CARLINI & CARLINI

[2015] FamCA 348

FAMILY COURT OF AUSTRALIA

CARLINI & CARLINI [2015] FamCA 348

FAMILY LAW – PROPERTY SETTLEMENT – FINAL ORDERS – Where it is just and equitable to make orders altering the parties interests in property – where the parties agree contributions during the marriage were equal – where the wife alleges wastage by the husband in failing to meet the parties’ loan repayments as and when they became due – approach to valuation of a group of entities considered  – consideration of the parties’ income earning capacities

Evidence Act 1995 (Cth)
Family Law Act 1975 (Cth)
Family Law Rules 2004 (Cth)
Family Law (Superannuation) Regulations 2001 (Cth)

Bevan & Bevan [2013] FamCAFC 116
Kowaliw & Kowaliw (1981) FLC 91-092
Stanford v Stanford (2012) 247 CLR 108
Waters v Jurek (1995) FLC 92-635; 20 Fam LR 190

APPLICANT: Mr Carlini

RESPONDENT: Ms Carlini

FILE NUMBER: MLC 5228 of 2011

DATE DELIVERED: 12 May 2015

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Macmillan J

HEARING DATES: 19 – 23 May, 1 October &  16 December 2014
19 January 2015

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Spicer

SOLICITOR FOR THE APPLICANT: Kliger Partners

COUNSEL FOR THE RESPONDENT: Mr P Testart

SOLICITOR FOR THE RESPONDENT: Collards Solicitors

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

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 5228 of 2011

Mr Carlini

Applicant

And

Ms Carlini

Respondent

REASONS FOR JUDGMENT

1.The parties in this case were married for over 27 years. It is a significant aspect of the case that they each acknowledge their individual and combined efforts throughout the marriage to build up the wealth of their family. Although they each had different roles - the husband being primarily responsible for the operations of the business and investment decisions, and the wife being responsible for the day-to-day administration of their financial affairs, including the administration of the husband’s business and home duties - they both agree that there was a unity of purpose and action.

2.That cooperative working relationship ended when the parties separated. It is the change in the nature of that working relationship which, in my view, lies at the heart of the primary dispute in this case. It underpins their respective cases, and in particular the case of the wife.

3.The husband and wife agree that their contributions to the relationship, financial and non-financial, direct and indirect, as well as their contributions to the welfare of the family during the marriage and thereafter, should be treated as equal. However, it is the wife’s case that the husband has, as described by Baker J in Kowaliw & Kowaliw (1981) FLC 91-092 at 76,644 (“Kowaliw”), “wasted” the parties’ assets by acting “recklessly, negligently or wantonly … the overall effect of which has reduced or minimised their value.”

Background

4.The husband is 55 years of age and is in good health. He is a qualified accountant and operates his own business.

5.The wife is 53 years of age and is employed as in administration. Although the wife deposes to having health issues leading up to the breakdown of the marriage, she is generally in good health.

6.The parties married and commenced cohabitation on 4 June 1983. There is one adult daughter of the marriage, who is now 20 years of age. Following separation the parties shared the care of this child, albeit that she spent somewhat more time with the husband than the wife.

7.Shortly prior to their marriage, the parties purchased a property in Suburb B for $55,000. It is the wife’s evidence that she and the husband had both accumulated savings prior to the marriage. She says that she contributed her savings of $20,000, including $6,000 contributed by her parents; that the husband contributed his savings of $5,000 to the purchase; and that they borrowed the balance from the Commonwealth Bank of Australia. The husband deposes that the parties had no assets of any significance and pooled their income for their mutual benefit. Given the way in which the parties have put their cases, and particularly the way in which they say the Court should treat their respective contributions, these inconsistencies in their evidence are not material to the outcome of the case.

8.The parties separated finally in late February 2010, at which time the husband left the then matrimonial home in Suburb R North and moved into rental accommodation in Suburb C. The wife remained, and still resides, in the former matrimonial home. At the time of the hearing, the husband was living in a property he purchased in D Street, Suburb C (“D Street”). The purchase of this property was one of the matters in issue in this case and I will discuss it in more detail later in these reasons.   

9.During the early years of the marriage, the husband left his employment as an accountant and established his own business in rented premises in Suburb E.  With the success of the business, it was moved into larger rented premises in Suburb E, and in or around 1990 the growth of the business was such that the parties set up a second office in Suburb F.

10.In 1990 the husband took on a partner. The husband held 80 per cent of the equity in the business and his partner held the balance.  In 1994 the business was renamed as G Partners and continues under that name, notwithstanding that in 2000 the husband and his partner dissolved their partnership. The husband has held all of the equity in the business since the dissolution of that partnership.   

11.It is the primary business of G Partners to provide advice to manufacturing, construction and real estate businesses.  To a lesser degree, it also provides some individual services. The wife performed administrative work whilst the husband undertook the client management work. Upon the growth of the business, the husband’s role expanded to include the management of junior staff, and the wife managed the support staff. It is common ground that there were some initial difficulties with the administration of the business following separation, albeit that the parties disagree as to the reason that occurred.

12.In 1987 or early 1988, in addition to the business, the parties became involved in other property and business investments. These investments were generally, although not always, successful.

13.The husband commenced these proceedings on 16 June 2011 when he filed an Initiating Application seeking orders for property settlement. There have been numerous interlocutory hearings and many unsuccessful attempts to resolve the matter. The matter was listed for final hearing on a number of previous occasions, and there were frequent complaints by each of the parties about the other not having met their respective obligations to provide full and frank disclosure. Each of the parties have incurred significant legal fees conducting the litigation in circumstances where each says that the property about which they have been arguing has diminished significantly in value.  

Documents Relied Upon by the Parties

14.The husband, who was the applicant in the proceedings, relied upon the following documents: 

·The husband’s amended Initiating Application filed 7 April 2014;

·The husband’s financial statement filed 7 April 2014;

·The husband’s trial affidavit filed 7 April 2014; and

·The husband’s affidavit in response to the wife’s trial affidavit filed 19 May 2014.

15.The husband additionally relied upon the following single expert affidavits:

·Affidavit of single expert witness Ms H filed 1 April 2014;

·Affidavit of single expert witness Mr I filed 3 April 2014;

·Affidavit of single expert witness Mr J filed 3 April 2014;

·Affidavit of single expert witness Mr K filed 4 April 2014; and

·Joint minutes of experts tendered and dated 16 May 2014 and marked exhibit “H&W1”.

16.The respondent wife relied upon the following documents: 

·The wife’s amended Response to Initiating Application filed 1 May 2014;

·The wife’s affidavit filed 1 May 2014;

·The wife’s financial statement filed 1 May 2014; and

·Joint minutes of experts tendered and dated 16 May 2014 and marked exhibit “H&W1”.

17.Although only the husband relied upon the affidavits by single experts appointed to value the real property, the values of that real property owned by the parties or their associated entities were agreed.

The Hearing

18.The final hearing of this matter commenced on 19 May 2014. On 23 May 2014 I heard final addresses and reserved judgment. For convenience I will refer to this hearing as the “first hearing”.

19.Having reserved my judgment, it became clear to me that there were issues that had not been addressed, including with respect to the treatment of what was described by Ms H, the single expert witness, as the “Carlini Family Entities”.

20.I subsequently listed the matter for mention before me, raised with counsel the issues I required them to address and thereafter listed the matter for a further day of hearing on 1 October 2014.  For convenience I will refer to this as the “second hearing”. 

21.The matter was listed for a further mention on 16 December 2014 with respect to the D Street mortgage, it having been included by the husband in his balance sheet and not disputed by the wife, notwithstanding that it was a liability of L Pty Ltd (“L Pty Ltd”) and dealt with as such by Ms H in her valuation of the Carlini Family Entities. Having identified what appeared to be a potential error and bringing it to the attention of counsel for the parties, the matter was adjourned for further mention on 19 January 2015 to enable the parties to consider their positions and make submissions both with respect to that possible error and, in the event that it was agreed, any further proposals having regard to the increased value of the net pool of assets. For convenience I will refer to this as the “third hearing”.

The Evidence

22.The standard of proof in this case is on the balance of probabilities. Section 140 of the Evidence Act 1995 (Cth) (“the Evidence Act”) provides that, without limiting the matters the Court may take into account in deciding whether it is satisfied that a party has proven his or her case, it must take into account:

a)        the nature of the cause or action or defence;

b)        the nature of the subject-matter of the proceeding; and

c)        the gravity of the matters alleged.

23.Each of the parties in this case gave evidence and was cross-examined. None of the other witnesses were required for cross-examination in the course of the first hearing.

24.My initial impression of the wife’s evidence was that she was at times somewhat evasive. She was also reluctant to make concessions when one might otherwise have expected her to do so. However, I ultimately concluded that this was because she tended to view the husband’s conduct through the veil of her mistrust, rather than a deliberate attempt on her part to mislead the Court.

25.I did not form the same view of the husband’s evidence. My impression of the husband was that he reflected upon the questions he was asked and did his best to answer those questions truthfully. He made concessions more readily than the wife and, although at times was critical of the wife and her conduct, his evidence was not coloured by the same degree of mistrust as the wife’s evidence. In those circumstances, where there is a dispute between the evidence of the husband and the wife, unless there is particular evidence which supports the wife’s evidence, I have more confidence in the evidence of the husband.

26.My observation of the wife was also that, although she had been responsible for the administration and bookkeeping for both the business and the parties’ various investments, she seemed somewhat naïve and her knowledge and understanding of the broader financial issues seemed limited.

27.The approach taken by the wife had a significant impact upon her evidence and the way in which she presented her case generally. For example, it was my observation that the wife’s evidence for the purposes of the hearing before me focused on the husband’s conduct primarily from the perspective of the entities which she controlled and the financial requirements of those entities, rather than viewing the enterprise as a whole as the husband did. This was notwithstanding that the wife acknowledged that prior to separation the parties managed their finances having regard to their financial position as a whole, and that the primary source of funds they had relied upon to build their wealth was the income generated by the business.

28.On 19 February 2013 I made the following order by consent appointing Ms H, a partner of M Partners, Accountants, Auditors and Advisors, as a single expert witness in the following terms:

2.        That Ms H of M Partners be appointed as single expert to conduct a valuation of the following companies, trusts, assets and entitlements including any liabilities of either of the parties and/or the companies and/or trusts, that is to say:

(a)  The business known as G Partners;

(b)The accrued employment-related entitlements (if any) of the Husband in respect of any employment agreement with G Partners including the present capacity of G Partners being able to pay out the same;

(c)The accrued employment-related entitlements (if any) of the Wife in respect of any employment agreement with G Partners including the present capacity of G Partners being able to pay out the same;

(d)The shareholding of 25 per cent by L Pty Ltd in G Pty Ltd;

(e)The shareholding by L Pty Ltd in N Pty Ltd;

(f)  Shareholdings, rights, and/or entitlements in:

(i)           G Partners Pty Ltd;

(ii)         L Pty Ltd;

(iii)         O Equities Pty Ltd;

(iv)         O Investments Pty Ltd;

(v)          II Pty Ltd;

(vi)         The G Partners Unit Trust;

(vii)         The L Pty Ltd Trust;

(viii)       The O Family Trust;

(ix)         G Pty Ltd; and

(x)G Law Pty Ltd (collectively referred to as “the business enterprises”).

