Gola & Ralston
[2021] FCCA 1170
•31 May 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Gola & Ralston [2021] FCCA 1170
File number(s): DGC 3996 of 2018 Judgment of: JUDGE RIETHMULLER Date of judgment: 31 May 2021 Catchwords: FAMILY LAW – property proceedings – section 79 of the Family Law Act 1975 – contributions – unilateral dealings of the parties after separation – fraud – withdrawals from bank accounts – unilateral application of funds – final split – division of 67.5% split in favour of wife Legislation: Family Law Act 1975 (Cth), ss 75, 79, 117 Cases cited: Bennison & Bennison [2015] FamCA 243
Bevan & Bevan [2013] FamCAFC 116
Biltoft & Biltoft [1995] FamCA 45; (1995) FLC 92-614
Browne & Green [1999] FamCA 1483
C & C [1998] FamCA 143
NHC v RCH [2004] FamCA 633
Danh & Loi [2019] FamCAFC 190
Essex & Essex [2009] FamCAFC 236
Field & Basson [2013] FamCAFC 32
Kouper & Kouper (No 3) [2009] FamCA 1080
Kowaliw & Kowaliw [1981] FamCA 70; (1981) FLC 91-092
M & M [1998] FamCA 42
Malpass and Mayson [2000] FamCA 1253
AJO & GRO [2005] FamCA 195
Pencious & Pencious and Anor [2014] FamCAFC 171
Prince & Prince [1984] FamCA 7; (1984) FLC 91-501
Sartin & Sartin & Anor [2016] FCCA 800
Shimizu & Tanner [2011] FamCA 271
Talbot & Talbot [2015] FamCAFC 132; (2015) FLC 93-660
Tobey & Rezek [2017] FamCAFC 84
Townsend& Townsend [1994] FamCA 144; (1995) FLC 92-569
Trevi & Trevi [2018] FamCAFC 173; (2018) FLC 93-858
Tuckson & Elsey [2017] FamCAFC 145
Vass & Vass [2015] FamCAFC 51
Wolter & Wolter [2012] FamCA 1133
Number of paragraphs: 90 Date of last submissions: 8 October 2020 Date of hearing: 16, 17 and 18 September 2020 Place: Melbourne Counsel for the Applicant Mr Berghoffer Solicitor for the Applicant Genuine Legal Counsel for the Respondent Mr Burns Solicitor for the Respondent Pentana Stanton Lawyers
Table of Corrections 22 June 2021 In paragraph 88 the amount of $536,440.72 has been replaced with $411,113.72. 22 June 2021 In paragraph 88 the amount of $351,406.42 has been replaced with $226,079.42. IT IS NOTED that publication of this judgment under the pseudonym Gola & Ralston is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
PARTIES
DGC 3996 of 2018 BETWEEN: MS GOLA
Applicant
AND: MR RALSTON
Respondent
REASONS FOR JUDGMENT
BACKGROUND
[2]
ASSETS AND LIABILITIES
[12]
Land in India
[13]
The wife’s Jewellery
[18]
The wedding ring
[22]
Present property and superannuation of the parties
[23]
UNILATERAL DEALINGS OF THE PARTIES AFTER SEPARATION
[24]
Wife’s withdrawal of funds after separation
[25]
HUSBAND’S POST SEPARATION DEALINGS
[27]
The B Street, Suburb C Property
[27]
The Husband’s withdrawals from bank accounts
[44]
Proper approach to post-separation dealings
[48]
Conclusions on Post Separation Dealings
[64]
Superannuation
[67]
CONTRIBUTIONS
[68]
Initial contributions
[68]
Contributions during the marriage
[69]
Post-separation
[72]
SECTION 75(2) FACTORS
[80]
FINDINGS
[87]
JUDGE RIETHMULLER:
The applicant wife (‘wife’) seeks property settlement Orders pursuant to section 79 of the Family Law Act 1975 (Cth) (‘the Act’). There is no question in this case that it is just and equitable that there be orders for a property settlement, as the parties had a long relationship, the vast majority of their assets are in Australia and controlled by the husband, and the wife resides in India with the children.
BACKGROUND
The wife is 45 years old and the husband is 46 years old. The parties commenced a relationship in or around 1992 and later married, and commenced cohabitation in India in 2000. The husband worked as a professional and the wife worked as an allied health worker.
In 2003, the husband and wife purchased a property situate at D Street, Suburb E (‘the D Street, Suburb E property’) in joint names, for approximately $290,000. The D Street, Suburb E property became their matrimonial home.
In 2005, the parties’ first child, S, was born (now 16 years old).
In 2010, the parties purchased an investment property situate at F Street, Suburb G (‘the F Street, Suburb G Property’), relying upon a joint loan from ANZ Bank for $305,000.
In 2011, the parties’ second child, N, was born (now 9 years old).
On 8 October 2015, the parties separated and the wife moved to India with the two children of the relationship, where she and the children remain. The husband has visited the wife and children four times in the last five years. There parties are in dispute as to whether the children should return to Australia, however, no children’s proceedings have been filed in India or Australia.
In October 2018, the parties were divorced and the wife brought the respective proceedings in November 2018. On 1 May 2019 and 8 April 2020, the parties attended mediation and conciliation conferences, respectively, but were unable to reach an agreement. The final hearing proceeded via Microsoft teams due to COVID-19 related Government restrictions in effect in Victoria at the time. The mother gave evidence electronically via video link from India.
On 23 March 2017, the husband purchased a property located at B Street, Suburb C (‘the B Street, Suburb C Property’).
On 2 February 2018, the husband sold the F Street, Suburb G Property for $338,000.
On 28 November 2018, the wife filed an application in this jurisdiction seeking final property orders.
