Farnell and Farnell
[2006] FMCAfam 24
•3 February 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| FARNELL & FARNELL | [2006] FMCAfam 24 |
| CHILD SUPPORT – Order for departure – income, earning capacity, property and financial resources of parents – special needs of child – education at private school – father’s own actions reduce his income – examination of reasons – whether parties can reasonably afford private school fees - “just and equitable” – “otherwise proper” – no explanation of significant delay in prosecuting claim. |
| Child Support (Assessment) Act 1989 (Cth) ss.4, 117 |
| Gilmour and Gilmour (1995) FLC 92-591 Liesert v Nutsch (1996) FLC 92-665 Bryant and Bryant (1996) FLC 92-690 T & T (1984) FLC 91-588 CRW & CML (No. 1) [2003] FMCAfam 235 Bendeich and Bendeich (1993) FLC 92-355 |
| Applicant: | MS FARNELL |
| Respondent: | MR FARNELL |
| File Number: | LNM 1059 of 2003 |
| Judgment of: | Roberts FM |
| Hearing date: | 6 October 2005 |
| Date of Last Submission: | 6 October 2005 |
| Delivered at: | Hobart |
| Delivered on: | 3 February 2006 |
REPRESENTATION
| Counsel for the Applicant: | Mr M Foster |
| Solicitors for the Applicant: | PWB Lawyers |
| Counsel for the Respondent: | Mr M Trezise |
| Solicitors for the Respondent: | Bartletts |
ORDERS
That pursuant to Section 117 of the Child Support (Assessment) Act 1989 there be a departure from administrative assessment of child support payable by MR FARNELL (“the payer”) to MS FARNELL (“the payee”) for J born in 1997 and Z born in 2000 (“the children”) as follows:
(a)for the period 1 July 2005 to 30 June 2007 (“the relevant period”) the annual rate is set at $12,150.
That the following are to be credited towards the payer’s liability pursuant to Order No. 1 hereof:
(a)Any amount paid by the payer to the payee pursuant to any administrative assessment of child support for the relevant period;
(b)Any amount that the payer has paid, or is liable to pay to the H School for the education of the children or either of them for the relevant period.
IT IS NOTED that publication of this judgment under the pseudonym Farnell & Farnell is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT HOBART |
LNM 1059 of 2003
| MS FARNELL |
Applicant
And
| MR FARNELL |
Respondent
REASONS FOR JUDGMENT
The Proceedings
These proceedings have had a somewhat unusual history in that MS FARNELL (“the Mother”) first filed her Application in relation to child support in the Family Court of Australia on 21 February 2002. Parenting proceedings were also being conducted in the Family Court.
Neither party appears to have pursued those parenting and child support proceedings with very much vigour because they remained unresolved for nearly three and a half years before a Registrar transferred the child support proceedings to this Court on 10 August 2005. Counsel for the Mother said in his opening that he would explain that delay, but he did not really do so.
On 30 November 2005 the balance of the proceedings were also transferred to this Court. However, I am only dealing with the child support application in this decision.
When the child support proceedings came on for hearing on 6 October 2005, I was provided with a document setting out the Orders now sought by the Mother. Essentially, they are:
a)That the Father’s child support income for 2004/2005 financial year be $50,000, such to be adjusted annually in accordance with CPI movements on the first of July each year commencing in 2005.
b)That the Father pay half of all the expenses for the children J born in 1997, and Z born in 2000 at the H School (“the school”), including tuition fees, uniforms, books and stationary, excursions and required school activities.
c)That the Father pay half of all reasonable extra curricular activities of the children (presently swimming, music and dancing).
d)That the Father pay half of all expenses for Z’s “treatment, therapy or developmental assistance, including all expenses incurred on recommendation of his medical advisors”.
e)That for the purposes of paragraphs (b), (c) and (d) above, the Father reimburse the Mother within two weeks of receiving copies of accounts from her.
f)That the Father reimburse the Mother half the cost of having the children covered by her existing private health insurance.
Although there was no formal Response before me, it was clear that the Father opposed the Orders. However, it was clear that he was not opposed to a departure order per se; he opposed the extent of the departure being sought by the Mother. In his closing submissions, counsel for the Father submitted that there should be a departure order setting the Father’s child support at $11,400 per annum.
Background
The parties were married in early 1995 and separated January 2002. The two children named above are the children of their relationship.
Shortly prior to the parties’ separation, the Father took up a position in a retail chain in [B], a town approximately 300kms from Hobart. The Mother and the children remained in Hobart and the Father travelled home each second weekend to see them. In that employment he was earning $58,000 per annum.
