Grieves and Grieves
[2012] FamCA 691
FAMILY COURT OF AUSTRALIA
| GRIEVES & GRIEVES | [2012] FamCA 691 |
| FAMILY LAW ─ PROPERTY ─ Value of property ─ Conflicting evidence ─ Where the parties were in dispute as to the value of the husband’s interest as tenant in common with his brother in a property ─ Where one expert valued the property on what might loosely be described as a “continuing use” basis and the other expert on the basis of the “highest and best use” of the premises ─ Discussion of the authorities on the principle of “highest and best use” relevant to the valuation of real property ─ Where the Court preferred the valuation of the expert who approached the valuation on a “highest and best use” basis. FAMILY LAW ─ PROPERTY SETTLEMENT ─ Contributions ─ Where the Court determined that adopting an asset-by-asset approach was in the circumstances of this case more conducive to achieving a just and equitable determination than considering the assets of the parties globally (see Norbis v Norbis (1986) 161 CLR 513). FAMILY LAW ─ PROPERTY SETTLEMENT ─ Adjustment ─ Where the “duration” of the marriage, and the wife’s primary role as homemaker and parent have “affected” the wife’s earning capacity ─ Where on balance the Court concluded that a s 75(2) adjustment in the wife’s favour of 5 per cent would, in the circumstances, reasonably reflect the implications of the disparity of earning ability of the parties for the parties into the future ─ Where having regard to the authorities and having “stood back”, and scrutinised the proposed award, and its practical implications, the Court was satisfied that the proposed settlement of property was just and equitable. FAMILY LAW ─ SPOUSAL MAINTENANCE ─ Where on balance, the Court concluded that the husband should pay the wife interim spousal maintenance ─ Where the Court was not persuaded that the order for spousal maintenance should continue beyond the date upon which the wife receives her entitlement to property settlement. |
| Family Law Act 1975 (Cth) Part VII; ss 72, 75(2), 79 |
| Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources (1988) 65 LGRA 410 Bevan and Bevan (1995) FLC 92-600 Brett-Hall and Brett-Hall (2006) FLC 93-276 Brisbane City Council v The Valuer-General for the State of Queensland (1978) 140 CLR 41 Coghlan and Coghlan (2005) FLC 93-220 Daandine Pastoral Co Pty Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299 Elsey and Elsey (1997) FLC 92-727 Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336 Flotilla Nominees Pty Ltd v Western Australian Land Authority & Anor (2003) 129 LGERA 65 Housing Commission of New South Wales v San Sebastian Proprietary Limited & Others (1978) 140 CLR 196 Jarrott & Jarrott [2012] FamCAFC 29 Kardos v Sarbutt (2006) 34 Fam LR 550 Kessey and Kessey (1994) FLC 92-495 Mallett v Mallett (1984) 156 CLR 605 Manolis & Manolis (No 2) [2011] FamCAFC 105 Norbis v Norbis (1986) 161 CLR 513 Pierce and Pierce (1999) FLC 92-844 Preece and Preece (1981) FLC 91-048 Rosati and Rosati (1998) FLC 92-804 Spencer v The Commonwealth (1907) 5 CLR 418 The Minister of State for Homes Affairs v Roston (1914) 18 CLR 634 The Valuer-General v Fenton Nominees Proprietary Limited (1982) 150 CLR 160 |
| APPLICANT: | Ms Grieves |
| RESPONDENT: | Mr Grieves |
| FILE NUMBER: | SYC | 2146 | of | 2011 |
| DATE DELIVERED: | 16 August 2012 |
| PLACE DELIVERED: | Dubbo |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Coleman J |
| HEARING DATE: | 17, 18 & 20 July 2012 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Ladopoulos |
| SOLICITOR FOR THE APPLICANT: | McCabe Partners Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Fermanis |
| SOLICITOR FOR THE RESPONDENT: | Giles Payne & Co |
Orders
That within four (4) calendar months of this day the husband:
(a) pay to the wife the sum of $567,147; and
(b)cause to be transferred to the wife the $48 credit balance of the parties joint bank account and the proceeds of sale of the former matrimonial home of $19,221.
Upon payment by the husband to the wife of the said sum of $567,147 the wife shall transfer to the husband the whole of her shareholding in and entitlement to benefits howsoever arising against or with respect to S Pty Limited and resign as a director of S Pty Limited, provided that the husband indemnify the wife and forever keep her indemnified with respect to any liability to S Pty Limited or any third party arising out of or in relation to the wife’s shareholding in or directorship of S Pty Limited.
That either party have liberty to apply after the expiration of four (4) months hereof for further orders implementing these orders for settlement of property, including orders with respect to any capital gains tax liability of the husband arising as a consequence of his compliance with such orders.
That the husband pay by way of interim spousal maintenance until the wife receives her entitlement by way of settlement of property pursuant to these orders:
(a) the sum of $400 per week;
(b)the lease payments with respect to the motor vehicle currently in the wife’s possession; and
(c)the parties’ health cover at its current level.
That costs be reserved.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Grieves & Grieves has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 2146 of 2011
| Ms Grieves |
Applicant
And
| Mr Grieves |
Respondent
REASONS FOR JUDGMENT
introduction
The proceedings before the Court concern settlement of property and spousal maintenance. Ms Grieves (“the wife”) commenced the proceedings pursuant to Part VIII of the Family Law Act 1975 (Cth) (“the Act”) against Mr Grieves (“the husband”). In essence, the wife seeks orders that she receive by way of settlement of property a sum calculated as 50 per cent of what she contends is the net value of the property of the parties, a sum of approximately $740,000. Albeit by reference to a different, and less, asserted net value of the property of the parties, the husband seeks orders that the wife receive approximately $260,000 by way of settlement of property.
The wife also seeks orders for interim spousal maintenance until December 2013 in the sum of $1,000 per week. The husband seeks orders that he pay the wife interim spousal maintenance until her entitlement to a settlement of property pursuant to the Court’s orders is received. On the basis that the husband continues to cause the payments with respect to the lease on the wife’s motor vehicle to be paid, and the parties’ health insurance premiums to be paid, the husband seeks orders that he pay the wife the sum of $300 - $400 per week by way of interim spousal maintenance.
background
The husband was born in 1959. He is accordingly 53 years of age.
