CLOSE & CLOSE
[2012] FamCA 567
•20 July 2012
FAMILY COURT OF AUSTRALIA
| CLOSE & CLOSE | [2012] FamCA 567 |
| FAMILY LAW – INTERIM PROPERTY – Where wife seeks interim property settlement to fund future legal expenses – Where short marriage and period of cohabitation – Where preliminary assessment difficult due to the number of disputed facts – Where value of asset pool difficult to determine – Where it is not possible to conclude that the wife would have capacity to reimburse a partial property order – Where it is not possible to conclude that an interim order is unlikely to compromise the Court’s capacity to achieve a just and equitable final property settlement – Where it is not in the interests of justice to make an interim property settlement order – Application for an interim property settlement dismissed. FAMILY LAW – SPOUSAL MAINTENANCE – Application by the wife for, inter alia, periodic interim spousal maintenance and future legal fees – Where the wife’s actual income from her business is nil – Where it is not reasonable to expect the wife to close her business, crystallise losses and establish an alternate career until the property proceedings are finalised and she is able to make considered decisions about her future - Where the wife presently does not have earning capacity greater than her actual income – Where the wife has significant future legal expenses with respect to the Family Court proceedings – Where husband’s financial interests are complicated – Where it is in the interests of justice that both parties are represented – Where husband’s current income significantly exceeds his expenses – Where the husband has capacity to pay interim periodic spousal maintenance as sought by the wife – Where husband does not have the capacity to pay the legal fees without borrowing the funds – Where wife’s proposed legal expenses are significantly higher than scale and include senior and junior counsel – Where the wife has not demonstrated an arguable case for property settlement orders sought by her – Application for periodic spousal maintenance granted – Application for lump sum payments dismissed. FAMILY LAW – COSTS – Whether wife’s claim for legal fees can be made under s 117 of the Family Law Act 1975 (Cth) – Whether there are justifying circumstances – Where the wife lacks capacity to meet her own legal expenses – Where husband is in a position of relative financial strength and has a surplus of income even after interim spousal maintenance is paid – Where findings in interim property proceedings and potential for serious injustice to the husband outweigh the wife’s justifying circumstances – Application under s 117(2) of the Family Law Act 1975 (Cth) dismissed. FAMILY LAW – CHILD SUPPORT DEPARTURE – Whether there is special circumstances under s 117(2)(a)(iii) Child Support (Assessment) Act 1989 (Cth) – Where wife has a shortfall after child support is taken into account with respect to meeting the financial costs of the child’s needs – Special circumstances established – Whether it is just and equitable to make a departure order – Where husband currently pays significant expenses for the child – Where husband’s contributions to the child’s expenses are well above those paid by the wife – Where wife’s claim about the child’s proper needs not accepted – Where combined effect of spousal maintenance and child support paid to the wife is sufficient to enable her to meet her expenses and the child’s proper needs – Where an increase in contribution by the husband to the child’s expenses is not just or equitable – Where refusal to make a departure order would not cause hardship to the child – Application for child support departure dismissed. |
| Child Support Assessment Act 1989 (Cth) Family Law Act 1975 (Cth) |
| Dwyer v McGuire (1993) FLC 92-420 Gabel v Yardley (2008) FLC 93-386 Gyselman (1992) FLC 92-279 Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578 Penfold v Penfold (1980) FLC 98-800 Strahan & Strahan (2001) FLC 93-466 Zschokke and Zschokke (1996) FLC 92-378 |
| APPLICANT: | Ms Close |
| RESPONDENT: | Mr Close |
| FILE NUMBER: | SYC | 485 | of | 2010 |
| DATE DELIVERED: | 20 July 2012 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Ryan J |
| HEARING DATE: | 17 and 21 May 2012 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Richardson SC |
| SOLICITOR FOR THE APPLICANT: | Broun Abrahams Burreket |
| COUNSEL FOR THR RESPONDENT: | Mr Anderson |
| SOLICITOR FOR THE RESPONDENT: | Djekovic Hearne & Walker |
Pending further order
Commencing from 17 May 2012 that Mr Close (“the husband”) pay spousal maintenance to Ms Close (“the wife”) in the amount of two thousand, three hundred and ninety one dollars ($2,391.00) per week.
That the payments due pursuant to Order 1 above be made as follows:
(a) for the period 17 May 2012 to the date of these orders, within 14 days;
(b)for the period commencing 21 July 2012 the first payment is to be made within seven (7) days and thereafter, monthly in advance, on the first day of each calendar month.
Excluding any application for costs, the Application in a Case filed by the wife on 27 April 2012 and the Response to an Application in a Case filed by the husband on 14 May 2012 are dismissed.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Close & Close has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 485 of 2010
| Ms Close |
Applicant
And
| Mr Close |
Respondent
REASONS FOR JUDGMENT
Before the Court are claims for interim property settlement, spousal maintenance and child support departure.
