Hagan and Gerald

FAMILY COURT OF AUSTRALIA

HAGAN & GERALD

[2013] FamCA 714

FAMILY LAW – PROPERTY – Where the only entry in dispute in the joint balance sheet was the husband’s tax liability and its treatment – Where the Court found that the husband had failed to demonstrate that he did not have available funds to pay his income tax as it fell due, and had chosen to spend his income and not pay his tax –Where the Court concluded that it would not be just and equitable to treat the husband’s tax as a joint liability

FAMILY LAW – PROPERTY – ADJUSTMENTS – Where the husband submitted that it was not just and equitable to make any order adjusting the interests of the parties in the property which they owned and that there should be no adjustment –Where, on the Court’s findings as to the net assets held by each of the parties, it would not be just and equitable to leave the husband with the majority of the parties’ net assets – Where balancing the husband’s responsibility to pay his outstanding debts, and his expected future income stream against the wife’s income earning capacity, the Court concluded that that there should be an adjustment in favour of the wife for s 75(2) factors

Family Law Act 1975 (Cth) ss 75(2), 79(2)

APPLICANT:

Ms Hagan

RESPONDENT:

Mr Gerald

FILE NUMBER:

SYC

3386

2011

DATE DELIVERED:

9 September 2013

PLACE DELIVERED:

Sydney

PLACE HEARD:

Sydney

JUDGMENT OF:

Rees J

HEARING DATE:

21, 22 and 23 August 2013

REPRESENTATION

COUNSEL FOR THE APPLICANT:

Mr Anderson

SOLICITOR FOR THE APPLICANT:

Delaney Lawyers

COUNSEL FOR THE RESPONDENT:

Mr Dura

SOLICITOR FOR THE RESPONDENT:

Les Keady Legal Lawyers

Orders

IT IS ORDERED

That within 30 days of the date of these orders the husband will do all things and sign all documents necessary to cause the transfer to the wife, at his expense, all right title and interest in the Range Rover motor vehicle registration ...
That the husband will remain responsible for and indemnify the wife in relation to the balance owing under the chattel mortgage to W Finance relating to the Range Rover motor vehicle registration … which will be registered in the wife’s sole name in accordance with paragraph 1 herein and otherwise the wife will indemnify the husband against all other expenses and outgoings relating to said motor vehicle.
That the husband be declared as against the wife to be the sole legal and beneficial owner of:
3.1The property located at K Street, Suburb H;
3.2The chattels and personal and household items currently in the husband’s possession;
3.3The interest(s) the husband holds in C Pty Ltd, C Trust, C Asset Trust, Gerald Family Trust and Gerald Pty Ltd (“the husband’s business interests”);
3.4The interests the husband has in the Nissan motor vehicle and the Mercedes Benz motor vehicle … (owned by the Gerald Family Trust);
3.5The interest the husband has in the AXA Simple Superannuation Fund; and
3.6The monies held by the husband in his bank accounts.
That the Wife be declared as against the Husband the sole legal and beneficial owner of:
4.1The property situate at and known as X Street Suburb S;
4.2The property situate at and known as the Central Coast property;
4.3The funds in the Commsec trading account … 052;
4.4The personal and household items currently in the possession of the wife;
4.5The monies currently held in the wife’s bank account(s) with the Commonwealth Bank of Australia;
4.6The interest the wife has in D Superannuation Fund; and
4.7The 325 IAG shares currently held in the wife’s name.
That the Husband indemnify the Wife against the following:
5.1The Commonwealth Bank of Australia mortgage over the property known as K Street, Suburb H;
5.2The husband’s personal income tax liability and any taxation liability associated with the operation of the husband’s business interests;
5.3The husband’s American Express debit card; and
5.4The accountants’ fees incurred in his name or that of the husband’s business interests.
That the Wife indemnify the Husband against the following:
6.1The Commonwealth Bank of Australia lines of credit secured over the properties at X Street Suburb S and the Central Coast property, numbers …213 and 10049342 and …191, or any other line of credit currently held by the wife;
6.2Any monies owed to the wife’s ANZ MasterCard and National Australia Bank Visa card or any other credit card; and
6.3Any debts or liabilities incurred as a result of the agistment of any horse.
That within thirty (30) days of the date of these Orders, the husband pay or cause to be paid to the wife the sum of $425,500.00 (the “Capital Sum”) by way of property settlement to be paid in three instalments, the first of $135,500 to be paid within one year of the date of these Orders, the second and third instalments of $145,000 to be paid within two years and three years respectively of the date of these orders.
That interest shall run in relation to any portion of an instalment referred to in Order 7 from the due date until the date of payment.
That the husband’s obligation to pay the Capital Sum shall be secured by way of charge hereby declared in favour of the wife over all of the husband’s right, title and interest in the Gerald Family Trust, Gerald Pty Limited, C Pty Limited, C Trust and/or C Asset Trust and his shareholdings and/or units and/or credit loan accounts with each of those entities and trusts with such charge to confer upon the wife all of the rights of the charge as listed in Section 109 of the Conveyancing Act NSW, 1919.
That pending the husband’s compliance with the terms of Order 7 the husband shall be and is hereby restrained from doing, causing or forbidding any act or thing to be done that has the effect of further encumbering his interest in any of the Suburb H property, C Limited, Gerald Pty Limited, the Gerald Family Trust, C Asset Trust and C Trust other than for the purpose of facilitating the husband’s compliance with the terms of Order 7 hereof.
That unless otherwise specified in these Orders each party be solely entitled to the exclusion of the other to all other property (including choses-in-action) in the possession of such party at the date of these Orders.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Hagan & Gerald 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:

