Farlow and Farlow
[2007] FamCA 863
•23 August 2007
FAMILY COURT OF AUSTRALIA
| FARLOW & FARLOW | [2007] FamCA 863 |
| FAMILY LAW - PROPERTY SETTLEMENT – s 75(2) FACTORS – Future earnings – Whether an adjustment should be made in favour of the wife due to the disparity in the parties’ future earnings - husband to keep family business - wife unemployed with limited employment prospects – s 79(4) – Whether justice and equity for the husband negates the need for an adjustment in favour of the wife – husband required to keep monies invested in the family business in order to maintain his income, whereas wife has unencumbered assets and financial resources which she may utilise to narrow or diminish the gap between the parties’ incomes. |
| Family Law Act 1975 (Cth), s 79 and s 75(2) |
Cunningham v Cunningham (2005) FLC 93-212
McF v McF [2004] FamCA 1309
| APPLICANT: | Mr Farlow |
| RESPONDENT: | Ms Farlow |
| FILE NUMBER: | MLF | 1396 | of | 2005 |
| DATE DELIVERED: | 23 August 2007 |
| PLACE DELIVERED: | Melbourne |
| JUDGMENT OF: | Mushin J |
| HEARING DATE: | 26 March 2007 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Ms Shiff |
| SOLICITOR FOR THE APPLICANT: | Robert M. Phelan & Co |
| COUNSEL FOR THE RESPONDENT: | Ms Smallwood |
| SOLICITOR FOR THE RESPONDENT: | Middletons Lawyers |
Orders
It is ordered that
The husband and the wife forthwith do all things and sign all documents necessary to give effect to these orders.
The wife retain or receive by way of transfer from the husband at her expense the following assets:
(a)The property known as and situated at … (“G property”), free of the mortgage to National Australia Mortgage;
(b)The property known as and situated at … (“W property”);
(c)The property known as and situated at … (“A property”);
(d) The Mazda Eunos motor vehicle;
(e) The wife’s personal Commonwealth Bank Account;
(f) The AMP Ltd shares in the name of the husband;
(g) The Colonial Lifewise Investment; and
(h) All superannuation in the name of the wife including:
(i)Colonial Select superannuation plan …,
(ii)Colonial Select superannuation plan …,
(iii)CBUS superannuation plan … .
The wife indemnify the husband and keep him indemnified against all liability past, present and future in respect of all outgoings including principal and interest on any mortgage and any other loan in respect of any other item of property referred to in paragraph 2 hereof, excluding paragraph 2(a).
The wife retain or receive for her absolute benefit all furniture and other chattels presently in G property or otherwise in her posession.
The wife retain or receive by way of transfer from the husband the following liabilities:
(a)The Commonwealth Bank of Australia loan secured over the W property;
(b) The remainder of the loan obtained from Ms C by the wife;
(c) The loan obtained from Mr C by the wife;
(d) The credit card debts in the name of the wife including:
(i)Coles Myer Credit Card,
(ii)Coles Myer Source Credit Card,
(iii)Harvey Norman – GE Credit Finance Credit Card (1)
(iv)Harvey Norman – GE Credit Finance Credit Card (2)
(v)Commonwealth Visa Credit Card
(vi)Citibank Card.
The husband do all things and sign all documents necessary to remove the mortgage over G property in the sum of approximately $148,927 in order to give the wife clear title thereto and thereupon the said mortgage form part of the indemnities provided to the wife by the husband pursuant to paragraph 7hereof.
The husband indemnify the wife and keep her indemnified against all liability past, present and future in respect of all outgoings including principal and interest on any mortgage and any other loan in respect of any other item of property referred to in paragraph 5 hereof.
The husband retain or receive by way of transfer from the wife at his expense the following assets:
(a)The property known as and situate at … (“M property”);
(b)P Pty Ltd;
(c)Farlow Property Trust;
(d)All horses presently owned by the husband;
(e)The husband’s personal National Australia Bank account;
(f)The insurance proceeds for the Ford Ghia motor vehicle;
(g)The Incolink investment in the name of the husband;
(h)All superannuation in the name of the husband including:
(i)Colonial Select Superannuation plan …,
(ii)Colonial Select Superannuation plan …,
(iii)CBUS superannuation plan …,
(iv)AMP endowment ….
The husband pay to the wife the sum of $818,925.
Save as provided herein and subject to the liberty to apply reserved herein, property in all items of personal property forthwith vests in the party presently having possession thereof.
All applications be otherwise dismissed.
General liberty to apply be reserved to both parties.
All exhibits be returned to the tendering party at the expiration of 28 days or further order.
All subpoenaed documents be returned to the person producing such documents.
IT IS CERTIFIED THAT
Pursuant to Rule 19.50 of the Family Law Rules 2004 this matter reasonably required the attendance of Counsel.
IT IS NOTED IN CONNECTION WITH THESE ORDERS THAT
The judgment of the Honourable Justice Mushin delivered this day will for all publication and reporting purposes be referred to as Farlow & Farlow.
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLF 1396/2005
| Mr Farlow |
Applicant
And
| Mrs Farlow |
Respondent
REASONS FOR JUDGMENT
Introduction
These proceedings seek alteration of property interests following the dissolution of a 20 year marriage.
The matrimonial asset pool was generally agreed by the parties, save some dispute regarding particular add-backs.
It was agreed by the parties that there was no significant pre-marriage or post-marriage contribution. Further, it was agreed by the parties that contributions made throughout the marriage were equal.
The main issue in this case was whether a consideration of s 75(2) of the Family Law Act 1975 (Cth), particularly s 75(2)(b), should result in an adjustment to what would otherwise be a 50:50 division of the matrimonial assets.
Background Facts
The husband is aged 50 years and the wife is aged 49 years.
The parties commenced cohabitation at the time of their marriage in October 1983. They separated in February 2004. They are divorced.
There are two adult children of the marriage: a son aged almost 22 and a daugher aged 20.