ASSETS AND LIABILITIES
The parties provided a table of assets, liabilities and superannuation entitlements for hearing, listing all current property and liabilities. There are three items in dispute: the property in India, the wife’s jewellery, and the wife’s wedding ring.
Land in India
The parties gave evidence that they had always understood that the wife owned a parcel of land in India, which had been purchased for her by her father. The husband had even visited the land when traveling to India. The wife listed the property in her financial statement, filed at the start of the proceedings as a property of which she is the registered owner and stated that its value was $38,000. The financial statement is an admission by the wife that she owns the land and as to its value.
The husband alleged that the land has a value of $84,562.19, relying upon a screen shot of an online estimate of its value from a real estate website. The dollar value is based upon his evidence as to the current exchange rate of Rs53.79 to $1. There was no real impediment to the husband obtaining a valuation by an expert, as he is aware of the title details, knows where the land is located and required no access to any buildings as the land is vacant. Whilst I accept his evidence as to the current exchange rate, a screen shot from a website estimator is not admissible, nor reliable evidence of the value of the property.
The wife, in her trial affidavit, recanted from her earlier statement that she owned the land and produced a document purporting to be the purchase deed showing that her father was the purchaser of the land in 1985 and attesting to its market value at Rs3,162 (around $60). The deed, however, does not simply identify her father, but describes him as ‘Father and Natural guardian of his daughter [the wife], residing at …’. The wife said in evidence that whilst the land was purchased for her (to fund her education) it was actually in her father’s name, as she was a child when it was bought. She also said that as her education had been funded without using the land, it remained the property of her father.
Neither party produced a land title search from the relevant land registry. The wife’s father did not provide an affidavit nor give evidence orally.
On the material before the court, I am satisfied that the wife owns the land, as she maintained during the relationship and in the documents that she lodged at the start of the proceedings. The deed was produced late and there are no land title documents produced. Her position at trial was also inconsistent to what she had maintained during the relationship. I am however, satisfied that the land was a gift from her father and that at the time it had a modest value (around $60 when purchased), although this was many years before cohabitation. In the absence of any expert evidence, I adopt the wife’s evidence as an admission that the land value is around $38,000.
The wife’s Jewellery
The parties are agreed that the wife has a substantial amount of gold jewellery. The wife says that her jewellery was owned by her prior to the relationship and has a value of $28,469. The wife annexed a valuation from a jeweller in India to her affidavit, however, the jeweller did not provide an affidavit or give evidence. As the husband points out, the wife originally denied having taken the jewellery with her.
The husband denies the wife’s claims and says that he purchased ‘many items of gold jewellery’ for her and provided a copy of a valuation prepared for insurance purposes and insured in their home and contents policy with a major Australian Insurer. That valuation, from an Australian Jeweller in 2010 was in the sum of $47,925. No updated valuation was provided, however, the husband says that the price of gold has increased from $160 per gram to $300 per gram today and therefore sought to extrapolate a value for the jewellery of $89,859.40. The figures that he gives for gold prices are very high compared to prices reported in the popular press and it is unclear from where they are derived.
As with the land in India, there is no expert evidence before me that is in an admissible format. The wife’s valuation provides a value that she accepts of $28,469.00. There is no evidence that the wife represented to the insurer or anyone else that the value of the jewellery was as set out in the document the husband produce d (no copy of the insurance policy was produced).
On the evidence before the court there is only hearsay evidence as to the actual value of the jewellery and the wife’s statements amount to an admission that it has a value of $28,469. I therefore find that the wife’s jewellery has a value of $28,469.
The wedding ring
The wife alleges that there is a ring worth $15,000 that is in the husband’s possession and the husband alleges that it has a value of $19,000 and is in the wife’s possession. There is no valuation evidence and the issue was not actively pursued at trial. On the limited material, I am unable to make a finding as to whether either of the parties has the ring and therefore I will not add it to the property of the parties.
Present property and superannuation of the parties
I therefore find that the presently owned property and superannuation entitlements of the parties are as follows:
Ownership Asset Value Notes Real Property Joint D Street, Suburb E Property $680,000.00 Agreed Husband B Street, Suburb C Property $760,000.00 Agreed Wife Indian Property $38,000.00 Court Total Real Property $1,478,000.00 Bank Accounts Joint ANZ account xxx-…49 $62.00 Agreed Joint ANZ account xxx-…67 Nil Agreed Wife CBA account xxx-…42 Nil Agreed Wife H account xxx-…01 $450.00 Agreed Wife ANZ account xxx-…71 $138.00 Agreed Wife ANZ account xxx- …08 $38.00 Agreed Husband ANZ account xxx-…73 Nil Agreed Husband CBA account xxx-…74 $4,082.95 Agreed Husband CBA account xxx-…00 $185,034.30 Agreed Husband NAB account xxx-…44 $1,318.15 Agreed Total Bank Accounts $191,123.40 Vehicles Wife Motor Vehicle 1 $1,698.00 Agreed Husband Motor Vehicle 2 $11,850.00 Agreed Husband Motor Vehicle 3 $6,100.00 Agreed Total Vehicles $19,648.00 Jewellery Wife Family/marital jewellery $28,469.00 Court Joint Household goods $3,500.00 Agreed Total Chattels $31,969.00 Total Assets $1,720,740.40 Liabilities B Street, Suburb C mortgage -$802,365.48 Agreed D Street, Suburb E mortgage -$207,402.00 Agreed Total Liabilities -$1,009,767.48 Net Assets $710,972.92 Superannuation Wife Superannuation $56,534.00 Agreed Husband Superannuation $360,000.00 Agreed Total $416,534.00 Net Assets and Superannuation $1,127,506.92 UNILATERAL DEALINGS OF THE PARTIES AFTER SEPARATION
Following separation, both parties unilaterally dealt with property.
