Chorn & Hopkins
[2004] FamCA 633
•9 July 2004
[2004] FamCA 633
FAMILY LAW ACT 1975
IN THE FULL COURT
OF THE FAMILY COURT OF AUSTRALIA
AT SYDNEY Appeal No. EA 42 of 2003
File No. SYF 5537 of 2001
IN THE MATTER OF:
N H C
Appellant Husband
- and -
R C H
Respondent Wife
REASONS FOR JUDGMENT
CORAM: Finn, Kay and May JJ
DATE OF HEARING: 5 November 2003
DATE OF JUDGMENT: 9 July 2004
APPEAL SUMMARY
MATTER:NHC and RCH
APPEAL NUMBER: EA42 of 2003 (SYF5537 of 2001)
CORAM:Finn, Kay and May JJ
DATE OF HEARING: 5 November 2003
DATE OF ORDER: 9 July 2004
DATE OF JUDGMENT: 9 July 2004
CATCHWORDS: FAMILY LAW – APPEALS – Property Settlement – Whether post-separation expenditure correctly added back into the pool of assets on the basis of being a disbursement of “matrimonial property” – Whether funds used to pay legal fees correctly added back – Whether liabilities incurred in relation to post-separation expenditure added back should also be taken into account – Discussion of principles to be applied when determining whether to add back funds expended post-separation – Need to consider the source of the funds and the parties’ interests in those funds.
FAMILY LAW – APPEALS – Property settlement – Whether trial Judge’s assessment of initial and overall contributions of the parties correct – Whether trial Judge’s adjustments on the basis of s 75(2) factors correct – Whether order just and equitable.
Caselaw cited:
Townsend and Townsend (1995) FLC 92-569
Marker [1998] FamCA 42
Cerini [1998] FamCA 143
Farnell and Farnell (1996) FLC 92-681
Line (Appeal No. EA38 of 1996, 13 December 1996)
Atkinson (Appeal No. EA78 of 1997, 23 December 1997)
DJM v JLM (1998) FLC 92-816
C v C (1998) 23 FamLR 491
Ibrahim and Beavis [1999] FamCA 765
Gartner [2000] FamCA 793
Clifford and Lodge [2000] FamCA 1666
Finlayson [2002] FamCA 898
Appeal stood over pending receipt of further submissions.
Directions made for the filing of further submissions.
This is an appeal by the husband against an order for property settlement made by Rowlands J on 19 June 2003 in proceedings between the husband and the wife.
The effect of his Honour’s order was to divide the parties’ assets, which he found to have a net value of $681,955.00, in the proportions of 75% to the wife and 25% to the husband. This division was arrived at on the basis of an assessment of the parties’ contributions in the proportions of 62.5% to 37.5% in the wife’s favour, with a further adjustment of 12.5% in her favour on account of the matters contained in s 75(2) of the Family Law Act 1975 (“the Act”).
His Honour delivered his reasons for judgment on 10 April 2003. He made his order to give effect to those reasons on 19 June 2003. On 3 November 2003 he amended his order pursuant to the slip rule.
By his amended notice of appeal (filed 25 August 2003), the husband challenged his Honour’s calculation of the pool of property available for distribution between the parties (grounds 1, 2, 7, 8), his assessment of the parties’ contributions, (grounds 5, 6, 10, 11 and 13), the adjustment he made on account of the s 75 factors (ground 6) and the overall justice and equity of the order (grounds 4, 6 and 12). We will shortly consider the grounds of appeal directed to each of these matters, and in that context will consider his Honour’s reasoning (which was also the subject of criticism in ground 11) in relation to each matter which is the subject of challenge.
We note that grounds 3 and 9 in the amended notice of appeal were not pursued.
Before considering the grounds of appeal, we will set out briefly the factual background to this case as found by his Honour.
Brief factual background
The husband and the wife (who were aged 50 and 45 respectively at the time of the trial before Rowlands J) commenced to cohabit in about November 1992 and were married in October 1993. They separated in November 2000 and divorced in March 2002.
They have one child, a daughter, born in December 1994, who lives with the wife in the former matrimonial home, and has contact with the husband. He lives in a unit at Crows Nest.
Both parties were previously married.
The husband has two children, from his marriage to his former wife, who were about 5 and 2 when he commenced cohabitation with the wife in these proceedings.
The challenges to the calculation of the property pool
In his reasons for judgment his Honour set out the following schedule of his conclusions in relation to the assets and liabilities of the parties:
Assets
Husband’s value
Wife’s value
Finding
1. Husband’s Furniture & effects
$10,000.00
$10,000.00
$10,000.00
2. Husband’s miscellaneous items
$1,000.00
$1,000.00
$1,000.00
3. Centre for Corporate Strategy
Nil
Nil
Nil
4. M Pty Ltd
Nil
Nil
Nil
5. B Pty Ltd
Nil
Nil
Nil
6. Husband’s motor vehicle
$45,000.00
$45,000.00
$45,000.00
7. Husband’s business CSD
Nil
Nil
Nil
8. Jewellery (notional)
$28,000.00
$28,000.00
9. Money paid to solicitors by husband (added back)
$85,000.00
$85,000.00
$85,000.00
10. Westpac account (H)
$5,000.00
$5,000.00
$5,000.00
11. Chatswood property
$795,000.00
$795,000.00
$795,000.00
12. Wife’s household effects
$5,000.00
$5,000.00
$5,000.00
13. Wife’s deposit at bank etc
$5,000.00
$5,000.00
$5,000.00
14. Wife’s motor vehicle
$24,000.00
$24,000.00
$24,000.00
15. Wife’s interest in CM design
$500.00
$500.00
$500.00
16. Wife’s paid legal expenses (added back)
$36,000.00
$36,000.00
Total Assets
$1,039,500.00
Liabilities
Finding
(a) Bill facility
$129,017.00
(b) Mortgage loan M Pty Ltd
$73,378.00
(c) Loan
$46,117.00
(d) Unpaid income tax
(i) B Pty Ltd at June 2000
$16,595.00
(ii) B Pty Ltd at June 2001
$22,248.00
(iii) Interest B Pty Ltd 2000
$5,089.00
(iv) Husband 2001
$6,901.00
(e) Husband’s lease on motor vehicle
$55,000.00
(f) Husband’s debt to G, M, Accountants
$3,200.00
Total Liabilities
$357,545.00
Net Assets of the Parties
$681,955.00
After setting out this schedule, his Honour explained that there had been agreement between the parties in respect of all the assets listed except items 8, 9 and 16, and he went on to explain his approach to the items which were the subject of dispute. To the extent necessary we will refer to his Honour’s approach to these items when considering the relevant grounds of appeal.
In relation to the parties’ liabilities, his Honour explained that the parties were in agreement in relation to the sums involved in all of the items (a) to (f), and that he did not understand there to be any dispute concerning “the character of the items (a) and (b) as matrimonial liabilities.” However, in relation to items (c), (d), (e), and (f), his Honour went on to explain the disputes surrounding those liabilities and his conclusions in relation to those disputes. Again we will refer to his Honour’s conclusions in this regard where necessary when considering the grounds of appeal.
The jewellery / engagement ring
The husband’s first ground of appeal is directed to his Honour’s inclusion of the husband’s fiancé’s engagement ring as a notional asset of the husband in the schedule of property (as item 8 in that schedule). The precise terms of ground 1 are:
1.That His Honour erred as a matter of fact in adding back $28,000.00 for jewellery purchased by the husband for his fiancé contrary to the evidence of the husband and the fiancé. The fiancé had repaid this debt.
