Dougal and Dougal

FAMILY COURT OF AUSTRALIA

DOUGAL & DOUGAL

[2008] FamCA 9

FAMILY LAW – PROPERTY – Division of husband’s future realisable interest in family company

Family Law Act 1975 (Cth)

Coghlan (2005) FLC 93-220; (2005) 33 Fam LR 414
Georgeson and Georgeson (1995) FLC 92-618
Hickey & Hickey & Attorney-General for the Commonwealth of Australia (2003) FLC 93-143
Hull and Hull (1983) FLC 91-360
Kowaliw (1981) FLC 91-092
Moylan (unreported 12 November 1992, Baker J)
Reynolds and Reynolds (1985) FLC 91-632
Sapier v Sapier (No 2) (1989) FLC 92-047
Turnbull (1991) FLC 92-258
Waters and Jurek (1995) FLC 92-635

APPLICANT:

MRS DOUGAL

RESPONDENT:

MR DOUGAL

FILE NUMBER:

MLF

2460

2005

DATE DELIVERED:

17 January 2008

PLACE DELIVERED:

Melbourne

PLACE HEARD:

Melbourne

JUDGMENT OF:

THE HONOURABLE JUSTICE CRONIN

HEARING DATE:

7, 8 & 9 JANUARY 2008

REPRESENTATION

COUNSEL FOR THE APPLICANT:

MS COLLA

SOLICITOR FOR THE APPLICANT:

NICHOLES FAMILY LAWYERS

COUNSEL FOR THE RESPONDENT:

MR EDMONDS

SOLICITOR FOR THE RESPONDENT:

LOU CASTELLANO LAWYER

Orders

That the husband forthwith do all things necessary and sign any required document to charge in favour of the wife to the extent of $100,000 (“the sum”) plus $3000 for each year that the sum remains unpaid (“the interest”), his interest and shareholding in V Pty Ltd.
That the husband provide to each of the directors of V Pty Ltd a copy of these orders.
That the husband request the directors of V Pty Ltd to:
(a) Note the charge referred to in paragraph (1) hereof;
(b)Confirm to the solicitors for the wife that they will comply with these orders generally; and
(c)Provide to the wife annually, a copy of any financial documents of V Pty Ltd which are otherwise provided to him.
That the husband be and is hereby restrained from
(a)Doing any act or thing which would have the effect of thwarting paragraph (1) of these orders;
(b)Borrowing any money from V Pty Ltd without first making arrangements to pay to the wife the sum referred to in paragraph (1) hereof; and
(c)Receiving any funds from V as either part or all of his entitlement to shares or otherwise without first paying to the wife her entitlement under paragraph (1) of these orders.
That the following assets and liabilities shall comprise the pool for division between the husband and the wife:
(a)The net proceeds of the sale of the units held by the husband in the M Unit Trust after deduction of any capital gains tax payable by the husband as a consequence of holding the said units;
(b)The net proceeds of the disposal by the husband of the assets of A Pty Ltd after deduction for (but not necessarily the payment of) any capital gains tax payable by the husband or A Pty Ltd as a consequence of the said disposal;
(c)The net proceeds of the disposal by the husband of the assets of R Pty Ltd after deduction for (but not necessarily the payment of) any capital gains tax payable by the husband or R Pty Ltd as a consequence of the said disposal;
(d)      A sum of $112,000 representing monies advanced to the wife;
(e)      A sum of $65,000 representing monies advanced to the husband;
(f)       The funds held by the husband in his account with Lloyds;
(g)The proceeds of the sale of the former matrimonial home currently held on trust for the parties;
(h)      The wife’s superannuation which is fixed at the sum of $19,000.
That the pool of assets referred to in paragraph (5) be divided as to 60 per cent to the wife and 40 per cent to the husband and there be consequential adjustments taking into account the monies received by the wife and her superannuation.
That the husband forthwith and diligently hereafter, do all things necessary to dispose of the assets of:
(a) A Pty Ltd;
(b) R Pty Ltd;
(c)M S Pty Ltd in its capacity as the trustee of the M Unit Trust,
to give effect to paragraph (5) of these orders.
That there be liberty to apply in respect of the finalisation of paragraphs (5) and (7) hereof.
That upon production to the wife of a form of transfer of registration of the Toyota motor car in her possession:
(a)The wife transfer to the husband that motor vehicle at the expense of the husband; and
(b)The wife forthwith thereafter deliver up to the husband, the said vehicle and all keys thereto.
That the husband retain and the wife relinquish any interest in the Audi motor vehicle in his possession.
That the husband pay and indemnify the wife in relation to any liability associated with the debt connected with the Toyota and Audi motor cars together with any capital gains tax arising out of the disposals referred to in paragraph (5) hereof noting that those capital gains taxes have been deducted after the sale of the assets for the purposes of determination of the net proceeds as set out in paragraph (5).
That upon the distribution of the funds as set out in paragraph (5) hereof, the wife retain and the husband relinquish any interest in the superannuation in the possession of the wife.
That the chattels of the parties be divided in accordance with the agreement reached by the parties on 10 January 2008 and each party forthwith do all things necessary to give effect to the distribution of those chattels.
That save as to any issue of costs as between the parties, the applications of the wife and the response of the husband are dismissed.
That in respect of any issue as to costs as provided for in paragraph (14) hereof, those issues shall be determined on written submissions to Justice Cronin and such submissions shall be:
(a)filed with the Associate to Justice Cronin by 4.00pm on 6 February 2008; and
(b) served on the other party by that date.
That any party receiving a submission as to costs as provided by paragraph (15) hereof, shall have until 22 February 2008 to reply, such written reply to be provided to the Associate to Justice Cronin.
That any issue as to costs be determined in chambers.
That all proceedings be otherwise removed from the list of cases awaiting a hearing.
That after 7 March 2008 all exhibits be returned to the practitioner producing them.
That all material produced pursuant to subpoenae be returned to the recipient of the subpoena.
That all proceedings be removed from the list of cases awaiting a hearing.
That all exhibits be returned to the parties.
That all material produced under subpoenae be returned to the recipient of the subpoenae.
Certify for the attendance of counsel.

IT IS NOTED IN CONNECTION WITH THESE ORDERS that the judgment of the Honourable Justice Cronin delivered this day will for all publication and reporting purposes be referred to as Dougal & Dougal.

