Fletcher & Maloney
[2008] FamCA 864
•2 October 2008
FAMILY COURT OF AUSTRALIA
| FLETCHER & MALONEY | [2008] FamCA 864 |
| FAMILY LAW – TRUSTS - whether trust was a sham – whether trust should be treated as alter ego of husband or financial resource of husband – whether corporate beneficiary of trust should be treated as property of the husband – trust is not the alter ego of the husband – trust and corporate beneficiary of the trust are financial resources of the husband FAMILY LAW – TRUSTS – treatment of assets of trust - trust is financial resource of the husband therefore cannot add the value of the assets of the trust to the pool of assets to be divided –if appropriate wife to be provided with an extra amount out of the assets of the parties to allow for this FAMILY LAW – PROPERTY SETTLEMENT – determination of asset pool – whether capital gains tax on anticipated sale of properties should be included as a liability – no basis for taking CGT into account FAMILY LAW – PROPERTY SETTLEMENT – Contributions - asset by asset approach – significant assets – whether income of business should be attributed almost solely to wife’s efforts since she commenced working there - contributions to business assessed as equal FAMILY LAW – PROPERTY SETTLEMENT – contributions to financial resources – whether s 75(2)(j) can apply to property settlement proceedings – caution in not double counting under 79(4) – consideration of parties’ non-financial contributions to financial resources of husband – wife’s approach of seeking 80% of husband’s entitlement to trust is not open to the Court – minimal adjustment in favour of the wife justified FAMILY LAW – PROPERTY SETTLEMENT – 75(2) adjustment - whether wife has reduced earning capacity as a result of having three young children (not of the marriage) and reducing workload – wife maintains same earning capacity therefore no basis for any adjustment in her favour – consideration of financial resources pursuant to s 75(2)(b) - adjustment in favour of the wife of $400,000 |
| Family Law Act 1975 (Cth) ss 75, 79 |
| O’Chee and Anor v O’Chee (2006) FLC 93-275 Rosati and Rosati (1998) FLC 92-804 JEL and DDF (2001) FLC 93-075 Ascot Investments v Harper (1981) 148 CLR 337 Ashton and Ashton (1986) FLC 91-777 Stein and Stein (1986) FLC 91-779 Davidson and Davidson (1991) FLC 92-127 Goodwin and Goodwin-Alpe (1991) FLC 92-192 Webster and Webster (1998) FLC 92-832 Milankov and Milankov (2002) FLC 92-095 Stephens and Stephens and Ors (2007) FLC 93-336 Townsend and Townsend (1995) FLC 92-569 Zalewski and Zalewski (2005) FLC 93-241 Kildea and Kildea (2008) FamLR 347 GT and KW [2006] FamCA 638 Walters and Walters [2007] FamCA 324 Waters and Jurek (1995) FLC 92-635 Phillips and Phillips (2002) FLC 93-184 |
| APPLICANT: | Ms Fletcher |
| RESPONDENT: | Mr Maloney |
| FILE NUMBER: | SYF | 3168 | of | 2005 |
| DATE DELIVERED: | 2 October 2008 |
| PLACE DELIVERED: | Adelaide |
| PLACE HEARD: | Darwin & Adelaide |
| JUDGMENT OF: | Strickland J |
| HEARING DATE: | 29-30 March 2007 6-7 September 2007 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Meldrum QC |
| COUNSEL FOR THE RESPONDENT: | Ms Pyke QC |
Orders
That the wife retain all the right title and interest of the parties to the exclusion of the husband to the professional practice being L Pty Ltd trading as L Practice.
That the husband retain all the right title and interest of the parties to the exclusion of the wife to the professional practice being E Pty Ltd trading as E Practice.
That the husband retain for his sole use and benefit absolutely the following:
(a)All monies standing to the credit of the husband in any bank accounts in the name of the husband;
(b)The property at K being Lot ..., comprised in Certificate of Title Volume … Folio …;
(c)The husband’s right title and interest in the property at S being Lot … comprised in Certificate of Title Volume … Folio …;
(d)The husband’s right title and interest in the property situated at G;
(e)The husband’s furniture and household effects;
(f)The husband’s Toyota Landcruiser utility motor vehicle;
(g)The husband’s superannuation entitlement in BT Business Superannuation member no. …;
(h)The husband’s superannuation entitlement in the Public Officials’ Superannuation Trust;
(i)The husband’s loan account in the T Trust;
(j)The husband’s loan account in R Pty Ltd;
(k)The proceeds of sale of the husband’s interest in the share portfolio.
That the wife retain for her sole use and benefit absolutely the following:
(a)All monies standing to the credit of the wife in any bank accounts in the name of the wife;
(b)The property situated at B being Lot … comprised in Certificate of Title Volume … Folio ….
(c)The wife’s furniture and household effects;
(d)The wife’s BMW motor vehicle;
(e)The wife’s jewellery;
(f)The wife’s superannuation entitlement in BT Business Superannuation member no. …;
(g)The wife’s loan account in TS Pty Ltd.
That the money standing to the credit of the parties in any bank account held in their joint names be forthwith divided equally between them.
That as to account no. … with Bank SA held in the names of the husband, the wife and Mr MB the wife forthwith transfer or assign to the husband all of her right title and interest in the said account.
That the husband forthwith transfer to the wife all of his right title and interest in the following real property:
(a)The property at W being Lot … comprised in Certificate of Title Volume … Folio …;
(b)The property at unit 1, …, Darwin, being Lot … Town of Darwin comprised in Certificate of Title Volume … Folio …;
(c)The property at unit 2, …, Darwin, being Lot … Town of Darwin comprised in Certificate of Title Volume … Folio …;
(d)The property at P being Lot … comprised in Certificate of Title Volume … Folio ….
That the husband forthwith transfer and assign to the wife all of his right title and interest in the debt due to the parties by the wife’s sister.
That the wife forthwith transfer to the husband all of her right title and interest in the following real property:
(a)The property at 4 M Street Darwin being Lot … Town of Darwin comprised in Certificate of Title Volume … Folio …;
(b)The property at 6 M Street Darwin being Lot … Town of Darwin comprised in Certificate of Title Volume … Folio …;
(c)The property at F being Lot … comprised in Certificate of Title Volume … Folio ….
That the husband indemnify the wife and keep her indemnified from all or any liability for:
(a)The repayment of all mortgages secured over the real properties referred to in paragraph (9) hereof;
(b)All rates taxes assessments and notices payable in relation to any of the said properties referred to in paragraph (9) hereof;
(c)All monies (if any) owed by the parties or either of them to the husband’s mother;
(d)The wife’s loan account in the T Trust;
(e)All monies (if any) owing by the wife to the husband or to the husband’s brother with respect to the distribution of proceeds received from the sale of shares.
That the wife indemnify the husband and keep him indemnified from all or any liability for:
(a)The repayment of all mortgages secured over the real properties referred to in paragraph (7) hereof;
(b)All rates taxes assessments and notices payable in relation to any of the said properties referred to in paragraph (7) hereof;
(c)All monies (if any) owed by the parties or either of them to wife’s father;
(d)All monies (if any) owed by the parties or either of them to TS Pty Ltd.
That the wife forthwith return to the husband his personal effects, university notes, text books and framed title deed for the property at K.
That forthwith upon the amount of the liability becoming known the husband and the wife equally pay any Capital Gains Tax liability assessed as a result of the sale of the property at D.
That within three [3] months of the date hereof the wife pay to the husband the sum of SEVEN HUNDRED AND THIRTEEN THOUSAND NINE HUNDRED AND THREE DOLLARS [$713,903.00].
That within three [3] months of the date hereof the husband pay to the wife the sum of THIRTY FOUR THOUSAND FIVE HUNDRED AND THIRTY SEVEN DOLLARS [$34,537.00].
That all applications be dismissed and removed from the active pending cases list.
Liberty to both parties to apply as to consequential orders.
IT IS NOTED that publication of this judgment under the pseudonym Fletcher & Maloney is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT ADELAIDE |
FILE NUMBER: SYF 3168 of 2005
| MS FLETCHER |
Applicant
And
| MR MALONEY |
Respondent
REASONS FOR JUDGMENT
Introduction
I have before me for determination competing applications for property settlement.
The wife filed her Amended Application for Final Orders on 22 March 2007. However, save and except for one change made during final addresses, she is now seeking orders in the terms set out in her document entitled “Orders Sought by the Wife” tendered at trial on 7 September 2007 as follows:
“1.That the wife retain all the right title and interest of the parties to the exclusion of the husband to the [professional] practice being [L] Pty Ltd trading as [L Practice].
2.That the husband retain all the right title an [sic] interest of the parties to the exclusion of the wife to the [professional] practice being [E] Pty Ltd trading as [E Practice].
3.That within 7 days the husband pay to the wife the sum of $15,000 as replacement cost for the following:
3.1 A pair of 18 carat white gold flower drop earrings consisting of 7 fancy cut pear shaped diamonds with a weight of 1.71 carats; and
3.2 A 14 centimetre long 750 yellow gold Collier necklet with attached Australian South Sea Cultured Pearls, drop in shape, gold in colour.
4.That the wife retain for her sole use and benefit the following investments:
4.1 All monies standing to the credit of the wife in any bank accounts in the name of the wife;
4.2 [B property] situated at lot […] comprised in Certificate of Title Volume […] Folio […].
4.3 The wife’s superannuation in BT Business Superannuation member #[…];
4.4 The wife’s 1999 BMW motor vehicle.
5.That the husband retain for his sole use and benefit the following investments:
5.1 All monies standing to the credit of the husband in any bank accounts in the name of the husband;
5.2 [S property] being lot […] comprised in Certificate of Title Volume […] Folio […];
5.3 [K property] being lot […], comprised in Certificate of Title Volume […] Folio […].
5.4 [S2 property] being lot […], comprised in Certificate of Tiele Volume […] Folio […].
5.5 [G property].
6.Monies standing to the credit of the parties in any joint bank account is to become the property of the wife.
7.That as to account […] with Bank SA presently in the names of [the husband], [the wife] and [Mr MB] any interest therein of the husband is to become the property of the wife.
8.That the wife indemnify the husband with respect to the following liabilities:
8.1 Loan from [the wife’s father] in the sum of $11,699.09;
8.2 Loan from [TS] Pty Ltd in the sum of $44,759.83;
9.That the husband forego all and any entitlement to the loan owed by [the wife’s sister] to the parties in the sum of $22,596.13;
10.That the husband indemnify the wife with respect to the following liabilities:
10.1 All monies if any owed by the wife in respect of loans to the parties from [the husband’s mother];
10.2 All monies if any owing by the wife to the husband or to [the husband’s brother] with respect to the distribution of proceeds received from the sale of shares;
11.That the base amount allocated to the Wife out of the interest held by the Husband in the BT Business Superannuation member number […] [hereinafter referred to as “BT”] is the amount of $55,812.50.
12.That in accordance with section 90MT(1)(a) of the Family Law Act 1975, whenever a splittable payment becomes payable to [the husband] from his interest in the BT, the Trustee shall pay to the wife or her administrators, executors, beneficiaries, heirs or assigns the entitlement calculated in accordance with Part VI of the Family Law (Superannuation) Regulations 2001 and that upon such payment there be a corresponding reduction in the entitlement of the husband in the scheme.
13.That Order 12 has effect from the operative time.
14.That the operative time is four working days from the date of service upon the Trustee, of a sealed copy of these Orders.
15.That having been accorded procedural fairness in relation to the making of this Order, this Order binds the Trustees of BT.
16.That the balance of the nett [sic] pool of assets of the parties remaining after apportioning between the husband and wife the property referred to in paragraphs 1 to 12 hereof be divided as to 65% to the wife and 35% to the husband.
17.That the husband within 14 days of the date of making these orders do all acts and things and sign all documents necessary to transfer to the wife all of his right title and interest in the following real property:
17.1 [W property] being lot […] comprised in Certificate of Title Volume […] Folio […];
17.2 [Unit 1], Darwin situated at lot […] comprised in Certificate of Title Volume […] Folio […];
17.3 [Unit 2], Darwin situated at lot […] comprised in Certificate of Title Volume […] Folio […];
17.4 [4 M Street] being lot […] comprised in Certificate of Title Volume […] Folio […].
