Corbon and Klousner
[2015] FamCA 842
•9 October 2015
FAMILY COURT OF AUSTRALIA
| CORBON & KLOUSNER | [2015] FamCA 842 |
| FAMILY LAW – PROPERTY SETTLEMENT – valuation of husband’s interest in business partnership – capitalisation of assets valuation accepted – husband seeking sale of former matrimonial home – wife seeking to retain former matrimonial home – post-separation contributions made by the husband – husband seeking 52/48 distribution in favour of the wife – wife seeking 65/35 distribution in her favour based on capitalisation of assets valuation of the business partnership – wife’s future needs – just and equitable division of property 65/35 in favour of wife – final orders made for property settlement – wife seeking lump sum spousal maintenance of $140,400 – not satisfied wife has met the threshold test for spousal maintenance –– final orders made dismissing the wife’s application for spousal maintenance |
| Family Law Act 1975 (Cth) ss 72, 74(1), 75(2), 79 Family Law Rules 2004 (Cth) r 15.44 |
| Bevan & Bevan (2013) FLC 93-545 Bolger & Headon (2014) FLC 93-575 Clauson & Clauson (1995) FLC 92-595 Marsh & Marsh (2014) FLC 93-576 Norbis & Norbis (1986) 161 CLR 513 Pierce & Pierce (1999) FLC 92-844 Scott & Scott [2006] FamCA 1379 Stanford & Stanford (2012) 247 CLR 108 Waters & Jurek (1995) FLC 92-635 Williams v Williams (1985) FLC 91-628 |
| APPLICANT: | Mr Corbon |
| RESPONDENT: | Ms Klousner |
| FILE NUMBER: | MLC | 236 | of | 2013 |
| DATE DELIVERED: | 9 October 2015 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Thornton J |
| HEARING DATE: | 3, 4, 5, 6 & 9 February 2015. Further written evidence submitted by agreement on 16 June 2015. |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr G Atkinson |
| SOLICITOR FOR THE APPLICANT: | Susan Snyder |
| COUNSEL FOR THE RESPONDENT: | Mr M Wilson |
| SOLICITOR FOR THE RESPONDENT: | CE Family Lawyers |
Orders
THE COURT ORDERS:
That the Wife is declared to be solely entitled to the real property at B Street, Suburb C (“the Suburb C property”);
That forthwith upon the making of these Orders the Wife indemnify and keep indemnified the Husband with respect to the mortgage secured over the Suburb C property and the investment loan secured over the Suburb C property;
That the Wife sign all documents and do all acts necessary to refinance the mortgage debt secured on the Suburb C property into her sole name and effect a full discharge of the Husband’s liability in relation to that mortgage and the investment loan;
That within 90 days the Wife pay to the Husband the sum of $84,880;
That if the said sum of $84,880 is not paid within the period specified :
(a)the Wife pay the Husband interest thereon at the rate prescribed by the Family Law Act1975 (Cth) and calculated on a daily basis until such payment is received by the Husband; and
(b)the Wife forthwith do all acts and things necessary to place the Suburb C property upon the market for sale upon such terms and conditions and reserve price as may be agreed by the parties and in default of agreement as determined by the President of the Real Estate Institute of Victoria or his/her nominee, and the proceeds of sale be applied as follows:
(i)in payment of all costs and expenses of sale, including all rate and tax adjustments and land tax;
(ii)in discharge of the mortgage registered over the Suburb C property and the investment loan;
(iii)in payment of the said sum of $84,880 outstanding or the balance thereof owing to the Husband together with interest thereon calculated pursuant to Order (5)(a) herein; and
(iv)the balance, if any, to be retained by the Wife.
That the Husband retain his liability for 87 per cent of the mortgage on the Suburb N property and that the Wife be indemnified in respect of this liability;
Subject to Order (8) herein the Wife relinquish any interest she has in the Corbon Family Trust and D Pty Ltd (“the entities”) (including the offset account held by D Pty Ltd) and the ANZ offset account containing $353,309 in favour of the Husband and within 30 days both parties do all such acts and things, at the expense of the Husband, to remove the Wife from the Corbon Family Trust;
That the Husband be solely responsible for and indemnify the Wife in respect of any liability whatsoever that may arise from the Wife having had an interest in and /or having received any income, asset, benefit, payment, loan or otherwise from the entities;
That each party indemnify the other with respect to any expenses, outgoings and liabilities related to those items of property which they are to retain or receive pursuant to these Orders;
That subject to these orders and declarations each of the Husband and the Wife is declared to be solely entitled to all items of property whether real or personal and superannuation entitlements which are presently in their respective possession or control; and
That the Wife’s application for spousal maintenance is dismissed.
IT IS FURTHER ORDERED BY CONSENT:
That the parties do all things to effect an equal division of the proceeds of sale of the Corbon Family Trust shares valued at $139,236.
That these Orders bind the trustees of the E Super Account (“the Fund”) and these Orders take effect from the operative time being the fourth business day after service of these Orders on the trustee of the Fund.
That the base amount allocated to the Wife out of the superannuation interest of the Husband in the Fund is $33,670.
That in accordance with Section 90MT(1)(a) of the Family Law Act 1975 (Cth) whenever a splittable payment becomes payable in respect of the superannuation of the Husband in the Fund, the Wife be entitled to be paid an amount calculated in accordance with Part VI of the Family Law (Superannuation) Regulations 2001 (Cth), using the base amount of $33,670 and there be a corresponding reduction in the entitlement of the Husband to whom the splittable payment would have been made but for these Orders.
That until the happening of any of:
(a)the establishment of a separate account in the name of the Wife in the Fund;
(b)the transfer or “rolling over” into another superannuation fund of the payment split created by Order (14) of these Orders;
(c)the Wife satisfying a condition of release and being paid the payment split which was created by Order (14) of these Orders; or
(d)the Wife executing a waiver of rights within the meaning of section 90MZA of the Family Law Act 1975 (Cth) in relation to the payment split created by Order (14) of these Orders;
the Husband be and is hereby restrained by himself, his servants or agents from executing a Death Benefit Nomination in favour of any person or doing any other act or thing which would render any part of his interest in the Fund a “not splittable payment” within the meaning of Regulation 12 or 13 of the Family Law (Superannuation) Regulations 2001 (Cth) and the trustees of the Fund give effect to this Order.