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF 2460 of 2005

MRS DOUGAL

Applicant

And

MR DOUGAL

Respondent

REASONS FOR JUDGMENT

These are proceedings between Mr and Mrs Dougal for property settlement.
I shall refer to the parties as husband and wife notwithstanding that they are divorced.
The issues in dispute between them are:
(a)what value is attributable to the assets in the pool for division and in particular, the husband’s minority interest in a family company and how to treat assets which are to be sold in the public market?;
(b)if the husband’s minority interest in a family company is included in the pool to any extent, what finding there should be made in relation to contribution either to the discrete asset or to the pool generally?;
(c)whether there should be a finding in relation to contribution other than one of equality for the wife’s contribution in supporting herself subsequent to separation until now?; and
(d)what (if any) loading in favour of the wife should be made having regard to the matters set out in s 75(2) of the Family Law Act 1975 (Cth) (“the Act”) with particular emphasis on issues under s 75(2)(o).
A significant and sensible decision was made by both parties at the commencement of the hearing to agree that apart from paragraph 3(b) above, all contributions as between them up until the date of separation were equal. However that depended upon the husband’s position being accepted that the husband’s interest in V Pty Ltd was either of no value or if it did have a value, it not be added to the pool for division. If either of those was not the case and V Pty Ltd was in the pool, the husband argues that his contribution is significantly greater than that of the wife.
The wife is aged 54 years and the husband is 56 years of age.
The parties married in April 1980 and separated on 13 April 2004. Their cohabitation was therefore of 24 years duration.
The parties divorced on 21 March 2006.
There are two adult children of the marriage aged 26 and 23 years. Both children reside independently of the husband and wife.
In her affidavit, the wife referred to the fact that she currently resides with her parents in Geelong and had done so since 12 January 2007. She said she was forced to move in with her parents because she could not afford rental and other living expenses. Just prior to that, the former matrimonial home had been sold. There was considerable cross-examination of the wife about that 12 month period since the house sold and she conceded in a very vague way that she had begun a relationship with a Mr T with whom she spent “a couple of days a fortnight”. She said that that could be three to four nights per fortnight. She conceded that some weeks she spent the whole week with Mr T but that was not on a regular basis. When pressed about all of that, she was unable to say more than most of the time she was living with her parents but she also conceded that she had gone on holidays with Mr T as well. There were two purposes in this cross-examination. The first was to show that the statement set out in the affidavit was not correct but the second was to show that the wife’s assertion of the dire financial situation over the last twelve months was not entirely accurate.
The wife was cross-examined about whether she will live with Mr T on a permanent basis subsequent to the conclusion of the case and she said she would not. Section 75(2)(m) refers to cohabitation and the financial circumstances relating to cohabitation of a party. I could not find that the wife was cohabiting with Mr T in a financial sense but it is clear that the position was not as the wife had set out.
The husband is by profession in the property industry but realistically not working as such. Throughout the marriage the husband has conducted Dougal and Associates as a property business but he ceased operating that in January 2007. Prior to that it had not been trading for a number of years. Predominantly the husband has been involved in projects involving the promotion of accommodation facilities associated with the various entities that have been valued and to which I shall refer in more detail when I deal with the pool of assets.
The husband currently lives in the home of his partner in a suburb of Geelong. His evidence provided in cross-examination was that although he had stayed with his mother for some “mandatory” periods, he has almost exclusively lived with his new partner for the last six months. He pays no board but contributes to expenses and he and his partner keep their finances separate. There was no dispute that his partner is engaged in full-time employment. Subsequent to April 2006, the husband has had plenty of time on his hands. When he was questioned about his capacity for employment, particularly in relation to the property industry, he said that he was getting a bit “long in the tooth” for that sort of work and it would be difficult for him to go back to conducting a business in the property world because he would have to do a computer course, have capital and engage staff. In respect of his desire to be involved in project management of accommodation facilities, he said that whilst he was content to continue to be a director, he had no guarantee that he would be receiving fees and even if he did, it would not be for 18 months. He confirmed that he had no contractual arrangement in relation to director’s fees and that his history would show that he has always been a person who has negotiated those emoluments by word of mouth. As for the property business that he had conducted during the marriage known as Dougal and Associates he confirmed that the business closed in January 2007. He said that the business was just him as a sole trader and he otherwise used the account as if it was his own.
The wife is a teacher by profession. However she has had a number of other positions of employment subsequent to separation. She had worked part-time as a teacher but also in a public relations role. In relation to her future possibilities, she would prefer to explore employment in the area of home design. She thought that that would be with architects rather than with builders. When asked whether she had made any application for that sort of work, she replied that she had not because she was on sick leave.
In respect of the wife’s health, Dr J is the wife’s general practitioner who filed an affidavit sworn 21 November 2007. Dr J was not required for cross-examination. Dr J’s evidence was that the wife had been a patient of his since 1989 and she suffered from a long-standing mood disorder and had required intermittent psychiatric care since the age of 18. Dr J said that the difficulties had been compounded over years of anxieties as a result of a difficult and stressful marriage and that the wife had been maintained on large doses of antidepressants. Importantly, Dr J felt that the wife was “currently” unfit for employment but that with reduction in stress associated with the resolution of her divorce proceedings, he would expect that she would be able to resume employment at least to some extent.
The wife said that any sort of public relations work was something that she was interested in. Further, she said that she had also made applications to work in retail but because of a slump in sales, retailers were not looking for staff.
The wife was asked about future positions as a teacher and she made it clear that she was not prepared to work full-time because that profession required a full-time employee to work more than 40 hours by the time one factored in weekends in preparation. When asked why she was not prepared to work those hours, she said that she was just on 55 years of age and that would be a lot of work. She said that she continued to receive newsletters from the teachers association so she knew what work was around. When she did make applications she was generally unsuccessful when competing with new graduates who had new ideas.
To some extent therefore, the wife’s employment situation is affected by her health but just to what extent, is unclear. The evidence of Dr J to which I have referred was provided in September 2007 notwithstanding the affidavit was not sworn until November. I have presumed that as at November, nothing had changed. To what extent Dr J is able to say that the wife will work in the future remains unclear. I shall return to that when I deal with the matters under s 75(2) of the Act.
The wife asserted through her counsel in opening her case that the husband had an income of about $120,000 per year whilst she could earn a nominal sum of about $20,000 per year. The husband produced a schedule setting out all of his “income” since 2003 in which he included monies drawn down on loan accounts. That schedule shows in reality, that in the 2003/2004 financial year, the husband had access to $75,532 over and above his business expenses, tax and payments to the wife. In the year 1 July 2004 to 30 June 2005, the husband had a minor shortfall but the schedule did not take into account that during that year, the husband borrowed $40,000 and as such, after payment of his loans, tax and business expenses as well as supporting the wife, he had a little less than $40,000 upon which to live.
In the year 1 July 2005 to 30 June 2006, the husband’s schedule shows a shortfall of funds available to him of $48,982. That was also not entirely accurate because he had also a further $20,000 borrowing which meant that the shortfall was close to $29,000. That shortfall however was funded by credit card use which I have not been asked to take into account other than for the purposes of s 75(2) of the Act. In addition to the shortfall to which I have just referred, one has to take into account that the husband had to provide his own living expenses.
In the financial year 1 July 2006 to 30 June 2007, the schedule shows that the husband had $7117 available upon which to live.
The schedule and the amendments to which I have just referred are relevant because during that period, the wife says that she was struggling financially whilst the husband was living an extravagant lifestyle. If the wife’s assertion was right, then the husband was living a lifestyle on his credit card and as that is not being taken into account in the pool of assets, it is hard to be too critical of the husband. Counsel for the wife put to the husband a number of examples associated with his expenditure on alcohol and whilst there was some criticism as to the accuracy as set out in Exhibit W2, it seems clear on the evidence that the living expenses of the parties during the period post-separation one way or the other was predominately on borrowed funds. I could not say that the husband’s income was significant in any of those years and that also has some impact upon the question of the husband’s earning capacity into the future.
It is quite clear that the husband does not earn $120,000 per annum. At the moment, his evidence is that he is receiving $5000 per month from M S Pty Ltd and that that will continue until the settlement of the sale of M S Pty Ltd. He has no other source of income. Even that is not an accurate picture of his earnings because when one looks at the schedule to the affidavit of Mr W, it is clear that for example, in the financial year ended 30 June 2007, the profit before tax of the unit trust was $56,517. That has to be divided three ways. The taxable income therefore in the hands of the husband as a distribution from the unit trust could not be anywhere near $5000 a month. The only explanation is as was given by Mr W that there are significant depreciation allowances in the profit and loss statement which are in fact used as drawings by the unit holders. In any event, once the M S Pty Ltd sale is completed, that position will cease. The husband’s future earning capacity is uncertain having regard to the sale of the various assets.
Pursuant to an order made on 20 July 2007, Mr W of M W, a chartered and forensic accountant was engaged to carry out a valuation and prepare a report of the husband’s interests in M S Pty Ltd trading as the trustee for the M Unit Trust, V Pty Ltd, R Pty Ltd, A Pty Ltd and V A Pty Ltd.
However, much of the detail in that report attached to the affidavit of Mr W became unnecessary because the husband sought a sale and division of most of the major assets. Despite the husband’s intended sale and to get a feel for what is available for division, it is helpful to turn back to the evidence of Mr W. He said that the value of the interests held by the husband were estimated to be $1,904,669 made up as follows:
M Unit Trust  $1,309,000
V Pty Ltd  592,000
A Pty Ltd  13,000
R Pty Ltd   (9,331)
As the case unfolded, it became clear that each of those figures had to be varied not only because of the proposed sales but also because of the reality that those figures will not be what are ultimately shown in the balance sheets of the various entities.
The major problem arises out of a company called N Pty Ltd. N Pty Ltd is a company that was originally the corporate entity of the husband and wife. It features as owing V Pty Ltd $120,000. It features again as owing M S Pty Ltd as the trustee of the M Unit Trust a sum of $534,700. N Pty Ltd has not only been inoperative for a number of years but has been deregistered by ASIC. It was the husband’s position and certainly not challenged by the wife, N Pty Ltd has no assets and is effectively defunct. The evidence showed that there was a series of transactions under which the units held by N Pty Ltd in the unit trust were transferred to the husband. When one looks at the unit trust, each of the entities has similar loan accounts owing to the unit trust. The husband gave evidence that each of the unit holders had desired to end the investment and as such, there would be an accounting exercise to pay out the loan accounts. More importantly, each has a loan account of a similar nature which has predominately come about as a result of accounting entries. What must be taken into account however is that for the unit trust to achieve the value on a net asset backing basis as described by Mr W, the trustee company would have to call in the loans from each of the unit holders. To do that, the husband would have to pay $534,700 and that would be a liability to be taken from the pool of assets of the husband and wife. In other words, and this was conceded, the real value of the unit trust is effectively the net proceeds of the sale of the building. That sale is currently in train.