Ms Hagan

Applicant

And

Mr Gerald

Respondent

REASONS FOR JUDGMENT

Before the Court are proceedings for property settlement arising out of the relationship between Ms Hagan (“the wife”) and Mr Gerald (“the husband”). The husband and the wife commenced co-habitation in December 1996. They married in December 2007 and separated finally in May 2008.
There are two children of the marriage, N who is aged 15 years and J aged 14 years. Initially, after the parties separated, the children spent most of their time in the care of their mother. But since March 2012, the parents have reached an agreement that the boys will spend equal time with each of their parents.

BACKGROUND

Much of the financial history of the parties is uncontroversial. In 1987 the husband, in partnership with Mr Z, established a business known as C Business. The business operated through a company structure and each of the husband and Mr Z owned 50 per cent of the shares in C Pty Limited (“C”). The business manufactured food products and also sold goods which were manufactured by others. In late 1997 (according to the wife) or 1998 (according to the husband) the wife commenced working for C. Nothing turns upon the precise date of her commencement with the business and nothing turns upon the issue of whether she commenced working there because the husband asked her to do so or for some other reason. The issue between the parties is the nature and extent of the work which she did and that will be examined later in these reasons.
The wife’s employment with C was terminated on 1 August 2011 by the husband.
In December 1998 the husband and the wife purchased their first property together at Suburb Y. The whole purchase price was funded by borrowings.
Suburb Y was used as security for borrowings of C from time to time. In September 2001 the husband and Mr Z sold the manufacturing operation owned by C for $150,000. At the same time a loan was raised over Suburb Y for $700,000 to pay outstanding debts for the business.
The property was subsequently sold in February 2002 leaving the parties with approximately $200,000 being the net proceeds of sale.
They used those funds together with further borrowings to acquire the former matrimonial home at X Street, Suburb S (“the S property”). The parties and the children initially rented the S property and purchased it in 2003. The S property was purchased in the sole name of the wife for $950,000. The balance of the purchase money was borrowed.
Although in the course of the trial much was made of which party paid which expenses for the family, there is no doubt that the only money which came into the family came from C, and nothing turns on who paid which expense from which account.
In 2004 the husband and Mr Z restructured C into a unit trust so that the 50 per cent interest in the business formerly held by the husband was then held by the Gerald Family Trust. The corporate trustee of the Gerald Family Trust was Gerald Pty Limited. The husband controls the Gerald Family Trust.
In early 2004 the husband’s daughter, from a previous marriage, then aged approximately 17 years of age, moved to the live with the husband and the wife and she remained there until she completed her Higher School Certificate the following year.
In late 2004 the husband and the wife separated for a period of time but they remained living under the one roof and there is no evidence that their financial relationship was in any way altered by the separation.
In February 2006 the husband used $200,000 drawn down from the line of credit secured over the S property to venture into share trading. There is no evidence about whether that venture was successful or unsuccessful and, in any event, there is no suggestion that it happened otherwise than with the co-operation of the wife, the line of credit being in her name and it being her evidence that she drew down the cheque which she gave to the husband.
In April 2009, the wife purchased an investment property at the Central Coast for approximately $465,000, the purchase being fully funded by borrowing. It is the husband’s case that the wife purchased the property without consultation with him and that it was entirely her venture. The husband attended with the wife upon their joint accountant in February 2009, to discuss with Mr M, the purchase of an investment property. The wife says the focus of the discussion was tax minimisation. The wife gave evidence that the entire venture arose out of discussions and consultations between herself and the husband. In circumstances where the husband attended upon their accountant to discuss the proposed purchase and witness the mortgage documents, which were signed by the wife, I accept that the venture was one which was jointly agreed upon between them. The wife still retains the investment property at the Central Coast which is negatively geared, there being a small shortfall between the rent and the outgoings.
On 6 May 2008 the husband and the wife separated, the husband leaving the home at the S property and the children and the wife remaining there.
In June 2010 the husband purchased a property for his own occupation at Suburb H for $580,000, the whole of the purchase price being borrowed. I accept the evidence of the husband that the mortgage payments are approximately equivalent to the rent he would pay for a comparable property.
On 1 August 2011, the husband terminated the wife’s employment with C and stopped paying her $3,000 per week from the Gerald Family Trust. He unilaterally reduced the wife’s income from $3,000 per week, which had been paid each week directly into her bank account, to $865 per week. He commenced, in addition, to pay child support by way of weekly payments of $286.48 directly deposited to the wife’s bank account.
In January 2012, interim orders were made for the payment of spousal maintenance to the wife, which resulted in a total payment to her, or for her benefit, of $2,718 per week.
In January 2012 the wife began working for herself as a consultant, as a product and business development manager. Although the business initially made little income, in the financial year ended 30 June 2013 the net taxable income of the business is estimated by the wife to have been $65,169. She did not tell the husband that her business was returning that income.

