DB & MM
[2006] FamCA 1251
•22 September 2006
[2006] FamCA 1251
FAMILY LAW ACT 1975
IN THE FULL COURT
OF THE FAMILY COURT OF AUSTRALIA Appeal No EA133 of 2005
AT SYDNEY File No SYF4212 of 2003
BETWEEN:
DB
Appellant Wife
- and -
MM
Respondent Husband
REASONS FOR JUDGMENT
CORAM: KAY, WARNICK & MAY JJ
DATE OF HEARING: 11 September 2006
DATE OF JUDGMENT: 22 September 2006
APPEARANCES: Mr Lethbridge, Senior Counsel, instructed by Michael Conley, Lawyers, Lvl 5, 14 Martin Place, Sydney, NSW 2000, appeared on behalf
of the Appellant Wife.
Mr Richardson, Senior Counsel, instructed by Gayle Meredith & Associates, Suite 448, Lvl 4, 311 Castlereagh Street, Sydney NSW 2000, appeared on behalf of the Respondent Husband.
DB & MM
EA 133 of 2005
CORAM: KAY, WARNICK & MAY JJ
DATE OF HEARING: 11 September 2006
DATE OF JUDGMENT: 22 September 2006
Catchwords: APPEAL - PROPERTY SETTLEMENT – Contributions – pool $4.7 million - contributions assessed by trial Judge 57.5:42.5 in favour of wife - Trial Judge appeared to overlook a significant investment of the wife when determining initial contributions – Trial Judge further wrongly attributed to the husband funds which the wife had contributed to renovating the matrimonial home – wife's income during marriage apparently overlooked - Contributions by the wife were significantly undervalued – Husband was the major breadwinner during the marriage – The husband retained a greater earning capacity than the wife – The husband also had the benefit of valuable share options which were likely to be exercised in his favour - The wife had a modest earning capacity at the commencement of the relationship which did not seem to have been adversely affected by the fact of the marriage – trial Judge's adjustments resulted in 2:1 split of pool - on re-exercise of discretion only a small adjustment for s75(2) factors in favour of the wife required– pool reduced by about $100,000 to remove notional asset and a HECS debt - contribution re-assessed at 2:1 with a further 2% adjustment for 75(2) factors.
This is the wife’s appeal against property orders made by Rowlands J on 13 October 2005 that gave effect to a judgment of the trial judge that the property of the parties, which his Honour assessed as being approximately $4.8 million should be divided as to two-thirds to the wife and one-third to the husband. The wife asserts that an appropriate apportionment of the pool of assets should have been 75:25 in her favour.
Background
The husband was born in 1951 and the wife in 1947. They met in 1993 and commenced cohabitation in April 1995. They had each been previously married. Two children of the husband’s former marriage lived with their mother and two children of the wife’s former marriage lived with her.
The parties married in April 1996 and finally separated in December 2001 after having spent several months apart earlier in 2001.