Upon separation in February 2004 the wife and the daughter moved out of the former matrimonial home (‘G property’) and lived together in a rental property (‘R property’). The son joined them for a time. Some months later the parties swapped residences by agreement, that is, the wife and two children returned to live at G property and the husband moved to R property. The parties’ evidence in relation to the living arrangements of the children is somewhat divergent and was not tested in court. It is clear, however, that the children moved between the parties’ homes from time to time and then lived independently for a time. Both children currently live with the husband.
In late 2005, the husband moved to a rental property in C where he currently lives. Pursuant to an order made by this court on 4 October 2005 that G property be sold the wife moved into a newly purchased unit (‘W property’). The sale of G property ultimately did not go ahead.
The husband is the Director of P Pty Ltd (‘the company’), which mainly performs construction work. The husband is also the Director of PR Pty Ltd , which is a subsidiary of the company. He has been employed in that full-time capacity for the greater part of the marriage. Prior to the formation of the company the husband worked as a gravedigger and then as a “leading hand” for a construction company.
The wife is not currently employed outside the home. For the first year of the marriage she worked as a purchasing and payroll officer. Throughout the marriage she was primarily homemaker and parent and also performed part-time payroll and administrative work for the company.
The husband alleges that the company was formed in 1984 and the wife alleges that it was formed in 1986. It was incorporated in 1988. It was agreed by the parties that the company was, throughout the marriage, a joint business and that its success is the result of equal contributions by both parties. The husband and the wife are the sole shareholders in the company, each holding equal shares. Accordingly, for the purpose of these proceedings it is effectively the alter ego of the parties.
From June 1988 to June 2000 the husband and the wife were both directors of the company and the wife was also secretary. During this time the husband independently managed the day-to-day operations of the company and the wife performed bookkeeping and administrative duties on a part-time basis.
Pursuant to advice from accountants regarding asset protection, the husband became the sole director and secretary of the company in June 2000. As part of this asset protection strategy, the parties also established the Farlow Property Trust (‘the Trust’) in 2000. The trustee is PR Pty Ltd.
PR Pty Ltd was registered in July 1996. PR’s purpose has largely been to hold assets of the company. The management of PR has mirrored that of the company in that the parties are the sole and equal shareholders, the husband and wife were originally both directors, with the wife also being secretary, and as of June 2000 the husband has been the sole director and secretary. I am satisfied that the principal operator is the company and that for the purposes of the present case PR is merely the alter ego of the company.
Since its inception, the working capital requirements of the company have been maintained through loans and overdraft facilities from National Australia Bank (‘NAB’), which have been secured by mortgages over the parties’ real properties. Initially title to the properties and the loans were joint, but after 2000 these were registered in the name of PR or Mrs Farlow for the purposes of asset protection.
Whilst working for the company the wife received a wage of $672 per week. The wife applied these wages primarily towards repayments of the NAB loans, for which she was reimbursed by the company.
In approximately September 2004 the husband hired a bookkeeper and the wife stopped working for the company. The wife alleges that the husband advised NAB not to give her any information regarding the company. The wife continued to receive wages. However, the company and the husband stopped reimbursing the wife for the NAB loan repayments. During this period the wife also paid the entirety of the outgoings on the matrimonial home and other realty of the parties.
Throughout 2004 the wife lodged various caveats over matrimonial assets in her name, including a caveat lodged on 5 May 2004 over the NAB loans which prevented the company’s access to capital. The wife also made several drawings on these NAB funds. She submitted that she was forced to make these drawings because she had no income for everyday living costs.
In April 2005, the company ceased the wife’s weekly payment of $672. In her Form 2A Response to an Application in a Case the wife sought that the Husband cause the company to reinstate the wife’s weekly payments of $672 and ensure that these payments continue to trial. On 4 October 2005, the Court ordered that the company recommence servicing the NAB loans. It was also ordered on an interim basis that the Husband pay or cause to be paid the sum of $672 per week, such payments to be categorised by the trial judge as to partial property settlement or interim spousal maintenance or however otherwise.
The husband commenced making the weekly payments to the wife on 25 November 2005.
Since separation relations between the parties have become strained at best. The husband alleges in his supporting affidavit that after separation the wife harassed and verbally abused the husband through regular telephone calls and unannounced visits to the company. The husband further alleges that in addition to the wife lodging caveats which disrupted the company’s business, she contacted company clients and made allegations about the husband in order to damage the company’s business. Correspondence from the husband’s solicitor to the wife’s solicitor supports the husband’s claims and the wife did not dispute them. The husband alleged that the wife attempted to contravene court orders in relation to the sale of G property by seeking a purchaser prior to auction.
The wife alleges that the husband locked her out of the company and caused her financial difficulties. In relation to the proposed sale of G property, the wife alleges that the husband was initially uncooperative with the appointed real estate agent. An affidavit from the estate agent concerned supports the wife’s story. The wife also made allegations about family violence throughout the marriage.
Assets and Liabilities
For the main part the relevant assets and liabilities and their values were agreed by the parties. The areas of dispute mainly concerned particular add-backs. I will now lay out the various items of agreement and dispute.
Agreed Assets
The following table outlines the properties and corresponding values which are agreed, or undisputed, by the parties:
Item
Value ($)
G property
850,000
M property
515,000
P property
50,000
Farlow Property Trust which comprises:
(a) S Street (Lot 14)
(b) S Street (Lot 15)
(c) S Street (Lot 16)
(d) S Street (Lot 17)
(e) S Street (Lot 18)
Valued in total at $1,676,000 less $714, 866 borrowed from the company for purchase.