Wife’s withdrawal of funds after separation
In a series of transactions from June to December 2018, the wife transferred $47,860 to her brother from her progress saver account (ANZ xx…08). The wife explained that her parents were the source of the funds, that they had deposited the money in her account at a time when her parents were pursuing residency in Australia. At the time, her parents were on a tourist visa in Australia. The wife said that once her marriage broke down, her parents decided not to continue with their application for permanent residency. She stated that she did not send the money back straight away to her parents, as she was not in a good state at the time and was unsure about whether her and the husband would reconcile. The wife kept this money from 2015 to December 2018 and states that she transferred the money to her brother at her parents’ request, as they became concerned that the husband had forged her signature on bank documents. It appears that her parents used the money to assist her in funding her legal fees.
The bank statements for the account were produced by the husband, showing the money being transferred out of the account, but no statements were produced showing the money being transferred into the account. No alternative source for the funds was put to the wife. On balance, I am satisfied that the funds were the property of her parents, as she alleges, and that they were not funds of the parties.
HUSBAND’S POST SEPARATION DEALINGS
The B Street, Suburb C Property
The husband purchased the B Street, Suburb C Property in early 2017, and settlement occurred on 23 March 2017. The husband made the purchase in his name, but said that was to maximise negative gearing for tax purposes, as he was the only one earning an income in Australia. In order to purchase the property, the husband used funds of the parties and refinanced their mortgages.
The wife first became aware that the husband had purchased the B Street, Suburb C property when told by the husband’s girlfriend, although the wife did not believe her at that time.
The wife denied that she agreed to the purchase of the B Street, Suburb C property and denied that she authorised the husband to forge her signature on the loan documents. She denied having forged his signature in the past, and no specific examples of alleged forgeries by her were put to her in evidence. Whilst she agreed that the husband came to visit her in India in September 2016, she said that the parties had never discussed buying a property for redevelopment.
There are many documents that appear to have the wife’s signature on them that effected the refinancing arrangements. These were prepared and witnessed by the husband’s mortgage broker, Mr J. The wife never attended upon the mortgage broker, Mr J, who purported to witness her signature in the bank documents: she could not have done so as she was in India at the relevant time. Whilst the mortgage broker, Mr J, purports to have witnessed the wife signing the documents, that cannot have happened. Mr J was not called to give evidence so I have not heard his version of events. The husband says that he convinced Mr J to witness the signatures (including the signatures purporting to be the wife’s, but which were forged by the husband). The husband also says that it was a mistake that the wife’s name was included on the mortgage and proffered a document purporting to be from Mr J. It is clear that the husband deceived Mr J, as he knew that Mr J would not agree to witness a forgery of his wife’s signature, although Mr J nonetheless witnessed a signature that he had not seen the wife write. I do not find the husband’s evidence with respect to these transactions persuasive, beyond his admissions as to uttering false signatures of his wife and deceiving Mr J.
The wife stated that she did not sign any documentation for the B Street, Suburb C Property, there was no documentation presented to her to sign and she would not have agreed to purchase and sign the loan for the B Street, Suburb C Property. I accept the wife’s evidence in this regard.
The actual financial effect of the husband’s fraud is difficult to determine on the evidence before the court. A number of important facts were established:
(a)At present there is a mortgage on the B Street, Suburb C Property, with an outstanding debt of $802,365.48. However, the value of the property is only $760,000 and if it were sold there would be a net a loss of $42,365.48 (and the amount of the sale expenses);
(b)The husband agreed that at the time of separation, the debt on the D Street, Suburb E Property was $88,777.88 and that that the current outstanding balance for the D Street, Suburb E Property mortgage is $208,247.39. Thus, the effect of the transactions appears to have been to increase the mortgage by $119,469.51 (ignoring the reductions in the mortgage after separation until this transaction). Notably, the re-finance documents show that the D Street, Suburb E mortgage had risen to $230,002 by 17 November 2016 and at that time there were savings of $140,000: see page 55 of the wife’s court book;
(c)The husband agreed that if he were to sell the B Street, Suburb C Property now he would have a debt of $42,000 and that if he did not buy the B Street, Suburb C Property and there was only the D Street, Suburb E Property, there would be no debt from the B Street, Suburb C Property and there would not have been an increase in the D Street, Suburb E Property mortgage;
(d)The husband also agreed that he drew $124,611.22 from the off-set account for the purchase of the B Street, Suburb C Property. The husband said that although the deposit for the B Street, Suburb C Property was paid from ANZ account (xx…49) that the money was refunded by the ANZ bank into that account as part of the loan settlement as the bank funded 100 per cent of the purchase costs. The xx…73 account had a significant balance by November 2018, such that the husband could withdraw $304,990.00 as discussed below with respect to the $60,000 the husband applied to his own use; and
(e)The re-finance loan for the D Street, Suburb E property was for $233,000, F Street, Suburb G property was $307,000 and the B Street, Suburb C property loan was $794,089.
On a simple level, the effect of the B Street, Suburb C purchase resulted in a property worth less than the current mortgage, by around $42,000, together with a substantial increase in the D Street, Suburb E mortgage.
Whether this is the total impact on the parties’ finances, as a result of the husband’s conduct from separation until trial, is more difficult to understand from the complex way in which he has managed their financial affairs.
The parties’ F Street, Suburb G investment property was sold in February 2018 for $338,000 which resulted in net proceeds of $20,596.37 that were deposited into the ANZ account (xx…49). Whilst the B Street, Suburb C project loan restructures included a re-finance agreement with respect to this property, it is apparent from the loan agreement that the new loan was in the same amount as the existing debt on the property. Thus, the B Street, Suburb C project had no practical impact on the net value of this property.