The wife was born in 1957. She is accordingly 55 years of age.
The parties were married on in 1983.
The parties separated under the same roof on or about 18 December 2010.
There are three children of the marriage, P born in 1984, B born in 1986, and N born in 1988.
The assets of both parties at the commencement of their cohabitation, and immediately thereafter, were modest and approximately equal.
the property of the parties to the marriage
The parties agree that the net proceeds of the sale of their former matrimonial home, and some furniture sold with it, amount to $19,221.
The parties agree that S Pty Limited, a corporation owned by them, has an agreed value of $642,923.
The parties agree that $48 reposes in joint bank accounts held by them with Westpac and the Commonwealth Bank.
The husband asserts that the figure of $30,000 should be included in the balance sheet by reference to jewellery which the wife represented that she had in financial statements sworn by her. The wife submits that a figure of $2,000 is appropriate with respect to jewellery.
The figure of $30,000 which historically appeared in the wife’s financial statements, including one sworn by her on 1 September 2011, was not based upon a valuation, but rather was the wife’s estimate of the value of jewellery which she asserted in her oral evidence that she no longer had. There is no suggestion that the wife has expertise in relation to the valuation of jewellery.
Necessarily in the circumstances, the thrust of Counsel for the husband’s assertion that the wife’s jewellery should be included at $30,000, was that the wife had historically represented that to be the value, and that, for the first time in her financial statement sworn 11 July 2012, a few days prior to the commencement of the trial of the proceedings, had indicated a figure other than $30,000 with respect to her jewellery. In those circumstances it was asserted that the wife ought to be held to that figure.
It is regrettable that the wife did not signify much sooner, either by affidavit, or otherwise, that she no longer had the bulk of the jewellery which she estimated to be worth $30,000. On the other hand, given that the wife was obliged by the rules to estimate the value of her jewellery in her financial statement, and was not shaken in her evidence in relation to the loss of the jewellery, it would be unfair to include the wife’s jewellery at $30,000. The Court accepts that although not major, the impact of including an item worth $30,000 in the balance sheet is not de minimis.
The parties are in dispute as to the value of the husband’s 28/86th interest as tenant in common with his brother in property known as, and situate at U Road Suburb M. (“U Road”).
In concluding submissions, having heard the cross-examination of each of the experts relied upon by the parties two days earlier, Counsel for the wife continued to assert that the husband’s interest would be found to be worth $650,976.94 or, if not that sum, not less than the sum of $529,276.54. Counsel for the husband submitted that the husband’s interest in U Road should be found to be no more than the sum of $490,000. Each of the parties relied upon expert valuers whose qualifications and experience were undoubtedly of the highest order.
Pursuant to a direction made by the Court, the valuers produced a comprehensive and helpful memorandum for the Court’s assistance. In that memorandum, it was reiterated that Mr H valued the entirety of U Road at $850,000 on behalf of the husband, whilst Mr D valued the whole of the property at $2 million on behalf of the wife.
During the course of the trial, evidence emerged that in 2007, the property was valued on the instructions of the husband and his brother by Mr Y (see Exhibit R3) in the sum of approximately $2 million.
Mr D suggested that the earlier valuation provided some support for his valuation but, given that he clearly first became aware of the valuation well after he had produced his valuation, it should be considered co-incidental that the figures were not dissimilar.
Mr H declined to express any view as to the impact of the earlier valuations upon his valuation, suggesting that he did not know the circumstances in which the valuations were undertaken and that they were “a fair while ago”.
In the absence of the Court knowing much more than the evidence reveals about the earlier valuations, it would not be fair to either valuer to draw any inferences from them, either supporting Mr D’s valuation, or impugning Mr H’s valuation. As Mr H suggested, there is simply not enough known about the purpose for which the valuations were prepared, the methodology used, or their reliability. The valuation issues thus fall to be determined by reference to the evidence before the Court in relation to the valuations which each of Mr H and Mr D completed.
In their joint memorandum the learned valuers recorded:
3.Our approaches to valuation, and thus the resultant valuation figures determined, differ and diverge on our individual view of the property in its current state and where we believe its primary market lies. Given our divergent views on the property, we disagree on the primary approach to valuation assessment and the most relevant sales to be relied upon to determine a current fair market value for the subject.
As is not in doubt, Mr D valued U Road on what might loosely be described as a “continuing use” basis, that is to say that on the basis that the existing improvements to the property, six strata title units, four being residential, two on the ground floor being commercial, continue to exist, be utilised and generate income as they currently do, and have historically done. As such, the focus of Mr D’s analysis was a consideration of recorded sales of existing, income producing properties with locations and improvements as closely approximating U Road as he could find.
Mr H proceeded on the basis that the “highest and best use” of the premises was as a site for commercial, or primarily commercial redevelopment. As such, the focus of Mr H’s analysis of sales related to commercial properties. There is no suggestion that Mr H’s approach involved any speculative considerations (see The Minister of State for Homes Affairs v Roston (1914) 18 CLR 634). The U Road property is zoned to permit commercial development. A difficulty which confronted both valuers, about which they could do nothing, was the reality that there does not appear to have been a recent sale, in the locality of the U Road property, of a property with improvements identical to those contained at U Road.
There is little doubt that the focus of Mr H’s comparable sales was clearly redevelopment sites with minimal or “knock-down” improvements. Conversely, the focus of Mr D’s comparable sales was residential apartment blocks. Necessarily in those circumstances, both valuers were limited in their ability to engage with the comparable sales in support of the contrary valuations asserted by each of them.
The rationale of Mr H’s approach was reiterated in the joint memorandum:
4.Mr [H] maintains his opinion that the subject property is most appropriately valued based upon its re-development potential as a site, as set out in detail in his report.
The rationale of Mr D’s approach was reiterated in the joint memorandum:
5.Mr [D] maintains his opinion that the subject property is attractive to the small investor market in its current state as an older style block of 4 home units and 2 shopfronts, with rear carparking, further advantaged by its existing strata title registration at the date of valuation. Mr [D] cites the comparable sales of whole unit blocks as per his report as the most relevant evidence of value, two of these being in immediate proximity to the subject.