(g)And that the said expert shall provide advice to the parties as to any potential capital gains tax liability in relation to any of the property held by the parties in their personal name or the corporate or trust structures and any division 7A taxation liabilities.

29.Although Ms H was not required for cross-examination at the first hearing, she gave brief evidence and was cross-examined during the second hearing. She was a confident and accomplished witness who gave careful consideration to the questions she was asked and her answers. She was also a cogent witness who made concessions when it was appropriate to do so, but equally disagreed with matters put to her by counsel when they did not accord with her expertise and experience, or her understanding and assessment of this particular matter.

Legal Principles

30.Whilst it is clear from the decision of the High Court in Stanford v Stanford that the Court must be satisfied that it is just and equitable to make an order for property settlement, the plurality in that case also made it clear that:

[i]n many cases where an application is made for a property settlement order, the just and equitable requirement is readily satisfied by observing that, as a result of a choice made by one or by both of the parties, the husband and the wife are no longer living in a marital relationship. It will be just and equitable to make a property settlement order in such a case because there is not and will not thereafter be the common use of property by the husband and the wife. No less importantly, the express and implicit assumptions that underpinned the existing property arrangements have been brought to an end by the voluntary severance of the mutuality of the marital relationship.[1]

(original emphasis)

[1] (2012) 247 CLR 108, at [82].

31.Whilst the Court must consider, as a precondition to making an order for property settlement, whether it is just and equitable in the circumstances of the particular case to do so, the Full Court has also made it clear that the just and equitable requirement is not a threshold issue as such but “rather one permeating the entire process”.[2]

[2] Bevan & Bevan [2013] FamCAFC 116, at [86].

32.The just and equitable requirement is readily satisfied in this case. The parties separated in February 2010 and have lived separately since that date. Although for some time the parties continued what could be described as their joint venture, they no longer have the common use of the property which they built up during their marriage, and the assumptions that underpinned the arrangements they made with respect to their property during the marriage are no longer appropriate.

33.In all of the circumstances I am satisfied, as urged upon me by the parties, that it is just and equitable to make orders altering their interests in property, albeit that one of the wife’s proposals would have her retaining her legal and equitable interests in property without there being the need for orders altering those interests, save and except with respect to the parties’ respective superannuation entitlements. 

34.The Court, being satisfied that it is just and equitable to make orders adjusting the parties’ interests in property, must make such order as it considers appropriate. In considering what order should be made, it must take into account the matters in s 79(4) of the Family Law Act 1975 (Cth) (“the Act”).

The Issues 

35.In circumstances where I am satisfied that it would be just and equitable to make an order adjusting the parties’ interests in property, there are a number of issues which I must consider and determine. These findings will inform my application of the provisions of s 79(4) of the Act. They include the following matters:

·Whether the various entities of the Carlini Family Entities, including the husband’s business, should be valued as part of the so-called “Carlini Group”;

·Whether the negative value of the husband’s business should be deducted from the positive value of other entities;

·Having regard to the matters in s 75(2):

oWhat, if any, wastage is attributable to the husband and, if wastage be attributed, what adjustment should be made in the wife’s favour to take that into account;  

oWhat, if any, adjustment should be made, having regard to the parties’ respective income earning capacities; and

oHow the Court should put into effect whatever division of the parties’ property that it determines is just and equitable.

The Parties’ Legal and Equitable Interests

36.The parties made final submissions at the conclusion of the first hearing on the basis of the list of assets and liabilities contained in the document prepared by counsel for the husband, titled “Calculation of the Husband’s Settlement Proposal”. It was identified as the husband’s Aide Memoire. The figures in this document, which I will refer to as the husband’s balance sheet, were mostly figures agreed upon by the parties. There were some exceptions which I will identify and about which I will make findings where necessary. This document did not separately identify the parties’ individual assets and liabilities for the purposes of their final submissions. Instead, it reflected their combined property interests. The assets and liabilities in that document were as follows:

ITEM

HUSBAND’S FIGURE

Carlini Group

$592,000

P Street, Suburb C

$630,000

Q Street, Suburb R

$270,000

D Street, Suburb C

$570,000

Husband’s savings as at 15 May 2014 ⃰

$40,722.56

Wife’s savings as at 1 May 2014

$5,480

Balance in Collards Solicitors’ Trust Account as at 12 May 2014

$3,524.85

Total property

$2,111,727.41

LIABILITIES

Mortgage 379 D Street, Suburb C

$374,703

Husband’s Visa card ⃰

$13,175

Husband’s AMEX card ⃰

$4,422

Wife’s GE credit card ⃰

$5,485

Wife’s MasterCard ⃰

$873

Amount owed by the husband to M Partners

$13,482.56

Amount owed by the wife to M Partners

$13,482.56

Other creditors:

·    Mr S: $52,575

·    T Pty Ltd: $6,400

·    Mr U: $12,925 ⃰

$71,900

2014 State Revenue Office (Land Tax) re landholdings O Equities as at 16 May 2014*

$36,473

2014 State Revenue Office (Land Tax) re P Street as at 1 May 2014

$741

Outstanding Water Rates for V Street, Suburb W, formerly registered in the name of O Investments Pty Ltd

$954

Outstanding Water Rates for X Street, Suburb Y, formerly registered in the name of O Equities Pty Ltd

$163

Outstanding 2014 Municipal Rates in respect of all properties registered in the name of O Equities Pty Ltd

$3,516

Outstanding 2014 Municipal Rates in respect of the P Street property

$418

Outstanding moneys due to Z Pty Ltd for O Equities Pty Ltd

$980

Total liabilities

$540,768.12

TOTAL PROPERTY EXCLUDING SUPERANNUATION

$1,570,959.29

The Husband’s Savings

37.In his most recent affidavit filed 19 May 2014, the husband deposed to having savings of $40,722.56, whereas the wife relied upon the figure of $67,242, which was the figure in the husband’s financial statement filed 7 April 2014. There was no cross-examination in relation to this issue. I am mindful of the fact that orders adjusting interests in property are made on the basis of what is effectively a snapshot of the parties’ financial positions as determined by the Court on the date of the hearing.  On the basis of the evidence I do have, I am satisfied that I should include the figure in the husband’s most recent affidavit. 

Credit Card Liabilities

38.The husband included in his balance sheet both his current American Express and Visa credit card liabilities. He also included a figure of $873 for the wife’s GE credit card, although the wife had not included that figure in the schedule of assets and liabilities contained in her Outline of Case filed 19 May 2014. Although the husband’s evidence about the credit card liabilities was not challenged in his final address, counsel for the wife disputed the inclusion of these liabilities, both with respect to the amount of the liability and as to whether it should be included as a liability in the balance sheet. Although I accept the husband’s evidence with respect to the quantum of those liabilities, I do not propose to include them in the balance sheet. Although this is a snapshot of the parties’ financial positions as at the date of the hearing, they had been separated for just over four years at the commencement of the first hearing. They had also been responsible for their own financial support since separation. In those circumstances, I am satisfied that they should each be responsible for whatever credit card liabilities they now have.

Land Tax

39.Although the husband included a figure of $36,473 for Land Tax owed by O Equities it was agreed that there had been a reassessment and that as at 16 May 2014 the figure was $29,272.50.

Other Creditors

40.The husband included a figure of $52,575 owing to Mr S; a figure of $6,400 owing to T Pty Ltd; and a figure of $12,925 which he owes to Mr U with respect to the refinancing of the business.

41.The husband said that Mr U was engaged to buy the parties more time to refinance once it became clear that the Westpac Banking Corporation (“Westpac”) would no longer provide that finance. The husband denied that Mr U’s engagement had not helped and said that it extended the time for them to obtain alternative finance by about five to six months. It was also put to the husband that the wife had paid her share of Mr U’s fees. This was denied by the husband. In the absence of evidence supporting the wife’s assertion that she had paid her share of Mr U’s fees, I propose to include the figure of $12,925 owing to Mr U and to make provision for his payment.

42.As it is unclear what, if any, amount will be payable to Mr S or T Pty Ltd, I will exclude these amounts and make an order that the parties share equally whatever amount is ultimately required to be paid as proposed by counsel for the wife.  I am not as confident as the wife that no amount will be required to be paid by the parties nor am I satisfied that the husband and the wife should not be responsible for these payments. However I am also satisfied that it would not be just and equitable to include these amounts as a debt of the parties and make the orders proposed by the husband that he be liable for payment of those amounts in circumstances where they may not be payable. 

The Carlini Family Entities

43.Notwithstanding the terms of the order made by consent on 19 February 2013, Ms H prepared a valuation of what was described in the letter of instruction as the Carlini Family Entities, which included the husband’s business. She valued the Carlini Family Entities before related party loans at a low of $592,000 and a high of $822,000, excluding the self-managed superannuation fund. This valuation took into account a negative value for the business of between $335,000 and $565,000. It is this valuation of the Carlini Family Entities which was included in the balance sheet, albeit that the husband adopted the lower end of the range and the wife adopted the mid-point.

44.Neither party took issue with the accuracy of Ms H’s valuation of the Carlini Family Entities. Nor did Mr AA who was engaged by the wife as a shadow expert and potential adversarial witness. Neither party sought to cross-examine Ms H for the purposes of the first hearing. Upon consideration of the evidence, I formed the opinion that there were issues, which had not been addressed, in relation to that valuation which could significantly impact on the outcome of the case. I raised this with counsel. These are generally issues not as to the value of the individual entities as such, but rather the treatment of those individual entities as a group and how the Court should deal with certain entities, particularly the husband’s business.   

45.The entities valued by Ms H and described as the Carlini Family Entities are as follows:

G Partners

46.G Partners is the suburban business conducted by the husband and which it is proposed he retain as part of any orders I am to make. The business rents premises from O Equities Pty Ltd (“O Equities”), another entity of the Carlini Family Entities. Ms H described the business as follows:

a)The business has historically generated losses with the losses increasing in 2013 due to excess employee numbers for the volume of work currently undertaken by the business. I have been advised that it is the intention of management to reduce staff numbers further if revenue does not improve. It is unlikely however that the business will generate more than break even.

b)Notwithstanding the above, the business may have some value to an external third party who could generate synergies or who could integrate the business into their own business. However given it is not the intention to sell the business, I do not consider it appropriate to adopt a hypothetical scenario.

47.It was on that basis that Ms H considered it appropriate to value the business on a net asset basis. The assets of the business are essentially the book value of the trade debtors adjusted for bad debts, work in progress, and the book value of plant and equipment which, according to Ms H, may have no realisable value in the open market but has a value to the business on a going concern basis. There are trade creditors and significant outstanding employee obligations including superannuation, annual leave and long service leave, and both GST and PAYG. As contained in her report, it was Ms H’s evidence that the business had a negative equity of somewhere between $335,000 and $565,000 before taking into account related party loans.

