Farnell and Farnell
[2020] FamCA 297
•30 April 2020
FAMILY COURT OF AUSTRALIA
| FARNELL & FARNELL | [2020] FamCA 297 |
| FAMILY LAW – PROPERTY – Where it is just and equitable to make a property division order – Addbacks – Where the husband defended criminal proceedings – Whether legal fees of criminal proceedings should be added back – Where the legal expenses were reasonably incurred – Where the contributions are assessed as 52 per cent to the wife and 48 per cent to the husband – Where there is no further adjustment for 75(2) factors – Where the division of property requires a superannuation splitting order. |
| Family Law Act 1975 (Cth) ss 79(2), 90XT |
| NHC v RCH [2004] FamCA 633 Trevi & Trevi [2018] FamCAFC 173 |
| APPLICANT: | Ms Farnell |
| RESPONDENT: | Mr Farnell |
| FILE NUMBER: | SYC | 659 | of | 2018 |
| DATE DELIVERED: | 30 April 2020 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Rees J |
| HEARING DATE: | 17, 18, 19, 20 & 21 February 2020 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Johnston |
| SOLICITOR FOR THE APPLICANT: | Beazley Lawyers |
| COUNSEL FOR THE RESPONDENT: | Ms Lawson |
| SOLICITOR FOR THE RESPONDENT: | Nicole Evans Lawyers |
Orders
IT IS ORDERED
That within three calendar months of the date of these orders the husband pay to the wife the sum of $84,976.
That from the sum in Order 1, the wife pay 52 per cent of the amount, if any, required, after the application of the sale money, to discharge the mortgage over the property at T Street, F Town and pay the commission and costs of sale.
That the husband pay the remaining 48 per cent of amount, if any, required, after the application of the sale money, to discharge the mortgage over the property at T Street, F Town and pay the commission and costs of sale.
That upon receipt of the sum in Order 1, the wife do all things necessary to transfer to the husband her interest in the jointly owned shares in G Company; to transfer or otherwise assign to the husband any interest she may have as a beneficiary of the Farnell Family Trust; to resign from any directorship of S Pty Ltd and to transfer to the husband any shares held by her in S Pty Ltd.
That the husband indemnify the wife in respect of any taxation liability which might arise from her being a director or shareholder of S Pty Ltd or from being a beneficiary of the Farnell Family Trust in the financial years ended 30 June 2018, 2019 and 2020.
That the husband and the wife forthwith do all acts and things required to cause the accounts and member balances of the Farnell Superannuation Fund to be prepared and lodged and to pay equally any costs, taxes, fines or penalties incurred.
That pursuant to s 90XT(4) of the Family Law Act 1975 (Cth), the Court allocates a base amount to the wife out of the husband’s interest in the Farnell Superannuation Fund of $204,280.
That in accordance with s 90XT(1)(a) of the Family Law Act 1975 (Cth), the Court:
(a)Creates an entitlement on the part of the wife to be paid the amount calculated in accordance with Part 6 of the Family Law (Superannuation) Regulations 2001; and
(b)Makes a corresponding reduction in the entitlement of the husband, or such other person to whom a splittable payment may be made, would have in the fund but for these orders.
That the husband and wife, in their capacities as directors of the Trustee Company, shall do all such acts and things and have signed all such documents as may be necessary to cause the accountants for the Farnell Superannuation Fund to ensure payment to the wife of the base amount in accordance with Order 8(a) and (b):
That the operative time for Order 7 of these Orders is twenty eight (28) business days after the making of these Orders
That the wife, upon receipt of the funds referred to in order 7, do all things required to resign as a director of the Farnell Superannuation Fund and to transfer to the husband, or his nominee any share held by her in any trustee company.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Farnell & Farnell has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC659/2018
| Ms Farnell |
Applicant
And
| Mr Farnell |
Respondent
REASONS FOR JUDGMENT
Ms Farnell (“the wife”) and Mr Farnell (“the husband”) married in 2001 and separated in January 2017. There are two children of the marriage, who live with the wife and, at the present time, spend no time with the husband. Judgment in the parenting proceedings was delivered on 24 April 2020.
After the hearing of the matter had concluded, it became apparent that further information was required regarding the funds in the parties’ self-managed superannuation fund. It was agreed that judgement in the parenting proceedings would be delivered separately. Thus these reasons relate only to financial matters.