The Court does not understand Mr D to suggest that, as a redevelopment site, the U Road property would be worth significantly more than Mr H suggests. Whilst Mr H suggested that Mr D’s valuation of the U Road property on an existing use basis was somewhat high, both by reference to calculation of rental, outgoings, and the capitalisation rate appropriate to be applied to the property, the Court does not understand that Mr H would suggest the value of the property to be less than $1.5 million, if it were valued on the basis asserted by Mr D to be appropriate. That is so having regard to the concession made by Counsel for the husband in his final submissions that the Court could safely rely upon Mr D’s calculation of the outgoings on the property in preference to the calculations of Mr H in that regard.
There is, as Counsel for the parties identified shortly after the trial commenced, something of a philosophical divide between the expert valuers in their approaches to the valuation of the property. As Counsel for the husband submitted in his final address, resolving that difference of approach involves recourse to the principle of “highest and best use”, as that term is understood in valuation law and practice.
The principle of “highest and best use” finds repeated expression throughout the authorities relevant to the valuation of real property (see Spencer v The Commonwealth (1907) 5 CLR 418, Brisbane City Council v The Valuer-General for the State of Queensland (1978) 140 CLR 41, Housing Commission of New South Wales v San Sebastian Proprietary Limited & Others (1978) 140 CLR 196, Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336 and The Valuer-General v Fenton Nominees Proprietary Limited (1982) 150 CLR 160).
Judicial acceptance of the concept is said to derive from the decision of the High Court in Spencer v The Commonwealth (1907) 5 CLR 418 where Isaacs J said (at pages 440-441):
… the all important fact on that day is the opinion regarding the fair price of the land, which a hypothetical prudent purchaser would entertain, if he desired to purchase it for the most advantageous purpose for which it was adapted. … To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property. ...
The principle of “highest and best use” was succinctly stated more recently by Pullin J in Flotilla Nominees Pty Ltd v Western Australian Land Authority & Anor (2003) 129 LGERA 65:
18.… The test of market value is well known. It is what the hypothetical purchaser desiring to purchase the land would have had to pay for it on the date of resumption to a hypothetical vendor willing to sell it for a fair price but not desirous to sell: Spencer v Commonwealth (1907) 5 CLR 418.
19.Regard must be had to every element of value which the lands possess. Every such element must be taken into consideration insofar as they increase the value to the owner of the land: Minister of State for Home Affairs v Rostron (1914) 18 CLR 634 at 637. In short, regard should be had to the highest and best use of the subject land, meaning the most advantageous use of the subject land having regard to planning and all other relevant factors affecting its present and future potential: Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources (1988) 65 LGRA 410 at 415.
As Counsel for the husband reminded the Court by reference to Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources (1988) 65 LGRA 410, the issue is not which approach produces the highest valuation, but the approach which reflects the highest and best use of the property, although, as in this case, determining the “highest and best use” will be influenced by any significant difference with respect to the resultant valuations. That is consistent with the notion of a hypothetical vendor not disregarding the “ordinary business consideration” of obtaining as much as can reasonably be gained for the property. As the authorities confirm, “highest and best use” is generally controversial when a change from existing use to a more beneficial use gives rise to a higher rather than to a lower valuation.
In the circumstances of this case, the Court prefers Mr D’s approach on a “highest and best use” basis. Although, in his oral evidence, Mr H suggested that the improvements at U Road were “nearing the end of their economic life”, the Court does not understand that to have been a factor of major significance in Mr H’s valuation of the property.
The Court has not been referred to any evidence establishing that the improvements at U Road, which are apparently 50 years old, have reached the stage where retaining them is other than economically viable. The accounts produced by the husband in relation to the operation of the building do not support so concluding. Neither valuer suggested that the outgoings on the building are indicative of its economic life approaching its conclusion.
There is no suggestion by the husband that he or his brother has any intention of selling the premises which appear, from the photographic evidence before the Court, to be in reasonable condition. There is no evidence before the Court establishing any difficulty in obtaining tenants for any of the six lots in the strata, or of problems relating to the improvements which might render their demolition appropriate.
In the absence of evidence establishing that so doing would produce a materially higher price, and the evidence is to the contrary, to regard the property as a redevelopment site rather than by reference to its continuing use would in the Court’s view be inappropriate. Whilst the market evidence relied upon by Mr H provides support for the figure which he suggested, on the basis that the property should be regarded as a redevelopment site, that does not render the valuation on that basis consistent with “highest and best use” as that term is applied in valuation law and practice. In order to determine “highest and best use”, the basis of Mr D’s valuation needs to be considered.
With respect to him, Mr H did not really engage with the basis of Mr D’s valuation. Mr D, as his report makes clear, did consider commercial premises, such as neighbouring U Road properties, but the focus of his investigations was primarily, for reasons which he suggested, purely residential properties, the bulk of them in streets other than U Road.
Whilst, as will be seen, the reliance Mr D could place upon purely residential premises was, in the Court’s view, more limited than he appeared to concede, the sale of the property at 436 U Road provides support for concluding that Mr H’s valuation of the subject property on a redevelopment basis was somewhat problematic.
The property at 436 U Road, which may or may not be subject to a heritage listing, comprised a corner shop with accommodation above, on a land area of 230 square metres, notwithstanding which, the property sold for $620,000. If the property was sold for redevelopment, it is difficult to reconcile its sale for only $230,000, less than Mr H asserts for the subject property, which occupies an area of 417 square metres. Similarly, even if the figures revealed by the sale of blocks of six residential units were significantly discounted by reason of the extent to which they differ from the subject property, those sales still provide considerable support for Mr D’s valuation, and impediments to accepting Mr H’s valuation, whatever its basis.
Concluding that, on a “highest and best use” basis, the subject property should be valued on the basis asserted by Mr D, is not necessarily conclusive of the valuation dispute.