What is disconcerting however is that Mr W was unaware of the real nature of the intricacies of the balance sheet of the M Unit Trust and also V Pty Ltd upon the basis that that information had not been provided to him. That in turn meant that when the proceedings began, the parties were relying on Mr W’s opinion that the value of the assets of the husband were estimated to be $1,904,669. Nothing could be further from the ultimate truth.
Both the husband and the wife filed their initial documents seeking imprecise orders in 2005. In November 2007, I ordered the parties file their final affidavit material and other documents to assist in the smooth running of the trial.
The husband filed a summary of argument on 24 December 2007 and in that, he sought orders that his interest in V Pty Ltd be excluded from the division and that otherwise there be an equal division of most of the assets.
The wife filed her summary of argument document on 21 December 2007 without setting out what orders she sought. However, she indicated that she was seeking a division as to 65 per cent of the pool of assets to her and 35 per cent to the husband. On the first day of the hearing, the wife’s proposed orders were received. She maintained the division of 65 per cent in her favour including the husband’s interest in the value of V but there was a serious dispute about a number of issues.
The first issue was that the husband refund to the wife 65 per cent of the $18,000 borrowed by the husband from the wife’s father. It was common ground that in 1997, the husband borrowed $20,000 from the wife’s father to assist in his then fledgling business. The wife said in her affidavit that in her view, the husband still owed the sum of $20,000 to her father notwithstanding that the sum had been outstanding for over 10 years. This was despite the fact that she said in her affidavit that of $27,000 she received on 28 December 2005 in a redundancy package, she paid her father $18,000. She said she repaid that sum because she felt she had a moral obligation to do so. However, when cross-examined about that, she agreed that in 2001, her father was given $5000 and in 1996, $7000. Clearly, the statement in the affidavit about the money was incorrect but to request an order that the husband refund to the wife 65 per cent of the $18,000 borrowed by the husband from the wife’s father, made little sense.
The wife was asked why she felt compelled to repay the money at that particular point in time, that is December 2005, and she said it was going to be the only time that she would have a lump sum but there were also monies that had been paid for assisting the parties in relation to motor cars in previous years. That included a payment by her uncle. None of that evidence was set out in her affidavit.
When cross-examined, the husband acknowledged that some work on a car was done by an uncle of the wife and petrol was provided but what the quantum connection was between the original indebtedness, the unpaid balance of that indebtedness and whether any work was done by the uncle that might have given rise to any indebtedness was not apparent from the evidence.
This compulsion to repay her father when she subsequently claimed that there were dire financial circumstances did not make much sense. This was particularly so when she conceded in cross-examination that her father had not even asked for the money. Counsel for the wife said that this was all relevant to the contribution issue for the period post-separation until now. However if I was to take into account some fact about the husband not fulfilling any obligation to support the wife during that period, I would and do find that the wife had access to $18,000 that she could have used to ameliorate the dire financial position.
The second contentious issue related to an order that the husband refund to the wife 65 per cent of storage fees incurred by the wife over a 13 month period. What little furniture there is between the parties was stored by the wife when the matrimonial home was sold. It was suggested that the furniture and chattels had nominal value but I could see no logical reason why it needed to be stored at the cost of $220 per month. In addition, it transpired that the husband had always wanted a division of some of this modest furniture and the wife was keen to store the items rather than divide them or perhaps even allow the husband to store them to avoid the cost. The expense seems unnecessary and I do not propose to make any allowance in favour of the wife for the storage costs over the 13 month period in the circumstances.
The next contentious item was that the wife sought that the husband reimburse her $21,000 that she “expended” as a consequence of a burglary. This issue was also not adequately explained by the wife in her affidavit material . It transpires that when the wife was overseas, her home was broken into and substantial damage was done and items stolen. The wife gave evidence that Victoria Police have not charged any person and have eliminated a person that the husband thought was the suspect.
The burglary resulted in an appalling amount of stress for the wife compounded by the fact that the damage was not covered by insurance. Most of the furniture had been destroyed by a coloured liquid that had been poured over the lounges, the bed and other items around the home. The bed was covered in urine. A note had been written on a portrait of the wife which made sexual threats against not only the wife but also the daughter. The car in the garage had been driven and the back patio door had been forced open.
The major complaint by the wife was that when she went to make the claim on the house and contents policy, it had not been renewed. It seems that the insurer had sent the account to the husband’s post office box and he had not paid it. The wife therefore attributed the problem to the feet of the husband.
The husband was cross-examined about this and when asked whether he had received the notice of “non-insurance”, he said that he probably had and conceded that he probably “slipped up” in paying the premium.
Counsel for the wife opened the case on the basis that this was akin to waste but not quite to the same extent as the expression used by Baker J in Kowaliw (1981) FLC 91-092. In that case, Baker J said:
As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a)where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
(b)where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
Conduct of the kind referred to in para. (a) and (b) above having economic consequences is clearly in my view relevant under sec. 75(2)(o) to applications for settlement of property instituted under the provisions of sec.79.
While the position of the wife on this issue might highlight an almost laissez faire attitude of the husband, it is difficult on the evidence to find that the husband was responsible in some sort of wastage argument way. Baker J in Kowaliw uses words such as “recklessly, negligently or wantonly” and the highest that the wife could put her case was that the husband had been negligent. Negligence in law is the breach of a legal duty to take care. It is carelessness in a matter in which carefulness is made obligatory by law. A common sense approach outside of the law might be to view that carelessness as simple neglect but whichever way one looks at it, the consideration is one of a breach of some responsibility or duty. The wife’s case was that the husband had always been responsible for the payment of these accounts even to the extent that the notices from the insurer were sent to the husband’s post office box address. She argued that therefore there was some form of responsibility to ensure the continuation of the insurance. I could not find on the evidence that the husband had breached some duty or responsibility. To satisfy the test in Kowaliw, the wife would have to show that there was a positive obligation arising out of a commitment. The highest the evidence got to was a concession by the husband that he must have forgotten. It had not been the subject of correspondence, discussion or agreement and as such, I could not find that the conduct of the husband had the unfortunate economic consequences which followed.
Ms Colla said that I had a discretion to make an adjustment in favour of the wife. However, when cross-examined about the quantum, the wife conceded that $9000 of the $21,000 related to reupholstering items of furniture that were now in storage and that notwithstanding her use of the word “expended”, no such payment had been made. In discussions between counsel, it seems that the wife had to have carpet cleaning and locksmith work done but that was only a modest sum of money out of the total claim of $21,000. When asked what else was included, the wife suggested luggage, a digital camera, her underwear, cutlery, a collection of family photos and some jewellery. When asked about the details of these things, she was unable to provide any precise answers.
As much as I have no hesitation in saying that I accept that the wife was traumatised by the appalling behaviour of the burglar and has lost not only items but money as a consequence, without some precise justification for the claim of $21,000, it would be inappropriate for me to either guess at what the quantum was or to look at some compensation in favour of the wife without there being direct evidence of conduct on the part of the husband which amounts to wanton or reckless behaviour. In this case, there was no such evidence. Accordingly, it would be inappropriate for me to contemplate an order of the type sought by the wife.
Some time in the proceedings was spent by the parties arguing about the chattels to which I have already referred that were damaged. These were the chattels that had been put into storage by the wife. No agreement had been reached at the time that I reserved judgment on the third day of the hearing but I gave the parties liberty to advise me if they were able to come up with a compromise within the ensuing 24 hours and to their credit, they did so. I therefore do not have to determine the issue of the chattels dispute.