His Honour gave very brief reasons for including the value of the ring as notional property of the husband, saying only:
10.Looking first at Item 8. When the relationship between the parties faltered the husband courted a [Ms H] and purchased her an engagement ring. This has been retained. It appears appropriate to include the “disbursement” of matrimonial property in this fashion as an “addback”, in the circumstances; to be attributed to the husband.
The husband’s evidence concerning this item in his affidavit sworn 14 May 2002 was:
49.Subsequent to separation in the course of my meeting expenses I acquired on credit card an item of jewellery for a friend, [T.H.]. This item of jewellery was purchased on my credit card as a means of facilitating the purchase of the item of jewellery. [T.H.] repaid this credit card debit to my credit card.
In cross-examination (Transcript 5/11/02 p.40) the husband admitted that the item of jewellery was a ring worth $28,000 which he gave as a present to Ms H.
In her affidavit (sworn 31 October 2002) Ms H stated:
17.In or about July 2001 [the husband] gave me an engagement ring. The engagement ring was purchased with the assistance of his American Express card. During our relationship I made deposits into his American Express card accounts. The deposits came from funds that I held on deposit with the National Australia Bank Ltd in Australia….
…
27.During the course of my relationship with [the husband] as described above I deposited funds into credit card account and bank accounts that he operated. Additionally, I also paid for expenses on behalf of [the husband] and I withdrew funds from my personal account to provide cash payments to [the husband]. These payments equated to the sum of AUD$28,000.00. [The husband] agreed with me to repay those monies and that agreement was recorded in the Loan Agreement, a copy of which is annexed hereto and marked “D”. [The husband] has not made any payments to me pursuant to the terms of that Loan Agreement and given my relationship I do not anticipate that he ever will. Conversely, given my relationship with [the husband], I do not anticipate, not withstanding the terms of the annexed Loan Agreement that I will seek the recovery from him…
In her oral evidence Ms H confirmed that she had retained the ring (Transcript 5/11/02 p.49).
It would seem, as was submitted by Counsel for the husband, that when his Honour determined to include the value of the ring as notional property of the husband on the basis that it was a “disbursement” of matrimonial property, he did so having regard to the observations made by Nicholson CJ in Townsend and Townsend (1995) FLC 92-569 at 81,654. In that case the husband had, at about the time of separation, sold a taxi owned during the marriage and then spent the proceeds. Nicholson CJ (with whom Fogarty and Jordan JJ agreed) expressed the following opinion as the appropriate approach in such a situation:
In my view, what occurred in this case, as I said during the course of argument was, in fact, a premature distribution of a proportion of the matrimonial assets. What the husband did was to distribute to himself an asset in which the wife had a legitimate interest. In such circumstances I consider that it would be unjust in the extreme to simply treat such conduct by the husband as a matter to which regard should be had under section 75(2). It seems to me that the husband has had the benefit of that money. Had he retained, for example, the taxi licence instead of selling it, that would have been brought into account as an item of property which would have been dealt with in the same way as the remaining items of property in this case. Accordingly, I am of the view that the correct way in which to deal with the husband's receipt of those moneys is to bring them into the pool of assets on a notional basis and make a distribution accordingly.
It is important to bear in mind, and indeed should be emphasized, that in Townsend the Full Court was concerned only with the situation where between separation and the hearing of property settlement proceedings, one party has disposed of an asset which could be described as ‘a matrimonial asset’, in the sense that it was an asset which was owned by one or both of the parties at separation and in which the other party would have a legitimate interest, in that, for example, he or she had made a direct or indirect contribution to that asset. (We will refer later in these reasons to the principle which emerges from Townsend.)
In the present case, as Counsel for the husband submitted, the ring was purchased some eight months after separation. It was not purchased with funds which existed at or prior to separation but was purchased on credit. Further, the evidence (although, we acknowledge, somewhat vague) indicated that funds equivalent to the cost of the ring were paid to the husband by Ms H.
Thus it could not be said that the husband’s “gift” of the ring to Ms H constituted a distribution of matrimonial property. In our view his Honour was in error in so concluding, and in then proceeding to include the value of the ring as a notional asset of the husband. Thus ground 1 has been established.
We will refer again later in these reasons to the decision in Townsend, but we would in the present context draw attention to the following observations by later Full Courts:
2.11There seems to be no appropriate basis for notionally adding back moneys that existed at separation but which have been subsequently spent on meeting reasonably incurred necessary living expenses. Neither the Family Law Act nor the case law require that parties go into a state of suspended economic animation once their marriage breaks down pending the resolution of their financial arrangements. Parties are entitled to continue to provide for their own support. Whether any expenditure so incurred is reasonable or extravagant is a matter that can be determined by the trial Judge. (Marker [1998] FamCA 42, 1 May 1998, per Baker, Kay and Chisholm JJ.)
…
46.Whilst not seeking to place a fetter upon the exercise of discretion of a trial judge in individual cases, it seems to us that the concept of adding monies reasonably disposed of back into the pool ought to be the exception rather than the rule. The parties are entitled to reasonably conduct their affairs post-separation in a manner that is consistent with properly getting on with their lives. (Cerini [1998] FamCA 143, 8 October 1998, per Nicholson CJ, Ellis, Kay JJ.)
The parties’ legal fees
It will be seen from the trial Judge’s schedule of assets, that he “added back” as items 9 and 16 respectively, the money paid to solicitors by the husband, being $85,000, and the wife’s paid legal expenses, being $36,000.
Having commented that “there is confusion” in relation to the wife’s paid legal expenses (item 16), his Honour continued:
12. The evidence suggests that:
(a)The wife’s father paid $10,000 to her solicitors (see Exhibit W10, a receipt from Thorntons, Lawyers, dated 31 October 2002) and that this was part of a dividend otherwise payable to her from a family company wholly controlled by him (see Exhibit H13). The wife says, and I accept, that she received the balance of the dividend $5,100 and expended it on living expenses.
(b)The wife received in her account with St George on 15 November 2002 from the parties’ business account the sum of $16,000 (see Exhibit W10) and that subsequently about this sum was paid to solicitors for legal fees (see balance of account at 22 November 2002 – Exhibit W10);
(c)The wife paid her solicitors $5,472 (see Exhibit H14) on 9 April 2002 from the net proceeds of sale of land at Bruny Island purchased by her, (apparently with the husband’s consent) from monies raised on joint assets.
13.The wife’s counsel admits to the Court in final submissions that the wife has prepaid $36,000 in legal fees.
14.The husband’s counsel says that while there is evidence of the wife’s father paying for legal expenses ($10,000) there is no other satisfactory evidence of prepaid legal expenses and, accordingly, he does not contend for more.
15.In these circumstances I propose to add back $36,000 in total for the wife’s prepaid legal expenses acting primarily on the concession of her counsel, but noting also that the evidence referred to tends to support some $31,472 of that figure.
Then in relation to the husband’s legal fees his Honour observed:
16.The husband accepts that his legal fees, Item 9, were paid, in the sum of $85,000, prior to trial, although he does not accept that these should necessarily be “added back”. I think the increasingly accepted practice of adding such payments to asset (sic) should be followed here. The money clearly came from the business earnings.
Grounds 7 and 8 are directed to his Honour’s decision to “add back” as an asset the legal fees paid by the husband, and are in the following terms:
7.That His Honour erred in failing to bring to account as a liability the husband’s debt to the brother applied to pay legal fees when those fees were written back in the schedule of assets and liabilities.
8.That His Honour erred in writing back $85,000.00 worth of legal fees of the husband as those monies came from post separation borrowings or income earned post separation.
It will be seen that the husband makes two complaints regarding his Honour’s treatment of the legal expenses which he had already paid. One complaint is that there was any “add back” of the legal fees given that these monies came from income earned or borrowings made post-separation, and secondly that if the legal fees already paid were to be added back, then any borrowing in relation to those fees should have been taken into account as a liability in the calculation of the pool.