G Pty Ltd

48.G Pty Ltd was set up as a joint venture between N Pty Ltd (50 per cent), L Pty Ltd (25 per cent) and BB Pty Ltd (25 per cent). The company is operated and managed by an external party and receives fee-income generated from the referral of G Partners’ clients. L Pty Ltd receives 25 per cent of the dividends paid by G Pty Ltd. Ms H valued L Pty Ltd’s 25 per cent interest in G Pty Ltd to be in the range of $11,000 to $34,000 and, for the purposes of her report, used the mid-point of $22,500.

G Law Pty Ltd

49.G Law Pty Ltd (“G Law”) was formed for the purpose of providing legal services to clients of G Partners. G Partners held a 50 per cent interest in G Law. G Law commenced trading in May 2012 and ceased operations in August 2013. Ms H’s opinion was that G Partners’ 50 per cent interest in G Law had no value.

L Pty Ltd

50.L Pty Ltd is the trustee of the L Pty Ltd Trust. It is a holding entity and does not trade in its own right. It holds all of the units in G Partners Pty Ltd and a 25 per cent interest in G Pty Ltd. It is also the trustee of the Carlini Superannuation Fund.  It made some related party loans to O Investments Pty Ltd (“O Investments”), O Equities and the husband for the purchase of the property in which he now resides at D Street, as well as some lesser related party transactions. L Pty Ltd has a negative equity of $381,000, the majority of which is on account of the $392,000 owing to CC Pty Ltd for the purchase of the D Street property. This is offset in the balance sheet by the husband’s interest in that property.  

O Equities Pty Ltd

51.O Equities is the trustee of the O Family Trust. It was set up by the parties to provide asset protection for their planned property acquisitions and developments. O Equities is the registered proprietor of the properties at DD Street, Suburb C; EE Street, Suburb F; and vacant land at FF Street, Suburb GG. The company also has a 98 per cent interest in O Investments.  O Equities was valued by Ms H on a net asset basis having regard to the current valuations of the property at $1,511,000. The combined value of the three properties owned by O Equities; the cash as at 30 June 2013; and plant and equipment of $69,000, which according to Ms H has been carried over from their 30 June 2012 balances, is $4,113,000. The balance, after deducting the external borrowings of $2,550,000, is $1,563,000. The other liabilities (which are comparatively small) are, according to Ms H, based upon the 30 June 2012 figures.

O Investments Pty Ltd

52.O Investments was similarly incorporated as a vehicle for planned property acquisitions and developments. As at 30 June 2013, the company held no property. Ms H valued O Investments on a net asset basis, the only asset for the purpose of that valuation being the motor vehicle driven by the husband. As at that date the motor vehicle was valued at $34,000 and subject to a chattel mortgage of $30,000.

The Carlini Superannuation Fund

53.The Carlini Superannuation Fund is an investment entity which held cash and shares valued at $238,000 as at 30 June 2013. The husband’s entitlement as at that date was $159,194, and the wife’s entitlement was $79,001. The parties agree that there should be a superannuation split on the basis that they share equally the value of their combined entitlements. 

Valuation of the Carlini Family Entities

54.During his final address at the conclusion of the first hearing, counsel for the wife suggested that it might be necessary to dispose of some of the Carlini Group assets, including G Partners. However, it seemed to otherwise be common ground that the husband would retain and continue to operate the business. In fact, it was part of the wife’s case that I should have regard to the income the husband would earn from the business in my assessment of the relevant s 75(2) factors. This has particular relevance for the purposes of how the Court should approach and treat the value of the various entities, particularly the deficiency in G Partners; the way in which this impacts upon the valuation of the Carlini Family Entities as a whole; and the justice and equity of the orders I make with respect to property settlement. The range of value attributed to the Carlini Family Entities according to Ms H’s report was between $592,000 and $822,000, excluding the self-managed superannuation fund.

55.Although these issues are interrelated, I will deal firstly with the range of values attributed to the Carlini Family Entities. It was submitted on behalf of the wife at the first hearing that the Court should adopt the mid-point in that range.  When I queried counsel for the wife about why the Court should adopt the mid-point as he submitted and reject the low end of the range as submitted by counsel for the husband, he pointed out that I had not heard “a single reason for or against any of those propositions”.  Counsel for the wife otherwise made no submissions and did not point me to any evidence to explain the range.  In relation to the same issue, counsel for the husband submitted that the range was attributable to the cost of refinancing of the properties which, according to the joint minute of experts, the wife estimated to be approximately $500,000.

56.It is clear from Ms H’s report that the range of values of the Carlini Family Entities is directly referable to the deficiency in G Partners. That deficiency is referable to the following liabilities:

·    What was described as the contingent liability of G Partners of between $20,000 and $57,000, which is subject to Victorian Civil and Administrative Tribunal (“VCAT”) action. It was agreed at the second hearing that since the first hearing, the VCAT proceedings have been finalised and the sum of $26,630.46 has been paid;

·    G Partners outstanding  liability to the Australian Taxation Office (“ATO”) which, based upon the husband’s advice, was accepted by Ms H, for the purposes of her report, to be $386,000 and a contingent liability for penalties imposed by the ATO for non-payment of those liabilities which Ms H estimated to be between $97,000 and $290,000;

·    Superannuation liability of $167,000;

·    Annual leave liability of $212,000; and

·    Long service leave liability of $120,000. 

57.Ms H’s evidence at the second hearing, in relation to the value of G Partners generally and particularly the deficiency which she identified as at 30 June 2013, was that:

·    normally when a business is operating at a loss, it can either be restructured to get it to at least break even and start making profits, or liquidate the business;

·    “…the value is essentially the value of the assets that are there, because if you were to continue operating you’ve at least got those debtors and creditors. It’s paying for itself in that respect…”;

·    the husband and his partners in this case opted to restructure and get the business back on a profitable footing; and

·    it was on that basis that the business was valued as a going concern and not on the basis of a liquidation.

58.It was Ms H’s evidence as to the value of the business that “…the value to the husband, as I see it at the moment, is [sic] basically gives him an income, so it gives him a salary that he may or may not otherwise be able to get. So I personally don’t believe that at this stage there is any value over and above that. In fact it does have a deficiency and that deficiency does have to be funded. And you’re quite right: part of that deficiency relates to those tax liabilities”. According to Ms H’s report, the husband’s income from the business for the financial year ending June 2013 was $168,000, with approximately $100,000 paid as salary and the balance by distributions of profit of approximately $62,000 to L Pty Ltd. The payments to the husband are the same as those paid to the salaried partners.

59.In response to my question about how that deficiency might be funded going forward, Ms H said that “[i]t may be funded going forward by the profits if it’s able to turn that around, but alternatively it may have to be funded by personal assets of some sort because a big chunk of those liabilities relate to the liabilities that are owed - way past owed, and I’m quite concerned with the fact that the ATO isn’t aware of those at the moment, or part of those costs, and the penalties could be significant on those”.

60.Although these matters were not canvassed during the first hearing, it would appear on the basis of the evidence given by Ms H during the second hearing that the $386,000 of outstanding taxation liabilities referred to in her report included both what I have described as the taxation liabilities and the superannuation liabilities. Ms H also did not identify in her report whether the estimated range of penalties were referable to the taxation liabilities or the superannuation liabilities. 

61.Significantly, in my view, it is clear from Ms H’s evidence at the second hearing that the business has been able to fund at least some of those liabilities since 30 June 2013, the date at which the partnership was valued. It is clear following the second hearing that the taxation liabilities, although not separately identified for the purposes of the first hearing, are those amounts relating to GST, PAYG, and amounts that should have been paid on behalf of employees of the business (“the taxation liability”). These amounts are referred to in the ATO portal documents annexed to the husband’s affidavit filed 7 April 2014. It is now agreed that this figure has gone from $114,402.15, which was the figure as at 13 August 2013 in annexure MPC-6 to the husband’s affidavit filed 7 April 2014, to $8,390 as at 16 September 2014. This was confirmed by Ms H.

62.The other liabilities of which the ATO is not aware and which Ms H included in her evidence are the liabilities with respect to the Superannuation Guarantee Charge (“the superannuation liability”). Ms H’s evidence, which was not the subject of challenge, was that there was no superannuation liability outstanding at separation. As at 30 June 2011 there was $28,000 outstanding; as at 30 June 2012 the figure was $102,000; and the amount owing as at 30 June 2013 was $167,000. The amount owing as at 30 June 2014 was $171,000. It was Ms H’s evidence that approximately $27,000 related to the husband personally. One would assume that if payments had been made on the husband’s behalf, they would be reflected in his superannuation entitlements for the purposes of the hearing before me. What this suggests is that either some of the amounts owing as at the date of the valuation have been paid, or that at the very least the business has paid all but for a small part of what it was required to pay for the period since the end of the 2013 financial year.  

63.Ms H gave evidence that she had been told by the husband that he has not made any approach to the ATO to address the outstanding Superannuation Guarantee Charges. She said that he told her that he could not do so until he understands his financial position based upon the outcome of these proceedings, and further that “…at the moment he doesn’t have the funds to be able to make any sort of arrangement with the ATO…”.

64.Ms H said that she could not say how the husband had made the payments reducing the taxation liability, or for that matter met the superannuation liabilities. However, it is in my view reasonable to infer that the business had the capacity to pay both outstanding and ongoing obligations from the income it generated. Although Ms H opined that the husband might be using his own personal finances, this would necessarily have to be from his salary or the distributions to L Pty Ltd which form part of the income he receives from the business. There is no evidence based upon which I could conclude that the husband has been using his salary or the distributions received by L Pty Ltd to meet the liabilities of the business during the relevant period. On that basis, I find on the balance of probabilities that, insofar as the taxation liability has been reduced and the superannuation liability has not increased since June 2013 when the business was valued, those payments have been made from income generated by the business.

65.During the course of the second hearing, the husband tendered a document setting out his estimate of the penalties referable to the outstanding superannuation liability.  Ms H confirmed, as best as she said she could on the basis of the information she had available to her, that this was an accurate estimate. The estimate for the four years during which the superannuation liabilities have not been paid is as follows:

Estimated Superannuation Penalties
2011	2012	2013	2014	Total
Outstanding super liability	$28,000	$102,000	$167,000	$171,000
Employees with unpaid entitlements	12	23	26	28
Administrative Fee	$20 per person per quarter	$3,840	$2,640	$480	$160	$7,120
Nominal Interest Rate	10 per cent pa of outstanding	$11,200	$22,200	$13,000	$400	$46,800
Part 7 - up to 200 per cent	Actual Client Case in May 2014 incurred 15 per cent	$4,200	$15,300	$25,050	$25,650	$70,200
Administrative Penalty	75 per cent of Part 7	$3,150	$11,475	$18,787.50	$19,237.50	$52,650
General Interest Charges	Currently prescribed at 10.67 per cent	$11,950.40	$23,687.40	$13,871	$426.80	$49,935.60
$226,705.60

66.Ms H’s evidence was that, at a minimum, the ATO would charge what is described in the schedule as the Nominal Interest Rate of 10 per cent added to the administrative fee, which together total $54,000. It was Ms H’s evidence that the other amounts were discretionary and that the ATO could impose lesser or greater penalties than those estimated by the husband. In her words it “could be nothing” or it “could be something”. Although Ms H was pressed by counsel for the husband to adopt the total figure in the schedule of $226,705 as the “probable liability”, she did not resile from her evidence that it could be more or less than the husband’s estimate.