That the solicitors for the Wife serve a sealed copy of these Orders on the trustees of the Fund.
IT IS FURTHER ORDERED BY THE COURT:
That all extant applications be otherwise dismissed and removed from the list of cases awaiting hearing.
IT IS DIRECTED:
That all documents produced to the Court pursuant to subpoena and exhibits relied upon by the parties be returned by the subpoena clerk of the Family Court of Australia, Melbourne Registry, to the person or organisation who produced same after the expiration of thirty (30) days from the date of these orders, or otherwise upon the conclusion of any appeal.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Corbon & Klousner has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLC 236 of 2013
| Mr Corbon |
Applicant
And
| Ms Klousner |
Respondent
REASONS FOR JUDGMENT
Introduction
This proceeding concerns competing applications for final alteration of the property interests of the parties to a marriage. The central issue is the value of the husband’s interest as an equity partner in the firm R Professional Services. R Professional Services is a global consulting firm operating from offices across six continents. The applicant husband argues that his interest should be valued on the basis of capitalisation of assets. It is the wife’s case that the husband’s interest should be valued on the basis of super profits.
The wife resides in the former matrimonial home at B Street, Suburb C (“the Suburb C property”), which is registered in her name. The property was originally registered in the name of the company D Pty Ltd (“D”), which acts as trustee of the Corbon Family Trust. The property was transferred into the wife’s name in about 2010, after the husband had become a partner in the accounting firm.
The wife seeks to retain the Suburb C property. The husband questions the capacity of the wife to pay the weekly mortgage payments of about $1,000. Nonetheless, he ultimately seeks that, if the wife retains the Suburb C property, she pay him a lump sum of $500,000 within 90 days. He seeks a default sale provision.
The parties agreed that there be a superannuation splitting order for the husband’s superannuation fund to achieve equality of superannuation entitlements.
On the basis of a calculation of the husband’s partnership interest being by capitalisation of assets, the ultimate submission advanced by counsel for the husband at the conclusion of the trial was that there should be an alteration of non-superannuation interests reflecting a distribution of 52 per cent in favour of the wife and 48 per cent in favour of the husband. He submitted that his proposal that the wife retain the Suburb C property and pay him a lump sum of $500,000 reflects this distribution.
Regarding contributions to the non-superannuation assets, the wife argues that there is a 5 to 10 per cent differential because of her financial contribution to the purchase of the Suburb C property and therefore her contribution should be assessed as 55 per cent.
Based on the super profits valuation, the wife proposes that she retain the Suburb C property and the husband pay her a lump sum of $300,000. Counsel for the wife submits that this would be a distribution of 61.34 per cent in favour of the wife and 38.66 per cent in favour of the husband. Counsel for the wife concedes that part of the husband’s future income would be captured if the super profits methodology were accepted by the Court. Accordingly, if the super profits methodology were accepted, the wife would not pursue a claim for spousal maintenance.
In the alternative, if the Court were to find that the capitalisation of assets valuation is appropriate, the wife proposes that she retain the Suburb C property and the husband pay her a lump sum of $115,000 in addition to spousal maintenance. In this scenario, counsel for the wife submits that the property settlement should reflect a distribution of 69.97 per cent in favour of the wife and 30.03 per cent in favour of the husband. The wife also seeks an adjustment of no less than 15 per cent for factors under s 75(2) of the Family Law Act 1975 (Cth) (“the Act”) because of the disparity in the parties’ incomes and income earning capacity. The wife seeks that the husband pay her lump sum maintenance for at least the next six years, until she could reasonably be expected to obtain full-time employment consistent with her obligations as homemaker and parent.
Counsel for the wife argues that, because the children are in her care for about two thirds of the time, there are greater obligations for the wife flowing from the care of the children for which she is not compensated in child support. The wife argues that she is entitled to expect to care for the children in the same way that she has in the past and that the aspiration to provide the standard of living to which the children are accustomed is a reasonable one under s 75(2).
The wife sought an order for periodic spousal maintenance of $450 per week for six years or the payment of a lump sum of $140,400 as spousal maintenance.
Counsel for the husband conceded that there was no issue taken with the husband’s capacity to pay spousal maintenance but opposed the application for spousal maintenance on the basis of the wife’s capacity to work in full-time employment. He argued that the wife’s needs did not justify a spousal maintenance order. I interpret this submission to mean that the wife could not satisfy the onus to establish that she could not support herself adequately for the purposes of s 72 of the Act.
Background
The husband is aged 47 and is employed as an accountant. His expertise is in international tax and particularly transfer pricing. He became an equity partner in R Professional Services in 2007. The wife is aged 45 and is a qualified medical professional. She is employed part-time and undertakes six sessions of about three and a half hours per week. She deposed that in April last year, her sessions were cut down to five sessions in the one week, and four sessions in the alternate week.[1] The husband’s income is approximately $560,000 per annum and the wife’s income from her employment is approximately $125,000 per annum. Both parties are generally in good health.
[1] Affidavit of the wife sworn and filed 22 January 2015 at [59] – [61].
Neither party remembered when they began living together but agreed that it was soon after the wife purchased a property at F Street, Suburb G (“the Suburb G property”). The date of purchase of the Suburb G property was in issue in the trial. The wife deposed that she purchased the Suburb G property in 1996 but conceded during the trial that it must have been late 1994.
The parties married in 1997 and travelled and worked overseas together for about three years from 1999.
In 2002, upon their return to Australia, they sold the Suburb G property and purchased the Suburb C property. Their first child was born in 2003 and their second child was born in 2007. They separated in September 2011 and were divorced in September 2013. The husband has re-partnered and has plans to marry in 2015.
The two children of the marriage are H aged 12 and J aged eight. The parties entered into parenting orders by agreement at the beginning of the trial.
