Dixon and Dixon
[2010] FMCAfam 907
•27 August 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| DIXON & DIXON | [2010] FMCAfam 907 |
| FAMILY LAW – Property – value of husband’s interest in family owned company – contribution – wife’s future needs. |
| Family Law Act 1975, ss.79, 75(2), 117 |
| Lee Steere & Lee Steere (1998) FLC 91-625 Hickey & Hickey (2003) FLC 93-143 AJO v GRO (2005) FLC 93-218 D & D (2003) FamCA 473 C & C (2005) FLC 93-220 Lenehan & Lenehan (1987) FLC 91-814 Mallett & Mallett (1984) FLC 91-507 Reynolds & Reynolds (1985) FLC 91-632 Sapir v Sapir (No 2) (1989) FLC 92-047 Turnbull & Turnbull & Ors (1991) FLC 92-258 Spencer v The Commonwealth 5 CLR 418 |
| Applicant: | MS DIXON |
| Respondent: | MR DIXON |
| File Number: | ADC961 of 2007 |
| Judgment of: | Kelly FM |
| Hearing dates: | 18, 19 February (Mt Gambier) 18 March and 27 April 2010 (Adelaide) |
| Date of Last Submission: | 14 July 2010 (written submissions) |
| Delivered at: | Adelaide |
| Delivered on: | 27 August 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr D Berman |
| Solicitors for the Applicant: | Herman Bersee |
| Counsel for the Respondent: | Ms A Horvat |
| Solicitors for the Respondent: | Downs Lawyers |
THE COURT ORDERS
The wife retain 60% of the net matrimonial assets to be allocated as follows:
(a)a superannuation splitting order in the sum of $100,000 in accordance with paragraph 7 of these orders;
(b)the net proceeds available from the sale of [Property B] and [Property M];
(c)the husband to pay the balance outstanding (if any) to the wife within 3 calendar months, or such other timeframe as may be agreed between the parties.
Thereafter the husband retain as his sole property free from any claim by the wife the following:
(a)the remnant chattels and machinery of the defunct partnership trading as [Partnership A];
(b)his shareholding and interest in [Business L];
(c)any monies standing to his credit in any financial institution;
(d)all items of furniture and articles of domestic use or ornament presently in his possession;
(e)all his estate and interest both at law and in equity which he may have in any superannuation scheme, retirement benefit, early retirement redundancy benefit or rollover fund and as otherwise specified in these orders.
(f)all other items of property presently in his possession of whatsoever nature and from whatsoever source.
Thereafter the wife retain as her sole personal property free from any claim by the husband:
(a)any motor vehicle presently in her possession;
(b)any monies standing to her credit in any financial institution;
(c)all items of furniture and articles of domestic use or ornament presently in her possession;
(d)all her interest and interest both at law and in equity which she may now or may hereafter have in any superannuation scheme, retirement benefit, early retirement redundancy benefit or rollover fund;
(e)all other items of property presently in her possession of whatsoever nature and from whatsoever source.
The husband indemnify the wife with respect to any liabilities incurred in his sole name or severally with others.
The wife indemnify the husband with respect to:
(a)the balance outstanding on the parties’ joint overdraft account;
(b)any liabilities incurred in her sole name or severally with others.
The base amount allocated to the applicant wife in these proceedings out of the interest of the husband in his superannuation account with [I Superannuation Fund] is $100,000.00.
Pursuant to s.90MT(1) of the Family Law Act 1975 whenever a splittable payment becomes payable in respect of the interest of the husband in [I Superannuation Fund] the wife shall be entitled to be paid an amount calculated in accordance with Part VI of the Family Law (Superannuation) Regulations2001 using the base amount and there will be a corresponding reduction in the entitlement Mr Dixon would have in the [I Superannuation Fund] but for this order.
The husband shall serve a copy of these orders upon the Trustee of [I Superannuation Fund] no later than 10 September 2010 and shall notify the wife in writing that service has been effected.
The aforesaid Trustee has liberty to relist the matter before the court within a further 28 days in the event that the Trustee is unable to comply with order 7 herein.
If no objection is received from the said Trustee by 8 October 2010, then orders 6 and 7 become binding on the said Trustee.
Order 7 has effect from the operative time, defined as four (4) business days after the date specified in order 10.
If either party fails to take a step in accordance with these orders a Registrar of the Federal Magistrates Court at Adelaide is appointed and empowered, pursuant to s.106A of the Family Law Act 1975 to execute all documents and perform all acts necessary to implement the terms of these orders.
The husband indemnify the wife as to two thirds of the total costs to be paid by her to [Business L] or their solicitors, [M Solicitors].
Liberty to speak to the minutes within 14 days.
Liberty to apply with respect to costs and generally within 28 days.
IT IS NOTED that publication of this judgment under the pseudonym Dixon & Dixon is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MOUNT GAMBIER |
ADC961 of 2007
| MS DIXON |
Applicant
And
| MR DIXON |
Respondent
REASONS FOR JUDGMENT
Introduction
Before the Court are competing property applications filed by the wife, Ms Dixon and the husband, Mr Dixon. The parties separated in November 2006 and the wife commenced proceedings for property settlement in February 2007. They have been unable to resolve financial issues arising from their marriage and it falls to the Court to determine these matters.
A significant area of dispute relates to the value of the husband’s interest in a family run company, [Business L] (hereinafter referred to as “[Business L]”). The difficulties surrounding this issue have caused substantial delays. The parties also disagree about the weight to be attached to their various financial contributions made during the marriage and the extent of any adjustment on account of s.75(2) factors.
Background
The parties married in November 1992. At that time the husband owned 1000 shares in [Business L] and worked in the company as a [tradesman]. The husband also owned a block of land [at Property P].
The wife was in paid employment prior to the parties’ marriage but they agreed that she would stop working and devote her efforts to the family. She received a redundancy payment at that time.
The wife brought significant assets into the marriage. She owned [Property L] that she had purchased with the proceeds of an earlier compensation payment. The wife’s father passed away in mid 1992 and she received a substantial inheritance from his estate, including a property at [Property M] [omitted] and an allocation of shares and cash, which were paid to her from the estate over the next two years.
The parties lived in [Property L] for the first few years of their marriage. They set up a partnership, [Partnership A] and purchased stock through that entity. The husband continued in his employment at [Business L].
The child [X] was born in 1994. In that same year the parties purchased [Property B]. The property was purchased in the husband’s sole name for taxation purposes but was clearly acquired as a joint enterprise within the marriage. The wife contributed a substantial portion of the purchase price from her inheritance. Subsequently the husband’s land in [Property P] was also sold and the net proceeds were paid towards the mortgage secured against [Property B].
The parties commenced building a family home on [Property B] and a portion of the wife’s redundancy payment and inheritance was directed towards the building costs. The parties moved out of [Property L] and moved into the matrimonial home at [Property B] in mid-1997.
The child [Y] was born in 1997. The wife’s [Property L] was sold later that year and the net proceeds of sale were also paid towards the parties’ outstanding mortgage.
The child [Z] was born in 2002. The wife continued in her role as primary parent and homemaker within the family. She earned a modest income from a farming venture on [Property M]. The parties also ran a few head of cattle on [Property B] through their partnership.
In 2006 the husband purchased a further 844 shares in the company at a cost of $150,000[1] and was appointed a director at the same time. The share purchase was paid by instalments and the parties extended their existing mortgage to fund the initial payment of $100,000. The husband paid a further $15,000 instalment in December 2006 (just after the parties separated) with two final instalments in the sum of $15,000 and $20,000 respectively being paid in December 2007 and December 2008.
[1] Husband’s Affidavit sworn 15 January 2010, Annexure “ARD6”, Share Sale Agreement
At the time of separation the wife moved out of the family home into rental accommodation in [Town M]. The children remained in her primary care and spent regular time with their father. The husband remained living in the family home at [Property B] for a period but is now living with his de facto partner in [Town M].
[Y] moved to live with his father in October 2009. [X] and [Z] remain living with their mother. The children spend regular time in the care of the other parent on weekends and school holidays. To their credit, the parties have been able to reach agreement regarding their parenting arrangements and do not seek the court’s assistance in this regard.
The husband continues as a director and employee of [Business L]. The wife continued to receive a modest income from the farming ventures undertaken on [Property M] by way of lease payments, but that property has now been sold. [Property B] is also on the market.