67.Counsel for the husband included a figure of $5,938.07 (which he describes as interest incurred post June 2013 in relation to GST, PAYG and payroll) in the document titled “Calculation of Husband’s Settlement Proposal” to which I have already referred. However, the only reference in the evidence to interest that has been paid on the outstanding tax debt was Ms H’s evidence of her belief that the business had had to pay roughly $6,000. I note that although the ATO Tax Agent Portal itemised account was in evidence, it did not include the period after 13 August 2013. On that basis there is no evidence before me as to any penalties or interest incurred in relation to the taxation liability. In any event, even if penalties had been imposed, the balance of the taxation liability currently outstanding is $8,390.

68.Based upon the evidence now before me I find that:

·As at the date of separation the business had a taxation liability of approximately $33,000;

·As at 13 August 2013 that taxation liability amounted to approximately $114,000;

·As at 16 September 2014 the taxation liability had been reduced to $8,390;

·The figure of $8,390 does not include the amount of approximately $50,000 for the quarter ending June 2014;

·The business has had the capacity to pay all but $8,390 of the taxation liability as at 30 June 2013;

·At separation there was no superannuation liability;

·The business now has a superannuation liability of $171,000; and

·The business has had the capacity to either meet some part of the superannuation liability, or to meet almost all of its obligations to pay the Superannuation Guarantee Charges for the period 1 July 2013 to date.

69.Ms H said in her report that she had based her valuation upon the husband’s advice that there were outstanding obligations to the ATO of $386,000. She estimated the penalties and interest based upon that figure to be between $97,000 and $290,000. However, I am satisfied that as at the date of the second hearing, there were taxation liabilities of $8,390 and superannuation liabilities of $171,000, and that the range of penalties and interest referable to the superannuation liabilities was between $54,000 and $226,000.

70.Insofar as there is no dispute that as at the date of separation there was no outstanding superannuation liability, it follows that the parties were not exposed to either penalties or interest at that time. The taxation liability of $33,000 at separation related to the previous quarter and it follows that there was only limited, if any, exposure to penalties or interest at that time. It also follows that, apart from the taxation liability of approximately $33,000, these liabilities have all accumulated since the wife, whether it was willingly or because she was excluded from the operations of the business by the husband following separation, was no longer involved in the running or management of the business.

71.It was submitted on behalf of the husband during the third hearing and set out in husband’s updated Aide Memoire that, having regard to the evidence given by Ms H at the second hearing, the deficiency in the business should be calculated by substituting the actual VCAT payout figure of $26,630.46 for the contingent VCAT liability of $57,000 and a contingent tax liability of $232,643.67 for the figure of $290,000. This latter figure being the figure that was provided to Ms H by the husband for the purposes of the first report. Counsel for the husband calculated the figure of $232,643.67 on the basis of what he submitted was the evidence of a contingent superannuation liability of $226,705.61 and what he said was the $5,938.07 interest that had been incurred post 30 June 2013 in relation to GST, PAYG and payroll tax.

72.Leaving aside the problems associated with the substitution of updated figures into a valuation prepared as at 30 June 2013, I am not satisfied on the basis of Ms H’s evidence that there is any basis for or that it would be proper to substitute a figure at the upper end of what Ms H says is a range of penalties and interest referable to the superannuation liabilities of between $54,000 and $226,000. Counsel for the husband’s calculation also made no adjustment for the reduction in the other taxation liabilities referred to by Ms H during the course of the second hearing.

73.Whilst it is the husband’s case that the business was in some difficulty, a point that I will deal with in more detail later in these reasons, I am satisfied and find that the husband continued to receive his salary and received the benefit of the monies distributed to L Pty Ltd following separation, notwithstanding whatever problems were facing the business. As previously discussed, Ms H’s evidence was that the present value of the business to the husband was that it gave him an income which he might not otherwise be able to earn. I am mindful of the fact that although the husband must and does work to generate that income, it is generated in a business which was built up by the joint efforts of the parties during the marriage, and that the wife has been excluded from the business since separation and has no input into any decisions that have been made including what if any liabilities should be paid.

74.The way in which the husband puts his case means that he will not only have had, but will continue to have, the benefit of the income stream from the business, but that both he and the wife will be equally liable for the deficiency in the business which includes the outstanding taxation and superannuation liabilities and the unpaid annual leave and long service leave entitlements. This is irrespective of the fact that these liabilities, and in particular the taxation and superannuation liabilities, have arisen since the parties separated and, to some extent, significantly in my view, since the mortgagee sale of properties owned by O Equities and O Investments. The husband’s case is that this is just and equitable in circumstances where the business continued to pay the rent on the property it occupied which was owned by O Equities, albeit not always in a timely manner, and continued to make at least some of the necessary top up payments, both of which enabled O Equities and O Investments to continue to meet their mortgage commitments.

75.It is however also the case and not the subject of dispute that, when Westpac called in their loans and properties were sold, the business overdraft, which had a balance of $150,000 at that time, was paid out. There is also no dispute that when the parties were forced to refinance, some $135,000 of the money that the parties and/or their associated entities borrowed was applied to the payment of the business’s taxation liabilities.  

76.I am satisfied that in all of these circumstances, the wife has already made a significant contribution post separation to the business, the benefit of which is proposed to be retained by the husband. I accept counsel for the wife’s submission, although not necessarily for reasons he submitted, that in all of the circumstances it would not be just and equitable for the wife to bear equally with the husband the burden of the deficiency attributable to the taxation and superannuation liabilities identified by Ms H.  

77.In my view, it is similarly not appropriate that the wife should be responsible for the other liabilities that constitute the negative value of the business, such as the annual leave and long service leave. I note that the annual leave liability is relatively constant for the years ending 30 June 2010, 2011, 2012 and 2013, fluctuating marginally between $212,000 and $239,000. There is no evidence before me as to the current liability or what amounts are payable in the short term. The long service leave liability has reduced significantly over that same period from $213,000 as at 30 June 2010 to $120,000 as at 30 June 2013. Again there is no evidence before me as to what that liability is currently, nor as to what amounts may be payable in the short term. The business is not being liquidated and the figures that I do have suggest that the business has met its obligations on a going basis and there is no evidence to suggest that it will not continue to do so.

78.Given these issues and Ms H’s evidence during the second hearing, it is not surprising that there were some changes to the submissions made by counsel at the various hearings. Counsel for the wife’s final address for the purposes of the first hearing focused primarily on his case that there should be a significant adjustment in the wife’s favour by virtue of what he submitted was the husband’s reckless, negligent or wanton conduct, and the impact of that conduct upon the value of their assets. However those submissions were based upon an asset pool which took into account the negative value of the husband’s business.

79.At the conclusion of the second hearing, counsel for the wife submitted that the Court should attribute a nil value to the husband’s business, leaving him with the benefit of the income of the business but making no adjustment for the liabilities of the business.

80.Counsel for the wife submitted at the third hearing that the Court should attribute a positive value to the husband’s business based upon its value to him as owner rather than a nil value as previously submitted. He was not able to put a figure on what that value should be.

81.The concept of “value to owner” takes into account the benefit of ownership, albeit that it does not increase the market value as such and might not be available to a third party purchaser of the business. I accept Ms H’s evidence that the value of the business to the husband is that it gives him an income stream he might not otherwise have. However, as counsel for the wife ultimately conceded, there is no evidence based upon which I could ascribe a monetary value to the business based upon its value to the husband. 

82.The valuation of an ongoing concern such as the business in this cases, is of necessity, a snap shot of its value at a particular point of time. In this case that snapshot was taken almost two years ago. It is obvious that in that period circumstances will have changed. Somewhat unusually given the way in which this matter has proceeded, there is evidence in this case as to some of those changes. In this case whilst I am satisfied that the business has continued and will continue to be of value to the husband, I am also satisfied however that it is not a value that could or should be reflected in the list of property subject to orders and in those circumstances it is of no value to the wife. Nor in my view would it in those circumstances be just and equitable to include the negative value of the business, being, on the husband’s case at the third hearing, a deficiency of approximately $477,273.   

83.This then leads to the second issue relating to the way in which the Carlini Family Entities have been valued. Although Ms H valued each of the entities separately, she ultimately attributed a value to the Carlini Family Entities as a group as she was instructed to do. She arrived at this value by taking into account those individual values, including that of the Carlini Superannuation Fund and what is, in the case of both G Partners and L Pty Ltd, the negative equity. The difficulty with the entities being treated in this way is that although the husband seeks orders that he retain those entities in which he already has an interest and that the wife transfer all of the entities which she controls to the husband, and the wife seeks orders that she retain all of the entities in which she has an interest, those are not the only possible outcomes. In my view, in circumstances where the parties may be entitled to retain, or orders might be made in their favour with respect to, particular entities, it is appropriate for each of those entities to be included and valued separately, rather than including and attributing a value to the Carlini Family Entities as a group. Although the parties did not agree upon the value to be attributed to each of the entities, particularly the business, they did adopt this approach for the purposes of the third hearing.

D Street Mortgage

84.As previously mentioned, the matter was listed on a further occasion for a third hearing in relation to the inclusion in the husband’s balance sheet of the mortgage over the D Street property owned by the husband in the sum of $374,703. Although neither party took exception to the inclusion of the mortgage as a liability in the husband’s balance sheet, at the commencement of the third hearing, I brought to counsel’s attention that Ms H had accounted for the mortgage in her valuation of L Pty Ltd, and counsel for the husband conceded that there had been an error and that it should not be included in the balance sheet.

85.Counsel for the husband, in his Calculation of the Husband’s Settlement Proposal prepared in anticipation of the third hearing, also purported to exclude the value of the husband’s equity in the D Street property in the sum of $195,297. Counsel for the husband had prepared notes to accompany the document he had prepared, which may have addressed this as well as other issues. However, counsel for the wife objected to these notes forming part of the husband’s case in circumstances where – apart from the issues raised by me – his case had been closed. Counsel for the husband did not seek to re-open his case and in those circumstances I ruled that the narrative to the document he had prepared be struck out. The husband has not previously put his case on the basis that the equity should be excluded and, in circumstances where his counsel has not sought to re-open his case, there is no basis for the equity to be excluded from the pool. Even if he had sought to re-open his case it is difficult to understand on what basis it might have been excluded.