Parenting proceedings were commenced by Mr Close (“the husband”) by application filed 28 January 2010. In her Amended Response filed on 8 November 2010 Ms Close (“the wife”) cross-applied for property settlement and child support departure. Essentially, she seeks that the husband pays her $5 million by way of alteration of property interest and for the period 17 October 2010 to 16 January 2012, $23,400.00 annual child support. At this stage the evidence does not demonstrate that even if the wife received the entirety of the asset pool this would come close to $5 million, which not only sits uncomfortably with her application but also her assertion in her financial questionnaire filed 16 September 2011 that she is entitled to 40 per cent of the asset pool. In his Reply filed 11 February 2011, the husband asks that the wife’s property settlement and child support departure application be dismissed. Those applications provide the context within which the wife’s interim application, which the husband says should be dismissed, is determined.
The wife’s child support application is brought without her having activated the Child Support Assessment Act 1989 (Cth) (“CSAA”) objection and review procedure. Section 116(1)(b) CSAA enables a court having jurisdiction under that Act to nonetheless proceed where the liable parent or carer entitled to child support is a party to an application pending in that Court, and the Court is satisfied that it would be in the interests of the liable parent and the carer entitled to child support for the Court to consider whether a departure order should be made. In circumstances where the other orders sought by the wife require consideration of the parties’ financial circumstances, it is in both parties’ interests that the child support application is considered simultaneously. A different approach would result in unnecessary legal expenses.
In her interim application filed 27 April 2012, the wife seeks partial property settlement paid in six equal instalments to a total of $220,000.00 to meet future legal costs of these proceedings, interim spousal maintenance of $2,391.00 per week and a lump sum of $12,145.00 on account of recent moving costs, child support departure in the amount of $460.00 per week and the payment of gap medical costs and that the husband continues to pay their son’s private school expenses. The husband, who is a hotelier and farmer, contends that she has not established a right to spousal maintenance (s 72 of the Family Law Act 1975 (Cth) (“the Act”)), nor a ground for departure (s 117 CSAA).
Both parties claim the other has failed to meet their disclosure obligations and assert that the other parties’ income and asset position is superior than each has declared. While the production of documents and information has been slower than is desirable, disclosure issues now appear to be in hand. Because of the focus given in this context to the husband’s alleged failure to provide the deed of trust for the Close Trust, it is appropriate to record that it was provided to the wife’s former solicitors in a timely manner. Thus, to the extent that this is relied upon to establish inadequate disclosure by the husband, the submission fails. However, the necessity for orders (7 May 2012) to have him produce documents reveals that he has not have treated his disclosure obligations as seriously as he ought. The wife’s evidence about the state of her business at the commencement of cohabitation and her financial relationship with her father raises questions, including whether her business has ever been viable or able to support the financial contributions she says she made to the marriage.
Concerning the wife’s claim for partial property settlement, as was mentioned earlier, the husband disputes that she is entitled to an adjustment. He contends that as the period of cohabitation was short (which it was but just how brief is contentious), other than modest advances by him to the wife, their business interests were not intermingled and their only child lives week about, contributions favour him 90-95 per cent with the possibility that the wife may achieve an adjustment pursuant to s 75(2) no greater than 5 per cent. In circumstances where the wife says that her business last year ran at a loss of approximately $91,000.00 and she has $2 million in liabilities with, according to her, few assets of value, it is submitted on his behalf that the Court could not be confident that she would be able to return funds advanced pursuant to an interim property settlement if, on a final basis, her application is dismissed. If, however, the husband’s assertion that the wife has a significant interest in “a large [rural property] in Northern Territory and another large property on the Gold Coast.” (which he says is worth $6 million or thereabouts) is properly made, her ability to redress any repayment is obvious. However, the wife and her father deny that she has a legal or benefit interest in those properties, albeit there is evidence of her at an earlier time at least holding a legal interest in the pastoral company. As to the later, the wife’s father says that four years ago he sold the property in Northern Territory for $4 million. So that it is clear, as I understood the husband’s contention, payments the wife’s father has made to her ($1.6 million plus interest) are likely to relate to her beneficial interest in these properties or associated entities and are not merely unsecured loans or gifts. Nonetheless, in the face of the wife’s denial of an interest it is unsafe to proceed on the basis that she has an interest in such of these interests as remain.
This conflict in the evidence highlights a particular difficulty in this case; namely considerable rhetoric and suspicion with few undisputed facts upon which a safe preliminary assessment of the wife’s property entitlement can be made. In this regard, the gravamen of the wife’s evidence in relation to her financial circumstances is to the effect she would have no capacity to repay the funds she seeks for future legal expenses. It follows that, unless in my preliminary assessment of her property settlement entitlement I am strongly satisfied that she will receive at least that amount and that the issue of subsequent adjustment is afforded little weight, this aspect of her claim will fail. Thus, in the alternative, her claim for legal expenses is pressed reliant upon the Court’s spousal maintenance and costs powers.
Senior counsel for the wife appropriately proffered that on whatever basis legal expenses are awarded, the wife agrees characterisation of the amount can be reconsidered at the final hearing. Thus, for example, if the wife secures a lump sum interim spousal maintenance order for the payment for legal expenses, at the final hearing the nature of the payment (perhaps as property) could be reconsidered.
Background Facts
Unless it is stated otherwise, the following matters appear to be uncontentious.