Since separation, the wife has resided in the former matrimonial home with the children. Interim consent orders in August 2013 provided for the children to spend half the school holidays with each parent and spend time with the husband on a Thursday night in one week and after school Friday until the commencement of school on Monday in the alternate week during school terms. This arrangement increased the time spent with the husband during school terms to an additional night in the alternate week from the beginning of the 2014 school year. I find that the husband has paid child support as assessed by the Child Support Agency since March 2012 and all private school fees. He is paying $392 per week in child support.
The Suburb C property is the only real property acquired during the marriage. For the purposes of the trial, the parties agreed that the value of that property is $2.7 million.
Procedural History
The husband filed an Initiating Application on 19 January 2013 seeking property orders. The wife filed her Response on 14 February 2013 seeking property orders. The wife subsequently filed an Amended Response on 10 May 2013 also seeking parenting orders. The parenting issues were settled on the first day of the trial by consent.
In accordance with the parenting consent orders, in each fortnight the children spend five nights with the husband and nine nights with the wife, as well as half of all school holidays with each parent.
During the trial a binding child support agreement was agreed upon and signed by the parties. It was registered with the Court (Exhibit C9). Under this agreement the husband is obligated to pay periodic child support in the form of any amounts as assessed by the Child Support Agency, as well as non-periodic support as follows:
a)all school fees for the children at their current school;
b)the costs of all books, stationery, school uniforms and shoes, bags and equipment prescribed by the school;
c)provided the wife agrees, one half of agreed extracurricular activities, computer hardware, tablets and similar devices as well as software not prescribed by the school;
d)the costs of private health insurance for the children at the current level; and
e)one half of any gaps or co-payments required for any differences between the actual costs for medical and health related expenses, provided the husband’s consent to any major expenditures is first obtained.
Evidence
The documents relied upon by the parties are listed in Annexure A.
The following witnesses were cross-examined at trial:
·The husband;
·The wife;
·The wife’s father, Mr I Klousner;
·Ms K, joint single expert and forensic accountant;
·Mr L, forensic accountant, adversarial expert for the husband; and
·Mr M, forensic accountant, adversarial expert for the wife.
The three accountant expert witnesses conferred and produced a joint statement of experts which was Exhibit C3.
Exhibit C7 was a joint table of assets and liabilities of the parties utilised during the trial.
D Pty Ltd is the trustee company for the parties’ family trust (Corbon Family Trust). At the conclusion of the trial the parties agreed that written confirmation as to the balance in the D Pty Ltd accounts would be submitted. This was because there were queries to be made of the accountant as to the winding up and associated costs for the company that could have affected the account balances. Four months after the trial was concluded the parties submitted by letter dated 15 June 2015, an agreed statement of the balance in those two accounts relevant to Exhibit C7. These amounts are referred to later.
Standard of proof
In determining the facts, I have applied s 140 of the Evidence Act 1995 (Cth), which is the civil standard of proof. Where I have made findings, I am satisfied that the facts have been proven on the balance of probabilities.
Legal Principles
Section 79 of the Act provides for the discretionary alteration of property interests between the parties to a marriage. Under s 79(2) of the Act, an order cannot be made unless it is just and equitable in all the circumstances.
The relevant factors under s 79(4) of the Act which must be taken into account in considering what order (if any) should be made are as follows:
a)the financial contribution made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
b)the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
c)the contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent; and
d)the effect of any proposed order upon the earning capacity of either party to the marriage; and
e)the matters referred to in subsection 75(2) so far as they are relevant; and
f) any other order made under this Act affecting a party to the marriage; and
g) any child support under the Child Support (Assessment) Act 1989 that a party to a marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.
In Bevan & Bevan (2013) FLC 93-545 (“Bevan”) at 87,232, the Full Court of this Court considered s 79 of the Act and set out the three fundamental propositions in relation to this section which the High Court of Australia laid down in Stanford & Stanford (2012) 247 CLR 108 (“Stanford”). These are as follows (original emphasis):
1.Determination of a just and equitable outcome of an application for property settlement begins with the identification of existing property interests (as determined by common law and equity);
2.The discretion conferred by the statute must be exercised in accordance with legal principles and must not proceed on an assumption that the parties’ interests in the property are or should be different from those determined by common law and equity;
3.A determination that a party has a right to a division of property fixed by reference only to the matters in s 79(4), and without separate consideration of s 79(2), would erroneously conflate what are distinct statutory requirements.
In applying those principles, the parties’ legal and equitable interests in property must first be identified.
The approach
In Bolger & Headon (2014) FLC 93-575, the Full Court emphasised that
s 79(4) of the Act requires a holistic assessment of the parties’ contributions. The Full Court referred to the authorities and the well-established recognition that s 79 requires the Court to exercise a wide discretion, and not perform a mathematical or accounting exercise. The Full Court cautioned against “over-zealous attention to the ascertainment of the parties’ contributions”.[2]
[2] Bolger & Headon (2014) FLC 93-575 at 79,058, quoting Norbis & Norbis (1986) 161 CLR 513 at 524.
The approach I have taken is to consider the contributions of the parties by determining the nature, form and characteristics of all contributions across the whole of the marriage and post-separation. In Marsh & Marsh (2014) FLC
93-576, Murphy J observed at 79,075:
The expression “post-separation contributions” has, of course, been used widely in many authorities within the context of discussions about the assessment of contributions. But, importantly, it is not the fact of separation or when contributions are made that is the delineator. It remains crucial to analyse and weigh that nature, form and characteristics of all contributions across the whole of the period under consideration.
It is not possible to ascribe a mathematical value with any precision to the comparable weight of the differing contributions between the parties and this would be inconsistent with the holistic approach required by s 79.
There are a number of factors to be taken into account under s 75(2) of the Act when considering what, if any, order should be made under s 79. These factors are considered later in these reasons.
Is it just and equitable to make an order?
Neither party made any submission regarding Stanford and the trial proceeded on the basis that both the husband and the wife seek orders altering the existing legal and/or equitable interest in the property. I am satisfied that it is just and equitable to do so under s 79(4) of the Act.