The wife says, in her affidavit, that the husband used some $189,874.55 from the joint savings account to meet mortgage commitments after he purchased the B Street, Suburb C property (at paragraph [131]), however it is unclear how much of this money was generated by the husband after separation and how much was savings of the parties or re-draws on the D Street, Suburb E mortgage.
The husband appeared to be primarily using the Joint ANZ account (xx…49) prior to the purchase of the B Street, Suburb C property. The statements show:
(a)The account had a balance of $31,970.54 at the end of September 2015 just prior to separation in October 2015. The husband says that the account held $35,095.00 at the time of separation;
(b)It appears that the husband was able to effectively save during this period, whilst meeting the various outgoings of the parties in Australia. The balance steadily increased and by 15 November 2016 the account had a balance of $70,667.42;
(c)On 18 November 2016, an amount of $124,178.00 was transferred into this account from xx…73, which was monies re-drawn on the D Street, Suburb E mortgage (xx…15) on 11 November 2016 (although the husband estimates this to be $170,000 in his affidavit);
(d)On 13 December 2016, there is a payment out of $75,050, which is the deposit on the B Street, Suburb C property;
(e)On 14 December 2016, the husband received a termination payment from his consultancy of $69,416.24;
(f)By 15 February 2017, the balance was $178,273.79 and by 8 March 2017, it had risen to $186,128.61 just prior to the loan drawdowns on 22 March 2017;
(g)On 22 March 2017, the husband says that he deposited an amount of $74,982.06 from the B Street, Suburb C mortgage and on 25 January 2018, the proceeds of sale of the F Street, Suburb G property were deposited into this account, some $20,596.37. At this point, the balance was $279,798.46;
(h)At 15 February 2018, the balance is $278,057.65 and the statements produced by the husband come to an end;
(i)On 28 November 2018, $166,990.00 was transferred from this account to xx…73 (as appears in the statement for account xx…73); and
(j)The balance at trial is $62.00.
The ANZ account xx…73 held $111,659.42 as at 7 November 2018. From that time, it appears to be the working account of the husband. On 28 November 2018, a transfer from xx…49 of $166,990 brought the balance to $290,919.96. In December 2018, there were a large number of cash withdrawals (mostly of $25,000 each) which totalled $304,990.00. Some $225,000.00 was deposited into the husband’s CBA account xx…00. The Husband’s CBA account xx…00 now has a balance of only $185,034.30. However, by the time of trial, this ANZ account has a nil balance.
The D Street, Suburb E mortgage account (xx…15) was discharged in the re-finance for the sum of $180,955.86 on 22 March 2017. Notably, the husband had redrawn $124,611.22 from this account on 11 November 2016; but for this redraw only $56,344.64 would have been owing.
In simple terms, but for the various dealings of the husband after separation, it appears that:
(a)The D Street, Suburb E mortgage was around $88,777.88 at separation;
(b)The savings were around $35,095 in the joint account;
(c)The equity in the F Street, Suburb G property (ultimately achieved through its sale) was around $20,596.37; and
(d)Thus, the liabilities of the parties at this point are around $33,086.51.
I note that Counsel for the husband lists a sum of ‘$118,530.00 (redraw funds)’ and a loan never mentioned in evidence of $42,535.76 as part of the account balances at separation, in order to reach a net liability of $20,891.38. However, the ‘redraw’ amount is simply the amount that could be redrawn on the mortgage account, and not an asset of the parties. I do not take this as a concession in the circumstances.
The simplistic approach of looking at both accounts at separation ignores the husband’s significant earnings since then, which, on the bank statements, were sufficient to reduce the D Street, Suburb E Property mortgage and make significant savings up to the point of the B Street, Suburb C property transactions. For example, in the year following separation:
(a)The husband saved around $35,000 in the xx…49 account; and
(b)Reduced the D Street, Suburb E mortgage by around $32,433.24 to $56,344.64.
I am therefore satisfied that the husband was able to not only service the modest debts of the parties at separation, but actually make significant reductions in debt and savings, in the order of $67,433.24 in the first year after separation.
The Husband’s withdrawals from bank accounts
The husband agreed that from 28 November 2018, he withdrew $304,990.00 from the ANZ account xx…73. He explained that he made these withdrawals following his lawyer’s advice to secure the funds, as he was concerned that the wife had access or could access the ANZ account and withdraw the funds. He also said that he was not aware that the transfer could be done in one transaction and therefore transferred the money in smaller amounts. The money was transferred to his personal CBA account (xx…74), an account he has had since he moved to Australia. The husband than withdrew $285,000.00 in cash at CBA branches located at K Street Melbourne and Suburb L. He deposited $225,000.00 to his personal CBA account (xx…00); an account opened after the divorce.
The husband retained $60,000.00 in cash from these withdrawals. The husband said that he applied the $60,000.00 to living expenses. When pressed, he said (T81.30) that:
All my transactions have been from my account. I don’t have – I don’t do cash handling other than personal expenses that I don’t want to go into. And everything has been paid from my account, whether that is from the offset account, savings that the 225 or the next one from income from the savings accounts.
The husband, through this period was on a high income. No adequate explanation has been given for his use of the sum of $60,000.00 he retained in cash. Having regard to his income, it is difficult to see that it could have been reasonably necessary living expenses. The husband has not provided a satisfactory explanation as to the use he put the $60,000.00. I accept that this amount was in the nature of assets that the husband has applied to his own purposes.
