Halifax and Halifax - [2009] FMCAfam 656

FEDERAL MAGISTRATES COURT OF AUSTRALIA

HALIFAX & HALIFAX

[2009] FMCAfam 656

FAMILY LAW – Property – whether use of home to earn income affects distribution.

Family Law Act 1975 (Cth), ss.75(2), 79(4)(a) to (c)

Hickey [2003] FLC 93-143
C v C [2005] FLC 93-220

Applicant:

MR HALIFAX

Respondent:

MS HALIFAX

File Number:

DGC 1910 of 2008

Judgment of:

Phipps FM

Hearing date:

13 February 2009

Date of Last Submission:

13 February 2009

Delivered at:

Dandenong

Delivered on:

1 July 2009

REPRESENTATION

The Applicant appearing in person:

Counsel for the Respondent:

Ms Baczynski

Solicitors for the Respondent:

Erica Strugnell & Co

ORDERS

The wife pay the husband the amount of $135,688 on or before

14 August 2009
(the wife’s payment).
Upon the wife's payment being made:
(a)The husband transfer to the wife all his right title and interest in Property K;
(b)The wife transfer to the husband all her right title and interest in the property at Property P;
(c)The wife indemnify the husband against all liability in respect of the mortgage and other payments for Property K, and take all steps necessary to discharge the husband from any liability for the mortgage over the property;
(d)The husband indemnify the wife against all liability in respect of the mortgage and other payments for Property P and take all steps necessary to discharge the wife from any liability for the mortgage over the property;
(e)The wife be entitled to sole possession and occupation of Property K;
(f)The husband, subject to the conclusion of any tenancy, be entitled to sole possession and occupation of Property P.
In the event that the wife does not make the wife's payment on or before 14 August 2009, the husband pay the wife the amount of $96,714.50 on or before 14 September 2009 (the husband's payment).
Upon the husband’s payment being made:
(a)
The wife transfer to the husband all her right title and interest in

Property K;
(b)The husband transfer to the wife all his right title and interest in the property at Property P;
(c)The husband indemnify the wife against all liability in respect of the mortgage and other payments for Property K, and take all steps necessary to discharge the wife from any liability for the mortgage over the property;
(d)The wife indemnify the husband against all liability in respect of the mortgage and other payments for Property P and take all steps necessary to discharge the husband from any liability for the mortgage over the property;
(e)The husband be entitled to sole possession and occupation of Property K;
(f)The wife, subject to the conclusion of any tenancy, be entitled to sole possession and occupation of Property P.
The fittings, furniture and chattels equipment (including in the [omitted] studio) at Property K shall become the sole property of the person entitled to ownership and possession of Property K.
In the event that the husband’s payment is not made
(a)both properties, Property K, and Property P, be sold by an agent and in a manner agreed, and if not agreed by an agent nominated by the President of the Real Estate Institute of Victoria for the time being or his or her nominee and in a manner determined by that agent and the proceeds applied as follows:
(i)First in payment of the costs and expenses of the sale;
(ii)Second in payment of any mortgage or other encumbrance;
(iii)The balance by payment of half to each party.
(b)The fittings, furniture and chattels equipment (including in the [omitted] studio) at Property K be divided by agreement and if not agreed by auction at a recognised auction house.
All [sport omitted] DVDs, CDs, instruction books, including any copyright in them and in their subject matter are the sole property of the husband.
Otherwise each party is declared to have no interest in the property, including bank accounts and superannuation, now in the name of the other.

NOTATION: Following delivery of Reasons for Judgment but before entry of the order, an error in the recorded agreed value of the husband’s motor vehicle was found. The error is corrected in the Reasons and is reflected by the sections of text in bold in Cover Sheet and Orders pages 2, 3 and the Reasons for Judgment pages 5, 11 and 12.

IT IS NOTED that publication of this judgment under the pseudonym Halifax & Halifax is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
DANDENONG

