Edgehill & Edgehill
[2007] FamCA 1102
•19 September 2007
FAMILY COURT OF AUSTRALIA
| EDGEHILL & EDGEHILL | [2007] FamCA 1102 |
| FAMILY LAW - APPEAL – PROPERTY – “ADD BACKS” - TAXATION LIABILITY ON SUPERANNUATION DRAW DOWNS - VALUATION OF INTEREST IN A TRUST – SECTION 75(2) ADJUSTMENT – Whether trial Judge erred in failing to “add back” the wife’s post-separation expenditure as a notional asset into asset pool where it was asserted there was no explanation of that expenditure – Whether trial Judge erred by not including amount for taxation liability on potential superannuation draw downs – Whether trial Judge erred in not making findings about the value of the wife’s interest in a family trust – Whether s 75(2) adjustment made by trial Judge was insufficient or inadequate – No appealable error - Appeal dismissed. |
| Family Law Act 1975 – s 75(2) Family Law Rules 2004 – Chapter 19 |
| C & C [1998] FamCA 143 Chorn & Hopkins (2004) FLC 93-204; (2005) 32 Fam LR 518 Gollings & Scott [2007] FamCA 397 House v The King (1936) 55 CLR 499 Rosati & Rosati (1998) FLC 92-804 SMB & MFB [2006] FamCA 46 Townsend & Townsend (1995) FLC 92-569 |
| APPELLANT: | Mr Edgehill |
| RESPONDENT: | Ms Edgehill |
| FILE NUMBER: | SYF | 4571 | of | 2004 |
| APPEAL NUMBER: | EA | 133 | of | 2006 |
| DATE DELIVERED: | 19 September 2007 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Finn, Kay & Boland JJ |
| HEARING DATE: | 24 August 2007 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 23 November 2006 |
| LOWER COURT MNC: | [2006] FamCA 1246 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Lloyd |
| SOLICITOR FOR THE APPELLANT: | Adrian Twigg & Co |
| ADVOCATE FOR THE RESPONDENT: | Ms Edgehill in person |
Orders
That the appeal is dismissed.
That the husband pay the wife’s costs of and incidental to the appeal as agreed and failing agreement as assessed under Chapter 19 of the Family Law Rules 2004.
IT IS NOTED IN CONNECTION WITH THESE ORDERS that the judgment of the Full Court delivered this day will for all publication and reporting purposes be referred to as Edgehill & Edgehill.
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 133 of 2006
File Number: SYF 4571 of 2004
| Mr Edgehill |
Appellant
And
| Ms Edgehill |
Respondent
REASONS FOR JUDGMENT
Finn J
This is an appeal by the husband against orders made by Le Poer Trench J on 23 May 2006 whereby his Honour divided property which he found to have a net value of $1,165,779.89 in the proportion of 60% to the husband and 40% to the wife.
At the commencement of his written outline of argument, counsel for the appellant husband categorised the issues or complaints raised by the appeal in the following way:
·Whether a sum of $115,347.00 or such other sum should have been added back to the pool of assets following the Respondent wife’s inability to explain the expenditure of such funds during a relatively defined period.
·Whether the Trial Judge should have included as a liability the incidents of taxation which undoubtedly existed upon future draw-downs of the husband’s Superannuation Fund.
·That the Trial Judge failed to make a positive finding as to the value of the Respondent wife’s interest in the [KK] Trust.
·That the Trial Judge’s apportionment of Section 75(2) Factors (being identified as the wife’s greater earning capacity and the resource of the Trust) at 7.5% of the pool (excluding the Trust), was manifestly insufficient and inadequate.
The factual background to this case is summarised in the joint judgment of Kay and Boland JJ and it is unnecessary for me to repeat it.
However by way of background to the first two issues which arise on the appeal, it will be useful to set out the following schedule of the parties’ property or, in his Honour’s words, “balance sheet”, as found by him:
Assets ($)
[The matrimonial home in the Sutherland Shire] (j) 750,000.00
[The wife’s property in the Sutherland Shire] (w) 540,000.00
ANZ Access Account (w) 5,792.00
ANZ Progress Save (w) 22.00
Adelaide Bank/[Q] Credit Union (h) 0
2004 Renault Megan [sic] (w) 30,000.00
Ford Explorer (h) 17,000.00
Mertle shares (t/a Troopers Vineyard) (j) 25,000.00
Household contents ([Matrimonial home]) ($6,000) (j) 6,750.00
Household contents ([Wife’s property]) (w) 3,000.00
Proceeds of sale of [investment properties] (j) 103,050.00
Proceeds of [Sutherland Shire investment property] (j) 51,510.00
Husband’s superannuation (h) 518,354.00
Wife’s superannuation (w) 55,000.00
Legal fees paid by husband (h) 41,570.62
Legal fees paid by wife (w) 48,416.27
Partial property settlement to wife (w) 30,000.00
Partial property settlement to husband (h) 30,000.00
$2,255,464.89
Liabilities
CGT and income tax (h) 25,536.00
Mortgage ([Matrimonial home]) (j) 422,310.00
Mortgage ([Wife’s property]) (w) 486,000.00
Income tax (w) 7,000.00
Debt to [JKT] (w) 30,000.00
Personal loan (lounge suite) (w) 2,336.00
Debt to [HG] (w) 82,722.00
Interest on debt to [HG] (w) 4,081.00
Subaru Finance (w) 24,050.00
Adelaide Bank overdraft (h) 4,846.00
[Q] Credit Union (h) 804.00
$1,089,685.00
Net Position $1,165,779.89
The failure to “add-back” the wife’s post separation expenditure
As will be seen from the categories of issues raised by the appeal, as set out at the commencement of counsel’s written outline, the first of those issues was stated to be concerned with an “add-back” figure of $115,347.00 on account of post separation expenditure by the wife over a particular period (being February to October 2006). However, in the later discussion in counsel’s outline of that first issue, an “add-back” figure of $138,943.00 was initially asserted, although it was later acknowledged that that figure should be reduced to $128,940.00 on account of cash resources which the wife still had at the time of the trial.