Court proceedings
These proceedings have had a slow progress through the court system. The wife filed her application on 21 February 2007 and the husband filed his response on 24 April 2007. On 25 May 2007 the proceedings were transferred to the Mt Gambier circuit of the Federal Magistrates Court.
On 29 June 2007 orders were made inter alia as follows:
1) The parties do all such things as may be reasonably required to obtain within 42 days from Mr H from [H Valuations] written valuations of all real property owned by them, with the aggregate costs of such valuations to be shared equally between the parties.
2)The husband do within 42 days all such things as may be reasonably required to facilitate the valuation from Mr Q of his interest as shareholder in [Business L] and to furnish a copy of such valuation to the wife.
3) The husband do within 28 days furnish to the solicitors for the wife copies of all the Financial Statements, including Profit and Loss Statements of [Business L] for the financial years ending 30 June 2004 and 30 June 2005 and do furnish to the solicitors for the wife within 7 days of his receipt of them all draft Financial Statements, including Profit and Loss Statements for the financial year ended 30 June 2007.
4) Each party do within 28 days furnish to the solicitors for the other party copies of all documents evidencing their interest, whether as beneficiary, unit holder, trustee or appointor, in any discretionary unit trust.
Various directions hearings took place over the second half of 2007. There is little relevant affidavit material on file at this time, but both parties were obtaining independent valuations of the husband’s interest in [Business L]. The husband instructed Mr Q from [Agency E], whose valuation was completed by September 2007. The wife instructed Mr C in August 2007, whose valuation was eventually completed in March 2009.
The wife and her legal advisors experienced significant difficulties in accessing relevant financial information to enable Mr C to complete his valuation. On 28 November 2007 the husband was ordered to “within 21 days provide to the wife’s solicitors advice in writing as to which, if any of the 18 classes of documents sought by Mr C in his report dated 27 November 2007 are not available and specifying in detail the reasons for the unavailability.”
On 27 February 2008 the Court noted the husband’s undertaking that he would provide to Mr C, or to the wife’s solicitors, the documents requested by Mr C in his letter dated 27 November 2007. On 25 March 2008 the wife issued a subpoena to Mr T, the accountant for [Business L], seeking a range of financial records. The husband filed a similar subpoena in almost identical terms on 1 April 2008.
On 11 April 2008 [Business L] filed an application seeking to set aside both subpoena, or to extend the time for compliance. The company also objected to the husband’s undertaking referred to above. In the alternative, the company sought orders and directions to preserve the commercial confidentiality of documents so produced. The subpoenae were listed before a Registrar, who referred all issues to the Federal Magistrate for determination. There began an expensive merry-go-round regarding the production of relevant financial records from [Business L], a situation that continued over the next two years.
The wife also filed an interim application on 11 April 2008, seeking the husband be dealt with for contempt for failing to comply with his undertaking given on 27 February 2008, regarding the production of documents.
On 2 May 2008 orders were made by consent in the terms sought by [Business L] as follows:
1.The subpoena issued at the request of Mr Dixon dated 1 April 2008 be set aside in whole.
2.Subject to Ms Dixon paying to [Business L] sufficient conduct money, [Business L] do produce within seven (7) days to a Registrar of this Court at Adelaide the following documents:
a)Financial Reports for [Business L] and its controlled entity [Business O] for the year ended 30 June 2007;
b)Consolidated Profit and Loss Statements for [Business L] and [Business O] for the 2006 – 2007 year;
c)[Business L] Budget for the 2007 – 2008 year;
d)Application for Finance made by [L Finance] on behalf of [Business L] to [G Bank] in relation to the financing of vehicles;
e)Worksheet of Mr T in support of the future income tax benefit calculation – 30 June 2007;
f)Worksheet of Mr T in support of the deferred taxation liability – 30 June 2007;
g)[Business L] Asset Schedule;
h)[Business L] Accounts Depreciation Schedule from 1 July 2006 to 30 June 2007;
i)Agreement for Harvesting and Transport [omitted] between [Business SA] and [Business L] dated 8 December 2006;
j)Agreement between [Business T] and [Business L] for Production and Transport [omitted];
k)Agreement between [Business AU] and [Business L] dated 17 December 2002; and
l)Worksheet of [Business L] setting out [stock] as at 30 June 2007.
3.No access shall be granted to any document referred to in paragraph 2 of this Order to anyone other than to:
a)a solicitor for a party;
b)counsel retained on behalf of a party; and
c)an expert accountant engaged by the solicitor for a party for the purposes of the proceedings.
4.No access shall be granted to any person entitled to access the documents under paragraph 3 of this Order UNLESS AND UNTIL such person has filed with a Registrar of this Court an undertaking signed by that person, a copy of which is to be given to [Business L], in the following terms:
Ms Dixon v Mr Dixon
I, [insert name, address and profession], hereby undertake to the Court that:
(a)I will keep the documents produced and the information recorded in such documents confidential;
(b)I will not without the prior consent of [Business L] communicated through its solicitors [Solicitors M] disclose or discuss any document or its contents with any person other than a person who has signed an undertaking in like terms to this undertaking which has been previously filed with the Registrar of this Court;
(c)I will not without the prior consent of [Business L] communicated through its solicitors [ Solicitors M] in any way, whether directly or indirectly, utilise any information obtained from any document the subject of this undertaking other than for the purpose of the within proceedings;
(d)I will retain securely any copy of a document I am permitted to retain;
(e)I will not copy or reproduce in whole or in part any copy document I am permitted to retain without the prior consent of [Business L] communicated through its solicitors [ Solicitors M];
(f)I will return any copy of a document I obtain to [Business L] at the end of the litigation; and
(g)I will comply with any direction or order as may be made by this Court from time to time in relation to the documents.
5.One copy of a document produced may be made for a solicitor for a party PROVIDED THAT:
a)such copy is retained by a solicitor for a party or an expert accountant engaged by such solicitor for the purposes of the proceedings who has signed an undertaking in the terms referred to in paragraph 4 of this Order;
b)such copy and the information recorded in such copy is not to be copied or reproduced in whole or in part in any documents including an expert report;
c)no further copy of such document is made without the prior consent in writing of [Business L] communicated through its solicitors [ Solicitors M]; and
d)such copy, and any further copies made, is to be returned to of [Business L] at the end of the litigation.
6.Ms Dixon do pay the costs of [Business L] incurred in complying with the order for production herein, such costs to be agreed or taxed in accordance with the provisions of Chapter 19 of the Family Court Rules 2004.
7.Mr Dixon do pay the costs of [Business L] of, and incidental to, the Application in a Case dated 11 April 2008 in so far as it relates to the subpoena issued at his request.
8.Ms Dixon do pay the costs of [Business L] of, and incidental to, the Application in a Case dated 11 April 2008 in so far as it relates to the subpoena issued at her request, such costs to be agreed or taxed in accordance with the provisions of Chapter 19 of the Family Court Rules 2004.”
One might consider requiring such undertakings from the parties’ solicitors, counsel and expert witnesses was unnecessary, given that they all have their own professional obligations that preclude the inappropriate disclosure of such information. Nonetheless the orders were made by consent, no doubt in a pragmatic attempt to move the matter forward.
In hindsight, it is unfortunate that the orders made by consent on 2 May 2008 and the undertakings given in that regard did not refer to all subsequent company records that may have been sought by either party for the purposes of this litigation. However, they did not. As a consequence [Business L] appeared at numerous interlocutory hearings as the wife sought access to further information in order to value the husband’s interest in the company.
I do not intend setting out each and every application filed or order made in this regard. [Business L] is entitled to protect its commercial interests. The company is entitled to object to subpoenae that were too broad, or imprecisely drawn. Whether these concerns and the extent of the company’s involvement in these proceedings were truly justified is not the issue here.
The issue, from my perspective, is that the husband was – and remains – a director of the company, with all the rights and responsibilities of that position, including access to company records. He is also a litigant in proceedings under the Family Law Act 1975. As such he has an obligation to make full disclosure of all relevant financial records. Clearly the financial records relating to [Business L] are relevant in assessing the value of the husband’s interest in the company. Indeed, specific records were sought at the request of the wife’s valuer, Mr C, to enable him to complete his valuation.