17.5 [6 M Street], Darwin situated at lot […] comprised in Certificate of Title Volume […] Folio […].
17.6 [F property] being lot […] comprised in Certificate of Title Volume […] Folio […].
17.7 [P property] situated at lot […] comprised in Certificate of Title Volume […] Folio […].
18.That the wife indemnify the husband and keep him indemnified from all or any liability for mortgages secured over the real properties referred to at orders 17.1 to 17.7 herein including all rates, taxes, taxation liabilities and outgoings arising whatsoever in respect to the real properties and the transfers thereof.
19.That the husband indemnify the wife and keep her indemnified from all or any liability for mortgages and/or loans secured or unsecured over the real properties referred to at orders 5.1 to 5.5 herein including all rates, taxes, taxation liabilities and outgoings arising whatsoever in respect to the real properties and the transfers thereof.
20.That within 3 months of the date of making these orders the husband pay to the wife or as she directs in writing, by Bank Cheque in the sum of:
(a) In the event capital gains tax is not deducted, $2,879,072.00;
(b) In the event capital gains tax is deducted, $3,185,396.00.
(subject to any further adjustment in the wife’s favour for Section 75(2)(c) of the Family Law Act)
21. That within 14 days of the date of making these orders the wife provide to the husband one framed title deed to [K property].
22. That unless otherwise specified in this order and except for the purpose of enforcing the payment of money due under this order or any subsequent order:
22.1 Each party shall be entitled to the exclusion of the other to all other property and chattels of whatsoever kind or nature in the possession of such party as at the date hereof and for this purpose, bank accounts are deemed to be in the possession of the person whose name appears on the bank records thereof, superannuation entitlements are deemed to be in the possession of the person who is named as the worker whose age or working future provides the conditions for payment out of such entitlements; and
22.2 Each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to this order.”
The one change is that instead of seeking a splitting order in relation to the husband’s BT Business Superannuation the wife accepts that each party should retain their respective superannuation entitlements subject to an appropriate adjustment from the other property of the parties.
The husband filed his Amended Response on 26 March 2007. However, he is now seeking orders in the terms set out in the document entitled “Orders Sought by Husband” tendered at trial on 6 September 2007 as follows:
“1.That the wife retain all right title and interest of the parties to the exclusion of the husband to the [professional practice] being [L Pty Ltd] trading as [L Practice].
2.That the husband retain all the right title and interest of the parties to the exclusion of the wife to the [professional practice] being [E] Pty Ltd trading as [E Practice].
3.That the husband retain for his sole use and benefit the following investments:
i. All money standing to the credit of the husband in any bank accounts in the name of the husband;
ii. The husband’s superannuation in BT Business Superannuation Member […];
iii. The husband’s superannuation in [the Public Officials’] Superannuation Trust;
iv.The husband’s personal effects, motor vehicles and loans.
4.That the wife retain for her sole use and benefit the following investments:
i. All money standing the credit of the wife in any bank accounts in the name of the wife;
ii. The Wife’s superannuation in BT Business Superannuation Member […];
iii.Personal effects, motor vehicles, loans.
5.Monies standing to the credit of the parties in any joint bank account is to become respectively the interest as to 50% of the property of the wife and 50% of the property of the husband.
6.That the husband transfer all his rights title and interest in the following property and the wife indemnify the husband for all mortgages or encumbrances currently over those properties:-
i. [Unit 1]
ii. [Unit 2]
iii.[P property]
iv.[W property].
7. That the wife transfer or relinquish any claim to the title and interest in the following property and the husband will indemnify from all mortgages or encumbrances currently over those properties:-
i. [4 M Street], Darwin
ii. [6 M Street], Darwin
iii.[K Property]
iv.[G Property]
v.[B Property]
vi.[F Property]
8. As to accounts No. […] with Bank SA presently in the name of [the husband], [the wife] and [Mr MB], save for the 50% interest therein of [Mr MB] the husband and wife to share the monies therein as to 50% each.
9.That the wife indemnify the husband with respect to the following liabilities:-
i. A loan from [the wife’s father] in the sum of $11,699.09.
10.That the husband forego all and any entitlement to the loan owed by [the wife’s sister] to the parties in the sum of $22,596.13.
11.That the husband indemnify the wife with respect to any liability of the wife in respect of the loan in the sum of $47,500.00 in accordance with the Deed of Loan dated 13 April 2005.
12.That the husband indemnify the wife with respect to the $40,000.00 owing to [the husband’s brother] with respect to the distribution fo [sic] proceeds received from the sale of shares.
13.That the applicant wife immediately return the respondent husband’s personal effects, university notes, text books and framed title deed from the [K] property all currently located at [Unit 1 and 2], Darwin.
14.That the husband retain to the exclusion of the wife all right title and interest in [S Property], which will remain registered in the name of the husband and [the husband’s brother] being a property held on trust for the husband’s mother.
15.That the wife do pay all capital gains with respect to [D property].
16.That the wife pay to the husband the sum of ……………..”
With the amount the wife is to pay the husband the husband’s counsel left it to me to calculate the figure on the basis of her submissions.
Factual Background
The husband was born in 1969 and is currently aged 39 years.
The wife was born in 1973 and is currently aged 35 years.
The parties commenced their relationship in or about May 1996. The husband was working full time for L Practice and the wife was in her final year of university.
At this time the husband owned a property at K purchased in 1989 for $4,000, a property at N1 and an one half interest in each of the properties at N2 and N3. The husband also had superannuation of $4,557.50. The wife had negligible assets but she did have superannuation of approximately $1,500.
In or about mid 1996, the husband purchased one half of the professional practice L Practice and became managing partner. The husband paid approximately $40,000 which was lent to him by his uncle. The practice operated from Unit 2 in Darwin and it changed its name to L and E Practice.
In or about October 1996, the husband and his partner Mr L purchased the property at Unit 1 in Darwin for $165,000, and it was then leased out.
On graduation in November 1996, the wife worked in the public service for 12 months and then commenced working in an entry level role in her profession in February 1998. The wife also worked as a waitress for 3 or 4 nights per week and tutored students. The wife completed her professional qualifications in 1999 and in February 1999 she commenced working with D & R Practice. On 28 May 2000 she ceased working at D & R Practice and she commenced working with L & E Practice.
The parties began cohabitation in February 1997 moving to the property at S owned at the time by the husband’s father. There the parties lived with the husband’s brother. The wife says that the husband spent $22,000 from the professional practice on various expenses associated with this property.
On 7 August 1998 the wife purchased a property off the plan at AC Street in Darwin for $98,950. The wife received a gift of $9,895 from her mother which she used as the deposit. She then made all payments off this property and received all rent from it.
On 28 January 1999 Maloney Pty Ltd was incorporated. The husband was the sole director and shareholder.
The wife says that the husband decided he would pursue a career in public office in or about 1999. She says that from that point on she became very active in supporting the husband by accompanying him to various events, meetings and associated social activities and functions, and she joined a political organisation herself.
In January 1999, R Pty Ltd was incorporated with the husband as the sole director and shareholder. This company became a corporate beneficiary of the Maloney Trust.
In February 1999 the Maloney Trust was formed with Maloney Pty Ltd as the trustee. The principals of the Trust were the husband and his father. The consentor was the husband’s brother. This Trust contributed $500,000 to the purchase and development of a venue in Darwin and for the purchase of an interest in V Company. This amount was borrowed by the husband and secured by mortgages with Westpac and a personal guarantee.
In or about February 1999, the husband purchased the other half of the professional practice on the retirement of Mr L. The husband paid for this by meeting Mr L’s insurance for four years, and his phone, internet and fuel bills.
At this time Ms Z became a one quarter owner of the practice for which she paid $25,000.
In June 1999, TS Pty Ltd was incorporated. The wife, her sister and her father were the shareholders.
In August 1999, proceedings between the husband’s parents for property settlement were resolved. Pursuant to the settlement, the property at S was transferred to the husband and his brother as tenants in common. Curiously the husband says that the property was a gift on the condition that he, his brother and his mother have “life interests” in the property and that the property not be sold. The husband says though that if the property is sold then the proceeds are to be used for the benefit of his mother.
The husband and his brother also received $125,000 as part of their parents’ property settlement. This was also intended to be used for their mother’s benefit.
On 6 September 1999 the husband’s mother purchased the property at S2 for $135,000. This property is adjacent to the property at S. Most of the purchase price was paid by the $125,000 that had been gifted to the husband and his brother in August 1999.
On 8 October 1999 the husband’s mother lent the husband and his brother the sum of $170,296.18 which was on lent to the Trust to reduce the $500,000 debt. A deed of acknowledgement of debt was entered into between the husband and his mother regarding this loan on 8 November 1999.
On 29 October 1999 the wife sold the property at AC Street in Darwin, achieving net proceeds of $43,000 before capital gains tax.
On or about 8 November 1999 the wife lent the sum of $45,000 to the husband to be on lent to the T Trust to reduce debt. A deed was executed between the parties acknowledging the debt of $45,000 and providing amongst other things that the wife has no claim under the De Facto Relationships Act 1999 to any interest the husband has in V Company, YV Venue, the company VC Pty Ltd or any interest in any real property owned by the husband.
In February 2000 the parties moved to the property at S2. The wife says that the property was renovated by the parties while they were living there. She says that approximately $67,000 was spent on improvements to this property, as well as there being considerable work and labour undertaken. In recognition of the parties’ contributions the wife says that a deed was signed by the parties and the husband’s mother granting the parties an option to purchase the property for $135,000. The husband says that the improvements were undertaken in lieu of rent over the approximately 4 years the parties lived at this property and that the option to purchase was not granted in the end.
On 1 February 2000 the husband sold his property at N1 and lent the proceeds of sale of approximately $105,000 to the T Trust to reduce the debt of $500,000.
In July 2000 the wife commenced working on a profit share basis. The wife says that from this time her hours increased significantly, such that by August 2001 she was working 70-80 hours per week often over 7 days per week.
On 14 August 2000 the property at 4 M Street was sold to TS Pty Ltd for $400,000. This property had previously been owned by a company owned by the mother’s step-mother, of which the wife’s father was the manager. The property was renovated in 2000 at a cost of $272,634.25. This was financed by a loan from the Commonwealth Bank of Australia and a loan of $49,000 from the wife.
In or about October 2000 the husband became a candidate for public office. The wife says that from this point her attendances at social and political functions to support the husband increased considerably in order to improve the husband’s prospects of winning office.
The wife says that on 21 November 2000 an oral agreement was entered into between herself, the husband and Ms Z, such that all three were remunerated on an equal basis. The shareholding in the company remained such that 3 shares were held by the husband and 1 was held by Ms Z. The wife and Ms Z were to remain working in the practice full time and the husband was to work 3 or 4 days per month and spend the balance of his time campaigning to be elected. It was agreed that if the husband was elected, that he would receive one third of the debtors, profit and money in the general account and resign.
From November 2000 to August 2001 the parties resided at J property which was an address within the area in which the husband was standing as a candidate for public office. The parties then returned to the S2 property, living there for a total of approximately four years.
In or about May 2001 at the instigation of the husband the parties opened a branch office of the practice. This office also served as a campaign office for the husband before his election and the practice employed another professional who was based there. The wife says that she attended the branch office each Wednesday afternoon and as otherwise required by the branch office’s clients. She says that the practice paid for the services of the husband’s personal assistant and all of the expenses of running the branch office.
The husband was elected to public office in 2001. The husband says that thereafter both he and the wife enjoyed the benefits of his position through overseas and interstate trips and fringe benefits including the provision of a new vehicle and fuel card and the payment of phone bills.
The wife says that her involvement in the husband’s public activities increased her after hours involvement in the practice, such that she was working almost 7 days per week and would often start as early as 4:00am, averaging 10-12 hours per day. The husband says this is an exaggeration.