At the time of separation, the Father was assessed to pay $873 per month in child support.
In December 2003 the Father took up a position as a Manager for a different retail chain in Hobart, with an annual salary of $50,000. His monthly child support assessment was reduced to $784.25.
In August 2004 the Father purchased a franchise through a discretionary family trust. That trust pays him an income of $35,000 per annum. In addition to paying assessed child support, the Father has been paying J’s fees at the private school that he is attending.
The parties agree that the child Z has some special needs which require additional expenditure for medical costs, speech pathology, physiotherapy and the like.
The Law
The provisions of Section 117 of the Child Support (Assessment) Act 1989 (“the Act”) empower a Court to make an order for departure from administrative assessment in special circumstances.
The approach that this court must adopt in relation to periodic child support has been well settled by decisions of the Full Court of the Family Court of Australia in Gilmour and Gilmour (1995) FLC 92-591, Liesert v Nutsch (1996) FLC 92-665 and Bryant and Bryant (1996) FLC 92-690. It is clear that I must apply the three-stage process that is required under Section 117 and I must be satisfied that:
a)one or more of the grounds for departure in sub-section 117(2) is established;
b)it is “just and equitable'' within the meaning of sub-section 117(4) to make a particular order; and
c)it is “otherwise proper'' within the meaning of sub-section 117(5) to make a particular order.
Section 117(2) of the Act sets out the various grounds for departure. In Savery and Savery (1990) FLC 92-131 Kay J said that “special circumstances” were “facts peculiar to the particular case which set it apart from other cases.”
In Gyselman and Gyselman (1992) FLC 92-279 at page 79,065, the Full Court of the Family Court said as follows in relation to the phrase “special circumstances”:
Whilst it is not possible to find with precision the meaning of that term, as a generality it is intended to emphasise that the facts of the case must establish something that is special or out of the ordinary. That is, the intention of the legislature is that the Court will not interfere with the administrative formula result in the ordinary run of cases.
After considering these various bases for departure and whether or not in the special circumstances of the case it is appropriate for a departure order to be made, the Court must then consider subsection 117(4) of the Act which deals with the circumstances in which it is just and equitable to make the departure order sought. It reads:
In determining whether it would be just and equitable as regards the child, the carer entitled to child support and the liable parent to make a particular order under this Division, the court must have regard to:
(a) the nature of the duty of a parent to maintain a child (as stated in section 3 ); and
(b) the proper needs of the child; and
(c) the income, earning capacity, property and financial resources of the child; and
(d) the income, earning capacity, property and financial resources of each parent who is a party to the proceeding; and
(e) the commitments of each parent who is a party to the proceeding that are necessary to enable the parent to support:
(i) himself or herself; or
(ii) any other child or another person that the person has a duty to maintain; and
(f) the direct and indirect costs incurred by the carer entitled to child support in providing care for the child; and
(g) any hardship that would be caused:
(i) to:
(A) the child; or
(B) the carer entitled to child support;
by the making of, or the refusal to make, the order; and
(ii) to:
(A) the liable parent; or
(B) any other child or another person that the liable parent has a duty to support;
by the making of, or the refusal to make, the order.
Finally, it is necessary for the Court to consider subsection 117(5) and determine whether or not it is proper to make the departure order. It reads as follows:
In determining whether it would be otherwise proper to make a particular order under this Division, the court must have regard to:
(a) the nature of the duty of a parent to maintain a child (as stated in section 3 ) and, in particular, the fact that it is the parents of a child themselves who have the primary duty to maintain the child; and
(b) the effect that the making of the order would have on:
(i) any entitlement of the child, or the carer entitled to child support, to an income tested pension, allowance or benefit; or
(ii) the rate of any income tested pension, allowance or benefit payable to the child or the carer entitled to child support.
It is clear that each of the three steps referred to above must be addressed separately.
The Parties’ Financial Circumstances
The Mother
The Mother had sworn a Financial Statement on 26 September 2005. That document shows that she has a weekly income of $862 per week from her employment with a major bank. In addition she receives Family Tax Benefits in the sum of $99 per week.
She owns her own home, subject to a mortgage to the bank that employs her, with a balance owing of approximately $285,000. She also has two credit card liabilities with an estimated total of $14,500.
The Mother also has a loan to cover various other costs with a balance of approximately $6,400 in addition to owing the school an additional sum of $3,710 in relation to the child Z.
In an annexure to her Financial Statement the Mother set out the following weekly expenses that she attributed directly to the children (over and above the usual living expenses that one would normally expect).