Whether or not the company’s solicitors or accountants considered the records were relevant is not the point. Once the appropriate undertakings were given, as they were, that should have been the end of the company’s concerns.
[Business L] initially sought to challenge the husband’s capacity to enforce his access to the company’s financial records, but did not pursue this argument, once the concerns about confidentiality were addressed. I note in passing that none of the authorities cited by the company in earlier interlocutory proceedings specifically address the situation that would arise in family law proceedings, as here.
At the end of the day Mr C was unable to complete his valuation of the husband’s interest in [Business L] for over 12 months. The situation would be farcical, were it not so serious. It is clear that the difficulties in obtaining relevant documentation accounted in large part for this delay.
The trial
The trial was first listed on 28 April 2009. At the time of trial it seemed the husband was relying upon the valuation undertaken by Mr Q dated 19 September 2007 and the wife was relying upon the valuation undertaken by Mr C dated 23 March 2009. However on the morning of trial, the husband sought to file a further valuation prepared by Mr B dated 20 April 2009.
The wife quite rightly objected to the late provision of this valuation evidence. A quick perusal of the valuation reports made it clear that Mr C had only received financial records from the 2008 financial year while Mr B had been given access to more recent financial records.
Given the significance of the valuation issue generally, the Court allowed the husband to rely upon Mr B’s valuation report, which was based on more recent information. The wife then sought an adjournment of the trial, to enable Mr C to consider the material made available to Mr B. Procedural orders were made to ensure that both Mr C and Mr B had access to the same financial records. A conference of experts was ordered, including a direction that the experts prepare a joint report identifying the areas of agreement and disagreement.
The trial was adjourned until July 2009 but was not ready to commence at that time. The trial was ultimately listed in February 2010, three years after the wife’s initial application was filed.
The trial proceeded before me in Mt Gambier on 17 and 18 February 2010. The proceedings were adjourned part heard and resumed before me in Adelaide on 18 March 2010 before finally concluding on 27 April 2010. The parties then presented written submissions.
The wife relied upon the following documents:
a)Application for final orders filed 21 February 2007;
b)Wife’s trial Affidavit filed 11 February 2010;
c)Wife’s Financial Statement filed 28 April 2009;
d)Affidavit and Valuation Report of Mr C filed 24 March 2009;
The husband relied upon the following documents:
a)Husband’s Response filed 24 April 2007;
b)Husband’s Financial Statements filed 4 April 2007, 20 April 2008 18 April 2009 and 25 January 2010;
c)Husband’s trial Affidavit filed 18 January 2010;
d)Husband’s Affidavit with respect to contravention proceedings filed 25 January 2010;
e)Affidavit of Ms V filed 18 January 2010;
f)Affidavit of Mr PD filed 8 February 2010;
g)Affidavit of Mr Q filed 23 March 2009 annexing valuation of plant and equipment held by [Business L] dated 19 September 2007;
h)Affidavit of [DH] filed 23 March 2009 annexing valuation of [Vineyard C] and [Business N] as at August 2007;
i)Affidavit of Mr B filed 1 May 2009 annexing his valuation report dated 20 April 2009. Mr B’s affidavit annexes a further report from Mr SD, but Mr SD was not called as a witness and that report does not form part of the evidence before me;
j)Further affidavit of Mr B filed 18 January 2010;
k)Financial Statement of Ms V sworn 28 January 2010.
The parties also relied upon the joint report from Mr C and Mr B dated 30 September 2009 (annexed to the Affidavit of Mr H Bersee filed 4 November 2009).
Both parties gave evidence and were cross examined, as was Mr C, Mr B and Mr PD. Ms V was not required for cross examination.
I am satisfied that all of the witnesses gave their evidence honestly and to the best of their recollection. Insofar as there may be conflict between the parties’ evidence regarding the financial history of their relationship, I consider that the wife’s recollection of such matters was more reliable than that of the husband. Where their evidence is in conflict, I generally prefer the wife’s evidence on such topics. I will discuss the evidence of Mr C and Mr B elsewhere in this judgment.
Legal principles
Section 79 of the Family Law Act 1975 sets out the factors that the Court must consider when deciding a property settlement. In doing so the court follows a four step process[2].
[2] Lee Steere & Lee Steere (1998) FLC 91-625
First the Court must identify the assets and liabilities arising from the parties’ marriage. The Court is ultimately responsible for determining the value of the relevant matrimonial assets if the parties cannot agree. As the Full Court said in Lenehan & Lenehan[3]:
“… A trial Judge, as part of his ultimate responsibility under sec.79 or otherwise, is normally required to determine a number of issues. Some of those issues may properly attract the evidence of expert witnesses. In appropriate circumstances their opinions are admissible to assist in the determination of such an issue. It is the responsibility of the trial Judge to take into account the opinions of such witnesses; however the ultimate duty of the Judge is to determine the issue on the whole of the material before him including such opinions. The expert evidence is called to enable the Judge to form his own independent judgment on the matter by application of the appropriate principles.”
[3] Lenehan & Lenehan (1987) FLC 91-814 at p.76,142
There are a range of different valuation approaches that may be applied in assessing the valuation of a company or a minority shareholding within a company. In Mallett v Mallett[4] the High Court said:
“What is the most appropriate method of estimating the value of shares in a proprietary company depends upon a variety of factors. They include the purpose for which the valuation is made, the nature of the shareholding, the character of the company’s business, its capacity to earn profits and the net value of its assets. It has been said that a valuation based on earning capacity is generally most appropriate because the hypothetical purchaser of shares in a company which is a going concern is looking, not to a winding up, but to the profits which will ensue from the company continuing to trade. [citations excluded] But it has been recognised that valuation by reference to assets backing or a liquidation basis will be appropriate where earning capacity provides no real measure of the true share value. [citations excluded]
[4] Mallett & Mallett (1984) FLC 91-507 at p.79,121
At the end of the day, the Court must take a common sense approach to fixing a value for the asset in question based on all the evidence including, of course, any expert evidence.[5] In family law proceedings the Courts have generally adopted the concept of “value to owner” in assessing the value of a shareholding.[6] This approach acknowledges that a company, or interest in a company, may be more valuable to the owner who receives some benefit from that ownership than it would be to the hypothetical “willing but not anxious buyer” in the open market.[7]
[5] Commonwealth v Millage (1953) 90 CLR 157
[6] Reynolds & Reynolds (1985) FLC 91-632; Sapir v Sapir (No 2) (1989) FLC 92-047; Turnbull & Turnbull & Ors (1991) FLC 92-258
[7] Spencer v The Commonwealth 5 CLR 418
Once the asset pool has been identified, the Court must then assess each party’s contribution during the marriage. The relevant factors pursuant to s.79 (4)(a)-(c) include the parties’ direct and indirect financial contributions, any other contribution the parties may have made to the “acquisition, conservation or improvement of the matrimonial assets” and their respective contribution to the overall welfare of the family as a whole – what is often described as the “home maker or parent” contribution.
The third step requires the Court to consider a range of factors set out in s.79(4)(d), (e), (f) and (g), including a range of considerations set out in s.75(2). Finally, the Court must be satisfied that the orders to be made are just and equitable as between the parties in accordance with s.79(2). As was noted by the Full Court in D & D[8]:
“… the task of the court in proceedings under s.79 is not akin to an accounting exercise. The task is to examine the facts of each case carefully to decide what is appropriate and just and equitable in the circumstances. There cannot be expected to be a universal answer to that question on any given set of facts. It is of the essence of judicial discretion that different minds may comfortably arrive at different conclusions.”
[8] Danielian & Danielian (2003) FamCA 473 at 49
I will set out my findings regarding the first three steps and then consider what orders best reflect a just and equitable outcome between the parties.
Asset pool
Both parties have included the parties’ tangible assets and superannuation interests in one asset pool. I am satisfied to adopt this approach, given the value of the parties’ superannuation interests, comparative to the overall asset pool.[9]
[9] C & C (2005) FLC 93-220 at paras 61-68
The parties have agreed the value of most assets and liabilities but there are some issues still in dispute, particularly relating to the husband’s interest in [Business L]. The value to be attributed to [Property M] and [Property B] were initially agreed, but both properties have since been placed on the market.