86.I am satisfied, based upon the parties’ agreed position and my findings with respect to those matters about which I was required to make findings, that the assets and liabilities of the parties for the purposes of the decision I must make are as follows:

ITEM
G Pty Ltd	$23,000
L Pty Ltd, including the value of the mortgage over D Street	($381,000)
O Equities	$1,511,000
O Investments	$4,000
P Street, Suburb C	$630,000
Q Street, Suburb R	$270,000
D Street, Suburb C	$570,000
Husband’s savings as at 15 May 2014	$40,722.56
Wife’s savings as at 1 May 2014	$5,480
Balance in Collards Solicitors Trust Account as at 12 May 2014	$3,524.85
Total property	$2,676,727.41
LIABILITIES
Amount owed by husband to M Partners	$13,482.56
Amount owed by wife to M Partners	$13,482.56
Mr U (owed by Husband)	$12,925
2014 State Revenue Office (Land Tax) re landholdings O Equities as at 16 May 2014	$29,272.50
2014 State Revenue Office (Land Tax) re P Street as at 1 May 2014	$741
Outstanding Water Rates for V Street, Suburb W, formerly registered in the name of O Investments Pty Ltd	$954
Outstanding Water Rates for X Street, Suburb Y, formerly registered in the name of O Equities Pty Ltd	$163
Outstanding 2014 Municipal Rates in respect of all properties registered in the name of O Equities Pty Ltd	$3,516
Outstanding 2014 Municipal Rates in respect of the P Street property	$418
Outstanding moneys due to Z Pty Ltd for O Equities Pty Ltd	$980
Total liabilities	$75,934.62
TOTAL PROPERTY EXCLUDING SUPERANNUATION	$2,600,792.79

The Parties’ Proposals

87.I had some difficulty following the basis upon which the parties, and particularly the wife, put their cases, having regard to the assets and liabilities they each sought be taken into account. Both parties also initially based their proposals upon the valuation of the various entities as a group, including the business, whereas I have found that it would not be just and equitable to do so. I will attempt to identify how that finding impacts upon their respective proposals.

88.The husband’s proposed orders made provision for the payment of capital gains tax in the event that it became necessary to sell the Suburb F property. The wife’s primary proposal was that she retain O Equities and O Investments. However, neither party addressed in any real sense what the taxation implications might be of transferring properties owned by those entities, or the entities themselves, to one or the other of the parties or other entities.  

The Husband

89.At the conclusion of the first hearing, the husband sought orders that required him to pay the wife $526,310 within 90 days of the judgment. He further proposed that within 14 days of the orders, the wife transfer all her shares in the Carlini Family Entities to him, together with her interest in P Street.  That minute further provided that, in the event that the husband could not make the payment of $526,310 within the 90 days, the Suburb F Street property registered in the name of O Equities be sold and (after payment of the costs of the sale and capital gains tax estimated to be $378,510) the proceeds be applied to the payment of the amount due and owing to the wife less her half share of the capital gains tax.

90.At the conclusion of the third hearing, the husband amended the minute of orders he sought on the basis of the new figures and proposed that the wife should retain her interest in the property at Q Street; the land at Suburb GG registered in the name of O Equities; her savings; and the money held in trust by her solicitors in the sum of $3,524.85. The husband further proposed that, pursuant to the wife retaining those interests, the wife would be responsible for her GE credit card liability of $5,485 and her MasterCard debt of $873, both amounts which I am satisfied should be excluded from the balance sheet, and the amount the husband asserts is owed by her to M Partners. On that basis, the husband proposed that he should pay her $339,882. The difference in the cash component is referable at least in part to the husband’s proposal that the wife retain the Suburb GG property valued at $320,000 and to what he said should be the exclusion of the husband’s equity in D Street. The husband in his “Aide Memoire 1 dated  19 January 2015” sought orders in the following terms:

(1)Husband to retain P Street, Suburb C - $630,000;

(2)Husband to retain D Street, Suburb C - $570,000;

(3)Husband to retain the Carlini Group of Companies as set out in the single expert report dated 10 February 2014 - $359,727. Husband to retain Carlini Group of Companies as follows:

(a)Value of G Partners (low value) – ($477,273);

(b)Balance of property as calculated by the single expert, Ms H, excluding related party loans and the Self-managed Superannuation Fund and including G Pty Ltd - $23,000;

(c)L Pty Ltd - ($381,000);

(d)O Equities Pty Ltd - $1,511,000, less value of Suburb GG land - $320,000 – Net $1,191,000; and

(e)O Investments Pty Ltd - $4,000.

(4)Husband to retain his German motor vehicle, including the associated debt – no equity;

(5)Husband to retain his savings - $40,722.56;

(6)Husband to be responsible for all liabilities, save and except the wife’s debt to M Partners and credit cards in her name – ($31,079.56);

(7)Husband to retain the personal creditors of the parties totalling $71,900 and other Group liabilities totalling $43,245 – ($115,145);

(8)Payment by husband to wife – ($339,881.86);

(9)Less equity in D Street property acquired by the husband post-separation ($195,297);

Equating to the husband retaining property – $919,046.14

(10) The superannuation interests of the parties be equalised and there be a superannuation split from the husband’s interest in the self-managed Superannuation Fund to the wife, on current figures, being the sum of $36,472.50 – $36,472.50.

91.It was submitted by the husband that this would result in an equal division of the property, based upon his balance sheet of what he submitted was their net asset position.

The Wife

92.The wife’s primary position was that the husband should retain the business; his interest in the D Street property; and L Pty Ltd, which has a negative value of $381,000 that is directly referable to the purchase of D Street. On the basis of the figures upon which the wife relied at the conclusion of the first hearing, the husband would be left with assets with a negative equity.

93.Counsel for the wife based his submissions on there being an adjustment in the region of 10 per cent of the value of the available property, on the basis of the husband’s greater income earning capacity, and a further 25 to 30 per cent loading for what he described as wastage.

94.In the alternative, counsel for the wife submitted that the wife should retain the Q Street property in which she resides and in which the husband and the wife have a half interest valued at $270,000; the P Street property which is registered in the wife’s name and which has been valued at $630,000; and the Suburb GG property which is valued at $320,000 and is registered in the name of O Equities. All three properties are unencumbered. On that basis the wife would be entitled to or retain real property with a total value of $1,220,000 her savings of $5,480 and would be liable for the amount she owes to M Partners and the liabilities associated with the properties she proposes to retain. The net value of the property she is to retain would on that basis be $1,210,839.

95.As I have previously mentioned, the wife’s submissions were based upon the figures contained in the husband’s balance sheet as it was at the conclusion of the first hearing, which included both the deficiency in the husband’s business which significantly reduced the value of what was described as the Carlini Family Entities, and the D Street mortgage. Counsel for the wife did not seek to modify the orders his client sought, notwithstanding his submissions that the business should at the very least have a nil value and that the D Street mortgage should be removed from the husband’s balance sheet.

Section 79(4) Contributions

96.In determining what order should be made, the Court must take into account the matters in s 79(4) of the Act. As part of that exercise, the Court must assess all of the parties’ contributions as provided in ss 79(4)(a), (b) and (c) of the Act. In this case, the parties agree that their contributions have been and should be treated by the Court as being equal. In my view the evidence supports that conclusion.

97.At the commencement of the marriage, the husband was qualified as an accountant and established his own business, where he worked throughout the marriage and continues to work to this day. The wife was employed throughout the marriage, for most of that time either full or part time in the administration of the business and their various investments and property developments. It was not the subject of any real dispute that it was the husband who was the instigator of, and who was predominantly responsible for, the acquisition, development, rental and sale of the commercial developments. The wife’s case was that she was the primary homemaker and bore a greater share of the responsibility for their daughter’s care, she would say leaving the husband free to develop the business and their other investment activities.

98.Although it was the husband’s case that since separation the daughter has lived with him for a greater proportion of the time than with the wife, and that he has taken primary responsibility for her financial support, it was not his case that his contributions post-separation should be given greater weight.

99.The parties were married for almost 27 years. As I have already discussed, although they do not agree as to exactly how much property they each brought to the marriage, it was not in any event significant. There is no dispute that the parties otherwise both contributed in their respective roles, both directly and indirectly, financially and non-financially, to build up the assets of the marriage, and as homemakers and parents both during the marriage and since separation, and I am satisfied that the property they each now own either solely, jointly or by entities they control is attributable to their joint efforts during the marriage.

100.In all of the circumstances I am satisfied that their contributions both during the marriage and post separation should be treated as being equal.

Section 75(2) Factors

101.Pursuant to s 79(4) of the Act, the Court must also take into account the matters in s 75(2) of the Act in so far as they are relevant to the circumstances of the case. It is these factors, and in particular the adjustment the wife submits should be made in her favour pursuant to s 75(2)(o) of the Act having regard to what she submits is the husband’s wastage and the husband’s greater income earning capacity, which accounted for the difference in the parties’ respective proposals.

Wastage

102.I propose to deal firstly with the issue of wastage as this was the primary area of contention in this case. Notwithstanding that the husband and the wife acknowledged the other’s contributions during the marriage, they each sought to attribute responsibility to the other for what counsel for the wife described as the “sinking of the ship”. Whilst they both agree that their financial position deteriorated, there is a significant difference between them as to why that occurred and what the consequences should be.  

103.The husband’s case is that there should be an equal division of the property based upon the parties’ respective contributions, notwithstanding his criticism of the wife’s conduct post-separation vis-à-vis the business and her management of O Equities and O Investments. The wife, on the other hand, submits that there should be a significant adjustment pursuant to s 75(2)(o) of the Act, having regard to what she says were the husband’s reckless, negligent and wanton actions.

104.Whilst there may be no place for either “negative contributions” or add-backs, there are cases in which the Court may have regard, pursuant to the provisions of s 75(2)(o) of the Act, to circumstances such as those described by Baker J in Kowaliw & Kowaliw (1981) FLC 91-092 at 76,644:

(a)where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or

(b)where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.

105.Baker J went on to say at 76,645:

If, on the other hand, losses of a financial kind have been suffered by the parties to a marriage in the course of the pursuit of matrimonial objectives, such as the gaining of income or the acquisition of assets whether the liability of such losses be joint or several then, in my view, such losses should be shared by the parties (although not necessarily equally) and taken into account when altering property interests.

106.Counsel for the wife, having particular regard to the words “although not necessarily equally”, further submitted that it was open to the Court to make orders which provided for the parties to share disproportionate responsibility for any losses that might have been incurred, even if the Court was not satisfied that the husband had embarked on a course of conduct designed to reduce or minimise the value of the matrimonial assets or had acted recklessly, wantonly or negligently to that effect.

107.I will turn first to counsel for the wife’s primary submission that the husband has acted recklessly, “…that is without heed to the consequences”, negligently “…that is without due and appropriate care, having regard to the interests of someone to whom you owe a duty” and wantonly, which he defined as being “…deliberate in the sense of being unprovoked”, and that the husband should be held responsible for the repeated delinquencies in the Westpac loan, which counsel submitted was the cause of the bank calling in its loans and exercising its rights and forcing the sale of some of the properties owned by O Equities and O Investments leading to what he described as the significant diminution in the parties’ wealth.