THE EVIDENCE AT TRIAL

At the commencement of the trial the husband sought to rely on six volumes of exhibits to his affidavit and a further three volumes of exhibits to the affidavit of his accountant, Mr M. I refused to receive those exhibits into evidence and ruled that any document which was to be relied upon in the husband’s case should be tendered.
The husband relied on affidavits by himself, his business partner Mr Z, his accountant Mr M and a Financial Statement sworn 19 August 2013.
The wife relied on an affidavit and Financial Statement sworn by her and an affidavit of Ms R who had worked with her for C.
The single expert valuer, Mr P, prepared a report as to the value of the husband’s business interests.
All witnesses were cross-examined.
At the conclusion of the evidence a Joint Balance Sheet was tendered. The only entry in dispute was the husband’s tax liability and its treatment.

the issues

At the commencement of the trial, Counsel for the parties indicated that the issues for trial were:
A.The value of the Gerald Family Trust. Mr P in his single expert’s report values the interest of the Family Trust in C at $873,584 and the Family Trust at $19,646, a total of $893,230. Mr P notes that the husband owes the trust $254,219 and deducts that amount from the value of the husband’s interest in the trust to reach a net value of $639,013. The husband includes his liability to the trust of $254,517, as a liability in the Balance Sheet. It is contended on the part of the wife that it is inappropriate to deduct the loan owed by the husband to the trust for the purpose of reaching a value for the trust, if the husband, in addition, includes that liability in the Balance Sheet as a liability to the trust.
B.The husband’s initial contribution. The husband contends, and it is not disputed, that the business of C, of which he beneficially owned one half, had been established and running since 1987. It is the husband’s evidence is that the gross turnover for the business in 1997 was approximately $1.78 million. There is no evidence of the net profit in that year. The wife does not concede that the court is able to place any value upon the husband’s initial contribution of his 50 per cent interest in C.
C.The wife’s contributions during the marriage. The wife asserted that she had worked in the business from 1997 to 2011 and made a valuable contribution. It is the husband’s case that the wife exaggerated her contribution.
D.The husband’s tax liability. The husband says he has a liability to the Australian Taxation Office (“ATO”) in the sum of $438,051 (according to the Balance Sheet) for the financial years ended 30 June 2010 to 2012 and, he asserts, a further liability for the year ended 30 June 2013 of $57,000. It is the husband’s contention that these amounts are a joint liability since the tax is referrable to income received by him from C through the Gerald Family Trust. The wife’s case is that the liability should be a liability solely of the husband because, she says, he has had the ability to pay the tax as it fell due from the income which he received from C, over and above that income which was used to pay the spousal maintenance and support, his living costs and the costs of the children. Ultimately it was that issue which was most significant in the trial. I note in passing that the amount, which is disputed as to quantum by the wife, is somewhat difficult to quantify. That is a further difficulty with the husband’s assertion that the debt should be treated as a joint liability. There is no reliable evidence of the amount outstanding. The amount asserted on behalf of the husband in the Balance Sheet is $438,051 plus $57,000 “Income Tax due as at 30 June 2013” which are the figures asserted in his Financial Statement sworn 16 August 2013. Mr M gives evidence that the amount is $428,252.86. The husband in his Affidavit sworn 27 June 2013 gives evidence that the liability as at 3 June 2013 is $428,252.86. The tax portal figure is $453,541.60, although I note that this figure includes tax assessed for 2011 of $182,852; for 2012 of 158,096 and for 2013 of $39,587 although none of those tax returns has been lodged. In August 2012, the District Court of New South Wales entered judgement against the husband in favour of the ATO in the sum of $423,333.68.
E.The husband’s income. It became apparent in the course of cross-examination that the income which the husband disclosed, the purpose of his Financial Statement which was sworn on 16 August 2013, had been calculated by reference to his tax return for the period ended 30 June 2010. In addition it became apparent that for the purpose of calculating income the husband took into account only the monies distributed to him by the Gerald Family Trust and not the money spent by the Family Trust on expenses referrable to the family prior to distribution to him.
F.The adjustment for contributions. The husband contends that there should be an adjustment in his favour for initial contributions to take into account his introduction of his share in C and that there should be a further contribution for post separation contributions to take into account the fact that he paid money both for the maintenance of the wife and for the maintenance of the children. The wife maintains that contributions should be judged to be equal.