[Property M] has been sold and a portion of the debt secured against [Property B] has been discharged. This occurred after the hearing concluded, but I accept the figures provided in the husband’s closing submissions regarding the net proceeds remaining from the sale of [Property M]. For the purposes of this judgment I will rely upon the agreed valuation regarding [Property B], but any calculations may need to be adjusted once the actual sale price is known.
What is the value of husband’s interest in [Business L]?
The company [Business L] was established by the husband’s grandfather and has been trading for approximately 80 years. The company has an annual turnover exceeding $14million.
The husband owns 1,844 ordinary shares or 24.2759% of the overall shareholding in [Business L]. He is a director of the company, together with his brother, Mr PD. Mr PD holds 1,844 shares in his own right and controls a further 2,532 shares held by [Business P], a company owned by him. The remaining shares are held by other family members.
The wife’s valuer, Mr C, has no prior relationship with either party.
Mr B is a Principal at [P Accountants], who also act as auditors for [Business L]. While it may have been preferable for the husband to have instructed a more “arms length” expert witness, the wife does not challenge Mr B’s valuation on this ground.
The Court accepts that both Mr C and Mr B have provided an independent valuation of the husband’s interest in [Business L]. However, they have adopted a different approach to the valuation process. Mr C concluded that the company should be valued as a going concern and accordingly an earnings based valuation was appropriate. Mr B took a different view and concluded that an asset backed valuation was appropriate. Mr C and Mr B conferred together in September 2009 and have presented a joint report clarifying the areas of agreement and disagreement in their valuations.
The husband had earlier filed a valuation report from Mr Q, of [Agency E]. Ultimately this report was relied upon by Mr B and the husband regarding the valuation of company plant and equipment, but not otherwise. Mr Q updated his valuation by letter from Mr Q to Mr B dated 20 April 2009. A summary of his 2009 valuation is annexed to the experts’ joint report.[10]
[10] Affidavit of Mr H Bersee filed 4 November 2009, Annexure “HAB1”, Joint Report, Annexure 2
The valuation evidence
Valuing the husband’s interest in [Business L] has been complicated by a number of factors. In the course of the hearing it became clear that Mr B was given access to a great deal more information regarding the company’s financial position than was initially made available to Mr C. In addition, the company was seriously affected by the global financial crisis in the 2008/2009 financial year which had the potential to undermine Mr C’s earlier conclusions about the company’s trading position and long term viability.
At the time of their joint report in September 2009 Mr C and Mr B had been given access to the company’s unaudited financial records to 30 March 2009. At that time the company appeared to be trading at a loss. On the question of future maintainable earnings, their joint report notes “when and if the company will return to profitability is not an issue we currently believe we can provide an opinion about. We have a lack of information on which to form an opinion and there appears to be a considerable difference of opinion amongst commentators.”[11]
[11] Joint Report, para.1.52
They continue, “The company has not provided any projections or other material which provides us with any assistance as to the expected earnings of the company into the future.”[12] The husband gave evidence under cross examination to the effect that there were regular financial budgets prepared, setting out the company’s expected income and outgoings. If the husband’s evidence is correct (and I have no reason to think that it was not) it is unclear why these documents were not provided to Mr B or Mr C.
[12] Supra, para. 1.53
Bearing in mind their uncertainty regarding the company’s future profitability, the experts agreed that there are three potential valuation scenarios that may be considered when assessing the value of the husband’s interest in [Business L].[13]:
·Orderly notional realisation value;
·Valuation as a going concern – with no goodwill;
·Valuation as a going concern – with goodwill.
Both experts agreed that if the company is not a going concern, then its value should be assessed on the basis of an orderly realisation of assets. In that regard, Mr Q’s valuation of plant and equipment was accepted as the appropriate figure.[14]
However, they disagreed about whether the company is continuing to trade as a going concern and how its value should be calculated. Mr B concluded that an orderly realisation of assets remained the most appropriate valuation method whereas Mr C preferred to adopt a future maintainable earnings approach.
[13] Supra, para. 3.1
[14] At trial the parties agreed the value of the real estate holdings owned by [Business LVD] as follows:
[Business N] $1,000,000
[Vineyard B] $872,000
[Property P] $418,631 (book valuation)
Neither Mr C nor Mr B were informed of this and accordingly the figures set out their joint report (Annexure 4, columns B & C) would need to be amended. If these agreed real estate valuations are inserted, the net assets of the company would have been valued at $1,167,034. The husband’s 24.2759% interest in the company is then valued at $283,308.
Is [Business L] a going concern?
Mr B accepted that the company was continuing to trade but could not accept that it met any reasonable accounting definition of “a going concern”. The audited 2009 financial reports were available by the time the trial commenced and indicated that the company returned a profit of $500,166 in the 2009 financial year. However this figure included a significant taxation benefit and the profit before various taxation benefits were adjusted for was a very modest $17,604.
These figures did nothing to alter Mr B’s opinion that the company has not achieved an economic rate of return over the past few years and in those circumstances he concluded that the husband’s interest in the company should be valued on the basis of an orderly realisation of assets.
Mr C took a different view. He analysed the past trading performance of [Business L] and concluded that the results in the financial years prior to 2007 were undermined by the company’s unprofitable haulage business which was ultimately sold off. The company returned to profit in the financial years 2007, 2008 and 2009, notwithstanding the global financial crisis had a significant impact upon the company’s trading environment in the 2009 financial year.
At the time of their Joint Report in September 2009, Mr C agreed that there was insufficient information to determine when the company would return to profitability. However, the end of year financial reports available at trial demonstrated a more positive outlook. Mr C conceded that the company’s “pre-tax adjusted” profit for the 2009 financial year was very modest. Nonetheless the figures represented a considerable improvement comparative to the March 2009 figures, which indicated a projected loss for the 2009 financial year.
Mr C acknowledged that the end of year financial reports were audited, whereas the March reports were not. However there was no evidence to suggest that the apparent turnaround was due to a dramatically different last trading quarter. In the circumstances Mr C concluded the company was trading as a going concern and should be valued on that basis.
In reaching this conclusion Mr C made several observations. He noted the company directors had demonstrated confidence in the ongoing profitability of their business in recent times. The purchase of $3.9 million in plant and equipment represented a significant investment in the company’s future, notwithstanding other plant and equipment purchases had been cancelled or delayed.
In addition, Mr C noted that the 2009 financial reports for [Business L] were prepared on “a going concern basis which contemplated continuity of normal business activities”. The directors confirmed that they expected the company to maintain the present status and level of operations.[15]
[15] Exhibit W2, Financial Reports 2009, pages 9 and 1
Mr C conceded that the company’s trading situation was severely undermined by the global financial downturn across 2008/2009. A major customer, [Business AU], reduced the value of forward orders across that financial year, which had a significant impact upon the company’s revenue. At the same time, he noted that [Business AU] indicated they were hoping for a rapid turnaround in the market across the 2009/2010 financial year and had sought reassurance that [Business L] was proceeding to bring on line new plant and equipment, to maintain their level of operations into the future.
I note also that the Managing Director, Mr PD, had purchased a controlling interest in an associated business based in Western Australia, a transaction that he considered would enhance the company’s Western Australian operations. This purchase was funded (at least in part) by a drawdown against Mr PD’s loan account with [Business L], which must have been approved by the Board. This transaction again reflected the directors’ confidence in the company’s future trading prospects. Mr PD presented as an astute businessman who would not lightly utilise company funds unless it was to the overall benefit of [Business L].
Mr C placed significant weight on the fact that [Business L] had been trading for over 80 years and had obviously weathered difficult financial circumstances in the past. He concluded that “it was reasonable to assume the company will be profitable in the future provided it can fund its operations during this period of decline”.[16] The end of year financial reports indicate that the company did indeed manage to fund its operations during the period of decline and traded the year out positively.
[16] Joint Report, para 1.56
Having considered the evidence of both experts, I prefer Mr C’s opinion. I accept Mr C’ more optimistic view of the company and conclude that [Business L] should be valued as a going concern. His view was supported by the evidence from Mr PD, who was confident about the long term prospects for [Business L], notwithstanding recent difficulties.
There remain a number of uncertainties in determining the value of the company, as reflected in the Areas of Disagreement set out in the Joint Experts’ report. In particular, Mr B and Mr C disagree about the value of the company plant and equipment, the rate of depreciation and the capitalisation rate that should apply.