It is clear that both parties agree that the property arrangements that existed during their marriage are at an end and there will no longer be ongoing common use of the former matrimonial home. They both wish to put an end to their financial relationship by way of a distribution between them of their property. In these circumstances I have no hesitation in finding that it is just and equitable to make orders for adjustment of property interests between the parties.
Agreed Assets and Liabilities
A joint table of assets and liabilities was utilised by the parties during the course of the trial. This was exhibited and amended during the trial to reflect the valuations agreed or disputed. The final table was version five and became Exhibit C7.
The parties agreed in writing,[3] during the course of the trial, that the legal costs paid by both parties should be ignored for the purposes of calculating the parties’ liabilities and should be excluded from the table.
[3] Exhibit C8.
The parties were agreed as to the identity and value of the following non-superannuation assets and liabilities:
| Non-Superannuation Assets | Non-Superannuation Liabilities | ||
| Suburb C property registered in wife’s name | 2,700,000 | ||
| Chattels in wife’s possession | 21,780 | ||
| Wife’s tax refund to be received | 25,721 | ||
| Wife’s vehicle | 10,580 | ||
| Husband’s vehicle | 22,060 | ||
| Suburb N property (Husband’s 80 per cent interest) | 880,000 | Mortgage on Suburb N property (87 per cent) | 716,880 |
| Corbon Family Trust shares | 139,236 | ||
| Husband’s bank account (net proceeds from sale of inherited O Town property) | 153,500 | ||
Superannuation
The total superannuation of the parties at the date of the trial was $272,040. The husband’s superannuation was $169,690 and the wife’s superannuation was $102,350.
The parties agreed to an equalisation of superannuation assets resulting in a payment from the husband’s superannuation fund to the wife’s superannuation fund of $33,670. I am satisfied that it is appropriate and just and equitable for this amount to be paid to the wife’s superannuation fund in accordance with the parties’ agreement and that there has been procedural fairness accorded to the husband’s superannuation fund.
Motor vehicles
The parties agreed on the valuation of their respective motor vehicles and that each should retain their own. As can be seen from the table above, the wife’s motor vehicle was valued at $10,580 and the husband’s motor vehicle was valued at $22,060.
Shares in the Corbon Family Trust
The parties ultimately agreed that the shares held in the Corbon Family Trust by the trustee company at 3 February 2015 should be sold and after deduction of the costs of the windup and any capital gains tax, the proceeds should be divided equally between them.
The parties agreed that the value of those shares amounted to a gross total of $139,236 for the purposes of determining their total net assets. This was despite the fact that there was uncertainty as to the costs or the capital gains tax which might be incurred in the sale of the shares.
Husband’s interest in real property purchased post-separation
Post-separation, the husband purchased a property with his new partner at Q Street, Suburb N (“the Suburb N property”). There was ultimately no dispute that the husband had an 80 per cent interest in this property and a liability of 87 per cent for the payment of the mortgage. There was no issue that this interest should be taken into account as property of the marriage. The parties agreed that the husband’s equity in that property was valued at $163,120. I note that the figures outlined in final submissions for the wife mistakenly referred to $220,000, which reflected an earlier table. However, the amount agreed in the last table (Exhibit C7) during the trial was $163,120.
Husband’s bank account (Suburb N Offset) being his share of proceeds of sale of the inherited property at O Town
In 2004, the husband’s parents transferred ownership of their holiday home at O Town to the husband and his two siblings. The husband’s father died in 2009 and his mother the following year. The O Town property was retained until 2013, when it was sold for $595,000. This was after the parties separated. The husband’s one third share of the proceeds of sale was $193,000. After payment of capital gains tax, the balance was deposited into an offset account associated with the mortgage over the Suburb N property. The parties agreed that this sum is $153,500.
Chattels
The parties agreed on a single expert, Mr P, to value the chattels retained by each of them after separation. The single expert valued the chattels retained by the wife, which were stored at the former matrimonial home. He also valued the chattels retained by the husband, which were stored at the Suburb N property. However, Mr P attended the Suburb N property on a second occasion because the wine stored there had not been valued. Mr P’s valuation of those chattels was outlined in a report which was admitted into evidence as Exhibit C4.
The parties agreed that the value of the chattels retained by the wife at the time of separation was $21,780 and that the wife has an outstanding tax refund of $25,721 due to her.
There was no dispute about the chattels retained by the husband estimated at a value of $3,260 for first valuation and an additional value of $5,705 for additional chattels which were valued in a second valuation conducted by Mr P (Exhibit C4). Thus, the value of $8,965 in chattels retained by the husband was agreed. However the wife disputed the value of wine in the possession of the husband in storage, which he claimed was $3,500. This is referred to at paragraphs 92 to 100 of these reasons.
Issues
Disputed assets
Partnership interest
The principal issue in the trial was the valuation of the husband’s partnership interest in firm, R Professional Services. The husband argued that, on the basis of a capitalisation of assets valuation, his partnership interest amounted to $87,585. He relied upon the single expert witness, forensic accountant Ms K, and the evidence of his witness forensic accountant Mr L for this valuation.
The wife argued that, on the basis of the super profits valuation, the husband’s interest amounted to $773,980. She relied upon the evidence of her witness, forensic accountant Mr M for this valuation.
I accept the evidence of Ms K and Mr L that the value of the husband’s partnership interest in R Professional Services is $87,585, for the reasons set out below.
The Valuation of the Husband’s Partnership Interest
Ms K
In accordance with r 15.44 of the Family Law Rules 2004 (Cth) (“the Rules”), Ms K, a Fellow of the Institute of Chartered Accountants and the Principal of K Forensic Accounting, was appointed by the parties as a single expert witness to complete a valuation of the husband’s interest in R Professional Services as at 30 June 2014. Ms K completed a valuation report dated 4 November 2014, which is annexed to her affidavit filed on 13 November 2014.
