GLM & LWM

[2005] FamCA 453

[2005] FamCA 453

FAMILY LAW ACT 1975

IN THE FAMILY COURT OF AUSTRALIA

AT MELBOURNE  Appeal No. SA64 of 2004

File No MLM5629 of 2002

BETWEEN:

GLM

(Appellant Wife)

and

LWM

(Respondent Husband)

CORAM:  THE HONOURABLE JUSTICE KAY

DATE OF HEARING:          30 March 2005

DATE OF JUDGMENT:      30 March 2005

REASONS FOR JUDGMENT

APPEARANCES:

Ms Smallwood of Counsel, instructed by M K Steele & Giammario, Solicitors, DX 98801, Greensborough, appeared on behalf of the appellant wife.

Mr O’Shannessy of Counsel, instructed by Ryan Mackey & McClelland, Solicitors, DX 98802, Greensborough, appeared on behalf of the respondent husband.

GLM and LWM

SA64 OF 2004
CORAM:       Kay J
DATE OF HEARING:         30 March 2005
DATE OF JUDGMENT      30 March 2005

Catchwords:           Appeal – Federal Magistrates Court – Property – finding that pensioner husband would be so worse off than the wife so as to justify a s 75(2) adjustment in his favour not open – DRFB pension split to accord with contribution findings.

1. This is an appeal from a decision of Riethmuller FM delivered on 29 September 2004 and subsequently, I think, varied by a ‘slip rule’ application.  The wife appeals against property orders that had the effect of providing her with the house and 10.5 per cent of the husband's Defence Force's Retirement Benefit Fund superannuation pension.  She seeks an order that there be an increase in her share of the pension to 35 per cent.  The husband resists the appeal. 

1. I am sitting as a single judge exercising the appeal powers of the Full Court, and I do so by a delegation approved by the Chief Justice.

Background

1. The background to the matter is set out extensively in the trial judgment, and I will summarise the relevant matters as best I can.  The appellant wife was born in 1946 and she is thus now 59.  The respondent husband was born in 1947 and he is 57.  The parties commenced cohabitation in 1973 and separated in 1993.  Their marriage was dissolved, it appears, in 2004. 

1. They had three children born of the marriage, D in 1974, J in 1976 and K in 1981.  When the parties separated, K was 11 years of age and clearly remained dependent for support for several years after separation.  J was 17 and D 19.  All three children remained living with the wife in the former matrimonial home after separation, with J leaving in 1998.

1. When the parties commenced cohabitation, the husband had a block of land of some modest value.  He also had by that stage been serving in the defence forces for a period of five years, and had a motor vehicle.  He remained in the defence forces for 21 years in total, leaving in 1989.  As a result of his service in the defence forces over 21 years, he accrued entitlements to a DFRB pension and other superannuation entitlements.  He left in 1989 and purchased a computer business that he and the wife operated for some three and a half years.  The business failed and left the parties with significant debts.

1. They had built a home with the aid of a defence service home loan on the land owned by the husband shortly after the marriage, and it represented the home that was then occupied by them as a family and subsequently by the wife.  It acted as security for various moneys required to run the business, and ultimately at the collapse of the business, which occurred just after separation, there were debts attached to the home.  There was an overdraft at the ANZ Bank of $48,000, a defence credit business loan of $97,000 and a Bank of Melbourne loan of $12,000.  By the time of the trial those debts had been significantly reduced as a result of payments made by the wife in respect of the overdraft loan and by the husband in respect of other loans.  Notwithstanding the parties were separated for over 10 years by the time of the trial, the husband had continued to meet the obligations arising out of the debts secured against the home.

1. In 2002 the defence credit loan had an outstanding amount owed of $31,000 approximately.  The husband borrowed moneys from his father to pay that loan out.  He then entered into an arrangement to repay the moneys to his father at the rate of $100 a week, but only ever made a maximum 10 payments and then the matter has been allowed to lapse.  The husband considers himself still obligated to his father in respect of the debt, and the trial Magistrate made the finding that the money was an outstanding debt which should be taken into consideration in assessing the pool of assets of the parties.

