FLANAGAN & SOBEK (DECEASED)
[2014] FamCA 696
•28 August 2014
FAMILY COURT OF AUSTRALIA
| FLANAGAN & SOBEK (DECEASED) | [2014] FamCA 696 |
| FAMILY LAW – PRACTICE AND PROCEDURE – Where the respondent died during the pendency of these proceedings and the executrix of his deceased estate was substituted for the deceased as the respondent. FAMILY LAW – PROPERTY SETTLEMENT – Death of a party – Where the proceedings concern the alteration of property interests of two former de facto spouses, one of whom is deceased – Discussion of the statutory tests in s 90SM(8)(b) of the Family Law Act and its interaction with s 90SM(3) – Where ss 90SM(8)(b) and 90SM(3) are satisfied – Where it would have been just and equitable to make property settlement orders had the deceased not died, and still is despite his death. FAMILY LAW – PROPERTY SETTLEMENT – Where an application for alteration of property interests takes priority over the claims of the beneficiaries upon the deceased estate – Where significant weight attached to the disparate initial contributions of the parties, which were not eroded by their subsequent contributions during the relationship, which are regarded as equal – Where the applicant received a large inheritance after separation and that inheritance is not quarantined – Where the deceased estate dissipated funds to pay for legal fees incurred in these proceedings – Where the applicant has limited capacity to obtain future gainful employment and will have sole and exclusive responsibility for raising the parties’ two children – Applicant entitled to 67.5 per cent of the net assets collectively held by her and the deceased estate – Applicant to be paid the ordered amount out of the deceased estate. |
| Family Law Act 1975 (Cth) ss 79, 90SF, 90SM, 117 |
| Beklar & Beklar [2013] FamCA 327 Bevan & Bevan [2013] FamCAFC 116 Bourke & Bourke [1998] FamCA 69 Browne v Green (1999) FLC 92-873 Chorn v Hopkins (2004) FLC 93-204; (2004) 32 Fam LR 518 Fisher v Fisher (1986) 161 CLR 438 Grace v Grace [2012] NSWSC 976 Macedonian Church v Eminence Petar (2008) 237 CLR 66 Marriage of Bonnici (1992) FLC 92-272; (1991) 15 Fam LR 138 Marriage of Burke (1992) 16 Fam LR 324; (1993) FLC 92-356 Marriage of Coghlan (2005) 33 Fam LR 414; (2005) FLC 93-220 Marriage of Figgins (2002) 29 Fam LR 544; (2002) FLC 93-122 Marriage of Love (1993) 17 Fam LR 263; (1994) FLC 92-441 Marriage of Mason (1993) 17 Fam LR 269; (1994) FLC 92-446 Marriage of Wall (2002) 29 Fam LR 1; (2002) FLC 93-110 North v North; Public Trustee of NSW (Intervener) (1987) FLC 91-831 Parrott v Public Trustee of NSW (1993) 17 Fam LR 785; (1994) FLC 92-473 Pierce v Pierce (1999) FLC 92-844; (1998) 24 Fam LR 377 Stanfordv Stanford (2012) 247 CLR 108 W & W [2000] FamCA 1302 |
| APPLICANT: | Ms Flanagan |
| FIRST RESPONDENT: | Mr Sobek (Deceased) |
| SECOND RESPONDENT: | Ms Leoni |
| FILE NUMBER: | NCC | 2659 | of | 2012 |
| DATE DELIVERED: | 28 August 2014 |
| PLACE DELIVERED: | Newcastle |
| PLACE HEARD: | Newcastle |
| JUDGMENT OF: | Justice Austin |
| HEARING DATE: | 11 & 12 August 2014 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr G Levick |
| SOLICITOR FOR THE APPLICANT: | Tonkin Drysdale Partners |
| COUNSEL FOR THE 1ST RESPONDENT: | N/A |
| SOLICITOR FOR THE 1ST RESPONDENT: | N/A |
| COUNSEL FOR THE 2ND RESPONDENT: | Mr R Lethbridge SC |
| SOLICITOR FOR THE 2ND RESPONDENT: | Central Coast Family Law |
Orders
By way of alteration of property interests pursuant to Part VIIIAB of the Family Law Act, the respondent shall forthwith do all acts and things necessary, in her capacity as executrix of the estate of the late Mr Sobek, to pay to the applicant the sum of $165,953 from the estate.
Upon payment in full pursuant to Order 1 hereof, the respondent, in her capacity as executrix of the estate of the late Mr Sobek, shall be:
(a)The sole legal owner (as between the parties) of all other estate assets, subject to the beneficial interests of the beneficiaries in the estate; and
(b)Solely liable for and shall indemnify the applicant against any and all debts attaching or relating to the property of the estate, any debts owed by the estate, and any debts incurred by her on behalf of the estate.
The applicant is the sole legal and beneficial owner (as between the parties) of all assets in her possession, including but not limited to:
(a)The real property and improvements comprising Folio Identifier …, being the property known as V Street, Town C, NSW;
(b)The … Ford Focus car;
(c)All bank accounts and other investments held in her name; and
(d)Her superannuation interest held with First State Super.
The applicant is solely liable for and shall indemnify the respondent against any and all debts attaching or relating to the property in her possession and any debts in her name.