The financial history of the relationship is relatively uncomplicated and largely undisputed.
The husband and wife always lived in rented accommodation.
When they started living together, in late 1998 or 1999, they were both working.
They moved into accommodation and opened a joint account. The wife deposed that she had some savings and superannuation and jewellery. The husband does not assert that he had any significant assets.
The husband incorporated H Pty Limited (“H Pty Ltd”) in April 1999 (or, according to the wife in 2004) as a vehicle for his contracting and consultancy activities.
In about 2000, the wife received a payment of $20,000 in compensation for an injury.
Their daughter X was born in 2004.
The husband commenced employment in an professional role in 2005.
Their daughter Y was born in 2007.
In December 2007, the wife received a legacy of $80,000.
When the wife’s mother died in 2008, she left the wife a 25 per cent share in her home at Suburb J, subject to a life tenancy to the wife’s father.
In October 2014, the husband took a redundancy from his employment and received a net amount of $168,519.
In December 2014 a house and land package was purchased at F Town in Queensland for $426,450. The deposit was paid, presumably from the redundancy money, and the balance was financed by mortgage. The property was rented and the rent applied to the outgoings. The husband has met the shortfall between income and outgoings since separation.
The husband’s consultancy business was affected by the criminal charges that were laid in January 2017. He was obliged to inform clients of the charges. In the financial year ended 30 June 2017, his taxable income was $111,695. In the next financial year his taxable income was $20,976.
The husband borrowed $196,000 on the security of the F Town property to fund his legal expenses for the criminal trial. It is an agreed fact that the husband’s costs in the Local Court proceedings totalled $273,968 and were met by the drawdown on the mortgage over the F Town property and the sale of shares which were matrimonial property.
The husband has re-partnered. He and his partner have a son aged one year. They do not live together.
PAID LEGAL FEES
Successive Full Courts have approved the principle of adding back paid legal fees where the source of the paid fees was joint funds.
In NHC v RCH [2004] FamCA 633 the Full Court stated:
56.In summary, we consider that the above mentioned decisions of the Full Court establish that, while the treatment of funds used to pay legal costs remains ultimately a matter for the discretion of the trial Judge, in determining how to exercise that discretion, regard should be had to the source of the funds.
57.If the funds used existed at separation, and are such that both parties can be seen as having an interest in them (on account, for example, of contributions), then such funds should be added back as a notional asset of the party, who has had the benefit of them.
58.If funds used to pay legal fees have been generated by a party post-separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance), they would generally not be added back as a notional asset; nor would any borrowing undertaken by a party post-separation to pay legal fees be taken into account as a liability in the calculation of the net property of the parties. Funds generated from assets or businesses to which the other party had made a significant contribution or has an actual legal entitlement may need to be looked at differently from other post-separation income or acquisitions.
59.Outstanding legal fees themselves are generally not taken into account as a liability.
60.If in the exercise of the discretion, it is determined that legal fees already paid should be taken into account as a notional asset, then normally any liability associated with the acquisition of the monies used to pay the legal fees should also be taken into account.
Both counsel for the mother and counsel for the father adopted the statement of Murphy J. (with whom Alstergren CJ and Kent J. agreed) in Trevi & Trevi [2018] FamCAFC 173 where his Honour stated at [29]:
The fundamental precept that addbacks are exceptional, reflected in the decisions just referred to, also mirrors what has been said in earlier decisions of the Full Court that, for example, “the Family Court must take the property of a party to the marriage as it finds it” at trial. An important parallel proposition is that the parties do not “go into a state of suspended economic animation” after separation. Thus, reasonably incurred expenditure does not usually come within accepted categories of addback.
(footnotes omitted)
Both conceded that the decision whether to “add back” or otherwise take into account the money spent on the husband’s criminal defence was to be based on what was just and equitable having regard to the facts of this case.
The father was charged with three counts of indecent assault in relation to one child and two counts of assault in relation to the other. The father gave evidence that he had been advised that the charges, if made out, carried a maximum term of 16 years imprisonment.
He had no choice but to defend the charges.
He was acquitted.
There was no evidence that there was any other source of funds available to him to fund his defence.
I consider that the father’s expenditure of joint funds on his legal expenses was reasonably incurred and I do not propose to add the amount back or otherwise take it into account.