The trial judge determined the assets of the parties to be
Assets
1. 6 [K] Road, [R] $2,400,000 Wife $2,174,497.00
Mortgage ($225,503)
(NB parties agree at cohabitation the
[R] property was valued at
$800,000 and subject to a mortgage to
Hilbur Pty Ltd of $200,000)2. 13/69-74 [S], [M] $1,275,000
Mortgage ($755,000) Joint $ 520,000.003. 20 [S] Crescent, [W],
Northern Territory $697,500
Mortgage ($485,497) Joint $ 212,003.00
4. Shares in [G & R W] Holdings Pty Ltd Husband $ 551,365.00
5. Shares in [G & R W] International Pty Ltd Husband Nil
6. Loan to [G & R W] Holdings Pty Ltd Husband $ 340,000.00
7. Shares in [A] Management Services
Pty Ltd Husband $ 27,038.008. Loan to [G & R W] International Pty Ltd
as discounted Husband $ 37,412.009. Gift to husband’s children (agreed addback)Husband $ 100,000.00
10.Investment in [SP] Pty Ltd Husband $ 170,295.00
11.Husband’s ANZ account continuing residual
of [M] share proceeds Husband $ 321,200.0012.Wife’s business “[LL]” Wife Nil
13.Wife’s shares in [B] Pty Ltd
– notional Wife $ 79,709.0014.Wife’s car Wife $ 9,000.00
15. Husband’s car $55,000
Lease ($43,500) Husband $ 11,500.0016.Wife’s furniture Wife $ 66,577.00
17. Husband’s furniture Husband $ 2,495.00
18. Wife’s coins Wife $ 49,550.00
19. Credit with coin dealer Wife $ 20,000.00
20. Wife’s jewellery Wife $ 10,545.00
21. Wife’s ski lodge Wife $ 6,000.00
22. Wife’s share portfolio Wife $ 89,072.00
23. Husband’s super – Mercer and NZMP Husband $ 111,454.00
24. Wife’s super – REST Wife $ 14,586.00
25. Add back: Sale proceeds NZ property Husband $ 32,500.00
26. Wife’s Macquarie Account Wife $ 900.00
27. Wife’s cheque account Wife $ 400.00
28. Loan to C.M. Husband $ 10,000.00
29. Add back husband’s legals Husband $ 148,771.00
30. Add back wife legals paid and in trust Wife $ 252,685.00
31. Tranche 3 [M] Options Husband
Total Assets $5,369,554.00
Liabilities
1. Loan – [K] Trust Husband $ 31,250.00
2. Husband’s credit cards Husband $ 19,350.00
3. Wife’s credit cards Wife $ 5,049.00
4. Body corporate fees Husband $ 1,460.00
5. Estimated 2005 Tax Liability Wife
6. Husband’s HECS obligations relating
to child [J] Husband $ 16,071.007. Husband’s tax on Tranche 1 shares Husband $ 343,175.00
8. Husband’s tax on Tranche 2 shares Husband $ 168,040.00
Total Liabilities $ 584,395.00
Total Net Assets $4,785,159.00
Financial Resources (wife contends property)
Tranche 3 of [M] options (post tax value) Husband $ 202,450.00
There was a dispute about the categorisation of tranche 3 of the M options that the wife asserted should be included in the property pool and which the trial judge concluded should be treated as a resource rather than property as it was entirely dependent upon the exercise of discretion by arms length trustees.
There was a dispute about the inclusion of a notional value attributable to the wife’s shares in B Pty Ltd. They were redeemable preference shares in a company associated with the wife’s first husband’s parents. The shares were owned by the wife at the date of the marriage. They were shares to which the husband had made no contribution. When they were redeemed the wife received nothing for their value. The dividends earned by them, and upon which their notional value was assessed, had historically been applied for the support of her children.
The trial judge assessed the initial contributions made by the wife in the following manner:
43. The wife brought substantial assets to the relationship. These included the house at [R] ($800,000), a share portfolio worth $211,736, bank accounts worth some $13,935 and other investments totalling some $31,602. She also brought coins with a present value of $49,550 together with a coin she sold for $90,000 net of which sum $20,000 remains as a credit with a coin dealer. At cohabitation the wife had a motor vehicle which she sold for about $25,000 four months thereafter upon removal to the United States. She had the shares in [B] Pty Ltd earlier discussed. There was also unvalued furniture in the [R] property, her furniture there now has a value of $66,577. There does not seem any desire by either party to include the debt of the wife of some $200,000 secured on [R] or the asset represented by her quarter interest at that time in [J] Street, [H]. One is left with a general impression that the wife brought something approaching one and a quarter million dollars to the marriage.
His Honour said that the husband’s contributions were “in the order of $50 odd thousand dollars”.
The parties agreed at trial that the $200,000 loan that was secured against the R property was off set against other interests the wife held at the commencement of cohabitation and dividends she notionally received from B Pty Ltd so that it did not effect the overall value of the assets she introduced into the relationship.