THE VALUE OF THE GERALD FAMILY TRUST

The single expert, Mr P, prepared a report and was cross-examined. In his report, Mr P relied on the husband’s representation that further employees would be taken on by C and factored in the cost of those additional employees. The husband gave evidence that no additional staff had been taken on.
Mr P adjusted his calculations accordingly. Mr P’s evidence as to the value of the husband’s interests then was:
Share of C Asset Trust $919,435
Gerald Family Trust $ 19,646
Mr P then deducted the debt owed by the husband to the Gerald Family Trust in the sum of $254,219 to reach a net value of the husband’s interests of $684,864.
Mr P said that, for valuation purposes, if the debt owed by the husband is deducted from the value of the enterprise, then it should not also be included as a liability of the husband on the Balance Sheet. If the debt were not deducted from the value, then it should be included as a liability of the husband. The net result will be the same. However, the husband has sought to both, deduct the debt from the value of the business and include it as a liability in the Balance Sheet, which constitutes double counting.
In circumstances where Mr P gave evidence that it was unlikely, given the current practices of the business, that the debt would ever be called in, I propose to deduct the debt from the value of the business and remove the liability from the Balance Sheet.

THE HUSBAND’S INITIAL CONTRIBUTIONS

The parties commenced their co-habitation in December 1996. The financial statements of C for the financial year ended 30 June 1996 show the business making a loss of $10,271. The accumulated losses at 30 June 1996 were $29,130. The Balance Sheet disclosed an excess of liabilities over assets of $29,128.

A portion, but not the whole, of the tax return for C for the year ended 30 June 1997 was tendered. That document showed that in the financial year ended 30 June 1997, the husband and his then wife drew from the business a total of $51,060 and that the business paid superannuation contributions on their behalf of $3,064.
There was no evidence before the Court to establish that the business made a profit in the year ended 30 June 1997 or that the business had an excess of assets over liabilities by that time.
There is no doubt that the business over time became profitable and was the source of the family’s income from 1997 onwards. The business remains a source of income for the husband.
If the husband asserts that the business had an ascertainable value at the commencement of cohabitation, then the onus was upon him to produce evidence to prove his assertion.
The only conclusion that can be drawn from the evidence is that the business, although in existence in 1997, was not making a profit and did not have a net asset value.

THE WIFE’S CONTRIBUTIONS IN WORKING FOR THE BUSINESS

The wife gave evidence that she commenced working for the business in 1997 and that, until 1 August 2011, she worked from home making telephone calls to customers, taking orders, organising deliveries and delivery routes, and preparing invoices. Her evidence was corroborated by the evidence of Ms R who had worked with the wife for 18 months commencing in 2000. Although the wife was cross-examined in relation to that evidence and it was suggested to her that her evidence was exaggerated, the husband in cross-examination said that any dispute between them as to her contribution was minor. He conceded that the wife had been a valuable contributor to the business and that she fulfilled her role to his entire satisfaction.
The husband gave evidence that throughout their time together and until 1 August 2011, the wife did as much as she could in the business, consistently with her child caring obligations. He conceded that they “lived and breathed” the business and that each of them put all of their efforts into the business and the family. He said that the children went to day care and then to pre-school to allow the wife to devote that time to the business and that she and he both worked hard in their respective roles in the business. The husband conceded that the wife spent less time than he did working for the business but that she spent more time than he did in her parenting and home making role. The husband did not, in his oral evidence, maintain the challenge to the wife’s contributions in working for the business that had been mounted on his behalf in cross-examination. In those circumstances, I find that the contributions during their co-habitation are equal.