1. There were difficulties relating to child support in the years following separation.  There were a number of assessments levied and challenged.  The husband fell into serious arrears which were eventually paid by intercepting his tax returns and the like after all the children had finally attained 18 years of age.  It is clear that during the course of the post‑separation period, the mother struggled somewhat heroically to help support her children with minimal assistance that was forthcoming on a day-to-day basis, other than, of course, the payment by the husband of the mortgage debts which at least helped secure a roof over the heads of the children.  The husband left the home with very little indeed and lived quite a rough existence over the next few years, sleeping for long periods of time in his car.

Discussion

1. There was one other feature that the trial Magistrate took into account in terms of contribution, and that was a loan that had been made by the husband's parents to the wife of some $15,000 in 1983.  The wife bought some investments of modest value with the moneys, and those investments were retained in their original form for the next 20 years.  When they were sold off post-separation in about 2003, the wife received just over $14,000 for them. She used $8000 towards her legal costs, and the balance, she said, was absorbed in day-to-day living expenses.

1. For reasons about which I will become critical in a moment, the trial Magistrate brought the whole of the $14,000-odd into account in determining the size of the pool in circumstances in which in my view it was inappropriate to do so.  The money by the time of the trial had gone, but it was an issue of notionally adding it back.  In fairness to the learned Magistrate, it was an issue that was not particularly agitated before him.  A list of assets was prepared that had the money added in as a notional add-back, and although the evidence was of the wife, as I have described it, namely the expenditure of the moneys on legal fees and family expenditure, the Magistrate brought the whole lot in.

1. It is common in cases in this Court to add back in to a pool of assets moneys that have been expended from the family resources on legal costs (see Chorn v Hopkins (2004) FLC 93-204). But it has never been the practice of the Court to require people to account by way of notional add‑back of capital of moneys that are properly expended in their day‑to‑day existence. Indeed there is a reference to a decision at para 42 of Chorn v Hopkins in paragraph 42 to a Full Court decision in Marker (1998) FCA 42 where the Court said:

“There seems to be no appropriate basis for notionally adding back moneys that existed at separation which have been subsequently spent on meeting reasonably incurred, necessary living expenses. Neither the Family Law Act nor the case law requires that parties go into a state of suspended economic animation once their marriage breaks down and pending the resolution of their financial arrangements. Parties are entitled to continue to provide for their own support. Whether any expenditure so incurred is reasonable or extravagant is a matter that can be determined by the trial Judge.”

1. It was not suggested in this case that the moneys so spent by the wife were either extravagant or unnecessary, and indeed a reading of her affidavit material would mean that she and the children were living a very, very difficult existence financially.  So to the extent that the list of assets that were ultimately relied upon by the Federal Magistrate includes the sum of $6162 being part of the proceeds of the sale of shares of the wife in 2003, then in my view that was an error.  Of itself it would not amount to a basis for the Court to interfere in the decision, but given the course that I propose ultimately to adopt, I think it is appropriate that I identify the error now and then make allowances for it in the final outcome of the proceedings.

1. The Magistrate identified, as was appropriate, a list of assets that were agreed upon, and I include for my purposes the table set out at paragraph 32 of the judgment. 

Former matrimonial home	$285,000.00
Mortgage to ANZ	($2,200.00)
Equity	$282,800.00
Gross value – husband’s super funds	$243,475.00
Tax liability	($18,884.00)
Net for purposes of this trial	$224,591.00
Wife’s superannuation fund	$10,471.00
Shares sold by wife in 2003	$14,162.00
Total (non-pension property)	$532,024.00
Superannuation pension	$308,252.00

1. He then turned his mind to the moneys advanced by the husband's father to pay out the balance of the loan I made reference to and concluded that there was a debt owed, but went on to say that even if he was wrong, it would have nevertheless been considered to be a significant and recent contribution which would have affected the distribution of assets on a contribution basis. 

1. It was urged upon me that the Magistrate should not have made the finding that this was a debt that reduced the pool.  There was evidence from the husband in the case that the debt existed. It may well have been open for the Magistrate to have taken a different view as to the debt, namely to concentrate on the likelihood of it having to be repaid, given that there had been a lapse in payments for a couple of years and the health of the father was now failing.  However, it was equally open to the Magistrate to make the finding that he did, and I do not propose to interfere with that finding, although ultimately, as will be seen, the reality of it having to be paid in the immediate future is a feature that will weigh in my assessment of the outcome of the proceedings.

