Chandler & Sadler & Ors
[2020] FCCA 450
•6 March 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| CHANDLER & SADLER & ORS | [2020] FCCA 450 |
| Catchwords: FAMILY LAW – Property – where the husband was declared bankrupt two-and-a-half years after separation – where even at that time the parties’ assets outweighed their debts – where the husband takes responsibility for the current situation as it was his inaction that caused the debts, interest and Trustee in bankruptcy fees and charges to balloon so that the amount required to annul his bankruptcy now means that he will personally receive nothing from the property settlement – whether there ought to be two pools – whether certain debts are debts of the marriage. |
| Legislation: Bankruptcy Act 1966 (Cth) Family Law Act 1975 (Cth), ss.4(1), 75, 79, 90AE, 106A |
| Cases cited: Bevan & Bevan [2013] FamCAFC 116 Kowaliw (1981) FLC 92-092 Norbis [1986] HCA 17 Stanford v Stanford (2012) FLC 93-518 Trustee of the property of Lemnos (a bankrupt) v Lemnos (2009) 41 Fam LR 120 |
| Applicant: | MS CHANDLER |
| First Respondent: | MR SADLER |
| Second Respondents: | MR A & MR B |
| Intervenor | C LAWYERS |
| File Number: | MLC 9691 OF 2015 |
| Judgment of: | Judge Small |
| Hearing date: | 24-26 July 2019 |
| Date of Last Submission: | 26 July 2019 |
| Delivered at: | Melbourne |
| Delivered on: | 6 March 2020 |
REPRESENTATION
| Counsel for the Applicant: | Mr Arnold |
| Solicitors for the Applicant: | Rochelle Belcher Lawyers |
| Counsel for the First Respondent: | Self-represented |
| Solicitors for the First Respondent: | Self-represented |
| Counsel for the Second Respondents: | Mr Whitchurch |
| Solicitors for the Second Respondents: | Logie-Smith Lanyon Lawyers |
| Solicitor for the Intervenor | Ms D |
| Solicitors for the Intervenor | C Lawyers |
ORDERS
Within 14 days of the date of these Orders, Rochelle Belcher, Lawyer, shall disburse the funds held in trust for the parties as follows:
(a)first, the sum of $38,541 (“the husband’s payment”) shall be paid to Mr A & Mr B, the joint and several Trustees for the Bankrupt Estate of Mr Sadler (“the Trustees”);
and
(c)second, the balance shall be paid to the wife.
Contemporaneously with the husband’s payment, the husband shall do all such acts and things and sign all such documents as may be required to:
(a)transfer to the wife all his right, title and interest in the real property situated at and known as E Road, Suburb F in the State of Victoria (“the first real property”); and
(b)transfer to the wife all his right, title and interest in the real property situated at and known as G Street, Suburb F in the State of Victoria (“the second real property”) (“the transfers”).
Contemporaneously with the transfers the wife shall do all such acts and things and sign all such documents as may be required to discharge the mortgages held over the first and second real properties.
Notwithstanding the provisions of Order (2) above, and the Court considering it necessary to exercise the powers of the Court under s.106A(1) of the Family Law Act1975, if the husband fails to comply with his obligations under Order (2) hereof, a Registrar of the Federal Circuit Court of Australia at Melbourne shall be forthwith appointed to execute the transfer documents in the name of the husband and do all acts and things necessary to give validity and operation to the transfers and the transfer documents, and the Registrar shall be satisfied as to his or her authority under this order upon the complying party or his/her legal representative filing an Affidavit setting out the defaulting party’s failure to comply.
The wife shall retain for her own use and benefit, and to the exclusion of the husband:
(a)all her right, title and interest in motor vehicle H registered in her name;
(b)her Commonwealth Bank of Australia Cash Management Call Account and any other bank accounts held in her sole name;
(c)her superannuation entitlements; and
(d)her household effects.
The husband shall retain for his own use and benefit, and to the exclusion of the wife:
(a)all his right, title and interest in the business known as “Company I”, and he shall indemnify and keep indemnified the wife against any and all liabilities of that business;
(b)any bank accounts held in his sole name; and
(c)his superannuation entitlements.
The Trustees shall retain the funds they hold in trust pursuant to the Orders of 25 July 2019.
The husband shall be solely responsible for and indemnify the wife against all debts, costs and charges arising out of his obligations to the Trustees under the Bankruptcy Act 1966 (Cth).
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 shall 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)monies standing to the credit of the parties in any joint bank account are to be divided between the parties in the proportion of 85 per cent to the wife and 15 per cent to the Husband;
(c)insurance policies remain the sole property of the owner named thereon;
(d)each party shall 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;
(e)any joint tenancy of the parties in any real or personal estate is hereby expressly severed; and
(f)each party forgoes any claim they may have to any inheritances to which the other party is entitled either presently or in the future.
The Application in a Case filed by C Lawyers on 14 March 2017 is hereby dismissed.
All extant Applications are otherwise dismissed.
IT IS NOTED that publication of this judgment under the pseudonym Chandler & Sadler & Ors is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLC 9691 OF 2015
| MS CHANDLER |
Applicant
And
| MR SADLER |
First Respondent
And
| MR A & MR B |
Joint and Several Trustees of the Bankrupt Estate of Mr Sadler
And
| C LAWYERS |
Intervenor
REASONS FOR JUDGMENT
Introduction
This is a property matter arising from the breakdown of the marriage between Ms Chandler (“Ms Chandler” or “the wife”) and Mr Sadler (“Mr Sadler” or “the husband”).
I note that the wife also sought parenting orders in her Initiating Application filed on 15 October 2015, as did the husband in his Response filed on 14 December 2015.
Interim parenting orders were made by consent at the first hearing date of the matter on 16 December 2015, but there is no mention of parenting matters in subsequent orders. While the wife’s Trial Affidavit addresses the issue by setting out the history of the marriage, her Outline of Case Document filed on 22 July 2019, does not seek further parenting orders.