The husband was born in 1966.
The wife was born in 1971.
According to the wife, the parties commenced cohabitation in June 2005.
They married in February 2006, which is when the husband says cohabitation commenced. Whether as at June 2005 or February 2006 the wife provides no evidence of the value of her business (which commenced in 2003) and in her Financial Questionnaire says she otherwise owned a car estimated to be worth $8,000.00, had no superannuation and owed her father $250,000.00. At first blush, it would seem that her liabilities may have exceeded her assets. According to the husband’s Financial Questionnaire the corporate entity (H Pty Ltd) in which he is the sole Director and shareholder) through which he conducts management services and consulting to various organisations was well established, he owned Property R, a property in the Central West region of New South Wales and had about $100,000.00 in superannuation. When liabilities are taken into account he asserts net assets in the vicinity of $1.25 million.
It would appear to be common ground that throughout cohabitation each party managed their respective business operations, albeit, in relation to the wife with significant payments made by her father. Again it would appear to be uncontentious that quite early in the marriage, the wife’s father advanced a large sum ($810,000.00 according to her Financial Questionnaire) which she seems to have used to acquire stock for sale on line and through her business. While there is no dispute that the wife retains a volume of stock, as will be seen from the draft Balance Sheet, it is the husband’s assertion it is worth $700,000.00 or four times that amount retail. According to the wife it only has value if she is able to continue to trade. Whatever the value may ultimately be, it would appear that there is a nexus between the wife’s ability to trade and advances from her father. Nonetheless the evidence does not suggest that the wife was other than serious in her attempts to turn the business into a profitable venture. That it may ultimately be determined that in this sense she failed, a contributions based argument is available.
There would appear to be no dispute that the husband’s business ventures and efforts were and continue to be profitable.
The parties’ son, C (“the child”), was born in October 2006. He is in kindergarten at School T, in relation to which the entirety of his school expenses are met by the husband. In circumstances where there is no evidence that he will cease payment, the child’s time is divided equally between his parents and they have equal parental responsibility, even if a ground for departure was established, such an order would not be proper and that component of the wife’s application will be dismissed.
The wife took three months leave before the child’s birth and a similar amount afterwards, during which she managed her business from home. The husband says he too, adjusted his hours of work to spend time at home with the baby. There is no dispute that nannies were employed and when the wife returned to work that the child was put into day care. Curiously, although both parties say child care responsibilities has meant that each reduced and continues to adjust their business lives in order to care for the child, neither considers that it is reasonable for the other parent to continue do so. As far as the husband is concerned “given that [C] spends a full week with me every 2 week period, I feel there is no reason why the wife cannot work full time.” In relation to his child care and work arrangements, he said “My lifestyle is not an issue because I am a professional company director and business consultant who operates a successful business and can manage my work time. With the birth of [C] and since I have been in a position to care for him and made time around my work commitments.” As will be discussed later, although it is accepted that the wife has the capacity to increase her hours of work and work full time while the child is with the husband, given the child’s age and her evidence about his needs, it is reasonable that when he is with her, she works part-time.
Throughout cohabitation the parties lived in rented premises one of which, according to the husband, cost $1,700.00 per week. Notably this is more than the wife presently pays, which payment the husband says is unreasonable.
In August 2008, the parties ceased cohabitation. There is no doubt that thereafter the husband stayed with the wife and child overnight, although her evidence that this occurred as frequently as three times per week is contentious. According to the husband, he stayed overnight so as to spend time with the child.
In September 2008, the wife moved into premises in Suburb B, an inner city suburb of Sydney, which she rented for $930.00 per week. Not long afterwards, the husband moved into premises he rented at Suburb W, an eastern suburb of Sydney.
After separation, both parties were involved in the child’s care, albeit until parenting orders were made, there is a dispute about the configuration.
The husband’s mother passed away in November 2008. Although her estate has not been finalised, a property at Town E and her interest in Property R passed to the Close Trust previously established by her. In relation to the trust, the husband holds the power of appointment and removal of trustees and is within the potential class of discretionary beneficiaries.
As was mentioned earlier, the wife established her business, which is known as “S”, before cohabitation. Her business, which trades from custom-fitted out premises, provides personal services to the public, training to members of the public interested in the field and markets and sells products designed and owned by her which bear her name. She traded from rented premises in Sydney’s eastern suburbs and Melbourne. In early 2009, her then operating company, S Pty Ltd, was assessed to pay tax in relation to staff she engaged as contractors. It would appear that she borrowed funds from her father to pay the Australian Taxation Office. At the same time the wife put her operating company into liquidation and commenced to trade through SH Pty Ltd. For reasons which are not entirely clear, but given recovery action through a Bankruptcy Notice commenced by her landlord which appears to relate to the non-payment of rent, the wife was excluded from her then Sydney business premises and lost her $36,000.00 rental bond. This resulted in further borrowings from her father and $40,000.00 the husband advanced for payment of bond and advance rent which enabled her to continue to trade in Sydney. For present purposes, nothing turns on disagreement about characterisation of this advance which has not been repaid. In any event, during 2009, the wife’s business continued to trade in Suburb A, in the Eastern Suburbs of Sydney following which she rented premises in Suburb B. Presently she trades solely from different rented premises in Suburb A.