School fees & levies
$76.00
Books & stationary
$2.00
Uniforms
$9.00
Z’s swimming
$7.00
Z’s dancing
$9.00
J’s swimming
$7.00
J’s dancing
$35.00
Z’s speech pathology
$55.00
Z’s water therapy
$10.00
Z’s guitar
$14.00
J’s hockey
$1.00
Total:
$225.00
In her Financial Statement the Mother estimated the value of her home to be $260,000. However, when she borrowed the mortgage funds in relation to that property in 2002, she estimated its value to be $340,000. In my view, I can take judicial notice of the fact that property values increased in Australia between 2002 and 2005, rather than declined. I also note that the Mother owes the bank approximately $285,000 in relation to that property, so I conclude that she has underestimated its value in her Financial Statement.
My view in relation to that is strengthened by the fact that in 2003 she “invested” more than $25,000 in improvements and renovations to the property. Those funds came from trust accounts in the children’s names. It was the Mother’s evidence that she had received financial advice that the return on the value of her home would be better than the return on retaining those funds in trust for the children.
The Father
The Father swore his Financial Statement on 6 October 2005. That document reveals that his franchise business pays him $673 per week. His new partner earns $635 per week, from which she contributes $200 per week towards expenses for his benefit. In his oral evidence, he indicated that he pays more of the mortgage and his new partner pays other expenses.
In addition to paying child support at the rate of $92 per week, the Father also pays J’s school fees which amount to $115 per week. I calculate that he is therefore paying $10,764 per annum as a direct benefit to the children, or either of them. In his evidence, he indicated that he was not prepared to contribute any more than the approximate sum of $11,000 per annum that he is paying at the moment. His comment was: “I don’t have any more money”.
The Father and his new partner own a home in the Hobart area which he estimates is worth $230,000. It is subject to a mortgage with a loan balance of approximately $132,000. He was not cross-examined about that.
The Father estimated that his interest in the business was worth $17,000.
He has additional liabilities of an asset purchase loan with a balance of $20,000, a visa card debt of $15,000 and unpaid school fees for J in the sum of $2,000.
The Husband’s claimed weekly living expenses were somewhat frugal. He claimed only $30 for food and $45 for electricity per week. His explanation was that his partner contributes towards his other living expenses, while he contributes more than her towards the repayment of their mortgage.
Discussion
It is clear that I do not need to consider in depth the question of whether or not a ground for departure is established. That is because the Mother is seeking a departure and the Father concedes that there should be a departure. Indeed, it was the Father’s evidence that he is prepared to pay $11,000 per annum, and it was his counsel’s submission that he should pay $11,400 per annum (which his counsel said would equate to him having an income of $56,000 per annum under administrative assessment).
Even if I had not had that agreement from the Husband and his counsel in relation to a departure order, it is my view that a ground for a departure is clearly made out because of:
a)the Father’s acceptance of a reduced income; and
b)Z’s special needs.
Having determined that there are grounds for a departure order, it is necessary to examine whether it is “just and equitable” within the meaning of subsection 117(4) to make an order departing from administrative assessment.
The Father has reduced his income through his own actions from the annual sum of $58,000 that he was earning in [B] to the current sum of $35,000 from his business. Consequently, the Court needs to look at his reasons for doing that in order to establish whether or not it would be “just and equitable” to make a departure order.
In DJM v LNM (1998) FLC 92-816 the Full Court of the Family Court of Australia said the following at paragraph 17.43 on page 85,272:
A judge might reasonably say that a parent should be working longer hours or in more lucrative employment to meet child support obligations. A spouse is only required to support the other spouse to the extent that he or she is reasonably able to do so. This requirement does not impute the same degree of compulsion about it that the child support and child maintenance tests express. Thus a parent may be required or expected to work long hours or at more than one job if the parent has the capacity and opportunity to do so, and if the children need greater support than they would receive if the parent was only to work shorter hours. At the same time it might not be reasonable to expect an estranged spouse to avail himself or herself of such opportunities so as to provide maintenance for the other spouse. In the latter case it is a question of what is reasonable in the circumstances.
In Spinks V Spinks (2002) FLC 98-016, Chisholm J was sitting as the Full Court on appeal from a decision of a Federal Magistrate. At first instance, the Federal Magistrate had said:
In my opinion when a liable parent moves from a higher paid job to a lower paid job and seeks a reduction in child support in consequence the onus will be on that parent to show a basis upon which the court should disregard to his or her earning capacity as demonstrated by the earnings generated by the first job and have regard only to the income received in the second job. Without attempting to be exhaustive the following scenarios might discharge that onus:
(a) where the parent goes from a well paid but insecure position to a lower paid but secure position;
(b) where the higher pay obtained in the former job was a result of dangerous working conditions or excessive hours worked which could not be sustained in the long term;
(c) where the new position had sufficient potential for longer term prosperity such that the ultimate benefits that might accrue to the children in the longer term would justify short term sacrifices.