Total Net equity = 961,134
W property
327,000
P Pty Ltd (‘The company’)
876,975
Wife’s personal Commonwealth Bank account
1,800
Husband’s personal National Australia Bank account
30,000
Colonial “Lifewise” life insurance investment
28,031
Mazda Eunos motor vehicle
15,000
Insurance proceeds for Ford Ghia motor vehicle
6,800
Horses
39,000
Furniture and Chattels
10,000
Incolink investment
9,114
Wife’s superannuation:
(a) Colonial Select Plan 1 - $47,367
(b) Colonial Select Plan 2 - $234,758
(c) CBUS plan - $13,383
Total –
295,508
Husband’s superannuation:
(a) Colonial Select Plan 1 - $46,124
(b) Colonial Select Plan 2 - $235,401
(c) CBUS plan - $13,818
(d) AMP Endowment Plan - $36,685
Total –
332,028
Disputed Assets
It is common ground that the husband borrowed $116,828 from the company, using $91,000 to pay his legal costs and otherwise having the benefit of the remaining monies. The valuation report of Mr B shows this sum of $116,828 as having been loaned to the husband. This sum, however, has not been included in the valuation of the company by virtue of paragraph 53 of the valuation report which provides a list of loans taken into account and excludes the $116,828 loan to the husband. There is no evidence to establish that the company has sought or will seek repayment of that sum. This sum needs to be notionally added back otherwise the wife would effectively be paying a share of the husband’s costs. As with the wife’s legal costs, these costs should be the sole responsibility of the party incurring them. Accordingly, the sum of $116,828 should be shown as an asset of the husband’s and included within the pool.
The Husband also has a share portfolio consisting of 781 shares in an insurance company. There is a very minor discrepancy between the husband and the wife’s proposed values of these shares, the wife stating that their value is $8,000 and the husband $7,904. No dispute was raised about this in court. The difference between these values is negligible. I round up the value of the shares to $8,000.
Agreed Liabilities
The parties agreed on the following liabilities.
| Item | Current Legal Title | Value ($) |
| NAB Loans (a) secured over G Property –$148,927 (b) secured over M property $244,380 | Wife | Total: 393,307 |
| CBA Loan secured over W property | Wife | 316,000 |
| Loan from Mr C to wife | Wife | 12,000 |
| Wife’s credit cards: (c) Coles Myer credit card - $7,000 (d) Coles Myer Source credit card - $3,000 (e) Harvey Norman GE Credit Finance credit card 1 - $531 (f) Harvey Norman GE Credit Finance credit card 2 - $4,331 (g) Commonwealth Visa credit card - $8,323 (h) Citibank Card - $4,900 | Wife | Total: 28,085 |
| Husband’s credit card (a) NAB Visa credit card | Husband | 1,000 |
Disputed Liabilities
The key areas of dispute were in relation to various add-backs. I will address each of these in turn.
Loan of $150,000 from Ms C to the Wife
In 8 April 2005 Ms C, the wife’s mother, obtained a loan of $150,000 from Perpetual Trustees secured over her own home. She then lent the entirety of this sum to the wife.
Counsel for the husband submitted that the sum of $150,000 should be added back into the matrimonial pool as a liability of the wife. The wife submitted, and I accept on the basis of the evidence provided, that of this loan $66,000 was used to pay the wife’s legal costs and $62,500 to service the NAB loans. Part of this $62,500 repayment to the NAB loans comprised $33,000 borrowed by the wife to pay legal costs and it makes up the balance of the wife’s costs. Counsel for the wife submitted, and I will return to this later, that neither parties’ legal costs be included in the pool as they are contained within other liabilities.
The wife therefore only benefited from $21,500 of the total loan from her mother. That sum of $21,500 should be included in the matrimonial asset pool.
$109,000 in draw downs on the NAB loans
Counsel for the husband sought to count as an add-back a sum of $109,000 which the wife drew down on the NAB loans between September 2004 and October 2005. I have already accepted that $62,500 of this loan was paid back by a portion of the wife’s loan from her mother. This leaves a sum of $46,500. Counsel for the wife submitted, and the evidence clearly shows, that $16,500 of this remaining $46,500 was used to pay the deposit on W property. This deposit is reflected in the value of W property which has already been included in the pool and I find therefore that the portion of $16,500 from the wife’s draw downs of $109,000 not be added back.
The final portion of the wife’s draw downs is $30,000. Counsel for the wife submitted that this $30,000 should not be added back into the pool but, rather, should be considered as monies reasonably spent by the wife for her maintenance and for the preservation of the property of the parties during the period from September 2004 to October 2005 when the husband had stopped servicing the NAB loans and stopped the wife’s weekly payments. By my calculations this works out to $497 per week. The wife’s oral evidence in relation to the $30,000 in question was that during this period “there was no other money coming in so I had to use it”. The wife’s bank account transactions show that she had no income during this period. It is also clear from the evidence, including the husband’s oral evidence, that the totality of the payments for the mortgage, rates and upkeep on G property, M property and W property were being made by the wife with no assistance from the husband. But for the wife, these assets would not have been preserved at their current values.
Counsel for the husband submitted that the amount of $30,000 should not be “forgiven” as the wife had wasted the earning potential of G property by not renting it out whilst it was vacant. I consider the sum of $497 per week a reasonable sum to allow the wife given the far greater income and financial resources, derived from the joint property of the parties, which were unencumbered and available to the husband at this time. The wastage argument fails to convince me otherwise. I therefore find that the entirety of the $109,000 draw down on the NAB loan be excluded from the matrimonial property pool.
Husband’s payment to the wife of $10,000
Counsel for the husband submitted that a sum of $10,000 paid by the husband to the wife in the form of two separate cheques for $5,000 should be added back into the matrimonial pool. Both parties’ oral evidence stated that the first cheque was given pursuant to the wife’s request because she said that she was “broke”, and the second cheque was given in order to discharge the husband’s obligations under the orders made by Justice Guest in October 2005. Counsel for the wife submitted that the sum of $10,000 not be included in the pool, first because it should be classified as monies spent for the wife’s personal maintenance and reasonable expenditure and secondly that it is a de minimus payment. Thirdly, counsel for the wife submitted that if the husband were successful in his submission that the sum of $67,200 paid to the wife as “wages” be added back, the second cheque for $5000 would be counted twice.