On either approach, it is clear that the value of [Business L] depends largely upon the value chosen to represent plant and equipment. I now consider the evidence in this regard and set out my conclusions regarding the appropriate value to be attributed to the plant and equipment owned by [Business L].
Conclusions regarding the valuation of plant and equipment
In his September 2007 report, Mr Q valued the plant and equipment for [Business L] in the sum of $7,270,850. He subsequently confirmed that his valuation was conducted on a fair market basis “as if the business was being sold to another party at that time”.[17]
[17] Appendix 5, Valuation Report of Mr B B, Annexed to his Affidavit filed 1 May 2009
In the course of correspondence with Mr B in April 2009, Mr Q noted that the valuation should be reduced, taking into account the negative trading environment in 2009. Accordingly it seems Mr Q valued the plant and equipment at $6,866,007, as at April 2009.[18]
[18] Joint Expert’s Report, Annexure 2
The husband argues that the wife did not seek to cross examine Mr Q and therefore his evidence regarding valuation of plant and equipment should stand unchallenged. I reject this argument. Having initially instructed Mr Q to value his interest in [Business L], the husband himself chose to ignore Mr Q’s report and instructed Mr B as his nominated valuer.
Mr B chose to accept Mr Q’s valuation of the company plant and equipment, whether the company is valued on an asset backed basis or an earnings basis. Mr C disagrees. As discussed below, he argued that the [Agency E] valuation was of little assistance in assessing the value of plant and equipment in the context of a company that is continuing to trade as a going concern.
Having considered the evidence presented by both expert witnesses, I prefer Mr C’s evidence on this topic and on the issue of valuation generally. Mr C has adopted a more nuanced approach in an effort to give real meaning to the concept of “value to owner”.
In his view, the value of the plant and equipment to the owner, in situ, may not be reflected by the market value, as the demand for specialist equipment can vary dependent upon demand. If the equipment is working productively and generating income, it may be more valuable to the owner than the market place would reflect.
Mr B conceded that the plant and equipment may be worth more to the owner in situ than to a purchaser in the market place but was unable to suggest how such a value could be assessed. In the absence of any better approach, he was content to rely upon the valuations prepared by [Agency E]. That is the extent to which Mr Q’s valuation has any relevance; as information relied upon by Mr B in the preparation of his valuation.
At the time of his report in March 2009, Mr C considered two scenarios: one based on the 2007 [Agency E] valuation of plant and equipment of $7,270,850 and one based on the insurance value of $14,412,254. In relying upon the insurance values, Mr C then factored in his own depreciation calculations[19].
[19] Annexure 5, Mr C’s Report, dated 23 March 2009 annexed to his affidavit filed 3 April 2009
Mr C took some time to explain his approach in this regard. As discussed, he was not satisfied that the [Agency E] valuation was sufficiently attuned to the appropriate valuation process for family law proceedings. He then considered the book values for plant and equipment contained in the company financial reports for the year ending 30 June 2008 but rejected these figures as he considered that the depreciation rate was too high and the book value would therefore be artificially low.
Mr C acknowledged that the company’s Depreciation Schedule was based on the relevant Australian Taxation Office rates and was therefore appropriate for taxation purposes. However Mr C argued that in a valuation context, depreciation is relevant not so much as a guide to the amortisation of the historical cost of the equipment in question, but as a guide to the amount a company may need to “put aside” to replace the equipment at the end of its useable life. The longer a piece of equipment remains useable, the lower would be the annual amount set aside to replace it.
Mr C noted that the company prides itself on the excellent maintenance and performance of its equipment. Much of the company equipment remained on the Depreciation Schedule for many years beyond the allowable depreciation period. This led Mr C to conclude that the rate of depreciation used for taxation purposes was too high when considering the appropriate rate for valuation purposes.
Mr B was content to rely upon the depreciation periods relied upon by [Business L], based on information provided to him by the company’s Chief Financial officer, Mr F. Mr C did not receive the same access to company officials such Mr F that was made available to Mr B. Mr C undertook his own detailed analysis of the company’s records regarding plant and equipment, as referred to in paragraphs 79‑82 above. I accept his analysis of the “working life” of company plant and equipment (compared to the claimed depreciation period) and prefer his evidence in this regard over the information relied upon by Mr B.
Mr C conceded that his calculations based on insurance values could be challenged, but suggested that, assuming these figures reflect the owner’s “estimate of value” in terms of replacement cost, this was no less valid than the [Agency E] valuation figures, given his concerns about the reliability of those figures. He was not necessarily arguing for one set of figures over the other, as ultimately it would be for the Court to decide.
In the course of giving evidence Mr C was able to comment upon the 2009 financial reports, which were completed in January 2010. He noted that the book value for plant and equipment had increased considerably, to the sum of $10,275,005[20]. He considered this figure provided a further option for the Court to consider in assessing the value of the plant and equipment owned by [Business L].
[20] 2009 Financial Reports, p.21
While Mr C still considered the ATO Depreciation Schedule was generous and may lead to an undervaluing of the company plant and equipment, he nonetheless concluded that the attributed value of $10,275,005 was a figure that “he would feel comfortable with” in terms of assessing the value of plant and equipment.
In light of my preference for Mr C’s approach overall, I accept Mr C’s opinion in this regard. This approach avoids the likely undervaluation of plant and equipment evident in the [Agency E] valuation (a figure which had decreased between 2007 and 2009, despite the purchase of new equipment). It also avoids the risk that the insurance figures may reflect an overvaluation of the plant and equipment. In the circumstances I conclude that the plant and equipment should be valued at $10,275,005, a figure that will allow the husband’s interest in [Business L] to be realistically valued.
Conclusions regarding the value of the husband’s interest in [Business L].
If the plant & equipment valuation of $10,275,005 is included in the Calculation Sheet annexed to the Joint Report[21], it may affect other calculations, particularly regarding the calculation of goodwill and the amount to be attributed to the company’s deferred tax assets and liabilities. No further evidence was called about these variables, despite there being ample opportunity to do so in the period between the evidence commencing in February 2010 and concluding in April 2010.
[21] Joint Report, Annexure 4
In the absence of any further accounting evidence I am unable to ascertain whether there is any goodwill within the company. Accordingly I have no option but to exclude any goodwill in assessing the value of the husband’s interest in [Business L]. Ironically, this effectively results in the company being valued on an asset backing basis, rather than an earnings basis, but I conclude that this is the only approach open to me, on the available evidence.
Regarding the company’s deferred tax assets and liabilities, Mr C and Mr B agreed that any deferred tax liability should be offset against any deferred tax asset and if there then remains a net tax asset, that figure should be disregarded. They then agreed upon a range of amended calculations regarding the company’s deferred tax liability, based on the relevant information known to them in September 2009.[22] Unfortunately these calculations were not updated to take into account the agreed real estate valuations or the 2009 end of year financial reports.
[22] Joint Report, Annexure 3
I note the wife tendered a variation of the calculations undertaken by Mr C and Mr B.[23] Mr Berman endeavoured to deal with some of these uncertainties by excluding both the deferred tax asset and tax liability figures, on the basis that these will only come into effect at some indefinable future time and therefore should not be taken into account.
[23] Exhibit W3
On the face of the 30 June 2009 financial reports, the deferred tax liability exceeds the value of deferred tax asset. Neither Mr C nor
Mr B suggested any net tax liability should be ignored in valuing the company. In the absence of any updated accounting evidence I will include both figures as set out in the 2009 financial reports. I appreciate this approach ignores the adjustments set out by Mr C and Mr B in Annexure 3 to their joint report, but again, I see no other choice is available to me.
Taking into account all of the above, I have performed the same calculations as set out in Column “D” of Annexure 4 to the Joint Experts report, inserting the relevant figures from the 2009 audited financial reports, together with the agreed real estate valuations (see Annexure “A” to this judgment). On this basis the company [Business L] is valued at $3,871,934 and the husband’s interest in the company at $751,486 (adjusted for a 20% minority discount and the balance outstanding on the husband’s debit loan). I will round this figure down to $750,000.
Conclusions regarding the asset pool
Having determined the husband’s interest in [Business L] should be valued at $750,000, the remaining disputes relate to the value of the wife’s [omitted] motor vehicle and whether the proceeds from the wife’s [C Superannuation fund] should be added back into the asset pool.