In paragraph 32 of his decision dismissing the appeal, Chisolm J said:
However the authorities provide guidance as to the sort of factors that are important when the court comes to consider what weight to give to the person's earning capacity as distinct from the actual income. It is clear that where the person deliberately weakens his or her financial position in order to reduce liability for child support, the court may focus on the earning capacity. It is also clear that there are circumstances in which a person can reasonably move to a position of lower income, and the court will focus on the actual income rather than the higher income foregone.
He went on to say:
35. I therefore do not accept the submission that the as a matter of law the court can have regard to earning capacity rather than actual income only in cases of “deviousness” . To put it another way, I do not accept the proposition expressed in the appellant's written submissions, that it is sufficient for him to show that the change of circumstance was “bona fide”.
36. The critical point is that there are cases, as shown by Rowe and the discussion in DMJ, in which the court will give weight to the earning capacity rather than the actual income even though it is not shown that the person's economic decline resulted from an attempt to avoid child support responsibilities.
37. What, then, distinguishes those cases from cases in which the court does focus on the actual (reduced) income? Sometimes, judges try to formulate the applicable principle, as was done in McCord. The Federal Magistrate also did so, in paragraph 32, quoted above. I am not sure that any single authoritative formula emerges from DMJ. Clearly the facts of each case must be considered. Ultimately, although the judges' language varies from case to case, the decisions seem to turn on whether the person acted reasonably in all the circumstances in taking the step that led to the reduced income. What is reasonable must be determined not only in the light of the particular facts, but also, as DMJ makes clear, in the light of the particular area of law involved. In child support cases, as the Federal Magistrate quite rightly pointed out, an important part of the context for determining what is reasonable is the explicit statement of the objects of the Act in s 4, in which there is a reference to the parents' capacity .
38. For myself, I would be cautious in attempting to formulate what it would require for a person to show that it is reasonable to take on a lower paid position. The danger is that one might use a formula that would exclude a novel situation that might involve a reasonable step.
It is the Father’s evidence that he gave up his employment, firstly on in [B] and then with a retail chain in Hobart in order to be able to spend more time with his children. Counsel for the Wife attempted to persuade me that the Father was in fact having no more contact now then he was before he purchased the business. However, having heard the evidence, I am persuaded that the retail world is somewhat “cut throat” and that the Father could not be given any guarantee of being granted leave when he wanted it for special occasions, such as over the Christmas and Easter vacations. I am satisfied that he is now able to tailor his work commitments in order to have more meaningful contact with his children, which includes the special occasions referred to and enables him to be more flexible at weekends. The Mother reluctantly conceded that there had been a change in the pattern of contact and the Father had been able to have the children for block periods after he stopped working in the retail industry. I am therefore satisfied that he had good reason to leave the retail industry.
I am also satisfied from the Father’s evidence that he is steadily improving the business that he purchased and that should be reflected in his future income.
In round figures, the child support that the Mother is seeking is as follows:
Child support on $50,000 p.a.
$9,800
Half school fees
$5,000
Half extra curricular activities
$2,150
Half health expenses
$2,300
Total:
$19,250
That is approximately $370 per week, which is the amount that the Husband would be assessed to pay if he was earning approximately $85,000 per annum. Clearly, he has never earned anything like that amount.
If parents have to make a choice, then it is quite clear that children’s health needs should come before the costs of an expensive private school education. In this particular matter, it is clear that parties were both of the view that private school education was what they would like for their children. However, it is also clear that the Father is having some second thoughts about whether that private school education can be afforded.
In his affidavit sworn 21 September 2005, the Father said:
I do not dispute that the children should continue to be educated at the level expected by both the Applicant and I, namely at a private school
However, when he was cross-examined, the Father made it clear that the children’s health needs should come before the costs of a private school education. His words were:
If it comes down to food and clothes on the table and the health of the kids, or schooling at a private school, the children’s health must come first.
When cross-examined further, he said:
It’s either pay school fees or look after (Z)’s medical costs. At the moment, I have to pay the school fees.
In this regard, it is clear from the evidence that the Father is liable to pay J’s school fees and the Mother is liable to pay Z’s fees.