The husband personally filed nothing in these proceedings beyond his Response and affidavit filed on 14 December 2015.
Parenting matters do not appear to have been mentioned at the trial of the matter. In those circumstances, the Court has no choice but to dismiss all parenting Applications for want of prosecution.
The Second Respondents in this matter are Mr A and Mr B, who are the Joint and Several Trustees of the Bankrupt Estate of the husband (“the Trustees”).
The Intervenor is C Lawyers, Mr Sadler’s former solicitors (“C Lawyers”). C Lawyers obtained a judgment debt in the Court BB to recover outstanding legal fees and costs from the husband, and seeks to enforce that debt in these proceedings.
The Applicant asks the Court to essentially assign to her almost all the remaining available net assets of the parties, save for the sum of $100,000 which she proposes be paid to the Trustees from funds held in trust by her lawyer from the sale proceeds of the parties’ properties at J Road (“the J Road property”) and K Street, Suburb F (“the K Street property”) (“the funds in trust”).
The Trustees seek an order that would see them obtain the entirety of the funds in trust.
The Intervenor simply wants the money she is owed by the husband for unpaid legal fees and for which she has a judgment debt from the Court BB.
The issues to be decided in this matter, are:
A. Is it just and equitable to alter the parties’ property interests?
B. If it is just and equitable, what are the property interests of the parties and what is their value?
C. What were the parties’ contributions to the property?
D. Should there be an adjustment to the contribution-based entitlements of the parties after a consideration of the matters set out in s.75(2) of the Family Law Act 1975 (Cth) (“the Act”)?
E. In light of the above findings, what Orders should be made to effect a just and equitable division of property between the parties?
F. Should the debt the husband owes to C Lawyers take priority over the other creditors on whose behalf the Trustees administer the husband’s bankrupt estate?
Background
Ms Chandler was born on … 1968 and is now 51 years old. She is employed as a manager. She is in good health.
Mr Sadler was born … 1976 and is 44 years old. He is a qualified tradesman. He told the Court at trial that he was unemployed, but that he was performing some work on a casual basis. He is in good health.
The parties commenced a relationship in October 1998 and lived together from December 2000. They married on … 2004.
There is one child of the marriage, namely, X born … 2009 who is now 10 (“X”). He lives with his mother and, in theory, he spends time with his father pursuant to Interim Orders made by consent on 16 December 2015. He is in good health, save that he has counselling support in relation to his father’s inconsistency in adhering to those Orders.
The parties separated on 1 January 2015. The wife sought and obtained an Intervention Order against the husband on 10 July 2015.
The wife commenced these proceedings on 15 October 2015 when she filed an Initiating Application, a sworn Financial Statement and an Affidavit in support.
On 14 December 2015, the husband filed his Response seeking parenting orders, and that he be excused from particularising the property division sought until the Applicant wife provided disclosure. He also filed a sworn Financial Statement and an Affidavit in support.
The matter first came before me in the Duty List on 16 December 2015 when Interim Orders were made for both parenting and property matters.
On 4 May 2016, the parties attended a Conciliation Conference before Registrar L, but the matter did not resolve.
On 14 March 2017, C Lawyers, the solicitors who prepared the husband’s initial court documents and appeared on his behalf at the first hearing, filed an Application in a Case seeking to intervene as a party to the proceedings. C Lawyers sought the payment of their unpaid fees in the sum of $27,856.31 from the husband’s share of the ultimate property settlement.
At a Mention on 24 April 2017, the wife’s solicitor withdrew from the Court record and C Lawyers was joined to the proceedings as an Intervenor.
At that hearing, the wife and the husband were both unrepresented. They advised the Court that they had reached an agreement such that the husband would receive $212,000 upon the sale of two of the parties’ properties, and otherwise, the wife would keep the other two of their properties including the family home. I sent them away to seek legal advice and prepare consent minutes to that effect and adjourned the matter to 27 July 2017.
It must be said that if the parties had presented appropriate consent orders to the Court at that time, this matter would never have become so complex and indeed, it would have concluded on that day.
On 2 May 2017, the husband was declared bankrupt. Mr A and Mr B of M Accountants were appointed Joint and Several Trustees of the husband’s bankrupt estate.
The debt which triggered the bankruptcy appears to have been a credit card debt which had been assigned by the Commonwealth Bank to N Pty Ltd.
On 24 May 2017, the Trustees joined the proceedings in the place of the husband.
Even at that stage of proceedings, it appears that the husband’s bankruptcy could have been annulled, as, under the agreement the husband and wife say they made independently of the proceedings, the sale proceeds of the J Road and K Street properties provided net funds enough to pay all the husband’s debts, and would have left him with about $80,000 with which to start again.
However, the husband, by his own admission at trial, did little or nothing to pay his creditors in the two-and-a-half years between the date of separation and the date of his bankruptcy, and nor did he appropriately respond to the requests for documents sent to him by the Trustees at that time. As a result, the debts have remained, accruing charges, costs and interest, to the point where, according to a document tendered by the trustees at trial, the bankrupt estate was in debt by some $512,630 at that time. It will no doubt have accrued further charges, costs and interest in the period since the trial.
The J Road and K Street sales proceeds were placed in the trust account of the wife’s solicitor, Rochelle Belcher, Lawyer (“the funds in trust”) pending further order of the Court.
On 29 November 2017, the matter was adjourned for Final Hearing on 18 February 2019.
On 28 February 2018, the matter was listed for Mention after the Trustees approached chambers. Interim property orders were made by consent that the parties attend a private mediation. Otherwise, the matter remained listed for Final Hearing on 18 February 2019.
On 20 March 2018, all parties (save for C Lawyers) attended mediation but unfortunately the matter did not resolve.
On 18 February 2019, the Final Hearing was unable to be reached and was adjourned to a date to be fixed.
