Farrell and Farrell

FAMILY COURT OF AUSTRALIA

FARRELL & FARRELL

[2011] FamCA 83

FAMILY LAW – PROPERTY – Child support

Child Support (Assessment) Act 1989 (Cth)
Family Law Act 1975 (Cth)

Hickey & Hickey & Attorney-General for the Commonwealth of Australia (2003) FLC 93-143

APPLICANT:

Ms Farrell

RESPONDENT:

Mr Farrell

FILE NUMBER:

MLC

5263

2009

DATE DELIVERED:

16 February 2011

PLACE DELIVERED:

Melbourne

PLACE HEARD:

Melbourne

JUDGMENT OF:

THE HONOURABLE JUSTICE CRONIN

HEARING DATE:

17, 18, 19, 20 & 21 JANUARY 2011

REPRESENTATION

COUNSEL FOR THE APPLICANT:

MR WEIL

SOLICITOR FOR THE APPLICANT:

ISAKOW LAWYERS

COUNSEL FOR THE RESPONDENT:

MR MAWSON SC WITH MR MORT

SOLICITOR FOR THE RESPONDENT:

SEPTIMUS JONES & LEE

Orders

Forthwith upon production by the wife to the husband of a transfer of land in registrable form, the husband transfer to the wife all of his interest in E property.
That contemporaneously with the transfer referred to in paragraph (1), the husband do all acts and things necessary to discharge any encumbrance registered in respect of E property for which he is liable.
That by 4.00pm on 18 April 2011, the husband pay to the wife $178,000.
That contemporaneously with the payment referred to in paragraph (3) and upon production by the husband to the wife of a transfer of land in registrable form, the wife transfer to the husband all of her interest in T property.
In default of payment of the sum referred to in paragraph (3) by its due date, the husband and wife do all things necessary to immediately thereafter place the property at T on the market for sale and upon the settlement of the sale, the net proceeds be applied as follows:
(a) to pay all costs, commissions and expenses of the sale;
(b) to discharge any encumbrance affecting the said property;
(c)to pay to the wife $178,000 plus interest calculated according to the Family Law Rules 2004; and
(d)to pay the balance to the husband.
That to the extent that it is necessary to do so, the husband forthwith upon production by the wife of a transfer of the ownership/registration, the husband transfer to the wife all of his interest in:
(a) the caravan at T; and
(b) the Ski Lodge membership.
That each party otherwise retain and the other relinquish any interest in, any other property including any superannuation interest they may have, as at the date of these orders.
That forthwith, the husband indemnify the wife in respect of, pay and be responsible for:
(a) The investment property loan account …638;
(b) The investment property loan account …635; and
(c)Any loan in respect of the interest of either party involving the properties at M and D.
That as and when they fall due and until the completion of the secondary education of each of the children, the husband pay the following:
(a) the private school fees at L School for N;
(b) the private school fees at Y School for J;
(c)the laptop computer expenses as determined by their schools for each child,
and such payments not be credited against any assessment of child support.
That in respect of the child support assessment for the periods 2 October 2010 to 13 April 2011 and 14 April 2011 to 1 January 2012, there be a departure from administrative assessment of child support for the period from 1 March 2011 until 28 February 2014 and the husband’s child support for that three year period is fixed at $2300 per calendar month.
That save as to any applications for costs, all applications be otherwise dismissed.
That any applications for costs be by way of written submission, such submissions to be filed and served by 25 February 2011 and any response thereto be filed by 4 March 2011.
That any documents produced pursuant to subpoenae be returned to the recipient of the subpoena and all exhibits be returned to the parties.

IT IS NOTED that publication of this judgment under the pseudonym Farrell & Farrell is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 5263 of 2009