His Honour found that the husband was the major breadwinner, receiving significant payments from organisations he was associated with during the relationship and subsequent to it. They included:
· $22,500 from the N.D. Co-op.
· $340,000 from D Ltd on sale of that business at separation.
· $542,837 on the exercise of the first two tranches of share options in M (August 2004 - $364,402 and October 2004 - $178,435) – see earlier discussion concerning third tranche.
His Honour said:
47.The earnings and payments flowed from his astute capacity [in his area of employment] and opportunities he took in New Zealand, the United States of America and in Australia.
48.The husband’s high income and financial benefits, largely coming from his employment related efforts, provided himself, the wife and her children with a high standard of living both in America and then here. It allowed the opportunity for the couple to gain significant equities in their properties. At [R] the husband also contributed, financially, to the extent of something like $370,000 in additions and renovations to that place which was brought into the marriage by the wife.
His Honour found that the wife was the primary homemaker, and that whilst the cohabitation period was not long, there were particular problems for the homemaker of removals, resettlement and renovations:
The husband’s successful financial advances occurred from this domestic base.
Having found that the husband was a good breadwinner and the wife a good homemaker, his Honour commented that in the context of a relatively short marriage the husband’s contributions were “distinguished” but noted that the benefits which came to the husband after separation flowed generally from commercial activities undertaken during the parties’ relationship. He concluded that the contributions should be apportioned as to 57.5 per cent to the wife and 42.5 per cent to the husband.
When his Honour turned to consider any further adjustment under the heading of Section 75(2) factors, his Honour identified that the wife was aged 58 and the husband 54. The husband had a much greater capacity than the wife to earn handsomely into the future, she earning some $400 per week from part time work.
The husband’s statement of financial circumstances indicated that he was earning $1884 per week from his employment as a company manager. His Honour considered that the disparity in earning capacity, plus the retention by the husband of the third tranche of M options deemed it appropriate to further adjust the pool to a result where the wife received two-thirds and the husband one-third.
The appeal
The gravamen of the appeal was that the trial judge had made identifiable errors which clearly indicated that he had significantly undervalued the wife’s contributions. It was common ground that in addition to the assets identified by the trial judge at par 43 of his judgment as being brought into the marriage by the wife, she also had at least $331,000 invested with C and W. It was further acknowledged that the finding that the husband had contributed $370,000 to additions and renovations at the R property owned by the wife was contrary to the evidence and at best the husband’s contribution was $22,500 plus a share of some jointly owned borrowed funds.
It was further urged upon us that the trial judge failed to give the wife any credit at all for income earned by her during the course of the relationship and applied towards the parties’ day to day living requirements or towards the acquisition, conservation or improvement of assets. The evidence had disclosed that the wife had been attributed with post-tax earnings of slightly in excess of $358,000. During the same period the husband’s post-tax earnings slightly exceeded $611,000.
It was further submitted that during cohabitation the husband paid from his post-tax earnings support for his children to the extent of $222,000. It was argued before us that in light of the wife’s earnings and the husband’s outgoings, the trial judge’s assessment of the husband being the major breadwinner, and that largely coming from his employment the wife and her children were provided with a high standard of living, both in America and in Australia, was misleading if not fallacious.
In response to the arguments advanced on behalf of the appellant, Mr Richardson SC acknowledged that the trial judge appeared to overlook the C and W funds and had wrongly attributed to the husband the provision of funds for the renovations to the wife’s property. He submitted that the evidence relating to the history of the taxable income of the wife during the course of the marriage was misleading because much of the income was attributed to her by way of dividends from companies associated with her late husband’s family, which dividends were utilised for the support of her children. It was, he said, impossible to say how much if any of the wife’s taxable income actually found its way into the coffers of the family unit comprised by the husband and the wife in this suit.