SECTION 79(2)
Both parties ask the Court to make financial orders. In so far as they acquired property in the course of their marriage using money which is regarded as joint funds, and they can no longer jointly share the benefit of that property, it is appropriate to divide their property between them.
THE BALANCE SHEET
The parties tendered a joint balance sheet. I propose to deal with the disputes which arise from the balance sheet using the numbering on the document.
Ownership
Description
Wife’s value
Husband’s value
ASSETS
1.
H
House, T Street F Town QLD
$ 390,000
$ 359,000
2.
H
Z Bank Account #…45
$ 1,259
$ 1,259
3.
J
Bank K Account #…14
$ Nil
$ Nil
4.
J
Bank K Account #…27
$ Nil
$ Nil
5.
H
Bank K Account #…11
$ 763
$ 763
6.
H
CBA Youth Saver Account (X) #…80
$ 1,098
$ 1,098
7.
H
CBA Youth Saver Account (Y) #…99
$ 1,042
$ 1,042
8.
H
Listed shares – L Company
$ 26,333
$ 26,333
9.
J
Listed shares – G Company
$ 6,880
$ 6,880
10.
H
Unlisted options @ $0.002 expiring 2020 – 333D Ltd
$ 18,497
$ 18,497
11.
W
Motor Vehicle 1
$ 12,100
$ 12,100
12.
H
Motor Vehicle 2
$ 16,750
$ 16,750
13.
H
H (Services) Pty Ltd
$ NK
$ 111,967
14.
H
Watch
$ 3,000
$ NIL
15.
W
Jewellery
$ 6,000
$ 6,000
16.
H
Household Contents
$ 5,000
$ 5,000
17.
W
Household Contents
$ 3,500
$ NK
18.
W
Westpac Esaver #…59
$ 14,677.95
$ NK
19.
W
Westpac Choice #…48
$ 3,412
$ 3,412
20.
J
Farnell Family Trust
$ NK
$ 16,500
21.
W
25% interest in Suburb J
$ Separate
pool
$ 517,500
Total
$ NK
$ 1,104,101
LIABILITIES
23.
H
Mortgage T Street F Town QLD
$ 375,970
$ 375,970
24.
H
N Company (Motor vehicle 2)
$ 24,544
$ 24,544
25.
H
National Australia Bank Visa card
$ Nil
$ Nil
26.
H
P Bank Visa Card
$ Nil
$ 4,642
27.
H
M Company (Motor vehicle 1)
$ 3,350
$ 3,350
28.
H
Loans from family and friends for legal fees
$ Nil
$ 77,000
29.
H
Accrued legal fees
$ Nil
$ 15,000
30.
H
Div 7A loan from H (Services) Pty Ltd
$ NK
$ 64,286
32.
W
Deputy Commissioner of Taxation
$ 23,678.58
$ NK
Total
$ 427,542.58
$ 569,434
SUPERANNUATION
Member
Name of Fund
Type of Interest
Applicants value
Respondents value
33.
J
Farnell Superannuation Fund
$ 431,172
$ 363,556
34.
W
W Superannuation
$ 32,298
$ 32,298
Total
$ 463,470
$ 395,854
ADDBACKS
Ownership
Description
Applicants value
Respondents value
35.
W
Monies spent on criminal defence by husband
$ 273,968
$ NIL
36.
W
Shares sold by husband (Financial Statement 4/2/20)
$ 507,923
Total
$ 781,891
$ NIL
Item 1 – value of the F Town property
Both parties agree that the property must be sold. They both agree that it has no equity. It is the joint position of the parties that the property has now been sold for an amount which will not be sufficient to discharge the mortgage. There is no evidence of what the shortfall will be. If there is a shortfall, then it is reasonable that the parties should both be responsible to meet it. I propose to remove the property and the corresponding mortgage from the balance sheet and to make orders to meet the shortfall, each party to pay a proportion which corresponds to the proportions in which the property in the matrimonial pool is to be divided.
Item 13 – value of H Pty Ltd
There is no evidence other than the husband’s estimate which will be accepted as a concession against interest.
Item 14 – husband’s watch
There is no evidence to support the value asserted on behalf of the wife. This item will be removed from the balance sheet.
Item 17 – wife’s household contents
There is no evidence other than the wife’s estimate. This item will be included at that value as an admission.
Item 18 – Esaver account
There is no evidence other than the wife’s estimate. This item will be included at that value as an admission.