MS FARRELL

Applicant

And

MR FARRELL

Respondent

REASONS FOR JUDGMENT

The resolution of the outstanding issues in this financial case was made difficult by a dispute between the parties mainly about two things. They were:
(a)what assets were available for division between them; and
(b)what was the husband’s financial position for the purposes of determining his future earning capacity and his child support obligations.
The child support obligation was also made more difficult because both parents agreed that their two children should continue to attend private schools. It was common ground that the husband would pay those fees along with associated expenses but there was a dispute about what (if any) credit should be given to him for those expenses and fees against the child support assessment.
Ms Farrell (“the wife”) and Mr Farrell (“the husband”) were married in1991, separated on 22 August 2008 and their marriage was ended by a divorce on 27 December 2009.
Although they are no longer married to one another, I shall refer to the parties as husband and wife for convenience purposes only. It will be clear that the relationship was a long one.
The husband is 42 years of age and a share trader by occupation. He has repartnered. That relationship apparently became a committed one in October 2009. The husband’s partner has two children and is a nurse.
The wife is aged 42 years and is and has always been engaged in the role as homemaker and parent.
There are two children of the marriage. N was born in April 1998 and J was born in July 2001.
There was considerable dispute over children’s issues but final orders were made at the request and consent of the parties on the first day of what became a five day hearing. The resolution of the parenting dispute did not make the financial issues easier to resolve. Upon resolving parenting issues, the wife twice made an application for an adjournment based on inadequate discovery by the husband. On each occasion, I refused the request.
Despite the long relationship, it is fair to say that until late 2007, the parties had little by way of assets. What they had was predominantly found in the modest equity in the former matrimonial home. A business venture changed all of that almost overnight giving them property of something in the vicinity of $5.8 million.
The wife’s position about the equity in the pool of assets fluctuated. Doing the best I can, she said it was roughly about $7 million. I reject that for the reasons that follow.
Various findings were required because of the dispute about the pool of assets. In respect of those findings, determinations have been made on the balance of probabilities.
Historical matters until 2007 were hardly controversial but need to be mentioned.
In approximately 1990, the parties purchased a vacant block of land which was sold shortly after they married in 1991 and the proceeds were used to purchase the first family home in V.
Shortly after the marriage and for a successive number of years, the husband was employed as an accountant. In 1994, the husband and another person commenced an internet business in which the wife worked for a small amount of time. Between 1994 and 1997, the husband was employed by a large company and during that time, the husband and his brother G Farrell acquired E property for $127,000 as an investment property. The husband and his brother have a close relationship both personally and in business.
In 1998 and for a period of five years, the husband was employed in a consulting company whilst the wife was at home caring for their first child N.
In January 1999, the parties sold their V home for a profit and moved into the E property that was then still owned by the husband and his brother.
The parties invested in the business where the husband was engaged as a consultant. The funds for that purpose were borrowed from the Westpac Banking Corporation using a personal guarantee provided by the husband’s brother.
The consulting business later enabled the parties to hold significant shares in S Company.
The parties and with an entity of the husband’s brother acquired a property at H and built four units which ultimately turned into a profit.
During the relationship, a number of other properties were acquired, some of which were sold at a profit and others at a loss.
There were also properties acquired at M and D and which are referred to in the pool of assets below in which the husband has an interest with other family members. I shall deal with each of those in turn. The acquisition of those properties occurred prior to separation.
In 2001, the share price in the consulting company declined sharply and the parties sold their shares and applied the money to the renovation of the E home and the purchase of other shares for investment purposes.
In 2001, the parties’ financial position was all but wiped out and they began again. The internet business in which the husband had an interest was sold and a modest profit was distributed between the husband and the other arm’s-length owner.
In 2004, the E property until then in joint names of the husband and the brother, was transferred into the husband’s name alone and as a consequence, the husband became responsible for the servicing of the mortgage of $542,000.
In 2004, the husband was employed as regional manager of an IT business and then two years later, commenced his own business which was called Farrell Pty Ltd. This private company later became Farrell Group Limited.
Although the relationship of the parties had been difficult for some time, their separation did not occur until August 2008. In the preceding twelve months, the husband was involved in a flurry of financial activity.
In December 2007, Farrell Group Limited was floated on the stock exchange after a considerable period of preparation and at significant costs. In the same month that the parties separated, F Group Limited was the subject of a take-over by a company known as CX. It was this take-over that gave rise to significant wealth in the hands of the parties from what had only seven years before been a very modest equity in all of their assets. The separation of the parties led to the disputed property and child support proceedings.
The basis of the two adjournment applications by the wife was an assertion of inadequate discovery. The refusal of the adjournment led to the focus of the wife’s cross-examination of the husband and also his brother, about the period from the time from the preparation of the floating of Farrell Group Limited and its ultimate take-over. I shall deal with that separately because it is contentious.
One of the other contentious issues related to a company which became known as NM. This is the company that is owned and controlled by the husband’s current partner. The company was registered on 6 July 2009. Its major activity has been share trading.
The husband lent $1.8 million to NM. The wife’s assertion was that somehow the husband did that to either avoid scrutiny in this Court or put assets beyond her reach. Whilst the lending of that amount of money unsecured and without a fixed interest rate or a written agreement might seem odd if not unwise, the husband’s view was that he trusted his new partner. Importantly, I am satisfied there has been no loss or prejudice to the wife.
The husband was criticised for the fact that as an accountant, knowing the proceedings were pending, he had not undertaken his most recent taxation returns. His response was that they were usually done in April of the year following the conclusion of the financial year. Despite the criticisms of the husband, I am satisfied that he knew all of the details of what would have gone into his tax return and that the wife was not prejudiced by not having the formal taxation document or a draft thereof.
In 2009, the husband was a chief executive officer of a public company and paid a salary of $225,000 per annum. When agreement was reached to increase his salary to $350,000, an arrangement was made for the increase to be paid through NM. NM raised invoices to the husband’s employer for services rendered. That may have given the appearance of the husband earning less either for the purposes of the property proceedings or child support, but the husband’s concession in evidence was that he was happy for the Court to treat his income at $350,000.
In his evidence, the husband also said that although he was currently unemployed as a result of a contractual restriction after he left CX, he anticipated that after July 2011, he would be back in the field of work in which he has been successful. He gave evidence that he expected to earn about $1200 per day as a consultant or in the role as a line manager earning about $250,000 to $350,000 per annum. His optimism was underpinned by confidence and I have no reason to doubt that he will earn something in that range. That is clearly relevant for child support purposes.