Ms K reports that “the interest held by the Husband in R Professional Services Australia does not include any value prescribed for goodwill. Further, the interest held by the Husband is not transferable … and has no value in exchange by sale, nor is any value (other than his capital or current accounts) realisable on death or retirement”.[4] In light of this, Ms K’s opinion was that it is appropriate to value the husband’s interest in R Professional Services by reference to the value of his capital and current account at the date of valuation.[5] As such, Ms K valued the husband’s interest in R Professional Services as at 30 June 2014 as having a net value of $87,585.
[4] Valuation report of Ms K dated 4 November 2014 at [2.7], [3.1], [4.9].
[5] Valuation report of Ms K dated 4 November 2014 at [4.10].
Ms K’s view was that a super profit approach was not appropriate in respect of valuation of the husband’s interest in R Professional Services because there is no guarantee that he will continue to receive a profit share above the amount which would be considered a commercial salary for his position.
Ms K maintained this opinion in cross-examination. She emphasised that there is a lot of partner movement in the large practices and it would be hard to predict whether the husband would remain in the partnership until the age of 60.
Mr M
Mr M of Q Chartered Accountants affirmed an affidavit on 22 January 2015. Mr M deposed that he was engaged in September 2013 on behalf of the wife to value the super profit expected to be earned by the husband as a partner at R Professional Services. In his report dated 21 October 2013 (“the original report”), he initially valued the husband’s net present value of super profit in the partnership as $1,300,000. At trial he amended his report (Exhibit 1) and gave evidence that the value was $773,980.
The valuation methodology adopted by Mr M outlined in the original report is as follows:[6]
In professional practices where goodwill is not recognised on the admission and exit of equity partners, the value measured should not be recognised as an appraisal of goodwill. Rather, the value of a partner’s interest should be recognised as the value of the net present value of super or excess profit over and above a professional salary.
The professional salary for partners in professional service firms should be a measure for the compensation to a partner for personal exertion comparable to a market salary that could be earned in a similar professional practice.
[6] Expert Accountants Report of Mr M dated 21 October 2013 at page 3.
Mr M’s determination of the net present value of the super profit was made on the following assumptions:[7]
·The Husband will continue to be a partner at R Professional Services in the foreseeable future;
·The profit distribution to the Husband or related entity will increase by a fixed 5% until retirement;
·The “reasonable salary” will increase by a fixed 3% until the age of retirement;
·Net interest on capital will increase by a fixed 5% until the age of retirement;
·The Husband is 46 years of age in 2013;
·The Husband was admitted to the partnership in 2007.
[7] Expert Accountants Report of Mr M dated 21 October 2013 at page 5.
A summary of Mr M’s opinion was included in Annexure ML3 to his affidavit filed 22 January 2015. That summary, dated 21 October 2013, was based upon the original report and said as follows:
10.In my opinion a super profit has been generated by the Husband over and above a reasonable salary during the period in which he has been a partner of the firm, R Professional Services.
11.In my opinion the net present valuation of the super profit discounted 15% has been valued at $1.3 million
In the original report attached to his affidavit filed 22 January 2015, Mr M acknowledges that the husband cannot sell his equity in R Professional Services or the R Professional Services Service Trust from which the husband receives distributions. He purported to measure benefits or entitlements of the husband which are not available to an employee of the firm and adjusted for a reasonable salary that a partner would otherwise receive as an employed principal of a professional practice. He stated these “benefits or entitlements can be measured and therefore the super profit can be valued”. Mr M adopted $300,000 as a reasonable salary package for adjusting the husband’s profit, with an increase of three per cent “to reflect a sensible increase in the market each year”. Calculating the super profit also required that interest income (net) and taxation be deducted from the projected profits. Mr M also applied an allowance for death or disablement based on the life tables for a man of the husband’s age until retirement at the age of 60.
Mr M applied a post-tax discount rate of 15 per cent, taking account of the following risks:[8]
·The size and longevity of the R Professional Services Partnership;
·The possibility that the Husband may be terminated before the retirement age;
·The taxation speciality that the Husband provides to clients of the firm;
·The relative stability of the historical profit distributions received by the Husband since 2008.
[8] Expert Accountants Report of Mr M dated 21 October 2013 at page 6.
In the original report, Mr M valued the husband’s super profit, discounted at 15 per cent over 15 years, at $1,299,717, ultimately setting the amount as $1.3 million.
At trial, counsel for the wife tendered an addendum to Mr M’s report dated 2 February 2015 (Exhibit 1). In light of the husband’s 2013 and 2014 income and taxation return schedules, and using three different “reasonable salary packages”, Mr M valued the net present value of the husband’s super profit as at 1 July 2014 as ranging from $773,980 - $945,720 depending on the level of “reasonable salary package” adopted.
During the trial there was some discussion about the notional figure to be adopted for a “reasonable salary package” and, after discussion between the accountants, the parties agreed for the purposes of the trial to adopt the figure of $400,000 as a “reasonable salary package.”
Accordingly, Mr M ultimately revised his valuation, based on the agreed “reasonable salary package” of $400,000, and in his evidence he ascribed a value of $773,980 to the husband’s super profit.
Mr L
Mr L, a forensic accountant with Grant Thornton, was engaged by the husband as an independent expert in order to prepare a critique of the valuation reports of Ms K and Mr M. Mr L’s report is dated 15 January 2015 and is attached to his affidavit filed 16 January 2015.
Mr L endorsed the methodological approach taken by Ms K over that of Mr M. Accordingly, he calculated the husband’s interest in R Professional Services by reference to the value of his capital and current account balance, which was $87,585 as at 30 June 2014 (the same value as that in Ms K’s report).
Mr L disagreed with Mr M’s use of the super profits methodology. Mr L’s opinion was that the assumptions and inputs adopted by Mr M were incorrect. Mr L stated that Mr M’s approach involved an underlying assumption of ongoing growth. Mr L’s view was that this assumption was incorrect because the unit holding is related to performance and does not increase on an annual basis after the initial five years as partner.
Mr L defines the super profits methodology as follows:
30. The super profits method may be used in certain circumstances when valuing the interest a professional, such as a Partner, has in a professional practice. This method is based on the premise that the value, if any, of the professional’s interest in the practice is a function of the income derived in excess of what the professional could earn, if they were not the proprietor in the practice, but rather an employee performing comparable work (i.e. “super profits”).