The wife says that the husband resigned as director of the Company and relinquished his three shares on 24 August 2001, effective from 17 August 2001. Payments were made in accordance with the agreement detailed above at paragraph 31 with the wife and Ms Z leaving approximately $20,000 each in the general operating account of the business.
The husband says that while he had formally relinquished his share in the business on his election to public office, he remained active in promoting the practice, in conducting professional work in the name of the firm and in the running of the business.
In September 2001 Maloney Pty Ltd changed its name to TP Pty Ltd.
On 13 December 2001 the husband and the wife entered into a written agreement whereby inter alia the wife agreed to hold 50% of the company on trust for the husband and to account to him for half of the profit. The husband also retained an option to purchase one half of the company for $1. The wife says that she did not read this document before signing it.
On or about 14 December 2001 Ms Z left the practice. She was paid $25,000 for her share of the furniture, goodwill, fixtures and fittings of the business and she received one quarter of the outstanding debts as they were paid.
The husband remained a signatory to the business general account and retained credit and fuel cards. The wife says that the husband’s purchases on the business credit card were apportioned as monies spent by her from the practice, whereas the husband was using the credit card for his own purposes.
On 8 April 2002 the parties purchased Mr C’s one half interest in Unit 2, Darwin for $175,000. This interest was registered in the name of the wife.
In May 2002, A Pty Ltd was incorporated, with the husband as a director.
On 15 June 2002 C Company was leased by A Pty Ltd for a period of five years for a rental of $260,000 per annum.
On 17 June 2002 the husband resigned as the director of R Pty Ltd and transferred his shareholding to his brother. The husband’s brother was also appointed the sole director.
In July 2002 TP Pty Ltd was removed as the corporate trustee of the Trust and was replaced by the husband’s uncle. In October 2002, TP Pty Ltd was de-registered.
On 11 July 2002 the parties purchased Mr L’s one half interest in Unit 1, Darwin for $145,000. This interest was put into the name of the wife. At the same time the remaining one half interest in Unit 2, Darwin was purchased for $175,000 from Mr L and put into the name of the husband. Both purchases were financed by way of a mortgage of $300,000 obtained from Westpac. The wife says that the rent paid by the business went to repay this loan and she has made additional contributions totalling $314,000. The wife says that the husband made repayments of $5,400 over the life of the loan.
On or about 4 November 2002 the parties and the husband’s friend Mr MB purchased the property at 4 M Street from TS Pty Ltd for $650,000. The parties each own a 47.5% share and Mr MB owns a 5% share in this property. The wife says that an amount of $44,759.83 is still owed by the purchasers to the vendor.
On or about 1 December 2002, the parties purchased the property at D for $515,000. The wife says that she paid the deposit and made all mortgage payments on this property after the purchase.
On 1 April 2003 the parties and the husband’s friend Mr MB purchased a property at 6 M Street for $280,000. The parties each have a 25% share and Mr MB has a 50% share. This property was refurbished at a total cost of $42,835. The property was then leased out at $44,000 per annum for three years from 1 May 2003, with a right of renewal for a further three years which has been exercised.
On or about 8 May 2003, the parties purchased the property at W for $449,000. The wife says that she paid a $25,000 deposit and the purchase costs. This property was rented out for $1,000 per fortnight until 12 September 2005. The husband paid the mortgage on this property until 19 May 2005.
In May 2003 M Pty Ltd was incorporated. This company operates V Business and holds one of two shares in A Pty Ltd which owns the leasehold business known as C Business. One of the three shares in M Pty Ltd is held by the Trust.
In June 2003, MR Pty Ltd was incorporated, with the husband as a director. The Trust holds a one sixth interest in this Company.
On 21 July 2003 the Trust purchased four units in the ON Trust which owned and operated the YV Venue.
On 12 August 2003 MR Pty Ltd purchased MR property for $620,000. The Trust contributed $105,000 to this purchase. The husband says that he lent this amount to the Trust for this purpose.
On 18 September 2003 the shares in CS Pty Ltd were purchased by the husband’s uncle who then declared that he held them as trustee for the Trust. The husband’s uncle is also the sole director of CS Pty Ltd. The primary asset of CS Pty Ltd is a 10% interest in the UP Trust which owns a property leased to a leisure club, an interest in another property at U and an interest in a farm.
In September 2003 the Maloney Trust changed its name to the T Trust.
On 29 September 2003 an agreement was entered into between L Pty Ltd, the husband and the wife confirming the husband’s continuing employment with the practice, allowing for Mr IM to join the practice and confirming the agreement of 13 December 2001 between the husband and the wife.
On 1 October 2003 Mr IM joined the practice, entering into a written Partnership Deed with the wife. This deed provided for inter alia the wife to cause one share in the company to issue to Mr IM and for him and the wife to share equally in the profits of the business. It also provided an option to the husband to purchase a one third or equal share in the firm for $1.
In October 2003 the wife says that the parties borrowed $68,779.74 from the wife’s father to reduce the loan due to the Westpac Bank taken out initially to lend to the Trust in order to pay off the YV venue loan and its successors. The wife says that all but $11,699.09 (which she alleges remains outstanding) was repaid through the joint line of credit with ACCU operated by her. The husband denies all this.
On or about 21 October 2003 the parties purchased the property at F for $665,000. The wife says that she paid the initial deposit and all subsequent mortgage payments, apart from an initial contribution of $1,500 made to the deposit by the husband. This property was rented out for $600 per week until 13 January 2006 when the tenants vacated. It was then not until July 2006 when new tenants were found.
On 22 October 2003 the properties at 4 and 6 M Street Darwin were refinanced with a $700,000 Commercial Bill from Bank SA. This Bill was used to pay out the Westpac loan accounts and to pay for refurbishment of the property at 6 M Street.
The premises at 4 M Street Darwin were re-let from 1 June 2004 to 31 May 2006. The wife says that she prepared the new lease. She says she did the same when a new lease was entered into for the period 1 June 2006 to 31 May 2007.
On 4 August 2004 the parties purchased the property at P with the wife’s sister for $310,000. The wife’s sister owns a 50% share in the property and the parties each own a 25% share. The parties lent the sum of $22,596.92 to the wife’s sister to assist with the purchase of her share. The wife says that her father and her sister live there, and her father pays $10,440 per annum rent.
On 27 August 2004 the property at N3 was sold for $157,500.
On 6 September 2004 the property at N2 was sold for $175,000.
On 10 September 2004 the husband purchased a Toyota Landcruiser utility motor vehicle in the name of the practice for $35,775 using funds from the practice. This vehicle was transferred to the husband pursuant to the consent order made on 9 June 2005.
In December 2004 the property at O was purchased by the T Trust and the Fletcher Family Trust (the wife’s family trust of which the wife is a beneficiary) for $2.5 million. The T Trust contributed $300,000 to the purchase being the net proceeds of sale of the properties at N3 and N2. $100,000 of that was treated as coming from the husband’s mother, $60,000 from the husband and $140,000 from the husband’s brother. The wife asserts that she made payments of $5,000 on 2 December 2004 and $10,000 on 23 December 2004 in order to ensure that the Commercial Bill to finance the purchase of the properties was serviced. The husband says he made these payments. The wife says that her mother and step-father made three payments totalling $15,000 on 2 December 2004, 22 December 2004 and 23 December for the same purpose.
On 31 January 2005, the T Trust purchased a one third interest in 2 Y Street for $800,000.
In or about February 2005, the wife says that the husband sold his share portfolio. The wife says that the husband paid $64,618.30 towards the purchase of these shares from funds from the practice in 2003. The wife says that on 4 and 7 February 2005, the husband received the total sum of $161,497.83 by way of two cheques from Comsec but that apart from a sum of $1328.10, the husband has failed to account to the wife or the practice for any proceeds of his share trading.
On or about 2 February 2005, the husband exercised his option to formally re-enter the practice as a partner and on or about 21 February 2005 appropriate documents were lodged with ASIC. However, in May 2005 the wife lodged a document with ASIC effectively revoking the earlier documents.
In February 2005, the parties purchased a property at B. The purchase price was $1.5 million and a delayed settlement was arranged for 27 June 2005.
In February 2005 the wife travelled to China and while there purchased furniture to the value of $11,000. The wife paid this amount from the ACCU line of credit on 19 April 2005. The wife retained this furniture after separation.
On 1 March 2005 the T Trust purchased a one third interest in 9 Y Street, for $850,000. The parties moved into this property and the husband remained living there after separation.
On 13 April 2005 the parties executed a loan agreement acknowledging that they owe the husband’s mother $47,500. This was the balance of the loan lent by the husband’s mother on 8 November 1999. The wife says that the agreement discovered by the husband is incorrect and that it should reflect that the actual sum owing at the time of signing was $147,500.
The parties separated in April/May 2005.
The husband spent two weeks in Sydney after separation. He says that the wife removed the share registers from the accountant’s office, removed him as a signatory for the general and trust accounts of the practice and cancelled his credit card.
On 2 June 2005 the wife filed her Application for Final Orders and an Application in a Case in the Family Court.
On or about 8 June 2005 the husband commenced the new professional practice E Pty Ltd, trading as E Practice. The husband is the sole director and shareholder of E Pty Ltd.
On 9 June 2005 Judicial Registrar Johnson made interim property orders by consent as follows:
1.To the extent necessary leave be granted and [L] Pty Ltd (ACN […]) be added as the Second Respondent and [Mr IM] be added as the Third Respondent to the proceedings and upon the compliance by them with each of the following orders which affect them, they be at liberty to be discharged from the suit.
2.By way of interim order, pursuant to s79:
2.1 The husband and wife immediately do all acts things [sic] to transfer to the wife the whole of the husband’s interest in and to the property situated at and known as [B Property] in the Northern Territory, being the whole of the land contained in the Certificate of Title Volume […] Folio […] (“[B Property]”) and complete its purchase in the wife’s sole name. Such property being presently subject to a contract for sale between […] as sellers and the husband and the wife as buyers.
2.2 To give effect to Order 1.1 [sic], the husband’s obligations shall include:
2.2.1Executing such documents as may be necessary to enable the stamp duty already paid on the contract for sale to be re-applied to pay that duty on any new contract for sale naming the wife as sole purchaser that may be necessary;
2.2.2Permitting any interest due or which becomes due to the sellers under the terms of the existing contract or any new contract to be paid from the parties’ account no. […] at Bank SA.
2.3 The husband immediately do all acts and things to transfer to the wife the whole of his right, title and interest in the property situated at and known as [D Property] in the Northern Territory, subject to any encumbrances, and the wife be permitted to retain and encumber and or sell that property at its fair market value which shall be agreed between the parties and being not less than $650,000 or in default of agreement the fair market value determined by a valuer appointed by the President for the time being of the Australian Property Institute and upon completion of its sale apply the net sale proceeds in reduction of any mortgage or mortgages as the case may be obtained by her to enable her to complete the purchase of [B Property].
2.4 The wife and the Third Respondent will as soon as practicable supply to the husband a list of the husband’s current matters and a list of all debtors in respect of matters of which the husband has had the conduct since 1 February 2005 and in the event that there is any issue as to the adequacy of that list then the wife and the Third Respondent shall cause to be produced at the offices of the wife’s accountant a complete list of the files which the husband has had the conduct of since 1 February 2005 for inspection by the husband.
2.5 As soon as practicable after the receipt of each client’s written authority, the wife and the Third Respondent do all acts and things to deliver to the husband those client files of the [professional] practice carried on by the wife and the Third Respondent as directors of the Second Respondent under the name and style of [L & E Practice] (“the Practice”) being […] (“the husband’s files”) and where in respect of any of the husband’s files there is unbilled work in progress subject to the client’s consent and the husband indemnifying the practice and the Second Respondent in respect of any income tax payable thereon then the husband shall be permitted to render accounts to the client for that work in progress.