In relation to the inclusion of the husband’s legal fees as an asset, it was submitted by Counsel for the husband that there is no inflexible rule requiring paid legal costs to be “added back” as notional property, and that the origin of this approach seems to be Townsend’s case where (as we have earlier observed) the funds added back as notional property came from an asset which was “matrimonial property.” Counsel further submitted that there was no evidence in this case that any amount paid by way of legal costs came from funds acquired during the marriage.
We agree with Counsel for the husband that the origin of the approach whereby legal fees already paid can be added back as notional property, seems to be Townsend’s case (in particular the passage from the Chief Justice’s judgment which we have already quoted). Townsend’s case was not concerned with the treatment of legal fees and, as we have already emphasized, it was concerned only with the distribution of “matrimonial” property in existence at separation. Nevertheless that decision clearly had some influence on the subsequent Full Court decision in Farnell and Farnell (1996) FLC 92-681, which was directly concerned with the treatment of legal fees, and also on subsequent Full Court decisions concerned with that issue.
Authorities concerning the treatment of legal fees
The issues which arose for consideration in Farnell were explained by Fogarty J in his judgment in that case in the following way (at 83,065):
At the time of separation the parties held moneys in a joint account, those moneys having originated in the husband's compensation payment and/or interest arising from the investment of some of that money.
After separation the husband withdrew from the joint account $27,867 (virtually the whole of the moneys then in the account), paid it into an account into his own name, and then applied most of it to the payment of his legal costs. It appears from the husband's evidence at trial that he had paid $20,000 towards his legal costs. It is not clear from the evidence how the balance was spent. In addition, at trial the husband owed a further $7,000 for legal costs …
In the table of property set out above his Honour included as a ''notional asset'' the $27,867. The basis for doing that was that this was moneys taken from a joint account post separation and used solely for that party's benefit: see, for example, Townsend and Townsend (1995) FLC 92-569. His Honour was entitled to do that in the particular circumstances of this case provided he included in his assessment of the parties' respective contributions the circumstance that this money had originally come from the husband...
Mr Trench, in his submissions to us, did not seriously complain of that approach as such; his major submission was that the trial Judge refused to off-set that by treating the husband's total legal costs as a liability in calculating the net property of the parties. His Honour's reasons for refusing to do that appear in the following paragraph …
“Both Mr and Mrs Farnell have instanced expenditure and anticipated expenditure on account of legal fees. It is not appropriate to take these expenses and anticipated expenses into account at this time. If this course had been adopted, it would in effect have represented an imposition of costs one way or the other upon a party. If it is thought by either party that an order for costs should be made, then this should be the subject of a separate application.''
Then, having referred to the submissions made on behalf of both parties and to the problems generally associated with the treatment of legal costs in property settlement proceedings, Fogarty J continued (at 83,068):
My strong impression from sitting on appeals in a large number of property cases over the years is that the common or usual practice is that, unless the parties themselves choose to approach it another way, (a) the liability of the parties for costs is generally disregarded in the sense that they are not treated as liabilities to be deducted in order to arrive at the net property figure; (b) costs already paid are not generally added back as notional property unless the particular circumstances justify it (such as here); (c) the circumstance that each party does have legal costs needs to be taken into account in a general way in considering the overall impact of the orders on the parties; (d) the circumstance that the parties have or have paid legal costs is a basic factor in determining, at the conclusion of the proceedings, whether an order for costs should be made within the parameters of s. 117.
Ultimately Fogarty J concluded that the trial judge in Farnell was entitled to adopt the approach which he did (being, to take into account as a notional asset monies taken by the husband from a joint account and then largely applied towards legal costs, but otherwise not to take into account funds already expended or anticipated to be expended on legal fees by either party).
Kay J in his judgment in Farnell agreed that the approach adopted by the trial Judge was “well within discretion” (at 83,080). However, his Honour also said (at 83,080):
The notional inclusion of costs already paid on account, or the exclusion of costs owing as a liability, is in my view a proper exercise of judicial discretion and well within the normal method by which property cases should be determined. To make any allowance for the liability for costs as was suggested by Lee Steere, in my view necessarily requires a breach of s. 117(1)….In my view the proper time to considering (sic) the impact of costs is when considering applications under s. 117 after the proceedings have concluded.
The third member of the Full court in Farnell was Hilton J who agreed with Fogarty and Kay JJ that the appeal should be dismissed, but did not comment on the reasons of the other members of the bench.
Subsequent to Farnell, the issues of the treatment of legal fees and also of the treatment of assets or monies available at separation but subsequently used by one party prior to the hearing of property settlement proceedings, have been the subject of discussion in a considerable number of Full Court decisions.
In Line (Appeal No. EA38 of 1996, 13 December 1996) Murray, Lindemayer and Kay JJ said:
4.69The next ground addressed by counsel for the husband was ground 27, which is in these terms:-
“27.That Her Honour erred in adding an amount to the sum which the wife is to receive one-half of the sum of $38,000 which the husband has had access to for part of his legal costs.(Appeal Book p.100).”
4.70In support of this ground, it was submitted that it was inequitable to deal with the husband’s use of $38,000 from the funds available to him for the payment of his costs by quantifying a precise figure of $19,000 to be credited to the wife, when no similar mathematical approach had been adopted in relation to the husband’s support of the wife, including the provision of accommodation for her and the children from separation to trial. The husband claimed that he was providing a benefit of $500 per week to the wife during this period. This contribution was dealt with by her Honour in a global way when she evaluated the parties’ post-separation contributions, which she found to be equal. It was therefore submitted that her Honour should have dealt with the husband’s payment of his costs in the same manner.
4.71We do not accept those submissions. In the first place, her Honour clearly took into account the fact that the husband had made substantial contributions to the support of the wife post-separation when she decided to allow the current mortgage debt of $20,000 as the appropriate deduction, rather than the sum of $3,000 which was the level of that debt at separation. It was the husband’s drawings which had led to that increase. Furthermore, the cases of In the Marriage of Farnell (1995) 20 Fam.L.R. 513 and In the Marriage of Townsend (1994) 18 Fam.L.R. 505 are authority for the proposition that where, after separation, a party to proceedings under s.79 applies joint funds for his or her sole benefit those funds may be brought back to account in those proceedings as a distribution of property in favour of that party. Whilst it may not always be appropriate to do so in a given case, one circumstance in which we believe that it will almost invariably be appropriate so to do is where the relevant party has used the funds to pay all or part of his or her legal costs of the s.79 proceedings. To fail to bring it to account in those circumstances would be to require the other party to contribute to the costs of the first party without any order for costs having been made.
4.72In this case her Honour did not bring the $38,000 back into the pool of assets as a notional asset available for distribution, but increased the wife’s entitlement by one half of that sum as an appropriate adjustment under s.75(2)(o). We consider that, not only was that a course which was properly open to her Honour, but it was a course which is, perhaps, technically more correct than the “notional asset” approach. In any event, we reject this ground of appeal as without merit.
We read the Full Court as here saying no more than that where “joint funds” are used to pay legal costs, it will be appropriate to add-back the funds so expended as a notional asset.