31. The valuation of the professional’s interest is then established by applying an appropriate capitalisation rate to the maintainable “super profits” after allowing for income tax.
Mr L gave several reasons for his opinion that the super profits methodology was not appropriate in this case and drew upon the R Professional Services partnership agreement in order to support his opinion.[9]
[9] Valuation report of L dated 15 January 2015 at [33] – [38].
Mr L’s conclusion about the super profits methodology was as follows:
41. … I conclude that the Husband’s interest in [R Professional Services]:
a.Is not transferable, as there is a direct correlation between the Husband’s individual performance, his reward and the value of his interest in [R Professional Services];
b.Has no goodwill attached to it, as specified in the [Partnership] Agreement;
c.Has a significant risk component, as his interest is driven by his personal performance in the profitability of [R Professional Services]. The risks are:
i.There is no certainty regarding whether the Husband will receive profits equal to or above what a Partner in his position would be able to earn in the market place;
ii.There is no certainty that the Husband will continue his role as a partner of [R Professional Services] from now until his retirement;
iii.Unit holding and per unit value … can fluctuate year on year; and
iv.The husband’s entire remuneration is at risk as he does not receive a fixed base remuneration.
46.Consequently, I conclude that the super profits methodology is not appropriate for valuing the Husband’s interests as an [R Professional Services] Partner based on the above.
Super profit assessment
In the event that the Court determined that the super profits methodology was the most suitable approach to valuation of the husband’s partnership interest, Mr L set out his points of difference with Mr M’s inputs into the super profits calculation. Mr L disagreed in relation to the following inputs:[10]
a)Projected income growth;
b)Base projected income value;
c)Reasonable salary base; and
d)Discount rate.
[10] Valuation report of L dated 15 January 2015 at [51].
In terms of projected income growth, Mr L criticised Mr M’s implicit assumption that the husband’s income will increase in a straight line until retirement. Mr L pointed out that the partnership agreement sets out that after the first five years unit allocation is driven by performance, meaning that unit holdings may increase and decrease year on year.
For the base projected income value used in calculating the super profits, Mr L used 103 per cent of the husband’s 2014 income, specifically, $580,724. Mr L also noted that it is not clear how Mr M calculated the 2013 projected income figure in his report ($562,216) as this constituted more than a five per cent increase on the 2012 income earned by the husband.
Mr L also did not agree with the reasonable salary base adopted by Mr M for his calculations in his original report. Mr L stated, at [61], that “I do not consider $300,000 as a reasonable salary base as the Husband is an equity Partner, works in a specialised area of taxation consulting where remuneration is at a premium”. Whilst acknowledging that he is not a remuneration expert, Mr L adopted a base remuneration amount of $400,000 for the purposes of his super profits valuation. Ms K also agreed with this reasonable salary base figure of $400,000. After an agreement was reached between the parties following discussions between the three accountants, this figure was ultimately also adopted by Mr M for his revised calculations in Exhibit 1 and relied upon by the wife.
Mr L also provided an opinion as to the discount rate to be applied in the event that a super profits assessment was accepted by the Court. He did not agree with Mr M’s rate of 15 per cent and his opinion was that a discount rate of 35 per cent was appropriate. He agreed with the evidence of Ms K about the extent of the risks and the fact there is no data to analyse the probabilities of the risk. In cross-examination, Ms K also agreed that she would have applied a higher discount rate than 15 percent because of the risks associated with the income stream.
In cross-examination, Mr L did not accept that the percentage of 35 per cent in his report was for a riskier partnership than that of R Professional Services. He stated, “I don’t accept that in this scenario at all”. He emphasised the nature of the income stream being based on one individual staying in the partnership stream as being risky. He emphasised that there is no base remuneration at R Professional Services and no guarantee of income. He was prepared to concede that early retirees from R Professional Services would be in the minority where they were receiving extra payments as a partner of $160,000 per annum.
The most significant difference between Mr L and Mr M was the discount rate. Mr L’s view was that the discount rate in Mr M’s report did not adequately reflect the riskiness of the cash flows given the nature of the partnership agreement and the rewards system. On the basis of his inputs and using the base remuneration amount of $400,000, together with a discount rate of 35 per cent Mr L’s opinion was that the super profits calculation would total $363,523.
In summary, Mr M based his super profit valuation on a discount rate of 15 per cent whilst Mr L believed that it should be 35 per cent. The differences mean that, ultimately, Mr L’s super profit valuation is $363,523 in contrast to Mr M’s revised valuation of $773,980.
Conclusion about the valuation of the husband’s partnership interest
I accept the conclusion of both Ms K and Mr L, who agreed that the super profits methodology is not appropriate for valuing the husband’s interests as a partner in R Professional Services. I accept the conclusions which Mr L stated at [45] of his report (set out above).
On the evidence of both forensic accountants, Ms K and Mr L, those factors identified by Mr L at [45] of his report do not support the adoption of the super profits methodology outlined in the report of Mr M. The evidence of Ms K was that the circumstances relevant to the husband are distinguishable from those of an ordinary shareholder in a small private family company and are also distinguishable from those of an employee shareholder in a small private family company because of the rights and interest in underlying assets of an ordinary shareholder who may have an interest in surplus on the winding up of a company. She emphasised that a shareholder has rights under corporations law to take action as an oppressed minority shareholder.
Ms K did not change her opinion in cross-examination, responding to the scenarios proposed by counsel for the wife, and maintained that the alternative methodology used by Mr M invoked too many risks to have any certainty. She emphasised that the probability of the husband remaining at the accounting firm is unknown and that, in her opinion, it was not appropriate to capitalise benefit to retirement.
When referred by counsel for the wife to recent articles in the Australian Financial Review which, in particular, suggested a forecasting of seven per cent growth for the fiscal 2015 year for R Professional Services, Mr L conceded that it was reasonable to expect that it would be likely that there would be an increase in profit growth if there was an increase in revenue. However, he maintained that this would not affect his adoption of the three per cent forecast in his report as being an appropriate growth rate to be applied to the husband. He stated that he could not attest to the reasonableness of the forecast reported in the Australian Financial Review.