The parties attended mediation in relation to parenting matters in August 2009.
It is the wife’s contention that the parties separated on 27 December 2009.
As was mentioned earlier, the husband commenced parenting proceedings on 28 January 2010.
Interim parenting orders were made by consent on 26 March 2010. Essentially, these provided that the child spend five nights and seven days each fortnight with the husband and two weeks school holiday time, and the balance with his mother.
On 17 November 2010 and contrary to the wife’s application, Watts J ordered that the child’s time be shared equally between the parties, on a week about basis. Against this decision the wife appealed without success.
On 23 February 2012, a divorce order was made.
On 7 May 2012, on the wife’s application and by consent, orders were made which required the husband to produce previously requested documents and answer questions posed five months earlier.
This application came before me on 17 May 2012 which coincided with the first hearing date. On that occasion, the husband produced a draft Balance Sheet which is set out below:
Ownership Description Wife value Husband value ASSETS 1. H [Property R ] $619,005 $619,005 2. H NAB Account …58 $379 $379 3. H [H] Pty Ltd (NTA) $1.096 m $950,910 4. H [H] Pty Ltd (Goodwill) Nil 5. H [Close] Pty Limited $1 $1 6. H [Rural Company] $1 $1 7. H [P] Pty Ltd $3 $3 8. H [Aus] Pty Ltd $3,177 $0 9. H [Close] Trust $1 million $0 10. H [Close] Trust Loan $60,945 $138,862 11. H [Aus] Pty Ltd Loan $14,292 $4,292 12. H Watch $2,000 $2,000 13. H Household contents $10,000 $10,000 14. W Toyota Motor Vehicle $8,000 $8,000 15. W [SH] Pty Ltd $0 NK 16. W [S] Investment Trust $0 NK 17. W Stock (wife) (cost value) $700,000 18. W Household contents $40,000 $40,000 19. W Jewellery $70,000 $70,000 20. W Fit out & Shop Equipment-[Suburb B] $200,000
Total $2,743,453
ADDBACKS 21. 22.
Total $ 0 $0
LIABILITIES 23. H Macquarie Bank Visa Card $6,000 $6,000 24. H [H] Pty Ltd Loan $121,935 $436,601 25. W Wife's father (principal) $1.6 m $0 26. W Wife's father (interest) $464,000 $0 27. W Westpac MasterCard $57,000 $57,000
Total $499,601
SUPERANNUATION Member Name of Fund Type of Interest Wife value Husband value 28. H [D] Superannuation Fund Self Managed Fund $159,426 $165,168
Total $165,168
FINANCIAL RESOURCES Ownership Description Wife value Husband value 29. $ 30. $0
Total $ NK $
The draft Balance Sheet is a work in progress in relation to which there is considerable work to be undertaken, for example, by valuers appointed in relation to the various entities. It will be recalled that there are non-disclosure issues and issues about whether the wife, in particular, has a legal and/or beneficial interest in assets not included in this draft.
Application of the law to the facts
The approach to an application for an interim property order is described in Strahan & Strahan (2001) FLC 93-466. Essentially, this involves two stages, neither of which requires that an applicant establishes compelling circumstances. First, it must be established that s 80(1)(h) of the Family Law Act 1975 (Cth) (“the Act”) is enlivened to allow an interim property settlement pursuant to s 79. In determining to depart from the usual approach that there is a once and for all final order, it is necessary that it is appropriate to make an interim order, with the overarching consideration being the interests of justice. In determining what interim property order might be in the interests of justice, a preliminary assessment of the application of s 79 and s 75(2) is required. The imprecise nature of this component of the exercise makes it appropriate to exercise a degree of caution so that the ability to achieve a just and equitable final property settlement is not compromised by the earlier order. In other words, as Bryant CJ and Coleman J observed in Gabel v Yardley (2008) FLC 93-386 the interim order must be amenable to variation or reversal without resort to s 79A or appeal.
As was mentioned earlier, the husband questioned the adequacy of the wife’s disclosure including stock items and fit-out personally owned by her. The wife provided stock details which, excluding items that have expired, indicated a retail value of approximately $640,000.00. The stock’s actual value is not in evidence. Although her company tax returns reveal fit-out depreciation, it would be surprising were fit-out or stock items ultimately valued at figures close to the amounts identified in the husband’s draft Balance Sheet. It is no less surprising, that he includes stock as wife’s asset but seeks to exclude associated liabilities. However, even with adjustments made for these variables it is difficult to determine, even within a reasonable range, the value of the asset pool. If as is contended by the husband, the Court adopts an asset by asset approach and the wife retains her business and its liabilities, which approach may have merit, a payment to her of about $100,000.00 would probably be at the bottom of the range. So that it is clear, although the period of cohabitation was short, s 75(2) factors weigh in her favour, possibly to a greater degree than is conceded by the husband.