Regarding the [omitted] motor vehicle, the husband has provided a copy of the “Redbook” extract and concludes that a value of $5,000 is appropriate. The wife estimates its value at $2,000. In the absence of any further evidence I will be guided by the Redbook extract and accept the husband’s estimated value.
The husband argues that the proceeds from the wife’s [C Superannuation fund] should be added back into the pool. The wife disagrees. There is no principle that the parties are required to keep their financial situation fixed as it stood at separation. I accept the wife’s financial circumstances since separation have been extremely difficult and that she has utilised the superannuation monies for her necessary expenses, including expenses relating to the [Property B] property, such as fencing and the like.
I am satisfied the wife required the funds to meet her ongoing expenses, a situation that arose in part because of the husband’s failure to pay spousal maintenance. She has used a portion of the money to maintain the [Property B] property from which she derived income. I conclude the wife has utilised these monies legitimately and I will exclude the value of this fund from the asset pool.
Accordingly the assets arising from the parties’ marriage are as follows:
Assets
Net proceeds of sale from [Property M] property (taken from husband’s closing submissions)
$204,019
[Property B] property (to be sold)
E$500,000
Husband’s [omitted] policy
$81,107
(agreed)
Husband’s [I Superannuation Fund]
$125,506
(agreed)
Wife’s [A Superannuation Fund]
$19,107
(agreed)
[Partnership A] (defunct partnership)
Nil
(agreed)
Wife’s motor vehicle
$5,000
Household furnishings and effects
Not relevant
(agreed)
Husband’s interest in [Business L]
E$750,000
Total
$1,684,739
The parties have discharged the main loan secured against [Property B]. They are otherwise in agreement about the substantial debts arising from the marriage, but disagree about the following liabilities:
a)The husband’s [omitted] Visa in the sum of $2,700 (the amount owing at separation);
b)The joint [bank] overdraft in the sum of $10,000 which the husband says the wife has drawn down since separation and therefore she should be responsible for;
c)Various small debts incurred by the wife since separation in the sum of $12,600.
I am satisfied that the husband’s [omitted] Visa debt should be included in the amount specified. The wife was cross examined about the joint overdraft. She agreed that she withdrew the monies without the husband’s knowledge and used the funds to pursue counselling interstate.
While the wife’s needs may have been legitimate and do not consider the husband should be expected to subsidise the wife in this regard. In the circumstances I consider the wife should assume responsibility for this debt and will not include it as a matrimonial liability. Regarding the wife’s debts incurred since separation, I do not consider it is proper to treat these as matrimonial debts, however, her financial circumstances will certainly be relevant when considering the s.75(2) factors. Accordingly the matrimonial debts are as follows:
Liabilities
Loan No [omitted] (re husband’s purchase of shares in [Business L])
$72,327
Loan No [omitted]
$2,045
Total mortgage liability remaining against [Property B]
$74,372
Husbands Visacard debt at separation
$2,700
Total Liabilities
$77,072
Taking into account the above figures, the net matrimonial assets are valued at approximately $1,607,667.
Contributions
Both parties brought assets into the marriage. The husband owned the following:
·1,000 shares in [Business L];
·the equity in [Property P];
·his motor vehicle, personal effects, superannuation and minimal savings.
There is no evidence about the value of the shares or real estate owned by the husband at the time of cohabitation in November 1992. The parties agree that the [Property P] block was sold in 1998 for the sum of $36,000. The husband says that the net proceeds were paid into the mortgage on the [Property B] property, but there is no evidence about the sum actually received by the husband after discharge of any mortgage. Nonetheless I am satisfied that these assets represent a direct financial contribution by the husband, albeit the value is unquantified.
The wife owned or received the following:
·the equity in her [Property L];
·the net proceeds of her redundancy payout from [omitted];
·the [Property M] property inherited from her father’s estate;
·Shares and cash inherited from her father’s estate;
·Her motor vehicle, furniture and household effects.
The wife says that she had paid out her mortgage on [Property L] prior to the marriage. The husband disputed this and tendered the Discharge of Mortgage dated 29 December 1997.[24] The wife agreed the mortgage was formally discharged at that time but maintained she had paid out the home loan well prior to 1997.
[24] Exhibit H1 Distribution of estate of [DIS]
It is not unusual for a party to pay out a loan but leave the actual mortgage in place until next dealing with the property. Given that I am satisfied the wife was generally a reliable historian in relation to the financial history of the parties’ relationship, I accept the wife’s evidence in this regard.
The value of the wife’s inheritance is set out in the document tendered by the husband regarding distribution of her father’s estate[25]. The [Property M] property was valued at $139,120 and she received a cash allocation of approximately $34,000 and shares valued at approximately $30,000. The shares were eventually sold for approximately $42,000.
[25] Exhibit H2
The wife gave evidence that some of these funds were used to assist with the family’s general living expenses but a portion was also used to reduce the mortgage over the [Property B] property. Clearly these funds assisted the parties’ overall financial security.
The wife also received a redundancy payout from [omitted], which she believes was worth approximately $50,000. The husband disputes this figure, noting that the wife’s 1993 tax return lists the sum of $14,543 as her eligible termination payment. The wife was adamant that she had received in her hand a figure of approximately $50,000 but acknowledged she did not have any financial records to confirm this.
The wife acknowledged that she invested $14,500 into an [A Superannuation Fund] which was subsequently withdrawn at a value of $18,000. It is possible that the wife’s redundancy consisted of amounts other than that portion categorised as an eligible termination payment. However in the absence of further documentation, I will rely upon the ETP figure as set out in her tax return.
Accordingly the wife contributed the following capital contributions early in the marriage:
[Property M]
$139,120
Shares
$34,826
Cash moneys received from father’s estate (estimate)
$34,800
Net proceeds of sale from house at [Town M]
$75,000
ETP payment from [omitted] (rounded down)
$14,500
Total
$298,246
While both parties brought assets into the marriage, the wife’s contribution is enhanced by the documentary evidence she produced regarding the value of those assets. On balance, I am satisfied the wife made a substantially greater direct financial contribution at the commencement of the parties’ marriage (including those assets inherited by her even though received after the date of marriage).
The husband worked during the marriage and contributed the whole of his income to the benefit of the family. The wife was not engaged in paid employment but received rental income from her [Property L] until it was sold in 1997. She also received a modest income from the share farming ventures undertaken on the [Property M] property.
I am satisfied that both parties contributed the whole of their efforts towards the benefit of their family during their married life together, whether by way of paid employment or by way of the wife’s contribution as homemaker and parent. The parties lived a “traditional” family life where the husband supported the family through his employment and the wife worked in an unpaid capacity within the home. This is not to suggest the husband was not a committed and loving parent, but he acknowledges the wife was primarily responsible for maintaining their domestic life and caring for the children.
The wife continued in her role of primary caregiver to the children following separation. The wife’s efforts in providing a settled and stable home environment for the children after separation have been undermined by the husband’s failure to pay spousal maintenance, which has placed the wife under significant financial stress.
The three children lived with their mother for two and half years after separation. In July 2009 [Y] moved to live with his father while [X] and [Z] remained living with their mother. [Y] spends time with his mother on alternate weekends such that the children spend each weekend together in either parent’s household. Both parents are now making a significant parenting contribution to the children’s overall welfare, but the wife has made a greater contribution overall in this regard.
The husband’s original 1,000 [Business L] shares must be taken into account, given the current value of his interest in the company. I am unable to attribute a value to his shareholding, but I accept it represents a direct financial contribution brought into the marriage by him.
The husband purchased a further 844 fully paid company shares in January 2006, for the sum of $150,000. The first instalment of $100,000 was paid on 1 January 2006. Three further payments were due and subsequently paid by the husband on 31 December 2006, 1 December 2007 and 1 December 2008. The husband borrowed from the company to fund the subsequent repayments and was able to discharge his loan account by foregoing distributions otherwise due to him as a shareholder.
The initial payment of $100,000 was made during the marriage. The parties borrowed against the [Property B] property and the balance of that loan has been taken into account as a matrimonial debt. To that extent both parties contributed to the purchase of the second parcel of [Business L] shares. However the husband has made a greater contribution to that tranche of his shareholding since separation, through the subsequent payments that were made by him alone.
