Edgar & Edgar

Case [2021] FamCA 433

FAMILY COURT OF AUSTRALIA

Edgar & Edgar [2021] FamCA 433

File number(s): MLC 12058 of 2016
Judgment of: BAUMANN J
Date of judgment: 8 July 2021
Catchwords: FAMILY LAW – PROPERTY – Should the husband’s evidence be accepted – significant disputes over what constitutes the pool of interests – dispute as to valuation of family home – whether the Court orders a sale or is persuaded to accept one of the expert valuer’s opinions – “add backs” relating to funds paid to adult children of parties post separation and whether without the consent of the wife – whether wife’s inheritance should constitute a separate pool – dispute as to whether funds in a Trust should be excluded from the pool or not – likely prospective capital gains tax liabilities on sale of major asset – how certain is the estimates of prospective tax – should the prospective capital gains tax be included in the pool as a liability or taken into considered under s 79(4)(2) – how should other tax liabilities arising from Division 7A be treated – should the commercial involvement of the wife’s father in a range of businesses undertaken by the parties be treated as a “contribution” by the wife – weighing up all contributions in two pools amounting to $77.5 million to arrive at an adjustment as to 53% to the wife and 47% to the husband – consideration of matters pursuant to s 79(4)(e), particularly the husband’s superior earning capacity; the wife’s separate inheritance and the treatment of the prospective capital gains tax liabilities – adjustment made in husband’s favour of 1% for s 75(2) factors – whether the family home should be sold – whether the wife should retain a 50% share of the parties’ interest in the business and adjoining properties – should the self-managed superannuation fund splitting order favour the husband or the wife to facilitate one of them retaining a particular piece of real property valued at $6.9 million – how to resolve a dispute about the future management of a Trust – how and by what means should the parties’ art collection valued at $8,433,000 and jewellery valued at $1,247,700 be distributed – how and by what means should the prospective Division 7A tax liabilities estimated at $4,354,445 be shared between the parties – further submissions to be received before final orders that achieve justice and equity and finality can be pronounced
Legislation:

Family Law Act 1975 (Cth), ss, 75, 79, s 81

Income Tax Assessment Act 1936 (Cth), Div 7A

Cases cited:

Best & Best (1993) FLC 92-418)

Campbell & Kuskey (1998) FLC 92-795

Clauson & Clauson (1995) FLC 92-595

Elliston & Dennell (2019) FLC 93-903

G & G [2001] FamCA 1453

Gosper & Gosper (1987) FLC 91-818

Hickey & Hickey (2003) FLC 93-143

Holland & Holland [2017] FamCAFC 166

Kessey & Kessey (1994) FLC 92-495

Kowaliw & Kowaliw (1981) FLC 91-092

Monfort & Bade [2018] FamCAFC 163

Rodgers & Rodgers (2016) FLC 93-703

Rodgers & Rodgers (No. 2)…

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AGLC
Edgar & Edgar [2021] FamCA 433
Case
[2021] FamCA 433
Decision Date

CaseChat Overview and Summary

The case of *Edgar & Edgar* concerned a dispute between a husband and wife regarding the division of their matrimonial assets. The primary focus of the court's determination was the valuation of their jointly owned former matrimonial home located at O Street, Suburb D, and how this, along with other assets and potential liabilities, should be incorporated into the divisible pool of assets.

The court was required to determine several issues, including the valuation of the O Street property, the treatment of the wife's inheritance from her late mother's estate, whether certain payments should be "added back" to the pool, and the inclusion or exclusion of funds held within the Edgar Investment Trust No 1. Additionally, the court had to consider potential capital gains tax liabilities arising from the sale of business interests and liabilities stemming from past corporate activities.