In Atkinson (Appeal No. EA78 of 1997, 23 December 1997) Lindenmayer, Kay and Dessau JJ said:
14.5 The gravamen of the wife’s complaint in relation to legal costs was that the husband had already spent $63,000 on his legal costs and, and as at 5 August 1997 when he swore his most recent financial statement, his unpaid legal costs were estimated at $22,300. In contrast, as at 23 June 1997, the wife had paid out $3,853 in legal costs and had unpaid legal costs of $47,100. By the time of the trial before his Honour it was common ground that the wife had paid $21,000 towards her legal costs. The amount outstanding by her exceeded the amount outstanding by the husband. It was submitted to us and we think correctly, that his Honour failed to properly deal with the legal costs already paid by the parties. His Honour said:
Each of the parties made submissions to me on the relevance of the 1996 case of Farnell in which the full (sic) Court went to considerable lengths to detail a possible course of action in relation to legal costs. Having considered the matter it seems to me that I should take into account debts incurred by the parties even though those debts were largely incurred in legal costs. The fact is that the reason that legal costs were so high, related to the children rather than financial matters and the debts are simply a feature of the future in which these parties have to live their financial lives.
14.6 In Farnell there was a challenge to the propriety of Purvis J having ignored the parties’ liabilities for costs. His Honour had said:
It is not appropriate to take these (legal) expenses and anticipated expenses into account at this time. If this course had been adopted, it would in effect have represented an imposition of costs one way or the other upon a party. If it is thought by either party that an order for costs should be made, then this should be the subject of a separate application.
14.7The Full Court (coram Fogarty, Kay and Hilton JJ) stated that the trial Judge had approached the task in the correct way.
…
14.9There is nothing in the discussion in Farnell that seeks to differentiate between property cases and cases relating to children’s welfare. The principle remains sound. The issue of costs is usually dealt with via a s117 application.
14.10This case provides a clear example of why it is inappropriate and unfair to allow a debt incurred in paying legal costs as a deduction when calculating the net asset pool for division. The pool of assets here was to be divided equally. The husband had paid $63,000 towards his legal costs and the wife $21,000. The assets of the parties had thus been reduced in total by $84,000. The effect of allowing a deduction in respect of that $84,000 meant that the wife received $42,000 less than she would have otherwise received had the monies been in the pool. The net effect on the wife is that she is seen to be contributing $21,000 towards the husband’s costs (co-incidentally $21,000 being the costs she had incurred herself). In addition she was left with the burden of having to meet the balance of her legal expenses which exceeded those of the husband.
14.11Whilst, as the court pointed out in Farnell, the matter remains one of discretion for the trial Judge, that discretion has to be exercised in a manner which is just and equitable as between the parties. The result achieved in this case did not meet those criteria.
14.12In our view the amounts already expended on legal costs as between the parties ought to have been notionally added back into the pool of assets. This would increase the pool of assets, after making allowances for the arithmetical errors of the trial Judge, from $58,587 to $142,587.
This decision is not of particular assistance because it is unclear whether the funds already expended by the parties on legal fees were joint funds. It does however appear to support the proposition that post-separation borrowings to fund legal expenses should not be taken into account as a liability in calculating the net property of the parties.
In Marker (supra) Baker, Kay and Chisholm JJ said:
2.10It is well settled that save in exceptional circumstances a trial Judge should deal with the property as at the date of the hearing and make adjustments taking into account the various matters set out under s.79. (Wells v Wells (1977) FLC 90-285; Wardman v Hudson (1978) FLC 90-466; In the Marriage of Geyl 7 Fam LR 219) However, the particular justice of the case may make it appropriate to notionally add back assets which have been demonstrated to have been dissipated either during the marriage or post-separation. Normally it is necessary to demonstrate an appropriate basis for doing so, for example by wastage such as gambling or extravagant living. (Kowaliw v Kowaliw (1981) FLC 91-092; Fane-Thompson v Fane-Thompson (1981) FLC 91-053; Winnel v Winnel (1984) FLC 91-580; Townsend v Townsend (1995) FLC 92-569; Doherty v Doherty (1996) FLC 92-652) Additionally, because of the requirement for each party to bear their own costs, it is generally appropriate to add back to the pool of assets notionally any legal costs that have been spent on the litigation and to deal with the costs as a separate issue at the end of the litigation. (see Farnell(1996) FLC 92-681).
2.11There seems to be no appropriate basis for notionally adding back moneys that existed at separation but which have been subsequently spent on meeting reasonably incurred necessary living expenses. Neither the Family Law Act nor the case law require that parties go into a state of suspended economic animation once their marriage breaks down pending the resolution of their financial arrangements. Parties are entitled to continue to provide for their own support. Whether any expenditure so incurred is reasonable or extravagant is a matter that can be determined by the trial Judge.
We read the Full Court as here approving the adding back as a notional asset of monies in existence at separation which have subsequently been used to pay legal costs, although the Court cautioned against the adding back the use of such monies for reasonable living expenses.
In DJM v JLM 1998 (FLC) 92-816, Baker, Kay and Morgan JJ said:
11.3 Mr Bartfeld appears to concede in argument at trial (Appeal Book p. 1202) that it was proper for the trial Judge to add the $30,000 back into the pool of assets available for division between the parties. He said:
"I concede, your Honour. I am not trying to resile from my submission to your Honour in November. That will be added back and your Honour will deal with that in accordance with your Honour's added order."
11.4 In his reasons for judgment, Purdy J rejects an add-back of the monies on the basis that:
"Costs are a fact of life and both parties have undoubtedly been incurring heavy costs. It seems to me that to treat a sum undoubtedly paid to legal advisors by way of costs as property, defies logic and I intend to treat that sum as neither property nor an interim receipt of property by [the wife]."
11.5Whilst, strictly speaking, money already spent is not property available for division between the parties, it is nevertheless often appropriate to notionally add it back into the available pool in order to do justice between the parties…
11.6 For reasons set out in Farnell, s. 117 provides that each party to proceedings under the Family Law Act shall bear their own costs unless the Court otherwise orders. Failing to add back monies expended by parties on costs frequently has the effect of defeating the policy of s.117 by permitting the pool of available assets for distribution between the parties to be diminished by any monies that either of the parties have managed to spend on their costs up to the date of trial. We are of the view that the normal approach ought be to add costs already paid back into the pool. Whilst there may be cases where that approach is inappropriate, the reasons why it is not taken ought normally be spelt out. We see no reason advanced in this case as to why the costs paid should have been kept out of the pool. This is especially so in light of the costs order which followed requiring the husband to contribute substantially to the wife’s costs. Unless the $30,000 was treated as part of the parties’ property, the costs order had the effect of having the husband pay for costs which had already been allowed for by the refusal to bring these monies back into calculation.
It is important, in our view, when considering what was said by the Full Court in DJM concerning the adding back of legal fees, to bear in mind that the fees in question in that case had been paid for with funds which the husband had been ordered to release to the wife to enable her to prosecute the proceedings. The characterization of the released funds had apparently been left to the trial Judge. In those circumstances it could be expected that the fees would be added back.
In C v C (1998) 23 Fam LR 491 at 521, Baker, Kay and Burton JJ said:
[99]Under the heading for ground 5 the husband makes some attacks on the size of the pool finally determined by the trial judge. In particular, he pays attention to…
(a) the sum of $21,000 which the wife had already paid on account of legal costs;
…
[102]As to the pre-paid legal costs of the wife, while one would normally have expected to see them notionally added back into the pool, it would have been a proper exercise of discretion for them to have been excluded, given the exclusion of several of the husband's lesser assets: see Farnell (1995) 20 Fam LR 513; FLC 92-681. However, as no apparent reason was given for excluding this sum, we feel that it should have been included.
Again this decision is of little assistance since the source of the funds used by the wife to pay her legal fees is unclear. The decision does however emphasize the discretionary nature of the treatment of legal fees in property settlement decisions.
In Ibrahim and Beavis [1999] FamCA 765, Lindenmayer, Finn and Holden JJ said:
39.In written submissions, counsel for the appellant argued that the starting point should be to consider the property of the parties as at the date of the hearing, which would include savings even if earned subsequently to separation. It seems to us that that is exactly what his Honour did. He recognised that the wife did have savings of $6,000 and then, in paragraph 44 of his reasons for judgment, excluded that amount from the asset pool on the basis that they had been accumulated without any contribution from the husband at all.