THE HUSBAND’S INCOME

The husband filed a Financial Statement sworn on 16 August 2013, only days before the trial commenced. In cross-examination, he conceded that the income of $9,845 per week from Gerald Family Trust, to which he swore, was derived from his tax return for the financial year ended 30 June 2010. His expenses disclosed in the Statement, he said, were his current expenses.
Pressed, the husband said he was aware of his obligation to make proper disclosure of his current income and agreed that he had made no effort to do so. He said that he knew that his income and the treatment of his tax liabilities were an issue in the proceedings.
The accountant for the husband, Mr M, gave evidence that, in order to prepare the husband’s individual tax return, it was firstly necessary to prepare the return for the C Trust in order to ascertain the distributions to the Gerald Family Trust. Then the return for the Gerald Family Trust was prepared to determine the distribution to the husband and thus enable the preparation of the husband’s return.
The husband said that the 2011 and 2012 tax returns for C Trust had been lodged and the 2011 and 2012 returns for the Gerald Family Trust had been prepared but not lodged. He said he “believed” that his personal tax returns for financial years ended 2011 and 2012 had been prepared and were with his accountant. He said the returns had not been lodged because lodgement would give rise to further debt to the ATO and he was concerned about bankruptcy. There is no explanation offered by the husband for his failure to ensure that copies of the 2011 and 2012 returns for the Gerald Family Trust and for himself, were made available to the wife or to the Court before the commencement of the proceedings.
Mr M, in cross-examination, said that he had forwarded the husband’s personal 2011 tax return to the husband “some months” ago and that the husband had had the 2012 return for “three or four weeks at the most”. Mr M had no reason to be other than truthful with the court and I accept his evidence. The husband has had the relevant returns for a sufficient period for them to be disclosed and for them to be used in the preparation of his Financial Statement which he swore on 16 August 2013. His failure to disclose the existence of the completed returns must have been deliberate.
On the second day of the hearing there were tendered in the husband’s case: the 2011 and 2012 draft income tax returns for the husband; the estimate of tax for the 2012 financial year for the husband; the Financial Statements of the Gerald Family Trust for the financial year 2011 and the draft income tax return for the Gerald Family Trust for the financial year 2012.
In relation to the financial year ended 30 June 2013, Mr M gave evidence that the returns for C Trust have not been prepared. Quarterly figures are not prepared. He has no information about the financial performance of the business for 2013 and therefore cannot prepare the returns for either the Gerald Family Trust or the husband.
Mr M confirmed that the Family Trust receives half of the profit of the C Trust and, in addition, is paid a management fee, a car allowance and an employee allowance. In 2011, Mr M said those additional amounts totalled $98,681. Before any distribution is made to the husband, the Gerald Family Trust pays some expenses including the costs of the motor vehicles of the husband and the wife, including depreciation. Mr M said those expenses were legitimate deductions and were tax effective. After the Family Trust has paid those expenses, the balance is distributed to the husband.
Thus, the husband can determine how to distribute the income received by the Gerald Family Trust in the most tax effective way, but he alone receives the benefit of the whole amount and he alone determines how the amount is used. For the purpose of determining the benefit received by the husband from C, it is the distribution to the Family Trust which is relevant, not the taxable income in the husband’s hands.
Until the tender of documents on the second day of the trial, the husband made no effort to provide the Court or the wife with that information.
The husband’s failure to put relevant evidence before the Court is to be considered in the context of his assertion that his current liability for tax should be treated as a joint liability because, he says, he did not have sufficient money available each year to fulfil his obligations for spousal support and child support, his obligations were to support the children when they were in his care and his necessary support for himself.
The husband bears the onus to prove that assertion.
The parties separated on 6 May 2008. The tax portal printout which was tendered, indicates that in the calendar year 2009, the husband’s tax was almost paid in full, the balance owed being $1,564.
The income distributed to the Gerald Family Trust in 2009 to 2012 inclusive, taken from the financial statements of the Family Trust was:
Year ended 30 June 2009  $660,052
Year ended 30 June 2010  $541,426
Year ended 30 June 2011  $586,710
Year ended 30 June 2012  $596,584
There is no evidence of the distribution to the Gerald Family Trust in the year ended 30 June 2013.
The financial records of C are prepared by Mr Z’s wife. She did not give evidence but Mr Z did. He gave evidence that the records were kept on an MYOB computer program and were entered daily or weekly. He said the records were reconciled monthly. Mr Z said that he was not aware that the 2013 records were relevant to the proceedings and that he had not asked his wife to prepare the accounts to 30 June 2013. In cross-examination he was asked to request of his wife that she prepare the reconciled MYOB print out for 2013 and he agreed to do so.
The 2013 MYOB printout was not produced. The husband is, in effect, an equal partner in the business of C with Mr Z. It was clearly in his power to arrange for the 2013 MYOB printout to be available. Given the evidence that figures are reconciled monthly, the figures to 30 June 2013 must have been available by 22 August 2013 when the hearing commenced.
The husband’s failure to make the 2013 figures available leads to the conclusion that the up to date financial information for C would not have assisted his case. The court is left with the assumption that the distributions to the Gerald Family Trust for the financial year ended 30 June 2013 would be no less than those for 2012 and may be more.

THE HUSBAND’S TAX LIABILITY

A calculation was prepared by Counsel for the wife which attempted, on the basis of the information available from the husband, to reconcile the income received by the husband and the Gerald Family Trust with the taxation information obtained from the tax portal. Mr M gave evidence that the calculation was unreliable because the information from the tax portal was for calendar years whereas the income was for financial years. The calculation was not admitted into evidence.
It was the husband who asserted that he was unable to pay his tax, as it fell due, for the financial years ended 30 June 2010 to 2012 inclusive. The husband thus bears the onus of proof.
The husband’s accountant, Mr M, swore an affidavit. He exhibited to his affidavit the tax returns for the Gerald Family Trust for the years ended 30 June 2007 to 2011 inclusive and referred to the husband’s income tax liability assessed to 30 June 2013 in the sum of $428,253. No attempt was made by Mr M to reconcile the amounts received by the Gerald Family Trust with the husband’s expenses to explain why the husband was unable to pay his tax as assessed.
Beyond the bare assertion, no evidence was led by the husband on that issue.
On the assumption that the tax was paid up to the end of the 2009 calendar year (as explained in paragraph 51), the debt has accrued in the financial years ended 30 June 2010 to 2012.
In those years the Gerald Family Trust received distributions totalling $1,724,720.
The husband, in his affidavit, set out tables to show the amounts spent by him for the benefit of the wife and the children. The sums paid for the children included money paid by him when the children were in his care.
In the year ended 30 June 2009, the Gerald Family Trust received $660,052. The total of the sums spent by the husband for the wife and the children, according to his tables, was $178,244. The husband had $481,808 to pay his income tax and his own living expenses.
In the year ended 30 June 2010, the Gerald Family Trust received $541,426. The husband paid for the benefit of the wife and children $189,377. He had $352,049 from which to pay his income tax and his own living expenses.
In the year ended 30 June 2011, the Gerald Family Trust received $586,710. The husband paid for the benefit of the wife and the children $187,558. He had $399,152 from which to pay his income tax and his own living expenses.
In the year ended 30 June 2012, the Gerald Family Trust received $596,584. The husband paid for the benefit of the wife and the children $146,682. He had $449,902 from which to pay his income tax and his own living expenses.
The husband has failed to demonstrate that he did not have available funds to pay his income tax as it fell due. He has chosen to spend his income and not pay his tax. It would not, in those circumstances, be just and equitable to treat the husband’s tax as a joint liability.