Item 20 – the Farnell Family Trust
There is no evidence other than the husband’s estimate. This item will be included at that value as an admission.
Item 21 – the wife’s interest in Suburb J
There is agreement as to the present value of the interest. The parties do not agree about how it is to be treated. The wife argues for a two pool approach and the husband contends that the interest should simply appear in the pool of assets. Having regard to the manner in which the interest came into existence, I consider that a “two pools” approach is appropriate.
Item 26 – husband’s credit card debt
There is no evidence that this debt relates to joint debts or expenditure incurred when the parties were together. It will be removed from the balance sheet.
Items 28 and 29 – money borrowed by the husband for costs of these proceedings
I propose to remove from the balance sheet any liability for the legal fees of these proceedings. Each party is entitled to spend whatever sum they wish on their legal fees but they are not entitled to visit that choice on the other party.
Item 30 – Div 7A loan from H Pty Ltd
There is no evidence about this asserted liability. It will be removed from the balance sheet.
Item 32 – wife’s tax debt
The wife asserted, but did not prove, that the liability arose because the husband caused the Farnell Family Trust to distribute funds to her in the financial year ended 30 June 2017.
The wife was not in paid employment for the first half of that financial year but she was working in the second half of the year. She does not state, in her affidavit, when she started paid employment although she deposed that she was offered a three month contract from April 2017.
The financial statements of the Farnell Family Trust for the year ended 30 June 2017 have not been finalised because the wife refused to sign them. It is difficult to understand the basis upon which the wife asserts that there was a taxable distribution in those circumstances.
However, the ATO has amended the wife’s assessment and her taxable income for the period has been amended from $15,993 to $87,950. The wife asserts that the return was amended on the husband’s instructions and without reference to her. Neither party gave evidence about this issue and neither was cross- examined.
It would seem that the amended amount reflects, at least in part, monies attributed to the wife by way of distribution. There is no other explanation for how the money was earned.
I propose to leave the debt as a liability in the balance sheet.
Item 33 – value of the Superannuation Fund
This is a self-managed fund. The husband is the manager. Each party has a superannuation balance within the fund. It is an agreed position that the husband’s interest in the fund is 99.8 per cent and the wife’s interest is 0.2 per cent.
The assets of the fund consist of listed shares and money in the bank. It is held by Commsec.
The most recent document produced by Commsec lists the value as at 12 February 2020 as shares $270,960 and cash $153,333, a total of $424,293.
I propose to adopt that figure as the value of the superannuation fund.
Therefore the value of the husband’s interest in the fund is $423,444 and the wife’s interest in the fund is $849.
Item 35 – money spent on the husband’s criminal defence
For the reasons earlier stated, this amount will not be added back.
Item 36 – shares sold by husband
On 26 July 2019, the husband, through his solicitors, gave an undertaking to the wife’s solicitor that he would not sell any further assets without giving 14 days’ notice to the wife.
The husband in his Financial Statement sworn on 31 January 2020, deposed to the sale of a number of parcels of shares between September 2017 and November 2019.
In addition to the shares to which the husband referred in the Financial Statement, he sold, without notice to the wife, a parcel of shares in L Company on 13 February 2020 for $29,320.42. Those funds were used to pay legal fees.
The shares which were sold by the husband fall into four categories.
· Shares in L Company which were sold in June and July 2019 for a total of $159,032 belonged to the superannuation fund and the proceeds remain as cash in the fund. They will be disregarded because the funds are accounted for in the value of the superannuation fund.
· Shares in Q Company; V Pty Ltd; G Company and L Company which were sold between September 2017 and July 2019 for a total of $122,826
· Shares in L Company which were sold on 13 February 2020 for $29,320.42.
· Shares in R Company which were sold between July and November 2019 for a total of $145,140.
As to the second and third categories, the husband conceded that all of those shares fell into the category of matrimonial property, having been acquired during the marriage.
The father contended that the R Company shares were property acquired by him after separation in lieu of director’s fees for a directorship which he assumed after separation.
In accordance with settled authority, the R Company shares were after acquired property and should not be added back or otherwise taken into account.
The shares which sold for a total of $152,146 will be taken into account pursuant to section 75(2) as matrimonial funds distributed by the husband to himself.