Counsel included in his written outline a schedule showing how the alleged expenditure of $138,943 (later reduced to $128,940) was calculated. That schedule included the sum of $30,000 which the wife had received by way of partial property settlement. As will be seen from his Honour’s schedule of property or balance sheet, that amount had already been “added-back” to the pool by his Honour. Thus the husband’s claim in relation to expenditure by the wife which should be added-back, must be reduced further to $98,940 (say $99,000).
Also included in the schedule of the wife’s expenditure in counsel’s outline, were the following amounts, which collectively added up to $85,347, and which the husband had endeavoured to persuade his Honour should be included at least notionally in the pool of property available for division:
·proceeds sale EGL $16,559
·proceeds sale 597 AMP $4,972
·proceeds sale 653 IAG $4,471
·severance pay $59,345.
In paragraphs 31 to 39 of his reasons for judgment, his Honour was able to persuade himself that the wife had been able to provide “some explanation for about $73,000 worth of expenditure as against the total of the items under consideration amounting to about $85,000.”
It is unnecessary that I set out his Honour’s reasoning for arriving at his conclusion that the wife had been able to provide some explanation for the expenditure of about $73,000, for the reason that I did not understand counsel for the husband ultimately decided to press the challenge (contained in the grounds of appeal) to that reasoning.
In fact counsel was prepared to concede before us that, at the most, an amount of $27,000 of the wife’s expenditure had not been accounted for – although that figure should more accurately have been $26,000 ($99,000 - $73,000). Indeed in further discussion with us, I understood counsel to concede that if regard was had to the figures for the wife’s weekly income and weekly expenditure in the relevant period, the figure unaccounted for could be as low as $17,000.
It is important in connection with this matter to have regard to his Honour’s discussion (in paragraph 38 of his reasons) of the inadequate preparation of the wife’s case before him, at least in relation to her post separation expenditure:
38.The moment should not pass without criticism of those representing the wife. The affidavit material drawn on behalf of the wife which attempts to apparently provide details of expenditure is difficult to follow and provides a difficult exercise to calculate given that in a number of circumstances there are no totals provided. There has not been any real endeavour to explain in a readily comprehended form how the wife has expended matrimonial assets post separation.
These observations by his Honour well explain the difficulties which he faced in endeavouring to establish the position with regard to the wife’s post separation expenditure. They also indicate the difficulties which this Court would face, were it to attempt to establish for itself more precisely that position, if it were to uphold the husband’s appeal on the basis of this particular matter.
Moreover it is self-evident, in my view, that an unaccounted for sum of $17,000, or even $26,000 in a total pool of more than $1,165,000 could not justify the expense and inconvenience to the parties of a new trial, which would be necessary if we were to uphold the husband’s appeal on the basis of this particular matter in circumstances where we are in no better position than his Honour to reach a satisfactory conclusion regarding the wife’s post separation expenditure.
Against the background of these considerations, I would not allow the appeal on the basis of the first issue raised by the husband.
The taxation liability on the husband’s superannuation “draw-downs”
The second issue raised by the husband is whether the trial Judge “should have included as a liability the incidents of taxation which undoubtedly existed upon future draw downs of the husband’s Superannuation Fund.”
It will be seen from the schedule or balance sheet of assets and liabilities found by his Honour, that he included an amount of $25,536.00 on account of capital gains and income tax. Some of this tax related to “draw-downs” which had already been made against the husband’s superannuation fund as his Honour explained in the following paragraphs of his reasons:
41.The next item on the balance sheet which needs to be determined is the claim by the husband for capital gains tax and income tax of $25,536. This figure arises from the husband’s income tax return which he says has been completed and filed. The husband’s 2006 income tax return is marked as exhibit H3. The husband's estimated tax payable is $25,536 and includes in part capital gains tax particularly associated with the sale of [the investment properties].
42.The balance of the husband’s assessable income appears to arise from his draw downs against his superannuation. It seems that taxation is deducted by the fund prior to payment of the net amount to the husband.
43.I am satisfied that the amount of taxation the husband is likely to have to pay is the claimed amount of $25,536. I am satisfied that it is appropriate to include that tax liability as a liability of the parties because it largely arises from the draw downs the husband has made against his superannuation. The explanation for expenditure of those funds has been accepted by me. Also included is capital gains tax arising from the sale of jointly held assets. In the husband’s case it also includes the sale of an asset which stood in his sole name. I propose therefore to include the taxation liability of the husband in the balance sheet.
At the conclusion of his judgment, when calculating how the 60%-40% division in favour of the husband would be achieved, his Honour noted (at paragraph 81) that after taking into account the assets which the wife had, or would receive, the husband would still be required to pay her the sum of $235,711. His Honour then turned to consider whether the husband had the capacity to pay, or to raise the funds necessary to pay the wife that sum.
In the course of that consideration his Honour said:
82.The evidence shows that the husband has the ability to withdraw a further $150,000 from his superannuation forthwith. It would be subject to taxation however the amount of that taxation has not been calculated. Consequently there was no evidence put before me as to the expected taxation incident if the husband was to withdraw the $150,000 in one sum. …
It can thus be seen that his Honour was aware that there would be tax payable on any “draw down” of superannuation by the husband. However his understanding was that the amount of that tax had not been calculated.
Counsel for the husband referred us to the evidence which was before his Honour concerning the previous superannuation “draw downs” and of the gross and net amounts of those “draw downs”, and he submitted that his Honour could have made the necessary calculation of the tax to be paid on future “draw downs”. However counsel conceded that the calculation was not brought to his Honour’s attention.