Counsel for both parties agreed that there were no particular cases which could be relied upon as authority for the purposes of determining the appropriate methodology for valuation of the husband’s partnership interest. It was conceded that any valuation is discretionary.
Counsel for the wife relied, to some extent, on the case of Scott & Scott [2006] FamCA 1379 (“Scott & Scott”) wherein the Full Court of this Court affirmed the trial judge’s decision to adopt a “value to owner” valuation methodology. Counsel for the husband submitted that the facts of this case were distinguishable.
The connection between that case and this one is not clear and there was no actual argument as to how it could be considered analogous. Scott & Scott involved a very different fact situation and the valuation in question was of the husband’s interest in a country medical practice, a very different interest to that of the husband in this case, which involves the peculiarities previously discussed, namely that the husband’s interest is non-transferable, has no goodwill attached to it and contains significant risk.
The most pertinent part of Scott & Scott for present purposes is, in my view, the Full Court’s reiteration that a determination such as this, of which expert’s evidence is to be accepted, is a matter for the trial judge’s discretion as follows:
108.Her Honour … acknowledged that whilst she was obliged to take into account the opinions of both [valuers], her ultimate duty was to determine the issue with reference to all of the material before her, including the expert evidence. Neither valuer’s [sic] evidence was said to be inherently unbelievable, nor outside their area of expertise. Whilst obliged to apply “appropriate principles” her ultimate conclusion was a matter for her Honour’s independent judgment and while others may have been equally entitled to prefer the evidence of [the other valuer], we do not find that her Honour has erred in any appellate sense. We also note the importance of the exercise of discretion by a trial judge in a case such as this where the evidence of the experts was contradictory, both between them and internally …
I have concluded that it is appropriate to accept the expert opinion evidence of the single expert witness, Ms K, and the expert opinion of Mr L in determining the valuation of the husband’s partnership interest in R Professional Services.
Accordingly I am satisfied that the husband’s partnership interest is valued at $87,585.
Disputed valuations
Chattels in possession of husband – Value of wine in storage
The parties regarded their wine collection as joint property. After separation, they divided their wine collection equally. Mr P valued the wine in possession of the wife at the Suburb C property at $5,000 and this was included in the agreed value of the chattels in her possession. Mr P did not value the wine stored by the husband at the Suburb N property when he attended on the first occasion; thus a second appointment was made for him to do so. Ultimately, Mr P valued that wine at $20 per bottle, amounting to a total of $1,500. This was not in dispute.
The husband conceded that some of the wine he had taken from the parties’ wine collection was at a storage facility in Suburb S and this had not been valued by Mr P. There was therefore no independent valuation of the wine in storage. The husband in evidence nominated a value for this wine of about $3,500. Exhibit C7 also references E3,500 as the husband’s estimated value of the wine in storage comprising the figures for “chattels in Husband’s possession”. In arriving at that figure, the husband stated that he adopted the valuation which Mr P had made for the wine held at the Suburb N property. As mentioned above, this was $20 per bottle.
The wife did not accept the husband’s estimate of $3,500 for the wine in storage, because it had not been independently valued. The wife complained that despite Mr P attending the husband’s Suburb N property on a second occasion, specifically to value the wine in possession of the husband, that the husband had not told Mr P about the wine in storage at Suburb S.
The husband conceded that at the second inspection, he told Mr P that there were no other items to be valued and that he did not mention that he had wine in storage.
In cross-examination the husband said that he found the whole process frustrating because he was not present on the first occasion when Mr P attended at the Suburb N property. He said that it did not occur to him to mention the wine in storage at Suburb S because at the time he did not know that Mr P was valuing the wine in the wife’s possession. He also stated that he did not think it was “the issue at hand”.
The husband was cross-examined about his expenditure on wine post separation. The husband conceded that from his income generated post separation he had spent about $9,390 purchasing wine. In cross-examination as to credit, the husband maintained that the wine he had purchased post separation was not stored in Suburb S but, rather, had been consumed. He said:
In our current financial state, we’re not buying wine to store, we’re buying it predominantly to drink. We drink a bottle of wine at least, probably, six nights a week. Life is too short to drink crap wine. I can probably drink six bottles a week, or if I have friends I can probably drink eight bottles a week…
I accept your contention that I might have spent $9,000 on wine in six months but I’m trying to explain that I can drink pretty close to $9,000 worth of wine in six months…
I think I have probably drunk the predominancy [sic] of it in that period.
As stated above the husband concedes that post-separation, he purchased wine for $9,390 but claims that it no longer exists. He provided no detailed evidence about how much and what type of wine is actually in the storage facility. Nor did he provide any independent valuation of the wine at the storage facility, claiming that he had forgotten about it. However there is no other evidence about the wine in storage.
I accept the evidence of the husband on the balance of probabilities, and find that the wine he purchased post separation is not in storage and has been consumed. It is not a matrimonial asset.
Neither counsel addressed this relatively minor issue in final submissions and nor was there clear argument as to what inference should be drawn from the evidence. In the absence of any other evidence and indeed absence of submissions about this I cannot ascribe a value to this wine in storage other than the estimate provided by the husband in evidence adopting the value of $20 per bottle made by Mr P. I find that the husband’s wine in storage is the remainder of the wine removed from the parties’ wine collection and is joint property valued at $3,500. Accordingly I find that the value of the chattels in the possession of the husband total $12,465 in accordance with Exhibit C7.
Liability on the Suburb C property
Another issue in dispute between the parties at trial was a difference of less than $2,000 in the outstanding mortgage and investment loan for the Suburb C property. In Exhibit C7 counsel for the wife claimed that the outstanding liability was $735,120 for the mortgage and a liability of $246,866 for the investment loan. Counsel for the husband claimed that the combined liability for the mortgage and the investment loan was $980,000 in Exhibit C7.