As the joint memorandum records:
6.Both Mr [H] & Mr [D] supported their valuation assessment by way of a capitalisation of income approach. There is reasonable agreement on rental income, though Mr [D] adopts a discount of only 1 year on Lot 5 which is leased to a related party and the stipulated rental is below market, being until a market review is available at commencement of option period. Mr [H] defers this for 6 years, being the lease period inclusive of option.
As is not in doubt, the rental with respect to Lot 5 will be determined when an option to enter into a new lease is exercised in March 2013, a little over six months hence. There is no evidence that S Pty Limited does not propose to exercise its option to secure a new lease. There are sound commercial reasons why it would do so. At that time, it is not in doubt that the rental may become market rental. There is no evidence that the husband’s brother, who is the majority owner of the property, would necessarily allow a continuation of the current discounted rental which is received from S Pty Limited with respect to the Lot occupied by it for the purpose of conducting its business. More importantly, a prudent investor contemplating purchasing the property in the near future would no doubt intend to exact an appropriate commercial rental when the option is exercised.
In all the circumstances, the Court prefers Mr D’s approach to that of Mr H with respect to the income to which regard is had for the purpose of capitalising income. So doing accords with commonsense, and commercial reality.
At the time the joint memorandum was prepared by Mr D and Mr H, they were in dispute in the following respect:
7.The major variance in resultant figures by way of the capitalisation approach comes firstly from Mr [H] adopting a significantly higher amount for outgoings, the total taken direct from the supplied Profit & Loss Statement, whilst Mr [D] deducts individual amounts, some referenced from the 2010 Profit & Loss Statement, however excludes those he is of the opinion are not directly related to the subject property as would be considered by a typical investor as usual on-going costs and expenses for such a property.
Sensibly, in the Court’s view, and consistent with authority, in his final submissions, Counsel for the husband conceded that Mr D’s figures with respect to outgoings for the purpose of the capitalisation exercise could be preferred to those of Mr H. In view of that concession, and the Court’s preference for Mr D’s figure with respect to income to that of Mr H, the valuation of the property turns upon the yield or capitalisation rate appropriate to be applied to the figures for maintainable profits determined by Mr D.
The expert valuers recorded their disagreement in that regard in the following terms:
8.The second area of significant variance comes from the yield rate applied, Mr [H] adopting 8% and Mr [D] 5.5%. Mr [H] supports his yield rate adopted by reference to predominantly commercial property sales within his report, whilst Mr [D] supports his adopted yield rate by reference to home unit block sales of the local area, and the broad market for whole unit blocks in one line, with adjustment for the consideration of the commercial component offered by the two shopfronts.
As is not in doubt, Mr H’s yield rate was derived by reference to “predominantly commercial property sales”. Mr D asserted that his yield rate accommodated the commercial component of the subject property referrable to the two shopfronts. In cross-examination, Mr D’s explanation of how he claimed that he had done so was, with respect to him, less than compelling.
In reality, the 5.5 per cent yield rate adopted by Mr D accorded closely with the returns upon which he stated he had relied in his valuation, which were derived by reference to the sales of residential apartment blocks which he had analysed. As is not in doubt, Mr H had little, or no demonstrable regard to yield rates with respect to residential premises.
As is also not in doubt, although numerically the subject property comprises four residential apartments, and two “shopfronts”, approximately 50 per cent of the rental generated by the property is referrable to the residential units, the other 50 per cent being referrable to the shopfronts. Regrettably, and through the fault of neither valuer, there has not been available a comparable sale which would have enabled Mr H and Mr D to consider the issue more directly or specifically than they have, on a truly “like with like” basis.
In Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336 Mason J said at 381:
... As with the assessment of damages, especially in personal injury cases, the valuation of property by a court has many of the characteristics of a discretionary judgment. Valuation is a matter of estimation, not of precise mathematical calculation. It certainly involves the making of a value judgment in the metaphorical as well as the literal sense. ... (Footnotes omitted)
Counsel for both parties conceded that the Court could properly, if unable to accept either yield rate, consider a different rate, not simply by “splitting the difference”, but by determining an intermediate figure which would reflect a more appropriate yield rate (see Daandine Pastoral Co Pty Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299 per Williams J).
Although it is the mid point, adopting a yield rate of 6.75 per cent, as the Court proposes to, emerges not by simply “splitting the difference” but rather by having regard to the reality that half the income generated by the subject property is referrable to the residential part of it, and that half is referrable to the commercial part of it.
Given that the evidence clearly establishes 5.5 per cent to be an appropriate yield rate with respect to residential, and 8 per cent with respect to commercial property, by applying 6.75 per cent “across the board” rather than 8 per cent to half and 5.5 per cent to half does not produce a mathematical difference.
It is not in doubt, Counsel for the parties having helpfully agreed, that applying a yield rate of 6.75 per cent to Mr D’s calculation of rental after add-backs and adjustments ($111,016.85 net) produces a valuation of $1,625,635.07 for the subject property. The husband’s 28/86th interest is accordingly worth $529,276.54 (rounded as $529,277), and it is that figure which the Court will include in the balance sheet.
The property of the parties is thus worth $1,193,206.
The parties have superannuation interests the valuations of which are not controversial. The wife’s superannuation interests are worth $30,846 the husband’s are worth ($35,121 + $14,597 + $3,079) $52,797. It will make little difference whether superannuation interests are included in the parties’ assets or taken into account pursuant to s 75(2). Given the ages of the parties, and the total value of their superannuation interests relative to their non-superannuation assets, and that neither party seeks a splitting order, the Court prefers to include the superannuation interests in the asset pool (see Coghlan and Coghlan (2005) FLC 93-220). So doing, the assets of the parties are worth $1,277,064.
A number of liabilities are asserted by each of the parties. In the main, those liabilities are controversial. The most controversial is a sum of $184,129 which the husband variously asserts that he owes his brother and/or Westpac Bank. Notwithstanding this alleged liability being referred to extensively in the husband’s affidavit of evidence-in-chief, with respect to the draftsperson of that affidavit, it does not emerge clearly from that document just what the husband really asserts in relation to this alleged liability.
Within the husband’s affidavit of evidence-in-chief with respect to the topic there are a number of material contradictions and inconsistencies. It is ultimately unclear how the husband asserts that the liability arose, to whom he asserts that he is really indebted, and for what. Significantly, the alleged indebtedness is not materially supported by any source or independent documentation tendered in evidence.