The fact that the husband gave the wife the first cheque in the context of the obvious animosity between the parties indicates that he took the wife’s plea seriously and accepted that her financial circumstances were dire. It is clear from the evidence before me that the wife had little or no income during this period and was making all relevant payments in order to preserve the matrimonial assets. In these circumstances I consider the sum of $10,000 to constitute reasonable expenditure on the wife’s part. The de minimus argument also has considerable force given the size of the pool and the funds available to the husband during this period. For these reasons I find that the total sum of $10,000 should be excluded from the pool.
Wife’s “Wages”
I have already referred to the order made in October 2005 requiring the husband to pay interim maintenance to the wife of $672 per week and reserving the question of the characterisation of those payments to the trial judge. The husband made a payment of that sum on 100 occasions, thereby paying the total of $67,200 pursuant to the order. The payments were designated as "wages" in the company's books.
The husband submits that he paid this weekly amount for 100 weeks, therefore paying the wife the total sum of $67,200, and that this sum should be considered a partial property settlement and added back into the pool as a liability on the wife.
Counsel for the husband submitted that because the wife never made a formal claim for spousal maintenance, the sum of $67,200 must be categorised as a partial property settlement. In my view, the wife's failure to specify the application as one for spousal maintenance does not of itself render the payments incapable of being classified by me as such. Furthermore, the orders reserve to the trial judge the possibility of categorising the payments otherwise than simply as interim spousal maintenance or as a partial property settlement.
Aside from a small amount earned from L Construction Pty Ltd (L Pty Ltd), with whom the wife was employed as a casual bookkeeper from November 2005 until May 2006, the weekly payments of $672 were her only income. Payroll advice documentation from L Pty Ltd shows that the wife earned a total of $4,346.40 throughout her employment there.
The husband conceded that he paid none of the mortgage repayments, rates or general upkeep on G property or M property. Instead, since separation the wife has been paying all outgoings on these two properties as well as on W property once it was acquired. W property was purchased by the wife after separation. However, it is now within the matrimonial pool for the purposes of this final property determination. The wife was therefore solely responsible for preserving three real properties of the parties relevant to these applications at quite considerable expense.
The weekly payments of $672 were sufficient only for the wife to maintain a modest standard of living whilst preserving the matrimonial assets for the benefit of both parties. When contrasted with the husband’s much more sizeable income, his freedom from the financial restraints of preserving the matrimonial assets, and invoices showing his significant expenditure on purchasing and tending horses for pleasure, it is to my mind entirely appropriate that the weekly payments be deemed payments for the wife’s personal maintenance. I find that the sum of $67,200 is not to be added back.
Husband's and Wife’s Legal Costs
There was some dispute as to the method of adding back the parties’ legal costs. Since I have already found that both parties' legal costs are contained within other liabilities – the husband’s in his $116,828 draw down on the NAB loan, and the wife’s in the $150,000 loan from her mother which she is still to repay – there is no reason to address this question.
I note, however, that the wife has agreed to pay to the husband $8,500, being half the fee for valuation of the company. That sum will be taken into account in the final orders which I will make.
Total Net Assets
Based on the findings above I calculate the total net asset pool as follows:
Total assets $4,472,218
Total liabilities $771,892
Total net asset pool $3,700,326
Parties’ Proposals
The final orders sought by the husband were for an equal division of the matrimonial pool. The wife proposed that on the basis of s 75(2) factors she should receive a seven and a half percent adjustment, resulting in a 57.5/42.5 per cent division.
It was agreed by the parties that the wife would retain or receive by way of transfer from the husband:
| Property | Value ($) |
| G Property | 850,000 |
| W Property | 327,000 |
| PA Property | 50,000 |
| Wife’s personal CBA account | 1,800 |
| Colonial Lifewise Investment | 28,031 |
| AMP shares | 8,000 |
| Mazda Uneos motor vehicle | 15,000 |
| Furniture and chattels | 10,000 |
| Wife’s superannuation: (d) Colonial Select Plan 1 - $47,367 (e) Colonial Select Plan 2 - $234,758 (f) CBUS plan - $13,383 | Total – 295,508 |
It was also agreed that the husband would retain all other matrimonial assets including the company and the two NAB loans. A top up payment from the husband to the wife would be required on either party’s proposal. The appropriate sum for this payment is the question to be determined.
Discussion
Section 79 factors -
In my determination of these applications I must take account of the various matters in s 79 of the Act. In the first place I may alter the interests of the parties or either of them in their property as I deem appropriate. However I must not make any alteration unless I find that it is just and equitable to do so. In considering whether it is just and equitable to do so I must take into account the various matters in subsection (4) to which I now turn.
The first three paragraphs of subsection 79(4) deal with matters of contribution. They include financial and non-financial contributions made to the acquisition, maintenance or conservation of the property of the parties or either of them by the parties or on their behalf. The third paragraph refers to contributions as homemaker and parent. The parties are agreed that I should find contributions as being equal. In my view that is an appropriate agreement with which I agree. Accordingly I find that the parties contributed equally to their property.
Section 79(4)(d) requires me then to take into account the effect of any proposed order upon the earning capacity of either party to the marriage. This requirement is not applicable in the case of the wife. With regard to the husband, although it is common ground that as a result of these proceedings he will need to borrow or acquire a large amount of funds to pay to the wife, it is not contended that that will adversely affect his income. Accordingly I find that this provision is not relevant to the husband.
The final two paragraphs of subsection 79(4) are also not relevant to the present proceedings, as no other final order have been made by this Court in relation to the parties and child support is not applicable.
Section 75(2) factors –
Pursuant to subsection 79(4)(e) of the Act, I am required to take into account the various matters of section 75(2). I now turn to those in so far as they are relevant to this matter.
(a) the age and state of health of each of the parties;
The husband is presently aged 49 years and the wife 50 years. There was no evidence before me that the husband has any health problem. The wife, however, detailed various health complaints in her affidavit and oral evidence. There was no medical evidence before me in relation to any of her claims. All I have to help me determine the matters are my observations of the parties and their lay evidence.