40.His Honour performed exactly the same exercise with respect to the legal expenses paid by each of the parties. He found that the wife had spent $7,400 on legal fees and the husband, $1,400. Having made that finding, he then excluded those amounts from the asset pool on the basis that they had been paid from moneys acquired by each of the parties post-separation.
41.His Honour’s reasoning is to be found at paragraph 32 of his reasons for judgment. That paragraph reads as follows:
“32. There are clearly matters in which if the pool of assets is diminished by the payment of one side’s legal costs; the sum should be added back into the pool for distribution, notionally or otherwise. Not to do so would be unfair. Equally, as His Honour Justice Fogarty points out, it is necessary to take account of in a general way the fact that each party will have to pay legal costs if that is the case. But it is another thing altogether to determine that if one party from money accumulated after separation pays his or her legal fees with that money that this must necessarily be added back into the notional pool for the purposes of determining what the distribution is between the parties. In many cases, the sum so applied may well represent the accumulation of some years of joint contributions or contributions in whichever proportions may have been the case during the course of the marriage but in circumstances such as those applicable in the matter before me, it would be unjust and unfair to (in effect) require Ms Beavis to recredit amounts that she has paid for legal fees. I might add, the same is equally applicable to the money that Mr Ibrahim has paid.”
42.Counsel for the appellant argues that the manner in which his Honour treated legal fees paid by the wife was not in accordance with the principles laid down in Farnell v Farnell (1996) FLC 92-681. With respect, we are of the view that Farnell’s case does not stand for the proposition that moneys expended on legal fees must always be added back into the asset pool irrespective of when or how the moneys were accumulated to pay those fees. That case makes it quite clear that it is a matter within the discretion of the trial judge depending upon the particular facts of the case.
43.In our view, the manner in which his Honour treated the wife’s savings and the moneys she expended on legal fees was within a proper exercise of his discretion on the particular facts of this case, given that his Honour concluded that the husband had made no contribution to either of them. It follows that this ground of appeal must fail.
This decision establishes that in determining whether or not paid legal fees should in the exercise of the discretion be added back into the asset pool, it is necessary to consider when and how the funds used to pay the fees have been accumulated.
In Gartner [2000] FamCA 793, Kay, Holden & Mullane JJ said:
45. Before the Full Court Mr Spicer, for the respondent wife, drew our attention to the fact that at the hearing the evidence was that the husband had already spent $35,000 in legal costs of the family law proceedings and the wife had spent $16,000 on her costs. Mr Spicer submitted that if we re-exercise the discretion under s 79, this Court should notionally add those amounts back into the pool in calculating the alteration of property interests.
46. That submission was not made to the trial Judge and there was no evidence before the trial Judge as to the source of the funds used to pay the costs. They may have been paid by loans or gifts. Each of the parties referred to extensive loans from banks and individuals in their financial statements, all of which have apparently been incurred since separation and none of which were taken into account in calculating the pool of assets.
47. Whilst the principle the (sic) emerges from Farnell (1996) FLC 92-681 is that where prepayment of legal costs has the effect of depleting the pool of assets available for division, it is usual to notionally include those prepaid costs in the pool, such a finding is normally dependant upon evidence as to the source of the prepayment. In the absence of any such evidence it would be entirely speculative of this Court to guess where the monies came from. If this was an issue that was important it should have been raised at the trial by Counsel so that the Judge could have dealt with it and made the necessary findings. It is too late to raise it on appeal. (Suttor v Gundowda Pty Ltd (1950) 81 CLR 418).
Again this decision emphasizes the importance of the source of the funds used to pay the legal fees when determining whether paid legal fees should be added back.
In Clifford and Lodge [2000] FamCA 1666, Finn, Kay and Guest JJ said:
52.It will be seen from the table of the parties' assets and liabilities contained in his Honour's judgment … that his Honour included as assets the legal fees already paid by each party. There seems to be no argument but that it was open to him to do this.
53.There also seems to be no argument that the funds which the wife had used to pay her legal fees were part of substantial borrowings from her partner, Mr Whan.
54.The wife's case is therefore that having included the fees paid as an asset, the debt from which they were paid should have been included as a liability. There is no doubt some logic in that proposition. But the difficulty for the wife is that his Honour found that "any debt owing by the wife to Mr Whan is unlikely to be enforced by him, at least in the near future".
55.Although perhaps not immediately clear on the relevant ground of appeal as drafted, it was clear from the submissions of Counsel for the wife in support of that ground, that the real complaint in relation to this matter was that, given his Honour's finding that Mr Whan was a witness of truth, it was then not open to his Honour to ignore or reject Mr Whan’s evidence that he would require the monies lent to the wife to be repaid.
56.His Honour's reasoning in relation to the advances to the wife from Mr Whan was as follows:
“80. As noted above, the wife applied for a bank loan of $450,000 on 11 November 1997. In her application she did not mention the alleged debts to her mother or Mr Whan. Asked why, she said her mother's was an interest free loan, that it was a matter between her and her mother, and that the bank was interested in her ability to repay them, and the debt to her mother would not interfere with her ability to repay it. In my view this answer shows that the wife did not feel that the debt would be likely to be enforced by her mother, since if it had been, it would have interfered with her ability to repay the bank. As to Mr Whan's loan, she said she did not think of it at the time of completing the application.
…
82. Mr Whan's evidence was that his was an interest free loan, and that he had not discussed with the wife how it would be repaid. Asked whether he expected it to be repaid in the near future he said it depended on what options the wife had open to her and what decisions she made arising from the outcome of the case. Asked about his support for the wife, he indicated that it would in the future be limited by his capacity, but showed no sign that he was unwilling to continue to assist the wife to the extent that he could. It is hard to imagine, consistently with this, that he would be likely to enforce her debt to him. Given all the circumstances, including the fact that they are in a de facto relationship, I consider that any debt owing by the wife to Mr Whan is unlikely to be enforced by him, at least in the near future.”
57.Nothing to which we were taken in the evidence of Mr Whan would satisfy us that these conclusions were not open to his Honour, notwithstanding that he had earlier said that he accepted Mr Whan's evidence, finding him to be a frank and satisfactory witness.
58.We are also of the view that it was within his Honour’s discretion to disregard for the purpose of calculating the net value of the parties’ property, a debt which he had concluded would not be enforced “at least in the near future”.
We do not consider this decision to be of particular assistance for the reason that no issue apparently arose concerning the inclusion in the asset pool of legal fees paid from post-separation borrowings. However the decision does provide some support for the proposition that if paid legal fees are to be included as a notional asset, any outstanding liabilities relating to the funds used should also be taken into account.
In Finlayson [2002] FamCA 898, Lindenmayer, Finn and Boland JJ said:
345.If this were a payment of his legal costs of the proceedings from the husband’s own capital resources, it would be in accord with decisions of this Court, including Farnell and Farnell (1996) FLC 92-681 and Townsend and Townsend (1995) FLC 92-569 for the trial Judge to have included this as a “notional asset” in the hands of the husband for the purposes of the s.79 proceedings. If, on the other hand, this were a payment by the husband of his costs of the proceedings from funds borrowed by him from and still owing to a third party, the appropriate course would have been to disregard both the payment and the debt to the third party in calculating the total net property of the parties for the purpose of the s.79 proceedings. Alternatively, if the payment were brought to account as a “notional asset”, then the liability of the husband to repay the debt would also have to be taken into account in arriving at the net property of the spouses.
346.It was thus relevant for the trial Judge to consider and determine whether this payment of the husband’s costs from funds provided by Integrand was a payment by a third party creating a debt owing by the husband to it (as the husband asserted) or, in actuality, a payment by the husband from his own resources to be added back to the property pool as “notional property” prematurely distributed to him.