Another unfortunate dispute between the parties related to motor cars. There is not a problem in relation to the Audi motor vehicle in the possession of the husband. It was common ground that there was no equity in that as it is a leased vehicle. The problem relates to a Toyota motor vehicle. There was no evidence as to its value but each party seemed to be working on the basis that its estimated value was around $7000. What was also the unchallenged evidence of the husband was that the debt on that vehicle was about $8000. The husband has been paying the debt. It transpires that the Toyota was originally leased but subsequently refinanced on the basis akin to a personal loan so that there will be no balloon payment. To compound the problem however, the wife’s original position was that she wanted the vehicle and for the husband to continue to make the payments under the loan arrangement until they were completed. In evidence however, the wife said she did not want the vehicle and initially that was the position of the husband as well. However, in cross-examination, the husband indicated that he would take the Toyota on the basis that he could “make a dollar out of it”. Accordingly, I propose to remove the Toyota vehicle and the Audi vehicle from the pool of assets completely as there is no equity to divide and I see no reason why the liabilities in this case are of such significance to take them into account in that pool. I do propose to make orders that the wife deliver the Toyota along with the keys as part of the settlement process.
What was common ground was that I should follow the four step process. I propose to do that.
That is the process set out by the Full Court in Hickey & Hickey & Attorney-General for the Commonwealth of Australia (2003) FLC 93-143 at 78,386 where the Full Court said:
Firstly, the Court should make findings as to the identity and value of the property, liabilities and financial resources of the parties at the date of the hearing. Secondly, the Court should identify and assess the contributions of the parties within the meaning of ss.79(4)(a), (b) and (c) and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties. Thirdly, the Court should identify and assess the relevant matters referred to in ss.79(4)(d), (e), (f) and (g), (“the other factors”) including, because of s.79(4)(e), the matters referred to in s.75(2) so far as they are relevant and determine the adjustment (if any) that should be made to the contribution based entitlements of the parties established at step two. Fourthly, the Court should consider the effect of those findings and determination and resolve what order is just and equitable in all the circumstances of the case.
The first step therefore is to determine the pool of assets.
There can be no dispute that the proceeds of the sale of the family home amount to $18,794.
Each party by agreement, took $65,000 from the cash available and as such, $130,000 needs to be added back to the pool.
I have already mentioned the fact that the matrimonial home was sold. That occurred in December 2006. It was sold for $378,000. At that time, there were two mortgages to Latrobe Financial Services encumbering the title. Those mortgages were discharged. The first sum that had to be paid was $130,000. The second related to the sum of $53,000 which the wife took out in April 2006 for the payment of her family law fees. When questioned about that, the wife said that the sum was $47,000. She had paid that into a separate account and paid her lawyers along the way over a period of time. She gave comprehensive details of the $47,000 out of the $53,000. Although the wife gave no evidence about the differences, the husband conceded that there were in fact procuration fees and costs to obtain the borrowings which ultimately ended up in the wife receiving less that $53,000. The precise figures are unclear but having regard to the husband’s concession, it is in my view appropriate that only $47,000 be added back. Initially the wife was prepared to concede $53,000 in the pool of assets but ultimately changed that to $47,000.
It is common ground between the parties that the wife also has an interest in a superannuation fund which currently is valued at $19,000. It was current ground between the parties that that sum should be simply added to the pool of assets and retained by the wife. As was said by the Full Court in Coghlan (2005) FLC 93-220; (2005) 33 Fam LR 414, if the parties approach the matter in that particular way, the Court is within its rights to treat the matter as property accordingly. That is what I propose to do.
The next issue which I have already touched upon relates to the husband’s interest in M S Pty Ltd. This in reality is a warehouse premise, the land for which was purchased in 1988. The current building was apparently then built. There was no evidence about the cost of the purchase or the building of the premises.
If one ignores the receivables referred to in the unit trust balance sheet, the reality is that the trust simply owns a significant building, the title to which is encumbered to the extent of $2.4 million by a bank bill to the Westpac Bank.
Again, all of this is somewhat academic because the unit holders have agreed for the building to be sold. The sale process has been by tender. A sworn valuation was obtained of the building and the figure attributed was $4.7 million. However, in the tender process, the best offer has been $4 million and according to the husband, the other two unit holders are very keen to sell regardless of the $700,000 disparity.
On commencing his evidence, the husband said there had been talk of an offer of $4.6 million but nothing concrete had occurred. The negotiations were going on as the trial was. The husband said he expected a written offer. One of the other unit holders is undertaking the negotiations. The wife seemed content with that, realising that the ultimate outcome of these proceedings for both parties is for there to be a decent sale. In reality, this asset is the only one that will provide any significant immediate cash for distribution between them. Once the sale proceeds are realised, there will be a division three ways between the unit holders and any capital gains tax will be the responsibility of the individual unit holders rather than the trust.
Accordingly, for the purposes of the pool of assets as between the husband and the wife, the only figure that can be contemplated is the one-third interest after taking into account all sale costs and any capital gains tax that may be attributable to the husband’s one-third share. This is an exercise that needs to be undertaken with the accountants for the parties.
To have some understanding of what is likely to be available, I prepared an Excel spreadsheet with hypothetical sale and expense figures and using guesstimates of capital gains tax possible outcomes. Both counsel accepted that the figure were a fair indication. Those left the parties with a cash outcome of between $200,000 and $283,400 depending upon the gross sale price. In the circumstances, I see no reason why a formulaic approach cannot be used and that is the course of action I intend.
The next item in the balance sheet is the husband’s interest in his late father’s estate which has been valued at $3749. This is a remaindermen interest because the husband’s mother has a life interest. According to the valuer, the husband can have no immediate expectation of receiving the funds. The husband’s mother is about 76 years of age and enjoys good health and using the life tables, the expert witness has assessed her life potential as a further 13 years. Having regard to the fact that the valuation is $3749 being the interest of the husband as at today, it would be nonsensical to add it into the pool of assets as that sum because the husband does not have access to it and may potentially not have access to it for 13 years or at all if he happened to die before his mother. I propose to treat that sum as a resource in the hands of the husband but having regard to its quantum, it will have little difference to the outcome of these proceedings.
The next item in the list of assets as valued by Mr W is the interest of the husband in A Pty Ltd. He attributed the sum of $13,000 to that.
This company is known to the parties as P A Pty Ltd. P A Pty Ltd was a company of which the husband and Mr L were the directors and equal shareholders. It later became known as A Pty Ltd. Mr L died in April 2006 and his shareholding is held by his estate. Because of the failure to lodge returns, ASIC has deregistered the company.
P A Pty Ltd was a project management company for the development of accommodation facilities. It was involved in some contractual work the details of which have become irrelevant because as a result of Mr L’s death, the project management contract was terminated. Mr W examined the balance sheet as at 30 June 2007 and ascertained that the net assets of P A Pty Ltd totalled $25,276 and as such, half of that was attributable to the pool for division between the husband and the wife. However, the problem is not that simple. Notwithstanding the description as set out above as to what P A Pty Ltd was doing, its major assets were a block of land and some options in land. The husband’s evidence is that the options in land have expired and therefore are worthless. That evidence was not challenged by the wife. That leaves the land which has been valued at $70,000. The land is on the market for sale. Against any proceeds of sale, there have to be paid liabilities. According to Schedule 6 to the affidavit of Mr W, there is currently a bank overdraft of $21,451 to be paid. According to the balance sheet the other creditor is the husband who is owed $36,134. The major problem is that notwithstanding the value of $70,000 attributed to the land, the property has been on the market at $60,000 for the last 18 months and the best offer thus far has been $50,000. There will presumably be capital gains tax liability problems as well because this land according to the balance sheet was originally acquired by P A Pty Ltd for $10. The capital gain will be obvious.