1. The pool of assets as I calculate it, after making allowance for the adjustment for the $6162 I have already referred to, is worth $802,852.  Of that pool, a significant amount, slightly in excess of $308,000, is the notional value given to the DFRB pension which is not capable of being provided to the parties by way of a lump sum but will represent an entitlement to be received during the life of the recipient and adjusted from time to time in accordance with the provisions of the relevant legislation.

1. The Magistrate dealt with issues relating to the DFRB pension and concluded that it was appropriate to include the superannuation pension entitlement as property in the property pool.  However his Honour was aware that it would be necessary to carefully consider the form of orders that were ultimately made so as to avoid the potential injustice identified in the earlier cases of one party having all of the capital and the other only having an income stream.  He said that splitting orders provide a mechanism for resolving this problem in most cases.  This approach is consistent with the currently developed lines of authority relating to the way in which it is appropriate to treat pensions, and I refer to the discussion by Finn J in Wrona (2004) FLC 93-207 especially the passage at para22 where her Honour said

“…I agree with the submission of Counsel for the respondent wife that, if the value of the wife's superannuation is included in the pool of property available for distribution between the parties, then when considering either the s 75(2) matters or the overall justice and equity of the award, regard should be had to the fact that the wife does not have immediate access to that asset.”

1. The Magistrate then went on to assess the contributions that the parties had made, concluding that the pool of assets should be divided 55-45 in favour of the husband, and he did so by placing significant weight, it would appear, on what he determined were the original contributions, namely the land and car of $9100, a quarter value of the DFRB pension as a result of the pre-marriage service component, and the $15,000 given by the husband's parents to the wife in 1983.  As he said, these contributions represented 12 per cent of the present property pool.  If that be so, it seems that an assessment of 55-45, 30 years after these events had occurred, which represents the husband receiving the first 10 per cent of the pool, could be seen by many to be outside the range of the generous ambit of discretion described by the High Court in Norbis (1986) 161 CLR 513 amongst other places, as to the manner in which assessments can be measured. As the Full Court said in Pierce (1999) FLC 92-844 in discussing what had been an earlier principle of an erosion of initial contributions by subsequent events:

“28. In our opinion it is not so much a matter of erosion of contribution but a question of what weight is to be attached in all circumstances to the initial contribution.  It is necessary to weigh the initial contribution by a party with all other relevant contributions of both the husband and the wife.”

1. It could well be said that in so weighing those contributions in light of 30 years of subsequent contribution by each of the parties, too much weight had been given to the initial contributions.  My trouble is that whilst I am sympathetic to that situation and that is the basis on which the first three grounds of appeal approach the case, I feel that it was appropriate for the Magistrate to give some weight to those matters and I might be seen to be interfering in an inappropriate appellate sense by saying, "Well, it should have been 52 per cent and not 55 per cent," in other words, the first four per cent in favour of the husband rather than the first 10 per cent.  These are comparatively small amounts in an area where there may be a wide range of differing opinions.

1. I think ultimately I cannot feel that I have the comfort of saying that it was not open to the Magistrate to reach the result that he reached, although I would say that he appears to have been stretching the boundaries in reaching conclusions as to the contributions that so favoured the husband.  In one sense it could be said to be a five per cent adjustment in favour of the husband, that is he has moved from a position of an equal contributor to a 55-45 contributor.  In another sense it can be said that he has received the first 10 per cent of the pile of some $800,000.  He has received $80,000 recognition as the value of his contributions, notwithstanding that 30 years later there had been an awful lot of contribution made by both of the parties. In the third sense it can be seen that he has received 11 parts of the pile compared to nine parts of the pile for the wife.  So his pile is 22 per cent higher than the wife's.  So these are considerable adjustments rather than slight adjustments, and I would have thought that had I been exercising the initial jurisdiction, a finding closer to equality by recognising that some matters favoured the husband would have been one appropriate.  But as I have indicated, given the limits of appellate interference, I am not so confident that the matter is outside of the potential range, albeit it is at the extremity of the range.

1. The Magistrate having adjusted the pool notionally by reason of the matters under s 79(4)(a), (b) and (c), then turned to what the cases have described as the third step in the process of apportioning the assets, mainly by having reference to the balance of s 79, particularly 79(4)(e) which incorporates sub-s 75(2) of the Family Law Act.  The Magistrate identified as relevant the age of the parties.  He found the wife to be in good health whilst the husband had a number of complaints that had effectively stopped him from working.  He found the wife was able to earn a small income but had few skills for paid employment and that it was unlikely she would continue to actively engage in her employment for many more years.  He described that employment as cleaning work and delivery of pamphlets which together earned her about $210 per week.