In light of this concession, and given also the uncertainty as to whether the husband would choose to draw down on his superannuation to meet the payment required to be made to the wife, as well as the uncertainties as to what other matters might impact on the calculation of the husband’s tax liability at the relevant time, an appealable error on the part of his Honour in relation to this matter has not, in my opinion, been established.
The valuation of the wife’s interest in the KK Trust
His Honour made the following findings in relation to a trust which had been established in New Zealand by the wife’s mother:
14. In 1994 the wife's mother established the [KK] Family Trusts. At that time the wife was appointed as trustee and beneficiary of that trust. The documentation also provides that the children [A] and [B] are equal beneficiaries under the [KK] family trust (discretionary trust) with the wife.
…
62.The husband submits that there should be an adjustment of 20% in his favour having regard to the section 75(2) considerations. The areas which it is submitted would warrant such adjusted are the disparity in future earning capacity of the parties and the very significant resource held by the wife in the [KK] trust.
…
64.The wife submits that there should be an adjustment in favour of the husband under section 75(2) of between 5% and 8%. It is conceded by her that the wife has a better income earning capacity than the husband. It was submitted that this should be seen as tempered by the wife's responsibility for the care of [A]. It was further conceded that the wife's interest in the [KK] trust warranted an adjustment in favour of the husband. In the submissions in relation to that trust my attention was drawn to the fact that the wife and two children are beneficiaries in the same category under the trust and although the court expert valued the wife's interest in the trust at $750,000 in so doing the expert failed to take into account the probable or possible distribution under that trust to the wife and the two children equally. It is acknowledged that the trust is a discretionary trust and ultimately the distributions rest in the exercise of discretion by the trustee from time to time.
…
67.Even if the submissions of the wife are correct and the interest she has in the [KK] trust valued at $753,000 should be divided by three it still represents a very sizeable resource available to her at some time in the future. There are a whole range of possibilities attaching to the ultimate benefit which the wife may receive under this trust. The recent documentation relating to the trust outlining the intention and/or requests of the wife’s mother in respect of how the trust should be dealt with in the future all seem to me to require the consensus of considerable number of people and having regard to human nature there would have to be, in the absence of clear evidence to the contrary, a probability that there will be a distribution under the trust some time (probably within two or three years) of the demise of the wife’s mother.
The third issue or complaint raised by the husband in this appeal is that his Honour failed to “make a positive finding as to the value of the Respondent wife’s interest” in the trust.
I have some difficulty understanding this complaint given that while his Honour recognised that “the court expert” had valued the wife’s interest in the trust “at $750,000”, his Honour also recognised, correctly in my view, that any distribution under the trust could be to the wife and her two children equally. Moreover as his Honour acknowledged, “the trust is a discretionary trust” and “ultimately the distributions rest in the exercise of discretion by the trustee from time to time.”
It seems probable that the positive finding sought by the husband was that the wife’s interest was valued at $750,000. But such a finding could not, in my view, have been made, given the children’s interests in the trust, and the nature of the trust itself. Thus, in my view, there can be no substance in the complaint that his Honour erred in failing to make a positive finding as to the value of the wife’s interest in the trust. His Honour’s reasons for not doing so as expressed in paragraphs 64 and 67 of his reasons are, again in my view, completely sound.
The s 75(s) adjustment
I have already set out paragraphs 62, 64 and 67 of his Honour’s reasons where in the context of his consideration of the matters contained in s 75(2) of the Family Law Act 1975, he canvassed the wife’s interest in her family’s trust.
The remaining s 75(2) matters canvassed by his Honour were as follows:
63.It was conceded by the husband that under the current terms of his superannuation scheme he can draw a further $150,000 against his superannuation prior to his retirement. Such drawings would attract taxation.
…
65.The distribution of the parties assets based on my finding of contribution will see the husband receive $612,034 worth of the net assets and the wife $553,746 worth of the net assets.
66.I find that the wife does have a greater earning capacity than the husband and I agree with the submissions made on behalf of the husband that her future earning capacity appears to be in the range of $85,000 to $107,000 per annum. The husband's future earning capacity appears to be more in the region of $65,000 per annum.
…
68.The husband is 52 years of age and the wife 49 years of age. They both have a good 15 years of working life ahead of them.
69.The parties’ children are aged 15 and 14. [A] appears to be principally being cared for by the wife and [B] appears to be principally being cared for by the husband. It seems that [B] will move between the two parties over the next four years as his needs require. On balance, however, it seems that he will probably spend more time in the care of his father than in the care of his mother.
70.[A] will be 16 in February next year. Although there are only two years of the balance of her minority left to run she has very significant psychological problems which have required the wife to devote considerable periods of her time post separation to her care. I accept that [A]’s future care will be a considerable burden to the wife.
71.Each of the parties will be required to contribute to the cost of the children either by operation of a child support assessment or by mutual agreement between them.
His Honour then reached his conclusion that all these factors which he had canvassed, including the wife’s interest in the trust, would warrant an adjustment of 7.5% in favour of the husband, saying:
72.This is a very difficult case to balance, however, doing the best I can, I conclude that there should be an adjustment in favour of the husband of 7.5%.
The husband now asserts that this adjustment in his favour was “manifestly insufficient and inadequate”.
Given that I have earlier concluded that there is no substance in the complaint that his Honour did not make a positive finding as to the value of the wife’s interest in the trust, this challenge can only be a challenge based on weight. The difficulties faced by such a challenge to a discretionary judgment are well known and do not require elaboration here.
Having regard to the various s 75(2) which his Honour canvassed and having regard particularly to the uncertainties regarding the wife’s interest in the trust (which were well canvassed by his Honour in paragraph 67 of his reasons), I do not consider that the 7.5% adjustment in favour of the husband was outside the broad range of the discretion. Thus there is no merit in this complaint.
Conclusion
Having concluded that none of the husband’s complaints either have substance or merit, or would otherwise justify the interference of this Court, I would dismiss the appeal.