The husband also agreed that an additional $38,000.00 was withdrawn in cash from his personal CBA account (xx…74) between 24 April 2019 and 11 February 2019. The husband gave evidence that the money was used for expenses for the redevelopment for the B Street, Suburb C Property. It is remarkable that these items would be paid for in cash and that there are no receipts for this expenditure, as such expenses would form the basis of tax deductions for the husband with respect to the property (either as expenses that are directly deductible or capital expenses that are a basis for depreciation deductions). I am not persuaded by the husband’s evidence as to the purpose to which he put these funds. As with the previous cash withdrawal, I accept that this amount was in the nature of assets the husband has applied to his own purposes.
Proper approach to post-separation dealings
The question arises as to how this complex factual scenario should be taken into account under s. 79 of the Act.
Section 75(2)(o) of the Act allows for account to be taken of any other relevant matter in determining property settlement proceedings. This provision allows the court to take account of how the conduct of one party has resulted in property being wasted, dissipated, or unilaterally applied to the benefit of one of the parties (or debts incurred that are of a similar effect). There are two common methodologies for taking account of such matters: notionally adding the property back to the pool (or excluding the debts), and alternatively, adjusting the percentage split ultimately struck to settle the property. When using the former methodology, it is important to bear in mind that ‘notional assets’ are not property available to settle, but added merely as a method of taking them into account when striking property settlement orders: see generally Bevan & Bevan [2013] FamCAFC 116 at [79] and Vass & Vass [2015] FamCAFC 51 at [139]. In AJO & GRO [2005] FamCA 195 (AJO & GRO) and the later decision of Trevi & Trevi [2018] FamCAFC 173; (2018) FLC 93-858 at [30] the Full Court confirmed that ‘adding-back assets’ should be exceptional.
The simplest statement of a common approach taken in cases where there is a dispute as to whether one party should bear the responsibilities for debts or losses is that in Kowaliw & Kowaliw [1981] FamCA 70; (1981) FLC 91-092 (‘Kowaliw’) where Baker J said, after noting that marriage is an economic partnership, that:
As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a) where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
(b) where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
Baker J’s guideline was approved in Prince & Prince [1984] FamCA 7; (1984) FLC 91-501; Biltoft& Biltoft [1995] FamCA 45; (1995) FLC 92-614; Malpass and Mayson [2000] FamCA 1253 and a large number of other authorities: these cases commonly concern losses on transactions entered into whilst the parties were together. The reasoning that supports this approach was explained in Browne & Green [1999] FamCA 1483, where the Full Court, when considering business losses from a venture the parties undertook when still married, said that:
52. […] we do not consider that … initiation and control of a particular venture could, at least on their own, warrant a departure from the guideline that economic losses, as well as economic gains, incurred in a marriage, should as a general rule be shared […]
53. On a careful consideration of the material before us, we have had to conclude that it was manifestly unjust to the husband in this case to depart from the Kowaliw guideline and to place upon him the full burden of the losses, merely on the basis that he was that party who initiated and had overall control of the venture which led to the financial losses, particularly in circumstances where there is no suggestion that the wife was anything other than a willing participant. There can be little doubt that had the [business] project succeeded, the wife would have sought to share in the fruits of that success, and there would seem to be no reason why she would not have been entitled to do so. It is this last-mentioned consideration, being that parties generally expect to share the economic profits of a marriage, which, in our view, requires that there should be good and substantial reasons for departing from the principle that where there are economic losses incurred in a marriage, those losses should be shared, absent any negligence, recklessness or deliberate dissipation of assets by one party. No such good and substantial reasons are apparent to us in this case.
However, the considerations are a little more difficult in cases where the relevant events occur after separation. In Townsend& Townsend [1994] FamCA 144; (1995) FLC 92-569 (‘Townsend’), Fogarty J noted that different parameters apply where, ‘the property of a party has been reduced or disposed of prior to trial.’
In AJO & GRO at paragraph [30], the Full Court identified three categories of expenditure from the cases as: legal fees, premature distributions of matrimonial assets, and the Kowaliw circumstances. The approach to the use of matrimonial funds for legal expenses set out in NHC v RCH [2004] FamCA 633, is consistent with the proposition that the application of marital assets to one party’s sole benefit other than for reasonable self-support tells in favour of adding back those funds to the notional pool (even before considering the interaction with s. 117 of the Act). Similarly, the sale proceeds from the sale of a taxi licence after separation that were retained by the husband to his sole benefit were added back in Townsend (see also Pencious & Pencious and Anor [2014] FamCAFC 171).
In AJO & GRO, the Full Court also noted that self-support after separation was a reasonable use of funds (as was also said in M & M [1998] FamCA 42 ‘reasonably incurred necessary living expenses’; Talbot & Talbot [2015] FamCAFC 132; (2015) FLC 93-660; and Tuckson & Elsey [2017] FamCAFC 145 ‘reasonable expenses’).
In C & C [1998] FamCA 143, the Full Court said that notional add-back cases ‘are generally examples of circumstances in which it would be clearly unjust and inequitable not to take those matters into account’ (at paragraph [45]). The Full Court went on to give some examples of reasonable expenses, saying (at paragraph [46]):
The parties are entitled to reasonably conduct their affairs post-separation in a manner that is consistent with properly getting on with their lives. Providing modest support for their adult children or taking not inappropriate holidays for themselves seems to fit comfortably within that description.
Importantly, the use of funds can be unreasonable (for example, when a spouse is living beyond their means), and therefore the expenses are in part categorised as a premature distribution that can be added back, without necessarily falling within one of the Kowaliw categories: see Essex & Essex [2009] FamCAFC 236 at paragraph [39].
In Tobey & Rezek [2017] FamCAFC 84, a tax liability incurred as a result of income earned and retained by one party after separation was not included in the pool. However, that liability was with respect to income of the party who had the tax liability and it was not shown that the benefit of the unpaid tax (or post separation income) became part of the pool of assets.
