for the Husband to be able to direct surplus income from the company into his self managed superannuation fund.

71.I would surmise that the fund has been non-complying for a period of time.  It appears, for example that the house property was acquired with borrowed funds, which as I understand is not permissible under the superannuation provisions.  Superannuation funds are to be audited each year.  There is no evidence on this aspect but having regard to the Husband’s gross non-compliance with other requirements of the Australian Taxation Office I would infer that the superannuation fund has not been audited.

72.Whilst there may be certain advantages to the Husband from a future taxation point of view of receiving control of the superannuation fund, the downside is that it is a significant asset amounting to almost $400,000 which he would not be able to have the direct benefit of until retirement at aged 60 at the earliest.  This significantly diminishes the benefit of having an asset of this nature assigned to him in the settlement.  There were no submissions made on this aspect.

73.I was not asked to discount the value of the superannuation fund for possible taxation consequences, penalties or other consequences.  Nor were any submissions made that the asset be discounted for the fact that it is not presently accessible.  Both parties produced a schedule of assets and liabilities which brought the superannuation fund into account at its current value.

74.In view of the fact the Husband will be receiving the superannuation fund which is not accessible as property at the present time, I have made an allowance in his favour for this fact. 

75.Since separation the Wife has had advances of capital from the sale of assets.  The Husband has been left with significant liabilities to fund.  The Wife effectively has had rent free use of the W property.  The Husband has had the use of the former matrimonial home but has had to meet all the loan repayments.

76.On account of post-separation section 79 factors I do not propose to make any further adjustment.  The principle reason is that the Wife’s additional responsibilities caring for the children for the period of three and a half years since physical separation have been offset by the fact:

·    The Husband has had the care of the children for four nights out of fourteen.

·    The Husband has had to work extremely long hours to fund significant payments for the benefit of the Wife and children as detailed in the schedule at paragraph 33(b).

·    The Husband will be unable to access the superannuation fund.

·    The Husband through the company, has made significant contributions by way of payment of the Wife’s car, private medical insurance and the like (Exhibit 1).

Section 75(2) Factors

77.The parties are both aged 40 and are in good health.  The Wife has the children but has the capacity for work.  I am satisfied if the Wife was so minded she could earn significantly more than she presently does.  The Husband has been paying $300 per week and I expect that he will continue to do so to assist in the support of the children.  If he does not do so it is in the Wife’s power to bring an application for a departure order.  The Husband I expect will continue to have contact with the children on a reasonably frequent basis.  I assume as a result of the costs of this hearing and the large liabilities the Husband has that he will have to continue to work extremely long hours.

78.The Husband proposed overall that there be an adjustment in the Wife’s favour of 55/45.

79.There is nothing in the evidence or the submissions which would lead me to make an adjustment in the Wife’s favour of 80/20 as submitted on her behalf.

80.I propose to make a 5% adjustment in the Wife’s favour on account of section 75(2) factors.

81.Overall the property is to be divided 55% to the Wife and 45% to the Husband.

Value of Add Backs

82.The Wife received the sum of $140,000 after separation to assist her with various expenses. 

83.At paragraphs 37 and 38 of her affidavit the Wife says:

“37.The Respondent Husband and I agreed to the withdrawal of $150,000 so that I could move in January 2004.  This money has had to last me 2.5 years and I paid $15,000 deposit on the house at [W], $8,000 stamp duty on the house and solicitors costs.  The balance of my account as at 9 May 2006 was $78,000 from which I have to pay rates, car and house insurance, electricity, phone and clothes for myself and the children.

38.I bought approximately $20,000 in furniture for my home as the Respondent Husband kept all the furniture, white goods, china etc which I estimate to be valued at $60,000.”

84.The Husband’s version of these events is as follows as noted in paragraphs 11 to 17 of his affidavit:

“11.The add back to [the Wife] of $170,000 listed in the table above comprises moneys received from the Westpac investment property loan account number 155824 as follows:

(i)       $100,000 on 27 January 2004;

(ii)      $50,000 in 2004;

(iii)     $20,000 in 2004.

12.The $100,000 referred to in paragraph 11(i) was withdrawn by [the Wife] from our Westpac investment property loan on 27 January 2004.  The money was withdrawn without my knowledge.

13.I subsequently discovered that [the Wife] had deposited the moneys into an account of her own.

14.[The Wife] and I subsequently agreed that she could retain these moneys by way of partial property settlement.  This fact was acknowledged under a letter of 14 September 2004 from [the Wife’s]solicitor - -.

15.The $50,000 and $20,000 referred to in subparagraphs 11(ii) and 11(iii) respectively were withdrawn by [the Wife] from the investment property loan.

16.I recall that sometime in early 2004 I did agree to [the Wife] withdrawing the $20,000 but only on the condition she would do so by way of a partial property settlement.

17.      I did not agree to her removing the $50,000.”

85.The schedule of assets of liabilities produced by the respective Counsel have as add backs $140,000 (in the Husband’s schedule) and $139,616 (in the Wife’s schedule).

86.Why the Wife’s schedule was reduced by the sum of $384 was not made clear.  It is not a matter to which I adverted during the hearing as, of course, the written submissions were received some time after the hearing.

87.The Wife retained as at the date of her financial statement and the date of trial presumably the sum of $78,000 in cash.

88.There is no reason why that should not be brought into account as an add back.

89.Each Counsel accepted that approximately $140,000 should be treated as an add back.  I will adopt this figure.  The Husband has had his living expenses paid by the company without in any way being brought into account.  As I have adverted to it may well be that a significant amount of the loan account of the company consists of the Husband’s living expenses.

90.In adopting the figure of $140,000 I proceed on the basis that none of the funds was used as a deposit on the house or to pay stamp duty for the house or was expended on the Wife’s furniture.  The way the Wife’s affidavit reads it is somewhat ambiguous in this regard.