The Final Hearing was then listed on 24 July 2019 (with priority) for an estimated hearing time of 3 days. Witnesses included Ms Chandler, Mr Sadler and Mr B, one of the Trustees.
On 25 July 2019, I made interim orders to the effect that:
· both parties lodge their tax returns for the 2016-2017 financial year within 14 days of the date of those orders;
· the parties place the sum of $60,000 of the monies held in trust for the parties in the trust account of the wife’s solicitors into a separate trust account in the names of the parties, and that such monies be distributed as follows:
o first, to pay the Capital Gains Tax component of any income tax liability incurred by the wife for the 2016-2017 financial year; and
o the remainder to be paid to the husband’s Trustee in Bankruptcy, such monies to be held in trust for the parties pending written agreement among all parties, or further order of the Court.
· Within 14 days of the date of the Orders, the solicitors for the Second Respondent Trustee in Bankruptcy were to put the Australian Taxation Office (“the ATO”) on notice in relation to the Orders made on that day and the implication of those Orders for the ATO, and they were to file with the Court a copy of the document containing that notice.
· Should the ATO wish to be heard in these proceedings, and make submissions as to its priority as a creditor of the husband, it was ordered to make file and serve an Application in a Case and a supporting affidavit seeking to intervene in these proceedings by no later than 31 August 2019.
I also noted that if the ATO did not comply with the above orders, the Court would assume that the ATO did not intend to intervene in the proceedings to protect its interests in relation to the husband’s taxation liabilities.
On 26 July 2019, I made interim property orders by consent between the wife and the Trustees without opposition from the husband or the Intervenor, so that the wife and the Trustees each received $30,000 from the funds in trust by way of partial property settlement.
I otherwise reserved my decision.
On 16 August 2019, my chambers received an email from the lawyer for the Trustees to the effect that they had advised the ATO of the Court’s Orders of 25 July 2019. Attached to that email was an email from Ms O of the ATO, stating that: “the Deputy Commissioner of Taxation has reviewed the relevant material and does not intend to intervene in the proceeding”.
Issues and Evidence
It is not possible to refer to every fact and/or matter raised in the trial of these proceedings and nor is it necessary to do so. The parties should understand that I have had regard to the whole of the evidence, including my notes, the demeanour and evidence of the parties at trial, and the transcript of the trial on 24-26 July 2019, and if I have not referred to a particular fact or matter it does not mean that I have not considered it.
Issue A: Is it just and equitable to alter the parties’ property interests?
This question arises from the operation of s.79(2) of the Act, which states that a Court may only make orders adjusting the property interests of married parties if it is just and equitable to do so.
In Stanford v Stanford[1] the High Court of Australia stated, at paragraph 42:
“In many cases where an application is made for a property settlement order, the just and equitable requirement is readily satisfied by observing that, as the result of a choice made by one or both of the parties, the husband and 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 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. That is, any express or implicit assumption that the parties may have made to the effect that existing arrangements of marital property interests were sufficient or appropriate during the continuance of their marital relationship is brought to an end with the ending of the marital relationship. And the assumption that any adjustment to those interests could be effected consensually as needed or desired is also brought to an end. Hence it will be just and equitable that the court make a property settlement order. What order, if any, should then be made is determined by applying s. 79(4).”
[1] Stanford v Stanford (2012) FLC 93-518 (“Stanford”).
In Bevan & Bevan [2013] FamCAFC 116, the Full Court of the Family Court of Australia said that the circumstances described in that passage of the Stanford judgment “encapsulate the vast majority of cases”[2] .
[2] Bevan & Bevan [2013] FamCAFC 116 paragraph 70.
This case has an added complication because the husband is bankrupt. The Trustees therefore stand in the place of the husband in these proceedings.
That is because the definition of ‘matrimonial cause’ in s 4(1) of the Family Law Act 1975 (Cth) (“the Act”) sets out the jurisdiction of courts deciding cases under the Act and refers to proceedings between:
(i)a party to a marriage; and
(ii)the bankruptcy trustee of a bankrupt party to the marriage with respect to any vested bankruptcy property in relation to the bankrupt party.
In Trustee of the property of Lemnos (a bankrupt) v Lemnos (2009) 41 Fam LR 120 (“Lemnos”), the Full Court of the Family Court of Australia determined that:
a)The interests of the bankrupt’s unsecured creditors do not automatically prevail over the interests of the non-bankrupt spouse and nor do the interests of the non-bankrupt spouse prevail over the interests of unsecured creditors. The Court is required to balance the competing claims of the bankrupt spouse’s unsecured creditors and the non-bankrupt spouse having regard to the wide discretion conferred by s.79 of the Act […];
b)The claim of a non-bankrupt spouse pursuant to s.79(1)(b) of the Family Law Act is not of the same nature as the claim of an unsecured creditor who proves in the administration of the bankrupt spouse’s estate. The non-bankrupt spouse is not an unsecured creditor of the bankrupt spouse. Accordingly, s.108 of the Bankruptcy Act does not require the Court to treat the claim of a non-bankrupt spouse and the claims of a bankrupt spouse’s unsecured creditors equally. That is to say, the pari passu principle[3] does not apply when exercising the discretion conferred on the court by s.79(1)(b) of the Family Law Act […];
c)The Court may make orders in favour of a non-bankrupt spouse, even though the combined liabilities exceed the total value of the property (including property vested in the trustee) […];
d)In an appropriate case, the effect of the Court’s orders may have an adverse impact upon the rights of the bankrupt’s unsecured creditors […]
[3]“ pari passu: […] simultaneously and equally. Also, on an equal footing, without preference”. Shorter Oxford Dictionary.
Le Poer Trench J in Lemnos at first instance decided that he was required to consider the case before him “in the usual manner adopted for consideration of Part VIII property applications with exception that I am to treat all of the former property of the husband, now vested in the Trustee, as available for distribution to the wife if that be an appropriate result” (Lemnos at paragraph 62). The Full Court on appeal did not indicate that the approach taken by Le Poer Trench J was flawed or incorrect.