In reaching its decision, the court considered the conflicting expert evidence regarding the valuation of the O Street property. The court found the valuation provided by Mr Q to be more persuasive and transparent than that of Mr S. Mr Q's methodology, which involved analysing comparable sales and arriving at a rate per square metre, was accepted. In contrast, Mr S's valuation was found to lack sufficient analysis and transparency, particularly his failure to adequately compare the subject property to the comparable sales. The court accepted Mr Q's evidence, valuing the O Street property at $17,400,000, and ordered that this amount be incorporated into the divisible pool of assets. The court also determined that the wife's inheritance, despite the death of the testatrix occurring post-separation, should be considered within the s 79 application, citing relevant authority.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

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Evidence

Evidence Before The Court

Under cross-examination, Mr Q said:(a)he consulted local real estate agents and regarded the O Street address as more desirable than the other side of Suburb D Road;(b)it is hard to predict if the hypothetical buyer will demolish or not but said the lot is a “substantial size” and a buyer could always pay more if they want it;(c)he held concerns about the slope of the block and felt the home was not sitting on the block “efficiently”;(d)he agrees there is room for legitimate variation within a range of 10%; and(e)he did not deviate from his assessment at $17,400,000 after being challenged on his assessment of the comparable properties at Suburb D.Mr S’s evidence The valuation by Mr S identified 13 properties as suitable for consideration under the comparable sales methodology and analysed the sales evidence on a rate per square metre inclusive of improvements and had obviously disregarded sales where it is evident that the improvements did add significant value. He concluded his valuation based on a calculation of $7,500 per square metre site area, noting that:(a)the subject premises certainly provides greater appeal than many of the sales that have occurred and is adjoined by significant substantial residential estates thus “comprising a highly regarded location”;(b)the number ... is a “particularly beneficial street number, being ...”;(c)the residence’s setting provides a “very effective layout including the favoured layout of residence, garden pool and tennis court”; and(d)in reaching the assessment of $7,500 per square metre, Mr S considered the fact “that the residence is superior to many of the comparable sales evidence”. Under cross-examination, Mr S said:(a)the husband sent him a newspaper article[5] and identified real estate agents active in the Suburb D area;(b)he knew of the importance of “...” to buyers and an agent Mr T told him that was a “positive”. He regarded the “T intersection” as bad feng shui – but when asked about his knowledge of, he confirmed he “Googled it”;(c)he does not regard the “shape” as a big issue. He did not regard the proximity (50 to 60 metres up the road) of the school as a relevant or significant issue;(d)although the professional guidelines recommend a check valuation by the summation approach, he felt confident just to do one analysis;(e)he agreed he had made no apparent analysis of adjusting between building/land value in respect of the properties at assessment of the comparable properties at Suburb D and in respect of P Street, Suburb D he was not able to opine whether the property was “inferior” or “superior” to the subject property. The same can be said of the property at U Street, Suburb D;(f)Although he felt the property at V Street, Suburb D was “similar in many ways to the subject property” he made no real analysis of the sale evidence for the property, or an adjustment between building and land;(g)He conceded the valuation by Mr Q is “clear and transparent”.[5] See Exhibit 10.