To properly wind up P A Pty Ltd the loan of the husband would have to be repaid prior to any division with the estate of Mr L. Much therefore depends upon what the property sells for but it would seem clear that whatever it is that is left over will go into the pool of assets between the husband and the wife by virtue of the debt due to the husband by P A Pty Ltd.
In respect of tax therefore, to use the valuation of Mr W does not do justice to the real position. I propose to work on the assumption that there will be no value to be added to the pool. If there is an amount from the sale, it will not be much. I am satisfied that because the only asset is the land and it has been on the market for some time, the amounts discussed in evidence give a reasonably accurate picture of what there is to be added to the pool. Therefore, a formulaic approach will enable me to do justice between the parties.
The next item in the balance sheet is the husband’s interest in R Pty Ltd. Mr W found that this company was not only not worth anything but that it owed $9331. That figure came from the balance sheet as at 30 June 2007 and Mr W has accepted that figure.
The only asset of R Pty Ltd is some development land in P. It was shown in the balance sheet as having a value of $2619 but there was also some plant and equipment. Again, the husband has advanced money to R Pty Ltd and therefore was owed money.
Valuer L valued the property in P on 21 August 2007 at $95,000 against which there is an encumbrance by way of first mortgage to V Pty Ltd in the sum of $60,000 plus interest outstanding of $6000. The husband says that this $60,000 was borrowed in three payments of $20,000 all of which have occurred subsequent to separation. The husband’s evidence which was not seriously challenged, was that he had paid expenses relating to the matrimonial home, working capital for his former property business and also re-establishment expenses for himself in his home. Because the husband provided a schedule setting out where all of the money he had received both by way of income and drawings had gone and that evidence was largely unchallenged, I accept that he did borrow $20,000 on three occasions through V Pty Ltd and that that is a debt owing which must be paid out upon the sale of the land in P. Again, there is a prospect of capital gains tax because this is the last of the subdivided land which has remained unsold.
For the same reasons as I set out above relating to P A Pty Ltd, I am satisfied that the hypothetical value of P A Pty Ltd used by the husband is the appropriate one to add to the pool to enable me to determine what percentage division is going to provide a just and equitable outcome.
The major issue in the proceedings related to the husband’s interest in V Pty Ltd. It is important to understand a number of factual matters about V Pty Ltd. Counsel for the wife conceded in final address that the wife had made no direct or indirect contribution to V Pty Ltd. She conceded that it has been sitting there for many years throughout the marriage. In discussion, counsel for the wife conceded that if any value was attributable to V Pty Ltd and added to the pool, it was necessary to reflect a significant contribution in favour of the husband.
The only evidence that the wife gave about V was that the husband was a shareholder and had resigned as a director in April 2005 after the parties separated. She simply relied upon the report of the single expert witness Mr W.
Mr W said that the interest in V Pty Ltd was valued at $592,000 which included loans to the husband of $120,000 and $45,413. In his analysis of V Pty Ltd, Mr W said that it was incorporated by the husband’s parents to purchase a farm. When the farm was ultimately sold, V Pty Ltd acquired retail and office buildings in B, a house in E in which the husband’s mother now lives, and a first mortgage investment in P. Mr W pointed out that the directors and secretaries of V Pty Ltd were the husband’s mother and his brother. The husband had been a director but resigned on 11 April 2005. As to that resignation, I shall turn in a moment.
Mr W also pointed to the fact that under the husband’s father’s will, his shares in V Pty Ltd were held in trust for the life of the husband’s mother and upon her death, her shares will be equally distributed to the husband and his three siblings.
It is important to note that under the terms of the corporate constitution of V Pty Ltd, the redeemable preference shares entitle the holder to a fixed 5 per cent non-cumulative preference dividend, priority ranking for capital on a windup but no rights to profit and the same voting rights as ordinary shareholders. Fundamentally, the husband’s mother presently controls the company.
The husband’s evidence was much the same as that of Mr W. He said that it was a family company. The company was controlled by his mother and although he had been a director, he considered it “prudent” to resign due to his matrimonial situation and did so in early 2005. The husband was more descriptive of the share structure but confirmed what Mr W said about the equal voting rights. There are 50,000 preference shares in V Pty Ltd half of which are held by the husband’s mother and the other half by the estate of his father. The husband’s mother is entitled to a life interest in respect of her late husband’s estate. The other shares are held by the husband and his three siblings, one by his mother and one by the estate. This effectively means that on a voting right basis, the husband has 24.8 per cent of the voting rights.
The husband made the point which was not challenged by the wife that the husband and his siblings have not received any income distributions as they were all received by his mother. When one looks at the income situation as set out in the profit and loss statement of V Pty Ltd, it is clear that there is a limited amount of income derived from the interest and rental properties.
V Pty Ltd was therefore set up by the husband’s parents as a form of estate planning. As Mr W pointed out, it began life owning the family farm and is now the investment vehicle used to protect the husband’s mother in her aging years. It is important to note that the husband’s mother is said to be 75 years of age and enjoys good health. According to Mr W, the life tables would suggest that she has an expectation of living for a further 13 years.
Even were his mother to die however, the husband claimed that he would not have currently any expectation of a payment out of his capital share because he could not “predict” what his siblings might decide to do. He made the observation that they may wish to maintain the income stream rather than winding up the company. This was a subject about which Mr W was cross-examined. As a minority shareholder, it was Mr W’s view that the husband would have difficulty forcing a winding-up under the corporations’ law based on an argument about oppression.
There are two important observations to make about V Pty Ltd at this stage. The first is that on the evidence, I find that the husband is a minority shareholder and that his mother has control and there is no evidence to suggest that the husband could with any confidence, cajole his siblings into entering into an arrangement to pay him out any entitlement he might currently have. It was made clear that there was no love lost between the husband’s family and the wife. Even if it were possible to pay out the husband, the cash management resources of the company would not be sufficient to pay out that which the husband could be said to be notionally entitled to. To do so would require the company to either borrow or to dispose of assets. I have no evidence about the prospect of that. That course of action would affect the income flow into V Pty Ltd which in turn might adversely affect the husband’s mother’s life estate interest. In addition, a sale of assets may very well give rise to a capital gains tax issue about which I have no evidence at all.
The second issue is that the wife through her counsel, candidly conceded that there had been no direct or indirect contribution by the wife and as a result of that, I have accepted the husband’s position that this entity was intended as an estate planning concept of the husband’s parents.
Counsel for the husband prepared an aide memoir about the husband’s position in relation to V Pty Ltd as an indication of how he saw I should deal with it in the context of a property settlement. It is instructive to understand the problem. Counsel pointed to the fact that on the husband’s interest in the preference shares, working on life tables, a six per cent discount of the present value of the shares equated to a 46.16 per cent flat rate over the assumed period of 13.2679 years of the mother’s expected life period. Counsel then point to the fact that with some adjustments in V Pty Ltd relating to N Pty Ltd and the husband’s financial obligations to the company, 24.8 per cent of the adjusted net asset backing of V Pty Ltd applied with a 46.16 flat discount left the interest valued at $273,262. That calculation was incorrect but for the purposes of these reasons, the calculation does not matter. Counsel said that the adjustments then had to be made for the N Pty Ltd debt and the husband’s debt leaving in reality, a value of $107,849.
This scenario was put to Mr W as the single expert witness. Mr W gave evidence and was cross-examined. He made appropriate concessions about the other assets to which I have earlier referred. In respect of V Pty Ltd, Mr W said that he had initially thought it was appropriate to discount the value of the husband’s interest but then decided against it. He said that he did not believe that there was any basis to do so. He conceded that the mother of the husband controlled the company but said that only five per cent of the non-cumulative preference dividends were paid to her. He said it was a problem about how to deal with the other directors and shareholders but the company was cash rich as well as having a variety of properties. He said after careful thought that he had decided that it was not appropriate to give any discount at all. He clearly rejected the scenario that counsel put about the six per cent discount converted to a flat rate.