108.A time line helps put this evidence in context. The parties separated on 27 February 2010 when the husband vacated the former matrimonial home. On 28 March 2012, Westpac wrote to the husband and the wife, in their capacity as directors of G Partners, O Investments and O Equities, advising them of interest rate increases which were to take effect 30 days from the date of the letter. On 1 June 2012, Westpac forwarded a Notice of Default to the husband and wife. It is clear from that Notice of Default that Westpac had taken the action it did because loan accounts in the name of O Investments and O Equities were at this time in arrears, and further because a loan in the name of O Equities had not been repaid upon maturity. In July 2012, Westpac issued Notices of Demand with respect to all loans across the Carlini Family Entities. The wife deposes that by August 2012, various bank accounts had been frozen and Westpac was in control of the various properties which Westpac ultimately sold and applied the proceeds to the various loan accounts.

109.As previously described, during the marriage and following separation, the business operated out of the premises owned by O Equities at EE Street, Suburb F. O Equities used its rental income, including the rent paid to it by the business, to meet its loan repayments to Westpac. It was common ground that the rental income received by O Equities and O Investments was not sufficient to meet their loan commitments and L Pty Ltd was required to make top up payments on a regular basis.  The husband deposed in his affidavit filed on 7 April 2014, evidence which was not challenged by the wife, that “[t]he investment strategy of [the [V Street] factories] was that once the factories had been completed, they would be rented and a portion of the factories would be sold off to reduce the Westpac Banking Corporation debt in [O Investments Pty Ltd] and [O Equities Pty Ltd], as that debt was not sustainable and could not be serviced from income within the Group”.

110.It was the wife’s case that following separation the husband almost immediately “turned off the tap”, as demonstrated (she said) by both the chain of emails passing between the parties and his refusal to make the rental payments in a timely manner and the top up payments from income distributed to L Pty Ltd, and that those actions prevented the wife from making the necessary loan repayments to Westpac. The wife relied upon bank records which she said demonstrated that there had been funds available in either the G Partners accounts or the L Pty Ltd accounts or term deposits to make the necessary payments and that the husband’s failure to make those payments was conclusive evidence of his reckless, negligent or wanton conduct.

111.The wife deposed that “[b]y October 2010, it was obvious that [the husband] was not prepared to provide any funding whatsoever for the family assets side of our business” and relied in support of that assertion upon the undated handwritten note from the husband in which he said “[T]his will be last chq [sic] I will write to the Equities”.  Counsel for the wife ultimately conceded that this was not an accurate statement, and I am satisfied that following separation the business did continue to make rental payments, albeit not always in a timely manner. I am also satisfied that although the husband did continue to make payments to top up the income of O Equities and O Investments, such that they could meet their commitments, including their commitments to Westpac, those payments were not regular, not maintained at the same level as prior to separation and were not sufficient to meet their obligations, in particular their obligations to Westpac. That, however, does not of itself lead to the conclusion that the husband has acted recklessly, wantonly or negligently and that on that basis he should bear the responsibility for all or any of the losses that the wife submitted the parties had incurred.

112.There was no dispute that it was the income of the business which kept the Carlini Family Entities afloat. This included, but was not limited to, O Equities and O Investments, the entities upon which the wife’s case was focused. In my view it is somewhat simplistic, in circumstances where it is the income generated by the business that supports the whole edifice, to conclude that because there were funds in a particular account on a particular day that those funds could or should have been used to meet a particular loan repayment, which was the way in which the wife put her case.

113.This is particularly so in circumstances where, as the husband deposed, the profitability of the business had been declining for some years prior to separation - clients had been lost and others had not paid their accounts as they fell due, which the husband said impacted upon the business’s capacity to make the rental payments in a timely manner and to generate the necessary income to make the top up payments that had previously been made to support both O Equities and O Investments. I accept the husband’s evidence which is consistent with Ms H’s evidence that “…the business has historically generated losses with the losses increasing in 2013 due to excess employee numbers for the volume of work currently undertaken by the business”, and that it “... is unlikely that the business will generate more than break even.” Ms H also referred to the fact that the business had been “…suffering from a deficiency in cash flows and as a consequence had failed to meet its employee obligations including superannuation, PAYG and GST”.

114.The husband attributed this decline to the aftermath of the Global Financial Crisis. Ms H referred in cross-examination to the lagged effect of the Global Financial Crisis, which is consistent with the husband’s evidence. She also referred to the changing nature of, and challenges facing, small businesses such as G Partners.

115.The way in which the wife puts her case also tends to disregard that, although she concedes it to be the case, the husband and the wife and their various entities were under significant financial pressure even before their separation. Although they disagree as to the exact amounts, they did agree and I am satisfied that they had spent significant sums on the construction of the P Street property, which was to be their dream home, and substantial expenditure was still required in order to complete it. This was of course also funded by income generated by the business.

116.The wife’s case also disregards the evidence of both Ms H, the single expert witness, and Mr AA, the adversarial expert engaged by the wife (“the experts”). Both of the experts agreed that in 2010 the Carlini Family Entities did not have sufficient funds to service its Westpac loan obligations. Insofar as they also agreed that Carlini Family Entities had sufficient funds to meet those obligations in 2011 and 2012, the experts also said that the ability to do so “…occurred as a consequence of delaying the payments to the ATO”.  

117.The experts in their joint report dated 16 May 2014 further agreed as follows:

... that this was not sustainable and that it is possible that the banks calling in mortgage loans and conducting mortgage sales arose from:

·A review of the financial data for the group;

·A view by the bank that the group was overgeared;

·The loans potentially defaulting upon the issue by the ATO of a directors penalty notice in January 2012; and/or

118.The loans potentially defaulting upon the receipt of a Creditors Statutory Demand from the ATO in May 2012. On that basis of the evidence of the two experts I am satisfied that:

·The Carlini Family Entities had insufficient funds in 2010 to meet their Westpac loan repayments as and when they fell due;

·Even if they had had the funds in 2011 and 2012 to make those payments, those funds were available a result of delaying payments to the ATO;

·Delaying payments to the ATO was not sustainable; and

·Even if the husband had made the rental payments in a timely manner and continued the top up payments, it was in any event likely that Westpac would have called in its loans.

119.The experts in their joint statement also highlighted the fact that the Carlini Family Entities could have sold off additional properties in 2011 to reduce debt and interest costs, and to ensure timely payment to the ATO of both taxation and superannuation liabilities. It is the husband’s evidence that the wife did not co-operate sufficiently and resisted his suggestion that they would have to sell properties. This is not specifically denied by the wife. However, having heard the evidence of both the husband and the wife, I am satisfied that they were both reluctant to sell properties and sought refinancing to avoid having to do so. In any event, the focus of the wife’s case was not that the husband should have sold properties to avoid a financial disaster but that it was his failure to make the rental and top up payments that was the cause of the problem, and that the crisis would have been averted had he done so. This is not consistent with the evidence of the expert witnesses and I am satisfied, as set out in paragraphs 116 and 117 of my reasons, that the position of Carlini Family Entities was not sustainable. 

120.Counsel for the wife submitted that assets in the region of $8 to 10 million have now become $2 million. The husband attributed a net value of approximately   $5 million to the parties’ combined property as at the date of separation. Even if I were satisfied that the husband is responsible for the diminution of the parties’ assets, there is no evidence based upon which I could determine what those losses, if there were any, were, or if there were losses whether they are attributable to the forced sale of properties by Westpac itself or as a consequence of the bank calling in its loans. Although both the husband and the wife made assertions as to what they said their assets were prior to separation, including the business and the assets in the name of O Equities and O Investments, neither party adduced any evidence of value. 

121.The experts in their joint report dated 16 May 2014 agreed that as a consequence of Westpac calling in its loans, losses were incurred which they said were likely to comprise of the following:

·     Loss of value in forced sale of investment properties. This was calculated as the difference between the market value of the properties at or around the date of sale less the actual sale proceeds, less any CGT offset. The experts agree this amount to be approximately $188,000.

·     Loss of value in forced sale of investment properties. This was calculated as the difference between the market value of the properties at or around the date of sale less the actual proceeds, less any tax offset. The experts agree this amount to be approximately $200,000.

122.The experts also went on to note that:

...the wife has advised of costs of approximately $500,000 pertaining to the cost of refinancing/disposing of the properties. At the date of this joint report, we have not been provided evidence of these costs but have been advised by the wife that this information is available. Without proper review of the supporting documentation we cannot comment any further on these costs.

123.I have some difficulty with the evidence of the experts contained in the joint report with respect to this issue. It is difficult to see how, in the absence of evidence as to the market value of the various properties at the time of their sale, they could have concluded that any loss had been incurred. As previously mentioned neither the husband nor the wife adduced that evidence. I also note that the wife did not adduce any evidence as to costs of refinancing. In those circumstances it is not possible to conclude that there were any losses incurred. 

124.Although counsel for the wife conceded that I could have no confidence in the figures postulated by the experts in their joint report, he nonetheless submitted that “…considerable losses occur when banks force sales” and that I could take judicial notice “…that a forced sale is less likely to obtain the fair and clear market price than an ordinary sale…”.  

125.Section 144 of the Evidence Act provides that:

(1)Proof is not required about knowledge that is not reasonably open to question and is:

(a)common knowledge in the locality in which the proceeding is being held or generally; or

(b)capable of verification by reference to a document the authority of which cannot reasonably be questioned.

126.I do not agree that I can take judicial notice of the fact that a forced sale is less likely to obtain the fair and clear market price. In my view, this will depend upon many factors and is reasonably open to question. Arguably, a property could sell for more than the market value attributed to it depending upon the particular circumstances of that property and the market at the time. 

127.Each of the parties was, to some extent, critical of the other with respect to their failure to co-operate following separation. The husband’s criticisms of the wife included that:

·The wife sabotaged the running of the business by locking down the IT systems;

·There was a hiatus in the administration and management of the business following separation;

·He did not have an intimate or even sufficient knowledge of the affairs of O Equities and the other entities controlled by the wife;

·The wife, who was in control of O Equities and O Investments, would not respond to his requests for information; and

·The wife did not co-operate with respect to obtaining the necessary refinancing.

128.Counsel for the wife submitted that insofar as there was any reluctance on the wife’s part to provide the husband with the information he requested, there was no basis for the husband to question the wife’s integrity. Counsel for the wife further submitted that insofar as the husband sought to rely upon the wife’s conduct to explain his failure to make the payments she submitted should have been made, this was not an explanation the Court should accept for behaviour which counsel for the wife submitted was a tactic on the husband’s part to put pressure on the wife to settle the matter. 

129.The wife was also critical of the husband for having purchased the D Street property at a time when the parties were facing a financial crisis. The husband’s case was that the wife retained the sum of $82,000 at separation which she used for her own benefit and that he had used the money he retained at separation for the deposit on D Street. He also relied upon the fact that the money he had retained at separation and used for the D Street property is reflected in the schedule of assets and liabilities.