The legal issues: Property

The determination of the division of property is governed by s 79 of the Family Law Act 1975 (Cth) (“the Act”). That section requires a court to consider the contributions made by the parties in their various forms. No guidance is given in the Act as to how these matters are to be taken into account. The approach required by the Court is highly discretionary rather than a finite mathematical calculation.
The fundamental principle is that the Court must not make an order unless it is satisfied that it is just and equitable to do so.
The assessment of the various contributions has to be followed by a weighting of those contributions. Thus, at some point in the process, the qualitative assessment must become a quantitative one.
Traditionally, courts have been encouraged to reflect the quantitative outcome in percentage terms but it is not always necessary to do that. Because s 79(2) of the Act requires a court only to make an order if the outcome is just and equitable, that fairness assessment applies in respect of each of the steps in the process. In each step, a court needs to ask whether the qualitative approach produces a just and equitable outcome for both parties having regard to the factors set out in s 79. One of those factors requires the Court to examine the provisions of s 75(2) of the Act.
In Hickey & Hickey & Attorney-General for the Commonwealth of Australia (2003) FLC 93-143 the Full Court said:
Firstly, the Court should make findings as to the identity and value of the property, liabilities and financial resources of the parties at the date of the hearing. Secondly, the Court should identify and assess the contributions of the parties within the meaning of ss.79(4)(a), (b) and (c) and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties. Thirdly, the Court should identify and assess the relevant matters referred to in ss.79(4)(d), (e), (f) and (g), (“the other factors”) including, because of s.79(4)(e), the matters referred to in s.75(2) so far as they are relevant and determine the adjustment (if any) that should be made to the contribution based entitlements of the parties established at step two. Fourthly, the Court should consider the effect of those findings and determination and resolve what order is just and equitable in all the circumstances of the case.
There are therefore four steps that need to be followed. Each counsel approached the dispute that way. There were disputes in respect of each of the steps. I have set out some of the less controversial facts and now turn to the evidence which required scrutiny. What follows as statements of fact are indeed, findings of fact.
The parties set out their respective financial positions at the commencement of the relationship but having regard to the disastrous outcome for them in 2001, much of their financial contributions prior to that date are largely irrelevant. It is best described as a situation in which the husband worked outside of the home and earned a good income and the wife worked inside the home caring for the welfare of the family which over the years comprised the parties and two children. In so far as it is necessary for me to so say, I find that up until 2001, their contributions were largely equal despite the fact that the husband may have had money from a car accident in savings when the marriage occurred.
I have already mentioned Farrell Pty Ltd. The husband and wife were equal shareholders in that company.
When the husband was employed in his brother’s IT company, the parties invested in the business. They borrowed $385,000 from the Westpac Bank secured by a term deposit which resulted from the proceeds of the sale of their first home. They also took out a mortgage over their then matrimonial home and obtained a personal guarantee from the husband’s brother. It is important to point out that the E property was at that time still jointly owned by the husband and his brother. The brother was content for the parties to use the equity in the home for the purposes of securing the borrowings from the Westpac Bank but he also personally guaranteed those borrowings. That had a significant impact on the parties’ ability to obtain the loan.
Initially, the investment in the IT business enabled the parties to hold shares but for taxation purposes they were owned by units in a unit trust. These units were later converted into shares in the IT company. A take-over bid of the brother’s company occurred which ultimately meant that the husband and wife ended up with 1.5 million S Company shares but it was this asset in 2001 that was lost when the dotcom crash occurred globally.
In her evidence, the wife set out details of what she described as the significant changes in the parties’ life subsequent to the 2001 financial crash. In my view, nothing turns on that having regard to the financial bonus that the husband and wife received as a result of the varying years of hard work after 2001.
After Farrell Pty Ltd was incorporated, it was a trading investment company but the husband changed its focus to a consulting company in February 2006. By that time, it employed 15 consultants.
During the parties’ relationship, the husband and his brother incorporated a company known as F Investments Pty Ltd. The brothers owned the shares equally. It was intended as a share trading venture. All of the evidence points to the fact that the husband’s brother had significantly greater wealth than the husband and he obtained the benefits of using F Investments for business purposes. So too, the parties enjoyed the benefits of F Investments by Farrell Pty Ltd funding F Investment’s activities. I am satisfied on the evidence that all of those activities were recorded in loan accounts properly. I heard the evidence of the husband and his brother in respect of loan accounts. All of that evidence was tested under cross-examination. In respect of loan accounts and the financial activities of all of these entities, I find the husband and his brother to be truthful witnesses.
F Investments was used for a variety of purposes including what the husband described as funding the parties’ lifestyle but all of those activities were recorded as loan accounts.
Upon the husband contemplating the floating of Farrell Pty Ltd as a public company then known as Farrell Group Ltd. To satisfy legal requirements, private loan accounts had to be removed. F Investments Pty Ltd was owed almost $90,000 at the end of 30 June 2007 and months later that had risen to $129,000. In consideration of removing that loan, Farrell Pty Ltd issued just over 2.5 million shares, 300,000 of which were issued to F Investments and the loan was discharged.