In her affidavit filed 14 March 2007, the wife stated that she was exposed to asbestos dust through her work with a safety products company between 1975 and 1985, as this company manufactured equipment which contained asbestos insulation. The wife stated that she is registered with Slater and Gordon lawyers in relation to the James Hardie compensation fund. She admitted in cross-examination, however, that she has never been examined or diagnosed by a medical professional in relation to asbestos exposure. The wife stated under examination that she suffers asthma and “heavy breathing” and currently smokes 20 cigarettes per day, but there was no evidence before me that she exhibits symptoms of asbestosis. Further, the wife conceded under cross-examination that her potential asbestos exposure does not prevent her from seeking employment.
The wife asserted that she suffered an injury in January 2001 when she tripped over a step at G property. The wife asserted that she suffered multiple fractures of her left leg. However, again there is no suggestion that this injury prevents, or even limits, her capacity to obtain gainful employment. Apart from employing a gardener to assist with the upkeep of one of the properties, there is no evidence to suggest any other limitation on the wife relevant to these applications.
The wife further asserted that since separation she has suffered from stress and anxiety as a result of the husband’s conduct and the financial pressures she has experienced. She submitted that she suffers from “palpitations, pain in her arms, irritated eyes and inflammation”. She swore that when suffering from such episodes she “lies down and cannot get up”. The wife named three general practitioners from which she has sought medical attention in relation to her mental health. She asserts that she has been prescribed anti-inflammatory medication. No medical evidence has been provided to support the wife’s statements. However the husband did not challenge their veracity at any point throughout the proceedings. Furthermore, it is the wife’s evidence in relation to her work at L Pty Ltd that her stress and anxiety caused her to take sick leave and not to return to work. To my mind, this evidence is convincing since the wife’s financial situation was difficult during this period and one would not expect that she would easily give up income.
During cross-examination, counsel for the husband put to the wife that her anxiety and stress are related to the outcome of these proceedings and that once final orders are made and the wife’s financial certainty and comfort are restored her mental health difficulties will subside. The wife conceded that at the conclusion of these proceedings the key stressors for her stress and anxiety will be gone.
The dissolution of a marriage, particularly one of this length, and the corresponding legal proceedings, are often one of the most significant periods of emotional and mental strain that parties face in their lives. This may be especially so in the present case, given the particularly fraught and adversarial nature of the parties’ post-separation relationship and the considerable financial difficulty faced by the wife since separation. Even if I find in favour of the husband in these proceedings, the wife will receive a substantial sum of money and will have the means for a comfortable and secure life. I find that, at least, a substantial amount of the stressors faced by the wife would be removed upon the conclusion of this case. In the absence of any medical evidence, particularly as to the ongoing nature of the wife’s condition, the wife’s mental health cannot be a determinative factor for an adjustment in the wife’s favour. The fact that there is no substantial medical evidence in relation to the wife’s mental health appears a marked gap in the wife’s case.
(b) the income, property and financial resources of each of the parties and the physical and mental capacity of each for appropriate gainful employment;
In their financial statements the parties swore to the following:
Gross income
Total personal expenditure
Total value of property owned
Total gross value of superannuation
Total liabilities
Total financial resources
Husband
*1,900
*1,059
*2,754,000
*332,028
1,000
9,114
Wife
902
1,936
2,582,884
295,508
899,392
15,000
* = estimated value.
The Husband
The husband estimates in his financial statement that his gross weekly income is $1,900 and his weekly income tax $605.00. This leaves him with $1,295 net income per week. The husband’s income is obtained through his role as company director and is made up, in part, by company profits. The husband’s income therefore is subject to some fluctuation, depending on the profitability of the company. In the husband’s 2005 income tax return his total income, including salary, director’s fees and dividends, is given as $98,414. His 2006 income tax return gives his total income as $133,808.
The parties are agreed that the husband will retain the sole interest in the company. An affidavit sworn by Mr R, who acted as the company’s accountant since 2000, was submitted into evidence and had annexed to it copies of the company’s financial statements for 2002 and 2003, as well as draft accounts for 2004. Mr R stated in his affidavit that:
The business has been a very good business, providing good wages to [the husband] and to [the wife] and good profits which enabled them to acquire the properties at [S].
The company’s financial statements disclose a “turnover” excluding debts of approximately $1.13 million in 2002 and $672,000 in 2003. The evidence indicates that, including debts, the company turnover was $1.635 million in 2004. Evidence provided through affidavit and examination of the husband and the wife, as well as in the affidavit of the parties’ solicitor, satisfies me that the reduced turnover in 2003 is the result of a problem encountered with one of the company’s head contractors. This problem arose pursuant to an accident which occurred whilst the company was performing construction for the head contractor. The head contractor claimed that the accident was the company’s fault and on this basis ceased providing contracts to the company. The circumstances of this dispute were contextual and the dispute was soon after resolved, the head contractor withdrawing any blame and recommencing its business relationship with the company. I am satisfied that this problem is resolved and will not further affect the financial viability of the company, nor is such a problem foreseeable in the future. I am therefore satisfied that to the requisite standard that the company will not continue to thrive in the long-term.
Mr R deposed:
The nature of the business conducted by [the company] is such that it incurs liabilities for labour (either wages or subcontractors) for the projects or contracts it undertakes but it does not receive payment for its work for some months. Accordingly, [the company] often records its debtors at significant levels.
This practice of completing work well in advance of receiving payment was confirmed by the husband during examination, in which he stated that this practice is the norm for companies performing work for the government in the construction industry. The company therefore requires significant capital outlay and therefore corresponding risk. Nevertheless, it represents a very powerful financial resource in the hands of the husband and one that will continue in the long-term to bring great financial rewards to the husband.
From the evidence before me and from my observations of the Husband, it is apparent that he is resourceful and hard-working. He is clearly business-minded and knows how to manage and accumulate money.