Costs
Notwithstanding the concession of counsel for the husband that it would be hard for the husband to resist a costs order in the event that the appeal failed, I am not persuaded that the circumstances do justify a departure from the general rule that each party should pay his or her own costs. I take this view particularly because of the state of the wife’s material at trial concerning her expenditure, which was the subject of the adverse comment made by his Honour, which I have recorded. The husband’s complaint regarding the treatment of the wife’s expenditure is not, in my view, entirely unmeritorious.
Kay and Boland J J
Introduction
This is an appeal by the husband against orders made by Le Poer Trench J on 23 November 2006 at the conclusion of defended property proceedings under s 79 of the Family Law Act1975 (Cth) (“the Act”). The wife resists the appeal.
The trial Judge found the parties’ net assets, which totalled $1,165,779.89 should be divided between them as to 60 per cent or $699,468.00 to the husband and 40 per cent or $466,312.00 to the wife. In reaching this determination the trial Judge found the parties’ respective contributions to their net pool of assets were 52.5 per cent by the husband, and 47.5 per cent by the wife. His Honour made an adjustment under s 75(2) of 7.5 per cent in favour of the husband.
The husband challenged the trial Judge’s orders on four bases:
·That the trial Judge was in error in not including, as a notional asset in the pool of assets, the sum of $115,347.00 on the basis the wife had not properly accounted for her expenditure of this sum.
·That the trial Judge had failed to include as a liability tax to be paid on portion of the husband’s superannuation entitlement.
·That the trial Judge failed to determine the wife’s interest in a family trust.
·That the adjustment made by the trial Judge under s 75(2) of 7.5 per cent in the husband’s favour was “manifestly inadequate”.
The issues pursued before us on the appeal narrowed at the hearing. The husband’s counsel conceded that the maximum sum in issue, which could have been included as a notional asset, was $17,000.00. He further conceded that there was no direct evidence given to the trial Judge of the likely quantum of taxation on the husband’s undeducted superannuation entitlement, and whilst not formally abandoning grounds 4 and 5, he did not make any oral submissions to support to the grounds challenging the s 75(2) adjustment.
Background:
The history of the parties and their acquisition of assets is recorded in the trial Judge’s reasons, and is not the subject of controversy. Other than brief historical details about the parties, we will only record matters relevant to the grounds of appeal now agitated.
The husband was aged 52 years at the date of the hearing. He was unemployed having been made redundant from his employment with Q in 2004. The wife was aged 49 years at the date of the hearing. She had also been made redundant, but had commenced some consulting work at the date of the hearing. It was not in dispute that her income earning capacity exceeded that of the husband.
The parties commenced cohabitation in about 1978. They were married on 24 May 1980 and separated after 26 years cohabitation in August 2004.
There are two children of the marriage (“A”) aged 15 years at the date of hearing and (“B”) aged 14 years at the date of hearing. The parties agreed to parenting arrangements for the care of the children, and consent orders were made on the first day of the hearing by the trial Judge. A resides with the mother and B resides primarily with the father, but spends significant time with the mother.
The parties acquired real property during their cohabitation including the matrimonial home in the Sutherland Shire (“the matrimonial home”). After separation properties and investments were sold. At the date of trial each party had received $30,000.00 by way of partial property settlement, and $154,000.00 was invested in trust accounts on their behalf.
The husband had an interest in the Q Superannuation Fund which the trial Judge determined was “no more than $18,000” at the commencement of cohabitation. On termination of his employment, in April 2004, the husband rolled his superannuation entitlement of $482,146.00 into another fund. He had withdrawn undeducted contributions of $147,784.00 at the date of trial, and had the capacity, prior to retirement, to draw down another $150,000.00. The trial Judge noted “each draw down prior to retirement is subject to taxation”.
In 1994 the wife’s mother, (“Mrs H”), who resides in New Zealand, gave instructions to a solicitor to settle two trusts. The first trust, the KK Family Trust (“the family trust”) acquired as its only asset Mrs H’s family home in Auckland, New Zealand. The wife was one of the original trustees of the trust, and named as a beneficiary of the trust. A second trust, the KK Number Two Family Trust was also settled by Mrs H (“the No. 2 trust”). The No. 2 trust held a small amount of cash funds at the date of trial from which distributions were made to Mrs H for her support. Mrs H is the sole beneficiary of the No. 2 Trust.
After separation the wife realised share options, sold shares and received a redundancy payment. The funds received by the wife from these payments totalled $85,347.00 (“the funds”). In addition, as we have already noted, the wife received $30,000.00 by way of partial property distribution. She derived an income from social security benefits during 2006 on cessation of her employment.
Grounds of appeal
The grounds of appeal in the husband’s Notice of Appeal are as follows:
1.That the learned Trial Judge erred in failing to add back to the pool of assets $115,347.00 in the absence of evidence being provided by the Respondent wife as to how such funds were expended.
2.That the learned Trial Judge erred in assuming that evidence had been provided by the wife explaining approximately $73,000.00 of such expenditure, and if His Honour had not erred in that regard, His Honour failed to add back to the pool not less than $42,000.00 of unexplained funds held by the wife.
3.That the learned Trial Judge failed to add to the liabilities of the parties the husband’s obligation for taxation upon the un-deducted portion of his superannuation.
4.That the learned Trial Judge filed [sic] to determine the value of the wife’s interest in the resource known as ‘[KK] Trust’.
5.That the apportionment to the husband of 7.5% for Section 75(2) Factors was manifestly inadequate having regard to the evidence.
We propose to deal with the husband’s grounds under the three topics identified above, namely the trial Judge’s treatment of the wife’s use of the funds, the issue of incidence of taxation in respect of the husband’s superannuation fund, and the wife’s interest in the family trust. In dealing with the family trust, we will also briefly examine the adjustment made under s 75(2) in favour of the husband.