In the event of either party refusing or neglecting to sign within 7 days of a written request to do so any document necessary to implement the terms of these orders the Registrar of the Family Court of Australia at Newcastle is empowered to execute such documents on behalf of the parties pursuant to s.106A of the Family Law Act.
Costs are reserved for 28 days.
Any and all other outstanding applications are dismissed.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Flanagan & Sobek has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT NEWCASTLE |
FILE NUMBER: NCC 2659 of 2012
| Ms Flanagan |
Applicant
And
| Mr Sobek (Deceased) |
First Respondent
And
| Ms Leoni |
Second Respondent
REASONS FOR JUDGMENT
Introduction
These proceedings concern the alteration of property interests of two former de facto spouses under Part VIIIAB of the Family Law Act 1975 (Cth) (“the Act”).
The parties commenced their de facto relationship in July 2003 and separated in April 2012. They had two children together, born in 2003 and 2004, who are now aged nearly 11 and 10 years respectively. They live with the applicant.
Proceedings were commenced in October 2012, but the respondent died in May 2013 and his adult daughter from a former relationship, who is the executrix of his deceased estate, was subsequently substituted as the respondent.
The applicant and respondent disputed whether there should be any property settlement order at all, and if so, the nature of it.
The evidence
The applicant relied upon:
(a)Her affidavit filed on 8 May 2014;
(b)Her financial statement filed on 8 May 2014; and
(c)Her updated schedule of property interests filed on 8 August 2014.
The respondent relied upon:
(a)The affidavit of the deceased filed on 18 December 2012;
(b)The financial statement of the deceased filed on 18 December 2012;
(c)Her affidavit filed on 16 May 2014;
(d)Her financial statement filed on 16 May 2014; and
(e)Her schedule of property interests filed on 16 May 2014.
The documents filed by the respondent pertained to the deceased estate and not her personal circumstances.
Legal principles
Given the death of one of the parties during the pendency of these proceedings, procedural and substantive impediments arise. First, substitution of the respondent for the deceased was appropriate (s 90SM(8)(a)). Secondly, the Act only permits the Court to make property settlement orders upon satisfaction of two pre-conditions (s 90SM(8)(b)): whether a property settlement order would have been made if the deceased party had not died, and if so, whether, despite the death, it is still appropriate to make such an order.
Sections 79(8) and 90SM(8) of the Act are analogous (see Stanfordv Stanford (2012) 247 CLR 108 at [23]-[24], [30], [48], [60]-[66]). Although the High Court was dealing in Stanford with an application between spouses for property settlement pursuant to Part VIII of the Act, the principles apply equally to applications between de facto partners pursuant to Part VIIIAB of the Act.
Sections 79(8) and 90SM(8) of the Act are Constitutionally valid and prevent abatement of existing property settlement proceedings upon the death of one party (see Fisher v Fisher (1986) 161 CLR 438 at 449; Stanford at [30]).
The application for alteration of property interests under Part VIIIAB of the Act, involving as it does the property within the deceased estate, takes priority over the claims of the beneficiaries upon the deceased estate, irrespective of whether the beneficiaries’ claims exist or are made pursuant to the terms of the deceased’s probated will or the provisions of State succession or family provision legislation (see Fisher v Fisher at 458; Marriage of Love (1993) 17 Fam LR 263 at 266; Marriage of Mason (1993) 17 Fam LR 269 at 274-275, 287; North v North; Public Trustee of NSW (Intervener) (1987) FLC 91-831 at 76,251, 76,254).
Orders under the Act altering the property interests of parties may only be made if the Court is first satisfied, pursuant to s 90SM(3) (the counterpart to s 79(2)), it is just and equitable to make such orders. It is necessary to begin that inquiry by identifying the existing legal and equitable property interests of the parties. It must not be assumed the parties’ rights to or interests in property are or should be different from those that then exist, or that a party has the right to have the parties’ property divided by reference to the statutory considerations (see Stanford at [37], [41]).
The inquiry under s 90SM(3) about the justice and equity of any alteration of property interests necessarily permeates the two separate inquires required by ss 90SM(8)(b)(i) and 90SM(8)(b)(ii) of the Act when a party to the proceedings dies (see Marriage of Mason at 286).
It is permissible for the factors prescribed by s 90SM(4) (the counterpart to s 79(4)) to inform the inquiry under s 90SM(3) of the Act about the justice and equity of making property settlement orders (see Bevan & Bevan [2013] FamCAFC 116 at [83]-[89], [163], [169], [171]-[172]).
If and once determined the requirements of both ss 90SM(3) and 90SM(8)(b) are met, the process of evaluating the proper orders to make is dictated by the factors enumerated within s 90SM(4) of the Act. The court must necessarily identify and assess the parties’ contributions within the meaning of ss 90SM(4)(a)-(c) and take account of the relevant matters referred to in ss 90SM(4)(d)-(g) and 90SF(3) of the Act.
Existing property interests
Because the inquiry under s 90SM(3) is integral to the initial determination of the statutory tests imposed by s 90SM(8)(b), and then if relevant, the application of s 90SM(1) of the Act, it is necessary to analyse the property which is amenable to any order of the Court. As stipulated by Stanford, the first task is to identify the parties’ respective existing legal and equitable interests.