1. He found the husband was unlikely to be able to earn any income in the future, having not worked since October 2003.  He noted without criticism that the husband said he had been hospitalised twice with depression and was a chronic asthmatic and that he accepted that attempts to obtain employment through various job network agencies had met with a complete lack of success over the last year.  The husband was living with his father and considering applying for a carer's pension, his father having suffered a stroke and was assessed as being CPI blind.  He found in the last 10 years the husband had not held down employment and was now unable to find employment, had accumulated no assets and had suffered illness and depression, and concluded then that the husband was unlikely to be able to find work.  He then said rather curiously in paragraph 76:

“It appears that the needs of the husband in the future will be greater than that of the wife, and adjustment in favour of the husband under section 75(2)(a) and (b) is appropriate in this case.”

1. I have searched through the judgment as best I can and I find it difficult to see what aspect of the judgment supports the finding that the needs of the husband in the future will be greater than that of the wife.  Both of the parties have very limited income indeed, and very modest capital.  Each of them will have some entitlements, depending on the manner in which the DFRB pension is split, to receive social security, but both of them will be living very close to a subsistence level.  There are very limited amounts of money for either of them to meet their necessary needs.  The wife will have the comfort, as a result of the orders that were made and are not challenged, of having a roof over her head, but it is a very modest house in a significant state of disrepair.  The husband will have capital available to him from various other pension amounts, and the likelihood that he will not have to repay his father, at least in the foreseeable future, and that will assist him in obtaining housing if he wishes to seek it, perhaps a modest unit or something of that nature.  But neither of them can be said to otherwise have needs that are going to be greater than the other, and to the extent that the Magistrate made such a finding, I think that he fell into error.

1. The Magistrate then went to look at parties’ social security entitlements and did a number of exercises that demonstrated that each of them would be left with modest income, whether they worked or were reliant on the DFRB pension.  But nothing would seem to exceed anything more than $360 per week, whichever way the test went.

1. Peculiarly, the Magistrate concluded, in my view, that the circumstances justified a further adjustment in favour of the husband.  It seems to me that the Magistrate has either overlooked or not given appropriate consideration to the fact that in determining that the husband was to receive a greater share of the capital than the wife. That is a matter that was obliged to be taken into account under s 75(2).  It is correct that the wife had some very limited personal earning capacity, but it was not to last for very long, according to the findings of the Magistrate, and was of so significantly modest a sum that it is not something that one would have thought in the circumstances would have lent itself to an adjustment in favour of the husband.

1. It is further correct to indicate that the pool of assets consists to a large degree of a pension, the majority of which the husband is going to retain, and it has been given effectively an artificial capital value which capital is not available to the husband, and to that extent, the passage that Finn J referred to in her judgment that overall justice and equity of the award requires regard to be had to the fact that the husband would not have immediate access to the asset, is something that needs to be given consideration.  But for all of that, given that the husband has been generously treated on the contribution issue, it seems to me that a further adjustment in his favour for s 75(2) features was not properly available in this case, and to that extent the appeal succeeds.

1. The net outcome result is that the pool of available assets shrinks from the figures found by the learned trial Magistrate from $809,014 to $802,852.  The wife's entitlement, based on contributions, is $361,283.  She is retaining the home at $282,800.  She is retaining her own superannuation at $10,471, and there is a notional credit in her favour of $8000 for the money she expended on the legal costs, meaning that the assets already credited to her are $301,271.  In order to meet her 45 per cent entitlement, she requires to receive a further $60,012 which would be represented by 19.5 per cent of the husband's DFRB pension entitlement rather than the 10.5 per cent that had been allowed for by the trial Magistrate.  In the circumstances, I propose to allow the appeal by varying the orders to give effect to my judgment.  So the formal orders will be:

1The appeal be allowed.

2Order 3(b) of the orders made by Federal Magistrate Riethmuller on 29/9/2004 as amended on 5/11/2004 be varied by substituting the figures 19.5 per cent for the figures 10.5 per cent therein appearing.

3The parties be granted the usual appeal certificates.

I certify that the preceding  paragraphs are a true copy of the reasons for judgment herein of the Honourable Justice Kay
The  day of  20

Associate: Elizabeth Hore