Having listened to the husband’s evidence, the Court suspects that the husband himself does not really understand the basis of the liability which he asserts. Repeatedly, in the course of cross-examination, the husband acknowledged that he could not explain matters which, particularly given his apparent commercial experience, it was reasonable to imagine that he could have. Often in cross-examination the husband said that Counsel would have to ask his brother or his accountant about matters raised with him. As is not in doubt, neither the husband’s brother nor his accountant gave evidence. Nor was any explanation for the failure to call either of those witnesses to give evidence ever advanced.
The husband’s alleged indebtedness has at all material times been controversial. The husband bears the onus of proof according to the civil standard in relation to the issue. As Counsel for the husband tacitly acknowledged, the evidence relied upon by the husband does not meet the evidentiary onus which he bears. With respect to the husband, his evidence raises more questions than it answers in relation to his alleged indebtedness.
The Court’s inability to make the finding in the terms sought on behalf of the husband is not in reliance upon any perceived absence of credibility on the husband’s part. The Court’s finding is to some extent reliant upon the husband’s own evidence that he did not know or could not explain matters which were clearly relevant to the existence or otherwise of the liability.
The Court accordingly will not include in the balance sheet $184,129 or any lesser sum with respect to the husband’s alleged indebtedness to Westpac Bank and/or his brother. As will be seen when contributions are considered, so concluding does not necessarily have the detriment for the husband which might at first be thought to result from the Court’s inability to make the finding he seeks.
The husband sought to rely upon a Westpac Visa debt of $20,000. In cross-examination the husband asserted that the liability was largely referrable to the business of S Pty Limited, in which the wife is also a shareholder, and by whom she was also employed prior to separation. In the course of such cross-examination the husband suggested that he had documentation which could substantiate his assertions. Whether that assertion was correct or not, no such documentation ever materialised.
No doubt alive to the deficiencies in the husband’s evidence with respect to this asserted liability, his Counsel relied upon a passage in the affidavit evidence-in-chief of the wife, referring to her having had the use of a credit card, albeit within a timeframe which was not identified with any particularity, and with respect to a credit card which was not necessarily the one to which the husband referred. The husband has not established that the $20,000 Westpac Visa bears a sufficient nexus with the marital relationship to take it into account.
Sensibly, Counsel for the husband did not press to have an ANZ MasterCard debt of the husband of $37,456 taken in to account given the husband’s evidence for the bulk of that liability related to the payment of legal fees by him.
The wife claimed that she owed $23,000, $2,000 of which was by way of taxation, $10,000 of which was owed to one of the parties’ children. Fairly, the husband conceded both those liabilities. The wife claimed that she owed a friend $11,000, $4,400 of which had been utilised to pay for the valuations used in the proceedings. To allow that sum would result in a corresponding notional addition to the asset pool of $4,400.
The husband disputes that the wife has proved the balance of the asserted liability. Whilst there is no reason to disbelieve the wife in relation to the issue, just as the Court has had regard to the absence of evidence from witnesses well able to give it with respect to the husband’s asserted liabilities, so does it to such absence with respect to the allegations of the wife. The absence of evidence of the intention of the alleged creditor to require repayment is of particular significance. The Court is not persuaded on the balance of probabilities that this controversial liability exists.
The parties’ liabilities to which the Court shall have regard accordingly total $12,000.
The net assets, inclusive of superannuation interests of the parties are accordingly:
Assets
1.
Net proceeds of former matrimonial home
$19,221
2.
28/86th interest in the property at U Road, Suburb M
$529,277
3.
S Pty Limited
$642,923
4.
Westpac and Commonwealth joint bank accounts
$48
5.
Jewellery
$2,000
6.
Tower Superannuation (W)
$15,500
7.
BT Super (W)
$15,346
8.
Tower superannuation (H)
$35,121
9.
BT Super (H)
$14,597
10.
AMP (H)
$3,097
$1,277,130
Liabilities:
1.
Wife’s loan from Mr G
$10,000
2.
Wife’s tax liability
$2,000
$12,000
Assets:
$1,277,130
Less Liabilities:
$12,000
TOTAL
= $1,265,130
contributions
As the Court foreshadowed during final submissions, adopting an asset-by-asset approach is in the circumstances of this case more conducive to achieving a just and equitable determination than consideration of the assets of the parties globally (see Norbis v Norbis (1986) 161 CLR 513). Accordingly, the Court proposes considering the husband’s interest in U Road Suburb M separately from the other assets reflected in the balance sheet.
At all material times Counsel for the wife submitted that, to the date of trial, the contribution entitlements of the parties to the totality of their assets should be equal.
Counsel for the husband submitted when the trial commenced that the wife’s contribution based entitlement should approximate 35-40 per cent, inferentially of the total asset pool.
In final submissions, Counsel for the husband, sensibly and correctly in the Court’s view, relinquished the opportunity to be heard in opposition to the proposition that the parties’ contribution entitlements to their assets, other than U Road should be regarded as equal. Even if such concession had not been made, the Court would have so concluded. The duration of the cohabitation, and the unchallenged evidence of the contributions made by each of the parties in their respective spheres would have enabled the Court to be comfortably satisfied that the contributions of the parties to their assets, other than the U Road property, and their superannuation interests should be regarded as equal (see Mallett v Mallett (1984) 156 CLR 605).
It is necessary to carefully analyse the contributions of the parties to the U Road property. As is not in doubt, the acquisition of the U Road property was referrable to the last Will and Testament of the husband’s mother who died in September 2000. Probate of the husband’s mother’s Will and Testament was granted on 31 May 2002.
It is not in doubt that the husband’s mother’s Will gave him the opportunity to acquire an interest in the U Road property. As noted earlier, how the husband came to acquire the interest he did, which is not identical with the interest referred to in his late mother’s Will, and the dealings with that interest subsequent to its acquisition in about 2004, is complicated and unclear.
Some things are clear despite the relative obscurity surrounding the husband’s acquisition of his interest in U Road, and subsequent dealings with it. It is reasonably clear that the husband had to pay $115,000 to his mother’s estate in order to acquire his interest in U Road. How that was achieved remains unclear.