He further emphasised that in any event the contribution the wife made as homemaker during the course of the cohabitation ought not be seen as being particularly significant. He asserted it was constituted by one passage in the wife’s affidavit where she said
although I did not work in [F] I was predominately responsible for the household and caring for the children…the husband and I retained a cleaner who assisted me with the cleaning of the [F] house.
It was further urged upon us that the totality of joint cohabitation was 15 months in F, USA and 28 months in the wife’s R property and that as such any contribution that was made by the wife as a homemaker ought be seen to be of comparatively little weight.
Discussion
Given the magnitude of the errors by the trial judge that materially affect his Honour’s exercise of discretion we are firmly of the view that the appeal must be allowed. The contributions of the wife have clearly been understated and those of the husband overstated. It thus becomes appropriate for us to examine the exercise of discretion afresh and determine for ourselves what an appropriate outcome to these proceedings should be.
Both parties have invited us to re-exercise the discretion and neither party seeks to present any further evidence.
The wife does, however, ask us to make two adjustments to the pool of assets as determined by the trial judge, namely to excise both the B shares (asset item 13) and the husband’s HECS obligations relating to the child J (liabilities item 6). There was also some suggestion by Mr Lethbridge SC on behalf of the wife that liability item 1 (loan to K Trust) should also be excised from the table of assets, but as the item was part of an agreed table of assets and liabilities produced at trial, and the existence of the debt was positively sworn to by the husband, it would now be inappropriate for us to ignore the debt. The debt relating to J’s HECS obligations falls into a different category in that it is clearly not a debt of the husband but a debt of the husband’s adult child J and we see no reason why the wife in these proceedings should effectively be required to contribute to it by including it in the parties’ pool of assets and liabilities.
We also accept the submission that it is appropriate that the notional value attributed to the B Pty Ltd shares be excised from the pool of assets. The trial judge determined to include the shares even though it was acknowledged that the shares no longer existed and that the husband had never made any contribution towards their acquisition. We think that a safer course in the circumstances, absent any positive finding of waste (see Kowaliw v Kowaliw (1981) FLC 91-092 at 76,645). It could not be said as was the situation in Townsend v Townsend (1995) FLC 92-569 at 81,654 that what the wife did was to distribute to herself an asset in which the husband had a legitimate interest. She invited her children’s paternal grandparents to redeem shares that she held in a company controlled by them that had been a vehicle to enable distributions to be made for the support of the children, which distributions, she said, were likely to cease in the foreseeable future when the children attained 21 years of age.
In determining whether the appeal should be allowed and we think it is appropriate to make those two adjustments to the pool of assets so that the divisible pool of assets in this case should be seen to decrease by the value of the B shares ($79,709) and increase by the value of the HECS liability ($16,071) leaving a net pool of assets of $4,721,521.
In that pool of assets the singly most valuable asset is the wife’s home at R, which she owned prior to the parties commencing their relationship. The trial judge attributed $800,000 to its value at the commencement of the relationship. The extent to which the increase in its value from $800,000 to the agreed value of $2,400,000 was attributable to market forces or substantial improvements made to the property is, as has been submitted by Mr Richardson SC, impossible to determine on the evidence.
The property presently occupied by the husband at M was acquired during the course of the marriage by the parties utilising their joint borrowings. It has also seen substantial capital growth and the equity in it now represents over 10 per cent of the parties’ pool of assets.
There is significant room for debate about an appropriate assessment of the parties’ contributions given the strength of the wife’s initial capital contributions and the very large sums generated by the husband’s personal exertion during the course of the relationship. Ultimately a fair assessment becomes a matter of impression.
It seems clear that the wife came into the relationship with the following assets:
· R property $800,000
· Share holding $211,736
· Funds invested with C and W $331,179
· Ford motor vehicle $26,000
· Furniture and furnishings, whose
value at trial was agreed at $67,577
· Cash at Bank $53,475
· Coin collection value at trial and the
proceeds of sale of some of the coins that
were otherwise included in the assets was $139,550
Total $1,561,900
No attempt before us was made to seriously challenge the trial judge’s assessment that the husband’s initial contribution was likely to have been in the order of $50,000.