This decision appears to confirm the principle that where the payment of legal costs can be regarded as a premature distribution of funds (in which both parties have an interest), it is appropriate to add back those costs as a notional asset. It also confirms the principle that where funds have been borrowed to pay legal fees, and such liability is still outstanding, neither the payment of the fees nor the liability should be taken into account. The decision also supports the proposition that where it is determined that a payment of legal fees should be taken into account as a notional asset, any outstanding liability in respect of those fees should also be taken into account.
In summary, we consider that the above mentioned decisions of the Full Court establish that, while the treatment of funds used to pay legal costs remains ultimately a matter for the discretion of the trial Judge, in determining how to exercise that discretion, regard should be had to the source of the funds.
If the funds used existed at separation, and are such that both parties can be seen as having an interest in them (on account, for example, of contributions), then such funds should be added back as a notional asset of the party, who has had the benefit of them.
If funds used to pay legal fees have been generated by a party post-separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance), they would generally not be added back as a notional asset; nor would any borrowing undertaken by a party post-separation to pay legal fees be taken into account as a liability in the calculation of the net property of the parties. Funds generated from assets or businesses to which the other party had made a significant contribution or has an actual legal entitlement may need to be looked at differently from other post-separation income or acquisitions.
Outstanding legal fees themselves are generally not taken into account as a liability.
If in the exercise of the discretion, it is determined that legal fees already paid should be taken into account as a notional asset, then normally any liability associated with the acquisition of the monies used to pay the legal fees should also be taken into account.
Conclusion in relation to the parties’ legal fees
In light of our review of the authorities, we consider that his Honour, with respect, over-simplified the matter when he said in paragraph 16 of his judgment that there was an “increasingly accepted practice of adding” paid legal fees as an asset. Out of fairness to his Honour, it is true that he did refer to the source of the money used to pay the fees, saying that it “clearly came from business earnings.” However, we think that he needed to go further and satisfy himself that those earnings existed at separation or that the wife had some interest in them.
Furthermore, in light of our review of the authorities, there would seem to be substance in the husband’s complaint that if his Honour determined that the fees paid should be added back, he should also have deducted the liability incurred by the husband in borrowing to pay at least part of the fees – although the evidence as to how much of the payment for legal fees was borrowed is not entirely clear (see paragraph 44 of the husband’s affidavit sworn 14 May 2002).
In considering his Honour’s approach to the husband’s paid legal fees, it needs to be borne in mind that his Honour also added back as a notional asset the wife’s paid legal fees of some $36,000. It would seem, from what his Honour said at paragraph 12 (b) and (c) of his judgment, that the bulk of the wife’s paid legal fees could be sourced to “joint” property and thus properly added back. However, the position would seem to be otherwise in relation to the dividend from her father’s company referred to in paragraph 12(a) of his Honour’s judgment. But there is no cross appeal by the wife.
On balance, we consider that given the treatment of the wife’s paid legal costs (particularly to the extent that they could be sourced to the dividend from her father’s company), it was open to his Honour to include the paid legal expenses of the husband. He was, however, in error in not having some regard to the liability incurred for the purposes of paying those fees, although as we have indicated the evidence in relation to that matter was not entirely satisfactory. Thus, we are prepared to conclude that grounds 7 and 8 have some substance. However, we would only be prepared to interfere to the extent that the liability incurred by the husband to pay the fees should be taken into account; but we would require submissions as to the exact amount of that liability.
The tax debts
It appears that before his Honour, the husband claimed that the following taxation liabilities (which appear in a document marked “Z”) should be taken into account in the calculation of the net value of the property available for distribution between the parties:
Unpaid Income Tax
27. [B] Pty Ltd June 2000
$16,595.44
28. [B] Pty Ltd June 2001
$22,298.02
29. Instalment Statement 9/01
$11,199.00:
$7,847.00
30. Interest [B] 2000
$5,089.92
31. [The husband] June 2001
$6,901.47
32. Instalment Statement [C] 9/01
$5,349.00
33. Interest [C] 2001
$1,107.68
34. Interest [C] to 9/2001
$130.84
Total tax & interest = $68,585.37
However, in his schedule of liabilities drawn for the purpose of calculating the net property of the parties, his Honour included only the following tax liabilities (as item (d)):
(d)
Unpaid income tax
(i) [B] Pty Ltd at June 2000
$16,595.00
(ii) [B] Pty Ltd at June 2001
$22,248.00
(iii) Interest [B] Pty Ltd 2000
$5,089.00
(iv) [The husband] 2001
$6,901.00
His Honour explained his reasons for excluding the items numbered 29, 32, 33 and 34 in the following terms:
23.Item (d) concerns tax liabilities of the business operated by the parties (the wife finally resigned in August 2001 although she had little influence in its affairs after separation). It also includes tax on income from the business received by the husband.
24.In the course of her evidence the wife accepted a proportionate responsibility for the unpaid income tax in respect to the business entities for the period prior to separation but not thereafter. A tax debt is one often payable, by practice, within a period of months after the period for which it is assessed e.g. tax for the period to the end of 2000 may not be reasonably payable until months thereafter including to early in the year 2001. If the husband, managing the business, makes payments after that time it is not appropriate to require the wife to join him in responsibility. (His duty was to pay the tax prior thereto.) Nor should she for interest on unpaid tax after 2000.
25.Accepting that separation took place at the end of 2000 and adopting the approach discussed, it would appear appropriate to include those unpaid tax liabilities being (d)(i), (ii), (iii) and (iv) but not the others as joint liabilities. The other unpaid tax items relate to liabilities which are both post separation and particularly within the husband’s province. These included items 29, 30, 32, 33 and 34 in the Joint Assets and Liabilities list (of 28 February 2003 and marked Z) all being unpaid tax or interest on it. The only real dispute as to quantum appeared to concern 29 (which is said to turn on the construction of Exhibit H19) but that is an academic issue in the light of the ruling made.
26.In final addresses counsel for the wife contended that the wife (quare also the husband) was not responsible for company debts. However I accept that the entities were alter egos of the parties. Even if the parties could avoid payment of tax because the corporate veil could not be pierced, which is by no means clear, there would be damage to the potential of the business and its earning capacity. This would devalue its worth as a vehicle for future earnings and the party receiving it would suffer thereby. Such a development or strategy would not be just and equitable as between the parties even if it were lawfully achievable.
27.It appears appropriate, in the circumstances, to apportion the tax liability as a joint liability in the manner indicated.
By his second ground of appeal the husband challenges his Honour’s decision to exclude the taxation liabilities which he did. That ground is in the following terms:
2.That His Honour erred in disallowing items 29, 30, 32, 33 and 34 in Exhibit Z being unpaid tax liabilities in circumstances where the husband was paying pre and post separation joint liabilities of the parties particularly to the National Australia Bank.
It is unclear to us why it is asserted in ground 2 that item 30 (being “Interest [B] 2000 - $5,089.92”) was disallowed by his Honour given that it does appear as item (d)(iii) on his Honour’s schedule of liabilities. However, nothing appears to turn on this issue.