Counsel relied upon statements in a number of example cases:
(a)In Kouper & Kouper (No 3) [2009] FamCA 1080 it was noted that:
[113][…] the task is not to examine conduct for the purposes of fitting it within a particular description, or to reward the prudent and punish the imprudent. Rather, the task is to examine and make findings about the particular circumstances surrounding expenditure and to determine, within that context, the manner in which overall justice and equity indicates the diminution in the pool ought be treated.
In that case losses from a number of imprudent transactions over the course of the relationship were shared by the parties despite one party largely dealing with the financial aspects of the relationship.
(b)In Field & Basson [2013] FamCAFC 32, the wife had closed a business (that had been started when the parties were together) shortly before Christmas (in the period after separation) which the trial judge found ‘bewildering’ given that Christmas was a significant trading period but did not make an adjustment for the conduct. However, the trial judge’s findings were particularly limited. The Full Court noted that there was no evidence as to the actual financial effect of the conduct, nor evidence that it fell within one of the categories in Kowaliw. The facts may also reflect a reluctance to conclude that a party declining to work should result in add-backs to the pool as opposed to positive steps taken by a party causing diminution of the pool.
(c)In Sartin & Sartin & Anor [2016] FCCA 800, a business debt of $120,000 had been incurred when the parties were together and subsequently extended by $25,000 after separation. At the time of extending the debt the husband agreed to take responsibility for the whole debt in order to obtain the wife’s consent to the extension. Sexton J included the original debt in the pool, noting that at trial the husband accepted sole responsibility for the further $25,000 borrowed after separation.
(d)In Wolter & Wolter [2012] FamCA 1133, the evidence did not show that the increased indebtedness was not reasonably incurred by the husband, given the financial circumstances of the parties: see [124] to [126].
In Kouper & Kouper (No 3) [2009] FamCA 1080 (cited with approval in Shimizu & Tanner [2011] FamCA 271 and Bennison & Bennison [2015] FamCA 243), the general approach was explained:
[108]Whilst, clearly enough, the authorities make it plain that the manner in which any dissipation of funds should be dealt with is a matter for the trial judge’s discretion, and accepting that the discretion ought not, of course, be fettered, it nevertheless seems to me that (leaving aside the issue of paid legal fees) the authorities indicate that the issue can, conveniently, be approached by reference to five questions:
(a) Is it contended that property (including money), that would otherwise be available for distribution between the parties if a s 79 order is made, has been dissipated with a consequential loss to the property otherwise potentially divisible between the parties at the date of trial?;
(b) If so, is it alleged that the dissipation of property was in respect of things other than what, in the particular circumstances of this particular marriage, can be classified as “reasonable living expenses”?;
(c) If it is asserted that any loss to the divisible property results from dissipation of property other than in respect of such expenses, why is it asserted that the result should be a sharing of that loss by the parties other than equally?
(d) If it is contended that this be the result, why should there be an add back (which brings to account, dollar for dollar, such past expenditure in current dollars) as distinct, for example, from there being an adjustment being made pursuant to s 75(2)(o)?; and
(e) How should either any “add back”, or adjustment pursuant to s 75(2)(o), be quantified?
There are a number of factors that are relevant to the losses incurred by the husband in the redevelopment project in this case:
(a)The project was commenced after the parties had separated and the wife returned to India;
(b)The project was not said to be the continuation of a business or course of investment projects that had been carried on when the parties were together;
(c)The project was based upon land purchased in the husband’s sole name;
(d)The project was not expected to provide a profit in the short term, but be negatively geared such that the losses would reduce the husband’s future taxation liabilities;
(e)The wife would not have agreed to the husband using the parties’ assets to pursue the project;
(f)The husband was aware that the wife was unlikely to agree to the project and did not seek her consent or agreement; and
(g)The husband forged the wife’s signature in order to pursue the project without seeking her consent or participation.
The husband argues that the project was intended for the joint benefit of the parties and that the wife would have sought to share in the profits of the project, had it been successful. In this sense, he relies heavily upon the concept of ‘taking the good with the bad’ that is identified in Townsend’s case. There is much to be said for this proposition where the conduct forms part of the substratum of the relationship, or a party has agreed or acquiesced to conduct of this nature through the relationship. For example, a husband cannot be heard to complain that his wife has lost money trading shares when she has done so throughout their marriage to earn income and he has demurred to such use of their resources. However, the principle of ‘taking the good with the bad’, if taken in isolation, would have the other spouse share in the losses of any venture (despite being unilaterally pursued) which had some prospects of a profit.
The Kowaliw tests (recklessness, negligence and wantonness) set a high bar when considered in the abstract, however, they are a useful guide in the context of conduct when the parties are together and with respect to conduct after separation that is otherwise generally within the ambit of the approach taken by the parties to assets and investments when together: in this respect Kouper is an instructive example. In the circumstances of this case, I am not persuaded that the Kowaliw tests are particularly helpful, as the conduct is outside anything contemplated as being within the ambit of their marriage arrangement and occurred after separation.
The other circumstance identified in the cases as justifying an add-back, is the unilateral application of matrimonial resources for a spouse’s sole benefit, such as occurred in Townsend’s case (and which in part underpins the reasoning in the legal costs cases). However, the unilateral use of matrimonial assets for reasonable expenses (as discussed in AJO & GRO) will not generally result in an add-back. In the present case, it cannot be said that unilaterally applying a large proportion of the parties’ assets to a redevelopment project was reasonable conduct of the husband’s affairs post separation that was consistent with ‘getting on with his life’. The husband’s own income was more than adequate to meet his expenses. Rather, his use of the parties’ assets for a purpose outside the ambit of the way that the parties conducted themselves or their businesses or investments when together, and without any permission from the wife, was unreasonable. It was the unilateral application of assets to his own purposes.