I have no reason to doubt that Mr W applied his mind appropriately to the value. I have no reason to doubt his methodology is correct. I have no doubt that subject to some variations, the calculation he has done is correct. I have no doubt that if the husband wanted to pursue an amount as his entitlement in the company in the future, the amount mentioned by Mr W is exactly what he would seek. That is what the net asset backing of the company shows. The dilemma is that it is a family company controlled by the husband’s mother who on the life tables has potentially 13 years still to live and even then, the husband has to deal with his siblings.
Counsel for the wife cross-examined the husband about the fact that he had had cooperation from his siblings when he needed to borrow money from V Pty Ltd although in fairness, that was some years ago. In recent times, as is evident from the balance sheet, the husband executed a mortgage for his borrowings. The borrowing was all subsequent to separation in an environment where the husband was resigning from V Pty Ltd’s directorship because of the matrimonial issue and there is no love lost between the two families. However, I cannot get away from the fact that this was clearly an estate planning vehicle which was intended to benefit the husband at some point in the future and there seems to be a clear documentation by the siblings of their use of V Pty Ltd money from time to time. Most importantly however, leaving aside the issue of control by the husband’s mother, is the fact that she receives the income save for director’s fees which obviously do not benefit the husband.
Counsel for the wife also cross-examined the husband about the financial positions of his siblings and there is little doubt that they are financially secure. I am not at all convinced that that has anything to do with the situation here because rather than being some form of sham, the picture has a ring of commercial reality about it.
Before turning to the question of what to do with the value, I have already mentioned the two amounts that need to be considered. The first is the $120,000 to N Pty Ltd. This as I have said, is shown as a liability. It is a nonsense because N Pty Ltd no longer exists. There is no evidence upon which I could operate to determine that the husband is or was N Pty Ltd for the last ten years nor that he still owes that money in a personal sense. I do not find that there is any evidence that would justify me including the N Pty Ltd debt in the balance sheet of V Pty Ltd regardless of what the family might do in the future amongst themselves. In addition, if it was the husband’s debt, he would then be entitled to include it in the pool as between he and the wife as a liability and the argument then becomes circuitous.
The second issue relating to the husband’s debt of $45,413 is of a similar nature. The debt itself was not disputed by the wife. I have no evidence that I could rely upon about what the company will do in the future. Because of the argument that the husband puts that he knows nothing about what his family will do, I propose to treat the debt as unlikely to be recalled in the foreseeable future. If that were the case, the husband would be justified in having it taken from his entitlement to 24.8 per cent of the net asset backing of the company. I propose to take the $45,413 from the net asset backing before the 24.8 per cent is applied. That being the case, 24.8 per cent needs to be applied to $2,223,466 leaving the husband’s notional entitlement as $551,420. The question that then remains is whether that is the appropriate sum to add to the pool. Counsel for the husband argued that the authorities gave some indication as to the approach that should be taken in respect of an issue such as the discount urged by him in this case. In Hull and Hull (1983) FLC 91-360 Nygh J was dealing with a shareholding consisting with three classes of shares in which the wife’s mother held all of the effective power and control whilst the wife had virtually all of the equity interest subject to the power of her mother relating to increases in the capital of the company and changes to the shareholding.
Nygh J held that it was artificial to adopt a normal basis of share valuation. He said that it could not be said that the wife’s interest was valueless but that:
This Court must approach a question of valuation on a realistic basis and as the High Court accepted in St. Helen's Farm case , the question of valuation is essentially a matter for the trial Judge.
Nygh J acknowledged that the wife had an asset with a value as determined by the evidence but that since it was not realisable by her in the foreseeable future, he took it into account as regards the question of her future needs.
The principle set out by Nygh J has not changed and that is that the question of valuation is essentially a matter for a trial judge.
In Reynolds and Reynolds (1985) FLC 91-632 the Full Court had to deal with a party’s shareholding in a company controlled by the husband’s parents. The Full Court commented that it was doubtful whether valuation methods developed for commercial purposes were entirely appropriate in the family law jurisdiction because the present value of those shares may not necessarily affect their value to the spouse who would ultimately benefit from them upon the death of the parents. The Full Court commented in that case that the winding-up of the company was not in the least likely and the husband was not in a position to sell the shares and pay a cash sum which would have been determined on the basis of the valuation of the experts. In that case, the trial judge had taken the shares into account as a financial resource and the Full Court pointed out that that was not correct because the shares clearly had a value. However, the Full Court held that the trial judge was entitled to view the shares as valuable property but on the basis that they were realisable at a point in time in the future. This particular case has some attraction for me because I accept on the evidence that the husband does not have the capacity to influence his family regardless of their generosity in the past. It does not take much imagination to presume that the family who are not parties to these proceedings may not be cooperative particularly if their own interests are likely to be adversely affected. However, it is quite clear on any view of the net asset backing of V Pty Ltd that the husband will benefit at some stage or other in the future because he has the defined portion of shares.
In Sapier v Sapier (No 2) (1989) FLC 92-047, the wife had 48 per cent interest in various family companies but again, her shares were subordinate in rights to the shares held by her parents. This was a case that was heard by Young J in the Supreme Court of New South Wales under the cross-vesting legislation applicable at that time. His Honour made the point that wherever possible using that then perceived power, the Supreme Court should follow the lead of the Family Court. The Supreme Court was attracted by the decision in Hull and Hull (supra). There was no doubt in that case that the accountant had valued the shares on the basis of what they would be worth to an independent third party. Although Mr W here has said that no third party would be interested in the shares, the reality is that the shares have an asset backing which is solid and risk-free. However, as Young J pointed out, if an independent third party was interested, they would seek to discount the asset backing value “heavily”:
Because of a difficulty in either realising his investment by winding up the company or alternatively, on selling the shares to some other third party who would have similar problems.
Young J took the view that the basis of the valuation ought to be the value to the party rather than the value to a hypothetical purchaser. His Honour applied an appropriate discount rate of 6.5 per cent which having regard to the facts in that case, amounted to a discount of 50 per cent of the net asset backing.
The principle in that case seems to me to be consistent with all of the authorities of this Court. The difficulty is that the 6.5 per cent discount which became a flat rate of 50 per cent is entirely subjective.
In Turnbull (1991) FLC 92-258, Baker J had to deal with a case involving family companies controlled by the husband’s father. However, this was a short marriage. The pool of property was over $5 million. Baker J followed Hull, Reynold and Sapir but made the point that I have already referred to that when determining the value of shares in a family company, the Court must look at the reality of the situation and value the shares on the basis of their worth to the shareholder. In Turnbull, Baker J adopted a discount rate of five per cent in respect of one company and 10 per cent in respect of another so the discount was relatively modest. Again, the subjectivity of that decision is self-evident.
In Moylan (unreported 12 November 1992, Baker J) his Honour repeated effectively what he had said previously namely that:
The alternative method is to value the shares on the basis of their worth to the family shareholder, given all the restrictions as to control, realisation and uncertainties inherent in such a private family company.
The uncertainties for the husband have to be viewed on the basis of the evidence before me. I have his views about the family intentions. He says that he would not get cooperation necessarily from his siblings. There is no question in this case that the provisions of the company constitution create restrictions on the transfer of the shares and the siblings and the husband’s mother not being parties to the proceedings makes the registration of a transfer of shares a vexed question. Whilst the life expectancy of the husband’s mother has been calculated, his siblings are all of a similar age to him. In addition, it was elicited in cross-examination by counsel for the wife that they are all successful in their current commercial activities. That would tend to suggest that even after the family planning protecting the husband’s mother comes to an end, the family may very well not need to alter the income stream and wind up the capital. As such, without any specific evidence to the contrary, I can only look at the reality of the company’s situation. In Moylan, Baker J looked at all of those same questions and felt that it was appropriate to apply a discount rate of 20 per cent. Again, the subjectivity is obvious.