As Counsel for the wife submitted, at the time of the acquisition of the interest, a sum of that magnitude could only have been generated by the parties borrowing for that purpose, and that is in fact what the husband asserts occurred.
It is not in doubt that the acquisition of the interest can be seen, save to the extent just indicated, as wholly referrable to contributions made by or on behalf of the husband by his mother. As such, the husband should be regarded as having contributed an interest which the Court has found is currently worth $529,276.54 at a cost to the parties of only $115,000. What the interest was worth when it was acquired is not clear, or proved by admissible evidence.
The wife does not suggest that the husband’s mother’s generosity to him was in any way referrable to contributions made by her (see Kessey and Kessey (1994) FLC 92-495). Nor does the wife assert that she made any direct contributions, financial or otherwise, to the conservation of the property after its acquisition, although, through S Pty Limited, which appears to have managed the property at all material times, the wife could assert indirect contributions.
The evidence does not reveal the interest in U Road to have been a “drain” on the parties’ financial reserves subsequent to its acquisition. Indeed, the evidence suggests that the property generated income from which the parties’ benefited subsequent to its acquisition. To the extent that S Pty Limited has enjoyed paying less than market rental with respect to the shopfront occupied by it for some years, that can also be seen as a contribution by or on behalf of the husband through his brother, who is the majority interest holder in the property.
Although the parties’ cohabitation was lengthy, as Counsel for the husband submitted, the U Road interest was acquired comparatively late in the cohabitation, and thus should be viewed with some caution (see Preece and Preece (1981) FLC 91-048). The magnitude, and impact of the contribution, relative to the duration of the parties’ cohabitation, and the contributions otherwise made by each of them must also be carefully considered (see Pierce and Pierce (1999) FLC 92-844 and Kardos v Sarbutt (2006) 34 Fam LR 550).
Given the evidence in relation to the cost of building the parties’ last matrimonial home, and decrease in its market value, it is difficult to see any basis upon which the parties could have acquired the U Road property, but for the provisions of the husband’s mother’s Will, accepting that what ultimately occurred, and how it may have, appear to differ materially from what the husband’s mother’s Will contemplated. The evidence is unclear, but it seems likely that servicing the $115,000 borrowing referrable to the acquisition of the interest would have had a more than minimal impact on the family’s finances.
Counsel for the wife submitted that the parties should be regarded as having contributed equally to the acquisition, conservation and improvement of the U Road property.
Counsel for the husband submitted that the contributions with respect to the acquisition, conservation and improvement of the property should favour the husband by 70:30.
At least inferentially, the 30 per cent contribution entitlement conceded by Counsel for the husband must have been referrable to the initial borrowing of $115,000, and servicing of that sum subsequently, and to the wife’s indirect contributions. It is difficult to see how the latter could enhance the wife’s claim.
The way in which the U Road interest was acquired, the time when it was, relative to the termination of the parties’ cohabitation, and the absence of contributions other than by way of borrowing to the acquisition, and retention of an asset which the Court has found to be worth $529,276.54, substantially favour the husband over the wife. The question is by how much that is so. The answer to the question involves the exercise of a very broad discretion.
Although not empirically demonstrable, to regard the imbalance in those contributions as favouring the husband by 66.65 per cent to the wife’s 33.35 per cent would in the Court’s view, be a reasonable reflection of how the evidence reveals the impact upon the property of the parties of the husband’s “inheritance”, when viewed in conjunction with the totality of the parties’ contributions from the date of their marriage to the present.
Overall conclusion with respect to contributions
The effect of the Court’s conclusions with respect to contributions is that the parties are each entitled to $367,926.50 with respect to their property, including superannuation entitlement, other than the husband’s interest in the U Road property. The interests of the parties in the U Road property are quantified at $352,762 on the part of the husband, and $176,514 on the part of the wife. On a contribution basis therefore, the wife is entitled to $544,441 of the total property of the parties, and the husband is entitled to $720,689 of the total asset pool. Although nothing turns on it, as a matter of arithmetic, the husband is thus entitled to 57 per cent of the total net asset pool, and the wife to 43 per cent thereof.
section 75(2)
Counsel for the wife sought a 5 per cent adjustment pursuant to s 75(2) of the Act by reference to the disparity of earning ability between the parties. Counsel for the husband submitted that no s 75(2) adjustment was warranted but that, if one were, it ought not be as great as 5 per cent. Inferentially, the adjustments thus urged on behalf of the parties were by reference to the total net assets of the parties.
Counsel for the wife relied upon the husband’s stated earnings from S Pty Limited’s business, which he will retain, of $1,055 per week plus other benefits available by virtue of the wife no longer being paid the $50,000 per annum which S Pty Limited paid her in the past, the reduction of outgoings which the husband was meeting of $12,000 per month by reason of the former matrimonial home having been sold, and the ability to access the profit of S Pty Limited over and above net expenses, inclusive of wages for the husband and others, and legitimate non-cash outgoings.
It was accordingly submitted that the husband’s available income from S Pty Limited exceeded $3,000 per week. It was submitted that the wife’s earning capacity was revealed by the evidence to be in the order of $500 per week when the wife commences to earn more from part time tutoring than she is currently receiving.
It was submitted on her behalf that, although the wife may have made more extensive efforts to obtain employment than she revealed in her evidence, there was no rational basis for concluding that so doing would have resulted in further employment or, if it did, what remuneration that further employment may have generated. The wife relied upon her years out of the workforce in support of her claims in relation to her earning capacity.
Counsel for the husband, unsurprisingly, relied upon the absence of any medical or other appropriate expert evidence in support of the wife’s assertion that she could not return to, or should not, be required to return to teaching.
It was submitted for the husband that there was no evidence before the Court that the wife, as a three-year trained teacher, would be unable to return to full time employment as a school teacher earning substantially more than she currently earns, or would earn from part time tutoring. Counsel for the husband also relied upon the wife’s evidence that she could earn up to $300 per day if she was in fact a casual teacher.