The husband’s brother gave evidence and was cross-examined about the value of the Farrell Pty Ltd shares to F Investments Pty Ltd as at the date that they were issued and he said that they were worthless. The husband had said the same in his evidence. I accept that to be the case. No-one could have anticipated with any accuracy what the shares would ultimately be worth when they were floated on the stock exchange months later. It was not just the wiping out of the loan account that gave rise to the issuing of the shares. F Investments Pty Ltd had provided over $1 million to enable the necessary work to be undertaken to effect the float.
Counsel for the wife attacked both the husband and his brother to the effect that the actions of the husband in transferring the shares to F Investments Pty Ltd reduced the asset pool of the husband and wife. I reject that. The shares were not “transferred” but rather, issued. When Farrell Pty Ltd was in the process of heading towards being floated on the stock exchange, a prospectus was prepared. All of the ownership of the shares in Farrell Pty Ltd are shown as being comprehensively disclosed. The wife had access to that prospectus and more importantly, legal advice. Her counsel commented in discussion about the quality of the advice she may have had but I find there is no reason to suggest that the husband or his brother acted improperly or took any steps to prejudice the interests of the wife. I find the action in discharging the loan account for the issuing of the shares was an arm’s length transaction.
When the float on the stock exchange occurred, the shares in Farrell Pty Ltd, then known as Farrell Group Limited, sold at $0.52 each. That gave rise to a significant financial bonus for F Investments but more importantly, it also did the same for the husband and wife.
Another company that was subjected to the wife’s scrutiny was G Farrell Pty Ltd. It operates as the trustee of the G Farrell Family Trust. The husband holds one of the two shares in the company and was a director. The husband said that his share was held on trust for his brother and that he was not the beneficial owner. That evidence was not subject to challenge and I accept it.
In October 2008, the husband’s brother requested the husband to resign his position as a director and he did so. In his evidence, the husband said that he never received any distributions from G Farrell Pty Ltd and that evidence was also not subjected to challenge.
Another controversial issue at this time of the parties’ lives occurred only months after the floating of Farrell Group Limited. The company was subject to a take-over bid by CX. The float had occurred in December 2007 and the offer made for the Farrell Group Limited shares occurred in September 2008. The offer was one CX share for every two Farrell Group Limited shares. As a consequence, the husband and wife each had significant share holdings in CX.
The Farrell Group Limited shareholders were also given a 25 per cent uplift in the number of CX shares if the company met its performance targets. The targets were met in 2009 and the shareholdings increased accordingly.
The wife had legal advice about all of these activities but despite that, she accused the husband of not advising her to fill in an election form which would have enabled her to convert these shares and sell them. This was at a period of time after separation when the relationship between the parties was extremely poor. When asked why he had not advised the wife to complete the election, the husband said that he assumed that his wife had had the relevant information. Having regard to the fact that the relationship between the parties was poor and the wife was represented and fully apprised of the CX transactions, I find there is no basis to accuse the husband of any wrongdoing nor of a failure of any responsibility he may have had.
The effect of the wife not knowing about the completion of the election did create a problem. The shares which were valued at approximately $0.88 dropped but I accept the husband’s evidence that the wife still had the ability to sell 2.7 million shares free of all restrictions. The husband was asked why he had not rung the wife to tell her about selling the shares to avoid a significant capital loss. His response which was unchallenged was that the wife had received text messages from him to in fact sell.
I find there is no basis to criticise the husband even though he was clearly the party who was financially aware of investment strategies and the wife was not.
After the take-over, the husband retained his position as the chief executive officer of the company and was paid $256,000 per annum but he also received various dividends and franking credits.
Whilst the husband was working as the chief executive officer, he also undertook a private consulting contract for a man whom he met during the float period. This gentleman required the husband’s expertise. For a fixed net gain of $177,800, the husband undertook some work which he estimated took him about 100 hours. The wife’s assertion was that this was some form of private arrangement of an investment nature between the husband and this other gentleman again for the purposes of avoiding her scrutiny. The husband gave a comprehensive explanation as to what work he did and how he was paid and I accept his answers as truthful.
It was also asserted by the wife that even if the husband no longer had a direct financial interest in F Investments Pty Ltd, that company owed him “a bucket of money”. There is no evidence to suggest that and no application was made to the Court at any time under s 106B of the Act to set aside any of the transactions to which I have earlier referred.
I have already mentioned the company NM. The husband was asked where the investment of $1.8 million came from. He said that $171,000 was a dividend, $300,000 came from the sale of shares and he transferred to the company by way of a loan, 2.25 million CX shares at between $0.40 and $0.50 each. He said the balance of the $1.8 million was shares in a company called U Company.
It is clear on the evidence that NM is a fledgling share trading company in which profits are dependent entirely upon the share market. The bulk of the investment came from the CX shares and therefore to apply a notional percentage interest rate would not be reasonable. No evidence was given to me to suggest what profits by way of dividends arose from the CX shares. The husband’s evidence was that the share value in the company had gone down $130,000. Rather than undertake any exercise in which a precise mathematical calculation could be undertaken as to the nature and extent of the debt due by NM, the husband placed in the pool the full sum of the money he lent to the company. In the circumstances, that seems reasonable and I accept it as the sum that should be added to the pool of assets.
As a result of the activities arising out of the float and the take-over, the wife too was in a substantially better financial position that she might have otherwise been. She moved out of the matrimonial home and purchased another property using the proceeds of the sale of some of the shares but also borrowed on a significant mortgage. The former matrimonial home was then rented out and she retained the income which I accept was limited at the time of trial.
The husband too has acquired a new home and that too was subject to scrutiny. The property was purchased jointly between the husband and his new partner. The husband paid $75,000 by way of deposit but the balance came from a mortgage on his partner’s home. The mortgage is currently $640,000, $390,000 of which had refinanced her earlier mortgage.
There is no dispute about the value of the homes of either the husband or the wife but there is a significant dispute about what portion of the husband’s property should go into the pool of assets. Mathematically, it can be seen that what his partner put into the property far exceeded the equity of the husband. The husband however pays the mortgage payments. In his asset pool, the husband divided the gross value of the property but he also divided the mortgage in half. That gave a very limited amount of equity to be placed in the pool. A more finite calculation might have entitled the husband to put in less because of what contribution was made by his partner but in the circumstances, whilst it is less than the deposit he paid, I see the equity being divided by two as the most fair outcome for both parties.
The husband was also subjected to cross-examination about why he made the investment in NM rather than retain the assets in his own name. He gave an explanation which was directed to his frustration with the conduct of the wife. That evidence was not challenged and I accept it. Although it was submitted by the wife that the husband’s actions were tainted by some form of attempt to adversely affect, I am satisfied that for the reasons I have set out above, no prejudice has occurred to the wife at all. As I also pointed out, it may very well have been that had a finite mathematical exercise been undertaken, less might have gone into the pool for division.
I am also satisfied about these additions to the pool as I have outlined them, because in respect of the husband’s borrowings concerning the home that he bought, the bank required and in fact obtained, a guarantee from the husband’s brother. There was nothing sinister in the husband’s behaviour.
The parties also had various chattels valued during the pre-trial period and when a dispute arose over those values, the valuations were produced. No alternate evidence was provided and as such, I accept that the wife took $5665 or thereabouts and the husband took $40,655 or thereabouts in chattels of varying kinds from the home. I propose to place those sums or amounts close thereto, into the pool.
In the course of his evidence, the husband also said that he had gone into an investment arrangement with his brother R. This question arose out of cross-examination and concerned the husband buying shares in Farrell Group Limited for $22,800 but it was accepted that the shares were owned by the brother. The brother had never paid for them and the husband conceded that a further $22,800 should be added to the pool of assets for that debt.
The parties also owned an interest in a property at T. The interest is jointly owned with members of the husband’s family. It is valued at $560,000. It is a property adjoining a property of the husband’s brother and the husband desired to keep it. Although the wife sought it as part of the assets to be given to her, she was content to receive cash instead should that situation arise. I propose to allow the husband to retain that property in any event because it adjoins that of his brother.
There are also two properties at M and D. There seems some confusion in the various written aide-memoirs concerning these assets but the evidence shows that in respect of D property, the husband has a one-quarter interest and in respect of M, a one-third interest. Those properties were valued and accordingly, I will add to the pool the amounts based on those proportional interests.
M property is vacant land. The husband’s evidence was that his equity was provided by way of a loan from his older brother. The sum of $174,000 or thereabouts was provided in March 2004 and recorded in a loan document which the husband produced. The loan was to have been for four years and ultimately when it fell due, it was extended for a further ten years. This loan was subject to cross-examination both of the husband and his brother. I see no reason to accept anything other than the truth of those statements. The extension of the loan by a further period of ten years indicates that the two brothers have a very trusting and open financial relationship. Having heard the evidence of the brother however, I am quite satisfied that any debt is carefully recorded and must be repaid. Accordingly, the debt must be included as a liability in the pool.
The property at D was acquired in a similar manner to that at M. The husband’s brother provided the funding and the loan was recorded in a loan document. That loan too was extended for a period of ten years when it ultimately expired.
There was no serious cross-examination of the husband or his brother in relation to the M and D properties nor of the recording of the various loan accounts. I see no reason to reject the evidence of the husband and his brother. Accordingly, those debts will be recorded in the pool.
A further contentious issue related to liabilities to the Australian Tax Office. There is no dispute about the wife’s liability but there was about that of the husband. The husband said that he anticipated a liability of $332,910. That liability has not yet arisen but it comes from the various activities associated with the share trading, float, take-over and of course, the transfer of the shares to NM. The husband was criticised by the wife for creating a tax liability by virtue of the transfer to NM. However, it is clear that the husband is a share trader and has actively been involved in the movement of shares over a number of years. I have no doubt that at some stage or other, the taxation implications would arise. Even if that were not so in the immediate future, it is clear that these shares were pregnant with capital gains tax just by virtue of the low base from which the shares were acquired only a matter of some two years ago. In those circumstances, I am satisfied that some form of tax will be paid by the husband as a result of those share activities.
The husband was criticised for not having anything more precise than his own calculations but I am satisfied that he had done the exercise in his capacity as both a share trader and a chartered accountant and I see no reason to reject his evidence. There were a variety of other assets that the parties said little if anything about. For example, the parties had an interest in a ski lodge. They agreed on a valuation of $10,000 for that membership. The husband has race horses and each party has a car and the wife a caravan. None of those matters was contentious.
In her pool of assets as outlined in four aide-memoirs, the wife made reference to a property at Q. In each case, although the description was clear, the valuation was recorded as “nk”. Apart from suspicion by the wife as to the interest of the husband, no evidence was led to suggest that the husband has any equity or interest in that property that I could add to the pool. Accordingly I propose to ignore it.
In the wife’s pool, she also included savings but as the parties have managed to buy and sell various shares and assets as well as live subsequent to separation, I could not say that the current balances in their banking accounts reflected any contributions that either of them has directly made to the equity of the other. Accordingly, I propose to ignore the savings of both parties.
Each party has a modest amount of superannuation although the husband has more than the wife. Neither party addressed the issue of what I should do with the superannuation. Although both parties are a considerable period of time away from retirement, the superannuation is still a form of property and has to be dealt with. In their respective aide-memoirs setting out the pool, each party added the superannuation to achieve an overall net equity notwithstanding the clear distinction between the forms of property. Because of their relatively modest sums relative to the total pool of assets, I propose to follow the path that the parties have taken and that is to identify the superannuation but otherwise include it in the total pool of assets for division and treat it as one pool of assets. Accordingly, I find the assets of the parties to be the following bearing in mind that I have rounded off for convenience purposes, the various dollar sums:
E property$930,000
T property560,000
A property2,050,000
1/4 share D property  125,000
⅓ share M property  317,000
½ share P property  750,000
CX shares (Wife)  1,733,000
CX shares (Husband)  853,000
Other shares (Husband)  311,000
Cars (Wife)14,000
Cars (Husband)  50,000
Racehorses65,000
Ski Lodge10,000
Caravan10,000
Debt by R Farrell  23,000
Debt by NM Services  1,863,000
Chattels (Husband)  41,000
Chattels (Wife)  6,000
Sub-total9,711,000
Superannuation (Husband)  114,000
Superannuation (Wife)  19,000
Sub-total9,844,000
Liabilities:
Mortgage on P property
(husband’s shares)  730,000
Mortgage on A property  1,200,000
Debt on T property  400,000
Debt due to Westpac Bank  541,000
Personal loans on M and D property    521,000
Taxation liabilities (Wife)  178,000
Taxation liabilities (Husband)               333,000
Sub-total3,903,000
Total equity to be divided  5,941,000