The Wife
It is agreed by the parties that at the conclusion of these proceedings the wife will retain G property, W property and A property. If she so wishes, the wife may therefore sell or rent two of these properties whilst maintaining a comfortable home for herself. In particular, G property is an expensive home on a significant area of land with a swimming pool and could generate good income. Whilst both parties have accepted the expert valuation of G property by Mr B, it appears that he may have understated the value. Both parties initially estimated that the property was worth a considerably larger sum. To my mind, the parties’ estimate appears reasonable in light of the evidence that when the property was put on the market in October 2005 it received an offer for $970,000.
Whilst the wife will receive this substantial real estate, her future earning prospects and capacity for gainful employment are significantly more limited than the husband’s.
The wife has no formal qualification. She left school after completing Form 5 and did not complete her matriculation. She then worked for 13 years as a purchasing and payroll officer for a safety products company and was responsible for duties such as organising the payroll, ordering stock, typing, filing and handling mail. In approximately September 1985, the wife worked for one month as a bookkeeper for a manchester company. For the rest of the marriage she worked part time in the family company and was primarily engaged in home duties.
The wife’s affidavit evidence states that she made significant contributions to the company over the course of the marriage, taking a deep interest in the business matters and contributing to key decisions. The wife’s affidavit filed 14 March 2007 states that when the company faced difficulties with its head contractor in 2000, the wife was instrumental in resolving the dispute by engaging a debt collection agency and sourcing documents in order to prove that the head contractor should not “black ban” the company. The wife’s affidavit states further that since 2000 she has used MYOB accounting software to maintain the company’s books and that she helped the company attain “certification to Qualify Management System standard ISO 900:2001” by organising an occupational health and safety audit and drafting an occupational health and safety policy which was then reviewed and amended by professionals. Her earlier affidavit filed 10 May 2005 states that she was also responsible for selecting the superannuation scheme for the company’s sub-contractors and employees and that this necessitated attended seminars. She states that she attended more seminars following the introduction of the GST and the changes to the taxation system in 2000. The wife also states that it was her duty to organise WorkCover and public liability insurance for the company, which was a difficult task since the nature of the company’s business meant it was classified high risk and was hence unattractive to insurers.
The wife’s contributions were certainly invaluable to the company and show that the wife has a certain amount of initiative and ingenuity. The wife’s evidence on the matters detailed above, however, was not tested in court. Counsel for the husband did not draw on these examples of the wife’s work within the business, save to say that in relation to the dispute with the head contractor “the wife was the tenacious one”. Without being disparaging of the wife’s contribution, it appears the crux of it was to appoint professionals or to seek expert advice. In contrast to the husband, the wife does not possess a great deal of business acumen – or at least experience of independent business management.
After separation, in approximately September 2004, the wife’s work with the company was discontinued. In her affidavit in chief, the wife states that she began looking for bookkeeping employment in April 2005. In her affidavit and oral evidence, the wife submitted that she searched newspapers and internet sites for jobs, listing herself on the “Career One” website. She lists several businesses to which she applied for work and was unsuccessful. The wife stated in cross-examination:
I went to a few job interviews. Too old or too – my experience just isn’t what it’s supposed to be. I’ve been working in the family business too long. That’s it, They need more experienced people, more skilled people than I am.
In October 2005 the wife obtained work as a casual bookkeeper with L Construction Pty Ltd (“L Pty Ltd”). At this time she obtained an ABN and set up the business, “[C Farlow] MYOB Bookkeeping”. The wife’s evidence is that she did so because this was a prerequisite for employment with L Pty Ltd who only employed sub-contractors.
The wife resigned from her position with L Pty Ltd in approximately May 2006 due, according to her evidence, to her mental health deteriorating. As discussed above, counsel for the husband submitted that the wife’s mental health was related to her financial insecurity, the stresses of separation and these proceedings. On this basis, counsel submitted that the wife’s condition would improve following the conclusion of these proceedings and that her mental health would therefore not be a factor affecting her capacity for appropriate and gainful employment. As I have mentioned, to my mind without medical evidence this submission cannot be denied. Nevertheless, I consider that the wife’s age and lack of suitable work experience and skills are sufficient of themselves to render her capacity for employment markedly less than the husband’s.
The wife admitted under cross-examination that her possible asbestos exposure, and the fact that she is a smoker, do not currently limit her employment opportunities.
In relation to the wife’s leg injury, she testified that sometimes the swelling and pain are so bad that she is unable to walk and that she would have difficulty performing work that involved standing up for long periods of time. The wife admitted that this injury would not stop her seeking employment, but it would obviously limit the particular work she may perform.
Counsel for the husband suggested to the wife in cross-examination that she has the capacity for secretarial or administrative work since she has typing and keyboard skills. The wife replied that she had sufficient skills to work in the family company but not to go into the workforce. She stated:
I can work within the company myself but [I am] not skilled enough to work outside the company. Because, I mean, if I make a few mistakes in my own letters it doesn’t matter or type slow – it takes me all day sometimes - but not outside the company.
Counsel for the husband also suggested the wife had good computer skills and was very familiar with the internet. The wife replied:
I can’t do Excel, I wouldn’t know how to do PowerPoint. [My skills are] just typing letters.
It was also put to the wife in cross-examination that she has considerable language skills which strengthen her capacity for employment. The wife’s oral evidence was that she speaks “broken Italian” and some Maltese. The wife’s evidence as to her Maltese abilities was contradictory. Nevertheless I am not convinced that the wife would be able to profit from her language skills. In order to teach or interpret she would need to complete training, presumably a tertiary course, and since the wife has no secondary school education and is close to retirement age this seems extremely unlikely.
It is clear from the evidence before me and from my observations of the parties throughout these proceedings that were the wife able to successfully gain and maintain employment it would be at a significantly lower level than the husband’s in terms of the income it would generate and the potential it would offer for promotion. In the course of the proceedings I asked Counsel for the husband what she submitted would be a reasonable income the wife could expect if she were successful in gaining employment. Counsel responded that it would be in the realms of $30,000- $40,000 per annum. This is at least half the husband’s current income.