The next issue to be considered is whether, if the final order delivers a poorer result for the wife, the husband could retrieve funds she received. Her personal assets include stock and jewellery ($30,000.00 according to the wife) which, combined, could be worth $100,000.00 or more. Of course, the wife says she has significant creditors and it is not safe to proceed upon the basis that the husband should rank ahead of them.
On balance, it is not possible to make a safe preliminary assessment of the wife’s property entitlement or conclude that an interim order is unlikely to compromise the Court’s capacity to achieve a just and equitable final property settlement. In short, it is not in the interests of justice to make an interim property settlement order.
Turning then to the wife’s claim for spousal maintenance, including for future legal expenses. It is submitted on the husband’s behalf, the wife has not established that she is unable to adequately support herself and thus the threshold requirement (s 72) has not been made out. Adequately is a relative concept and varies from case to case. In relation to future legal expenses, whether pursuant to s 74 or s 117(2), in Strahan per Boland and O’Ryan JJ [96] the Full Court referred with approval to remarks made by Brereton J in Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578 as follows:
…in addition to the three matters described in Zschokke, where the order was made pursuant to either s 74 or s 117 of the Act:
·an applicant should have “at least an arguable case for substantive relief which deserves to be heard”: Chester v Chester (1995) FLC 92-612 (“Chester”) at 82,107 per Moss J;
·there should be evidence of the applicant’s “likely costs of the litigation”: see Wilson and Chester;
·“it is not an essential precondition” that the applicant’s legal representatives will not continue to act unless the costs are paid or secured on an ongoing basis: Columb and Columb (unreported, Family Court of Australia, Fogarty J, 27 November 1987); see however Coomes and Coomes (1995) FLC 92-558 per Cohen J;
·an order may “make a provision for litigation expenses at a rate that appears reasonable in all the circumstances”;
·an order can be made “in respect of costs already incurred as well as of future costs”;
·“whether the order is to be in respect of costs already incurred or costs to be incurred, and whether the applicant’s lawyers will continue to act in the absence of provision for costs to be incurred, may be relevant to the discretion to make an order, and its’ quantum”;
·“any such order should be framed to protect the parties from any risk of injustice arising from the manner in which the funds are expended” and this may be done “by requiring that the funds be administered solely by the applicant's solicitors and applied only to meet the expenses referred to in the order, with detailed records being maintained to permit review by the Court at the time of the exercise of its discretion in the substantive property proceedings or on the final determination of the issue of costs”: Breen.
We observe that Brereton J at [33] also said that “many of the foregoing considerations [he described] are less important, though not necessarily irrelevant, where what is relied on as a source of power” is an interim property order under s 79 and s 80(1)(h).
Reference to the three matters referred to in Zschokke and Zschokke (1996) FLC 92-378, is to:
·a position of relative financial strength on the part of the respondent;
·a capacity on the part of the respondent to meet his or her own litigation costs;
·an inability on the part of the applicant to meet his or her litigation costs.
These are not preconditions but where they exist add considerable weight to the case for an order of this type. Strahan [90].
As was mentioned earlier, the wife continues to operate a business, the performance of which is questionable. If the history of advances from her father is correct, her business has operated primarily on finance advanced by him. Indeed, a pattern emerges from the magnitude of the business’ borrowings, restructuring, voluntary administration and liquidation, Bankruptcy Notice and the like which suggests that it may never have been a sound commercial enterprise. Examination of the business’s most recent Profit & Loss Statement and accounts attached to her affidavit raises questions about its solvency. Although both parties speak in terms of her business, in its early days, achieving a measure of success, on the limited evidence available this may have been illusory and, in relation to the husband’s observations, must be considered in the context of him saying that the wife misled him about the magnitude of her borrowings.
The wife’s financial circumstances are set out in her Financial Statement filed 19 April 2012. Simply put, she does not draw an income from the business and, other than advances made by her father (which have ceased and will not resume), her income is $190.00 per week child support. Although the husband says he pays $258.00 per week child support, this is higher than the current child support assessment of $824.00 per month. In circumstances where at par 61 of his affidavit he says that he pays child support as assessed, it is appropriate to proceed on the basis that he pays the amount identified by the wife. She claims average weekly expenses, including health insurance, rent and credit card payments, in the amount of $2,390.90.
In relation to her rent at $1,400.00 the husband takes issue about whether this is reasonable. While it is beyond dispute that the wife cannot afford rent in that amount, it is $50.00 less than the husband pays. The point being, at least in relation to accommodation, the wife’s standard of living is similar to the husband’s and that which the parties enjoyed during cohabitation. Self evidently, with the child living week about, his physical surroundings are comparable. In the context of interim proceedings, the wife being forced to acquire new rental accommodation as the property previously rented by her is being redeveloped and she obtained accommodation in the vicinity of the child’s school and her business, her total rental expenditure is reasonable. It should be understood by the wife that in the context of a final hearing and long-term considerations, different considerations apply. Otherwise, her average weekly expenses are comparable to the husbands and, for the purposes of periodic spousal maintenance, accepted as reasonable. It does not follow, however, that if she secures the periodic amount sought that she lacks the capacity to adjust expenses so that she can make at least some contribution to the child’s expenses.