Subsections 79(12) and 79(13) of the Act provide that the bankrupt party to the marriage is not entitled to make a submission to the Court in connection with any vested bankruptcy property in relation to the bankrupt party except with the leave of the Court (which is only to be granted in exceptional circumstances).
The husband in this case did not seek such leave of the Court, although he was a witness at the trial, and he did not make any real submissions in relation to the property.
Decision: Issue A
In this case, the parties were married and acquired property which, because of their separation, can no longer be jointly enjoyed. There is nothing in the circumstances of the present case which would remove it from the category of “the vast majority of cases” coming before this Court save for the inclusion of the Trustees as parties, and, as I am able to treat them as standing in the shoes of the husband, I find that it is just and equitable to alter the parties’ property interests.
Issue B: If it is just and equitable, what are the property interests of the parties and what is their value?
During the trial, the parties came to some agreement about the property pool to be divided between them.
For instance, they agreed on the value of two real properties, and that each should receive a part property settlement of $30,000 immediately.
They also agreed that a sum of $105,000 should be “added back” to the property pool to account for, inter alia, the value of two cars the husband took at or shortly after separation, and two years’ worth of rent received by the husband from the real estate agent overseeing the tenancy of the K Street property.
The parties were in dispute about whether $98,000 in debts which form part of the husband’s bankrupt estate ought to be considered debts of the husband alone or debts of the marriage.
The Trustees say that all of those debts, which include the debt owed to C Lawyers, are the debts of the marriage, while the remainder are debts of the husband alone and therefore comprise part of the bankrupt estate of the husband.
The wife’s case is that very few, if any, of those debts are debts of the marriage, and the whole amount should be borne by the husband/the Trustees. Nevertheless, the wife’s proposal would see the Trustees being paid $100,000 from the funds in trust.
I cannot see how the debt to C Lawyers, incurred by the husband entirely after separation, can be considered a joint debt. It is certainly the case that I would not have allowed that sum to be “added back” to the property pool as a joint debt if he had paid it. I therefore consider that debt to be the husband’s alone and part of the husband’s estate in bankruptcy.
Clearly the costs of the husband’s bankruptcy, amounting to some $367,885 at the time of trial, cannot be debts of the wife.
According to the document tendered by the Trustees and headed “Bankrupt Estate of [Mr Sadler] – Estimated Annulment position as at 19 July 2019”, the provable debts which triggered the bankruptcy petition were, at the time of trial:
· $48,941.28 owed to N Pty Ltd for the husband’s credit card debt;
· $27,856.31 owed to C Lawyers for unpaid legal fees in these proceedings, and I note that that debt is a judgment debt;
· $25,409.41 owed to Company P – a debt of the husband’s business known as Company I (“Company I”);
· $23,732.28 owed to Q Finance for the lease of motor vehicle R which was repossessed because the husband, who took the car some months after separation, failed to pay the lease payments;
· $117.22 owed to S Finance for an unspecified item of property or performance;
and
· $1,770.00 owed to the Australian Taxation Office.
Those items total $127,826.50.
Counsel for the wife urged me to take a “two pool” approach to this settlement, and because of the fact and circumstances of the husband’s bankruptcy, I find it appropriate to do so in this case in order to calculate a settlement that is just and equitable in all the circumstances of this case.
The wife had no part in the husband’s bankruptcy. It was declared some two-and-a-half years after the parties separated, and the level of debt involved now is so much greater than it might have been because of the husband’s failure to act after the marriage broke down. In those circumstances the wife should not have to bear any responsibility for the consequences of the husband’s inaction.
Bank statements from the husband’s Commonwealth Bank (“CBA”) Mastercard and American Express Cards show that the balance owed at 9 January 2015 (the closest date to the date of separation specified in the statement) was $36,299.44.
The statements also reveal that the husband withdrew from those credit cards sums totalling at least $14,704 in cash between 21 October 2014 and 26 November 2014.
That was the time when the wife says the husband was spending significant amounts of money on gambling and drugs in the months before separation. She tendered a photograph at trial in support of those allegations, and I am satisfied, after hearing the husband’s evidence at trial, and on balance, that they are essentially true. I will therefore consider those sums to be the debt of the husband alone.
The costs and charges of the credit cards incurred by the husband/the Trustees since that date are also clearly debts of the husband and form part of the $48,941.28 owed at the time of trial.
The debts owed to Q Finance and Company P were incurred during the marriage.
The wife had the use of motor vehicle R during the marriage and would have considered it to be part of the parties’ property. However, at the date of separation, the lease payments were being paid on time, and the debt is only in existence at its current level because the husband failed to continue to make those payments after he took the vehicle some months after separation.
Therefore, that debt, too, is for the husband alone to bear.
The debt to Company P is a trade debt of the husband’s business Company I, but there appears to be little evidence about exactly when it was incurred. The wife had the benefit of the income from the husband’s business during the marriage, but again, the level of the debt is due entirely to the husband’s post-separation behaviour, and he must also bear that liability.
I do not know what the $117.22 owed to S Finance is for, although it is set out in the summary document tendered by the Trustees at trial, and I will therefore assume that it is a liability of the husband.
The $1,770 debt to the ATO is similarly unspecified and I will assume it to be a post-separation debt of the husband, although it was the evidence of the husband and the Trustees that the husband had not filed his tax returns for several years at the time of trial.
I will therefore divide the parties’ property pool such that the proven debts of the bankruptcy and the Trustees’ costs and charges are removed and borne by the husband alone.
Decision: Issue B
The property interests of the parties to be divided as a result of these proceedings may therefore be set out thus[4]:
[4] All figures are rounded up or down to the nearest dollar.