In circumstances of this case the use of the assets after separation was without consent of the other spouse, beyond meeting reasonable needs, and outside the ambit of the ways in which the parties had conducted themselves (or had tacitly accepted or acquiesced) during their cohabitation. It therefore appears to me that it is appropriate that the spouse unilaterally using the asset should have to account for its value if it is lost (by way of add-back to the pool or as a factor in determining the percentage adjustment), and also account for the profits if the asset is not lost (by way of inclusion in the pool). To the extent that a profit is made, then it is made by use of assets that are to be divided between the spouses in any event: that is, some part of the profit is made on the use of an asset of the other spouse (or likely to be settled upon the other spouse). In these circumstances, the concept of ‘taking the good with the bad’ is no answer, as it assumes some degree of agreement or joint endeavour; that is some degree of risk assumption or acquiescence by the other spouse. The use of the assets by the husband in this case is outside the ambit of the way in which the parties had chosen to arrange their affairs as a couple, and well outside the ambit of the obligation to allow each spouse to reasonably support themselves or even to ‘get on with life’ that may be an inherent incident of a marriage. There is nothing about the relationship of these parties’ that would make it appropriate to require the wife to bear any part of the risk or costs of this unilateral endeavour by the husband.
Conclusions on Post Separation Dealings
In this case, I am satisfied that the wife should not bear any adverse consequences as a result of the B Street, Suburb C property project. I am also satisfied that the withdrawals identified above were unilateral applications of funds to the husband’s sole benefit. However, with respect to the withdrawals, as a result of the way that the husband has managed his affairs and produced little material at trial, it is difficult to determine whether the withdrawals of $98,000 came from funds that the parties had at separation, or were funds that the husband earned after separation. Having regard to his ability to save and reduce the mortgage in the year following separation it appears most likely that these are funds he earned after separation.
If one looks at the financial position, had the husband contributed nothing since separation (other than superannuation) and spent nothing (other than meeting the outgoings on the properties and small mortgage), the balance sheet would have appeared as follows:
Ownership Asset Value Real Property Joint D Street, Suburb E Property $680,000.00 Wife Indian Property $38,000.00 Total Real Property $718,000.00 Total Bank Accounts Notional $33,086.51 Vehicles Wife Motor Vehicle 1 $1,698.00 Husband Motor Vehicle 2 $11,850.00 Husband Motor Vehicle 3 $6,100.00 Total Vehicles $19,648.00 Jewellery Wife Family/marital jewellery $28,469.00 Joint Household goods $3,500.00 Total Chattels $31,969.00 Total Assets $802,703.51 Superannuation Wife Superannuation $56,534.00 Husband Superannuation $360,000.00 Total $416,534.00 Net Assets and Superannuation $1,219,237.51
Ultimately, I am not persuaded that it is an appropriate case to add notional amounts to the list of assets and liabilities of the parties. Rather, it is appropriate to take into account the amount that would have been available, had the husband done nothing more than meet the modest outgoings (bearing in mind that he was living in the home), when determining the appropriate percentage contributions assessment for the parties. Furthermore, on the grounds of the considerable savings the husband demonstrated that he could make in the first year of separation, had he continued to contribute to the pool after separation, and the impenetrable nature of his financial transactions between separation and trial.
Superannuation
Neither party sought that superannuation be dealt with in a separate pool. However, I note that after separation the husband would have continued to contribute to his superannuation, even if his dealing with the other assets reduced the pool.
CONTRIBUTIONS
Initial contributions
The wife submits that neither party had significant assists prior to the commencement of their relationship. The husband does not dispute this claim. In this respect, it is apparent that the land in India had a very modest value at the time of purchase and likely had a very modest value at the time that the parties married.
Contributions during the marriage
The husband was the primary income earner and the wife was the primary carer during the relationship. The wife held employment positions and also contributed to the ‘acquisition, conservation and improvement of the assets and to household bills and expenses’.
The Husband earned significantly more than the wife throughout their relationship, and the wife bore a greater share of the homemaker and child rearing. The wife’s evidence was that during the relationship she provided the majority of the indirect contributions in the form of homemaking. She was responsible for most of the cooking, cleaning, household and financial duties and the children’s feeding, bathing, cooking, playtime, taking them to appointments, doing the school run and general parenting duties.
The parties purchased the D Street, Suburb E Property and the mortgage repayments, rates, bills and other outgoings were paid from the parties’ joint savings account. The parties purchased the F Street, Suburb G Property, which was fully encumbered by way of mortgage and the D Street, Suburb E Property provided additional collateral. The mortgage repayments, rates, bills and other outgoings were paid from the parties’ joint savings account.
Post-separation
The husband was also the primary income earner post-separation. The wife has been living in India and has the sole care of the children. The husband has visited the children in India four times in the past five years.
The husband argues that the wife’s decision to live with the children in India should be taken into account as a factor as he says that the decision was unilateral. In cases where this has been taken into account, such as Danh & Loi [2019] FamCAFC 190, the carer and children have not been locatable by the other parent. In this case, there is no question that the mother’s location was known, nor that initially she travelled with agreement of the husband. It was open to the husband to bring proceedings with respect to the children, although Australia was unlikely to be the appropriate forum given the time that has passed. I am not prepared to accept the bare allegations that the Indian courts would not have provided assistance: India has a well-developed legal system and expert evidence should be led if it is alleged that the Indian legal system would not provide an appropriate remedy.