At the commencement of final submissions the parties tendered a joint balance sheet, which was intended to refine the evidence about existing property interests.[1] That document forms the template for the following findings.
[1] Exhibit R5
The applicant’s existing property interests comprise the following:
No.
Assets
Value
Total
3
C real estate
515,000
4
Ford car
19,500
5
CBA acc #5380
238
6
CBA acc #6270
13
7
St George acc #3675
1,928
8
Macquarie acc #4110
27,932
9
Macquarie acc #9765
329,481
Sub-total
894,092
Liabilities
12
CBA credit card
13,889
Sub-total
880,203
Superannuation
16
First State Super
30,480
Sub-total
910,683
Net assets and superannuation
910,683
Notwithstanding the usual consideration of superannuation interests separately from assets (see Marriage of Coghlan (2005) 33 Fam LR 414 at 428-429), for present purposes, the applicant’s superannuation interest is deemed an asset because it is only of modest value, it comprises only a small part of her wealth, and most of it was accumulated before the parties’ cohabitation commenced.
Significantly, the bulk of the applicant’s property interests were acquired through an inheritance she received after the parties’ separation. The inheritance accounts for the ownership of her current home (item 3) and most of her cash reserves (items 7, 8, and 9). The applicant submitted for such assets to be quarantined from consideration, at least until the stage was reached where s 90SF(3) of the Act became relevant, for which proposition she cited a line of authority (see Marriage of Bonnici (1992) FLC 92-272 at 79,020; Marriage of Burke (1992) 16 Fam LR 324 at 328-329; Marriage of Wall (2002) 29 Fam LR 1 at 9; Marriage of Figgins (2002) 29 Fam LR 544 at 557-558).
It may be doubted whether older decisions like Bonnici, Burke, Wall, and Figgins remain authoritative in the face of the High Court’s pronouncement that the first task in property settlement proceedings is to identify all of the parties’ respective legal and equitable property interests for consideration under both ss 90SM(3) and 90SM(4) (see Stanford at [37]-[41]).
Even if that line of authority does survive, it only permits, but does not require, the quarantine of assets. Those of the applicant’s assets which are attributable to her recent receipt of the inheritance should not be quarantined. As is now abundantly clear, it must not be assumed parties’ rights to or interests in property are or should be different from existing rights. There must be a principled reason for interfering with their existing legal and equitable interests (see Stanford at [38], [41], [43], [50]). The nature and value of the applicant’s total current property interests, though perhaps not directly relevant to the historical hypothetical test imposed by s 90SM(8)(b)(i), does affect the inquiries posited by ss 90SM(3) and 90SM(8)(b)(ii) of the Act.
The deceased estate comprises the following property interests:
No.
Assets
Value
Total
1
Cash reserves
509,817
2
Water access licence #3554
180,000
10
Chattels from the P property
1,000
Sub-total
690,817
Liabilities
13
Estate liabilities
6,483
Sub-total
684,334
Net assets
684,334
There was some debate about the constituent elements of the deceased estate, which makes it necessary to explain the findings.
As to the liabilities of the estate (item 13), it was common ground the respondent had personally incurred some debts in the administration of the estate for which she was entitled to reimbursement. She has already been partially reimbursed for her expenditure,[2] but there is a residual amount owed to her by the estate. The amount of the residue was roughly estimated at $10,000,[3] but it was conceded the actual calculation was $6,483.[4]
[2] Exhibit R4; Respondent’s affidavit, para 53(d)
[3] Exhibit R5 (item 13)
[4] Exhibit R4
The respondent also sought to include other liabilities, the effect of which would be to diminish the value of the estate, which the applicant opposed. Those liabilities amounted to $34,000 and were the unpaid legal costs incurred by the estate in relation to the contest of these proceedings.[5] Those amounts excluded the sum of around $90,000 already paid out of the estate to satisfy the past legal costs of these proceedings.[6]
[5] Exhibit R5 (items 14 and 15)
[6] Exhibit A2
While the respondent bears a fiduciary duty to preserve the assets of the estate for the benefit of the beneficiaries, she does not thereby accrue personal liability for the costs of this litigation. The costs are always payable from the corpus of the estate. It is true, as the respondent contended, that a fiduciary in her position is generally entitled to indemnity from the estate against any personal liability incurred through legitimate and prudent protection of the estate (see Macedonian Church v Eminence Petar (2008) 237 CLR 66 at 93-94), but that general principle does not apply in the present context.
In conducting this litigation as executrix of the estate, the respondent stands in the same position as the deceased would have stood, but for his death. The deceased would not likely have been able to count his own outstanding legal fees as a liability. The applicant is also presumably liable for outstanding legal costs related to this litigation, but inclusion of such liability on her account was neither claimed by the applicant nor sought by the respondent, which approach accords with existing authority (see Chorn v Hopkins (2004) FLC 93-204 at [55]-[60]; Beklar & Beklar [2013] FamCA 327 at [141]).