Assets
Owner
Value
Balance of sale proceeds from the sale of the J Road and K Street properties held in trust by Rochelle Belcher Lawyers (accounting for the funds removed pursuant to the Orders of 25 and 26 July 2019)
joint
$232,312
E Road, Suburb F (“the E Road property”)
wife
$710,000
G Street, Suburb F
joint
$595,000
Motor vehicle H
wife
$18,250[5]
Agreed addback at trial
husband
$105,000
The husband’s business
husband
$Not known
Cash Management Account
wife
$42,417
Household effects
wife
$6,000
Addback of monies ordered to be paid to the parties on 26 July 2019
joint
$60,000
Funds held in trust for the parties by the Trustees pursuant to Orders of 25 July 2019
joint
$37,800
Total non-superannuation assets
$1,806,779
Liabilities
Mortgage over E Road property
wife
$374,030
Mortgage against G Street property
joint
$182,670
Total liabilities
$556,700
Net non-superannuation assets
$1,250,079
Superannuation
wife
$138,885
Superannuation
husband
$19,974
Total net assets including superannuation
$1,408,938
[5] The parties agreed at trial to split the difference in the values provided by the wife and the Trustees being $17,000 and $19,500 respectively.
Issue C: What were the parties’ contributions to the property?
This question is mandated by s79(4) of the Act, which states:
s.79(4)
In considering what order (if any) should be made under this section in property settlement, the court shall take into account:
(a) the financial contribution made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(b) the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(c) the contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent; and
(d) the effect of any proposed order upon the earning capacity of either party to the marriage; and
(e) the matters referred to in subsection 75(2) so far as they are relevant; and
(f) any other order made under this Act affecting a party to the marriage or a child of the marriage; and
(g) any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.
Initial contributions
The parties began living together in December 2000.
At that time, Ms Chandler owned the G Street property, subject to a mortgage, and the husband owned a motor vehicle, which, he says, he later sold for $10,000 to buy an engagement ring for Ms Chandler.
Ms Chandler says she had saved $10,000 by the beginning of her cohabitation with Mr Sadler, and it is her uncontroverted evidence that she later applied those monies, together with accumulated interest of some $2,000 or so, toward the purchase of the E Road property.
It is not really disputed that the wife’s initial contributions to the parties’ property overwhelmingly outweigh those of the husband.
Contributions during the relationship and marriage
The wife lived at the G Street property for some months before the husband moved in in December 2000.
During the six years or so that the parties lived together in the G Street property, the wife paid all mortgage payments and the husband paid his share of the running costs of the household.
In February 2007, the parties purchased the E Road property “off the plan” and built the family home, with the husband contributing his skills as a tradesman.
It is the wife’s evidence that the purchase price was met partly by the mortgage, $5,000 in wedding gifts, and $4,000 given to the parties by her parents.
In order to purchase the E Road property, the G Street mortgage loan was refinanced and extended by about $162,000 and Mr Sadler’s name was added to the G Street title.
In addition, the parties obtained a Company T Line of Credit (“the Company T LoC”) from the Commonwealth Bank of Australia (“the CBA”) in order to purchase the E Road property.
It is the wife’s case that if she had not owned the G Street property, and added Mr Sadler’s name to the title, the husband would not have been able to obtain finance for the E Road property purchase.
I accept that as a significant contribution to the E Road property on the part of the wife.
The parties’ earnings were mostly deposited into the Company T LoC, and they paid for their living expenses, and some of the husband’s business expenses from that account as well. I will return to the Company T LoC in more detail later in these Reasons.
In 2009 the parties purchased and built the K Street property as an investment. The husband performed work in the construction of that property.
The K Street property was rented out, and the rent essentially covered the mortgage payments. The wife says that any shortfall was met by her.
X was born on … 2009, and the wife took maternity leave at that time, gradually going back to work from 3 to 4 days per week as X grew.
In 2011 the parties purchased the J Road property, also as an investment property. Again, the rent from that property covered its mortgage.
The husband worked throughout the relationship and marriage, first as a tradesman, and then, after engaging in some study, as a tradesman. He contributed a significant amount of his earnings to the parties’ Company T LoC account, at least until the period leading up to the separation of the parties on 1 January 2015.
It is the wife’s case that in the period leading up to the separation, the husband withdrew large amounts of money from the Company T LoC and his credit card accounts, and used those funds either for gambling or drug use.
I have already stated that the husband’s credit card statements show him withdrawing some $14,700 from his credit card accounts in cash in the month between 21 October and 26 November 2014.
The Company T LoC statements from the period between 31 December 2011 and 31 January 2019, also tendered by the Trustees at trial, show the following:
· Frequent but irregular internet transfer deposits of $1000 marked “Company I payment” until 11 September 2012, when those transfers, which totalled $70,000 in that 9 months, stopped abruptly.
· Two further significant deposits of $5,000 marked “Company I pay” and a cheque deposit of $3,302.65 on 21 September 2014, and $2,000 marked “Company I pay” on 3 October 2014.
· Monthly deposits from U Real Estate in Suburb V until 19 August 2015, when those deposits also stopped. Those payments are rent from the K Street property, although there are significant deposits both before and after 19 August 2015 marked “Landlord funds” and totalling $94,910 in the statement period.
· Those “Landlord funds” deposits are almost all transfers from Ms Chandler’s Cash Management Call Account, and a perusal of the statements of that account from 11 March 2012 to 11 September 2018 confirms that she was receiving deposits from W Real Estate Agents for the rent collected from tenants in the G Street and J Road properties, and transferring those monies to the Company T LoC.
· Mortgage loan repayments for the J Road and G Street properties were paid from the Company T LoC account.
· Regular fortnightly deposits from Company Y, the wife’s employer, from 3 July 2013 to 26 February 2014. After that date, Ms Chandler’s wages were deposited to her Cash Management Call Account, and it was her evidence at trial that she was worried about the amounts being withdrawn from the Company T LoC by the husband and wanted to safeguard her wages. She continued to transfer monies from her Cash Management Call Account to the Company T LoC.