2.6 That on or before 9:00am on 12 June 2005 the wife and the Third Respondent do all acts and things to:
2.6.1transfer to the husband the Toyota Land Cruiser utility motor vehicle presently in his possession and the husband will contemporaneously give to the wife a copy of the transfer signed by all parties;
2.6.2cause the Practice to vacate the premises presently occupied by it at [the branch office] in the Northern Territory and deliver up possession to the husband of those premises and as soon as practicable transfer to the husband the whole of the second respondent’s right title and interest in the fixtures, fittings, plant and equipment including office equipment and computers (save for the wife’s computer) presently at those premises for his use whilst conducting a [professional practice] from the [branch] office pending final Order from this Court and the husband shall make his own arrangement to lease the premises and otherwise pay the outgoings with respect to the premises.
2.7 As soon as practicable, the wife and the Third Respondent cause the husband’s books, personal effects including his chair and the computer, computer accessaries [sic] including printer, Dictaphone, dragon voicespeak headphone and microphone used by the husband at [Unit 1 and Unit 2], Darwin to be delivered to the husband at an address nominated by him.
2.8 Without prejudice to the right of the husband and the right of the wife at any final hearing of their respective applications for property settlement to assert and argue in the case of the husband that his proper interest and that of the wife’s be taken into account in respect of the practice is as to two-thirds and in the case of the wife to assert and to argue that the proper interest of the husband and the wife to be taken into account in respect of the practice is as to one-half interest:
2.8.1The husband as and from 9am 12 June 2005 or from the wife and the Third Respondent’s earlier compliance with Order 2.6 do all acts and things to release fully and finally the wife and the Third Respondent from any irrevocable option granted to him and all other terms and conditions in Clause 3 of a Partnership Deed between the wife and the Third Respondent dated 1 October 2003, and further transfer to the wife or as she may direct, the whole of his right, title and interest in and to the Second Respondent and the Practice including but not limited to the use of the names “[L & E]” and “[L]”.
3.Any additional amount to be taken into account or paid to the husband in respect of the wife’s and his interest if any in the practice to be stood over to be determined by the trial judge.
4.Pending further order, the husband and the wife do all acts and things to cause all rental payments net of agent’s commission, if any, in respect of the following properties to be paid as and when received and if possible by direct debit or directly by the tenants into account no. […] at Bank SA namely:
4.1 [D Property]
4.2 [W Property];
4.3 [Units 1 and 2];
4.4 [F Property];
4.5 [B Property].
5.Pending further order, the amounts from time to time in account no. […] at Bank SA be applied as follows:
5.1 To meet the statutory charges, mortgage repayments and reasonable repairs for each of the properties referred to in Orders 4.1 to 4.5 and thereafter.
5.2 To meet the husband’s and the wife’s taxation obligations related to the properties in Orders 4.1 to 4.5 inclusive when those obligations fall due for payment.
6.Pending further order the husband be restrained from entering the premises occupied by the practice at [Units 1 and 2], Darwin.
7.Pending further order, the husband and the wife each be restrained from denigrating the other of them.
8.As and from the date of these Orders the husband releases the wife and the Third Respondent from their undertaking not to distribute the profits of the Practice.
9.All assets and liabilities dealt with or created by or arising as a consequence of these Orders, be taken into account on the final hearing of proceedings between the husband and the wife.
10.The husband file and serve his Response to the wife’s Application for Final Orders and his Form 13 Financial statement before 30 June 2005.
11.The husband will deliver to the wife or her nominees at a place to be nominated by the wife between 10am and 12noon on 12 June 2005 the wife’s personal effect and belongings including her passport and jewellery presently in the safe and shed located on the premises, at [9 Y Street], [S2 Property] and [S Property] or otherwise in the husband’s possession or control. At the time of delivery the husband will also provide a list of the goods delivered.
NOTE:
1.The husband and the wife and the Third Respondent agree pursuant to Clause 2 of the Partnership Agreement between the wife and the Third Respondent dated 1 October 2003 to vary the rent for the premises at [Units 1 and 2] occupied by the practice from the present rent of $13,400 per month to the fair market rent which shall be agreed between them or in default of their agreement shall be the fair market rent determined by a registered valuer appointed by the President for the time being of the Australian Property Institute.
2.The court is asked to note that the husband and the wife have reached the agreements now comprised in Order 2.8 in an endeavour to minimise their costs and the costs of the Third Respondent, to avoid as far as possible the need for the Third Respondent to be a party to these proceedings and further to facilitate their disengagement and avoid the need for immediate determination of their respective interests, if any, in the Practice.
The wife says that in accordance with paragraph 11 of the orders of 9 June 2005 a number of possessions were returned to her on 11 August 2005 but that two items of jewellery which cost the wife $17,550 were not returned.
Pursuant to paragraph 2.6 of the orders of 9 June 2005 the branch office was delivered to the husband. The wife says that all work in progress at the branch office as at 9 June 2005 was received by the husband after that date. The husband says that no active files were left in the branch office nor did the wife pay any money to E Practice for work in progress relating to those clients who transferred their matters from the practice to E Practice contrary to the orders of 9 June 2005.
In 2005 the husband retired from public office.
On 20 June 2005, the husband’s uncle was removed as trustee of the T Trust and the husband and his father were appointed as trustees.
On 29 June 2005 the wife withdrew a sum of $25,728.79 from the Bank SA account into which rental payments for the M Street properties were paid in the name of the parties and Mr MB . The wife says that this sum was calculated by reference to her entitlement to those rental monies and that she used the money to re-establish herself and service the mortgages on the parties’ investment properties.
The husband says that in June 2005 the wife also withdrew $21,740.10 from the joint Bank SA account of the parties and used it to pay her income tax liability for the financial year 2003/2004 and not taxes and expenses relating to the operation and funding of the joint rental properties as claimed by the wife at the time.
On or about 27 June 2005 the wife attended to the settlement of the purchase of the B property.
Pursuant to paragraph 2.3 of the orders made on 9 June 2005 the husband transferred to the wife his interest in the property at D.
In September 2005 the wife and her current partner Mr JD commenced renovating the property at W. They spent $76,199.45 on these renovations as well as undertaking work and labour themselves. The wife and her partner moved into this property on 16 October 2005. Since September 2005 the wife has paid $500 per week rental for these premises.
On or about 29 September 2005, R Pty Ltd purchased the property at H Street Darwin for $1.2 million. This property was then rented to E Pty Ltd trading as E Practice.
On 25 October 2005 the wife withdrew a sum of $15,000 from the T Trust and Fletcher Family Trust rent account. The husband says that the wife did this without the knowledge or consent of his uncle as trustee of the T Trust.
On 13 January 2006, the property at F was vacated by the tenant. The wife says that the husband advised that he would move into the property to avoid the loss of rental payments, but failed to do so or to allow the property to be available for re-letting for a period of 26 weeks. The wife asserts that the husband’s conduct resulted in a rental loss of $600 per week for 26 weeks ($15,600). The wife also says that while the property was vacant she made financial contributions of $13,727.13 and that she and her partner made substantial non-financial contributions to the maintenance and upkeep of the property. The husband denies that he was responsible for any of this.
In February 2006, the husband and his father were removed as trustees of the T Trust and the husband’s uncle was again appointed as trustee.
In February 2006 the property in Darwin on which the YV Venue was developed was sold for $4.2 million. The Trust’s share of the proceeds of sale was $278,805.65. The wife filed applications seeking injunctions in relation to these funds but on 31 March 2006 this money was paid to the trustee of the Trust and distributed in various ways, including to pay taxation liabilities.
On 2 May 2006 the Trust purchased a one third interest in a property at I Street.
In July 2006 the wife’s son with her current partner, Mr JD, was born.
On 24 July 2006 the husband purchased the property at G with Ms BL for $320,000.
On 9 August 2006 the property at D was sold for $737,000. The net proceeds were deposited into the joint Bank SA rent account.
On 12 September 2006 the T Trust sold its interest in the YV Venue by selling its 4 units in the ON Trust for $320,000.
On 11 May 2007, further consideration was given to the issue of the payment of the shortfall between the rental received and the outgoings of certain properties. Orders were made by consent for the parties to contribute monies to meet the mortgage payments and outgoings of various properties of the parties.
On 1 July 2007 the T Trust sold its interest in C Business for $264,527.77.
The current circumstances of the parties
The wife
At the time of the trial the wife was pregnant and she was due to give birth in about November 2007.
The wife lives with her partner Mr JD and their child born in July 2006 in the property at W. That property is owned by the husband and the wife jointly and the wife pays rent.
As a result of her pregnancy the wife planned to take six months maternity leave. However, she proposed to continue as a director and shareholder of L Pty Ltd and to maintain her qualifications. She planned to return to more active employment within three years.
According to the wife’s financial statement filed at the time of the trial her average weekly income was $7,079 and her total personal expenditure was $6,485 per week. Her partner was earning $700 per week in self-employment.
The husband
The husband has not re-partnered although he has formed a relationship with Ms BL. She is moving to Darwin from Sydney for work purposes but they have no plans to live together yet. They jointly own G property.
The husband resides in the property at 9 Y Street which is owned as to one third by the T Trust.
The husband works a professional with E Pty Ltd trading as E Practice from H Street in Darwin. R Pty Ltd owns the property and E Practice pays rent.
According to the husband’s financial statement filed for the purpose of the trial the husband’s average weekly income was $2,538 and his expenses were $2,320.50 per week.
The issues in dispute
In relation to the asset pool the primary issue is whether the assets of the T Trust should be treated as assets of the husband or whether the trust is a financial resource of the husband, and that issue took up the majority of the time in the trial. Surprisingly though, at the conclusion of the trial the wife’s senior counsel first put a submission to the effect that the trust was not properly formed because there was no settlement amount paid. Apart from a few questions in cross examination this was not an issue that was raised with any conviction in the evidence and in the end the submission itself was not actively pursued. Thus, I disregard it entirely.
The wife’s senior counsel then submitted that the trust was a sham. However, it appears that he meant that the initial acquisition of assets was a sham in that the money that the trust used to invest was money paid to the husband not to the trustee, and thus the assets of the trust were in fact the husband’s. In support of this submission the wife’s senior counsel relied on the Full Court decision of O’Chee and Anor & O’Chee (2006) FLC 93-275. However, the principle to emerge from that case is that:
“(I)n determining whether the acquisition of the property by the trust was a sham, regard could be had to all the circumstances surrounding the acquisition. However, the most potentially significant fact was the funding of the acquisition. If it were funded by sources other than the husband, other anomalies would be insufficient to render the acquisition a sham.” (p.80,657)
And further (at p.80,650):
“(T)he actual owner of the purchase money is determinative of whether the trust was a sham, not simply who caused it to be paid.”
Perhaps I can deal with this submission in the same brief way that the wife’s senior counsel did, although hopefully a little more clearly. This was a matter raised as an after thought, and it has no evidentiary basis whatsoever. The 10 day trial was conducted on the basis that there was a validly constituted Trust which has significant assets which were valued and the issue was whether the Trust was the alter ego of the husband or not. Thus I reject this submission made on behalf of the wife and note that it was not only typical of the wife’s scatter-gun approach to this litigation but also of the obvious lack of forethought prior to the commencement of the trial and the ever-changing position of the wife’s case as the trial progressed.
Other issues as to the asset pool include as follows:
113.1Apart from the assets of the Trust the wife asserts that the assets of the company R Pty Ltd, a corporate beneficiary of the Trust, should also be treated as the property of the husband on the basis that he controls that Company and treats it as his own.
113.2The value of the wife’s professional practice, L Pty Ltd Pty Ltd trading as L Practice. The husband says that it is valued at $1.807 million and the wife says its value is $1.448 million. However, the husband has taken the value as at 30 June 2005 and not 30 June 2006, and thus it is clearly the lower figure.
113.3The value of the interest of the parties in the commercial property at 4 M Street. The issue is the extent of the interest held by the parties, and for some inexplicable reason the husband says that the parties have one half and Mr MB has the other half. This is simply not the case, and the report of the single expert witness Mr HS records correctly that the parties jointly have a 95% share and Mr MB has 5%.