Parties are ordinarily required to bear his or her own costs of proceedings under the Act (s 117(1)). Only when persuaded otherwise, in the exercise of discretion (s 117(2)), should one party bear another’s legal costs. As the applicant submitted, that discretion has not yet been exercised, so debiting the estate with its outstanding legal costs, thereby limiting the assets available for distribution under Part VIIIAB of the Act, would effectively amount to an expectation that the applicant defray the estate’s legal costs before discretion has been exercised by the Court to determine the probity of that outcome.
Some other expenditure incurred by the estate on behalf of the applicant, which the respondent originally planned to submit should be notionally added-back to the assets, was abandoned by the respondent as an issue.[7]
[7] Exhibit R5 (item 11)
Sections 90sm(3) and 90sm(8)
The respondent contended the applicant did not surmount the two obstacles imposed by s 90SM(8)(b) of the Act and the applicant’s application should be dismissed, though curiously that was not apparently her view until her Case Outline document was filed in May 2014. Even as recently as April 2014, when she filed her Amended Response, she proposed payment of a moderate amount to the applicant in satisfaction of her application under Part VIIIAB.
The applicant contended she did meet the tests imposed by s 90SM(8)(b) of the Act and she was vindicated by the evidence.
The first test imposed by s 90SM(8)(b)(i) of the Act requires the Court to have regard to the substantive circumstances that existed immediately before the death of the deceased party (see Grace v Grace [2012] NSWSC 976 at [242]; Bourke & Bourke [1998] FamCA 69 at [4.8]-[4.10]), which in this case occurred on 12 May 2013.[8]
[8] Respondent’s affidavit, para 2
At that time, the parties had been separated for 13 months. Their then existing property interests were similar to the current property interests of the applicant and the deceased estate. The applicant had by then received the bulk of her inheritance and she had an expectation of imminent receipt of the balance.[9]
[9] Applicant’s affidavit, para 122
The applicant and deceased cohabited for nine years, they worked very hard together for the advancement of their family unit, and they had two young children, both of whom were then living with the applicant and were expected to continue doing so.
Although there was marked disparity in the amount and value of property introduced by the parties to the relationship about a decade before, their respective contributions during their relationship and the applicant’s expected provision of sole care to the children for the remainder of their minority following the anticipated but untimely death of the deceased would have justified the making of property settlement orders had the deceased not died.
The fortuitous receipt by the applicant of the inheritance from the deceased estates of her late parents in tranches at times proximate to the death of the deceased did not render nugatory her past contributions, recognisable under s 90SM(4) of the Act, made during the parties’ relationship and following their separation. Her actual and prospective receipt of the inheritance was only relevant to the application of s 90SF(3) of the Act, thereby affecting the magnitude of any property settlement order that would then be made, but not nullifying her entitlement under Part VIIIAB of the Act altogether. I reject the respondent’s submission that the applicant’s receipt of the inheritance would have extinguished her entitlement to property settlement orders.
The justice and equity of making property settlement orders in the circumstances, for the purposes of satisfaction of the requirements of s 90SM(3) of the Act, is evident from the deceased’s retention of sole legal title in the single biggest asset of the parties’ relationship, being the real property at P, NSW, upon which the parties lived. That asset was introduced to the relationship by the deceased and at the time of his death was likely valued at between $915,000 (the value for which the property was recently sold[10]) and $930,000 (the agreed value when cohabitation commenced). Its value dwarfed the individual and collective values of any other assets owned by the applicant (excluding her recent inheritance) and the deceased. It would not have been just and equitable, in the face of the parties’ contributions over the preceding 10 years, for the deceased to have retained sole legal title in that property.
[10] Respondent’s affidavit, para 53(b)
The second test imposed by s 90SM(8)(b)(ii) of the Act requires advertence to the continuing appropriateness of making property settlement orders, notwithstanding the death of the party. The reference in that provision to the need for it to be “still appropriate” to make an order with respect to property should be regarded as meaning “still appropriate to make the order despite the party’s death” rather than “still appropriate now to make the order”. The Act is addressed to the conceptual rather than the temporal effect of the party’s death (see Grace v Grace at [289]; Bourke & Bourke at [4.8]-[4.10]).
There are several reasons why it remains appropriate to make property settlement orders despite the deceased’s death.
First, the assets which he retained on separation and which formed part of his deceased estate would otherwise be kept from the applicant. By testamentary disposition under the terms of his probated will, that property would devolve upon his adult son (as to 10 per cent), the respondent (as to 30 per cent), and the parties’ two children (as to 30 per cent each). The applicant is not a beneficiary of his estate and would otherwise be denied any share of it. That may be contrasted with a situation in which a surviving party is a beneficiary of a deceased party’s estate and the surviving party’s beneficial share of the estate is sufficiently large that it renders the maintenance of a property settlement claim superfluous, or at least no longer “appropriate”, conformably with the language of s 90SM(8)(b)(ii) (see Grace v Grace at [243], [290]).
Secondly, the death of the deceased means the factors prescribed by s 90SF(3) of the Act are now irrelevant to both him and the respondent’s case, and further, as sole surviving party of the de facto relationship, the applicant’s entitlement to property by reference to the s 90SF(3) factors may be enlarged because the weight of such factors is all the one way (see Parrott v Public Trustee of NSW (1993) 17 Fam LR 785 at 790-791; Marriage of Mason at 286-287; Bourke & Bourke at [4.30]-[4.31]; Grace v Grace at [290]).