In his submissions in support of this ground, Counsel for the husband relied on the evidence given by the husband in paragraphs 35 and 44 of his affidavit sworn 14 May 2002, being to the effect that in the latter period of the marriage and after separation (November 2000), he had become depressed and less motivated in relation to his business with the result that his business declined, and that he had had to borrow money to meet his child support, spouse maintenance obligations, legal fees and personal expenses. In these circumstances, it was submitted on his behalf, that the debts for tax instalments and interest should have been included as liabilities to be deducted in the calculation of the net property of the parties
As we read paragraphs 24 and 25 of his Honour’s judgment, he appears to be saying that as a matter of principle only taxation debts in respect of income earned during the marriage should be allowed, and not those debts in respect of income earned after the marriage. In many cases this would be the just and equitable approach. However, in the present case where at least part of the income earned post-separation was being used for the support of the wife and of the children of both the husband’s marriages, we do not consider the approach just and equitable. Accordingly, we consider that the instalment statements to September 2001 (being items 29 and 32) should have been treated as liabilities for which both parties should bear responsibility. Nothing put to us on behalf of the wife would dissuade us from this conclusion, and indeed the written submissions on her behalf might be read as supporting such a conclusion.
However, in relation to the unpaid interest, being items 33 and 34, we do not consider that the wife should bear any responsibility for the way in which the husband has chosen to organise his financial affairs to cause interest to accrue on the tax debt.
We mention, however, at this point that were we to re-exercise the discretion in this case, we would require brief further submissions as to whether the amount to be included in respect of item 29 in document Z should be $11,199 as apparently contended for by the husband or $7, 849 as contended by the wife.
The parties’ initial contributions
When his Honour came to consider the parties’ contributions, the first matter to which he referred was the fact that at the commencement of the parties’ relationship the wife owned a house at Crows Nest. In relation to this matter his Honour said:
32. The wife brought a house to the marriage.
33.Accepting as I do that cohabitation commenced in November 1992 the house appears to have been worth something between $260,000 (a figure which she gave as an estimate to her bank manager in July 1992 when seeking a small loan i.e. a situation where the fact of her owning a property worth hundreds of thousands was relevant but not its precise value) and $315,000 for which it was sold in November 1993.
34.The wife estimates the worth of the house at $295,000 at the time of cohabitation. This was a judgment made by her when she said she was seriously considering selling and took the trouble to look at prices. In fairness to the parties estimating past value at a particular point on a rising market, is a necessarily inexact exercise, even for experts. Here I take the view that the wife was not overly concerned to provide the bank manager with exactitude. It was not necessary for her purpose. I accept, on the other hand, that she did do research of some kind when she first considered selling. It is likely that in such circumstances she took, as a potential non-trained seller, a “rosy” view but not an exaggerated position. The exercise is “anchored” by the real world test of the sale for $315,000 in 1993.
35.When the wife’s furniture and savings on the one hand and mortgage and credit card debt on the other are viewed, at the time of cohabitation, they almost cancel out.
36.The wife’s initial contribution is, then, something I estimate as near $285,000 in round figures.
By ground 5 the husband asserts:
5.That His Honour’s finding as to the value of the wife’s Crows Nest home was not available to him and that there was in fact no reliable evidence upon which a finding could be made.
In support of this ground, it was submitted by Counsel for the husband that his Honour erred in taking into account the wife’s estimate of the value of her home as she was not qualified to give such evidence at any time.
While there may well be technical substance in this ground of appeal, we consider that it has no real merit or substance, and we certainly would not be prepared to uphold the appeal on the basis of this ground of appeal alone.
We take this view for the reason that more often than not it is difficult to attribute a precise value as at the date of commencement of cohabitation to assets which a party has brought into a relationship. However, in this case the asset in question was sold within about a year of cohabitation commencing for the sum of $315,000. Accordingly, his Honour would, in our view, when evaluating the parties’ contributions have been entitled to proceed on the basis that the wife brought into this eight year relationship a house which was sold for $315,000 at the end of the first year of the relationship. Such a finding would clearly not have assisted the husband’s case to any greater extent than his Honour’s conclusion that he estimated the wife’s initial contribution “as near $285,000”.
In relation to any initial contribution by the husband, his Honour concluded (at paragraph 38 of his reasons) that the husband “brought little or nothing into the marriage.” This conclusion is the subject of ground 10 of the husband’s grounds of appeal which is in the following terms:
10.That His Honour erred in fact in finding that the husband brought little or nothing to the marriage and that such finding was not based on the evidence and indeed contrary to it.
It was submitted by Counsel for the husband in his written submissions that the only reasons which his Honour apparently gave for this conclusion was his statement in paragraph 37 that:
The husband negotiated a settlement with his previous wife … which suggests his assets and liabilities resulted in him being in debt although the figures are estimates and later than the date of cohabitation of the parties in this case.
In support of this ground Counsel relied on the following paragraph from the husband’s affidavit sworn 14 May 2002:
9.When the respondent and I first cohabited in 1993 I brought into the marriage the following assets, financial resources and liabilities:
(a)my interest in the business known as [G-C B S];
(b)my furniture, personal effects and belongings valued at approximately $10,000.00;
(c)some savings and monies on deposit;
(d)my interest in a superannuation fund worth approximately $6,000
I had the following liabilities:
(e)personal loan to the National Australia Bank Limited in respect of the acquisition of my interest in the abovementioned business.
It will be noted that the husband does not in this paragraph provide any valuation of his interest in the business. However, before us his Counsel sought to rely on further evidence from the husband and also from a business associate Mr N (in an affidavit sworn 20 June 2002) that in March 1995 the husband had sold to Mr N a half interest in his business for $175,000 as well as on the level of the husband’s taxable income for the years 1992 to 1995, in support of the submission that the husband’s business must have been of substantial value at the commencement of the parties’ cohabitation.
Although his Honour’s reasons are perhaps not as clear or as full as they might have been on this issue, we consider that when what he said in paragraph 37 (quoted above) is read in conjunction with what he subsequently said in paragraphs 39 and 40 of his judgment, his conclusions in paragraph 38 that “the husband had brought little or nothing into the marriage” was open to him. In paragraphs 39 and 40 his Honour said:
39.During the marriage the husband earned well and made far and away the greater financial contribution during the course of it from his relatively high earnings. His salary in 1993/94 was in the order of $112,000 per year with substantial other benefits (a package of some $180,000).
40.It is put against the husband that he had ongoing obligations to [his former wife] which amounted to some $150,000 during the years 1993 to 1995. (See paragraph 71 wife’s affidavit 8 September 2002). However a sale of 50% of his business in October 1995 appears to have more than covered that sum. (This is the business which was worth nothing when the settlement with [his former wife] took place early in that year.) Further the wife commenced cohabitation with, then married, the husband in circumstances where she should have appreciated an obligation in respect of his earlier situation was in prospect.
Thus we are not satisfied that ground 10 has substance.
The overall assessment of the parties’ contributions
Having reached his conclusions regarding the parties’ initial contributions, his Honour then discussed the parties’ subsequent contributions before reaching his overall assessment that the contributions should be regarded as being 62.5% to 37.5% in the wife’s favour. The relevant paragraphs from his judgment are as follows:
41.The wife worked at the start of the relationship, then took up part time teaching for a period before retuning to sales work in October 1993. This job provided $20,000 per year with a car. She worked part time from January to October in 1994. [Z] was born in December 1994.
42.When the parties purchased the Chatswood property for $395,000 in November 1993 the wife contributed $300,000 (from her property sale) but a further $180,000 was borrowed to complete the purchase and permit renovations. Both parties worked on this task.
43.The wife was the primary homemaker and child carer during the marriage. This included assisting in the care of the husband’s daughters from his marriage to [his former wife] as well as the bringing up of [Z]. The husband by the nature of his work had to travel. Indeed, the wife executed the move into their home at Chatswood.
44.Twice the husband restructured his business, once to take in a partner (who paid $150,000 for 50% of the business in 1995) and again to leave the business and start, again, an operation of his own. The wife became a director, as required, of entities which were vehicles for the business and the alter ego of the parties.
45.In this relatively short marriage the wife’s initial contribution was very important.