Other than the table (Exhibit C7) there was no other evidence in the trial which addressed this difference. There were no submissions made about this difference or the dispute. Accordingly I have relied on the affidavit material to make findings about these liabilities and noted that in fact the parties are in agreement, despite the fact that this was noted as a minor dispute in the table.
Ultimately it appears that there is no controversy between the parties about this issue. At [15] of the husband’s affidavit filed 15 January 2015 the husband deposed:
That the current position in respect of the house is that the house is registered in the name of the Respondent. It is subject to two loans to the ANZ Bank, one for an amount of $735,120 and the other for an amount of $245,000 which relates to the establishment costs of the Respondents … practice.
The wife deposed to the same figures in her financial statement filed 22 January 2015.
Four months after the conclusion of the trial the parties agreed in writing that the amount of the investment loan is $249,752.[11]
[11] Email dated 16 June 2015 attaching letter from the parties’ solicitors dated 15 June 2015.
Accordingly I find that the mortgage on the Suburb C property is $735,120 and the amount of the investment loan is $249,752. The total liability on the Suburb C property is therefore $984,872 and the equity in the property where the parties have agreed on a value of $2,700,000 is $1,715,128.
Other Disputed Issues
Post separation payment by the wife to Mr Klousner
The husband took issue with an amount of $87,616 paid by the wife to her father, Mr Klousner, from joint funds post-separation. The wife asserted that this was the repayment of a 2004 interest-free loan to the parties to offset their mortgage payments on the Suburb C property. The husband asserted that there was no loan and that this money was a gift. Accordingly, the husband claimed that the payment of this amount by the wife to her father should be regarded as a payment to the wife from joint funds, to be taken into account in any alteration of interests. This is dealt with later as what the parties referred to as an “addback”.
Payments made to wife from Corbon Family Trust ANZ offset account pursuant to interim order of 18 July 2013
The parties referred to an issue of the characterisation of payments made to the wife from joint funds, from the Corbon Family Trust ANZ offset account pursuant to interim court orders of this Court made 18 July 2013. Ultimately there were no submissions made about the amount or how it might be characterised.
One of a number of interim orders made by Cronin J with the consent of the parties on 18 July 2013 was that “the sum of $450 per week be paid for the wife commencing from 19 July 2013” from the Corbon Family Trust. This account is referred to as ‘Corbon Family Trust: ANZ Offset acct.’ in the parties’ table Exhibit C7. The orders of Cronin J provided as follows:
1.That pending the final hearing and without prejudice to either party’s position at trial and on the basis that any payment made pursuant to this order can be characterised as property maintenance or child support or a combination of any of those things and on the further basis that neither party will seek to vary the current child support obligations in respect of the children … the husband do all things reasonably required to enable the wife to draw from the offset account with the ANZ Bank …
…
(d) The sum of $450 per week for the wife commencing as from 19 July 2013.
2.That the wife’s applications for spousal maintenance be consolidated with the issues to be determined at trial and on the basis that the wife is at liberty to seek an order backdated to the filing of those applications taking into account the provisions of these orders.
These interim orders also provided for the mortgage payments, rates and insurance on the Suburb C property to be paid from the same account without prejudice to their positions at trial.
There was no clear evidence about the total payment received by the wife as a result of that interim order. Exhibit C7 referred to this item as a “disputed addback”.
In Exhibit C7, at the date of trial, the parties were uncertain as to the net amount of the ‘Corbon Family Trust: ANZ Offset acct.’ The wife estimated the net amount in that account was $345,580 after deducting payments made to her of about $25,000 ordered on the interim basis. The husband estimated the net figure remaining in that account as $350,000 at the date of trial.
The parties agreed at a later time in writing,[12] four months after the conclusion of the trial, that the amount remaining in the Corbon Family Trust: ANZ Offset account was $353,359. This amount had to be settled at a later time because at trial the parties agreed to a sale of joint shares and there were additional accounting costs as to the winding up and associated costs for D Pty Ltd which were ultimately agreed to be paid from the sale of the joint shares.
[12] Email dated 16 June 2015 attaching letter from the parties’ solicitors dated 15 June 2015.
The wife in her affidavit filed 22 January 2015 at [67]-[68] deposed that the weekly withdrawals of $450 were used to meet the day to day expenses of her and the children. This evidence was not challenged. She deposed that her income was insufficient to cover personal expenses for herself and the children.
There were no substantial submissions about how this payment to the wife should be characterised but counsel for the husband submitted, in closing, that none of these payments were necessary for the wife and that, had she not “repaid” $87,616 to Mr Klousner, she would have had no difficulty supporting herself. He also submitted that the wife had sufficient funds, from her own earnings or capacity to earn, yet “chose not to”. From the figures produced by counsel for the husband in closing submissions about the net assets, I can only assume that the husband proposed that the moneys drawn down by the wife of $450 per week should be notionally added back to the pool as a joint asset of the parties. I note that the husband sought that these payments be treated as part property settlement at [24] in his affidavit filed 16 January 2015.
In the absence of any submissions about this I accept the evidence of the wife about how she used these payments and I find that the payments of $450 per week to the wife from the Corbon Family Trust should be regarded and characterised as spousal maintenance paid from joint funds.
Affidavit of Ms K sworn and filed 13 November 2014;
Affidavit of Mr W sworn 28 January 2015 and filed 30 January 2015;
Affidavit of Mr X sworn 30 January 2015 and filed 4 February 2015 insofar as it related to valuation of property at Q Street, Suburb N; and
Financial Statement of the husband sworn 15 January 2015 and filed 16 January 2015.
Documents relied upon by the respondent wife:
Further Amended Response filed 24 April 2014;
Application in a Case filed 29 April 2014;
Affidavit of the wife sworn and filed 22 January 2015;
Affidavit of Mr X sworn 30 January 2015 and filed 4 February 2015;
Affidavit of I Klousner (the wife’s father) sworn 21 January 2015 and filed 22 January 2015;
Affidavit of Mr M sworn and filed 22 January 2015;
Valuations of Mr P dated 3 October 2014 and 2 February 2015; and
Financial Statement of the wife sworn and filed 22 January 2015.
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