It is, however, the husband’s contention that the wife’s earning capacity is greater than her actual (nil) income. This sits uncomfortably with his evidence “[a]s [the child]’s only apparent means of financial support it is vital that my business operations can be continued and the wife’s request for interim costs will put me and the business under serious financial stress”. The point being, the gravamen of his evidence would appear to be acceptance that the wife is unable to support the child and inferentially herself.
Moving away from argumentative rhetoric, the wife’s evidence is that if she was employed in her field, she would earn no more than $13.00 net per hour. In combination with her childcare and business responsibilities, this has meant that she has not sought employment. Although it is accepted that the wife could spend additional time at work in her business and thus reduce staff costs, analysis of the business’s Profit and Loss statements suggests this would do no more than moderate its operating losses. In other words the business would continue to be unable to pay her a wage.
It is not reasonable to expect the wife to close her business, crystallise losses and establish an alternate career until the property proceedings are finalised and she is able to make considered decisions about her future. Pending the final hearing, it is accepted that the wife does not have an earning capacity greater than her actual income (nil). On balance, the wife has established that she is presently unable to adequately support herself by reason of the manner which, prior to separation she arranged her working life, post-separation childcare responsibilities and earning capacity. On the basis that no accommodation costs are attributed to the child, she has established that she needs interim periodic spousal maintenance in the amount sought.
Evidence is adduced by the wife about future legal expenses. In short she has entered into a costs agreement with her present solicitors who estimate her future legal expenses will be $219,474.33. This is in addition to the $100,000.00 she has already paid; to these and her two prior solicitors. Exclusive of GST, for work performed by a partner she will be charged $550.00 per hour. Senior counsel has been retained at $8,000.00 per day plus the costs of junior counsel.
Turning then to the remaining relevant s 75(2) matters.
The husband is a director of H Pty Ltd and related companies. According to his amended Financial Statement filed 17 May 2012 he is engaged on a full-time basis in managing the companies’ business activities. He is remunerated by way of a fully franked dividend, in relation to which for the current year he says provides him with $4,421.00 per week. Curiously, however, in the same document, he says his total average weekly income is $4,794.00. His total weekly personal expenditure is said to be $4,687.00 of which rent is $1,450.00, child support $258.00 and otherwise his personal average weekly expenses amount to $1,450.00. When the child support payment is adjusted to $190.00, his total weekly expenditure is $4,755.00. His corporate and trusts interests are said to be worth $950,000.00 subject to a related loan of approximately $143,000.00. He attributes to Property R the value of $619,000.00. Otherwise he has modest assets.
In relation to his company and trust interests, the husband’s evidence is set out at pages 30 – 32 of his affidavit filed 14 May 2012 which are incorporated into these reasons. Simply put, there are a series of entities ultimately controlled by the husband which variously own assets or have management contracts with various organisations and accept work from receivers and managers. There are a number of companies in which the husband asserts a 50 per cent interest which have no equity and will be wound up. Otherwise the Rural Company is involved in rural management, L Pty Ltd which operated a business will be wound up because it is not viable and his interest in the Close Family Trust.
Senior counsel for the wife pointed out, for example, that the management accounts for the hospitality business attributed a value of $1.09 million whereas a recent bank valuation attributed to 50 per cent of the property, a value of $1.6 million. Similarly, no reference is made in the Trust’s Profit & Loss statement of $50,000.00 pre-sold product revenue. Questions are raised about the efficacy of a transfer in relation to the business’ interest in G Pty Ltd to the Company M for $1.00. For the purposes of this hearing, counsel for the wife’s submission that is appropriate to include as the husband’s asset his loan account worth $145,000.00 is accepted. In essence, counsel for the wife skilfully demonstrated that there is a real possibility that the husband’s net asset position is in the vicinity of $2 million.
The point that was well made by counsel for the wife is that the husband’s financial interests are complicated in relation to which it is in the interests of justice that both parties are represented. So that the point is not overlooked, there is no doubt that the husband has been and will continue to be represented by his legal team of choice.
In relation to the husband’s income the wife’s solicitor provided a helpful analysis of how, through a series of loan arrangements made through subsidiary companies of H Pty Ltd, parts of which are written off in following years as unrecoverable, his available after-tax income is considerably more than $4,794.00. I agree that for the purposes of this application, the husband’s actual available after-tax income is more accurately reflected in the table below:
[H] Pty Ltd – Consolidated
Financial Statements
FY10 FY11
Sales 5,070,053 3,245,589
Gross profit 1,106,602 739,936
21.8% 22.8%
Other Income 1,336,749 1,007,778
Expenses 1,704,781 1,244,842
Operating profit 738,570 502,872
14.6% 15.5%
Other Expenses 446,340 377,736
NPBT 292,230 125,136
5.8% 3.9%
Add back of Non-Cash Items & [O] Pty Ltd Losses
Depreciation 204,454 132,933
Doubtful Debts Expense 131,202 158,877
Leave provisions accrued 4,767 434
[O] Pty Limited Losses 133,239 85,566
Total Non-Cash items 473,662 377,810Potential Gross Cash Income
of Husband 765,892 502,946
Once tax plus Medicare levy is taken into account (in the manner set out at p 10 of the wife’s Outline of Case document) the husband’s weekly net disposable income for the 2011 financial year is approximately $8,000.00. This, it must be understood, is in the context of a business under his management, the business at Suburb B, being closed for renovations. The point being, in the context of his evidence that the business has recently reopened, it is accepted that his income is likely to increase. Whether and when it might return to something akin to 2010 levels cannot be determined. However, on his current income, even if his expenses are allowed as claimed his income exceeds expenses by approximately $3,370.00 per week.