113.4The wife’s jewellery. The wife says that the husband has retained two pieces of her jewellery which cost $17,550. The husband denies this and says that the wife has them. In this instance I accept the husband’s evidence. There is no valuation of these items and no agreed figure, but I propose to use the wife’s figure of $15,000.
113.5The wife’s BMW motor vehicle. There is no valuation of this vehicle but I propose to use the wife’s estimate of $18,200. There also is no valuation of the husband’s Toyota Land Cruiser utility, and there is not even an estimate that I can use.
113.6For some unexplained reason the husband did not include in his schedule of assets the personal possessions of each of the parties. They have been valued and they should be included.
113.7The husband also did not include the various bank accounts of the parties in his schedule, although he does seek an order that any joint accounts be divided equally between the parties. These accounts should be in the pool of assets to the extent that the credit balances are known.
113.8Capital Gains Tax as a result of the sale of the D property. This property was jointly owned by the parties but pursuant to the consent order made on 9 June 2005 the husband’s interest was transferred to the wife for her to sell the property, pay off all liabilities and then put the net proceeds to meet any mortgage obtained by her to complete the purchase of the property at B. It was sold and there was a capital gain of $59,530. However, the net proceeds of $48,150.92 were paid by the wife into the parties’ joint Bank SA rent account. The wife now says that the parties should equally share this CGT liability. In my view that should be the result if the rent account is shared equally between the parties, a result which the husband seeks but not what the wife seeks; the wife seeks to have the credit balance in that account. However, there is a further problem. The wife says that the CGT is an amount that is known, namely $59,530, and would be payable by her as part of any income tax assessment received for the 2006/2007 financial year. However, the amount of the CGT liability is not $59,530 as claimed by the wife. That is the capital gain which will be included in her tax return as part of her income and tax will then be assessed on the totality of her income. Thus, the amount of the CGT liability is not known.
113.9Capital Gains Tax in relation to other real estate. The wife seeks to have as part of her entitlement to property settlement the parties interests in the following properties:
113.9.16 M Street Darwin
113.9.24 M Street Darwin
113.9.3Units 1 and 2 Darwin
113.9.4F Property
113.9.5P Property
113.9.6W Property
113.9.7B Property
Apart from units 1 and 2 Darwin the wife says that she will progressively sell her interest in these properties and establish a new portfolio of investment properties. On that basis she seeks that the CGT payable on a sale be included as a liability of the parties. The husband quite rightly opposes that and says that there is no basis for including any CGT that might be payable in the event that the wife does what she plans. According to the authorities, proper bases for CGT to be taken into account is if there is a need to sell the real estate to pay out one parties entitlement, if the property is to be sold as part of the order of the court, or if a sale is inevitable or would probably occur in the near future (Rosati & Rosati (1998) FLC 92-804, at p.85,043 and JEL & DDF (2001) FLC 93-075, at p.88,325). I find that none of these apply and there is no basis for taking CGT into account. Indeed, I find it extraordinary that the wife could even suggest it.
The other extraordinary circumstance is that in respect of this topic the wife has sought to include in the schedule of relevant liabilities not the estimated amount of CGT payable but the estimated capital gain itself.
113.10The debt due to the husband’s mother. The husband says that it is $47,500 and the wife says that it is $147,500. There is a loan agreement dated 13 April 2005 produced by the husband (Annexure “N” to his affidavit filed on 9 February 2007) which supports the husband’s position. The wife signed this document but she says when she did that it recorded $147,500 as the amount owing. She is alleging that the husband has “doctored” this agreement, but I do not accept that and I find that the wife is mistaken as to the amount that she saw.
She also suggests that the “other” $100,000 has found its way into a liability that the Trust allegedly owes the mother. The husband produced an agreement between the husband’s uncle as trustee of the Trust and the husband’s mother and the husband’s brother recording contributions of $100,000 each to the purchase by the trust of the O property in December 2004. The wife says this was no more than moving $100,000 of the amount that the parties owed the mother to create this debt. The husband says that this $100,000 was an amount that he and his brother repaid their mother from the proceeds of sale of the properties at N2 and N3, and it did reduce the amount owing by the parties. I accept the evidence of the husband and find that the debt owed by the parties to the husband’s mother is $47,500.
113.11In her affidavit the wife alleged that the parties and Mr MB did not pay the full purchase price to TS Pty Ltd when they bought the property at 4 M Street. However, she did not present any witness or any documents in support of this claim, the husband did not address it, and he was not cross examined about it. Accordingly I reject this allegation.
113.12The wife also alleged that the parties owe her father $11,699.09. However, she did not call her father as a witness or produce any documentary evidence in support of this claim. The husband denies that there is any such debt, and he was not cross examined about it. I do not accept that there is such a debt and I will not take it into account.
113.13Alleged undisclosed assets. The wife opened her case on the basis that the husband had undisclosed assets. She tendered at the start a file (Exhibit W2) which included documents under the heading of “non-disclosures”, and her senior counsel specifically put that there is “an unexplained movement of a half a million dollars”. Further, in her summary of argument the wife stated that she “has ascertained that there are interests undisclosed by the husband…” However, in the end result, nothing came of these allegations. Although the wife’s senior counsel referred to some of these allegations in his final address in many instances they were not even pursued with the husband. I reject entirely these scurrilous suggestions by the wife.
There were a number of contribution issues in dispute including as follows:
114.1The date of commencement of cohabitation. The wife says it was 1997 and the husband says it was in the year 1998-1999. In this instance I accept the evidence of the wife. She was able to link the date to other events whereas the husband was vague about the precise date.
114.2The date of separation. The wife says that it was 18 April 2005 and the husband says it was 13 May 2005. I am unable to find which date is correct, but fortunately in my view nothing turns on this dispute.
114.3I should mention at this point that both parties have presented their cases on the basis of an asset by asset approach. Thus, I need to consider the respective contributions of the parties to each asset separately.
114.4As to the assets, liabilities and financial resources that each party had at the commencement of cohabitation, any dispute hinges on the date of that commencement. To repeat, I accept that it was February 1997.
114.5A primary issue as to contribution is the extent of the husband’s contribution to the practice L & E Practice compared to the wife’s. That not only impacts on the findings in relation to that professional practice but the wife says that funds from that practice were used to contribute to the acquisition, conservation and improvement of a number of the other assets and she should receive credit for that given that she says that she made a far greater contribution to the practice itself than the husband did.
Specifically, the wife says that once she commenced work in the practice she developed it, she was almost single handedly responsible for the significant increase in income and profit, and she made the practice what it is today. The husband denies this and says that the wife was only able to earn the fees that she did because of the practice being in place with existing clients and files and with its good name for which he was primarily responsible.
The wife further submits that after the husband ran for public office his contribution to the practice was minimal. The husband says otherwise.
In relation to this latter issue there is also a dispute as to the agreement that the parties entered into at or about the time the husband relinquished his interest in the business on 13 December 2001 following his election to public office in August 2001. The agreement provided for the wife to hold “50% of the company on trust” for the husband and that she would “account” to the husband for “one half the profits (if any) of the company”. The wife says that the husband did not provide her with all of the document, which comprised two pages, that he did not direct her attention to the important issues contained in it, that she did not read it before signing it, and she was not aware of the husband claiming that she held 50% on trust for him until these proceedings.
However, I can say that I do not believe the wife and I find that she read the document and she willingly signed it knowing its contents.
The wife also attempted to mislead this Court in a similar way in relation to another agreement entered into between the husband, the wife and the company on 29 September 2003 preparatory to Mr IM becoming a partner in the practice. That agreement reflected what the earlier agreement recorded as to the wife holding 50% of the practice on trust for the husband. The wife initially claimed that she did not read this agreement properly, but she then said that she cannot say if she read it or not. However, if she read it then what she said about only learning of this issue in these proceedings was a lie. Again, I simply do not believe the wife and I find that she read this agreement and she willingly signed it knowing its contents.
114.6In general terms the wife says that she has contributed far more than the husband to each of their properties by way of attending to the purchase, by way of paying money including mortgage repayments and outgoings and by way of maintenance of the same. The husband denies this.
114.7Post-separation contributions. The wife alleges that she has made greater contributions than the husband to meeting the commitments associated with their properties since separation. For example, she asserts that there were insufficient funds in the relevant account to meet interest payments on the $200,000 line of credit with the Australian Central Credit Union, and she was required to make these payments. Additionally, she says that the husband did not make sufficient contributions to their joint rent account to meet mortgage repayments, and she had to make up the shortfall. The husband’s position is that he made the contributions that he was required to. He also points out that the line of credit with the credit union was taken out to meet the wife’s income tax liability. However, that does not help him very much because money that he withdrew from the practice was in fact treated as income of the wife and on which she then had to pay tax. The operation of the joint rent account was an issue addressed in the consent order of 9 June 2005, but subsequently became the subject of interlocutory proceedings between the parties which were then themselves resolved by consent order made on 11 May 2007. However, the issue of whether each party contributed what they should have remains for consideration by the Court.
114.8F Property. The wife suggests in effect that the husband made a negative contribution to this property by his conduct in relation to the rental of the same. Specifically, she says he prevented the property from being re-let for several months after tenants moved out and the parties lost the rental that would have been received. The husband denies this.
In relation to sub-section 75(2) of the Family Law Act the case commenced on the basis that neither party sought any adjustment. However, in her counsel’s final address he put that if the assets of the Trust are included in the asset pool then there should be a 3%-5% adjustment in the wife’s favour because with three children she now has a reduced earning capacity. On the other hand, if the Trust is found to be a financial resource of the husband’s then there should be an adjustment “in the wife’s favour of 80% of the husband’s entitlement to the Trust”. The husband opposes any adjustment.
As one would expect in a case like this there were many other issues in dispute that cannot be categorised as an issue relating to the asset pool or the respective contributions of the parties or the sub-section 75(2) factors, but I consider it unnecessary to pursue all of them in these reasons for judgment. For example, the wife made allegations that the husband withdrew various sums of money from the practice account and other accounts during cohabitation and she says that she does not know what he used this money for. Now short of undertaking an audit of all accounts operated by the parties during cohabitation, it is not possible to make findings about this issue and no-one, not even the wife has sought that that occur. The onus was on the wife in relation to issues like this to satisfy me that there is some relevance to the same but she has not done that.
Another similar example is the wife raising the fact of the husband using the practice credit card even after he entered public office. The husband does not deny that he did so, and the most that could be said about it is that the amounts were debited to the wife and became part of her income. However given my finding about the income of the practice I fail to see the relevance of raising this.
Yet another example is the wife asserting that the husband used money from the practice to meet sponsorship commitments, to meet his fees for qualification and his professional indemnity insurance premiums. Again, these issues ultimately went nowhere.
Finally, there is a dispute as to the return of certain items of personalty to the husband, and I refer to paragraph 13 of the orders sought by the husband set out in paragraph 3 above. The wife agreed to return the framed title deed but she made no comment about the other items. In this instance I find that the wife has all of these items and she should return them.
The evidence
The wife was represented by Mr Meldrum QC and Ms Gearin. She relied on her affidavits filed on 9 February 2007 and 28 June 2007, and her financial statement filed on 6 July 2007. She gave evidence and was cross examined.
The wife called one witness, Mr JM, Area Lending Manager Northern Territory for Bank SA. He gave evidence pursuant to a subpoena and he was cross examined.
The wife also relied on the affidavits of the wife’s mother filed on 16 February 2007, a forensic handwriting expert Mr PW filed on 9 February 2007, and an accountant Mr AD also filed on 9 February 2007, none of whom were required for cross examination.
The husband was represented by Ms Pyke QC. He relied on his affidavits filed on 19 February 2007 and 2 July 2007, and his financial statement filed on 12 March 2007. He gave evidence and was cross examined.
The husband called a number of witnesses namely his uncle who filed an affidavit on 19 February 2007, his brother who filed an affidavit on the same day, his mother who also filed an affidavit on the same date, his father who filed an affidavit on 22 March 2007, the accountant Mr GG who filed an affidavit on 23 February 2007 and a former employee of the professional practice, Ms PI who filed an affidavit on 19 February 2007. Each of these witnesses gave evidence and were cross examined.