With respect to the submissions of her Counsel, as the wife tacitly acknowledged in cross-examination, the wife’s efforts to obtain employment have been less sustained, and appear somewhat less enthusiastic, or directed to the fields in which she probably had the best prospects of securing employment than they might have been. On the other hand, commonsense suggests that the years which the wife has been out of the work force would no doubt diminish the wife’s prospects of securing employment, rather than enhance them.
Beyond recording that the wife, on her own evidence, could realistically expect to earn not less than $500 per week within the foreseeable future, the Court is unable to find on the balance of probabilities what the wife might earn in the future, although it is possible that she could earn significantly more than $500 per week.
At present, the husband undoubtedly has a greater capacity to earn income than does the wife, whether that is only the $1,000 per week which he disclosed in his most recent financial statement, or a sum of the magnitude asserted by Counsel for the wife. The husband will also have the ongoing capacity to tax effect, at least to some extent, his motor vehicle and telephone expenses, and have tax deductable superannuation contributions made by or on his behalf by S Pty Limited. As noted earlier, the husband receives rental income from U Road. He will have a greater capacity to make further contributions to his superannuation than will the wife.
Whilst the evidence does not establish matters falling with s 75(2)(j) of the Act, the evidence does enliven the provisions of s 75(2)(k) of the Act. It is not in doubt that, by agreement or otherwise, during the parties’ cohabitation, the wife devoted herself to homemaking and parenting duties, to the detriment of her teaching career. The cohabitation of the parties was lengthy. The “duration” of the marriage, and the wife’s primary role as homemaker and parent have “affected” the wife’s earning capacity. Although caution must be exercised to avoid double counting, some increase in the wife’s s 75(2) adjustment by virtue of the disparity of earning ability between the parties is thus appropriate in reliance upon s 75(2)(k).
It is necessary to consider pursuant to s 75(2)(n) of the Act, the likely impact on the parties of the capital which each will receive by way of settlement of property. In this case, the wife will receive by virtue of her contributions approximately $526,709. The husband will receive $738,420.
It is not in doubt that the husband will have to either borrow or sell something to fund such payment. If the husband were to sell the business operated by S Pty Limited, although he may well earn as much or more elsewhere, the reality is that the present source of his current, and greater earning capacity would cease to exist. If the husband sells U Road to fund the wife’s entitlement, the rental income he currently receives, approximately $340 per week, will be lost to him. Obviously, if the husband sells nothing, and borrows, he will have a substantial interest bill.
The husband has not sought beyond the period of four months in which to satisfy whatever the Court determines to be the wife’s entitlement by way of settlement of property. Nor has he given any evidence suggesting that funding such award will result in his having to liquidate his interest in the U Road property. Even if the husband did so, exercising the option provision contained in the lease agreement between S Pty Limited and the husband and his brother would entitle S Pty Limited to continue to occupy the current U Road premises. The consequences of the implementation of the Court’s orders ought not impact to reduce the quantum of the s 75(2) adjustment which is otherwise appropriate to be made in the wife’s favour.
On balance, and accepting, as would be apparent from the Court’s consideration of s 75(2), that such adjustment is necessarily somewhat arbitrary, the Court concludes that a s 75(2) adjustment in the wife’s favour of 5 per cent would, in the circumstances, reasonably reflect the implications of the disparity of earning ability of the parties and other s 75(2) factors to which reference has been made.
In concluding such adjustment to be appropriate, the Court is not unmindful of the reality that, albeit for a comparatively short period, the wife will receive interim spousal maintenance, albeit, consistent with authority (see Bevan and Bevan (1995) FLC 92-600) that issue must be determined once the Court has determined the proceedings for settlement of property between the parties.
The s 75(2) adjustment in the wife’s favour of 5 per cent translates as a disparity of 10 per cent of the total asset pool. To the extent that it might be suggested, although the Court does not perceive that it has been, that the adjustment should be made by reference to any sum less than the total net asset pool of the parties, the Court does not consider such an approach to be justifiable on the circumstances of this case.
Section 79(4) is directed to contributions which have occurred in the past. Section 75(2) is directed to a variety of factors which potentially impact upon the parties, in the ways there identified, in the future. Whilst s 75(2) does not provide a legislative basis for “social engineering” to “even up” parties’ entitlements, it would in the circumstances of this case be artificial, and quite unfair to the wife, to quarantine from the asset pool by reference to which the s 75(2) adjustment is to be made, a financial resource as great as the husband’s interest in the U Road property undoubtedly is.
The 5 per cent adjustment in the wife’s favour of $63,256.50 produces a disparity in the entitlements of the parties of $126,513. That sum represents, in the Court’s view, a realistic reflection of the s 75(2) factors favouring the wife to which the Court has referred. Although it has no particular significance, the wife would thus be entitled to 48 per cent of the total net assets of the parties’, and the husband to 52 per cent thereof.
Is the proposed settlement just and equitable?
The husband will need to pay the wife the sum of $567,147 in order to satisfy her entitlement of $607,262 before payment of the $12,000 which it is conceded that she owes, if she retains the superannuation she currently has ($30,846), and receives the net proceeds of the former matrimonial home ($19,221), and acquires the joint bank account ($48). The wife will also retain her jewellery ($2,000). The husband will have four months to pay the wife as sought by him and agreed by the wife. The husband will leave with more than the wife but that properly reflects the impact of what might be described as his inheritance contribution.
In accordance with the Full Court decision in Elsey and Elsey (1997) FLC 92-727 it is necessary to have regard to the reality that the husband’s source of income is his business and the Court does so. The Full Court in Elsey (supra), at page 83,799, said:
... trial judges must consider the economic consequences which flow from their orders before making them. Otherwise, the result achieved may not be just and equitable, as s 79 requires. Indeed, the provisions of s 79 clearly require trial judges to consider the effect of any proposed order upon the earning capacity of the parties before consideration is given to the s 75(2) factors. ...