91.If any of the sum of $140,000 was used in part payment of the house or in acquisition of the furniture then clearly there is an element of double counting.  I proceed on the basis that both Counsel and the instructing solicitors are experienced in family law and would not have made such an obvious error. 

Add Backs – Money Due from Sale of M Property

92.The Wife asserts the moneys outstanding total $69,825.  The Husband suggests the amount outstanding is $71,825.

93.The Husband in his affidavit evidence says in paragraphs 23 , 24 and 25

“23.I am aware that at settlement the purchaser of the property at [M] was $68,000 short of the agreed purchase price of $680,000.

24.I am aware the purchaser of the property at [M] entered into an agreement to repay [the Wife] the $68,000 shortfall plus interest.

25.      I am unaware as to whether these moneys have been paid.”

94.In her evidence the Wife deposed to the fact that it was $68,000 and there was interest payable at 11.2%.  She said $2,000 had been paid on the 2 May 2006 which was accepted as a reduction of principle.  The balance owing therefore was $66,000 plus interest.

95.The Wife has not otherwise accounted for this.  I propose to bring the add back into account at the amount contended for by the Husband namely $71,825.

Allegation of Wastage – Husband Refusing to Sign Contract for Sale of B Property

96.The Wife’s Counsel at page 13 of his submissions says:

“- - The property was placed on the market and a buyer found for $770,000 but the Husband refused to sign the contract.”

He noted that the present valuation of the property is $750,000 a loss of $20,000 on the previous offer which should be attributed to the Husband.

97.There are many reasons why parties will agree to a valuation.  In the absence of better evidence I do not propose to allow any claim for wastage as submitted by Counsel for the Wife.

Liabilities

98.Counsel for the Husband suggested the Husband’s Visa credit card be brought into account at $30,000 as a liability.  Counsel for the Wife submitted it should be brought into account at $19,000.

99.The evidence would indicate that the credit card liability was about $8,000 at the time of separation.  In the absence of any better detail it would seem that that is a genuine liability of the parties and it should be brought into account.  $13,000 is said to be for business expenses.  I expect that would be taken up in the value of the company.  There is no detail as to how the balance of the account has been expended by the Husband.  Once again if he has engaged in expenditure for luxuries or even day to day expenses post-separation it is not made clear why that should be brought into account.

100.In the absence of better evidence I propose to bring it into account at the lesser figure proposed in the Wife’s calculations namely $19,000.  Counsel for the Husband submits (paragraph 22) the Husband expended $9,000 on furniture.  Adding the $8,000 debt as at the date of separation together with the $9,000 for the furniture I am prepared to round the debt off at $19,000.

Capital Gains Tax – M property

101.In paragraph 23 of his written submissions Counsel for the Husband notes:

“23.The capital gains tax estimate on [the M property] is based on the fact that the property was in the wife’s sole name, and the wife during the relevant year had an income exclusive of capital gain, of about $20,000.  The capital gain was $180,000 and the wife will be liable to pay tax on one half of that at the applicable rate.”

102.Counsel for the Husband suggests it should be brought into account at $45,000.  Counsel for the Wife suggests $22,000.

103.Assuming the Wife had no other assessable income and no deductions the capital gain on my estimation would be in the range of $26,000 and I propose to bring the capital gains tax into account at that figure.  The figure put forward by Counsel for the Husband would seem to indicate that the Wife would be paying tax at the maximum rate and I do not accept that is likely.

Calculations

104.Calculations based on the above findings are as follows:

Assets of the Parties:

B property  $    750,000

W property       $    470,000

Contents (Wife)  $      13,275

Contents (Husband)  $      17,850

Superfund   $    382,733

Add backs:

Cash advance to Wife   $   140,000

Moneys due sale: M property  $     71,825

Total  $1,845,683

Liabilities:

Husband’s credit card debt  $     19,000

Investment loan  $   391,446

Capital gains tax: M property  $     26,000

Total  $   436,446

Gross assets  $1,845,683

Less liabilities  $   436,446

Net assets  $1,409,237

Wife’s entitlement 55%  $   775,508

Wife receives:

W property       $   470,000

Contents  $     13,275

Add backs portion of cash advanced  $   140,000

Balance of moneys owing: M property                 $     71,825

Total  $   695,100

Less:

Capital gains tax payable by Wife  $     26,000

Net assets received by Wife to date  $   669,100

Wife’s entitlement  $   744,830

Wife has received  $   669,100

Husband to pay Wife  $   106,409

105.The orders will issue in draft form to allow for the possibility of error in the assumptions that I have made in the course of these Reasons.  I am prepared to take further submissions and to make adjustments accordingly.  Hopefully there could be some degree of unanimity on any adjustments to be made in accordance with the reasoning adopted.

106.Draft orders are as follows:

IT IS ORDERED BY WAY OF PARTIAL PROPERTY SETTLEMENT THAT:

(1)The Wife is to transfer to the Husband all her right, title and interest in the B property.

(2)In exchange for the transfer documents the Husband is to pay to the Wife the sum of $106,409.

(3)The Wife is to be liable for any capital gains tax on the sale of the M property.

(4)      Each party is to retain assets currently in their possession.

(5)The Wife is to transfer all of her interest in the self managed superannuation fund to the Husband.

(6)A Registrar of the Family Court of Australia is appointed to execute any document in either party’s name and do all acts and things necessary to give validity to any documents required to execute the orders made herein in the event a party refuses to sign when so requested.

(7)Liberty to apply by either party on seven (7) days notice.

(8)The question of the value of the company, E Pty Ltd is adjourned to a date to be fixed.

I certify that the preceding one hundred and six (106) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Barry.

Associate

Date: 13 July 2007