POST SEPARATION CONTRIBUTIONS

The husband contends that there should be an adjustment in his favour of 10 per cent for post separation contributions because he provided a level of financial support for the wife from money received by the Gerald Family Trust. From the commencement of co-habitation, the only source of funds for the family was the income and later the distributions which flowed from the business. Both the husband and the wife worked in the business until the wife’s contributions were terminated by the husband after separation. Insofar as the husband, after separation, retained the control of the distributions, he was controlling distributions of a family business. I do not accept his assertions that the distributions were other than fruits of a joint enterprise between him and the wife and, in those circumstances, he was doing no more than distributing to the wife money from their joint funds.

THE BALANCE SHEET

At the commencement of submissions, an Amended Joint Balance Sheet was tendered. Some further concessions were made in submissions. The Balance Sheet, including the concessions, is set out below:

Owned		Description	Wife / de facto partner’s value	Husband / de facto partner’s value
ASSETS
1.	W	X Street Suburb S property	$940,000	$940,000
2.	W	Central Coast property	$400,000	$400,000
3.	H	K Street Suburb H property	$600,000	$600,000
4.	J	CommSec Trading Account	$980	$980
5.	H	Commonwealth Bank Account (…254)	$6,600	$6,600
6.	H	Commonwealth Bank Account (…602)	$2,086	$2,086
7.	H	Commonwealth Bank Account (…635)	$5,009	$5,009
8.	H	Commonwealth Bank Account (…679 and …687)	$846	$846
9.	W	Commonwealth Bank Account (…118)	$25,471	$25,471
10.	W	IAG Shares (325)	$2,007	$2,007
11.	W	Household Contents	$10,000	$10,000
12.	H	Household Contents	$10,000	$10,000
13.	W	Personal items including jewellery	$5,000	$5,000
14.	H	Personal items including jewellery	$5,000	$5,000
15.	H	Mercedes Benz motor vehicle (in husband’s possession)	$30,000	$30,000
16.	H	Range Rover motor vehicle (in wife’s possession)	$26,000	$26,000
17.	H	Nissan motor vehicle (in husband’s possession)	$33,840	$33,840
18.	H	C Pty Limited, C Trust, C Asset Trust	$919,435	$639,013
18A	H	Loan to Husband’s brother	$45,000	$45,000

ADDBACKS
19.	J	Valuation Fees to MS (H has paid $14,000.00 and is owed $7,000.00 by W)	$7,000	$7,000
20.	J	Valuation Fees to DB (H has paid $5,000.00 and is owed $2,500.00 by W)	$2,500	$2,500

Total

$ 9,500

$9,500

LIABILITIES
21.	W	CBA Line of Credit (Central Coast property)	$464,192	$464,192
22.	W	CBA Lines of Credit (x2) (Suburb S property)	$761,746	$761,746
23.	H	Home Mortgage to CBA (Suburb H property)	$562,547	$562,547
24.	H	Income Tax due as at 30 June 2013	$Nil	$57,000
25.	H	Total income tax assessed and unpaid	$Nil	$438,051
26.	W	Credit cards	$12,121	$12,121
27.	H	American Express	$2,513	$7,675
28.	H	CBA Master card	$2,366	$746
29.	H	W Finance	$17,609	$17,609
30.	W	Horse Agistment Fees	$6,172	$6,172
31.	H	Loan owed to the Gerald Family Trust by Husband	$Nil	$254,219
35A	H	Accounting Fees (see notes)	$Nil	$11,000

SUPERANNUATION
Member		Name of Fund	Type of Interest	Wife / de facto partner’s value	Husband / de facto partner’s value
32.	W	D Superannuation Fund (…481)	$17,575	$17,575
33.	H	AMP Simple Superannuation	$74,972	$74,972

Total

$ 92,547

$ 92, 547

FINANCIAL RESOURCES

Total

$ NK

$Nil

As it is readily apparent, the disputes in relation to the Balance Sheet are few and I will deal with them in the order in which they appear.

Item 4 – The joint Commsec Account

Both parties ask for an order that the wife receive the fund.

Item 16 – The Range Rover

The parties agree that the Range Rover is to be transferred to the wife at the husband’s expense. It will be included as an asset of the wife.

Item 18 – The value of the trust

For the reasons set out in paragraphs 29 to 32 the value of the Gerald Family Trust for the purposes of these proceedings is $684,868.