DGC 1910 of 2008

MR HALIFAX

Applicant

And

MS HALIFAX

Respondent

REASONS FOR JUDGMENT

Introduction

The husband-and-wife own two properties. They remain living in the matrimonial home separated under the one roof. Largely, the matrimonial property and values are agreed. They disagree about the percentage distribution of the assets.
The issues must be placed in the context of the four step property consideration process.[1] The steps are:
What are the assets and liabilities?
What are the parties’ contributions?
What are the parties future needs?
Is the order just and equitable?
[1] Hickey [2003] FLC 93-143. For superannuation C v C [2005] FLC 93-220
The parties commenced cohabitation in February 1998. They married in April 2001 and separated under the one roof on 19 March 2008.
The husband was born in 1940 and is 68. He has been married twice before. He is an experienced [sport omitted] teacher and has been a professional [sport omitted] champion. At the time the party’s commenced cohabitation he was working as a contract [omitted].
The wife was born in 1953 and is 55. She has been married once before and has two independent adult children. When the parties commenced cohabitation she was employed by [A] part time 16 hours a week. She ceased working in 2001. She is also a [sport omitted] teacher.
The wife’s previous marriage ended in 1996. She received the sum of $62,374 and a Mitsubishi Lancer motor vehicle in the agreed property settlement.
On 22 September 1997 she purchased Property S for $73,000. She used $38,000 of the settlement money borrowed $35,000. She had approximately $23,000 in cash left. She installed central heating at a cost of approximately $4,000 and purchased some household effects and furniture. She had laser eye surgery in 1997 at a cost of $4,500. The parties commenced cohabitation in this property in February 1998. At about the same time the husband commenced work as a [omitted].
The husband’s property settlement with his second wife was in December 1997. He received the sum of $59,000, and retained his superannuation fund and a Nissan EXA sports car.
In April 1998 the husband purchased a three bedroom house with double garage at Property K for $148,000. He used the property settlement money and borrowed the balance. The parties lived there and the wife’s Property S property was tenanted.
The parties converted the garage at Property K into a [sport omitted] studio. The husband says that he contributed $6,499 for building materials. The wife says she used $3,300 from her cash account to pay for the materials. The wife says that she contributed to the work of doing the conversion. The husband says that he did it all, the wife did little. The wife says she purchased the husband a billiard table in June 1997 for $2,350 in anticipation of their marriage.
In July 1999 the parties commenced the [sport omitted] Centre at the Property K property. They conducted individual and group classes, social evenings and parties at third-party venues, and [specialised] classes. The husband prepared DVD [sport omitted] instructions and wrote instruction books. The wife assisted, but the extent of her assistance is disputed between the parties.
In 2000 the husband had coronary bypass surgery and surgery for a diskectomy. He recovered well from both and continued to teach [omitted] and work as a [omitted]. On 4 April 2001, just before the parties married, the wife ceased work at [A] by agreement between the parties. They then married in April 2001.
On 12 September 2001 the parties purchased unit Property H for $115,000. They borrowed $107,000. Settlement was on 12 November 2001 and the property was then tenanted.
In early 2003 they purchased Property P. They borrowed $217,000. The property was then tenanted.
In early 2004 the parties purchased Property R for $185,063. They borrowed $191,000. This property was also tenanted.
In June 2005 the wife sold her Property S home for $187,000. The net proceeds were $178,000 paid into the parties’ joint bank account. From there the husband's taxation assessment of $5,394.25 was paid and $108,000 was paid into the husband's superannuation, Australian Retirement Fund. $20,000 was paid off the Property K mortgage and $20,000 off the Property P mortgage. Small amounts were used to pay cedit cards and other liabilities.
In August 2005 the parties sold Property H for $173,000. The net receipt was about $46,000 but subject to capital gains tax. They then travelled overseas for 5 weeks at a cost of about $28,000.
In June 2005 the husband transferred his superannuation to a transition retirement pension with Iris Allocated Pension. On 14 April 2008 he withdrew the whole pension, an amount of $140,974. It was paid into the parties’ joint account. The wife withdrew $75,000, half the amount then in the joint account so that each party has received half of the account.
In March 2007 the parties sold Property R for $210,000. The net proceeds of $9,038 were paid into the wife's superannuation account.
The parties separated on 19 March 2008. They have lived separated under one roof since then. The wife went overseas on 26 March 2008 which had been planned in 2007.

What are the assets and liabilities?