The parties also relied on the affidavits of single expert witnesses namely real estate valuer Mr MS filed on 6 February 2007, real estate valuer Mr RC filed on 9 February 2007, real estate valuer Mr LL filed on 6 February 2007, another real estate valuer Mr KH filed on 5 February 2007, solicitor Mr NE filed on 5 February 2007, and personalty valuer Mr DD also filed on 5 February 2007. Again none of these witnesses were required for cross examination.
I particularly mention though the single expert witness, accountant Ms DB. She initially filed an affidavit on 28 March 2007 annexing her valuation report dated 27 March 2007 in relation to L Pty Ltd, E Pty Ltd and TS Pty Ltd. She then filed an affidavit on 29 March 2007 annexing her report dated 28 March 2007 primarily addressing the valuation of the T Trust. Unfortunately though this valuation was incomplete. This led to a significant delay in the continuation of the proceedings and led to the need for a further report dated 19 June 2007 which was annexed to her affidavit filed on 26 June 2007. However, there were difficulties discovered with that report in that it did not provide a complete valuation of all relevant entities. That then led to the need for a further report as to the valuation of the T Trust dated 4 July 2007 and which was tendered and marked Exhibit H13. I indicate that I was far from impressed with how Ms DB carried out her instructions and the work required to provide valuation reports for the purposes of this trial. At the time that she accepted and received her instructions the date for the commencement of the trial in this matter was known, yet Ms DB was simply not able to complete the report that was required in time for it to be available for that commencement. It seems to me that having accepted the instructions there was an obligation on her to complete the report in the time available, or if she was unable to then she should have declined to accept the instructions. The result of her failure to appreciate this aspect of the matter has impacted upon the hearing of this case.
The wife was an impressive witness in terms of her court know how, her confidence and her presentation, but in reality her evidence was a mixture of truths, half-truths, lies, exaggeration and spin. It was also difficult to follow many of the arguments put by her senior counsel, and I must say that the summary of argument presented at the commencement of the hearing was quite unhelpful. I have described the presentation of her case already as utilising a scatter gun approach. She simply threw up as many facts, circumstances and issues as she could think of and hoped that some at least would find their mark. This was a primary reason why the case which I was assured would be completed in four days in fact took ten days.
In terms of the wife not telling the truth to this Court I have found that that was the case in relation to the agreements dated 13 December 2001 and 29 September 2003. To recap, I do not believe that the wife did not read these agreements before signing them and that she did not willingly do so knowing their contents.
There was then her under-handed behaviour when the husband returned to the practice in February 2005. After lodging the appropriate documents with ASIC she then applied to ASIC to cancel or revoke the lodgement of those documents, she changed the registered office of the company and she took possession of the Statutory Register. She unilaterally adjusted the share register, removed the husband as a signatory to the general and trust accounts, and cancelled his credit and fuel cards.
Next, I find that the wife was responsible for the state of the branch office when vacant possession was handed over to the husband pursuant to the consent orders made on 9 June 2005. The office was in disarray and I do not accept the wife’s denial that she caused this.
To highlight the circumstance that the wife was less than careful in presenting her case I refer to paragraph 73 of her affidavit of evidence in chief filed on 9 February 2007. In that paragraph the wife sets out a schedule of what she describes as expenditure on the husband’s practice credit card for his own purposes. However, when analysed that is simply not correct. For example it included a jogging machine purchased on 31 January 2003 for $2,900, yet the wife conceded in cross examination that this was purchased for both parties, that she used it, and it was left at home. Furthermore, that item was included on the depreciation schedule of the practice for the year ended 30 June 2003 as an asset of the practice and it was the wife who signed off on this document for income tax purposes.
Other similar examples were revealed in the cross examination of the wife, and it was quite apparent that the wife was prepared to make these allegations without checking the tax records of the practice. As I commented at the time, this was a clear waste of the Court’s time. However, even when faced with the obvious, the wife would still not concede that some of her allegations were simply incorrect.
The fact is that the wife cannot have it both ways, ie, she cannot swear an affidavit saying these were items purchased for the husband’s benefit and then include the same items in the depreciation schedule of the practice. If they are not assets of the practice then there has been a false representation made to the Australian Taxation Office.
Unfortunately this was not the only example of the wife making false representations to the Australian Taxation Office. In 1999/2000 the parties undertook a number of improvements to the S2 property purchased by the husband’s mother on 6 September 1999. The wife deposed in paragraph 122 of her affidavit of evidence in chief that a total of $67,000 was spent on these improvements. However, the wife claimed this expenditure as a tax deduction in the practice taxation return! In cross examination she eventually conceded that these expenses should not have been claimed but she then prevaricated and avoided conceding the obvious, namely that that was a false representation to the Australian Taxation Office.
Finally, I note that I have rejected the wife’s claim that the loan agreement dated 13 April 2005 between the husband’s mother and the husband and the wife has the incorrect amount in it. In fact what the wife says in cross examination is that the husband in some way altered that document after she, the wife, signed it. However, I find her evidence as to this to be fanciful, and it is yet another example of her being untruthful.
Unfortunately I did not find the husband’s evidence to be necessarily any more reliable than the wife’s. His evidence too was a combination of truths, half truths, lies, exaggeration and spin.
First there is the email to the Westpac bank on 25 July 2005 (Annexure “VMF13” to the affidavit of evidence in chief of the wife filed on 9 February 2007). The husband was seeking a loan from that bank to enable him to purchase the property at H Street in Darwin. He says as follows:
“I am currently going through a property settlement in the Family Law Court and would prefer to borrow as much as I could to demonstrate that I have lots of debt.”
When cross examined about this the husband did all he could to construct a plausible explanation for saying this outside of the obvious, which he would not initially concede. In the end he said it was a “stupid” statement and he wished he had not said it. However, I am nowhere near satisfied with this comment.
The wife attempted to use that email in other ways against the husband, but in my view those attempts generally fell flat. For example, in the email the husband says that he is purchasing the property whereas it turned out that R Pty Ltd purchased it. The wife asserts that that indicates that the husband in fact purchased the property for himself “but under the cover of [R] Pty Ltd”. I do not accept that assertion. I accept the husband’s reason for the change namely that he was advised by his uncle not to put the property in the name of his new practice because it was unwise to do so. Of course, that still leaves open the question of who controls R Pty Ltd which the wife also raised, but I will address that later in these reasons.
A further issue of credit that did arise from that email and which does concern me greatly is that the husband said that he proposed to use as security for the loan the property at S2. However, in these proceedings he says that he has no interest in that property, and it is owned solely by his mother. Despite this, in his declaration made of his pecuniary interests when he entered public office he listed this property. There is no doubt that the property is in fact registered in the name of the mother and there is no suggestion that the mother holds that property for example on trust of the husband. Thus, I propose to proceed on that basis, but these inconsistent statements do not fill me with any confidence in the husband’s evidence generally.
In relation to the loan that the husband was seeking in order to purchase the property, he in fact obtained that from Bank SA instead of Westpac, and in an email to Mr JM of Bank SA dated 17 August 2005 the husband says, “I have located an extra $100,000 which will become available at the end of a fixed term deposit on 14 October 2005” (see Annexure “VMF17” to the wife’s affidavit of evidence in chief filed on 9 February 2007). However, the husband did not disclose any such term deposit in any document filed in Court including his financial statements, and he did not discover any document which evidenced that he had such a deposit. Now, either the husband was lying to this Court and the wife or he was lying to the Bank. In cross examination he opted for the latter, but again after trying to avoid the obvious. He also expressed no compunction at telling this bald-faced lie, and he treated it as normal commercial practice. Worse still, when he was asked by the wife’s solicitor in correspondence to produce documentary evidence of the term deposit, instead of coming clean, he responded by email saying that he was unable to locate the records and that it could have been a reference to his personal savings. Then when cross examined about this he still would not make the obvious concession and was evasive in his answers. He also had the effrontery to deny that what he put in the email was a lie.
There were other examples of the husband deliberately keeping the wife and her lawyers in the dark. For example, in relation to the disbursement of the proceeds of sale of the Trust’s interest in the YV Venue, the husband sent an email to the solicitors for the purchaser on 31 March 2006 in which he said as follows:
“You are not authorized to inform any third party of any details relating to the payment of the funds to the [T] trust (apart form [sic] the bank etc). It is a transaction between your client [the purchaser] and the [T] trust. We will write to the applicant wife after payment has been received” (Exhibit W13)
When cross examined about this the husband was evasive as to on whose authority this email was sent, and in the end he avoided answering the question.
…
…
I should mention that it was the wife’s case that the husband was not in fact working in the practice either at all or to anywhere near the extent that he claims when he was in public office, but I do not accept that and the wife was not being truthful in that evidence.
Next, in the same way as the wife made false representations to the Australian Taxation Office, so did the husband. He claimed income tax deductions in respect of items that were said to be placed in rental properties when in fact they were not. For example, in March 2005 a barbeque was purchased for $2,950 and it was included in the depreciation schedule for D property. However, it was in fact placed in the property occupied by the husband and the wife, namely 9 Y Street. The same thing was done in relation to a lounge suite.
The final matter to mention is in relation to something that occurred prior to the commencement of cohabitation, but unfortunately again demonstrates that the husband is not averse to acting in a fraudulent way if he considers it will advantage him. The husband and his brother purchased the property at N2, but in order to obtain the first homebuyers stamp duty exemption, and indeed in order to be able to put in a bid at the auction which was only open to first homebuyers, the property was registered in the sole name of the husband’s brother but with him holding a one half interest on trust for the husband.
Turning to the other witnesses, those who were required for cross examination and gave oral evidence were all witnesses called by the husband. They were his uncle, his brother, his father, his mother, his accountant Mr GG and a former employee of the professional practice Ms PI.
In general terms the wife’s case is that the evidence of the members of the husband’s family as to their input to the Trust and on the question of whether the husband controls the same should not be believed. However, I do not accept this. Although they were all protective of the husband and defensive in relation to this primary issue I find that they all did their best to be truthful to this Court. I was particularly impressed with the evidence of the husband’s uncle. With the husband’s brother, he was less impressive but overall I found his evidence to be reliable. With the husband’s father, he had little idea of what had been happening but that is understandable given that he no longer has any direct role in the business operations. Then finally, with the husband’s mother there was no doubt that her evidence was inconsistent and can be described as all over the place, but that too was understandable given her history and circumstances. In any event, she was not cross examined about the Trust and any involvement she may have had in it. The main challenge to her evidence was in relation to her dealings with the husband and the wife and in particular in relation to the loan that is due to her by them.
That said, there are still some discreet issues with the evidence of these family members that I will need to comment on at the relevant time and which do raise concerns about the findings that I should make in relation to the Trust. For example, there is the evidence as to the changes of trustee and the reasons for that occurring at the times that they did.
Mr GG is the accountant who attends to the tax affairs of the Trust, R Pty Ltd, the husband and the husband’s brother. No challenge was made to his credit and he gave his evidence well. Ms PI was employed to do work for L & E Practice and when the husband and the wife separated she went to work for the husband. Again, there was no challenge to her credit and she gave her evidence well.
The T Trust
It is important to record a brief history of the Trust as follows:
152.1On 1 February 1999 the Maloney Trust was formed with the trustee being Maloney Pty Ltd. This company had been formed in January 1999 with the husband as the sole director and shareholder. The principals of the Trust are the husband and his father. The consentor is the husband’s brother. The Primary beneficiaries were the husband (the principal beneficiary), his children, grandchildren, great-grandchildren and his parents. The Secondary beneficiaries include the husband’s brothers and sisters, the spouses, widow or widower of any Primary or Secondary beneficiaries. The Tertiary beneficiaries include any company of which any beneficiary is a member.
The power of appointment and removal of the trustee rests with the husband and his father jointly as the principals of the Trust.
152.2In September 2001 the trustee changed its name to TP Pty Ltd.
152.3On 1 July 2002 the trustee was removed and replaced by the husband’s uncle.