Thirdly, the entitlements and expectations of the beneficiaries to the deceased estate are “not of significant relevance” to the inquiry under s 90SM(8)(b)(ii) of the Act (see Bourke & Bourke at [4.17]-[4.22]; Grace v Grace at [243]). Their claims upon the deceased estate yield to the applicant’s claim upon the deceased estate under Part VIII of the Act.
Lastly, even if that were not so and the beneficiaries’ interests in the deceased estate were considered relevant, including those of the parties’ two children, they do not militate against the applicant’s claim. Although the applicant surrendered the care of the two children to others for a short period between May and July 2013 due to her psychological ill-health, the children returned to her care and have lived with her since July 2013. Despite the respondent’s conjectural doubts, the children will probably continue to live with the applicant for the remainder of their minority. Her treating psychiatrist opined her psychological health is stable.[11] Given the deceased’s death, he will be unable to contribute to the daily cost of their maintenance, which cost will now be borne solely by the applicant.
[11] Exhibit A3
The parties’ two children have a combined beneficial entitlement to 60 per cent of the deceased estate. Although clause 4(d) of the deceased’s probated will directs the respondent to use the children’s beneficial shares of his estate for their “maintenance, education, advancement, preferment or benefit”,[12] decisions about what expenses within that rubric should be paid from the capital and income of the children’s trust funds would be made by the respondent in her “absolute discretion”. It is improbable the respondent would make specious or capricious decisions, particularly given the children are her half-siblings, but the applicant would still be bound to approach the respondent “cap in hand” on each and every occasion she sought release of funds to meet expenses for the children and on each and every occasion the respondent would need to consider whether she regarded the expenses as necessary for their maintenance, education, advancement, preferment, or benefit.
[12] Applicant’s affidavit, para 130, Annexure LF-28 (page 183)
Relations between the applicant and respondent have fallen to a very low ebb during the course of these proceedings. The respondent conceded she had criticised the applicant’s competency as both a homemaker and parent, by which criticism she acknowledged the applicant was stung. She appreciated her hurtful comments would make it more difficult for the applicant to approach her over the release of funds for the children. Moreover, the respondent said in re-examination she would expect the applicant to meet, from her own resources, almost all expenses for the children other than those related to their education, which was somewhat of a gloss upon her evidence in chief.[13] That evidence provides sufficient foundation to predict scope for future disharmony between the applicant and respondent about the release of money from the estate for payment of expenses related to the children’s upbringing.
[13] Respondent’s affidavit, para 55
The overlay of the s 90SM(3) requirement for the existence of just and equitable reason to alter the existing property interests remains present, despite the death of the deceased. Given the respective financial positions of the applicant and the estate, it would be just and equitable to make property settlement orders. The applicant’s inheritance provided her with a home in which to live, together with invested funds of about $355,000 to help secure her future. The invested funds generate interest of only $368 per week,[14] which forms part of her income. She is still entitled to social security to supplement her income.[15] Her assets are still relatively modest and she lives frugally.
[14] Applicant’s financial statement, para 10; Applicant’s affidavit, para 185
[15] Applicant’s financial statement, para 12; Applicant’s affidavit, para 184
Application of the statutory tests to the evidence means:
(a)It would have been just and equitable to make property settlement orders if the deceased had not died (ss 90SM(3) and 90SM(8)(b)(i)); and
(b)It is still just and equitable to make property settlement orders notwithstanding his death (ss 90SM(3) and 90SM(8)(b)(ii)).
The process to this point has not required any precise determination about the nature of the orders that would have been made if the deceased had not died; only that some order should still be made (see Grace v Grace at [242]; Marriage of Mason at 284). Having satisfied ss 90SM(3) and 90SM(8) of the Act, it is therefore now necessary to consider what property settlement orders should actually be made.
Sections 90sm(4) and 90sf(3)
Initial contributions of applicant
At the commencement of cohabitation, the applicant owned:[16]
(a)An encumbered parcel of real estate at Suburb R, NSW, in which her net equity then approximated $60,000;
(b)Personal chattels, the overall value of which is unknown;
(c)A BMW car, which was traded not long afterwards for $2,200;
(d)Some savings, which approximated $20,000; and
(e)Superannuation, which approximated $20,000.
[16] Applicant’s affidavit, paras 19-27; Deceased’s affidavit, para 11
In all, the applicant’s property and superannuation interest had a total value of approximately $100,000.
Initial contributions of deceased
There was some inconsistency in the evidence adduced by the deceased and the respondent about the nature and value of the property interests introduced by the deceased to the relationship, which was not clarified during the hearing.
The deceased certainly owned real estate at P, NSW, which became the family home for the duration of the parties’ relationship. The parties agreed at the hearing the property was worth $930,000 at the commencement of cohabitation, but it was encumbered by mortgage. The deceased deposed the debit balance of the mortgage was then about $175,000,[17] but the respondent deposed it was then $190,687.[18] The respondent’s evidence was apparently based on contemporaneous records and is more likely correct.