The assets are largely agreed. The one dispute is the value of DVDs, CDs and books prepared and written by the husband. The wife says they constitute a business with a value of $10,000. The husband says there is $520 worth of stock, and there is no additional value.
The husband has prepared instruction material, containing a DVD, CD and instruction book, for [omitted]. He has written an instruction book for Championship [omitted]. The extent to which the wife assisted in the preparation of the DVDs is disputed, which is a separate issue. The husband says that he is the holder of the copyright, which is probably correct. Whether he does or not is not an issue because it is common ground that he should keep the stock of DVDs, CDs and books and the right to sell them.
The husband receives an Age Pension. The value of $10,000 that the wife relies on comes from the husband's Account Statement for Age Pension to Centrelink. She argues that it is an admission against interest.
The amount the Centrelink statement appears to be taken from is the depreciation items in the husband’s tax return. It contains many other items in addition to the DVDs, CDs and books. The schedule includes building materials, blinds, sound equipment, a computer, computer software and upgrades, and various equipment obviously used in the studio. These will remain with the studio. The Centrelink form statement is not an admission against interest that the items the husband will retain are worth $10,000, either as individual items or because they have some business value beyond the value as individual items.
The husband says he sells about one DVD or book each month. He values them at $520, but that is assuming he can sell them. The wife puts a value of $6000 on house hold chattels, which appears to include items in the studio. The husband gives the same value.
The property is;
Property K  $375,000
less mortgage  $106,815              $268,185
Property P  $270,000
less mortgage  $214,000              $ 55,007
Chattels (Property K)  $    6,000
DVDs  $      520
Bank account (husband)  $ 75,000
Bank account (wife)  $ 75,000
Car wife  $    5,850
Car husband  $ 11,500
Shares wife  $ 10,885
Superannuation (wife)  $ 21,034
Total  $528,981

What are the parties’ contributions?

Shortly before the parties commenced cohabitation in February 1998 each had received cash payments, the wife $62,374 in September 1997 and the husband $59,000 in December 1997. Each retained a motor vehicle. The husband says in an affidavit of 25 August 2008 that at the commencement of the relationship his superannuation was $22,404 and the wife's $2,451. These figures are not disputed by the wife.
In the same affidavit the husband sets out in two columns, one for him and one for the wife, a calculation of what he says was the financial contribution of each party. He commences with each party's initial superannuation, then adds $53,000 for the deposit on the Property K property in his column and $38,000 for the deposit on the Property S property in the wife’s column. He adds into each column the property appreciation for each, $232,000 in his column for the Property K property and $140,000 in the wife's column for the Property S property. He then adds the taxable income for each party for each year with an adjustment in 2006 and 2007 because the wife had contributed money from the sale of the Property S property to his allocated pension fund. He then adds $8,500 for the wife's European holiday alone and $5,000 for an inheritance from his mother's estate.
Calculating in this way he determines that his financial contribution to the marriage was $678,428, and the wife’s $374,679. He therefore concludes that he contributed 64% and the wife 36%.
The calculation is not the proper approach. The financial contributions cannot be separated from the other contribution matters in s.79(4)(a) to (c) of the Family Law Act 1975 (Cth). It is not a mathematical calculation. The Property S property was bought by the wife shortly prior to the commencement of cohabitation and the Property K property shortly after the commencement of cohabitation. The

Property S property was sold during the marriage. The Property K property remains. Both are matrimonial property. The relationship lasted for 10 years. In these circumstances the way to assess initial contributions to the relationship is to take the assets each brought into the relationship.
The husband had $53,000 which he used in the purchase of the Property K property. The wife had the Property S property and some cash. The matrimonial settlement money she received had been used either in the purchase of the property, improvements to it, the purchase of items she still had at the commencement of the relationship and cash retained. The only substantial amount she had spent which did not translate into something she brought into the marriage was $4,700 she spent on laser eye surgery in late 1997.
I consider the proper approach to the parties’ contributions at the commencement of the relationship is to treat them as equal, except that the husband had more superannuation.
The husband earned more money during the relationship. The wife stopped her part-time work, but that was by agreement. The parties dispute the extent to which each contributed to the renovation of the garage to make a studio, and the extent to which each contributed to earnings from the studio and lessons. The husband did much of the housework, but this again was by agreement. None of this matters. The wife did administration and paperwork for the studio and the rented properties. The parties had a 10 year relationship and each in their own way made his or her contribution.
The husband claims higher post separation contributions. His calculation is disputed by the wife. The husband now has the age pension and is working 20 hours a week and earning $400. The wife's income is less, a Centrelink pension, rent from the Property P property and some income from teaching [omitted] lessons, about $150 a week.
The parties remain living in the Property K property. They are separated under the one roof. Each is living separately, but the financial arrangements are similar to prior to the separation. The mortgage payments are being made, as are the bills and outgoings on the Property K property. The arrangements are similar to time of cohabitation and make a difference to the assessment of contributions.
The husband had a higher superannuation at the commencement of the relationship, $22,404 while the wife had $2,451. The wife now has $21,034, most of it accumulated during the marriage. The husband has none because he converted his superannuation to an allocated pension, which he subsequently converted to cash that was divided evenly between the parties, $75,000 each.
Normally superannuation must be considered separately for the purposes of contribution. In this case where the husband's superannuation has become cash and divided between the parties it is appropriate to treat the wife’s superannuation as part of the one property pool.
The husband made a greater contribution at the commencement of the relationship because of his higher superannuation. His superannuation exceeded the wife’s by about $20,000. This was about 14% of the value of their combined property including superannuation at the commencement of the relationship. The living arrangements, including the wife ceasing her part time work, and the husband doing much of the housework were by agreement. The wife participated in bondage and similar sessions at the husband’s request. The contribution of each party, both financial and non financial was in accordance with the agreed living arrangements. The husband’s higher income during the relationship and since separation must be considered in this context.
The parties’ contributions during the relationship were equal. The husband’s higher contribution at the commencement was not completely eroded during the 10 years of the relationship. In making this assessment, I take into account that the husband’s superannuation, $22,000 at the commencement of the relationship, was converted into cash and divided between the parties so that the wife has an immediate benefit. The adjustment for the initial contribution is 2½%, so that these considerations mean that the parties contributions are 52½% by the husband and 47½% by the wife.