I therefore find that the assets and liabilities of the parties are:
MATRIMONIAL POOL
H
Z Bank Account #…45
$1,259
H
Bank K Account #…11
$ 763
H
CBA Youth Saver Account (X) #…80
$1,098
H
CBA Youth Saver Account (Y) #…99
$1,042
H
Listed shares – L Company
$26,333
J
Listed shares – G Company
$6,880
H
Unlisted options @ $0.002 expiring 2020 – 333D Ltd
$18,497
W
Motor Vehicle 1
$12,100
H
Motor Vehicle 2
$16,750
H
H (Services) Pty Ltd
$111,967
W
Jewellery
$6,000
H
Household Contents
$5,000
W
Household Contents
$3,500
W
Westpac Esaver #…59
$14,678
W
Westpac Choice #…48
$3,412
J
Farnell Family Trust
$16,500
TOTAL
$245,779
LIABILITIES
H
N Company
$24,544
H
M Company (Motor Vehicle 1)
$3,350
W
Deputy Commissioner of Taxation
$23,679
TOTAL
$51,573
SUPERANNUATION
H
Farnell Superannuation Fund
$423,444
W
Farnell Superannuation Fund
$849
W
W Superannuation
$32,298
TOTAL
$456,591
Thus for the purpose of these proceedings, the matrimonial pool has net assets of $194,206 and the parties have superannuation interests totalling $456,591. The bulk of the superannuation is in the joint self-managed fund. Neither party can have access to those funds.
The second pool, “the inheritance pool”, consists of the wife’s interest in the property at Suburb J valued at $517,500.
CONTRIBUTIONS
The husband made no contributions to the inheritance pool.
In relation to the matrimonial pool, the wife’s initial contribution was slightly more than the husband’s and she received $100,000 by way of the personal injury compensation and the inheritance which were both contributed to the marriage. That contribution assumes greater significance having regard to the fact that the net, non-superannuation, pool has a value of about $194,000.
In 2018 and 2019, the wife was responsible for almost all of the costs of the children, the husband paying $35 per week as assessed in child support.
After separation, the wife was solely responsible for parenting.
Those contributions by the wife justify a small adjustment in her favour.
Contributions will be assessed at 52 percent to the wife and 48 per cent to the husband.
SECTION 75(2)
The wife is currently earning about $128,000 per annum. The husband is earning about $91,000.
The husband is paying child support in accordance with the current assessment of $276 per week. The assessment was considerably lower in 2018 and 2019 when he paid about $35 per week, reflecting his lower income in that period.
It is likely that the wife will continue to be responsible for most if not all of the parenting of the children, noting that Y has just reached her 13th birthday.
The wife will retain her interest in the property at Suburb J but when she will receive it is not known. Her father is elderly and not in good health but he may live for a number of years.
The husband has already had the benefit of a distribution to himself of $152,146 which is a significant sum when compared with the available net assets (excluding superannuation).
Overall, I consider that no further adjustment should be made.
CONCLUSION
The wife will retain her interest in the Suburb J property.
Of the total superannuation, the wife should receive 52 per cent or $237,427. She has $32,298 in her W Superannuation and $849 in the self-managed fund, a total of $33,147, so she should receive $204,280 from the husband’s interest joint self-managed fund.
Of the “non-superannuation” portion of the matrimonial pool the wife should receive 52 per cent of $194,206 or $100,987. She has a tax liability of $23,679 and chattels of $39,690, a net amount of $16,011 so the husband will pay her $84,976.
From the funds to be paid to the wife by the husband, she shall pay 52 per cent of the shortfall between the proceeds of sale of the F Town property and the amount required to discharge the mortgage and meet the agent’s commission and selling costs.
The husband will retain the liability for the loan relating to the motor vehicle 1.
The husband will retain the jointly owned shares and the Farnell Family Trust.
THE FARNELL SUPERANNUATION FUND AND THE FARNELL FAMILY TRUST
The wife has refused to sign the accounts of the Superannuation Fund and of the family trust that have been prepared by the husband. She asserts that the accounts are inaccurate and do not represent the actual distribution of funds.
It is likely that accountancy fees will have to be paid and it is possible that fines and penalties will be imposed as a result of the late lodgement of returns.
The evidence does not allow any finding to be made about which party is responsible for the fact that returns have not been lodged.
If there are costs, fines or penalties incurred in bringing the accounts into compliance, the parties should bear them equally.
I certify that the preceding eighty-four (84) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Rees delivered on 30 April 2020.
Associate:
Date: 30/04/2020
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