[17] Deceased’s affidavit, para 7(a)
[18] Respondent’s affidavit, para 11
There is some uncertainty about whether the deceased also then held one or two water licences, which were associated with the P property. The deceased deposed he held a water licence (singular) at the time of cohabitation,[19] but deposed he held water licences (plural) at the time of separation.[20] It was an agreed fact the deceased estate held two water licences by the time of separation and there was no suggestion in the evidence the second licence was acquired after the commencement of the parties’ cohabitation. The deceased probably held both water licences at the time cohabitation commenced. One licence was recently sold for $20,000 and the other has an agreed value of $180,000.[21]
[19] Deceased’s affidavit, para 7(e)
[20] Deceased’s affidavit, para 26
[21] Respondent’s affidavit, para 53(b)
The deceased conducted a horticultural business on the P property. He conducted the business through a corporation, SS Pty Ltd, of which he was the sole director and principal shareholder.[22] It was agreed his shareholding in the corporation was of no material value. At the end of the financial year most proximate to the commencement of cohabitation, the corporation was insolvent.[23] The deceased kept separate personal financial accounts,[24] but how they may have related to the conduct of the business remained unexplained and was the subject of only speculation.
[22] Deceased’s affidavit, para 6
[23] Exhibit R2
[24] Exhibit R3
In order to conduct the business, the deceased operated an overdraft account. The account was actually held and conducted by the corporation,[25] but given the corporation was his alter ego the deceased most probably guaranteed the overdraft and was ultimately liable for it. The husband deposed the overdraft debit was $5,000 at the time of cohabitation,[26] but the respondent confirmed from contemporaneous records it was in fact $25,041.[27]
[25] Respondent’s affidavit, para 11, Annexure STL-4 (page 96)
[26] Deceased’s affidavit, para 7(c)
[27] Respondent’s affidavit, para 11
The deceased’s savings at the time of cohabitation were more likely $7,963,[28] rather than $15,000.[29] Again, the respondent’s evidence relied on records, which are more likely correct.
[28] Respondent’s affidavit, para 11
[29] Deceased’s affidavit, para 7(b)
The deceased also then owned a Toyota vehicle. The value of the vehicle at the time of cohabitation remains unknown.
Assuming the water licences have simply held value and not appreciated over the last decade, consistently with the value of the P property, the total value of the deceased’s assets at the commencement of cohabitation approximated $925,000. The respondent agreed with that estimate and the applicant did not demur.
Contributions during cohabitation
The applicant ceased paid employment in the latter stages of her pregnancy with the eldest child, who was born only a month after the parties began cohabitation. For the next three years she was primarily engaged in the care of the children, with the second child born only a year after the first. The applicant was the primary homemaker and carer for the children until she returned to the workforce in about July 2006.[30]
[30] Applicant’s affidavit, paras 39, 43, 45, 58
Upon the applicant’s return to paid employment, the care of the children was more evenly distributed between the applicant, the deceased, and paid carers.[31] The applicant maintained such paid employment until about October 2008, though she mistakenly deposed to it continuing to October 2009.[32] All of her income derived from the employment was contributed to the family economy.
[31] Applicant’s affidavit, paras 43, 60, 63
[32] Applicant’s affidavit, paras 63, 71, 78
Upon the applicant’s cessation of employment in late 2008 she resumed her role as primary homemaker and carer for the children. I accept the applicant’s evidence to that effect, to which she credibly adhered in cross-examination. I do not accept the deceased’s untested evidence, which implied he bore at least as great a burden as the applicant in the care of the children.[33]
[33] Deceased’s affidavit, paras 17, 20
The applicant also worked around the farm on which the family lived. She regularly mowed the lawns[34] and, from when she ceased employment in October 2008, she began working reasonably long hours in the business conducted by the deceased from the farm.[35] The children were approaching the age at which they began school and so the applicant had more time to devote to work around the farm.[36] The applicant was not paid any consistent wage for her work in the business and the sums she was occasionally paid were not commensurate with the effort she expended.[37] In any event, whatever amounts she was paid by the deceased were expended upon the family.
[34] Applicant’s affidavit, para 48
[35] Applicant’s affidavit, paras 63, 72, 74
[36] Applicant’s affidavit, para 73
[37] Applicant’s affidavit, para 78
Throughout the parties’ relationship the deceased worked hard on the farm conducting the horticultural business through his corporation. He was the primary breadwinner and he generated modest income from both operation of the business and the rent received for the lease of a granny flat on the farm.[38] The income generated by the deceased was similarly expended upon the family.
[38] Applicant’s affidavit, para 54
The encumbered Suburb R property the applicant took into the relationship was later sold in 2009. In the period between the commencement of cohabitation in 2003 and its sale in 2009 it was leased and generated rental income. However, the property was negatively-geared. The rent was insufficient to meet the mortgage repayments and it was necessary for the income of the household to meet the shortfall of several thousand dollars each year. The net equity realised on the sale of the property in 2009 approximated $50,000, which was a little less than the applicant’s net equity in the property when the parties began cohabitation. The proceeds of sale were invested, but were gradually expended on family expenses, both before and after the parties’ separation.