Contributions

There is no doubt in this case that the wife was the major homemaker and parent over the long relationship. The husband worked extremely hard and had limited time to put into the equivalent role of the wife. The wife conceded that the husband’s role as a provider was the main financial support for the family. She was not prepared to concede that the husband was the reason why the parties had significant wealth particularly having regard to their disastrous financial position in 2001. I find that the husband’s role in driving the consulting business that gave rise to the value of Farrell Pty Ltd which ultimately became the CX shares was almost entirely driven by his knowledge and experience. There can be no doubt that the husband was the major contributor of the financial wealth of the parties. There can also be no doubt that the husband could not have undertaken that role were it not for the agreement that both parties had that the wife would look after the children and the family’s welfare. In my view, there is no distinction between the contributions of the parties to the time of separation.
Subsequent to separation, the wife had the far greater role in caring for the children because of the absence of the husband. It is unnecessary for me to go into the details of the difficulties that arose in respect of the parenting issues but I have no doubt that the end result was that a huge burden fell on the wife. By the same token however, the husband’s activities in protecting the financial resources of the parties by steering the activities of Farrell Pty Ltd, Farrell Group Limited and ultimately his interest in the various shareholdings and loans has conserved and improved the wealth of the parties. To that extent therefore, there is again no distinction between the parties.
The wife maintained that she undertook renovations to the matrimonial home subsequent to separation and paid for it which gave rise to an increase in value. There is not sufficient evidence before me to be satisfied that the efforts of the wife were any more than a conservation of the property. In any event, it seemed common ground that the money used for those expenses came from the parties themselves and that is now reflected in the asset pool. I find therefore there is no reason to give any extra weight to the contributions of the wife over the husband subsequent to separation.
Accordingly, I find that the contributions of the parties have been equal.