In Georgeson and Georgeson (1995) FLC 92-618, the Full Court dealt with shares held by a wife. The shares had been valued by accountants and the agreement between the accountants was that the net asset backing was the appropriate method of valuation. The Full Court said that there was no fixed rule as to the proper method of valuation of shares and that the evidence of experts was important to assist the Court in forming an independent judgment on the issue of valuation by the application of appropriate principles. The Court said that ultimately it was a matter for the judge to come to a conclusion as to whether the approach taken by the experts was appropriate in the circumstances.
In my view, this is as much a matter of commercial calculation as it is the application of simple logic. As I have pointed out above, there are significant restrictions on the husband according to the evidence which place limitations on the negotiability of these shares for an indefinite period of time. Having said that, there can be no doubt that the shares have a significant value to the husband. Fundamentally therefore, the only question for me is to determine whether or not it is appropriate to apply a discount or to find an alternative way of ensuring that the ultimate division of the assets is just and equitable to both parties having regard to that commercial reality.
Whilst Mr W maintained that there was no basis for a discount and even though he was looking at the shares on the basis of their value to the husband, it is clear there is no market and even in the family environment, limitations on the negotiability of those shareholdings.
In my view, unless I can ascertain an alternative way of ensuring that a just and equitable outcome is achieved without applying a discount, in my view, it is appropriate to apply a discount to achieve that result.
An alternative to the discount is for each party to share in the risk. A discount is only applicable in my view where an adjustment is to be made for what the asset is worth to the party today.
I canvassed with each of the parties through their counsel this alternative approach. Without a discount, applying the appropriate steps to determine the wife’s entitlement to that particular asset, the husband’s interest in the shares in V Pty Ltd could be charged to the extent of the assessed interest of the wife. With appropriate safeguards and appropriate interest, each party would effectively be taking the risks about which the husband complains.
Counsel for the wife said that her client appreciated that position and was prepared to undertake it. Counsel for the husband said that on his instructions, the husband would not be particularly enamoured with the idea but there is one significant reason why in my view, it is more attractive than the discount option.
Subject to what (if any) discount was given to the shares and then added to the pool, it is conceivable that because of the likely proportion that V Pty Ltd will be of the total pool, there would not be sufficient cash on the wife’s projected figures from the sale of M S Pty Ltd to satisfy the entitlement of the wife. I raised this prior to final addresses with counsel. Whilst the wife would then take all of the probable cash from the pool, the prospect of obtaining the balance would be unlikely until such time as the husband was in a position to fund it. If the husband was unable to recover cash from V Pty Ltd because of the position of his siblings, he would be left in the unfair position of owing the wife money and having to fight with his family whilst the wife had all of the available cash. In my view, that would be unfair to the husband.
The solution therefore would be for both parties to share in the husband’s interest in V Pty Ltd in due course and if that never eventuates, then each party has taken the same sort of risk whilst at the same time, benefiting now in the cash assets that are available.
It is instructive however to also look at the two prospective models to determine which of the two provides a just and equitable outcome for both parties. To do that exercise, one has to take the second and third steps and make the appropriate assessments either way for contribution and the matters set out in s 75(2) of the Act.
On the basis that I was to apply a discount in respect of the interest in V Pty Ltd, subjectively, for all the reasons that I have set out above, I would apply a discount of a flat rate of 30 per cent. On the adjusted figures therefore, I would attribute to the pool the interest in V Pty Ltd at $385,994.
On that basis, the pool of assets as the assets are today would be as follows:
Proceeds of sale of home  $18,794
The M Pty Ltd interest                 (approx) 250,000
Interest in P A Pty Ltd  nominal
Interest in R Pty Ltd  15,000
Wife’s superannuation  19,000
V Pty Ltd interest  385,994
Sub-total  $688,788
Add-backs:
Wife’s borrowing  47,000
Wife’s advance  65,000
Husband’s advance  65,000
Sub-total  $177,000
Grand total  $865,788
As I have pointed out, save for the V Pty Ltd interest and the argument about post-separation contribution, the parties agree that this case would be one in which they would say that the contributions have been equal. There can be no question in my view that the contributions favour the husband in respect of the addition into the pool of V Pty Ltd as a result of the historical matters to which I have referred. I do not find that there is any basis for an argument in favour of the wife for a post-separation contribution as a result of all of the matters that I have referred to in relation to the husband’s support of the wife and her capacity to support herself during that period of time. In respect of that latter point, it is also important to recognise that the wife went on a path of pursuing numerous subpoenae in relation to the husband’s financial position at a time when she had a spousal maintenance application pending and ultimately withdrew that application.
In my view, based on that pool, I would attribute the contributions much in favour of the husband having regard to the fact that out of a pool of $865,000, $385,000 of the V Pty Ltd interest is a significant portion which could not otherwise have been there but for the husband’s family. In my view, this is a case which would justify an assessment of 65 per cent to the husband and 35 per cent to the wife.
I shall turn to the finer details of the matters set out in s 75(2) of the Act but in my view, this is a case where there is a justification for an adjustment in favour of the wife and in my view, it ought to be 10 per cent based on what I have just said.
That being the case, the assessment would mean that the husband was entitled to 55 per cent of the assets and 45 per cent to the wife.
On the basis of a 45 per cent assessment of $865,788 the wife has to receive $389,604. She has already received borrowings and advances of $112,000 and retains her superannuation of $19,000 which is a total of $131,000. She therefore needs to receive $258,600 or thereabouts in cash. On the basis of the projected sale proceeds of the M Pty Ltd interest and what is currently standing in the trust account, the wife would get virtually all of the cash from the remaining assets leaving the husband alone to receive the V Pty Ltd interest and a modest (if any) sum of cash. In my view, for the reasons that I have set out above about the V Pty Ltd interest, that would not be a just and equitable outcome.
If however the alternative approach was taken ignoring any discount argument, the whole of the interest in V Pty Ltd would be added to the pool. Using the same pool as set out above but without the discount, the equity to be divided between the parties would total $1,031,214. However, that pool would have to be divided on the basis of two parts. I would assess the non-V Pty Ltd assets as $479,794 and the V Pty Ltd assets as $551,420.
Looking firstly at the non-V Pty Ltd assets, I would find that there would be no basis for any division on a contribution basis other than an equal one.
If I then applied the same principles in relation to s 75(2) and allowed an adjustment in respect of the wife of 10 per cent, her entitlement to the non-V Pty Ltd assets would be $287,876 less the $131,000 that she has already received and thus, she would receive $156,876 from the pool of non-V Pty Ltd assets.
What is important to note is that in terms of cash entitlement, the wife does not receive significantly different a sum from the alternative of method to which I have referred above.
In respect of the V Pty Ltd interest, there can be little doubt that the contribution by the husband is overwhelming and the wife negligible. Even allowing for some recognition of the long marriage and the observation that contribution is not necessarily made to particular assets, it is hard to see how any amount could be assessed other than in a nominal way. In my view, the appropriate finding for contribution would be 15 per cent.
The difficulty thereafter however is that I could not apply the same s 75(2) factors as I have in the other assessments having regard to the fact that in respect of this asset, each party has to wait for the outcome of their claims against V Pty Ltd and I have already made an adjustment in favour of the wife in respect of the non-V Pty Ltd assets. Notwithstanding that, I will still make some adjustment and subjectively, in my view it ought to be only 2.5 per cent. On that basis therefore 17.5 per cent of the V Pty Ltd assets amounts to $96,490 or rounded up to $100,000.
In my view, both methods are open to me and the parties have had ample opportunity to consider their respective positions and comment upon either option. Ultimately, my responsibility is to make a decision which is just and equitable and I have little doubt after looking at the matters as I have set them out above, the appropriate way to divide the assets is to not apply the discount but rather give each party an opportunity to share in V Pty Ltd if and when it comes into a tangible form other than that which it now is.
It is important at this point to deal with the matters set out in s 75(2) of the Act. In this case, there is little difference between the ages of the parties. The health of the parties has been also made clear. Whilst I accept that the wife has suffered from anxiety and stress throughout the course of the period since the breakdown of the marriage, her medical evidence suggests that her health may improve once these proceedings are concluded. In her affidavit material, she referred to bladder and breast problems but in evidence, indicated that there was no significant issue there about which I needed to be concerned.
The income of each of the parties has also been a matter of considerable discussion during the proceedings. I find that the husband’s income is greater than the wife although to what extent I am unsure. I accept that the wife’s current income is effectively Centrelink payments. What is arguable in favour of the wife however is the question of earning capacity. The husband is clearly more entrepreneurial than the wife. The wife’s limited opportunities to work relate to employment situations. To some extent, her capacity to work longer hours is affected by her stress levels but I find that she does have an earning capacity and can do the things that she wants to do. She also has the capacity to work in the retail sector albeit that jobs are not readily available. As a general statement however, it is clear to me that the earning capacity of the husband is greater than that of the wife.
It was argued by the wife that the husband also has the benefit of a corporate structure by virtue of his entrepreneurial activities. The difficulty for that argument however is that the husband has not shown over the many years of the marriage a propensity to be successful. None of the ventures have been matters in which he has acted alone and in those of recent years, he has required the assistance of other professionals and other people’s capital. In those circumstances, the fact that he uses corporate vehicles and is able to make them tax effective is of little assistance.
The wife also argues that the husband has the capacity to go to his family if he needs money. However the evidence that I have and upon which I rely and accept is the fact that he can from time to time borrow money from his family but it seems to be on a commercial basis. I do not accept that that is just something that has occurred subsequent to separation.
Neither of the parties has a commitment to support any other person. The wife argued that she wanted to be present and to assist their pregnant daughter however whilst that is commendable and ought to be encouraged, in my view, it is not a matter that I ought to take into account.
Neither party has the responsibility to support any other person in any financial sense.
Whilst the wife is currently in receipt of Centrelink benefits, there is little doubt that if she overcomes the stresses and anxieties of the breakdown of the marriage, as her doctor points out, she has the capacity to work to some extent.
Much was also said by the wife about the fact that the parties had a reasonable standard of living during their marriage. That seems to be so save for the fact that they do not have significant assets at the end of their married life nor have they exuded a wealthy lifestyle during the relationship. Quite the contrary, towards the end of the relationship and certainly subsequent to its conclusion, the parties were living a lot on credit. If it is possible to continue the lifestyle to which the parties had been accustomed, then clearly a court ought to make the necessary adjustments to enable that to occur. However, it is not a one-way street. In this case, to make a significant adjustment in favour of the wife for that purpose would be to the prejudice of the husband and I could not justify that in these circumstances.
Section 75 also requires me to consider the extent to which the party whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other party. There is no maintenance application in this case but I am required by s 79 to take into account all of the matters set out in s 75. That is clearly a significant issue in this case because on any view, the wife has been a significant supporter of the husband’s business ventures albeit that she has not taken part in some of them. During a portion of the marriage, the wife worked in the husband’s property business.
The duration of this marriage is clearly long. The wife undertook the major role of managing the home and supporting the children whilst at the same time working whenever possible particularly in the husband’s business and contributing to the household finances. I do not find however that she has been significantly disadvantaged by that position as in evidence, she pointed out that she has qualifications and experience as a teacher, as well as a flair for design and fashion. Whilst I appreciate that she does not have the wherewithal and desire to have the entrepreneurial activities of the husband, much is at her fingertips if she so chose. For example, counsel for the husband cross-examined the wife about the fact that she could if she wished, obtain a full-time position as a teacher. She indicated that she had no desire to do that predominately because of her age and the fact that a 40 hour week on a full-time basis turned into much longer hours by virtue of the fact that she had to do preparation work. Later, the wife acknowledged that it was not as simple as that because the jobs for which she had applied were unsuccessful predominately because of the fact that younger graduates were sought on the basis of new ideas. Be that as it may, I am satisfied that the wife does have an earning capacity and her long marriage has not adversely affected her capacity to obtain employment.
Much was also made by each party about the relationships into which they have entered subsequent to separation. The husband has an idyllic position in that he is in a relationship apparently without significant ties into which he simply contributes basic living costs but does not otherwise share with his partner their financial resources. His partner is employed and although the husband was unable to tell me any details about those finances, it would appear to be a stable and secure financial arrangement. The wife on the other hand is in a relationship in which she does not cohabit with Mr T albeit she has spent considerable time with him over the last 12 months. I am to determine that issue on the basis of their financial circumstances. I am satisfied that there is no arrangement between the wife and Mr T and I could not be satisfied that there will be in the foreseeable future. According to the wife, Mr T who is about to re-embark in the employment field, is currently unemployed and has no money. It seems to me that of the two, the husband is in the stronger position in respect of the cohabitation issue. That is a matter that I am entitled to take into account.
What is significant between the parties is the terms of the order. I have factored in the husband’s entitlement in V Pty Ltd but I am not in a position to allow the wife to double-dip. In so far as V Pty Ltd is added to the pool in one way or another for division, I have determined that the wife’s contribution to it is nominal. On a division in which the wife obtains a significantly less proportion of the pool because of the contributions, it is justifiable to take into account that the husband is in a stronger position by virtue of the disparity of the division.
Finally, the wife urged me to take into account the provisions of s 75(2)(o) as a result of all that she had been through. She referred to the burglary, the husband’s failure to insure the contents of the home, a car accident and her own loss of employment as a result of the fact that she could not concentrate on her job. I am entitled under s 75(2)(o) to take into account any other circumstances but it must be of a financial nature which ultimately enables me to come to a decision which is just and equitable for both parties. As Fogarty J said in Waters and Jurek (1995) FLC 92-635:
…the various paragraphs in s.75(2) come into play and are to be given appropriate weight when it is concluded that they are relevant to making a property order between the parties which is "just and equitable".
Fogarty J went on to say:
In the majority of property cases little difficulty is encountered in the contribution step and increasingly in the general run of cases the conclusion is likely to be one of equality or thereabouts. There is no doubt that the centre of gravity in the determination of property cases has, especially in more recent times, moved to the evaluation of the s.75(2) factors, and the significance of that has been heightened because of recent Full Court decisions which have emphasized those provisions and indicated that they should be given real rather than token weight.
It is not just a case of those factors being of financial or economic significance because the Court is obliged to ultimately divide the equity in a way which is just and equitable having regard to all of the circumstances of what occurred during the parties’ relationship. That is why, s 75(2) is not just about needs of the parties.
In this case however, s 75(2) enables me to do a balancing act looking at the respective futures of the parties. Having regard to all of the matters to which I have just referred, there is not a significant difference between the parties. Clearly, the identifying differences relate to earning capacity, the future potential growth of the husband’s entitlements by virtue of his interest in V Pty Ltd subject to the risks to which I have referred and the fact that the husband is living in a relationship which seems financially better than that of the wife.