The wife’s assertion that the husband has the capacity to pay interim periodic spousal maintenance in the amount sought by her is accepted. He does not, however, have cash or other easily realised assets which would free up the legal expenses lump sum sought. On the basis that he pays periodic spousal maintenance as claimed he has about $920.00 per week left, some of which will be used for legal expenses and expert’s reports. Even if these are ignored, it follows that unless he borrows a lump sum, it would take some years for him to be able to pay the larger of the amounts sought. Although borrowing is within his capacity, in the context of findings made when the wife’s interim property settlement application was discussed, this raises questions about the propriety of an order predicated upon so doing.
The parties’ commitments have already been discussed as have, to an extent, their commitments to their son’s support. Their commitments to their sons support are set out in their Financial Statements. In relation to the wife’s commitments to the child’s financial support, if she receives spousal maintenance in the amount claimed, child support at its current level and the husband pays the child’s education expenses in the manner he does presently, it is difficult to see how she and the child’s commitments are not adequately funded.
Neither party has the responsibility to support or resides with any other person.
As was mentioned earlier, there is a dispute about the duration of the marriage, the extent to which it has affected the wife’s earning capacity and her contribution to the husband’s income, earning capacity, property and financial resources. On the wife’s case, the parties cohabited for 3.5 years whereas it is alleged by the husband cohabitation lasted no longer than 2.5 years. On the facts as alleged by the wife, other than in relation to the child’s care, her s 75(2)(j) contributions coincide with cohabitation. These matters are dealt with at paragraphs 44-57 of her affidavit sworn 17 May 2012 and otherwise in her Financial Questionnaire, the key components of which appear to be that she:
·worked throughout the relationship trying to operate her business;
·from the commencement of cohabitation until around July 2006, paid 100 per cent of the parties’ rent and utilities;
·generated sufficient income to pay one half of the joint general costs of the parties for the remainder of cohabitation; and
·attended to the payment of joint expenses of the parties.
Before and following separation, through her care of the child, the husband was able to continue to operate his business. However, when regard is had to his initial contribution, the undisputed contributions made by him thereafter and his role in relation to the child, the wife’s contributions warrant modest weight.
As to other facts or circumstances, I take into account that the wife has already spent $100,000.00 for legal expenses, including an unsuccessful appeal following from her unsuccessful application for interim parenting orders. Although it does not follow that her application and appeal were not at least arguable she has paid not insignificant legal expenses which prudence suggests would have been better applied to the substantive proceedings. In relation to her substantive property settlement claim, the wife has not demonstrated an arguable case for relief as sought. In relation to the parenting proceedings, my decision to grant expedition and sever the parenting and property hearings evidences that her parenting application is at least arguable.
In relation to legal expenses, the wife proposes expenses significantly higher than the current scale plus senior and junior counsel. While this is an entirely reasonable choice by her, it is difficult to see how in reliance on the maintenance power and in the context of the facts in this case, that an order against the husband calculated that way would be proper. In circumstances where I am satisfied that the husband would need to borrow the majority of the funds sought by the wife for her legal expenses and, there are serious issues about even if treated as property, the Court’s ability to deliver a just and equitable final property order, persuades me that an order as sought by the wife for legal expenses pursuant to the maintenance power would not be proper.
However, it is proper to order interim periodic spousal maintenance in the amount sought by the wife. Depending upon when the property valuations are completed it would seem likely that the financial proceedings could be heard in early 2013. Even if the timeframe slips, although the amount which the husband will pay significant, overall it is proper. The wife’s need is such that the husband’s obligation to pay spousal maintenance will commence from the date of hearing. Although this will create a modest pool of arrears, he has the capacity to re-organise his finances to promptly pay these.
In relation to her paid relocation expenses, these were paid by her father. Although he says those funds must be repaid, he does not require immediate repayment. Because of the magnitude and apparent complexity of their financial relationship, reimbursement is more appropriately considered as part of the final hearing.
Consideration must then be given to the wife’s claim for legal expenses reliant upon the costs power. Section 117(1) of the Act is the basic provision concerning costs and provides the general rule that subject to s 117(2), s 117AA and s 118, each party to proceedings under the Act shall bear his or her own costs. Section 117(2) requires a finding of justifying circumstances as an essential precursor to the making of an order for costs (Penfold v Penfold (1980) FLC 98-800). If there are circumstances that justify it in so doing, the Court may make an order for costs pursuant to s 117(2) as the Court considers just. In considering what order, if any, should be made regard must be had to the provisions of s 117(2A) to the extent each is relevant.