I am of the opinion that, given the parties’ incomes and commitments, both school fees and Z’s special health costs cannot reasonably be afforded. In my view, it is clear that a child’s special health needs must be given a higher level of priority than the payment of expensive school fees.
It is clear from the evidence that the Mother does not like the Father having any involvement with the school, notwithstanding that he is currently paying the tuition fees for the older child. It is also clear from the evidence that the Mother had a sum exceeding $25,000 in trust for the children but she chose to spend that money in improvements to her house rather than put it towards the children’s education. By my calculation, those funds could have paid the children’s costs at the school for approximately two and a half years.
In those circumstances, it seems clear to me that if the Mother wishes the children to continue with their private school education, she should be responsible for the payment of the school fees.
The Father’s counsel submitted that the Father should keep paying what he is already paying (approximately $11,400 per annum). He further submitted that he should make that payment direct to the Mother and she should then make the choice of how she applies those funds. In short, she needs to decide whether the school fees really are a priority.
In my view, the reasoning behind that submission is very persuasive, especially when I consider:
a)that the parties cannot reasonably afford the private school education;
b)that the Mother “invested” the children’s trust funds in her house rather than use those funds for their education; and
c)that the Mother has clearly made it difficult for the Father to be involved in the children’s activities at the school.
I therefore consider that the orders sought by the Mother are not “just and equitable”.
When I consider what is “just and equitable”, I am of the view that the Father should pay child support based on an income of $50,000 per annum ($189 per week), plus half the special health costs for Z and children’s health insurance ($45 per week). The result is that he should pay $234 per week or approximately $12,150 per annum in round figures.
I need also to consider whether such a payment to the Mother is otherwise proper. In this regard, I am mindful of the decisions in T & T (1984) FLC 91-588 and CRW & CML (No. 1) [2003] FMCAfam 235 to which I was referred, and I conclude that it is otherwise proper for the Father to pay the Mother a specific sum and for her to be responsible for the payment of any school fees (if she chooses to continue the children’s private school education). That will not increase any burden upon the public purse.
During closing submissions by counsel, I raised the fact that the Father may still be legally liable for the payment of school fees because he is likely to be required to give a period of notice to the school before ceasing payments. If that is the case, he should receive credit towards his child support liability for any payments that he makes to the school as a result of his contractual liability to the school.
Conclusions
Given what I have said above, I conclude that it is just and equitable and otherwise proper for the Father to pay child support at the rate of $12,150 per annum. However, he should receive a credit towards that liability for any payments that he has already made to the Mother and those that he has made, or is legally liable to make to the school. I will therefore make orders to provide for that.
It is also necessary for me to consider when the orders should start and finish.
In the document referred to at paragraph 4 above, the Mother sought a backdating of any departure order to 1 July 2004. Such an order would immediately create some child support arrears payable by the Father in a matter where there is no explanation by the Mother about why there was little or no progress in relation to her child support application for three and a half years before that application was transferred to this Court. In my view, if a person seeks a backdating of payments for a reasonably substantial period, there is an onus upon that person to explain any apparent delay in prosecuting the claim. Such an explanation may have enabled me to determine whether the immediate creation of child support arrears was just and equitable. However, no such explanation was provided
In the circumstances, I do not intend to backdate the order beyond
1 July 2005, which is shortly before the proceedings were transferred to this Court.
The Mother is also seeking that the child support departure order continue on an annual basis with CPI adjustments. In my view, that is too “open ended” and does not allow for any consideration of future changes in the parties’ financial circumstances. That appears to be in direct conflict with the particular objects in paragraphs (b) and (d) of subsection 4(2) of the Act. In this regard, the Father has indicated that he is building up his business and, if he is correct, it is possible that setting a fixed child support amount for too long could result in the Mother being paid less child support than she might otherwise receive.
In my opinion, setting a fixed child support amount for too long has the potential to cause an injustice to one or other of the parties (even allowing for CPI adjustments). The rationale is the same as that referred to by Mushin J in relation to lump sum orders in Bendeich and Bendeich (1993) FLC 92-355. He said:
The rationale underlying the general approach of the court was that the longer a lump sum order operates the greater the chance of change in circumstances necessitating a variation of that order, thereby making the order unjust. Those changed circumstances might be in relation to the liable parent, custodial parent or the children. Incomes may increase or decrease and children may change their living arrangements from one parent to another.
I will set the period from 1 July 2005 to 30 June 2007.
I certify that the preceding sixty three (63) paragraphs are a true copy of the reasons for judgment of Roberts FM
Associate:
Date:
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