The determinant for me is clearly not the percentage adjustment but the underlying value of the difference between the two parties as a result of any mathematical formula used to determine their entitlements. As I pointed out to the parties, every percentage point one way is a differential of two per cent between the parties. In my view, if one adopts the modest pool with the discounted value of V Pty Ltd in it, there is a justification for a 10 per cent differential in favour of the wife. That same argument cannot be applied in circumstances where the full value of V Pty Ltd is added to the pool and the pool is then divided into two parts. In those circumstances, the disparity between the parties to which I have just referred becomes much less because the wife is sharing in the same risks for the future as is the husband. If the wife is right that the husband will benefit in the long run, then so will she notwithstanding she has to wait. In those circumstances I would approach the adjustments for s 75(2) in a much different way applying a percentage of 10 per cent for the non-V Pty Ltd assets and 2.5 per cent for the V Pty Ltd assets for the reasons I have earlier articulated.
In my view, the outcome that is most just and equitable is to apply the full value of V Pty Ltd and then divide the pool as I have indicated. There are two problems with that. The first is that appropriate security for the wife needs to be put in place and I propose to make an order that in addition to the charging of the husband’s interest to the extent of $100,000, any payment to the husband by the company is first to be paid to the wife to satisfy in part her entitlement until it is paid in full and that the husband be obliged by mandatory injunction to provide to the wife a copy of all records provided to him annually bearing in mind that he is not a director of V Pty Ltd. I propose to also order that the husband do all things necessary to request the other directors of V Pty Ltd to provide the information required to the wife, serve a copy of my orders upon the directors of V Pty Ltd and not take any steps which would prejudice the interests of the wife. That includes borrowing from V Pty Ltd. If the husband can borrow, he can pay out the wife.
The final problem relates to the question of whether there should be some interest accruing to the wife by virtue of the fact that she is entitled to a fixed sum in the interests of the husband in V Pty Ltd and it may be many years as the husband prognosticates before she is paid. If there was continuous growth as there appears to have been in the past in V Pty Ltd, and the wife did not receive any such portion of the growth, she would be distinctly disadvantaged. I canvassed with each party the prospect of how that could be addressed. Counsel for the wife suggested that it should be the interest rate under the Family Law Rules but in my view, that would be totally inappropriate. Counsel for the husband said that there should be no interest. In my view, there is a justification for an interest component.
Section 117B of the Act says:
Interest on moneys ordered to be paid
(1)     Subject to any order made by the court under subsection (2), where, in proceedings under this Act, a court makes an order for the payment of money (other than an order for the payment by way of maintenance of a periodic sum), interest is payable, at the rate prescribed by the applicable Rules of Court, from:
(a)     the date on which the order is made; or
(b)     the date on which the order takes effect;
whichever is later, on so much of the money as is from time to time unpaid.
(2)     A court that makes an order for the payment of money as mentioned in subsection (1) may order that interest is not payable on the money payable under the first‑mentioned order or may order:
(a)that interest is payable at a rate specified in the order, being a rate other than the rate prescribed by the applicable Rules of Court; or
(b)that interest is payable from a date specified in the order, being a date other than the date from which the interest would be payable under subsection (1).
This is a case in which s 117B(2) should apply and a rate be fixed other than as set out in the Rules. In addition, the interest should not be compounded because I have no evidence of what the growth will be in the foreseeable future. An examination of the balance sheet of V Pty Ltd shows that the parties have not made any adjustment to the values of the real properties for a number of years and the valuation of the real properties for the purposes of these proceedings have indicated a remarkable growth. I am obviously not aware of how that translates into percentage terms. The profit and loss statement shows some indication and based on a return of $71,400 on an equity of just over $2 million, the properties are currently returning about 3 per cent. In my view, the appropriate rate is 3 per cent per annum. I propose to order that each year until paid, the wife be entitled to a sum of $3000 to be added to the $100,000 until ultimate payment. It will clearly be a matter for the wife to resolve any taxation issues associated with such interest.
I am satisfied in the circumstances that the orders that I propose are just and equitable to both parties.

I certify that the preceding One Hundred and Thirty Nine (139) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin

Associate:

Date: 17 January 2008

[2008] FamCA 9

17 January 2008

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Family Law

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Fiduciary Duty