Section 75(2)

Section 75(2) of the Act requires a court to consider a number of factors which affect the economic power and future of the parties. It is important to look at each of the factors as they affect each party and not just one.
The parties are both of an age where they have considerable years ahead of them before being eligible for retirement from the workforce. Each of them enjoys good health.
As things stand today, there is little distinction between the income of the parties. The husband is not engaged in paid employment but has some prospects of earning income from dividends and should he so desire, he could seek interest, if it could be paid, from NM Company. The wife too has the former matrimonial home in which she has tenants but she too has shares that can provide a form of income. The wife has acquired an expensive home which is encumbered by a large mortgage. The commitment for that mortgage would have to be paid from the various income sources to which I have just referred. The alternative is to reduce the debt by selling the shares in which case she would not have the relative income.

The husband’s evidence was that he would not resume working in his chosen profession until after July 2011. He took that approach because of the restrictive contract but also because he had been advised to “smell the roses”. On the other hand, the wife has not been in the paid workforce for many years. She is of an age where she could return to the workforce but it could not be said that she could possibly earn the sorts of sums to which the husband could aspire. The wife maintained that it was always their agreed position that she would be at home with the children but there are significant periods of time when her role must be limited and because of the ages of the children, even now or in the future, she would be able to obtain gainful employment. No evidence was led however of her desire to do so nor importantly, was it suggested that she could undertake any course that might get her back into the workforce. I take into account that she has not any history of paid employment or particular skills but having regard to her age, she has the capacity to either retrain and obtain some form of employment albeit nowhere near what the husband can currently earn. The husband’s evidence was that he was confident with his background and experience that he could return to the workforce and earn between $250,000-$350,000 per annum. The wife will never aspire to that sum.
The wife has the care of the children and as such, will be responsible for them during their childhood for at least another nine years. As teenage children grow older, whilst they become more independent, they are also demanding in terms of extra-curricular activities and supervision. It is important therefore that the wife has the opportunity to fulfil that care and control role for a number of years to come.
Although the husband has repartnered and there are two children of his partner, I do not take those into account as commitments of the husband. They are not persons to whom he has a duty nor a responsibility to maintain. Neither party has that duty or responsibility.
As I understand the evidence of the wife, she will be dependent upon her own resources for her future support and to avoid a reduction in her capital, she will need to think carefully about how she is going to support herself. That however is a matter for her having regard to the fact that in what I propose, she will have a number of millions of dollars at her disposal. The husband too however will have an obligation to pay significant child support. The two children are attending private schools where the fees are high and the ancillary expenses are often hidden costs. Those expenses will be ongoing for the same period of time to which I have just referred but the wife will be responsible for parenting the children. Fees of the magnitude to which the parties have committed themselves have to be carefully considered in after-tax dollars if the husband is to be an employee. His evidence is that he can obtain work as a consultant or a line manager. Each of those positions carries different taxation connotations. In any event, I do take into account that those expenses are significant in this case and the parties desire that they be paid.
I am obliged to consider the reasonable lifestyle of the parties. I take into account that both parties have acquired comfortable homes. Whilst there was some criticism of the wife for having acquired a property of the magnitude that she did, I take into account that the husband too has a comfortable home but also lives with a person who can share in the expenses of that property. It is difficult to examine carefully the lifestyle of the parties during their marriage having regard to the fact that in 2001 and presumably for some years thereafter, the parties had little by way of assets as a result of the significant financial losses in 2001. I take into account however that they do desire to live comfortable lives.
The question of the future earning capacity of the wife has been addressed above. Section 75(2)(h) obliges the Court to take into account the extent to which the payment of maintenance to the party whose maintenance is under consideration would increase the earning capacity of that party by enabling that party to undertake a course of educational training which would in turn enable them to obtain an adequate income. This issue was not addressed in any detail and there is no spousal maintenance application before me. The absence of a spousal maintenance application however does not mean that I am not obliged to take into account how the funds might be used to maintain the wife in this particular case. In my view, the disparity between the parties justifies an adjustment in favour of the wife but having regard to her age as I pointed out, she has an opportunity to improve her own financial position even taking into account her desire to continue the obligations towards the children. I find that a loading should be made in favour of the wife such that it would enable her to retrain if she so desired.
This has been a long marriage and as such, it would be unreasonable to expect the wife to simply return to a workforce and earn even a modest amount of income. The wife should have that opportunity should she so desire. That must take into account her desire to protect her role as a parent.
In this particular case, there is a significant amount of money involved. Each party will enjoy the fruits of that pool.
The Act requires me to consider child support under the Child Support (Assessment) Act 1989 (Cth) that a party has provided, is to provide, or might be liable to provide in the future. There was some debate about the payments that the husband had made but I am satisfied that the children were not disadvantaged. The Child Support Agency had examined the various financial issues and made assessments. I have obviously been in a much better position having regard to the financial positions being laid bare. I take into account that I am also obliged by the parties to deal with the child support assessment and I propose to deal with that shortly.
When all of those factors are taken into account, there is a justification for an adjustment in favour of the wife to the extent of 10 per cent.
The percentage outcome however is not the test. It is the underlying value of the assets that are ultimately received by the parties that must be just and equitable for the purposes of s 79(2) of the Act. A 10 per cent adjustment in favour of the wife means that she is getting significantly more than the husband.
I take into account that the wife would retain the property at E, A with its encumbrance, the CX shares, her car, the ski lodge membership, the caravan and the chattels and her very modest superannuation. However, the wife also has a taxation liability of $178,000. If she pays that debt she is receiving $3394. The wife should be receiving 60 per cent on the assessments I have done. To achieve that, the wife should receive from the husband approximately the equivalent of her tax debt. If the husband pays that, the wife is receiving approximately $3,572,000. That in raw numbers amounts to 61 per cent. In the circumstances, the underlying value of what the wife receives is just and equitable and I would make no further adjustment as between the parties.