Appellate Principles
This is an appeal against a discretionary judgment. The circumstances in which the Full Court should interfere with a discretionary judgment are well known. In House v The King (1936) 55 CLR 499 Dixon, Evatt and McTiernan JJ said at 504-5:
The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of discretion is reviewed on the ground that a substantial wrong has in fact occurred.
The trial Judge’s treatment of the wife’s receipt of assets and income, and her expenditure post separation
In his outline of case document, which became Exhibit 2 before his Honour, the husband asserted a number of items retained by the wife, or realised by her post separation, should be “added back” to the pool of assets to be divided between the parties. Those items were identified by the trial Judge in paragraph 30 of his judgment as follows:
· proceeds sale EGL (W) $16,559
· proceeds sale 597 AMP (W) $4,972
· proceeds sale 653 IAG (W) $4,471
· severance pay (W) $59,345.
It was also asserted the wife had not satisfactorily explained how she had expended the sum received by way of partial property settlement.
Before us, it was initially asserted that the total sum in issue was $138,943, and that expenditure should be considered in the period from 11 February 2006 to 20 September 2006. Counsel for the husband conceded that the claim in respect of the wife’s partial property settlement could not be maintained, that sum having been included by the trial Judge in the parties’ list of assets and liabilities.
The trial Judge referred to the wife’s affidavit evidence about her expenditure noting that some of her expenditure included a $10,000.00 payment for Visa credit card indebtedness. His Honour also noted the wife’s expenditure in respect of a property acquired by her after separation in the Sutherland Shire.
At paragraph 35 of his reasons, his Honour said “[a]s best I can see the wife has provided details of expenditure of about $26,000 of the total sum of $85,347 referred to in the four items”. His Honour then considered the wife’s expenditure for day to day living expenses noting her total weekly expenditure was $2,015.00 whilst her income was $400.00, leaving a “deficit of $1,617” per week. His Honour calculated the deficit at $47,000.00 to date of trial and concluded “[i]t therefore seems that the wife has provided some explanation for about $73,000 worth of expenditure as against the total of the items under consideration amounting to about $85,000. This does not take into account the $30,000 received by the wife for her partial property order”.
Before us, it was acknowledged by the husband’s counsel that the wife retained $10,000.00 in a bank account, and in comparing the wife’s income and expenditure it was necessary to add back the income of $400.00 per week for the relevant period to accurately account for all income and expenditure.
It was conceded by counsel for the husband that as the partial property distribution had been included by the trial Judge in the list of assets and liabilities, the maximum sum “unaccounted” for by the wife was $27,000.00. It was further conceded that after the income adjustment of $400.00 per week for approximately six months, the sum in issue was minimal in the context of a property pool that exceeded $1,000,000. In any event, the wife submitted to us that a closer examination of her affidavit evidence would disclose that she had properly accounted for all moneys received by her.
The trial Judge concluded his consideration of the wife’s income and expenditure as follows:
It seems to me probable that the wife has expended the funds under consideration in the way in which she has specified and I am on that basis prepared to give her the benefit of the doubt. Her accounting for the items is in marked contrast with the accounting of the husband's in respect of monies he received and which I have dealt with earlier in these reasons. (paragraph 39)
The treatment of post separation earnings and income, as well as disposal by one party post separation of assets acquired during the parties’ marriage, has been considered in a number of cases, in particular in Chorn & Hopkins (2004) FLC 93-204; (2005) 32 Fam LR 518 and more recently in SMB & MFB [2006] FamCA 46 and Gollings & Scott [2007] FamCA 397. In Chorn & Hopkins the Full Court considered post separation expenditure by parties, particularly expenditure for legal costs. In their discussion, at paragraph 21, their Honours referred to the principle established in Townsend & Townsend (1995) FLC 92-569, namely that where “one party has disposed of an asset which could be described as a ‘matrimonial asset’ in the sense that it was an asset which was owned by one or both of the parties at separation and in which the other party would have a legitimate interest” a trial Judge could, in the exercise of his or her discretion, “add back” such an asset as a notional asset to the pool of property to be divided between the parties.
In Gollings the Full Court dealt specifically with post income expenditure by the husband, and confirmed the principles established in earlier cases that parties are entitled to get on with their own lives post separation, and generally post separation expenditure for reasonable living expenses should not be brought to account. In the course of their discussion the Full Court referred to the unreported decision of C & C [1998] FamCA 143 (coram Nicholson CJ, Ellis and Kay JJ) who said:
45.Although it is not one of the Grounds of Appeal, we would also like to make the observation that we were troubled by her Honour adding back into the pool of assets the sum of $15,000 provided by the wife to Andrea to enable her to place a deposit on a unit. The provision of modest amounts of capital by parents to their adult children to enable the children to get a start in life is a normal experience in our society. In a case involving the magnitude of the assets of this case, in our view it is unreasonable to conduct a microscopic examination of each of the parties’ items of post-separation expenditure with a view to determining whether or not it is appropriate that they be brought into account in dividing up the asset pool between them. The cases which deal with notional add-backs are generally examples of circumstances in which it would be clearly unjust and inequitable not to take those matters into account. (See Kowaliw (1981) 7 Fam LR 13; [1981] FLC 91-092, esp at FLC 76,645; Townsend (1994) 18 Fam LR 505; [1995] FLC 92-569; Farnell, (1995) 20 Fam LR 513 (expenditure on legal costs notionally added back because of s117).
46.Whilst not seeking to place a fetter upon the exercise of discretion of a trial judge in individual cases, it seems to us that the concept of adding monies reasonably disposed of back into the pool ought to be the exception rather than the rule. The parties are entitled to reasonably conduct their affairs post-separation in a manner that is consistent with properly getting on with their lives. Providing modest support for their adult children or taking not inappropriate holidays for themselves seems to fit comfortably within that description.