The husband argues that the wife’s refusal to sell either [Property B] or [Property M] has incurred unnecessary losses, which should be taken into account. I reject this argument. The wife was understandably anxious to retain the income stream from [Property M] for as long as possible. Regarding [Property B], the wife was initially hopeful of retaining the former matrimonial home and therefore opposed any sale of the property. While she ultimately changed her mind, I do not consider her position was unreasonable, in the circumstances.
The husband has met all outgoings in relation to [Property B] after separation but also received the benefit of uninterrupted occupation of the premises, whereas the wife was required to relocate and arrange new accommodation for her and the children. I do not consider this situation reflects an extra contribution on behalf of the husband.
Taking into account all of the above, particularly the wife’s greater direct financial contribution and her post separation parenting contribution, I assess the wife’s contribution at 55% and the husband’s contribution at 45%.
Section 75(2) factors
(a) age and state of health of each party
The wife is 46 years of age and the husband is 44 years of age. The husband is in good health. The wife has a number of health issues arising from a motor vehicle accident during her childhood. She suffered serious injuries including a complete break in her right hip and the ball of her right femur. She underwent numerous surgical procedures over the subsequent years and her right leg is now approximately 1½ inches shorter than her left leg. This has significantly impaired her mobility.
(b) the income, property and financial resources of each party and their capacity for appropriate gainful employment
The husband is a director of [Business L] and is employed through the company as a [omitted]. He earns approximately $84,000 per year, including a modest director’s fee of $10,000. His employment is secure and brings with it the usual entitlements such as paid leave and superannuation. As a director of the company he receives other benefits such as a car, company fuel card and the like.
He will retain his interest in the company after these proceedings are finalised, which has the potential to bring with it financial benefits in the years ahead by way of dividend payments and access to loan accounts.
The wife is not currently employed. She has past [administrative] experience, but has been out of the paid workforce for 15 years. Her lack of recent experience, combined with her physical disabilities will make it more difficult for the wife to re-enter the workforce in any capacity.
At present the wife is dependent upon her Centrelink payments and child support received from the husband. Hopefully she will return to the paid workforce, but her income earning capacity is uncertain. The husband suggests that the wife has made no effort to re-enter the workforce but this attitude underestimates the significant impediments she now faces.
Both parties’ future property and financial resources will consist solely of the property they retain pursuant to these orders.
(c) whether the party has the care and control of a child under 18 years
[X] and [Z] live with the wife and [Y] now lives with the husband. Realistically, the day to day parenting requirements for [X] and [Y] are unlikely to affect either party’s availability for paid employment, given the children’s ages. However [Z] is much younger and his needs may well impact upon the wife’s capacity to work full time, even if such employment was readily available to her.
(d) commitments of each of the parties that are necessary to enable the party to support themselves and a child or another person
Both parties are responsible for the support of their three children. The husband’s expenditure roughly equates to his income and he is now bearing a greater share of expenses relating to [Y]’s support. The wife’s household expenses exceed her income and she struggles to meet her reasonable expenditure on a day to day basis. She has incurred a number of debts to local businesses as she endeavours to make ends meet from week to week.
The wife is living in rental accommodation. The husband was previously living in the former matrimonial home but he and [Y] have since moved in with his partner, Ms V.
(f) eligibility for any Commonwealth pension, allowance or benefit
The wife receives family benefits in the sum of $210 per week.
(g) the parties’ post separation standard of living
Both parties are living very modestly. The husband has an obligation to pay spousal maintenance, which he has failed to discharge. This has had a significant impact on the wife, whose financial circumstances are extremely constrained. She is struggling to meet her reasonable living expenses on a week by week basis for herself and for the children.
(h) whether either party is undertaking education or training to improve their income capacity
The wife has recently commenced studying [in the health field] and received a government grant to assist with the costs associated with her course. She acknowledges that her disability may make it difficult for her to obtain employment in this field, but she gave evidence that the course has improved her overall fitness and muscular strength within her legs. This has assisted her mobility overall.
It may be that the wife will need to pursue further training opportunities to assist her re-entry into the paid workforce. She obviously has some clerical and computing skills and it may be that obtaining further qualifications in this area will provide a more viable career path for her.
(j) the extent to which either party has contributed to the income, earning capacity and financial resources of the other party
The husband has increased his shareholding in [Business L] during the marriage. The wife supported him in his desire to purchase shares in the company and this decision led to his appointment as a director of the company. This represents a significant long term financial resource for the husband.
(k) duration of marriage and the extent to which this has effected the earning capacity of either party
The parties were married for 14 years. The wife gave up employment to focus on parenting and homemaking responsibilities and has therefore been out of the paid workforce for a number of years. I am satisfied that the wife’s overall earning capacity was substantially affected by the years she has spent out of paid employment.
The husband has continued his employment at [Business L]. He is now a director of that company. His career path has solidified and been enhanced across the parties’ married life together.
(l) the need to protect a party’s role as a parent
As mentioned, the children [X] and [Y] are now of an age where their parenting requirements are unlikely to impact upon either party’s capacity to engage in the workforce. However [Z] is only eight years old. He remains in the wife’s primary care and her day to day parenting responsibilities for [Z] are significantly more demanding.
(m) circumstances of co-habitation
The wife has not re-partnered. The husband is living with his partner Ms V. Ms V is employed part time. She has two children aged 14 and 11 years of age who live in her primary care. She and the husband live together at her home in [G in South Australia]. This living arrangement coincided with [Y] moving into the husband’s primary care as it was easier for [Y] to attend school at [T] College if he and the father were living in [Town G].
The husband enjoys the financial benefits that flow from living in a two income household where various household expenses can be shared.
(na) the husband’s child support contributions
The husband has been reasonably compliant with his child support obligations, aside from some difficulties that arose in late 2008. By way of background to those difficulties, the parties entered into consent orders on 26 August 2008. The orders included the wife’s undertaking in the following terms:
“d)the wife undertakes not to make, support or accept any variation or re-assessment to increase the child support obligations of the husband during the 2008/2009 financial year or in respect of any income received by him in the 2008/2009 financial year as a result of him accessing or being paid or entitled to be paid his long service leave”.
The orders then provided for the husband to repay arrears of spousal maintenance that had accrued to that time in the sum of $13,462. The payment regime was negotiated between the parties on the basis that the husband would draw down upon his long service leave entitlements to meet the schedule of payment of arrears, hence the wife’s undertaking.
Subsequently the wife sought a child support re-assessment on different grounds. The husband considered that her application for re‑assessment was in breach of the wife’s undertaking and declined to make the extra payments required of him by the Child Support Agency. Ultimately those matters were resolved and the husband is in the process of discharging the arrears that had accrued. Aside from this incident, I am generally satisfied that the husband is meeting his child support obligations.
(o) any other fact or circumstance
As mentioned above, the husband has failed to comply with the order for spousal maintenance. One round of contravention proceedings were resolved by consent on 26 August 2008. Notwithstanding that outcome the husband has failed to make any further payments with respect to spousal maintenance and substantial arrears have continued to accrue.
The wife filed a further contravention application in November 2009. The application was adjourned to the first morning of trial where counsel for the wife indicated that his client would prefer to proceed with it effectively as an enforcement application rather than a contravention application and both counsel were content to proceed on that basis.
The husband argues that the order was ill founded and disputes that he ever had the capacity to pay spousal maintenance, and certainly not to the extent of $300 per week. However the husband never sought to vary or discharge the order. Clearly the husband has paid scant regard to the impact this behaviour has had on the wife’s ability to provide for herself or their children. The husband’s evidence on this topic did him no credit.
In assessing whether any adjustment is required on account of the s.75(2) factors, I place particular weight upon the wife’s health, the parties’ respective income earning ability and upon the wife’s ongoing parenting responsibilities for [Z].
The husband receives a comfortable income. He has the benefits of secure employment including annual leave, sick leave and superannuation. He has “cashed in” his long service leave to pay the spousal maintenance arrears, but will continue to accrue further long service leave entitlements in the future. He also enjoys the benefits that flow from his position as a director and shareholder of [Business L].
By contrast, the wife is still to re-establish herself in the paid workforce. She has sold the [Property M] property and no longer receives an income from the property. Given her physical disability and her parenting obligations, it is likely the wife will be limited to part time, casual employment for a number of years, without the equivalent employment and superannuation benefits that the husband enjoys.