Child Support

The other issue between the parties related to child support. The wife’s position was that the husband should pay $52,000 per year by way of periodic payments for the support of the children together with all education expenses and costs associated with the children’s health.
The husband’s position was that he would pay child support as assessed based on an income of between $250,000 and $350,000 per annum and all school fees but that half of the school fees should be offset against his obligations.
The wife also sought that the child support be back-dated to 22 August 2008. She sought that it conclude on the 18^th birthdays of each child. No application was made for leave to back-date the assessment beyond 18 months as is required by the Act.
I am satisfied that there is no basis to back-date the assessment in this case. Child support has been paid from a variety of sources and both parties had income from various dividends. There does not appear now to be any outstanding school fees. Accordingly, I approach the matter afresh.
At my request the Child Support Registrar was served with a copy of the application. No request was made by the registrar to appear.
The assessments relied upon by the wife and from which she sought to depart were issued on 27 September 2010. For the period from 2 October 2010 to 13 April 2011, the husband’s monthly child support was fixed at $1403.67. The second assessment related to the period 14 April 2011 to 1 January 2012 and the monthly rate was fixed at $1551.33. It is from those assessments that the wife desires a departure.
The wife’s view was obvious and clear. The husband had agreed to pay significant sums of money after separation and he should now be responsible for the majority of the costs of the children. The husband’s position was that there should be an equitable division of those costs. His view was that his earnings were clear as I have outlined earlier and he was content for the assessment to be made on that basis.
Child support in Australia is governed by the Child Support (Assessment) Act 1989 (Cth) and the regulations made thereunder. That legislation sets out clear objects. The Act provides that it is the duty of parents to maintain their children and that duty has priority over all commitments of the parent other than those necessary to support themselves (s 3).
The object of the legislation is to ensure children receive a proper level of financial support from their parents and that that objective is to be met by a determination based upon the parental capacity to provide financial support (s 4(2)(a)).
For the purposes of this hearing, it is important to note that the level of financial support to be provided by both parents is to be determined according to the costs of the children (s 4(2)(b)).
It is also the intention of the legislation that children share in changes in the standard of living of both of their parents. In other words, as parents become more affluent, their children should share in that lifestyle but there will clearly be occasions where the opposite occurs.
The administrative assessment is determined by a formula which is affected by the ages of the children, the costs of their maintenance and the income of the parents. When a court is considering departing from the administrative assessment, it is obliged to ensure that children have their proper needs met from reasonable and adequate shares in the income, earning capacity, property and financial resources of both of their parents but also that the parents share equitably in the support of their children (s 114). That determination moves away from the assessment based purely on income but it also requires a fairness test to be applied. The equitable determination must be guided by the financial position of both parents in the various forms set out in s 114.
To depart from the assessment however, there have to be special circumstances (s 117(1)(a)). A special circumstance in this case is the fluctuating nature of not only the respective incomes of the parties but also their earning capacities. The husband has limited income at the moment but declares optimism for significant earnings in the future. At the moment however, he has lent his partner’s company a significant capital sum without seeking a formal structure for the payment of interest. The wife too has valuable shares and two real properties. She too has chosen to spend money on acquiring a valuable property rather than investing the money for the purposes of securing a regular income. There are therefore special circumstances in this case that warrant an examination of whether the assessment is the appropriate determination to meet the objects to which I have just referred.
Before there can be a departure from the administrative assessment however, the applicant has to establish that there is a ground for that departure. In this case it is said that the administrative assessment results in an unjust and inequitable determination of the level of child support because of the income, property and financial resources of the husband. The assessment to which I have referred is clearly determined on the basis of the incomes of both parties at the time that the Agency undertook the task. Their respective incomes were then reflected in their taxation returns. I am satisfied that the taxation returns do not adequately reflect the financial position overall having regard to the obligation to take into account more than just income.
Being satisfied that there is a ground for departure, the Court must be satisfied that it is just and equitable as regards the children as well as the parents and otherwise proper to depart from the assessment before considering what order should be made.
The orders that can be made are wide and once made, require the Child Support Registrar to implement them.
The wife’s position in relation to orders was that to avoid ongoing disputes, the terminating date should be the 18^th birthdays of the children. That would not give any allowance for potential variations up or down in the fluctuating fortunes of the parties. Significant changes that could occur would require further litigation and that is an object resisted by the legislation. The clear intention of the legislation is that children throughout the nation share in the wealth of their parents wherever possible determined by the formula. The formula reflects the costs of maintaining those children. In this case, the fluctuating fortunes of the parties are reflected in the evidence. In 2001, and for the years thereafter until 2008, neither party had any significant equity in capital terms despite the fact that the husband was earning a good salary. Because the husband is a share trader but also proposes to be an employee in the information technology industry, I could not be confident that there will not again be changes in the parties’ fortunes. The wife too has shares and their value has and may again, change.
Having regard to the requirement that the parents share equitably in the costs of their children, the wife’s position that the husband pay virtually everything is untenable.
The costs of maintaining the children, leaving aside their education expenses, was set out by the wife in her financial statement filed 26 November 2010. She estimated those costs at $1916 per week. She was cross-examined about a number of those matters including such expenses as holidays. She said that the children were to spend time over the summer on the peninsula where the caravan site fees were expensive and they have a skiing holiday which was equally expensive in the winter. This is the lifestyle to which the parents were accustomed and there is no reason for me to take a subjective approach to the contrary. However, those expenses included such items as repairs for furnishings and appliances, recurring expenses for the home and financial commitments that could not be directly said to relate to the children. They do indirectly relate to the children by virtue of the fact that the wife for the bulk of the week has to provide a roof over the heads of the children. When challenged about some of the expenses, the wife said that she had calculated the costs from a spreadsheet that she had maintained. That document was not produced. Some of the expenses such as electricity and gas would be incurred regardless of the number of persons in the house but that is very good reason to divide it by the number of persons.
Whilst it is permissible to resort to varying research about the costs of children, it is unnecessary in this case because I have the specific evidence of the wife as to those costs. I do not propose however to allow all of the expenses because some of them are only marginally connected to the children. Looking at the list of expenses, I propose to make adjustments for council rates, gifts, repairs, cleaning and gardening and assess the balance of the costs as more likely to be those of the children. That sum means that the expenses are $1500 or thereabouts per week.
The sharing of the $1500 must be determined on the basis of what is fair having regard to the income, earning capacity, property and financial resources of both parties. The adjustments to which I earlier referred in relation to the property matters means that the wife has more property than does the husband. There is no significant immediate difference between the parties’ respective incomes although I am satisfied that the husband will earn more in the future. There is little doubt that notwithstanding some cross-examination of the wife about her future employability, the husband’s earning capacity is much greater than that of the wife. It is not suggested seriously by the wife that the husband is avoiding obtaining employment at the moment for the purposes of evading child support responsibilities. If that was her intention, I find that not to be the case.
The $1500 includes medical expenses and health insurance together with the gap between the two notwithstanding the wife’s financial statement seems to suggest to the contrary. On the evidence, I am satisfied it also includes the uniform expenses of the children. I propose to treat all of those expenses as divisible between the parties.
The parties agreed that their children should attend private schools. It was not disputed that there were attendant costs such as computer requirements. Those fees will change as the children progress and that is another reason for not allocating the responsibility for all of that burden on one parent for the rest of the schooling of the children. L School is apparently costing the parties approximately $22,000 per annum and Y School $18,000 per annum. Computer facilities amount to approximately $8000 per annum. These costs do not fit within the normal considerations for a child support assessment.
Division 5 of Part VII of the Child Support (Assessment) Act1989 (Cth) provides for the court to make orders for provision of child support otherwise than in the form of periodic payments. The legislation however provides again that the children are to have their proper needs met from reasonable and adequate shares in the income, earning capacity, property and financial resources of both of their parents and that the parents share equitably in the support of their children. The husband’s proposal was that he would pay all of those costs but the adjustment should be made against the periodic payments. Before an order can be made, the Court has to be satisfied that it is just and equitable as regards the children and the parents but otherwise it must be proper (s 124(1)).
The only considerations required of the Court in determining the application relate to whether there is an assessment in force and the impact upon the public purse (s 124(2)). There is no suggestion of any difficulty in respect of any of those considerations here. However, the Court must also consider the factors for a departure application in determining whether it would be just and equitable to make an order otherwise than in the form of a periodic payment (s 124(3)).
Because of the overlap between the two sections and the desire of the husband to pay all of the school fees but to have an adjustment against the periodic payments, the fairest way of resolving the difficulty is to add both the costs of maintaining the children to the education expenses and then dividing the total.
In this case, the education expenses amount to $48,000 per year approximately and the other expenses amount to $78,000. Thus the total is $126,000 per year. That burden should be shared. Whilst the husband has limited income at the moment and is therefore in a similar position to the wife, he conceded that once he returns to work in July 2011, he should be expected to earn somewhere between $250,000 and $350,000 per annum. In capital terms, the wife is in a stronger position than the husband as a result of the property dispute. In earning capacity terms, the husband will always be better off than the wife. In terms of financial resources, the husband always has the capacity to fall back on generous borrowing arrangements with his brother and having repartnered, the corporate entity provides him with a capacity to obtain financial and taxation benefits that the wife currently (and in the future) is unlikely to have. When all of those are put together, it is conceivable in the long term that the husband will be better off than the wife. I am looking at the situation however only for a period in the short term because of the constant variation in childhood expenses. Even in the short term however, which I consider to be three years, the husband’s expertise in the financial industry and his entrepreneurial skills mean that he is in a stronger financial position than the wife. It must be remembered too that the wife bears the much greater burden of carrying those expenses because the children will spend so much time with her more than the husband.