Here, the justifying circumstances are the wife’s incapacity to meet her own legal expenses compared to the husband’s capacity to meet his as well as his position of relative financial strength, including that he has a surfeit of income over expenses even after the interim spousal maintenance order is addressed.
Turning then to s 117(2A), the husband’s superior financial circumstances weigh in favour of the wife’s application. Otherwise, other relevant matters arise under the rubric of s 117(2A)(g). Because in relation to the property proceedings, it has not been possible to conclude that the wife would have the capacity to reimburse a legal expenses order, unless the Court could be strongly satisfied that she would receive an adjustment equivalent to the legal expenses order there is a real potential for serious injustice to the husband. Not only has the wife not established such an entitlement, there is an issue about whether she would be able to reimburse the husband at all in preference to her creditors. Although it is accepted that it is in the interests of justice that the wife is represented in relation to the complex outstanding proceedings, she is not denied the opportunity to pursue her claims. In circumstances where single experts have been appointed, the costs of which will be paid by the husband, the potential injustice to her is not as great and her s 117(2) application will be dismissed.
Child support is the remaining issue.
The obligation to pay child support is created by the provisions of the CSAA. Section 3 contains the obligation that parents maintain their children. The objects of that Act are found in s 4. Each of the objects needs to be borne in mind when deciding an application under the Act. Section 4(3) of that Act recognises the desirability of parents reaching agreement for the financial support of their children. Sections 114 and 121 identify that the further objects of Divisions 4 and 5 of Part 7 include:
a)that the children have their proper needs met from reasonable and adequate shares in the income, earnings capacity, property and financial resources of both of their parents and
b)that parents share equitably in the support of the children.
The Full Court of the Family Court in Gyselman (1992) FLC 92-279 set out a three step process that courts must follow in determining an application for a departure order under s 117 CSAA. The first is whether one or more of the grounds in s 117 is established. If so, the next step is whether it is just and equitable within the meaning of s 117(4) to make a particular order. The final consideration is whether it is otherwise proper within the meaning of s 117(5) to make a particular order.
So that it is clear, once a valid application for departure has been made the question of departure from the administration assessment provisions of the Act in respect of any future years may be considered. (Dwyer v McGuire (1993) FLC 92-420).
Although it is not entirely clear, it would appear that the wife’s departure application is pressed on a two bases, namely s 117(2)(a)(iii) and s 117(2)(c)(ia).
The wife commitments necessary to enable her to support herself have already been discussed and need not be repeated. As a consequence of the interim spousal maintenance order her necessary commitments will be met by the husband. However, it is her evidence that by meeting her own commitments and after the child support paid by the husband is taken into account, there is a $269.00 shortfall in relation to the child’s needs. In this regard, she claims total expenses for the child of $459.10. The wife has thus established a s 177(2)(a)(iii) ground for departure. Submissions were not addressed to the alternate ground and, notwithstanding the differences in the parties’ income, property and financial resources, when regard is had to the child support paid by the husband and otherwise his support for the child (including education expenses) it is not established that the result of these factors is an unjust and inequitable determination of the level of financial support by him.
The next question then, having established special circumstances, is whether it is just and equitable to make a departure order? Again, it is unnecessary to repeat earlier findings.
The child does not have an income, earning capacity, property or financial resources.
The husband pays significant expenses for the child, well above those paid by the wife. Education expenses are met entirely by him and cost $481.00 per week. Excluding those expenses, the husband says he spends $354.00 per week for the child. He pays more for childminding, clothing and shoes, children’s activities and entertainment and holidays than the wife. She, on the other hand, claims $122.50 per week food for the child. Given that the child is with her each alternate week this means she claims $245.00 for each week the child is with her. This amount is rejected as unreasonable and a better guide is the $50.00 claimed by the husband. The point which follows is that the wife’s claim about the child’s proper needs is not accepted. With the magnitude of the husband’s contribution to the child’s proper needs taken into account and the wife’s income derived from spousal maintenance and child support considered, a greater contribution by the husband is neither just nor equitable. In short, the combined effect of spousal maintenance and child support paid by the husband to the wife is sufficient to enable her to meet her expenses and the child’s proper needs. Although both parties would assert hardship by the making or refusal to make a departure order, neither assertion would be accepted and it is not accepted that the refusal to make a departure order would cause hardship to the child.
In a similar vein, it is accepted that both parties have a duty to maintain the child and that from the totality of the income paid by the husband to the wife she has a capacity to contribute to the child’s expenses. It is not accepted that it would be proper to require that the husband meet the totality of the child’s expenses.
In relation to the wife’s claim for child support pursuant to s 124 (CSAA), it is accepted that the husband has and will continue to pay the child’s school fees. In the circumstances where he shares the child’s care with the wife and is no less committed to the child’s attendance at School T and there is no uncertainty in relation to his continuing to meet the child’s school fees, the proposed order is neither just nor equitable or otherwise proper.
In relation to the wife’s claim that the husband pay the child’s gap medical expenses, no evidence is provided about what this might entail and it is better considered in the context of the final hearing.
I certify that the preceding seventy seven (77) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Ryan delivered on 20 July 2012.
Associate:
Date: 20 July 2012
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