· Significant deposits marked “AA-A” or “AA-B” or “AA lump sum”, and totalling $45,300 between 9 July 2013 and 11 September 2013. I assume “AA” is short for “Company I” and that these are deposits from the husband’s business account.
· On 26 November 2014, a transfer of $1,000 was made to an account ending in ..59. That transfer is marked “Loan to AA”, and I infer that it was Mr Sadler who made that transfer.
· On each of 3 December 2014 and 12 December 2014, a sum of $10,000 was transferred to an account ending in ..45, and it is the wife’s uncontroverted evidence that it was Mr Sadler who made those transfers.
Clearly, while the husband’s business was doing well, he applied his earnings to family finances, but it appears that he withdrew sums totalling $35,700 in the last months of the marriage and spent those sums for his own benefit. He also received rental payments from the K Street property from August 2015 until its sale in 2017.
While it is clear that some of the rental payments were transferred to the Company T LoC, there is a large gap in the information and evidence provided by Mr Sadler as to what happened to those monies.
It is not clear to the Court whether the wife is claiming that the husband “wasted” family funds during the marriage. There were conflicting statements made by counsel at trial in that regard, but for completeness, I will address that issue in brief.
It is pertinent to state, at this point, that it is my view that the husband’s acceptance, as part of the property pool, of “addbacks” of assets of which he had had the sole benefit since separation, does not preclude me from considering the husband’s behaviour in the current context of his contributions to that property pool. The two steps of settling the property pool and its value, and of calculating the contributions of the parties to that property pool, are separate tasks and involve separate processes.
In Kowaliw (1981) FLC 92-092 (“Kowaliw”) the Full Court of the Family Court of Australia (“the Full Court”) held, at paragraph 10, that:
‘financial losses incurred by the parties or either of them in the course of the marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(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.
In Norbis [1986] HCA 17 (“Norbis”), the High Court said that the principles stated in Kowaliv do not constitute any form of fixed code, and are merely a guideline for judges to use in the exercise of their discretion under s.79 of the Act.
In applying the Kowaliv guideline, I find, on the basis of the above evidence, that Mr Sadler did embark on a “course of conduct” in that he withdrew significant amounts of money from the parties’ joint Company T LoC and his credit cards over a three week period in the last months of the marriage, which “reduced or minimised the effective value or worth of the matrimonial assets”.
Nevertheless, and while no doubt a shock to the wife, those withdrawals were not excessive in my view in the context of the husband’s contributions to the property pool as a whole during the marriage.
In addition, I cannot find that he acted recklessly, negligently or wantonly with the parties’ assets during the marriage. He worked and contributed his income and his professional skills until the last couple of months, when he appears to have had some difficulty in relation to his marital and family obligations as a whole.
Throughout the relationship and marriage, the wife either worked outside the home, or worked inside the home looking after the household and X, or she worked outside the home as well as looking after the household and X. She applied her income, including Family Tax Benefits, to the family’s bank accounts, and administered the rental agreements with real estate agents to ensure that rental income was applied to the family’s debts.
In all of those circumstances, I find that the wife’s contributions during the marriage outweigh those of the husband, not because of any wastage on his part, but because she spent a significant part of the marriage working outside the family home, as well as looking after X and the household.
Post-separation contributions
It is not disputed between the parties that all post-separation positive contributions, whether financially to the parties’ property and to the cost of raising X, or non-financially in ensuring that mortgage loans were paid, or to the welfare of the family in that she has been X’s primary carer since separation, have been made by the wife.
The husband’s behaviour post separation, before his bankruptcy and since, is very relevant in this part of the Court’s deliberations.
The parties separated on 1 January 2015.
At that time, the husband left the family home and left the wife to organise the family’s finances, although he would say she had always done so.
He was working in his own business, Company I, and receiving the rent from the K Street property, which, for the first year or so he transferred to the Company T LoC account to pay the mortgage on that property.
As part of the negotiations between the parties at trial, the K Street rent that was not contributed to the Company T LoC account was considered to be part of the $105,000 “addback” that the parties agreed to.
When Mr Sadler was made bankrupt on … 2017, his provable debts in bankruptcy were about $127,000.
The parties had already agreed between themselves that the J Road and K Street properties would be sold and that Mr Sadler would retain $212,000 of the net sale proceeds. Ms Chandler would then retain both the E Road and G Street properties subject to their mortgages, and any funds left over from the sale proceeds of the J Road and K Street properties.
On 27 April 2017, I sent them off to draft consent minutes to that effect, but for reasons which are unclear to me, they did not do so, although I am aware that Mr Sadler was made bankrupt only days after that mention in this Court.
Nevertheless, the evidence of the Trustees is that they were confident at the date of their appointment that the bankruptcy would soon be annulled because the parties’ assets outweighed their liabilities.
At trial, Mr Sadler conceded that he had “put his head in the sand” in relation to both the breakdown of the marriage and the bankruptcy, and had not fully co-operated with the Trustees. He also explicitly took responsibility for the debts, interest and charges covered by the bankruptcy proceedings.
If he had made an arrangement with the Trustees and the wife to sell the two properties in mid-2017 and obtain the amount the parties had agreed upon, his bankruptcy would have been annulled at that time and he would have had almost $80,000 with which to start again.
That he did not do so is the great pity of these proceedings. The costs and charges now owing on what was originally a debt of less than $150,000, mean that he now owes more than $500,000.
I consider that his behaviour post separation in generally “letting things slide”, and in refusing to deal appropriately with his Trustees, fits the Kowaliv guideline in that he “has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.”
I therefore consider that he has made what are often called “negative contributions” to the parties’ property pool post separation, and that that “negative contribution” means that his overall contributions are considered to have been considerably less valuable than they otherwise would have been.
Decision: Issue C
When I consider all the overall contributions made by the parties, whether they be direct or indirect, financial or non-financial, I find that the wife has made contributions to the parties’ property in the proportion of 75% and the husband’s contributions have been in the proportion of 25%.