In this case the wife’s expenditure included the proceeds of some assets which had been acquired during the marriage, and also post separation income from social security. That income was insufficient for her reasonable living expenses, requiring her to use some of the income from assets realised, including her redundancy payment, for her expenditure.
We accept some accounting by the wife of her expenditure of the assets acquired during the marriage was warranted, as was some examination of her expenditure by the trial Judge. However, we do not consider it was incumbent on her, or realistic to expect, that the wife should provide a precise audit of every item of her expenditure post separation. Nor do we accept that the trial Judge was required to conduct such an audit process.
We are satisfied that there was no error of discretion by the trial Judge in the manner in which he dealt with the wife’s income and expenditure post separation, and that his Honour’s findings were open to him on the evidence. Accordingly we are satisfied there is no merit in this challenge to his Honour’s orders.
The taxation issue
As we have already noted, his Honour, in his discussion of the husband’s superannuation entitlements, referred to the fact that if the husband accessed his available superannuation of $150,000.00 before retirement, such draw down “would be subject to taxation”.
Exhibit 2, prepared on behalf of the husband, did not include any sum for anticipated tax on the husband’s accessible superannuation. No attempt was made to quantify the likely incidence of taxation before the trial Judge. In his submissions to the trial Judge, counsel for the husband said:
MR LLOYD: I think probably – if I could just say this out loud, as it were. The fund presently affords the husband an opportunity to draw down some moneys but with the incidence of taxation. (transcript 24 October 2006 p 99, lines 32-34)
At paragraph 81 of his reasons, the trial Judge referred to the adjustment which the husband was required to make to the wife (after taking into account assets in her possession) to achieve her 40 per cent entitlement, and for the husband to retain the matrimonial home, noting such adjustment was $235,711.00. His Honour then considered how the husband may fund the adjustment payable to the wife. His Honour relevantly said:
82.The evidence shows that the husband has the ability to withdraw a further $150,000 from his superannuation forthwith. It would be subject to taxation however the amount of that taxation has not been calculated. Consequently there was no evidence put before me as to the expected taxation incident if the husband was to withdraw the $150,000 in one sum. The point of considering this aspect of the husband's ability to obtain $150,000, or thereabouts, is to consider whether the husband would have the capacity to pay the wife $235,711.
83.Given that the husband will retain the [matrimonial home in the Sutherland Shire], subject to its mortgage, it is reasonable to assume that the husband's ability to raise the funds to pay the wife her $235,711 is good. I therefore propose to give the husband the opportunity to make that payment and retain the [matrimonial home]. In the event of the husband being unable to meet the payment then the [matrimonial home] should be sold.
…
85.The next matter to be considered is a time for the husband to make the payment to the wife. In the circumstances of this case it seems to me that it may take the husband a little longer than normal to arrange the financing of the payment to the wife given that he has, in all probability, to withdraw funds from his superannuation entitlement and also borrow monies against the [matrimonial home]. Given the husband's current employment status it seems to me that he might encounter some difficulty in obtaining an extension of the mortgage on the [matrimonial home] and consequently he may well need to approach a number of lending authorities before he finds one which is prepared to advance him the funds. Accordingly I propose to allow the husband three months in which to make the payment.
In his Honour’s orders (Order 5) he provided that in the event the sum due to the wife was not paid within three months, then the matrimonial home was to be sold and the wife was to receive the necessary adjustment from the proceeds of sale.
We do not discern any error by the trial Judge in failing to include as a liability some sum for the possible incidence of taxation on the husband’s accessible superannuation. First, the quantum of the estimated tax was not provided to the trial Judge. Secondly, there was no certainty that such tax would actually be incurred as the husband may have refinanced the mortgage secured over the matrimonial home, or the home may have to be sold (see Rosati & Rosati (1998) FLC 92-804). Finally, the amount of the tax liability in relation to the parties’ overall assets and liabilities was likely to be small, it being asserted before us that the tax rate would be 13.5 per cent on the sum withdrawn. There was no certainty that the husband would draw the maximum sum available.
The family trust and section 75(2) adjustment
In commencing our discussion of this topic it is useful to first examine the trial Judge’s findings about the family trust, and then his treatment of relevant factors under s 75(2).
There was little discussion by the trial Judge about the family trust. That is clearly explicable by reason of the parties’ reliance on a single expert report prepared by Mr G and submissions made to the trial Judge.
Mr G’s curriculum vitae discloses he is a director and representative, Ernst and Young Transaction Advisory Services Limited. Mr G’s instructions from the parties’ respective lawyers included the provision to him of Mrs H’s affidavit, and an affidavit of Mr Holmes, the New Zealand solicitor instructed by Mrs H to draw trust and associated documents.
The trial Judge when discussing appropriate s 75(2) adjustments said (at paragraph 64):
...It was further conceded that the wife's interest in the [KK] trust warranted an adjustment in favour of the husband. In the submissions in relation to that trust my attention was drawn to the fact that the wife and two children are beneficiaries in the same category under the trust and although the court expert valued the wife's interest in the trust at $750,000 in so doing the expert failed to take into account the probable or possible distribution under that trust to the wife and the two children equally. It is acknowledged that the trust is a discretionary trust and ultimately the distributions rest in the exercise of discretion by the trustee from time to time.
His Honour further said at paragraph 67:
Even if the submissions of the wife are correct and the interest she has in the [KK] trust valued at $753,000 should be divided by three it still represents a very sizeable resource available to her at some time in the future. There are a whole range of possibilities attaching to the ultimate benefit which the wife may receive under this trust. The recent documentation relating to the trust outlining the intention and/or requests of the wife's mother in respect of how the trust should be dealt with in the future all seem to me to require the consensus of considerable number of people and having regard to human nature there would have to be, in the absence of clear evidence to the contrary, a probability that there will be a distribution under the trust some time (probably within two or three years) of the demise of the wife's mother.