The parties’ assets did not materially increase during their relationship, either in nature or value, but that is of little moment. Contributions are not measured merely by their resultant effect. Very great effort may produce little result while very little effort may produce a great result, so unproductive effort may still be recognised as contribution under the Act (see Browne v Green (1999) FLC 92-873 at [39]; W & W [2000] FamCA 1302 at [119]-[125]).
Post-separation contributions
The parties separated in April 2012, at which point the applicant vacated the farm. The two children remained living on the farm with the deceased.[39] The applicant realised that was the best arrangement for the children at the time because of her unstable psychological health, which had begun to decline at some indistinct point prior to the separation. According to the deceased’s evidence, the deterioration in the applicant’s health might have occurred from as late as March 2012.[40]
[39] Applicant’s affidavit, para 80
[40] Deceased’s affidavit, para 21
At about the time of separation, the deceased ceased operating the business on the farm and he thereafter received social security until his death little more than a year later.[41]
[41] Respondent’s affidavit, para 18
Up until early 2013, the deceased was the primary carer of the children, though they spent increasing amounts of time with the applicant as her psychological condition improved. After a few months the children began spending most of each weekend with the applicant,[42] and some months later they began spending even more time with the applicant.[43] The gradual transition of the children back to the primary care of the applicant coincided with the deceased’s diagnosis with cancer and his declining health.
[42] Applicant’s affidavit, para 90
[43] Applicant’s affidavit, paras 104-105
The deceased, the applicant, and the children travelled on an overseas holiday together in April 2013 and upon their return to Australia the children began to live with the applicant.[44] Save for a period between May and July 2013 when the children temporarily stayed elsewhere,[45] the children have lived with the applicant ever since.
[44] Applicant’s affidavit, para 108; Respondent’s affidavit, para 29
[45] Applicant’s affidavit, para 138; Respondent’s affidavit, paras 39, 41, 42
The applicant’s current sound financial position resulted solely from her fortunate receipt of an inheritance from the deceased estates of her parents. Over the period between April 2013 and April 2014 she received total cash payments of just over $1,000,000.[46] Allowing for payment of debts and regular expenses, that influx of funds now accounts for her ownership of an unencumbered home and invested funds of some $355,000.
[46] Applicant’s affidavit, para 122
Earlier in these reasons an explanation was provided for why those assets should not be quarantined from consideration, but since the assets are included for consideration under ss 90SM(4) and 90SF(3), proper weight must be given to the origin of the assets. The inheritance was a large contribution for which the applicant assumes sole credit. There is no evidence of any direct or indirect contribution made by the deceased to the applicant’s receipt of the inheritance.
Other considerations
The applicant is 47 years of age. Her psychological health is stable but fragile. She is under the regular medical supervision of doctors,[47] including a psychiatrist, who is cautiously optimistic about her future health.[48]
[47] Applicant’s affidavit, paras 132-136
[48] Exhibit A3
The applicant intends to remain a “full-time stay-at-home mum”,[49] but she recently took on casual employment as a sales representative, since that work is compatible with the children’s school hours. She is paid only by commissions on sales and has so far only earned $250 in her first few weeks of employment. Understandably, she was quite unable to forecast her future earnings. Nothing about the evidence permitted any inference her income was likely to be more than meagre for the foreseeable future.
[49] Applicant’s affidavit, para 182
Even if the applicant changes her mind about returning to permanent full-time work, her income-earning capacity is very limited. Her chances of securing work are not encouraging and if she is able to find employment her earnings will likely be modest. Her last sustained period of employment was in a clerical capacity between 2006 and 2008 and she has since only had two weeks of similar temporary work in late 2012 following separation.[50]
[50] Applicant’s affidavit, para 181
The applicant was cross-examined about how her prosecution of the application for property settlement was liable to result in diminution of the deceased estate and the children’s deprivation of the deceased’s bequests to them, but such implied criticism of the applicant was pointless. The authorities soundly establish that property settlement proceedings under the Act, such as those brought by the applicant presently, should be determined without regard for the testamentary disposition of the deceased estate to its beneficiaries.
Even if that were not so, the difficulties that now pervade communication between the applicant and respondent will tend to hinder proper financial provision for the children if the applicant is left to perpetually negotiate with the respondent about the release of money from trust funds for the children’s benefit. A better arrangement would be for the applicant, as sole carer for the children, to have principal control of funds she needs to properly provide for the children, as ss 90SM(4) and 90SF(3) of the Act envisage. The applicant’s property settlement claim will not exhaust the deceased estate because she cannot reasonably expect entitlement to 100 per cent of the assets which belong to her and the deceased estate. Whatever assets remain within the dominion of the estate, the children will each retain their individual beneficial interests to 30 per cent thereof.
The applicant contended that the diminution in value of the deceased’s assets in the period between separation and his death should be recognised under s 90SF(3)(r) of the Act and result in an appreciation of her overall entitlement, but that submission had no merit.