Issue D: Should there be an adjustment to the contribution-based entitlements of the parties after a consideration of the matters set out in s.75(2) of the Act?
Section 75(2) of the Act sets out the factors the Court must take into consideration when making orders for the maintenance of a party to a marriage.
The inclusion of this exercise in property proceedings is required by s.79(4)(e) (see paragraph 76 above) .
Section 75(2) of the Act states that the court must consider the following matters when deciding whether to further alter property interests of parties [6]:
[6] I have omitted sub-sections which do not apply to these parties
(a) the age and state of health of each of the parties; and
(b) the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment; and
(c) whether either party has the care or control of a child of the marriage who has not attained the age of 18 years; and
(d) commitments of each of the parties that are necessary to enable the party to support:
(i) himself or herself; and
(ii)a child or another person that the party has a duty to maintain; and
(e) the responsibilities of either party to support any other person; and
(f) subject to subsection (3), the eligibility of either party for a pension, allowance or benefit under:
(i) any law of the Commonwealth, of a State or Territory or of another country; or
(ii) any superannuation fund or scheme, whether the fund or scheme was established, or operates, within or outside Australia;
and the rate of any such pension, allowance or benefit being paid to either party; and
(g) where the parties have separated or divorced, a standard of living that in all the circumstances is reasonable; and
(h) the extent to which the payment of maintenance to the party whose maintenance is under consideration would increase the earning capacity of that party by enabling that party to undertake a course of education or training or to establish himself or herself in a business or otherwise to obtain an adequate income; and
(ha) the effect of any proposed order on the ability of a creditor of a party to recover the creditor's debt, so far as that effect is relevant; and
(j) the extent to which the party whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other party; and
(k) the duration of the marriage and the extent to which it has affected the earning capacity of the party whose maintenance is under consideration; and
(l) the need to protect a party who wishes to continue that party’s role as a parent; and
(m) if either party is cohabiting with another person—the financial circumstances relating to the cohabitation; and
(n) the terms of any order made or proposed to be made under section 79 in relation to:
(i) the property of the parties; and
(na) any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage; and
(o) any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account.
In this case, the husband is 44 years old and the wife is 51. Both are in reasonable health, although the husband says he cannot work full-time because of his distress over the breakdown of his marriage and his subsequent bankruptcy. There is absolutely no corroborating evidence for that claim, and at trial Mr Sadler told the Court he had been working casually for the previous several months.
The wife works full-time and is also in good health.
The parties own two real properties, both subject to mortgages.
While Ms Chandler currently earns more than Mr Sadler, both parties have the capacity for gainful employment. Mr Sadler is an undischarged bankrupt at this time but his bankruptcy period will expire in late June 2020. He will then be free to begin rebuilding his life.
The wife has the primary care of now 10-year-old X, and receives essentially no child support from the husband. The husband told the Court that he has bought X such items as an iPad and a laptop computer, but he has otherwise paid nothing for his son’s everyday upkeep, and that burden has fallen entirely on X’s mother.
The practical reality is that whatever orders I make for a division of the parties’ property, Mr Sadler himself will receive nothing, because any monies which would have been paid to him in this settlement must now be paid to the Trustees, whose accumulated costs and charges now exceed any settlement the husband will receive under the Act.
That also means that the Trustees are unlikely to be able to pay any of the husband’s creditors, as any amount they receive in these proceedings will disappear into their own administration costs and rights and obligations under the Bankruptcy Act 1966 (Cth).
I have not considered the husband’s behaviour in relation to the events leading up to and following his bankruptcy under s.75(2)(o), because I have already considered that behaviour when determining the parties’ post-separation contributions.
Decision: Issue D
When I consider all the factors set out in s.75(2) of the Act, I find that it is appropriate to make a further adjustment to the wife of 10%.
Issue E: In light of those findings, what Orders should be made to effect a just and equitable division of property between the parties?
The result of the above deliberations and findings is that the parties’ net assets will be divided such that the wife receives 85% and the husband 15%.
The pool to be divided between the parties consists of:
Assets
· the E Road property worth $710,000
· the G Street property worth of $595,000
· the remainder of the funds in trust in the sum of $232,312
· the sum of $60,000 from the funds in trust ordered to be paid to the parties on 26 July 2019
· the funds the Trustees hold in trust for the parties pursuant to the Orders of 25 July 2019 in the sum of $37,800
· the wife’s motor vehicle H worth $18,250
· the wife’s CBA Cash Management Call account worth $42,417
· the wife’s superannuation entitlements worth $138,885
· the wife’s household effects worth $6,000
· the $105,000 worth of property of which the husband has had the sole use and benefit
· the husband’s superannuation entitlements of $19,974
· the husband’s business known as Company I at an unknown value
Total assets $1,965,638
Liabilities
· the mortgage held against the E Road property in the sum of $374,030
· the mortgage held against the G Street property in the sum of $182,670
Total liabilities $556,700
Net assets $1,408,938
85% of $1,408,938 is $1,197,597, and 15 % is $211,341. Therefore, the wife should receive or retain property and entitlements worth $1,408,938 and the husband, in addition to the responsibility for the debts and costs of his bankruptcy, ought to receive $211,341.
The husband already has the $105,000 worth of property of which he has had the sole use and benefit, as well as his superannuation entitlements of $19,974 and Company I, whose value is unknown, total property worth at least $124,974. The Trustees already have the $30,000 paid from the funds in trust pursuant to the Orders of 26 July 2019, and $37,800 from the funds being held in trust for the parties by them pursuant to the Orders of 25 July 2019.
That is, the husband and the Trustees between them, as one entity for the purpose of these deliberations, already have property worth $192,774.
In order for him to receive 15% of the property pool as set out above, he/the Trustees then should receive another $18,567 from the funds in trust.