Decision

Reasons for decision

In re-examination, Mr S rejected any inferences that he had been influenced by the involvement of the husband and did speak to five different agents including the husband’s suggested Mr T (who he knew anyway and would have spoken to). He said the possible impact of the school was not raised during the joint conference.CONCLUSION OF VALUATION Whilst I accept valuation is not an exact science and that there are always examples of a purchaser keen to acquire a property who is prepared to “outbid” others, this does not mean that accepted methodologies for assessing market value should not be adopted. Overall, I am satisfied that the reasoning and assessment by Mr Q is both apparent and transparent – as it should be. I felt his adoption of the various “comparable sales”, and the analysis that led to his figure of $6,850 per square metre was persuasive. Mr S, on the other hand, gave me much less confidence that he had undertaken the required analysis to reach his conclusion of $7,500 per square metre, and his general statement for his written report that he had “considered the fact that the residence is superior to many of the comparable sales evidence”, when no attempt on any of the 13 identified sales was made to indicate if they were “superior” or inferior”, was simply unhelpful. In final written submissions, Counsel for the husband pointed to the concession made by Mr Q that a 10% variation could be reasonable. All this means, for example, is that Mr Q’s estimate could have been up to $7,745 per square metre (10% greater) and Mr S’s estimate could have been down to $6,750 per square metre (10% less). I accept the submission of Counsel for the wife that the discretion to order a sale, when the Court is faced with two “equally cogent” examples of valuation evidence, does not arise in this case. I accept Mr Q’s evidence in preference to Mr S’s evidence. In the pool I intend to incorporate a value for the jointly owned home at O Street, Suburb D of $17,400,000.THE WIFE’S INHERITANCE FROM HER MOTHER’S ESTATE The wife’s mother Ms B died in 2017. The wife and her siblings Ms W and Mr AA were appointed Executors and Trustees under the Will. After making a specific bequest to Ms W, the balance of the Estate is to be divided equally between the three siblings. In her affidavit filed 17 September 2018, the wife[6] indicated that as probate of the Will had not been granted at that time, she was unable to “know the quantum of the inheritance” although a summary of some Estate interests was set out[7].[6] At paragraph 135.[7] At paragraph 135. Although a dispute arises as to the finite quantification of the wife’s interest as beneficiary, it is not contended (as it seemed the husband may have misunderstood) that the wife’s interest (some of which has already vested) should be “excluded’ from or ‘immune” from consideration in the s 79 application before me. To do so, even though the death of the Testatrix occurred post separation, would be contrary to authority (see Holland & Holland[8]).[8] [2017] FamCAFC 166 at [25].

Ratio Decidendi

Legal Principle Established

In the above historical context, I have not delved into the many complex commercial transactions which the husband described in some detail in his affidavit, most of which were not seriously challenged. It would be reasonable to regard the husband as a medical businessperson – which entailed many “deals,” often associated with large borrowings and some business risks. The enterprises survived the 1987 stock market crash and subsequent challenges. The involvement for part of this journey of the wife’s father, Mr B, is analysed, save that this involvement ceased in 1991 – whilst the wife was involved and supportive from the beginning and through the various “ups and downs.” The wife relies upon the memorandum prepared by the firm Accounting firm 1 dated 28 April 1989[4] as an accurate record of the history to that date. The husband did not seriously challenge the accuracy of that memorandum. I accept its accuracy.[4] Annexure 6 to her affidavit.HOW THE CURRENT INTERESTS OF THE PARTIES CREATE THE POOL OF ASSETS AVAILABLE FOR ALTERATION Although the agreed gross value of the 50% interest in Business 1 and the adjourning properties; and the current value of various real estate interests, shares and other items were agreed (mostly with the aid of independent experts or compromise), a range of issues remain for determination by the Court relating to the divisible pool, which I identify (in no particular order of priority) as follows:(a)The value of the only personally owned real estate (held in joint names) being the former matrimonial home at O Street, Suburb D; (b)How the inheritance the wife has (or will) receive from the Estate of her late mother Ms B, should be estimated and whether, as the wife contends, it should be in a separate pool;(c)Whether funds paid to Mr X ($251,341) and Mr Z ($581,809) should be “added back,” or not;(d)Whether the funds now vested in the Edgar Investment Trust No 1 should form part of the pool (as the wife contends) or excluded (as the husband contends);(e)Whether any taxable capital gain would arise from a sale of the parties interests (held by “TRUST 2”) in Business 1 and if so, should it be taken into account and at what level of contingent liability; and(f)How taxation and other liabilities said to arise from past corporate activities and perhaps including liabilities resulting from alleged operation of Div 7A of the Income Tax Assessment Act 1936 (Cth), are to be assessed and/or treated. The parties, sensibly in my view, agreed to exclude from the balance sheet, all credit card liabilities and loans to children (not otherwise the subject of controversy) being unpaid present entitlements of the children. As a consequence of the compromised agreement as to the value of the 50% interest in Business 1, there is no necessity to look further than the “without prejudice” joint statement of experts (Exhibit 1) and note that between the date of the conference (12 October 2018) and the first day of trial, the parties reached a compromised agreed value between the estimates at the time of the conference ($70,000,000 to $63,700,000). The adversarial experts were not required for cross-examination as a result of the agreement.