Neither party required the single expert, Mrs H or Mr Holmes for cross examination. Counsel for the husband acknowledged before the trial Judge that there were many possibilities which might occur in respect of the family trust and its beneficiaries. He submitted there was no need for the trial Judge to scrutinise Mr G’s report (transcript 24 October 2006 page 96).
As the wife did not file a cross-appeal, or seek to rely on a Notice of Contention challenging the accuracy of the evidence of the single expert, the issue of the correctness of his report does not arise for consideration in this appeal. We note however that Mr G was requested to “value” the wife’s interest in the family trust, a discretionary trust, as at 18 August 2004 and at 5 October 2006, and that in “valuing” the wife’s interest he relied on a number of assumptions, had access to a number of documents which he particularised in Appendix 3 of his report and relied on a letter of instructions from the husband’s solicitors dated 22 March 2006, which letter was signed by the wife’s solicitors.
The relevant assumptions recorded by Mr G are as follows:
…
d) the wife and her children [A] and [B], are currently named Class “B” Primary Beneficiaries of the trust;
e) Other potential Class “B” Primary Beneficiaries include any other child or children, grandchild or grandchildren or other lineal descendent of the named Class “B” Primary beneficiaries;
f) The wife’s brother [G] is the sole named Class “A” Primary Beneficiary and the wife’s sister [J] and her children are named Class “C Primary Beneficiaries of the Trust;
g) Upon the death of the wife’s mother, the Class “A”, Class “B” and Class “C” Primary Beneficiaries are each entitled to a one third interest in the net assets of the [KK] Family Trust (being the New Zealand property);
h) Following the death of their mother, the wife, her brother [G] and sister [J], would become joint trustees of the [KK] Family Trust and would act in accordance with the current wishes of their mother such that the trust assets were equally re-settled into three trusts created for the benefit of the Class “A”, Class “B” and Class “C” beneficiaries;
i) Each of these newly settled trusts would be formed as a discretionary Trust; and
…
The letter of instructions dated 22 March 2006 forwarded to Mr G attached the affidavit of Mrs H sworn 13 February 2006. He was also provided with a copy of documents exhibited at the time of swearing that affidavit including the original family trust deed dated 15 July 1994 and a copy of the No. 2 trust deed dated 15 July 1994. Included in the information provided in the letter was the following statement:
The beneficiaries of the Trust are:-
i)Mrs H, born in December 1928;
ii)[J], born in June 1958;
iii)[G], born in November 1955;
iv)[The wife], born in February 1957;
v)[M], born in October 1980;
vi)[L], born in October 1980;
vii)[A], born in February 1991;
viii)[B], born in August 1992.
It is not clear from the solicitor’s letter whether Mr G was provided with all of the annexures to Mrs H’s affidavit.
In Appendix 3 to his report, Mr G refers to considering amongst other documents:
·Deed of Retirement of Trustee and appointment of New Trustee for the family trust dated 13 February 2006.
·Deed of Variation of the family trust dated 28 March 2006.
·Memorandum of wishes of [Mrs H] dated 21 March 2006.
He does not list as being provided to him a Deed of Addition of Beneficiaries which he refers to in paragraph 48 of his report.
At paragraph 33 of his report, Mr G set out information sourced from the documents provided as follows:
Appointor, Trustee and Beneficiaries of the Trust
Settlement date: 15 July 1994
Settlor: [Mrs H]
Appointor: [Mrs H]
Trustee: [KK] Trustee Limited
(Appointed 13 February 2006)
The Primary Beneficiaries –
Class “A” Primary Beneficiary: the wife’s mother
Class “B” Primary Beneficiary: [G]
Class “C” Primary Beneficiaries: the wife, [A], and [B] and any other children, grandchild, grandchildren or other lineal descendent of them
Class “D” Primary Beneficiaries: [J], [M], and [L] and any other children, grandchild, grandchildren or other lineal descendent of them
Excluded Beneficiaries - any person other than blood descendents or antecedents of the Settlor [Mrs H] with the exception of those added as Primary Beneficiaries by the Trustees under Clause 6 during the lifetime of the Settlor
(original emphasis)
Mr G in his report records that on 14 November 2005 a Deed was entered into by Ms H as protector of the trust and the then trustees removing the wife as both trustee and beneficiary of the trust.
Mr Holmes deposed that, on 13 February 2006, Mrs H, after receiving advice from him about estate duty matters, prepared a Deed of Retirement of Trustees and Appointment of New Trustees, and that he received instructions to prepare a new Memorandum of Wishes. His instructions included the following:
a.That the Trustees maximize the value of the property by obtaining detailed professional advice on its subdivision potential and other options for maximizing its sale value.
b.To ensure that the benefit of the Trusts remaining in her bloodline for the protection of her bloodline that either the Trusts be continued for their perpetuity period of 80 years from the date of the Trusts; or
c.The Trusts be resettled as a one third share of the net Trust Funds to new Trusts to be established at that time for:
i.[G] as a discretionary Primary Beneficiary, with the other children and their lineal descendents as Secondary Beneficiaries (but containing a clause preventing all of their partners from benefiting a [sic] beneficiaries).
ii.[The wife] and her children as discretionary Primary Beneficiaries, with the other children and their lineal descendents as Secondary Beneficiaries (but containing a clause preventing all of their partners from benefiting a [sic] beneficiaries).
iii.[J] and her children as discretionary Primary Beneficiaries, with the other children and their lineal descendents as Secondary Beneficiaries (but containing a clause preventing all of their partners from benefiting a [sic] beneficiaries).