Items 19 and 20 – Addbacks

Although these items are described as addbacks, they are agreed to be amounts to be paid to the husband by the wife to reimburse him for her share of the fees paid to the single experts. The orders will provide for a payment by the wife to the husband of $9,500.

Items 27 and 28 – The husband’s tax liability

For the reasons set out in paragraphs 58 to 69, the tax liability, whatever the amount might be, will be treated as a liability of the husband and not as a joint liability.

Item 35 – The husband’s debt to the Gerald Family Trust

For the reasons set out in paragraphs 29 to 32, this liability will not be included in the Balance Sheet.

Item 35A – The husband’s liability to Mr M

The sum of $11,000 is the amount owed by the husband to Mr M for accounting work in connection with these proceedings. It will be added to the husband’s legal fees and treated in the same manner.
I therefore find that the assets and liabilities of the parties are:

ASSETS
1.	W	X Street Suburb S property	$940,000
2.	W	Central Coast property	$400,000
3.	H	K Street Suburb H property	$600,000
4.	W	CommSec Trading Account	$980
5.	H	Commonwealth Bank Account (…254)	$6,600
6.	H	Commonwealth Bank Account (…602)	$2,086
7.	H	Commonwealth Bank Account (…635)	$5,009
8.	H	Commonwealth Bank Account (…679 and …687)	$846
9.	W	Commonwealth Bank Account (…118)	$25,471
10.	W	IAG Shares (325)	$2,007
11.	W	Household Contents	$10,000
12.	H	Household Contents	$10,000
13.	W	Personal items including jewellery	$5,000
14.	H	Personal items including jewellery	$5,000
15.	H	Mercedes Benz motor vehicle (in husband’s possession)	$30,000
16.	W	Range Rover motor vehicle (in wife’s possession)	$26,000
17.	H	Nissan motor vehicle (in husband’s possession)	$33,840
18.	H	C Pty Limited, C Trust, C Asset Trust	$684,868
19.A	H	Loan to Husband’s brother	$45,000
TOTAL	$2,832,707
WIFE RETAINS	$1,409,458
HUSBAND RETAINS	$1,423,249

LIABILITIES
34.	W	CBA Line of Credit (Central Coast property)	$464,192	$464,192
35.	W	CBA Lines of Credit (x2) (Suburb S property)	$761,746	$761,746
36.	H	Home Mortgage to CBA (Suburb H property)	$562,547	$562,547
37.	H	Income Tax due as at 30 June 2013	$Nil	$57,000
38.	H	Total income tax assessed and unpaid	$Nil	$438,051
39.	W	Credit cards	$12,121	$12,121
40.	H	American Express	$2,513	$7,675
41.	H	CBA Master card	$2,366	$746
42.	H	W Finance	$17,609	$17,609
43.	W	Horse Agistment Fees	$6,172	$6,172

Total

Member		Name of Fund	Value
44.	W	D Superannuation Fund (…481)	$17,575
45.	H	AMP Simple Superannuation	$74,972

Total

$92,547

In order to calculate the net asset pool available for distribution, it is necessary to remove from the calculation those liabilities which are not to be treated as joint liabilities. I have dealt with the liability for the husband’s unpaid tax earlier in these reasons and that liability will not be treated as joint. No submissions were made in relation to the credit card debts. Since there is no evidence that the debts were incurred during cohabitation, I do not propose to treat them as joint liabilities.

For the purpose of ascertaining the net asset pool for distribution, the liabilities of the parties are:

46.	W	CBA Line of Credit (Central Coast property)	$464,192
47.	W	CBA Lines of Credit (x2) (Suburb S property)	$761,746
48.	H	Home Mortgage to CBA (Suburb H property)	$562,547
49.	H	W Finance	$17,609
50.	W	Horse Agistment Fees	$6,172

Total	$1,812,266
Wife’s liabilities	$1,232,110
Husband’s liabilities	$580,156

Thus, the net assets of the husband and the wife for the purpose of distribution are $1,020,441. Of this pool, the wife will retain net assets of $177,348 and the husband will retain net assets of $843,093.

SECTION 79(2)

At the commencement of the hearing, Counsel for the husband submitted that it was not just and equitable to make any order adjusting the interests of the parties in the property which they owned and that there should be no adjustment.
The parties have a joint asset, the Commsec Trading Account, and although neither asks for a specific order about the disposition of that asset, the Court has an obligation to finalise the financial relationship of the parties and the asset must be dealt with. The car that the wife drives belongs to the Gerald Family Trust and the parties have agreed that it will be transferred to the wife. Thus, there are two assets in relation to which both parties seek an adjustment of their legal rights.
I accept the submission of Counsel for the wife that it is not open to the husband, on the one hand, to ask the Court to make an adjustment in relation to specific assets and, on the other hand, assert that no adjustment needs to be made in relation to the remaining assets. Once the Court determines that it is just and equitable, because it is necessary to do justice between the parties and because they both seek it, to make an adjustment of the parties legal interests in part of their property, then the whole of their property must fall to be considered.
On the basis of my findings, as to the net assets currently held by each of the parties, it would not be just and equitable to leave the husband with the majority of the parties’ net assets. There should be an adjustment.