I consider that the disparity between the husband’s and the wife’s capacity for employment and their future earnings necessitates an adjustment in the wife’s favour. However, the wife will retain several valuable real properties and will have the capacity to derive income from their lease or sale. The husband will not have this opportunity. It would seem appropriate therefore for the wife’s adjustment to be relatively small.
(d) commitments of each of the parties that are necessary to enable the party to support:
…
(ii) a child or another person that the party has a duty to maintain;
The children of the marriage are both adults and are both currently living with the father, the daughter having moved in very recently. The son works full-time running his own construction business which mainly works for the company and for other relatives’ businesses. The daughter has been employed in a full-time capacity in administration, but has recently become unemployed. There is no evidence before me as to the level of financial support the children require. In Part H of the husband’s financial statement he lists both children’s names and states that he assists them in their basic living expenses. He fails, however, to specify the sum of these expenses.
Since separation both children have moved back and forth between the parents’ homes and have lived independently. The evidence indicates that relationships between both children and each of the parents have been strained at times. As I have no evidence on this issue, it is impossible to ascertain how long the children’s current living arrangements will continue for. Accordingly, I find that this factor cannot influence my determination.
(g) where the parties have separated or divorced, a standard of living that in all the circumstances is reasonable;
There was no evidence before me as to the standard of living that the parties enjoyed throughout their marriage. The parties have built up a successful company and a large pool of assets from virtually nothing, and in doing so have been very resourceful and have maintained a modest lifestyle. The parties drive modest cars, have not undertaken much travel or – with the exception of the husband’s horse purchasing post separation – cultivated expensive hobbies. There is no evidence before me that either party’s proposed property division would result in a drop in the standard of living, compared with that throughout the marriage, for either party.
(h) the extent to which the [property division] would increase the earning capacity of [a] party by enabling that party to undertake a course of education or training or to establish himself or herself in a business or otherwise to obtain an adequate income;
Submissions were made by counsel for the husband that the wife may be able to improve her capacity for employment and income generation by undertaking training to update her bookkeeping or payroll officer skills. As I have mentioned, even if the wife were to successfully gain and maintain a position as a bookkeeper or payroll officer – even with improved training – she can only expect a salary which is markedly lower than that of the husband’s.
(k) the duration of the marriage and the extent to which it has affected the earning capacity of [either] party…
Throughout the 20 year marriage the wife has not been engaged in employment outside of the family business, save for approximately 13 months at the beginning of the marriage. For the majority of her adult life she has primarily been parent or homemaker. As discussed above in relation to subsection 75(2)(b) her part-time work in the company has not allowed her to remain competitive in the workforce and she has not acquired the skills and experience that she would have but for the marriage and her role within it.
Conversely, the husband’s affidavit shows that he worked long hours, regularly seven days a week. Even when not at work he states that he was always on call and the nature of the company’s work and his position meant that he was regularly called in to deal with problems which arose. Clearly, the wife’s primary focus on raising the children and working within the home have freed up the husband, enabling him to dedicate his time and energy to the company and develop a profitable business and a high income.
(o) any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account;
Counsel for the husband submitted that the adverse effects of the wife’s behaviour since separation, including threats and nuisance, should be taken into consideration under ss 75(2)(o). I do not accept this approach as it departs from the concept of the s 75(2) factors as future factors.[1]To my mind, it would seem more appropriate to consider the wife’s behaviour as a negative contribution or possibly under s 75(2)(j). However, this is not possible because the parties have agreed that contributions are equal. Section 75(2)(j) shows that s 75(2) is not exclusively confined to prospective issues and I will therefore consider counsel’s submission.
[1] Clauson and Clauson (1995) FLC ¶92-595; (1994) 18 FamLR 693.
Counsel for the husband submits that from September 2004 “every attempt was made by the wife to undermine the operation of the company”. The husband states in his supporting affidavit that the wife made unannounced visits to the company in which she disrupted business and was abusive towards the husband and sometimes to the parties’ son, if present, as well as to other staff. The husband also states that the wife contacted clients of the company and made allegations about the husband in order to damage the company’s business. Correspondence from the husband’s solicitor to the wife’s solicitor on 11 different occasions supports the husband’s claims and the wife did not dispute them. In his affidavit filed 9 March 2007 the husband states that:
On one instance [the wife] contacted [CR Company]. She made allegations to me that [Mr G] of [CR Company] and I were conspiring together to deceive her. It is my belief that [she] made similar allegations to [Mr G] … [CR Company] used to provide work to the company in the order of $200,000 per annum. Since the contact with [the wife] some 18 months ago, the work from [CR Company] has dropped off dramatically to approximately $24,000 for 2005 and $15,000 for 2006.
The husband’s “belief” and the question of causation raised by this affidavit were not tested.
The husband’s allegations beg the question of whether the wife’s behaviour encumbered the husband from going forward in the business. The husband’s affidavit and oral evidence was that in March 2005 he was unable to pay the company staff’s wages, and was hence unable to take on new contracts, because the wife had placed a caveat on the NAB loans and refused to make monies available to him. Under cross-examination, the wife did not deny these events but stated that she took such action because she had no income and was frightened that if she made monies available to the husband she would have no money left to live on. The wife also stated under cross-examination that from her previous duties of managing the payroll for the company she knew the number of staff and the wages usually paid and believed that the husband had sufficient funds. In July 2005, just four months later, the husband spent approximately $50,000 on purchasing and maintaining horses for his own enjoyment. To my mind this is a negative indicator of the husband facing financial problems with the company or at least it would imply that any problems faced were transitory. Mr B’s valuation shows that the company is currently doing very well. This was reiterated in no uncertain terms by the husband in his oral evidence before me. There is no evidence that the wife’s behaviour has had any lasting detrimental effect on the company.