One must not lose sight of the fact that the wife came from India and has strong family support in India. Whether a court, on hearing all of the evidence, would determine that the children’s best interests are served by residing with the mother in India has not been tested: on the limited evidence in these proceedings the mother would certainly have had an arguable case. I am not persuaded that the wife’s choice to reside in India after separation should sound in a significant adjustment in the husband’s favour nor a discounting of the wife’s contribution as the primary carer.
The husband has enjoyed sole use, occupation and the benefit of the D Street, Suburb E Property since separation. The mortgage repayments, rates, bills and outgoings were not great, and indeed in the first year were modest as to allow him to accumulate savings and reduce the debts of the parties (as discussed above).
The wife submits that from separation to in or around March 2018, the husband did not make any informal child support payments and the wife has paid for the children’s major long-term and daily expenses including clothing, school fees, and medical expenses. In March 2018 until July 2019, the husband paid $1,000 to $2,000 in child support per month. The husband does not dispute these facts. The husband has not made a consistent contribution to the maintenance of the children, leaving those costs to fall onto the wife, although those costs are likely to have been far more modest in India compared to Australia.
The machinations of the husband in taking cash from the accounts, and the B Street, Suburb C property project undertaken only by fraudulently signing documents on behalf of the wife demonstrate that in substance, he has not increased the value of the matrimonial pool since separation, but caused it to decline. During this same period, the wife made significant contributions as the sole carer of the children.
I also note that the husband would have continued to contribute to his superannuation during this period.
Ultimately, I am persuaded that contributions to the presently available pool in this most unusual case should be assessed at 57.5% in favour of the wife and 42.5% in favour of the husband
.SECTION 75(2) FACTORS
The wife is 45 years of age and is in good health. The husband is 46 years of age. His evidence is that he suffers from major depression and anxiety due to the marital separation. The wife submits that the husband’s illness is related to these proceedings and once finalised, his symptomology would likely improve. I accept the submissions for the wife.
The husband is currently employed but his earnings have dropped by $50,000 per annum. From 1 February 2019, he has earned $158,000 plus $20,000 bonus per annum. The husband has a bank account in his name only with a balance of $185,034.30. He owns the B Street, Suburb C property, jointly owns the D Street, Suburb E property and has superannuation of $360,000.00. He remains a high income earner.
The wife is a qualified allied health worker and has a Master’s degree in Allied Health. The husband submits that the wife’s current financial position bares no relationship to her capacity to gain meaningful employment or the opportunity for her to use her qualifications to gain meaningful employment in Australia still exists. The wife has not been employed since March 2018 but earns $3,500 from her small home business. The wife has bank accounts with nominal amounts, jointly owns the D Street, Suburb E property and has superannuation of $56,534.00. The wife has post-graduate qualifications. I am satisfied that she does have a reasonable income and earning capacity, although less than that of the husband. It was not disputed that the cost of living in India is below that of living in Australia.
The wife cares for both of the children of the relationship. The husband submits that the wife unilaterally took control and care of the children and removed them from the jurisdiction by taking them to India. For the reasons given above, I am not persuaded that the wife’s choice to live in India requires an adjustment pursuant to s.75(2) of the Act, beyond noting that the husband will have travel costs to visit in the children in India.
The husband says that his income is reduced as a result of the wife’s decision to live in India. I have had regard to the income he earns presently, and not the higher income he earned at separation. I am not persuaded that the psychological effects of the relationship breakdown require some form of adjustment to compensate the husband rather that the impacts show that his present income reflects his income earning capacity. He will accumulate far more assets than the wife over the forthcoming years.
The wife has a number of years to care for the children before it is realistic that she return to her career full time.
I bear in mind the contributions assessment that I have made, based however on the husband effectively making no real contributions since separation (aside from superannuation). I also note that there are considerable unaccounted for funds that he had available to him, such as the $98,000 specifically identified by the wife that are available to the husband, making his overall financial position stronger than if the totality of his wealth was from his share of the assets of the parties. In this context, I am persuaded that he does have assets in addition to the 42.5% contribution assessment with respect to the current pool, which would mean that his true financial position, following the contributions assessment, is similar to that of the wife. It is difficult to see why the remaining s.75(2) factors weigh in favour of no further adjustment, given the husband’s income and the wife’s obligations as primary carer of the children. In all of the circumstances, I am persuaded that a 10% adjustment is appropriate in the wife’s favour on the available pool of assets, resulting in a 67.5/32.5 split.
FINDINGS
If a property settlement is ordered requiring the wife to receive 67.5% of the available assets and superannuation, she would receive $761,067.17 in assets and the husband $366,439.75. At present she holds:
(a)The land in India $38,000.00
(b)Various bank accounts $626.00
(c)The Motor Vehicle 1 $1,698.00
(d)Jewellery $28,469.00
(e)Superannuation $56,534.00
TOTAL $125,327.00
A superannuation split of $224,626.45 would bring the wife’s superannuation entitlements to 67.5% of the superannuation of the parties. She would then require a further payment of $536,440.72. This sum can be partially satisfied from the $185,034.30 held in the CBA account xxx-…00, leaving $351,406.42 outstanding. There is more than adequate equity in the D Street, Suburb E property for the husband to borrow the balance payable, and if not that property can be sold. This would provide the husband with the opportunity to retain the home at D Street, Suburb E where he lives if he so desires and his finances permit.
Standing back and considering the case as a whole, I am satisfied that the outcome proposed is an appropriate property settlement under s. 79 of the Act and just and equitable within the meaning of s. 79(2) of the Act.
Orders cannot be made without affording the superannuation fund procedural fairness, I will allow the wife time to do this and direct the parties to provide draft orders to reflect the findings herein.
I certify that the preceding ninety (90) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Riethmuller. Dated: 31 May 2021
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