130.Whilst it is clearly the case that the husband could have used some of the money he used for the deposit on D Street to shore up the crumbling financial edifice of the Carlini Family Entities, I am satisfied the amount he used to purchase that property would not have been sufficient to avoid the bank stepping in. It is also arguable that the wife could have used some part of the money she retained at separation to do the same. Although it was the wife’s case that she used the funds she retained at separation to meet her living expenses, she was not able to offer any satisfactory explanation for the regular payments into her account shortly after separation notwithstanding that it was her case that she was not working at the time. It is also clear from the evidence that the wife retained at least some of the $82,000, although they would appear to have been transferred to different accounts for a significant period after separation which suggests that she may not have required those funds to meet her living expenses. The wife also deposed that she used the funds she had retained to meet some of the expenses of the entities she controlled. However, it was also her evidence that when she was required to use her own funds to meet the expenses of O Equities and O Investments, those payments she did make were reimbursed by those entities.

131.I am satisfied, having heard the evidence of the parties and having considered the emails passing between them, that the breakdown of their relationship brought to an end what had previously been a very co-operative working relationship, and that after separation there was a significant level of distrust between them, particularly on the wife’s part. I am not satisfied on the balance of probabilities that the lack of communication and co-operation rests solely with the husband or that, even if it did, it supports a conclusion that the husband acted recklessly, negligently or wantonly to the detriment of the parties, or that it was a calculated attempt by the husband to place pressure upon the wife.

132.I am not satisfied on the balance of probabilities that the husband’s conduct was reckless, negligent or wanton or that the losses, assuming there were any, are attributable to the husband’s conduct. The parties agree that they were overextended prior to the breakdown of the marriage. The pressure upon the parties’ finances was exacerbated by the costs of construction of the parties’ dream home. Although the wife relied upon the fact that the business had been named one of the top-earning medium-sized businesses of its type in the Melbourne metropolitan area, I am satisfied, based upon the evidence of the husband and the evidence of Ms H, that the business, which was, in the words of Ms H, the “cash cow” for the whole Carlini Family Entities, experienced a significant downturn because of the Global Financial Crisis; general factors affecting medium sized businesses of its kind; and as a result of the breakdown of the marriage itself.

133.I am not satisfied on the balance of probabilities that it is possible to identify any loss that has occurred or in those circumstances attribute responsibility for the losses the wife asserts have been incurred between the parties. Nor do I consider that it would be just and equitable to make an adjustment in the wife’s favour on the basis of what she submitted was the husband’s wastage.

Income Earning Capacity

134.It was submitted on behalf of the wife that the other significant difference between the parties’ respective positions was in relation to their incomes and income earning capacities.

135.The wife in her financial statement filed 1 May 2014 deposed to having an income from her employment as an administration, accounts and executive assistance of $1,120 per week or approximately $58,000 per annum. Counsel for the husband submitted, after quite lengthy cross-examination of the wife in relation to this issue, that the wife has a business degree and has the capacity to earn in the order of $100,000 per year. Although the wife’s evidence about the regular payments into her account shortly after separation was not clear and I am satisfied on the basis of her evidence that she may have some capacity to earn more than she is currently earning,   I am not satisfied  that she has the capacity to earn in the order of $100,000 per year. The husband, on the other hand, receives a salary of some $100,000 per year and the benefit of the distributions to L Pty Ltd, making a total of approximately $167,000 per annum. The husband has operated his business for approximately 30 years and, although the business experienced a downturn following the Global Financial Crisis and taking into account the challenges Ms H identified for small to medium-sized businesses, the evidence, particularly that of Ms H at the second hearing, suggests that the business may have recovered at least to some extent.

136.Whilst counsel for the wife relied primarily upon the parties’ respective income earning capacities, in my view, this is just one of a number of matters the Court must consider that are relevant in this case for the purposes of doing justice between these parties. Whilst it is correct that the objective of s 75(2) of the Act is not to equalise the parties positions, as Fogerty J said in Waters v Jurek (1995) FLC 92-635; 20 Fam LR 190, parties are left following separation in the personal situations that the circumstances of their marriage have assigned to them. In this case the wife performed an administrative role in the business, which the husband is to retain, and took greater responsibility for the welfare of the family. The parties in this case were married for some 27 years and the wife’s current employment appears to reflect the skills she has developed both during the marriage and since separation, based upon the decisions the parties made as to the division of their roles.

137.I have also had regard to the fact that I have found that although the business has a deficiency, the wife should not, in all of the circumstances, be responsible for any deficiency in the business. I am also satisfied that the business has a value to the husband in terms of his ongoing capacity to earn a good income, which will almost certainly stand him in good stead moving forward notwithstanding that deficiency.

138.I am satisfied that the orders that I propose to make will not have any significant impact upon the income earning capacities of either party. The wife has worked, on her case, since a matter of months after separation, she has many years of experience, her income has increased since she commenced employment following separation and there is no reason to expect that she will not continue in either that employment or employment of a similar kind for the foreseeable future.

139.The parties are otherwise of similar ages and neither have any significant health issues. That being said they are now in their mid-50s. That means that although the husband earns more than the wife, he is in the latter years of his career. Equally however, the wife is also less likely to forge a new career or, more importantly, have the means to significantly increase her income earning capacity. Her capacity to do so would appear to be based upon what the husband submits is her capacity to work longer hours. Neither of the parties is cohabitating with another person. Neither of the parties has any other property or financial resources not the subject of these proceedings, although I have had regard to the fact that at separation they each retained approximately $80,000, which is in the husband’s case, reflected in the value of D Street which is included in the balance sheet. The wife has continued to live in the property at Q Street in which the parties have a half interest. They parties agreed that they should have equal amounts of superannuation which, based upon the report of Ms H and the financial statements of each of the parties,  has a total combined value of $245,252.

140.There is one child of the parties’ marriage who is now an adult. She spends time with both of them. Although it is the husband’s case that he bears a greater part of the financial responsibility for this child, it is also the case that he has a greater income and therefore the capacity to do so. In any event, one would expect this child to be self-supporting in the not-too-distant future.

141.It is fair to say that neither of the parties has maintained the standard of living they enjoyed for much of the marriage.

142.Weighing up all these matters, I am satisfied that there should be an adjustment in the wife’s favour, having regard to the respective positions the parties are now in and how that will impact upon their positions in the future. Given the way in which the parties each put their case and the changes that have been necessary to the pool of assets available for division, it is appropriate to use percentages rather than a specified amount to be adjusted. Based upon my findings the value of the assets available, I am satisfied that it is just and equitable to make a  five per cent adjustment in favour of the wife, giving her 55 per cent of the property available for distribution, excluding superannuation, which is to be divided equally. In real terms based upon a pool of property available for distribution of $2,600,792, this represents a differential between the parties’ respective entitlements of approximately $260,000.

The Effect of The Proposed Orders

143.The net value of the property of the parties I have found to be available for division, excluding the liabilities in relation to which I propose to make specific orders for payment, is $2,600,792 in round figures. Based upon a division of 55 per cent of that property in the wife’s favour, having regard to the adjustment I have found to be appropriate, the wife would be entitled to $1,430,436 and the husband the balance of $1,170,356.

144.The difficulty in this case, given the parties’ respective proposals, is which properties should be retained by each of the parties, the mechanics of putting the orders into effect, and the tax implications of the orders.

145.The wife’s primary proposal was that she should retain all of her entities, which would include Suburb GG, P Street and her interest in Q Street. On that basis the wife would be retaining property with a net value of approximately $2,370,000. In order to do so the wife would need to pay the husband approximately $940,000. The difficulty with the wife’s proposal is that, although it was initially based upon a negative value of the business, it was also predicated upon the wife receiving a significantly greater adjustment in her favour pursuant to the s 75(2) factors. There is no evidence that would lead me to conclude that the wife has the capacity to make the payment that would be required to give effect to this proposal. In the alternative, she sought orders which would see her retain her interest in Q Street, Suburb GG and P Street.

146.Based upon my findings as to the balance sheet, the orders proposed by the husband result in the wife retaining the following property:

50 per cent interest in Q Street	$  270,000
Suburb GG	$  320,000
Wife’s savings	$     5,480
Balance in Collards Trust Account	$     3,524
Total	$  599,004

147.On the basis that the husband proposes that the wife transfer her interest in the various entities she controls and P Street to the husband, the liabilities of those entities and those associated with P Street would become the husband’s responsibility. The wife would remain responsible for the amount she owes to M Partners in the sum of $13,482, which means that she would receive a total of $585,522. On this basis, for the wife to receive her entitlements, the husband would be required to make a cash payment to the wife of approximately $845,000. If the wife were in addition to retain P Street which is unencumbered and is valued at $630,000 less the outstanding rates of $418 and Land Tax of $741, the husband would only need to pay the wife approximately $2,165,000. On that basis, she would take responsibility for and indemnify the husband with respect to the outstanding rates and land tax for P Street.

148.I have some reservations about the husband’s proposal that he retain all of the entities and P Street as he proposed, given that, in the event that he is unable to obtain the necessary finance to make the payment to the wife, he says he would be required to sell Suburb F.  According to Ms H, that sale would be likely to result in a capital gains tax of some $1,132,000. Although Ms H’s report referred to an estimated capital gains tax liability for O Equities of approximately $563,000, she did not break this down with respect to the individual properties owned by O Equities. It is clear from Ms H’s report, however, that there would be a significant capital gains tax liability incurred as a consequence of the sale of either Suburb F or P Street, more so in the case of P Street as O Equities has capital losses that could be set off against any capital gain on the sale of Suburb F. The capital gains tax liability referable to Suburb GG was, as the counsel for the husband identified in his Calculation of Settlement Proposal document, “negligible”.  

149.The amount the husband would be required to pay to the wife would be significantly less if the wife were to retain P Street and I am satisfied that it is in those circumstances less likely that he would be required to sell Suburb F thereby avoiding any capital gains tax liability which the husband submits should be the responsibility, and to the detriment, of both parties. I am satisfied that in all of the circumstances it is proper to make orders that the wife retain P Street in the hope that it will not be necessary to sell Suburb F for the purpose of giving effect to these orders.

150.It was otherwise not submitted by either party that there should be any provision made for any capital gains tax that might attach to a particular property, or entities, they proposed to retain. The effect of that is that firstly, the wife will retain both P Street and Suburb GG which will, in the event of their sale, be subject to capital gains tax, and secondly, the husband will, through the entities he controls, hold properties that are similarly subject to capital gains tax, albeit any capital gain will be offset against losses previously incurred by the relevant entity.

151.In all of the circumstances, I am satisfied that a just and equitable division of the property in this case is for the wife to retain her interests in Q Street, P Street and the Suburb GG property. On that basis, she would have to transfer her interest in the various entities, particularly O Equities, which owns the Suburb F property where the husband’s business is located, to the husband. There may be issues with respect to the mechanics of both the transfer of Suburb GG to the wife and the transfer of the wife’s interest in the various entities to the husband, possible tax implications of doing so , and that there may be a more tax effective option. On that basis, I propose to give the parties the opportunity to obtain advice and to make submissions with respect to the mechanics of the orders generally and any tax implications of those orders prior to pronouncing the orders.    