During the period of complaint, the husband ceased the wife’s payments and ceased servicing the NAB loans and paying the mortgage or outgoings on any of the parties’ properties. The husband was aware of the financial resources available to the wife at this time and the effect that these actions would have on her. His conduct was to knowingly “dry up” the wife’s money and lock her out of what had been a joint business. The parties’ behaviour towards each other has rarely been civil since separation and, to my mind, the negative behaviour of both of the parties balances itself out. That behaviour includes allegations of family violence which, as I have already noted, were not pursued during the trial.
Section 79(2)
In my consideration of the various statutory provisions, I must ultimately make a decision which is just and equitable. Counsel for the husband submitted that justice and equity do not require parity of income. She referred me to a decision of the Full Court of this court in the matter of Cunningham v Cunningham[2] at page 81,912 where in the context of making adjustments with respect to an earning disparity the trial Judge quoted from Clauson that the making of such an adjustment is not “an exercise in social engineering”,[3] nor, drawing then from Mallet, is it “an attempt to ‘equalise the financial strengths of the parties’”.[4]
[2] Cunningham v Cunningham (2005) FLC ¶93-212.
[3] Cunningham v Cunningham (2005) FLC ¶93-212 at 78,555; Clauson v Clauson (1995) FLC ¶92-595 at 81,912
[4] Mallet v Mallet(1984) FLC ¶ 91-507, at 79,127
In Cunningham Kay, Warnick & May JJ held at paragraph 25:
While the trial Judge focused upon the income differential of the parties in determining an appropriate adjustment, his Honour seemingly overlooked the fact that for the husband to maintain the income differential represented by the business's profits he has to keep invested $160,000 from his half share of the assets invested in the business whilst the wife has available to her an equivalent sum to invest as she sees fit. It can be assumed that those monies will securely return her a sum which will diminish the gap between the parties' income and earning capacity either by way of income or capital growth.
And further at paragraph 27
We conclude that whilst recognising the very great difference in the parties' income position in the immediate future brought about by the manner in which the assets have been distributed, the wife does have the benefit of being able to invest part of her capital and help diminish that gap.
The trial judge’s adjustment in favour of the wife in Cunningham was reduced, rather than overturned. This was because the pool was relatively modest, at $1,094,379, and an adjustment was essential for doing justice and equity to the wife. Counsel for the husband submits that a just and equitable result is not synonymous with parity of income and that the bigger the pool the more germane this principle becomes. Counsel accepts that were the pool in the present case the same size as that in Cunningham an adjustment should be made. Counsel submits that in the present case, as the pool is large, the amount the wife receives on an equal division negates the need for an adjustment.
Counsel for the husband also referred to the Full Court case of McF v McF[5] in which an adjustment made primarily by reference to the disparity in earnings resulting from the wife’s retention of the family business was overturned. The pool in that case was approximately half a million dollars. At paragraph 18, Kay J, with whom Bryant CJ and Holden J agreed, said:
The profit making capacity of the business was already factored into the valuation, and I perceive there is an element of double dipping, paying attention to the income it earnt. If the wife sold the business, she lost her greater earning capacity. Accordingly, whilst its value was appropriately included in the pool of divisible assets, the fact that she will be required to buy out the husband's half share immediately compensates him for that difference, while increasing her outgoings by borrowings necessary to finance the purchase. Once that factor is recognised, there is really very little difference between the parties' positions.
[5] McF v McF [2004] FamCA 1309.
Counsel for the husband submitted that the principles set out in Cunningham and McF apply to the present case, in that to order an adjustment against the husband would negate justice and equity for him. She posited that in the present case, given the agreed distribution of property in specie, the wife receives an immediate benefit in having assets which she may at any point convert into liquid funds or use to generate income. The husband, by comparison, receives his income through the company which requires investment of funds. His finances are ‘tied up’ with the company and cannot be freely used.
In my opinion, both Cunningham and McF may be distinguished from the case before me because at no point during these proceedings has the Husband asserted that he would have any difficulty paying the Wife any sum relating to a s 75(2) adjustment. His case was not run with reference to any hardship on his part that would be exacted by an order for an adjustment. In McF by comparison, Kay J states that the trial judge could not have made the orders he did had he “stood back” and seen that an adjustment made against the wife “would be something that would be extremely difficult for her”.[6] This is clearly not analogous to the situation of the husband in the present case.
[6] Ibid, at paragraph 19.
A further distinguishing factor is the marked difference in the size of the asset pools in Cunningham and McF when compared with that of the present case. Counsel for the husband argued that the larger the pool the more relevant the application of the principle. I do not accept this proposition. In McF the parties had a modest asset pool of approximately $475,000. In that context, where the majority of one party’s assets are tied up within a business, any adjustment renders financial hardship as it leaves only a small amount for the party’s daily subsistence. In the case before us, however, the parties’ assets are comparatively large. There is no denying that an adjustment in the wife’s favour will leave a dent in the husband’s liquid funds. Nevertheless he will still have sufficient funds to live a comfortable lifestyle by virtue of the size of the asset pool. In my view the size of the pool in this matter is not sufficient to decline a further adjustment in favour of the wife pursuant to s 75(2), albeit that such further adjustment may be smaller than if the net pool were lower.
Cunningham is further distinguishable in that a crucial factor in that decision was the trial judge’s finding that both parties had equal capacity to generate an income of equivalent value through their personal effort. In the case before me, I have already found that the parties’ abilities with respect to employment and income generation are vastly disparate. There is therefore nothing unjust on that basis in granting the wife an adjustment to compensate her for this disparity.
Conclusion
I conclude that it is just and equitable in all the circumstances to make an adjustment on the basis of s 75(2)(b) of 5% in favour of the wife. It follows that the parties’ net assets should be divided as to 55% to the wife and 45% to the husband.
In order to arrive at this division the parties shall receive assets according to their agreed terms and a further top-up payment shall be made from the husband to the wife of $827,425 less $8,500 which she has agreed to contribute towards the costs of appointing Mr B as a single expert.
I certify that the preceding ninety-six (96) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Mushin.
Associate:
Date: 23 August 2007
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