152.4In September 2003 the name of the Trust was changed to the T Trust.
152.5On 28 June 2005 the trustee was changed to the husband and his father.
152.6On 1 February 2006 the trustee was changed back to the husband’s uncle and that was the position at the date of the trial.
152.7R Pty Ltd was incorporated in January 1999 with the husband as the sole director and shareholder. The company was a corporate beneficiary of the Trust. On 17 June 2002 the husband resigned as the director and the husband’s brother was appointed in his place. The husband’s shares were also transferred to his brother at this time.
There were a number of other accounts variously in the names of the husband and the wife. With some of these accounts and particularly the accounts in the name of the wife there is evidence before me of the credit balances, but with the husband’s accounts there is no evidence of this and I am not in a position to make any finding about these amounts.
With the wife’s accounts I propose to accept her submission that the husband did not contribute to any of them, and I will adopt the same position in relation to the husband’s accounts, namely the wife did not contribute to any of them.
The superannuation entitlements of the husband and the wife
At the commencement of cohabitation the husband had a superannuation entitlement with Westpac of $4,557.50, and the wife had a superannuation entitlement of $1,500. Their respective entitlements have increased with contributions being made by both parties, and with the husband, when he was in public office he also contributed to a specific superannuation fund set up for public officials. However, overall both parties agree that their respective contributions both direct and indirect to their superannuation entitlements should be treated as being equal.
Share sale proceeds
There is no issue that the husband’s contribution to the purchase of shares came from the professional practice. However, the wife submits that the contributions should be assessed at 100% to her and nil to the husband. She did not explain why but consistent with my findings about assets purchased with money from the practice the contributions of the parties to the shares should be assessed as being equal. Certainly it was the husband who determined what shares to buy and when to sell, but I do not consider that that is sufficient to alter my finding. Indeed the husband did not make any submission at all in relation to the issue.
The wife’s loan account in TS Pty Ltd
There was no specific evidence of the origin of this loan account but it may be the balance owing of an initial amount of $49,000 the wife lent to the Company in 2000. In terms of contributions there was no evidence of the source of the money lent to the Company, but the wife says that the contributions should be assessed at 65%/35%, and I assume that that is because the money would have come from the practice. However, given my findings about how money from the practice should be treated I assess the respective contributions of the parties as being equal.
The T Trust
There was a good deal of evidence presented by the wife and to a lesser extent the husband as to their respective contributions to this Trust. However, given that I have found that the Trust is not the alter ego of the husband and that the assets of the Trust cannot be treated as the property of the husband, much of this evidence has become unnecessary. Paragraphs 79(4)(a) and (b) of the Act only require the Court to take into account contributions to the acquisition, conservation, or improvement of any of the property of the parties or either of them and not their financial resources. Paragraph 79(4)(c) of course has no such limitation and allows for contributions made to “the welfare of the family” to be taken into account, but it is difficult to see how the parties respective contributions to the Trust can be brought into this category. There is no doubt that whatever they did such as the active role that the husband has taken in the management and administration of the Trust, and the wife’s support of that role were intended to ultimately benefit themselves as beneficiaries of the Trust, but that is not what paragraph 79(4)(c) is about. Thus, in respect of a consideration of the contributions of the parties here all the Court can do is note their contributions to the Trust and its operation but without taking that any further. I hasten to add though that contributions to financial resources is a relevant factor to be taken into account under sub-section 75(2) of the Act and I will be addressing that later in these reasons.
R Pty Ltd
This entity has been valued at $518,000 and the wife asserts that the parties’ respective contributions to it should be assessed at 65%/35% in her favour.
As with the T Trust the wife in effect has asked me to find that although the husband is neither a director nor a shareholder the husband controls this entity and can benefit from it such that it should be considered his alter ego, and its assets treated as the property of the husband.
The major asset of the company is the property at H Street Darwin which is leased to the husband’s professional practice. The husband operates his professional practice from that building.
In addition, the company is a beneficiary of the T Trust and in the past income has been allocated to this company by that Trust.
The husband says quite candidly that he treats R Pty Ltd as part of the Trust structure, and that as with the Trust all members of the family have input and where possible and where necessary are consulted in relation to anything that R Pty Ltd does. He denies that he controls it but concedes that he plays a significant role in the management and operation of the company.
As with the Trust and for the same reasons I do not consider that R Pty Ltd is the alter ego of the husband and I am not prepared to treat its assets as the property of the husband. However, although the husband did not specifically concede this as he did with the Trust, I consider that R Pty Ltd is a financial resource of the husband and I will take it into account when considering sub-section 75(2) of the Act.
Section 79(4)(c) of the Family Law Act 1975
To address this paragraph specifically the parties agree that their contributions to the welfare of the family constituted by themselves, and including their contributions as homemakers can be assessed as being equal.
Section 75(2) of the Family Law Act 1975
The wife’s senior counsel’s initial submission to the Court was that there should be no adjustment for any factors pursuant to sub-section 75(2) of the Act. However, that position changed in his final address. It was submitted that if the assets of the Trust are determined to be the property of the parties there should be an adjustment of 3% to 5% “on account of the wife’s three young children”, relying on paragraph 75(2)(c) of the Act. On the other hand though, the submission went, if the Trust is found to be a financial resource of the husband then the wife says that there should be “an adjustment in the wife’s favour of 80% of the husband’s entitlement to the Trust”.
The husband’s submission is that on the basis that the Trust is a financial resource of his then the wife should receive an adjustment of $250,000 out of the property of the parties.
I have found that the Trust is a financial resource of the husband and thus I only need to consider the alternate submission of the wife and the one submission of the husband. Ironically, that is rather fortunate for the wife because of course if she or her counsel had properly read paragraph 75(2)(c) of the Act they would have appreciated that it only applied where the party has the care and control of a child of the marriage. Here all three children are the children of the wife and her partner Mr JD and they are not children of the marriage.
There is of course sub-paragraph 75(2)(d)(ii) of the Act, but that was not referred to by the wife’s senior counsel and perhaps thankfully so given that that does not address the fact that the wife may have the care and control of three children, but rather it addresses her commitments that are necessary to enable her to support children that she has a duty to maintain.
In any event, when challenged about this during oral submissions the wife’s senior counsel indicated that what was meant to be conveyed is that the wife will have a reduced earning capacity as a result of having three young children in her household. Now of course the earning capacity of each party is relevant under paragraph 75(2)(b) of the Act, but I do not consider that even that paragraph applies here to the wife’s circumstances. The evidence is not that the wife will have a reduced earning capacity. Her earning capacity remains the same, but at the time of the hearing she was pregnant with twin boys and the anticipated date of birth was early November 2007. The wife proposed to take at least six months full time maternity leave and anticipated that within the next three years she would be able to return to “more active […] work and contribution to the overheads, costs and work at [L Practice] such that (her) income will increase proportionately”. In anticipation of this she “restructured the operation and management of her practice” by for example purchasing another practice and employing the professional from that practice on a three year contract.
Now of course what the wife does, and how she restructures her practice, and how she balances being a parent with working in her practice are all her decisions and her choices. The fact remains though that she will continue to have the ability to earn significant income from her practice and there is no basis for any adjustment in her favour because of the decisions and choices that she makes. This has nothing to do with the husband and he should not be required to in effect fund the claim that the wife makes. This is apart from the circumstance that the wife presented no evidence that her income in fact would be reduced over the next three years.
Now I have gone further than I needed to in dealing with that issue but I did so because although the wife did not seek this adjustment if I found that the Trust was a financial resource of the husband, I am still obliged to consider all relevant factors arising under sub-section 75(2) of the Act and the earning capacity of the wife is such a factor no matter how I treat the Trust.
The next issue to mention is that neither party referred specifically to R Pty Ltd in the context of financial resources and sub-section 75(2) of the Act. The wife’s case appeared to be that that company was the alter ego of the husband but unlike with the Trust she did not put a submission to the Court about how it should be treated vis-a-vis sub-section 75(2) of the Act if it was found to be a financial resource of the husband. With the husband he did not really address how R Pty Ltd should be treated but as I have said already his position is that R Pty Ltd is part of the Trust and therefore logically on his case it should be treated as a financial resource as well.
In any event, I propose to treat the parties’ submissions on sub-section 75(2) of the Act as covering R Pty Ltd as well as the Trust.
There are two paragraphs of sub-section 75(2) of the Act that refer to “financial resources”. There is paragraph 75(2)(b) which requires the Court to take into account:
the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment;
Then there is paragraph 75(2)(j) which requires the Court to consider:
the extent to which the party whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other party;
I propose to consider paragraph 75(2)(j) of the Act first. I note initially that neither party referred me to this paragraph, although the wife in her outline of argument said that it was “not applicable”.
At first blush this paragraph is only relevant to an application for maintenance, not property settlement. However, in Zalewski & Zalewski (2005) FLC 93-241 the Full Court addressed whether it could apply to property settlement proceedings. It was argued on appeal that the trial judge had erred in property settlement proceedings in taking into account irrelevant matters, namely paragraphs 75(2)(j) and (k). After referring to authority addressing the purposes of and application of sub-section 75(2) in various cases, Coleman and Boland JJ said this:
“84.The inclusion of the words “whose maintenance is under consideration” in ss 75(2)(j) and (k), prima facie, indicates the subsections relevance to spousal maintenance applications. However s 79(4)(e) does not limit consideration in proceedings under s 79 to any specific s 75(2) factors. The criterion to be applied under s 79(4)(e) is that the matters in s 75(2) must be relevant. It is necessary that assessment of contribution exercise under ss 79 (4)(a),(b) and (c) is not confused with the word “contributed” in s 75 (2)(j), the latter requiring the consideration of a contribution to a financial resource. We accept caution is required to avoid the possibility of “double counting” of an indirect non financial contribution by a spouse as homemaker and parent to the development of a business, and, in addition, making an adjustment relying on s 75(2)(j). However, it follows from our discussion that we do not accept counsel for the husband’s submission that ss 75(2)(j) and (k) were irrelevant factors which the trial Judge should not have taken into account. In this case the trial Judge did not “double count”. His assessment of factors under s 75(2) was directed to relevant matters under ss 75(2)(j) and (k). It was relevant in the circumstances of this case for the trial Judge to have regard to the wife’s contribution to the husband’s earning capacity acquired during the course of a lengthy marriage.” [Emphasis added]
This statement was quoted with approval in the recent decision of the Full Court in Kildea & Kildea (2008) FamLR 347.
In GT & KW [2006] FamCA 638, Kay J (with whom Coleman and Boland JJ agreed) held that a further 5% adjustment in favour of the husband was justified on account of matters in paragraphs 75(2)(a) and (j) (on account of contributions by the husband to the wife’s earning capacity).
In Walters & Walters [2007] FamCA 324, in an appeal with respect to property settlement, one area of complaint was with respect to the trial judge’s findings on sub-section 75(2) factors. In determining this the Full Court, Bryant CJ, Thackray and Chrisford JJ addressed sub-section 75(2) factors, including Section 75(2)(j). Their Honours did not raise any issue that paragraph (j) was not relevant to property settlement proceedings.
Thus it seems that the Full Court accepts that paragraph 75(2)(j) can apply in property settlement proceedings, and I need to consider it in this case. The issue of concern though is that there should be no double counting where the Court has already taken into account the contributions claimed under sub-section 79(4) of the Act.
Here, I have not taken into account any contributions by either party to the financial resources of the husband in the form of the Trust and R Pty Ltd because they are financial resources of the husband and the assets are not his property. However, I have taken into account the husband’s and the wife’s financial contributions to the Trust and R Pty Ltd when considering their respective contributions to the loan account of the husband in the Trust and his loan account in R Pty Ltd. That still leaves for consideration though the non-financial contributions of the parties to these entities. In that category I would include the following:
292.1In the initial stages the husband undertook “weeks of work in the preparation of the application for a liquor licence and business plan as well as attending countless meetings with accountants, financial planners and [Mr MB]”.
292.2The husband’s active ongoing role in assisting in the management and operation of the Trust and of R Pty Ltd.