The greater financial strength of the husband justifies a determination of the obligations of the parties to contribute towards the total costs as to 60 per cent to the husband and 40 per cent to the wife. On that basis, the husband should be contributing $75,600 per annum towards the expenses of the children which include education. If he is to bear the $48,000 expenses alone, he must therefore contribute $27,600 towards the balance of the costs of the children. That amounts to $2300 per month.
Using a formula like that means that the husband has total obligations of $75,600 per annum. Having regard to his financial position overall, I find he has the capacity to fund those expenses. To the extent that he is contributing towards the household of his partner and her children or that he is maintaining assets with significant encumbrances, he has the capacity to resolve that problem by rearranging those assets. From the wife’s perspective, she has limited income but significant assets and she too could rearrange her financial affairs to enable her to make the necessary contribution towards the support of the children.
The wife sought that the husband pay all of the health insurance and medical expenses of the children. I do not propose to isolate those expenses. To the extent that the wife wishes to have the husband so pay them and he be content to do so, the parties can make adjustments to the child support I have fixed. Without agreement between the parties, the payment obligation must fall to the wife as I have included the costs in the total annual divisible expenses of the children.
It is the underlying contribution that each party must make to the support of the children having regard to the way in which they desire their children to live that must be just and equitable not only to the children but to the parents. In this case, I find it is.
Having regard to the ages of the children however, those orders should not extend beyond three years. That applies to the school fees as well. In three years time, the assessment system should apply unless the parties reach agreement otherwise. To the extent that the assessment will not take into account private school fees in the way that I have, the parties will either resolve the matter or will have to litigate again.

I certify that the preceding One Hundred and Thirty One (131) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 16 February 2011.

Associate:

Date: 16 February 2011

[2011] FamCA 83

16 February 2011

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