There was disagreement over both the extent of the diminution in value of assets and the reasons for the diminution. The increased debt incurred by the deceased in the period between April 2012 and May 2013 is reflected in the liquidation of his superannuation interest ($36,000),[51] the escalated debit balance of his mortgage account, allowing for deposit of the liquidated superannuation funds into that account ($13,000),[52] and the escalated debit balance of his corporation’s business cheque account ($6,000).[53]
[51] Applicant’s affidavit, paras 148-149
[52] Applicant’s affidavit, para 150; Exhibit A1 (pages 337, 346)
[53] Applicant’s affidavit, para 151; Exhibit A1 (pages 362, 388, 392)
There is nothing untoward in the deceased’s increased debt of $55,000 over the last 13 months of his life. He knew his medical condition was terminal. He had stopped working and had no income apart from social security, so his expenditure of capital was hardly surprising. In late 2012 he took the children on overseas vacations,[54] and just prior to his death he took the children and the applicant on a holiday to the Maldives.[55]
[54] Respondent’s affidavit, para 26; Applicant’s affidavit, para 96
[55] Applicant’s affidavit, paras 107-108
The applicant contended the legal fees already incurred and paid in these proceedings by the respondent on behalf of the deceased estate should also be taken into account as a factor of relevance to s 90SF(3)(r) of the Act, for otherwise she would be subsidising the estate’s defence of her application. That submission is accepted, since the legal fees were wholly paid from the assets of the estate, thereby diminishing the assets available for distribution between the applicant and the estate. As already mentioned, the paid legal fees amounted to some $90,000.[56]
[56] Exhibit A2
Conclusions and orders
The parties held remarkably divergent views about what would constitute a just and equitable alteration of property interests, allowing for the respondent’s primary submission that it would not be just and equitable to make any orders at all.
The applicant abandoned the orders set out within her Amended Initiating Application filed on 3 April 2014 and instead pressed for the orders set out within her Case Outline document filed on 22 May 2014. In essence, she sought to retain her own assets (and debts) and her payment from the estate of, first, the sum of $480,000 from its cash reserves resulting from sale of the P property and one water licence, and secondly, 75 per cent of the net sale proceeds of the as yet unsold water licence (valued at $180,000). Given the net value of her own assets, her overall claim amounted to about $1,525,683, or about 95.7 per cent of the available assets.
The respondent abandoned the orders set out within her Amended Response filed on 17 April 2014 and instead pressed for the orders set out within her Case Outline document filed on 22 May 2014. In the alternative to outright dismissal of the applicant’s application, she proposed payment to the applicant of 15 per cent of the net balance held on trust by her solicitors (agreed to be $509,817) together with 15 per cent of the sale proceeds of the unsold second water licence. The amount the respondent therefore envisaged paying to the applicant from the estate approximated $103,473. Allowing for the applicant’s retention of her own assets, the respondent’s proposal was therefore tantamount to the applicant’s overall receipt of about $1,014,156, or close to 63.6 per cent of the available assets.
The parties’ proposals were therefore more than 32 per cent apart, which computes to over $500,000.
The evidence discussed above warrants determination of the applicant’s entitlement to 67.5 per cent of the net assets, collectively held by her and the deceased estate. In summary, that result is reached by assimilating:
(a)The significant weight attached to the disparate initial contribution of assets by the applicant and deceased to their relationship, which contributions were not eroded by their subsequent contributions (see Pierce v Pierce (1999) FLC 92-844 at [23]-[30], [40]);
(b)The combined financial and non-financial contributions made by the applicant and deceased during their relationship, which contributions should be regarded as equal;
(c)The superior homemaking contributions made by the deceased for the benefit of the children after separation in April 2012 up until the children passed into the care of the applicant in April 2013;
(d)The homemaking contributions made by the applicant (exclusively of the deceased) for the benefit of the children since April 2013;
(e)The significant weight attached to the applicant’s sole contribution of the inheritance, which now reflects itself in assets held by the applicant with a net value of about $870,000;
(f)The dissipation of some $90,000 from the deceased estate to pay legal fees incurred in these proceedings by the estate;
(g)The limited capacity of the applicant for future gainful employment; and
(h)The applicant’s willing acceptance of sole and exclusive responsibility for raising the children. Importantly, that role entails both financial and other burdens and will endure for many more years until the children attain their majority.
The deceased’s bequests to the children are ignored for the purposes of assessing the applicant’s entitlement, particularly in so far as the evidence relates to ss 90SF(3)(c), 90SF(3)(d)(ii), 90SF(3)(l), 90SF(3)(q), and 90SM(4)(g) of the Act, for otherwise the obligation to accord primacy to the Part VIIIAB proceedings over testamentary dispositions would be subverted.
The combined net value of the assets held by the applicant and deceased estate is $1,595,017 (= 910,683 + 684,334)
The applicant’s 67.5 per cent share thereof computes to $1,076,636.
Presently, the applicant holds assets with a net value of $910,683. She therefore needs to be paid from the deceased estate the sum of $165,953 to satisfy her entitlement (= 1,076,636 – 910,683). The deceased estate has plenty of liquid cash to easily enable that payment to the applicant forthwith.
Orders are made requiring the respondent to cause that sum to be paid to the applicant from the funds held by her on trust for the beneficiaries of the deceased estate. Such orders are just and equitable.
Each party sought costs against the other, but that issue was not addressed in final submissions. Costs are therefore reserved for 28 days.
I certify that the preceding ninety-two (92) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Austin delivered on 28 August 2014
Associate:
Date: 28 August 2014
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