During the course of the marriage the wife received income by way of dividends on her investments, some modest income from personal exertion, and rental from her property at R when the parties resided in the United States for a period of 15 months. It is not possible for us to determine on the evidence before us precisely the extent of the wife’s income, but it is common ground that much of it was applied towards meeting the day to day needs of the parties’ various households.
For much of the parties’ relationship the husband was in highly paid employment. In addition to the income earned by him by way of salary he ultimately received significant capital sums, being
$22,500 from the settlement of his employment with N.D. Co-op,
$340,000 from the termination of his employment with D Ltd; and
$542,837 from the exercise of share options in 2004.
In the course of the relationship the wife assumed responsibility as a homemaker albeit that the parties only lived together for 15 months in the United States and 28 months in Australia. She provided the home that they lived in during their periods together in Australia.
The husband came into the marriage with experience and business acumen that made him an attractive employee for the various businesses that retained him at very high salary during the course of the relationship.
Assessing these various contributions as best we can in accordance with the provisions of s 79(4)(a), (b) and (c) of the Family Law Act 1975 (Cth), we would conclude that an appropriate apportionment of the pool of assets should be 2:1 in favour of the wife. This creates a capital imbalance in her favour of approximately $1,573,840 (33.33% of $4,721,521).
The next step in the process is to then turn our attention to the provisions of s 79(4)(e) which incorporate the relevant matters under s 75(2) of the Family Law Act.
The trial judge identified as relevant the following matters:
· The husband is approaching his 55th birthday, the wife is 59 years of age.
· The husband has a much greater earning capacity than the wife.
· The husband retains the third tranche of the M shares valued by the trial judge at $202,450 net of tax.
In addition, as we have already identified, the wife retains a significantly greater capital base than the husband.
Given the modest duration of the marriage and the lack of effect it appears to have had upon the wife’s modest personal exertion earning capacity, and bearing in mind the matters that we have already identified, we conclude that only a modest adjustment would be justified to the contribution based assessment mainly attributable to the third tranche of share options. This adjustment ought be no greater than two per cent of the pool. This would result in the husband becoming entitled to receive assets to the value of $1,479,252 being 31.33 percent of the slightly reconstituted pool of $4,721,521.
In the circumstances, whilst the trial judge’s contribution based assessment was clearly inappropriate, the end result achieved by the trial judge determining a division of the pool of assets in the ratio of two thirds to the wife and one third to the husband required the husband to receive or retain $1,595,053. We would have that figure reduced by a difference of $115,801. Given the acknowledged errors of the trial judge we propose to allow the appeal and make the necessary consequential orders.
Costs
We were invited by counsel at the conclusion of the proceedings to defer arguments on the costs appeal and the costs of the appeal until the outcome of the appeal was known. Accordingly we will invite written submissions in the usual way.
Orders
1. The appeal be allowed
2. Orders 1.1 and 4.3 of the orders made 13 October 2005 be varied by substituting the sum of $537,435 for the sum $421,634 therein appearing.
3. The appellant be at liberty to file and serve written submissions as to costs of this appeal and the costs appeal in EA 08 of 2006 within fourteen (14) days of this date.
4. The respondent be at liberty to file and serve written submissions in answer thereto within fourteen (14) days thereafter.
5. The appellant be at liberty to file and serve written submissions in reply thereto within a further seven (7) days.
I certify that the 41 preceding
paragraphs
are a true copy of the reasons
for judgment delivered by this
Honourable Full Court.
Associate
Key Legal Topics
Areas of Law
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Civil Procedure
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Administrative Law
Legal Concepts
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Appeal
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Judicial Review
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Jurisdiction
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Procedural Fairness
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Standing
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