46.After separation the wife had the ongoing care of [Z] but lived in the matrimonial home. She also had access to the proceeds of the Bruny Island sale. The husband had better access to the benefits the business provided. This included both money and such things as travel; although it is sometimes difficult to distinguish between business and recreational expenditure.
47.It appears to me, upon weighing up the considerations which, among other things, include the wife’s initial contribution and her caring role with the husband’s higher earnings, that it is appropriate to make an apportionment of 62.5:37.5 in the wife’s favour for contribution factors.
Grounds 11 and 13 appear to be directed specifically to the paragraphs just quoted:
11.That His Honour failed to give adequate reasons and/or expose his reasoning process as to what in fact he was evaluating in paragraph 47 of his Reasons for Judgment and that because of the paucity of material it is not clear as to whether his Honour has intermingled an evaluation of contributions with a S75(2) factor.
…
13.That His Honour failed to bring into account the contributions by the husband in:
(a)meeting all repayments of principal and interest and discharging the housing loan obtained to acquire the former matrimonial home; and
(b)making all contributions in respect of the parties’ loan to repair and renovate the home; and
(c)making all contributions in respect of the parties’ perspective (sic) superannuation policies.
In relation to the three specific matters which are the subject of ground 13, we are not persuaded that the matters referred to in sub-paragraphs (a) and (b), being the financial contributions by the husband to the acquisition and renovation of the matrimonial home, were not taken into account by his Honour. We take this view because in paragraph 29 of his judgment his Honour stated: “(d)uring the marriage the husband earned well and made far and away the greater financial contributions during the course of it from his relatively high earnings” , and again in paragraph 47 his Honour contrasted the wife’s initial contribution and her caring role with the husband’s higher earnings. Indeed we think that there is considerable substance in the submission of Counsel for the wife to the effect that had matters referred to in sub-paragraphs (a) and (b) of ground 13 been given express recognition, there would have been a double counting because of the findings to which we have referred (in paragraphs 24 and 49) concerning the husband’s greater financial contribution through his higher earnings.
As to the third of the matters referred to in ground 13 as having apparently been overlooked by his Honour in his assessment of the parties’ contributions, being contributions in respect of the parties’ superannuation policies, we draw attention to the following statement by his honour in paragraph 5 of his judgment:
The Court was not asked to consider property of the parties made up of superannuation, in these proceedings.
We did not understand any issue to be taken before us with that statement. We note also that no superannuation item appears in his Honour’s schedule of the parties’ assets and liabilities.
So far as the complaint made in ground 11 is concerned, being to the effect that in paragraph 47 his Honour may have “intermingled an evaluation of contributions with a s 75(2) factor” (presumably by the reference to “the husband’s higher earnings”), it is quite clear to us that his Honour was there referring only to the financial contributions which the husband had made through higher earnings, that matter having been the subject of an earlier finding in paragraph 39. Furthermore, we note that later in his consideration of the s 75(2) matters, his Honour (in paragraphs 49 and 53 of his reasons) made specific reference to the husband’s high income earning capacity.
As to his Honour’s overall assessment of the parties’ contributions, we are also not persuaded that that assessment was outside a reasonable exercise of the discretion. Accordingly we conclude that grounds 11 and 13 have not been established.
The s 75(2) adjustment
So far as the s 75(2) matters are concerned, his Honour made the following findings before determining that there should be an adjustment in the wife’s favour on account of certain of those matters, thereby achieving a result whereby she would receive 75% of the parties’ net assets:
48The husband is fifty years of age and in good health. The wife is forty five and in good health.
49The husband has an established business capable of earning a good living or, alternatively with a doctorate in a specialist area, a capacity to gain employment at a relatively high level of remuneration.
50The wife is a self-employed colour consultant from which activity she earned $344 per week in February 2003. This is supplemented by social security and family benefits.
51The wife has the residential responsibility for the parties’ eight year old daughter in respect of which the husband pays her child support of $125 per week. Her capacity to work is limited somewhat by her responsibilities to the child.
52The wife says the fact that the husband limits contact to a weekday afternoon and evening rather than enjoying more “normal” contact with the child, places an extra caring obligation upon her with, I infer, some economic detriment.
53Having particular regard to the husband’s superior income earning capacity and the wife’s ongoing responsibility for a relatively young child it is appropriate to adjust the property apportionment further in the wife’s favour to obtain a just and equitable result. The wife will receive 75% and the husband 25% of the parties’ net assets i.e. $681,905. This provides to the wife $511,466 and to the husband $170,489.
Ground 6 asserts that “His Honour’s evaluation of the contributions and s 75(2) factors were outside that of a reasonable exercise of discretion”. As we have just said, we are not persuaded that his Honour’s assessment of the parties’ contributions was outside a reasonable exercise of the discretion.
In support of ground 6, so far as it is directed to the adjustment on account of the s 75(2) matters, Counsel for the husband submitted that in his consideration of the s 75(2) matters, his Honour had failed to have regard to the capital disparity that would exist between the parties by virtue of a division of property based on their contributions, and also to the significant liabilities for which the husband is responsible. We agree that these matters should have been considered by his Honour. Had they been considered, it is probable that the adjustment in favour of the wife on account of the s 75(2) matters may well have been somewhat less.
Given our conclusion in relation to his Honour’s s 75(2) adjustment, it is not strictly necessary for us to concern ourselves with ground 4 which is in the following terms:
4.That His Honour failed to consider whether the result achieved was fair and equitable. The net effect of the judgment leaves the husband with significant debts, his share of a superannuation fund, a car and approximately $3,000.00.
However, we consider that there may be value in our pointing out that his Honour does appear to have failed to satisfy himself, at least expressly, that the overall result was just and equitable. Thus ground 4 and ground 6 both have substance.
Conclusions and future course of this matter
We have thus concluded that there is substance in this appeal to the extent that his Honour’s calculation of the net value of the parties’ property was erroneous in relation to the inclusion of the value of the engagement ring, the treatment of the legal fees and the taxation debts. It may also be that in considering the s 75(2) matters his Honour overlooked the capital disparity between the parties and the husband’s liabilities; and that he failed to consider whether the overall award was just and equitable.
Because the parties wished to have the opportunity to consider whether they would want to put updating evidence before us in the event that we were to endeavour to re-exercise the trial Judge’s discretion, it was agreed with Counsel at the conclusion of the hearing of the appeal, that should we determine that there was sufficient substance in one or more of the grounds of appeal such as would justify our interference with trial Judge’s decision, then we would deliver a judgment without making orders in relation to the fate of the appeal. This we propose to do, and we will make the necessary directions for the filing of further submissions by the parties.
Order and Directions
That by 4.00pm on Friday, 30 July 2004 each party file with the Appeal Registrar at the Sydney Registry and serve on the solicitors for the other side brief written submissions addressing the following issues:
(a)Whether that party wishes the Full Court to re-exercise the discretion or to remit the matter for rehearing?
(b)In the event that a party wishes the Full Court to re-exercise the discretion:
(i)What updating evidence, if any, would that party want to put before the Full Court?
(ii)To what evidence in the Appeal Book should the Full Court have regard in determining:
· the amount of any outstanding liability incurred by the husband in relation to his legal fees; and
· the amount of the taxation debt described as "Instalment Statement 9/01" and appearing as item 29 in document "Z"?
(iii) What, in that party's submission, should be: the net value of the parties' property; the apportionment of that property on the basis of the parties' contributions; any adjustment on account of the s 75(2) matters; and any variation to the orders of the Honourable Justice Rowlands to give effect to the matters just mentioned?
That the appeal is stood over for further consideration by the Full Court pending receipt of the submissions referred to in Order 1.
I certify that the preceding 98 paragraphs
are a true copy of the reasons for judgment
of this Honourable Full Court
Associate
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