CONTRIBUTIONS

The husband brought his interest in C into the marriage. Whilst I cannot find that the interest had a particular (or any) value at the commencement of cohabitation, I take into account the fact that the interest in the business has generated the parties’ sole income and that the business grew in value throughout the relationship. Today the business generates a gross income for the husband in the vicinity of $600,000 per annum and it generated significant income in the later years of the parties’ relationship and after separation.
Other than the interest in C, the husband had no significant assets.
The wife had no significant assets at the commencement of the relationship. She disputed the husband’s recollection of significant debts and the husband conceded in cross-examination that he had no documents to verify his evidence about her debts but was relying on his recollection of what she had told him at the time. The wife was not challenged in relation to her assertion that she had debts of about $2,500 and I accept her evidence.
The significant disparity between their initial contributions is the husband’s introduction of his interest in C.
During cohabitation, both parties worked in the business, the husband more than the wife. Both parties cared for the children and their home, the wife more than the husband. For two years, the wife cared for the husband’s daughter as part of the family. The husband properly conceded that each of them used their best endeavours both in the business and in the care of their family. I find that the parties’ contributions during cohabitation were equal.
After separation until March 2012, the children were in the primary care of the wife and she therefore made a greater contribution than did the husband.
The husband contends for an adjustment in his favour for post-separation contributions, based upon the money he spent towards the maintenance and benefit of the wife and the children, either voluntarily or by order of the Court or Child Support Assessment. The husband was solely entitled to the money distributed by C to the Gerald Family Trust and, insofar as money was paid towards the benefit of the wife, it was paid from the income of the business in which they jointly worked and which was treated, during their relationship, as their business.
There is no doubt that the husband was generous in his support of the children but, while they were in his care, the wife was not consulted about the level of support. Again, the funds for the support of the children came from the business and from income that is properly regarded as the income of the marriage.
I have set out my findings about the income available to the husband earlier in these reasons. Insofar as the husband contributed funds from the business to the maintenance and benefit of the wife and the children, he retained for his own use a far greater amount.
In balancing the husband’s initial contribution of the business against their equal contributions during cohabitation and the wife’s greater contributions after separation, I take into account the fact that the increase in the value of the business to its current level occurred during cohabitation and that they both contributed to it.
Contributions should be adjusted as to 55 per cent to the husband and 45 per cent to the wife.

SECTION 75(2)

The parties will continue to share the care of the children approximately equally.
Neither party seeks a splitting order and each will retain his or her superannuation entitlements.
There is no evidence before me in relation to the costs paid or incurred by the parties. If the husband has paid his legal costs, including the fees due to Mr M, then they have been paid out of the income available to him from the Gerald Family Trust and to take them further into account would be double counting. If both parties have costs outstanding, they will be paid from the assets and income which they have available to them.
The husband will retain the interest in the business valued at $684,868 and resultant flow of income from the Gerald Family Trust which, between 2009 and 2012, averaged $596,000 per annum.
He will also have liabilities for outstanding income tax and credit card debts which have not been taken into account in the asset pool.
He will retain his superannuation currently $74,972. His ability to contribute to superannuation, once he has paid his debts, will be much greater than the wife’s.
He will not have the continuing liability to pay spousal maintenance which is currently $2,710 per week or $141,336 per annum. He will continue to pay child support to the wife and the children’s school fees. He will continue to pay his mortgage which is the approximate equivalent of paying rent.
The wife will retain her home and the investment property which costs her a small amount each week and her superannuation of $17,575.
She has credit card liabilities $12,121.
Her taxable income from her business is currently $65,000 per annum, about 11 per cent of that of the husband. It is not possible to predict that her income will increase beyond its current level but it is not likely to ever be comparable to that of the husband.
Balancing the husband’s responsibility to pay his outstanding debts, and his expected future income stream of $596,000, against the wife’s income earning capacity, I consider that there should be an adjustment in favour of the wife for section 75(2) factors of 15 per cent.

CONCLUSION

The wife will receive 60 per cent of the asset pool or the equivalent of $612,264. She has net assets in her possession totalling $177,348. The husband must pay her $434,917 which I will round up to $435,000. From that sum, she must reimburse him for valuation fees paid in the sum of $9,500 which can be deducted from the first annual instalment.
The husband submits that there is no fund from which he can pay a lump sum order to the wife. However, he is capable of satisfying a lump sum order by instalments and I propose to order that the sum be paid in three equal annual instalments of $145,000 (the sum of $9,500 being deducted from the first instalment). The husband can determine whether he pays that sum on a weekly basis ($2,788.46), or on an annual basis, but interest will accrue on any portion of an instalment which has not been paid in full by the due date.

I certify that the preceding one hundred and nine (109) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Rees delivered on Monday 9 September 2013.

Associate:

Date: 9 September 2013

[2013] FamCA 714

Key Legal Topics

Areas of Law

Family Law

Tax Law

Legal Concepts

Remedies

Costs

Jurisdiction

Statutory Construction

Procedural Fairness

Duty of Care