The Court raised with Counsel for the parties the issue of instalment payments of the wife’s entitlement. No such indulgence has been sought by the husband. Nor has he given any evidence of an intention to liquidate any assets to meet the wife’s entitlement. The evidence does not reveal whether the notional consideration for the wife’s shareholding in S Pty Limited ($321,461.50) may give rise to taxation benefits for the husband. As noted earlier, even if the husband liquidated his interest in U Road, that would not mean that S Pty Limited’s business would be disturbed. In the circumstances, nothing to which the Full Court referred in Elsey (supra) militates against the proposed award being considered just and equitable.
In Manolis & Manolis (No 2) [2011] FamCAFC 105 the Full Court said:
65.It can be seen that power to make orders in regard to property is not exhausted after the third step. It is not until orders are made that the power is exhausted. The exercise of power pursuant to s 79 of the Act remains subject to the overarching requirement of justice and equity imposed by s 79(2) until it is exhausted. Therefore, we cannot accept that the Federal Magistrate lacked the “power” to revisit the outcome to which she had been led by her consideration of s 79(4) and s 75(2) factors by reference to s 79(2) of the Act. If so doing persuaded her Honour that her proposed outcome was not just and equitable, she could not properly make orders in those terms.
66.Having regard to the nature and extent of the matters which had been evaluated pursuant to s 79(4) and s 75(2) of the Act prior to her consideration of s 79(2), the Federal Magistrate’s scope for varying the substance of the outcome resulting from that exercise would have been limited. It is difficult to discern specific matters impacting a consideration of s 79(2) which are not articulated in either s 79(4) or s 75(2) of the Act. The section does however oblige the court to “stand back” from its preliminary determination, and consider its impact. So doing may inform the terms of the orders appropriate to produce a just and equitable outcome in those terms. It may result in a re-consideration of s 79(4) and or s 75(2) factors, and a different outcome. Whatever the scope of s 79(2), the court’s determination with respect to it cannot be dependent upon findings or conclusions which are irreconcilable with those recorded in the context of a consideration of s 79(4) or s 75(2). Regrettably, that is what occurred in this case. In our view, paragraphs 71 and 78 of her Honour’s reasons cannot stand together.
Having regard to the authorities referred to above, the Court is satisfied that the proposed settlement of property is just and equitable. Whilst the marriage between the parties was lengthy, and their contributions were very substantial, to fail to recognise the impact upon the net assets of the parties at the present time of the husband’s “inheritance” would fail to do justice and equity to the husband. Whilst how it occurred is less than entirely clear, it is fairly apparent that, through the fault of neither party, the combination of cost overruns in relation to the construction of the former matrimonial home, and diminution in its value substantially eroded the parties’ wealth. Whilst that is regrettable, to “top up” the wife’s entitlement by reference to U Road could not be justified to any greater extent than the Court has suggested in its conclusion with respect to contributions without double counting. It is also to be remembered that, although an asset of substantial value, the value of S Pty Limited is not available to the husband as cash in the way in which the wife’s settlement of property will be available to her.
Conversely, to fail to recognise the basis, and likely future implications of the disparity in earning ability of the parties in a substantial way, would be unfair to the wife. Having “stood back”, and scrutinised the proposed award, and its practical implications, the Court is satisfied that it accommodates the tensions to which reference has been made, and is just and equitable. For the husband to be left with approximately $86,000 more than the wife reasonably reflects the net impact of the husband’s “inheritance”.
capital gains tax
Although the evidence does not suggest that the husband intends to, or would need to sell U Road in order to satisfy the wife’s entitlement to a settlement of property (see Rosati and Rosati (1998) FLC 92-804 and Brett-Hall and Brett-Hall (2006) FLC 93-276), in the event that he does, and that such liability is adequately and reliably proved, the parties should bear such liability in accordance with their interest in their net assets as the Court has determined to be 48 per cent to the wife, and 52 per cent to the husband, and the Court will so order.
spousal maintenance claim
Counsel for the wife sought orders for spousal maintenance in the following terms:
8.That the Respondent Husband pay spousal maintenance to the Applicant Wife, pursuant to section 74 of the Act, as follows:
a.commencing on the seventh day following the date of this order and until the Applicant Wife has received full payment of the Principal Sum, an amount of $1,000.00 per week;
b.commencing on the seventh day following the Applicant Wife having received full payment of the Principal Sum and until 31 December 2013, an amount of $500.00 per week; and
c.such payments to be made into the Applicant Wife’s account at the [X] Credit union, being BSB …, account number …825 or such other account as the Applicant Wife may nominate in writing.
Counsel for the husband opposed any order for spousal maintenance continuing beyond the date upon which the wife received her entitlement to an order for settlement of property. In the interim, it was submitted that for the husband to continue paying the parties’ health insurance premiums, the lease payments on the wife’s motor vehicle, and $300 - $400 per week would be appropriate.
The wife’s expenses, exclusive of rental of $475 per week approximate $1,300. Of that sum approximately $200, though reasonably incurred by the wife, ought not be expenditure which she could reasonably look to the husband to meet or contribute to. Until the wife receives her property settlement, and even if she was, in the short term receiving approximately $500 per week from employment, the wife would establish an entitlement to interim maintenance.
On balance, the Court concludes that the husband should pay the wife $400 per week interim spousal maintenance, provided that he continue to pay the lease payments on the motor vehicle in her possession, and continue to maintain the parties’ health cover at the current level. The husband has the capacity to meet the proposed order.
Notwithstanding the submissions of Counsel for the wife, the Court is not persuaded that the order for spousal maintenance should continue beyond the date upon which the wife receives her entitlement to property settlement. Even if the wife invested the sum which the Court has awarded her at 5 per cent that would generate an income for her of approximately $600 per week. That sum, together with the undoubtedly greater earnings which the wife could, and should generate, once the case has concluded, would mean that the wife could not satisfy the threshold requirements of s 72 of the Act.
It is conventional, and consistent with authority, to express the default provisions of the Court’s orders for settlement of property in percentage terms (see Jarrott & Jarrott [2012] FamCAFC 29). Given the absence of submissions in that regard, and nature of the two major assets of the parties, it is preferable in this case to reserve liberty to apply, should doing so become necessary, rather than attempt a formulaic default order.
I certify that the preceding one hundred and twenty one (121) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Coleman delivered on 16 August 2012.
Associate:
Date: 16 August 2012
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