In the circumstances, I am satisfied an adjustment in the wife’s favour of 5% is warranted.
Conclusion
Based on my findings, the wife is entitled to retain 60% of the net asset pool and the husband 40%. The net asset pool is valued at approximately $1,607,667, but this figure will ultimately depend upon the net proceeds of sale achieved from the sale of [Property B]. On the figures presently identified, a 60/40 division of the net asset pool would result in the wife retaining assets to the value of approximately $964,600. The husband would retain assets valued at approximately $643,067.
The wife already has the benefit of her superannuation and the [motor vehicle] worth $24,107 in total. This outcome would result in a further adjustment to her in the sum of $940,493. She will retain responsibility for various personal debts, including the joint overdraft. The wife’s entitlement will largely arise from the sale proceeds from real estate whereas the husband’s entitlement will be reflected in his shareholding in [Business L] and his superannuation.
At this stage of the proceedings the Court must step back and assess the impact of this proposed outcome and consider whether it reflects a just and equitable division of the matrimonial assets between the parties. Both parties will retain assets of significant value, but very different in nature.
I take into account that there is a significant shortfall in available funds to settle the wife’s proposed entitlement. While the husband’s interest in [Business L] has been valued at $750,000, as a minority shareholder he cannot readily realise this asset. Accordingly the husband may need to borrow funds in order to discharge the wife’s entitlements. He may be able to draw down on his loan account with [Business L] in this regard, as he was able to do when purchasing the company shares recently, but that is not a guaranteed option.
The wife would prefer to receive the whole of her entitlement in tangible assets rather than a superannuation split. She is understandably anxious to receive a settlement that will enable her to re-enter the property market and still have funds available to invest or draw upon, when required. While I appreciate the wife’s need for immediate funds, I must also consider her long term financial security and the impact of any orders upon the husband’s financial position.
The husband and [Y] are presently living with Ms V and his accommodation needs are perhaps not as pressing, but no doubt he would hope to re-enter the property market on his own behalf at some stage. The husband’s income is such that he would be able to service a mortgage in the future, whereas the wife may choose to use a considerable portion of her settlement funds to purchase a property outright.
On balance, I conclude that it is appropriate to include a superannuation splitting order within the overall adjustment between the parties. If the wife receives a splitting order of $100,000 this will leave the husband with superannuation valued at approximately $105,000 and the wife with superannuation valued at approximately $119,000. The husband will be able to recoup his position relatively easily given his employment, while such an order will also afford the wife a measure of financial security in the long term. Given that the husband is already a Trustee of the [I Superannuation Fund], it will be a simple matter for him to arrange to serve a copy of the orders upon the Fund Trustees, and comply with procedural fairness requirements.
This outcome will reduce the cash settlement due to the wife to approximately $840,493. It seems likely that she will retain all of the net proceeds from the sale of [Property B] and [Property M]. There will need to be a further adjustment in her favour, depending upon the amount achieved for the [Property B] property. However I am satisfied this outcome reflects a just and equitable settlement between the parties overall.
Costs and arrears of spousal maintenance
The wife has incurred costs orders in excess of $13,000 in relation to her efforts in securing access to the necessary financial records from [Business L].[26] Having considered this matter carefully, particularly taking into account the parties’ financial circumstances[27] and the husband’s conduct in these proceedings[28], I conclude that the husband should contribute towards the wife’s costs incurred in this regard.
[26] Orders 9 December 2008, 15 April 2009 and 25 May 2010
[27] S.117(2A)(a)
[28] S.117(2A)(c)
As a family law litigant, the husband had an obligation to provide evidence regarding the value of his interest in [Business L], to enable the Court to properly identify the asset pool. This would inevitably involve appropriate access to relevant financial records from the company. If the company was not prepared to allow the husband ready access to this information, then I consider the obligation to pursue this should have fallen upon the husband in the first instance.
There is little evidence to suggest the husband made any real effort to secure the release of the company financial records. These records were not readily available to the wife, as events have shown. The husband’s unwillingness or inability to produce the relevant company financial records was particularly telling when it became clear that the company did not impose the same confidentiality restrictions on other agencies, such as [L Finance], or [Agency E], in the person of Mr Q. Indeed Mr Q was not subject to any of the requirements subsequently imposed by [Business L] upon the expert witnesses and legal representatives.
It is difficult not to conclude that the husband was deliberately avoiding his responsibilities as a family law litigant, which made it more difficult for the wife to properly prepare her case for trial.
I accept that [Business L] was entitled to ensure its commercial confidentiality was preserved and I make no criticism of the company in that regard. However, the process that [Business L] required seemed somewhat cumbersome and expensive, particularly as the parties and their solicitors were all located in the [Town G] region. In my view, commercial confidentiality could have been equally well ensured within an informal discovery process, if the husband had taken his obligations as a family law litigant seriously.
It must be acknowledged that the wife’s solicitors are also at fault, to some extent. The company’s legal representatives were quite entitled to complain about the drafting of the subpoenae and other requests for information which were very broad and imprecise on occasions.
Notwithstanding this, I conclude that the wife should not be solely liable for the costs orders in favour of [Business L]. I conclude that the husband should indemnify the wife as to two thirds of the costs she has been ordered to pay to [Solicitors M].
There remains the wife’s application for costs thrown away following the initial trial being vacated in April 2009 and her own legal costs in pursuing discovery. I invite the parties to enter into sensible negotiations about the issue of costs, bearing in mind the factors set out in s.117(2A), the overall outcome from these proceedings and the Federal Magistrates Court scale of fees. If the parties are unable to reach agreement, I will hear submissions from counsel on the question of costs generally.
The wife also sought to enforce payment of the spousal maintenance arrears that have accrued since December 2008 to the date of trial in April 2010, being approximately $18,000. I have considered the impact of the husband’s actions, both in assessing the parties’ post separation contributions and in my consideration of the s.75(2) factors. I am satisfied this is the most appropriate way to deal with the arrears and on that basis I decline to make any order by way of enforcement.
I now make orders as published at the commencement of these reasons.
I certify that the preceding one hundred and seventy (170) paragraphs are a true copy of the reasons for judgment of Kelly FM
Date: 27 August 2010
ANNEXURE A
VALUATION OF HUSBAND’S INTEREST IN [BUSINESS L]
BALANCE SHEET CALCULATION AS PER COLUMN “D” FROM ANNEXURE 4 TO JOINT EXPERTS REPORT
BASED ON 30/6/09 FINANCIAL REPORTS
| Current Assets | $ | $ |
| Cash & Cash Equivalents | 178,404 | |
| Trade & Other Receivables | 1,644,304 | |
| Inventories | 875,080 | |
| Other Current Assets | 247,581 | |
| Total Current Assets | 2,945,369 | |
| Non-Current Assets | ||
| Trade & Other Receivables | 576,300 | |
| Inventories | 101,895 | |
| Plant & Equipment ) (see note 12, | 10,275,005 | |
| [Business N] ) 2009 Financial Reports | 1,000,000 | |
| [Vineyard B] ) and agreed valuations re | 872,000 | |
| Land – [Property P] ) [Business N] & [Vineyard B]) | 418,631 | |
| Deferred Tax Assets | 328,929 | |
| Goodwill | -- | |
| Total Non-Current Assets | 13,572,760 | |
| TOTAL ASSETS | 16,518,129 | |
| Current Liabilities | ||
| Trade & Other Payables | 1,050,120 | |
| Financial Liabilities | 3,053,358 | |
| Current Tax Liabilities | (260,826) | |
| Short-term Provisions | 512,140 | |
| Other | 106,281 | |
| Total Current Liabilities | 4,461,073 | |
| Non-Current Liabilities | ||
| Long term borrowings | 7,420,964 | |
| Deferred Tax Liabilities | 653,845 | |
| Provisions | 93,938 | |
| Total Non-Current Liabilities | 8,168,747 | |
| TOTAL LIABILITIES | 12,629,820 | |
| NET ASSETS | 3,888,309 | |
| The husband’s interest 24.2759% | $943,922 | |
| Less Minority Interest Discount 20% | (188,784) | |
| Less Debit Loan Mr Dixon (see note 20, Financial reports) | (3,722) | ($192,506) |
| Interest of husband after debit loan | $751,416 |
Hickey & Hickey (2003) FLC 93-143
AJO v GRO (2005) FLC 93-218
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