292.3The wife’s support of the husband in undertaking his active role in the Trust and R Pty Ltd.
292.4The wife attended to some of the BAS statements required for R Pty Ltd.
292.5The wife of course permitted money to flow through the accounts of the professional practice for the purchase of the Trust’s interest in the O property and for the purchase by R Pty Ltd of the property at H Street Darwin.
In assessing these contributions of course the focus is more on the wife’s contributions given that the financial resources are the husband’s financial resource. On that basis there is a justification for making an adjustment in the wife’s favour on account of her contributions to these financial resources, but I will leave the extent of that adjustment until I consider paragraph 75(2)(b). I can say though that the adjustment for this factor should only be a minimal one. It is quite apparent that the wife’s contributions were not of great moment and it is the husband’s contributions which have substantially resulted in the success of the Trust and R Pty Ltd.
In relation to paragraph 75(2)(b) of the Act, that paragraph is the usual one that is relied on for any adjustment to be made as a result of one party having financial resources such as is the case here.
To repeat, the husband submits that a monetary adjustment of $250,000 should be made. His senior counsel though did not elaborate on the basis for that. For my part I consider it appropriate to fix a monetary adjustment rather than fix a percentage adjustment. The difficulty always is how to assess the size of the adjustment. It is not a matter of taking the valuations of the Trust and of R Pty Ltd and calculating a percentage of those valuations on the basis of for example an alleged entitlement of the husband to the assets of the Trust. That of course is the approach of the wife, but it is simply not an approach which is open.
What the wife does is to take what she says is the husband’s “entitlement” to the Trust, namely $1.5 million, and then she says that she should have an adjustment that equates to 80% of that. Now, it was not explained to me how the wife arrived at the figure of $1.5 million but I can only assume that it comes from the valuation of the single expert witness. In her third attempt at valuing the Trust (see Exhibit H13) Ms DB arrived at an amount of $3,910,000. She then attributed 25% of that amount to the husband “on the basis that the [T] Trust was initially set up to benefit the whole of the [husband’s father’s] family, comprised of [the husband’s father], [the husband’s mother], [the husband’s brother] and the husband”.
That calculation results in an amount of $977,500. Ms DB then adds to that the sum of $597,375 comprising the husband’s loan account in the Trust of $520,976 and his loan account in R Pty Ltd of $76,399. That then totals $1,574,875. Now apart from the fact that the loan accounts are property of the husband and are treated separately this approach is based on in effect saying that the four beneficiaries are each entitled to one quarter of the assets of the Trust. Now that is not a justifiable approach on the basis of the evidence before me and in fact, until the issue of how to apply paragraph 75(2)(b) of the Act arose not even the wife ran her case on the basis that the husband was entitled to 25% of the value of the assets of the Trust.
In any event, to repeat, the wife’s approach is not open to this Court. It demonstrates a complete misunderstanding of the nature of a financial resource such as those being considered here and how they are taken into account. It takes no account of the fundamental premise that the assets of the Trust and the Company are not the property of the husband. They are financial resources because it is accepted that the husband is able to benefit from them, and it is a matter of assessing the extent of that benefit in order to determine what adjustment out of the property of the parties should be made in favour of the wife.
In my view, taking into account the valuations of the Trust and of R Pty Ltd, the nature of their assets, the history of the Trust and R Pty Ltd and of the distributions made from the income of the Trust, the role that the husband has played in the management and administration of the Trust and R Pty Ltd, the benefits that he has received, and the benefits that he is likely to receive in the future, I consider that an adjustment of $400,000 in the wife’s favour is warranted.
Section 79(4)(d), (f) and (g) of the Family Law Act 1975
Next, I am obliged to consider the effect of any proposed orders upon the earning capacity of either party (paragraph 79(4)(d)); any other order made under the Act effecting a party to the marriage or a child of the marriage (paragraph 79(4)(f)); and any child support under the Child Support (Assessment) Act 1989 that a party to the marriage is to provide or has provided for a child of the marriage (paragraph 79(4)(g)).
In relation to the first matter the evidence does not indicate that the earning capacity of either party will be effected by the proposed orders.
In this case it is unnecessary for me to consider the second and third matters.
The real estate of the parties
The next issue is that the wife seeks as part of her entitlement to property settlement to have all of the real estate of the parties, except the husband’s interest in the property at S, the property at K, the husband’s alleged interest in the property at S2, and the husband’s interest in the property at G. Of course, as I have already said there is no basis for including the property at S2 in the asset pool because it is owned by the husband’s mother. In any event, for his part the husband seeks that he transfer to the wife his interest in the properties at Unit 1 and 2 in Darwin, P Property and W Property. He seeks to have the interest of the parties in the properties at 6 M Street Darwin and 4 M Street Darwin, the property at K, his interest in G property, and the properties at B Property and F Property.
Thus there is a dispute as to who should have the following:
304.1The property at B.
304.2The property at R.
304.3The parties’ interest in the properties at 4 and 6 M Street Darwin.
Unfortunately there was no specific evidence from either party directed to this issue and there was no submission made by either counsel. Thus doing the best I can, I consider that it would be appropriate for the wife to have the property at B given that the consent order of 9 June 2005, albeit on an interim basis provided for the wife to complete the purchase of that property in her name.
Next, I consider that the husband should have the parties’ interest in the properties at 4 and 6 M Street Darwin given that his close friend Mr MB has an interest in those properties as well and there is one Commercial Bill secured over the titles to both of these properties.
That leaves F Property and frankly there is nothing inherent in that property that requires it to go to one party rather than the other. Thus, for no other reason than to try and equalise the number of properties that each party comes away with I consider that the husband should have the property at F.
Just and equitable
Pursuant to Section 79(2) of the Act the Court cannot make an order unless the Court is satisfied that in all the circumstances it is “just and equitable” to make the order. To assess that I need to stand back and consider the practical affect of my proposed orders (Waters & Jurek (1995) FLC 92-635; JEL & DDF (2001) FLC 93-075; Phillips & Phillips (2002) FLC 93-184).
The effect of my assessment of the respective contributions of the parties on an asset by asset approach and the adjustment I propose as a result of the relevant sub-section 75(2) factors will see the husband entitled to net assets to the total value of $3,820,105, and the wife entitled to net assets to the total value of $3,108,120.
I have calculated these amounts by taking the net value of the individual asset, applying the appropriate percentage division between the parties, adding up the individual entitlements for each party, deducting any unsecured liabilities according to who is responsible for the same, then deducting $400,000 from the husband’s total and adding that to the wife’s total. In that exercise I confirm that I have not been able to include any amount for the husband’s motor vehicle, his bank accounts or any amount for the bank account held by the parties and Mr MB. In relation to the latter account I propose though to take a robust approach to the same and give credit to the wife on the basis that the husband will be retaining the interest of the parties in that account. I will elaborate on that later in these reasons.
Finally for reasons that I have already elaborated on, I have not been able to include the CGT liability resulting from the sale of D Property.
The husband will have the following assets, liabilities and financial resources:
Assets
The husband’s professional practice known as E Practice $1,070,548
The property at K $50,000
An one half interest in the property at 6 M Street Darwin $190,000
A 95% interest in the property at 4 M Street Darwin $798,000
The property at F $895,000
An one half interest in the property at S $205,000
An one half interest in the property at G $177,500
Furniture and household effects $33,385
Loan account in the T Trust $520,976
Loan account in R Pty Ltd $76,399
Savings N/K
An one half interest in the joint Bank SA rent account $4,146
Toyota Landcruiser utility N/K
The husband’s superannuation entitlement with BT $157,625
The proceeds of sale of the husband’s interest in the
share portfolio $83,057
TOTAL $4,261,636
Liabilities
Share of Commercial Bill secured over the titles to
the properties at 4 and 6 M Street Darwin $575,000
ACCU loan secured over the title to the property at F $394,434
Half share of mortgage secured over the title to the property
at G $123,500
Loan due to the husband’s mother $47,500
One half share of the CGT liability in relation to the sale of
the property at D N/K
The loan due by the wife to the T Trust $15,000
Payment to the wife $400,000
TOTAL $1,555,434
NET $2,706,202
Financial resources
The T Trust $3,407,177
R Pty Ltd $518,000
The wife will have the following assets, liabilities and financial resources:
Assets
The wife’s professional practice known as L Practice $1,448,400
The properties at Units 1 and 2, Darwin $550,000
An one half interest in the property at P $245,000
The property at W $660,000
The property at B $2,400,000
Furniture and household effects $20,365
Jewellery $15,000
Loan due by the wife’s sister $22,596
Savings $1,674
An one half interest in the joint Bank SA rent account $4,147
1999/2000 BMW motor vehicle $18,200
Loan account with TS Pty Ltd $15,000
Superannuation entitlements with BT $46,000
Payment to the wife by the husband $400,000
TOTAL $5,846,382
Liabilities
ACCU line of credit secured over the titles to the properties
at Units 1 and 2 $199,068
One half share of ACCU loan secured over the title
to the property at P $111,481
ACCU loan secured over the title to the property at W $280,181
Bank SA loan secured over the title to the property at B $1,033,629
One half share the CGT liability in relation to the sale of
the property at D N/K
TOTAL $1,624,359
NET $4,222,023
Financial resources Nil
Thus, on these calculations the wife will have to pay to the husband the amount of $1,113,903. However, given that this is calculated on the basis of the husband paying to the wife the sum of $400,000, the most appropriate order in the circumstances is an order requiring the wife to pay to the husband the difference between what he has to pay her and what she has to pay him, namely the amount of $713,903.
In relation to the Bank SA account held in the names of the parties and Mr MB, to repeat, on the evidence it is not possible to calculate an accurate entitlement of the parties to the credit balance in that account given the respective interest that they have in the two properties at M Street Darwin. However, a rough calculation can be made as follows:
314.1The cedit balance of $95,276 is comprised of net rentals received from the two properties in M Street Darwin.
314.2Although it is apparent that the property at 4 M Street Darwin is a larger property than the other property and thus the rental received would be higher, if I assume for the purposes of this exercise that one half of the amount of $95,276 relates to the property at 4 M Street and the other half relates to the property at 6 M Street, then given that the parties have a 95% interest in the former property their share of the net rent received for that property will be $45,256, and given that the parties have an one half interest in the property at 6 M Street then their share of the net rent received for that property would be $23,819.
314.3The total of these two sums is $69,075, and given that I have assessed the respective contributions to the parties to their interests in these properties as being equal then they would each be entitled to one half of that amount, namely $34,537. Thus I propose to require the husband to pay that sum to the wife.
The husband is aged 39 years and he is in good health. He is in full time employment in a profession. He is the sole director and share holder of E Pty Ltd which operates the professional practice known as E Practice at rented premises at H Street Darwin.
The husband has not re-partnered but he has a relationship with Ms BL.
The husband lives in the property at 9 Y Street owned as to one third by the T Trust.
The husband is capable of earning significant income through his professional practice.
The wife is aged 35 years and she is in good health. She is a shareholder and director of L Pty Ltd trading as L Practice. However pursuant to an agreement entered into on 1 October 2003 the other shareholder and director, Mr IM has no entitlement upon leaving the practice beyond his share of the practice’s bank account at that time.
The wife has a partner Mr JD and at the time of the hearing they lived in the property at W with their one child who was born in July 2006. The wife of course was due to give birth to twin boys in early November 2007.
The property at W is jointly owned by the husband and the wife and the wife has been paying rent but as a result of the order that I propose to make the husband’s interest in that property will be transferred to her.
The wife is capable of earning a significant income through the professional practice but she is restructuring the same to allow her to take time off to care for her young children. Within three years she expects to be back working full time in her professional practice.
Having considered the effect of my proposed orders and revisited the history of the relationship between the parties, their respective contributions, and the few relevant sub-section 75(2) factors, there is nothing in the personal circumstances of the parties or in the proposed division of their assets which would not render it just and equitable to make the proposed orders.
I certify that the preceding 323 paragraphs are a true copy of the reasons for judgment of the Honourable Justice Strickland delivered 2 October 2008.
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