I am conscious, however, and counsel for the Trustees made this point at trial, that $19,974 of the husband’s property is in the form of superannuation entitlements which the husband cannot access until he retires, and to which, therefore, the Trustees have no access at all.
I therefore find it appropriate, in all the circumstances of this case, to add the sum of $19,694 to the amount otherwise payable to the Trustees as a result of this settlement. That is, the amount paid to the Trustees from the funds in trust will be $38,541.
Decision: Issue E
The wife will retain the E Road and G Street properties subject to their respective mortgages which she will have to refinance, her motor vehicle, her Cash Management Call account, her superannuation and entitlements; and her household effects. She will also receive the remainder of the funds in trust after the payment to the Trustees in the sum of $38,541, which will amount to $193,771.
The husband will retain Company I and his superannuation entitlements, and he/the Trustees will remain responsible for all the husband’s debts in bankruptcy.
Issue F: Should the debt the husband owes to C Lawyers take priority over the other creditors on whose behalf the Trustees administer the husband’s bankrupt estate?
C Lawyers, the husband’s lawyers until 7 June 2016, filed an Application in a Case, and a supporting affidavit on 14 March 2017.
On 21 October 2016, C Lawyers had obtained a judgment debt in the Court BB in the sum of $27,856.31 against the husband for his unpaid legal fees in these proceedings (“the judgment debt”).
In the Application in a Case, C Lawyers sought to intervene in the proceedings pursuant to s.92 of the Act, and that the husband pay C Lawyers, from his property settlement in these proceedings, the judgment debt plus interest, and the firm’s costs and expenses of these proceedings.
Ms CC, a principal of C Lawyers (“Ms CC”), swore an affidavit on 8 March 2017, that affidavit being filed on 14 March 2017 with the Application in a Case (“Ms CC’s affidavit”).
After setting out the evidence of the existence of the judgment debt, Ms CC deposes as follows:
9. On behalf of “the firm” I request leave to intervene in the proceedings between the husband and the wife relating to s.79 of the FLA proceedings and to become a party to these proceedings.
10. I say that it is necessary for the firm to intervene in these proceedings because when I completed Mr Sadler’s Financial Statement I noted that he had business debts totalling $104,000 and mortgage debts totalling $662,000, in total $776,000.
C Lawyers was joined to the proceedings as an Intervenor on 24 April 2017, when C Lawyers was granted permission to withdraw as Mr Sadler’s lawyers.
At trial, Ms CC represented C Lawyers, but took no part in the proceedings until the submissions stage – that is, she neither gave any oral evidence, nor cross-examined witnesses, and no other party sought to cross-examine C Lawyers.
Ms CC based her submissions on s.90AE(2)(a) of the Act, which states that in family law property settlement proceedings, the Court may make an order directing “a third party to do a thing in relation to the property of a party to the marriage”.
I accept that the Court has the power to make the Orders sought by C Lawyers, but as I said at trial, the question is whether C Lawyers’s claim should take priority over other creditors of the husband’s bankrupt estate.
Ms CC submitted that the husband’s other creditors in bankruptcy had been given notice of her claim in these proceedings, and referred in that regard to the Trustees’ Report to Creditors dated 26 July 2017.
Had I needed to be satisfied that such notice had been given to the husband’s other creditors in order to make the Orders C Lawyers seeks, I would have to say that, in my view, the Report to Creditors provides very little real notice of these proceedings and their implications to the creditors, although it does mention the proceedings and the next court date.
However, I find that I do not need to be so satisfied.
The debt to Ms CC was incurred in early 2016, before Mr Sadler was declared bankrupt. That is, that debt was “swept up” in the bankruptcy proceedings which began on 2 May 2017 and remains an unsecured liability in those proceedings.
In the Report to Creditors, the Trustees stated that they were confident that they would be able to annul Mr Sadler’s bankruptcy, as they calculated his assets as being worth $1,655,856, while his debts were estimated to be $1,577,982, an estimated net surplus of $77,874.
As we now know, Mr Sadler’s actions and inactions meant that that annulment did not happen at that time, and the debt to C Lawyers remains unpaid.
The Trustees, in their documents filed or tendered in these proceedings, attempted to have the Court find that the C Lawyers debt was a marital debt, but I cannot find that to be the case in circumstances where the debt was incurred more a year after separation. It is the debt of the husband alone.
I told Ms CC at trial that she was in an invidious position, in that she had provided services to the husband for which she had not paid.
However, while there is no doubt as to the existence or amount of the debt, the question for the court to consider is what priority it should take in these family law proceedings between the husband and the wife.
Ms CC made no submissions on that particular issue, and again, while I acknowledge that the Court has the power to make the order she seeks, I can think of no reason why the debt to her firm should take priority over any other unsecured creditor of the bankruptcy.
In those circumstances I decline to make the orders sought by C Lawyers, and the Application in a Case filed on 14 March 2017 will be dismissed.
Conclusion
This is a particularly sad case.
Until the parties’ separation, they were comfortably off, owning three investment properties and the family home, albeit subject to significant mortgage liabilities. Both were working full time and they were financially secure.
If they had enacted the agreement they came to in 2017, all the husband’s debts would have been paid and he would have been able to start again with some capital behind him.
As it now stands, the wife will retain and continue her administration of the finances in relation to the family home and the G Street investment property, and she will reap her fair share of the benefits from the sale proceeds of the other two investment properties so that the mortgage liability on the remaining properties might be reduced significantly.
The husband is forced to begin again with nothing, due almost entirely to his non-payment of his debts, and to his foolish inaction in the face of his bankruptcy in May 2017.
However, he is young enough and has the requisite qualifications to re-establish himself should he wish to do so, and his bankruptcy is likely to be discharged in late June 2020, leaving him free to rebuild his life.
I certify that the preceding one hundred and seventy-two (172) paragraphs are a true copy of the reasons for judgment of Judge Small
Date: 6 March 2020
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