152.Neither party ultimately included their respective motor vehicles in the assets available for division. It was agreed that the wife would retain the European motor vehicle registered in the name of O Investments, and the husband would retain ownership of the German motor vehicle registered in his name. Each were to be responsible for any liability affecting their respective vehicles. Neither party addressed the question of the HH timeshare, save and except that the wife proposed that she transfer her interest in the timeshare to the husband. In all of the circumstances and given the paucity of the evidence and submissions, I assume that the husband does not oppose the order sought by the wife and I propose to make that order.

153.In her outline of case, the wife included what she described as her accrued employment entitlements, although she was unable to place a value on them. Neither she nor the husband sought any orders with respect to these benefits; however, in circumstances where there is a deficiency in the business which is made up at least in part by employee benefits – and I have attributed a nil value to the business, leaving the husband with the responsibility for that deficiency – I do not consider it would be just or equitable for the husband to have to pay the wife those entitlements. In those circumstances, I propose to make an order that the wife assign and forego any interest in those benefits and forego any claim she may have as an employee.

154.Finally, I note that the parties agree that there should be a superannuation split so that they each retain entitlements equivalent to half of the combined value of their respective entitlements.  The bulk of their superannuation entitlements is held in a self-managed fund, and it is that fund which is proposed to be split. On that basis, there will be no difficulty with the requirement that the trustees of the fund be afforded procedural fairness.

155.The orders I propose to make, subject to any submissions as to the form of the orders, are as follows:

(1)That O Equities Pty Ltd (ACN …) (“O Equities Pty Ltd”) and O Investments Pty Ltd (ACN …) (“O Investments Pty Ltd”) be joined as parties to these proceedings.

(2)That on or before 4.00 pm on (“the date”) the husband pay to the wife the sum of $216,073 (“the husband’s payment”).

(3)That contemporaneously with the husband’s payment  the wife both personally and in her capacity as a director of O Equities Pty Ltd and O Investments Pty Ltd forthwith do all acts and things and sign all necessary documents to:

(a)Transfer to the husband at the husband’s expense any shares in her name in:

(i)G Partners Pty Ltd, L Pty Ltd and G Pty Ltd (hereinafter referred to as “the husband’s companies”); and

(ii)O Investments Pty Ltd and O Equities Pty Ltd (hereinafter referred to as “the wife’s companies”);

(b)Tender her resignation as a director and shareholder of the husband’s companies and the wife’s companies;

(c)Disclaim any interest she may have as a beneficiary and/or creditor in the following trusts:

(i)L Pty Ltd Trust;

(ii)G Partners Unit Trust; and

(iii)O Family Trust.

(hereinafter referred to as “the Trusts”);

(d)Assign to the husband or his nominee, any credit loan accounts for unpaid present entitlements owing to the wife from the husband’s companies, the wife’s companies or any of the Trusts and assign to the husband any and all debit loan accounts owing by the wife solely or jointly by them in place of the wife;

(e)Release and discharge the appointors, guardian, trustees and directors and shareholders of the trustees of the Trusts from all claims and proceedings;

(f)Assign to the husband or his nominee any accrued employment related entitlements (including leave entitlements) payable to the wife by G Partners Pty Ltd;

(g)Relinquish all claims, interest and entitlements in respect of:

(i)the husband’s companies;

(ii)the wife’s companies;

(iii)the Trusts; and

(iv)any real property owned by the husband’s companies, the wife’s companies; and

(h)Deliver to the husband all documents in her possession or control with respect to the wife’s companies including but not limited to Trust Deeds, Corporate Registers, Financial Statements, bank records and computer software.

(4)That pending the transfers referred to in paragraph 3 hereof the wife be and is hereby restrained from:

(a)In any way dealing with, selling, encumbering or otherwise disposing of:

(i)her interest in the wife’s companies; and

(ii)any real property owned by the  wife’s companies;

(b)Doing anything which may cause the wife’s companies being placed into receivership or being liquidated;

(c)Incurring any other debts in the name of the wife’s companies; and/or

(d)Drawing down on any account in the name of the companies.

(5)That contemporaneously with the husband’s payment the husband:

(a)Transfer to the wife at the wife’s expense all his legal and equitable interest in the real property at  Q Street, Suburb R in the State of Victoria being the land more particularly described in Certificate of Title Volume 9591 Folio 048 (“the Suburb R property”);

(b)Provide to the wife Withdrawals of Caveats, in registrable form, lodged over the Suburb R property by the husband or on his behalf, being dealing numbers AH680775H and AJ790470A;

(c)Be responsible for and indemnify the wife and keep her indemnified with respect to unpaid liabilities, past, present, future and contingent of whatsoever nature and kind, including any and all monies due to the Australian Taxation Office with respect to the husband’s companies, the wife’s companies and the Trusts;

(d)Do all acts and things and sign all necessary documents to transfer to the wife at her expense the real property at FF Street, Suburb GG in the State of Victoria being the land more particularly described in Certificate of Title Volume … Folio … registered in the name of O Equities Pty Ltd as trustee of the O Family Trust;

(e)Do all acts and things and sign all necessary documents to transfer to the wife at her expense the European motor vehicle; and

(f)Authorise Collards Solicitors to forthwith pay to the wife monies held in trust by Collards Solicitors on behalf of the husband and the wife and forego any entitlement or claim he may have to the said monies held in trust.

(6)That in the event that the husband does not make the payment by the date, the wife within a further 14 days personally or in her capacity as a director of O Equities Pty Ltd forthwith do all acts and things necessary to place the property at EE Street, Suburb F in the State of Victoria being the land more particularly described in Certificate of Title Volume … Folio … (“Suburb F”) upon the market for sale upon such terms and conditions and reserve price as may be agreed by the parties and in default of agreement as determined by the President of the Real Estate Institute of Victoria or his/her nominee, and the proceeds of sale be applied as follows:

(a)In payment of all costs and expenses of sale, including all rate and tax adjustments and land tax;

(b)In discharge of the mortgage registered over the property in favour of Ascent Funds Management Ltd registered dealing number …;

(c)The parties to engage Ms H or such other accountant as may be agreed to calculate the capital gains tax payable upon the sale of Suburb F, such sum to be invested in an interest bearing account in the name of O Equities Pty Ltd and, pending completion and lodging of Income Tax returns for the relevant period and thereafter upon receipt of assessment paid to the Australian Taxation Office, any shortfall  to be paid by the husband and any balance outstanding after payment of the capital gains tax to be refunded to the husband;

(d)In payment of the husband’s payment outstanding or the balance thereof owing to the wife pursuant to paragraph 3 hereof together with interest thereon calculated in accordance with the Family Law Rules 2004 (Cth) from the date until the payment thereof; and

(e)The balance to be paid to O Equities Pty Ltd.

(7)That the wife forthwith do all acts and things and sign all documents necessary to transfer all of her right, title and interest in the HH Timeshare to the husband.

(8)That contemporaneously with the said transfer of the HH Timeshare to the husband pursuant to paragraph 7 hereof, the husband be responsible for and indemnify the wife and keep her indemnified with respect to all liabilities and outgoings with respect to the said Timeshare, including any arrears thereto.

(9)The husband and the wife shall, not later than seven days after the receipt in writing of any demand in writing for payment, each pay one half of any demand for payment, unless by agreement in writing they take whatever steps may be available to contest that debt, each of the:

(a)Mr S debt; 

(b)T Pty Ltd debt;and

(c)The debt owing to Mr U, Solicitor

(10)The husband shall indemnify the wife and keep her indemnified in relation to the debt owing to Mr U, Solicitor.

(11)That pursuant to s 90MT(1)(b) of the Family Law Act 1975 (Cth) (“the Act”), whenever a splittable payment within the meaning of s 90ME of the Act becomes payable to either party in respect of the superannuation interests of each in the Carlini Superannuation Fund (“the Fund”):

(a)The wife shall be entitled to be paid a percentage of the splittable payment being and comprising fifty per cent (50 per cent) of the total value of the parties’ superannuation entitlements as at the date of these orders (being all of the parties’ entitlements in the Fund and the wife’s entitlements in Australian Super) less the value of the wife’s entitlements in Australian Super as at the date of these orders, to effect equalisation of the total value of the parties’ entitlements in superannuation as at the date of these orders,  and there be a corresponding reduction in the entitlement of the person to whom the splittable payment would have been made but for this order; and

(b)The husband shall be entitled to be paid a specified percentage being fifty per cent (50 per cent) of the wife’s entitlement and there be a corresponding reduction in the entitlement of the person to whom the splittable payment would have been made but for this order.

(12)That paragraph 11 of these orders bind the Trustees of the Fund and these orders take effect from the operative date which, for the purposes of paragraph 11 of these orders, is four (4) business days after the date of service of these Orders upon the Trustee of the Fund.

(13)That following the implementation of the superannuation split referred to in paragraph 11  of these orders, on or before (“the date”), the husband and the wife forthwith do all acts and things and sign all documents necessary to roll over and transfer the wife’s entitlements to another compliant superannuation fund nominated by the wife (“the wife’s superannuation rollover”).

(14)That, on or before (“the date”) and subject always to the implementation of the superannuation split and the wife’s superannuation rollover, the husband and the wife personally and in their  capacity as  directors of the Fund, do all acts and things and sign all necessary documents, at the husband’s expense to:

(a)Transfer all of the wife’s shareholding in, and resign as director of and as office holder in, II Pty Ltd, the trustee of the Fund;

(b)Remove the wife as a member of the Fund; and

(c)Amend the Carlini Superannuation Fund Deed to reflect the removal of the wife as a member of the Fund.

(15)That until the happening of any of the following:

(a)The superannuation split to one party pursuant to paragraph 11 of these orders be rolled over into separate accounts in the names of each of the parties in the Fund; or

(b)The transfer or roll-over of the payment split into another superannuation fund nominated by each of the parties separately;

both parties be and are hereby restrained by themselves or their servants or agents from executing a death benefit nomination in favour of any person or doing any other act which would render any part of their respective interests in the Fund a “non-splittable payment” within the meaning of reg 12 or 13 of the Family Law (Superannuation) Regulations 2001 (Cth).

(16)That unless otherwise specified in these orders and save for the purposes of enforcing any monies due under these or any subsequent orders:

(a)Each party be solely entitled to the exclusion of the other to all other property (including choses-in-action) in the possession of such party as at the date of these orders;

(b)Each party forego any claims they may have to any superannuation benefits belonging to or earned by the other;

(c)Insurance policies remain the sole property of the beneficiary named therein;

(d)Each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to these orders; and

(e)Any joint tenancy of the parties in any real or personal estate is hereby expressly severed. 

I certify that the preceding one hundred and fifty-five (155) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Macmillan delivered 12 May 2015.

Associate: 

Date:  12 May 2015