Mr G, at paragraphs 40 to 42 of his report, set out his summary of the effect of a Deed of Variation dated 28 March 2006 which it appears must have been executed after the solicitor’s letter of instructions. We find some confusion in this summary. First, the report indicates Mrs H is the new “A” class beneficiary of the family trust, and the trustees may use the capital or income of the trust for her maintenance during her lifetime. Second, the extract purportedly from Clause 2c of the Deed refers to the trust being resettled after the death of the wife’s mother as to one-third to a new trust for the Class B primary beneficiary [G], one third to a new trust to be created for the wife, the parties’ children, and grandchildren or other lineal descendant, and as to one third to a new trust to benefit of the wife’s sister, her children, grandchildren and their lineal descendents. This is inconsistent with paragraph 2 of his report where he opines “the wife is currently one of the three named Class “B” Primary Beneficiaries of the [KK] Family Trust.” Fourthly, Mr G records:
…
·If all of the B, C or D Primary Beneficiaries dies before the Class A Primary Beneficiary, please consider resettling the share of the Trust Fund that would have been resettled to a trust created for the benefit of those Primary Beneficiary on a pro rata basis to the trusts created for the surviving B, C and D Primary Beneficiaries…”
43.On the basis of the above, it appears that the wife is a named Class “B” Beneficiary of the [KK] Family Trust and therefore has the potential to share in a one third interest of the net assets of that Trust together with any other Class “B” Beneficiaries in existence at that time.
44.In the event the wife dies before her mother, it appears that one third of the assets of the [KK] Family Trust will be resettled to a trust for the benefit of the wife’s two children and any other Class “B” beneficiaries in existence at that time.
This purported summary of the trust deed appears to refer to part of Mrs H’s Memorandum of Wishes. Finally, further confusion, or potential inaccuracy about the wife’s potential entitlements in the family trust, appears from his immediately preceding statement in paragraph 41 of his report which is as follows:
…[h]owever in undertaking my valuation of the wife’s interest in this report I have regard to the wife’s mother’s Memorandum of Wishes, which I discuss further below.
Mr G at paragraphs 46 to 48 of his report notes:
46. The wife’s mother has the power to:
a)remove any Trustee;
b)appoint any additional Trustee or Trustees;
c)appoint any new Trustee or Trustees in place of any Trustee who is removed or resigns or ceases to be a Trustee for any other reason; and
d)vary the terms of the Trust Deed.
47.Accordingly, as the Appointor and sole shareholder of the Corporate Trustee, I conclude that the wife’s mother currently exercises control over the Trust.
48.I note that a ‘Deed of Addition of Beneficiaries’ (said to be dated 28 March 2006) refers to Clause 6 of the Trust which permits the Trustees to also add and exclude Beneficiaries.
Notwithstanding the confusion in Mr G’s summary in paragraph 42 of his report, if the Deed of Variation and the Deed of Addition of Beneficiaries were in fact executed (about which there is no evidence), it appears the potential entitlements of the beneficiaries under the family trust may have changed significantly from 2005. In summary:
· On 14 November 2005 the wife was removed as a trustee and beneficiary of the family trust.
· In February 2006 Mrs H gave instructions for the preparation of a Memorandum of Wishes the effect of which is that on her death the trustees of the trust may, if the trustee acts on her wishes, re-settle the family trust into three discretionary trusts for the benefit of each of her children, grandchildren and their lineal descendents.
· In March 2006 a Deed of Variation of the family trust was, it appears, executed. A further Deed of Addition of Beneficiaries was prepared.
· The Deed of Variation obliges the trustee to pay capital or income of the trust to Mrs H for her needs during her lifetime.
· The wife may have been added (restored) as a beneficiary of the family trust, or subject to the discretion of the trustee may be a beneficiary of a trust to be resettled on her mother’s death.
· Mrs H retains control of the family trust during her lifetime and can change the terms of the family trust included removal of, or addition to, the class of beneficiaries.
His Honour was well aware, as is evidenced in his exchange with counsel for the wife during submissions, of the discretionary nature of the family trust, and the likelihood the parties’ children would, after the death of Mrs H seek to obtain a share of the trust funds (transcript 24 October, 2006 p 116-117). We agree with his Honour’s reasoning, which for convenience we repeat, when his Honour said:
…There are a whole range of possibilities attaching to the ultimate benefit which the wife may receive under this trust. The recent documentation relating to the trust outlining the intention and/or requests of the wife's mother in respect of how the trust should be dealt with in the future all seem to me to require the consensus of considerable number of people and having regard to human nature there would have to be, in the absence of clear evidence to the contrary, a probability that there will be a distribution under the trust some time (probably within two or three years) of the demise of the wife’s mother.
We are fortified in our conclusions of the correctness of the trial Judge’s assessment of the wife’s potential interest in the family trust, by our examination of Mr G’s report and the lack of clarity about the documents which it appears were executed in March 2006.
The adjustment made by the trial Judge under s 75(2) in favour of the husband was 7.5 per cent or $87,435.00. The husband’s overall entitlement with this adjustment exceeded that of the wife by $233,145.00. The trial Judge principally took three factors into account in arriving at the appropriate adjustment under s 75(2). They were the present disparity in the parties’ respective earning capacities, the fact the wife had the difficult task of A’s care, noting she had “very significant psychological problems”, and the wife’s potential benefit from the family trust after Mrs H’s death.
We are satisfied that the adjustment made by the trial Judge was within the generous ambit of his Honour’s discretion, and that there was no appealable error by the trial Judge in making the adjustment he did in the circumstances of this case.
No appealable error having been demonstrated, the appeal must be dismissed.
Costs of the appeal
Counsel for the husband conceded in the event the appeal was not successful it would be hard to resist an order that the husband pay the wife’s costs. As the husband has been entirely unsuccessful in his appeal we are satisfied that it is appropriate to order that he pay the wife’s costs as agreed, or in default of agreement, as assessed under the Family Law Rules 2004.
I certify that the preceding eighty eight (88) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court of the Family Court of Australia
Associate:
Date: 19 September 2007
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