What are the parties future needs?

The s.75(2) considerations relevant to this case are:
a)The age and state of health of each of the parties;
b)The income, property and financial resources of each and the capacity for appropriate gainful employment;
c)The commitments of each necessary to support themselves;
d)The eligibility of each for a pension;
e)The duration of the marriage and extent to which it has affected the earning capacity of a party;
f)Other relevant facts and circumstances, in this case the goods and chattels each will receive as a consequence of the order.
The husband is 68, the wife is 55. Despite his age the husband is physically active. The work he does consists of [outdoor] work. He can continue earning income in this way for the immediate future, although his age means that that time must be limited. In a relatively short time he will probably be largely dependent on the age pension. Nevertheless, currently he has a higher earning capacity than the wife.
So far as property is concerned each will have a home to live in.
The wife gave evidence of attempts to obtain work. She did have part-time work with [A] but gave that up soon after the commencement of the relationship. Given the time since her last employment and her age she is unlikely to obtain similar work. She describes attempts to find suitable work, without success. She earns some money in [omitted] lessons, about $150 a week, or a little more. The lessons are occasional private lessons. If she retains ownership of the Property K property, and so the studio, she will be able to continue doing this for some years to come.
The wife is teaching [omitted] lessons, the husband is not. If the wife earns $150 a week for 45 weeks a year, that is $6,750 a year. If it continues for five years, that is an amount of $33,750. This is about 6.5% of the property pool. The type of [sport] the wife is teaching is not strenuous and she should be able to continue it beyond five years.

The assessment of needs is not a mathematical calculation, but the wife's ability to earn income from the studio does make a difference in the assessment of needs. Although the husband is older than the wife he has a greater income earning potential. This consideration cancels out any adjustment.

Is the order just and equitable?

Both parties wish to retain the Property K property. The wife so that she can use it for lessons, the husband so that he can use it for hobbies or interests in table tennis, bondage and similar pursuits.
While the husband's case was that he wishes to retain the Property K property, towards the end of the hearing he said that if it made a difference to the money his preference may well be to leave.
The just and equitable solution is to order that the wife retain the Property K property. She can earn some income and the husband will receive a higher capital payment.
A division of 52½% to the husband and 47½% to the wife with the wife retaining the Property K property means that the wife must pay the husband $130,000.
If she is unable to make the payment, the just and equitable result is to permit the husband to retain the Property K property and the wife the Property P property. The orders, therefore, will give the wife the opportunity to retain the Property K property if she makes a payment within 45 days. If she does not, the husband should have the opportunity to retain the Property K property upon making payment to the wife.
If the wife cannot retain the Property K property then the financial advantage it gives because she can conduct [omitted] lessons will not exist. In that event, there should be a 2½% adjustment in her favour, so that the division is 50/50.

Capital gains tax

The Property K property has always been used as the parties’ residence, so there will be no capital gains tax on it.
The Property P property will be transferred to one of the parties. It was purchased for $217,000. Its value is $270,000. Currently there is a capital gain of $53,000. If capital gains tax had to be paid now, tax would be payable on 50% of the gain, that is $26,500. Capital gains tax is payable at the marginal rate for a tax payer, likely to be 30c in the dollar if either was to sell the property immediately.
Neither is likely to sell the property. It is likely that he or she will live in it. Rollover relief will apply because the transfer will be pursuant to an order under the Family Law Act 1975 (Cth). I consider it unlikely that either will sell the property in the near to medium future, and so no allowance for capital gains tax is necessary.

Conclusion

If the wife retains the Property K property, division of property is 52½% to the husband and 47½% to the wife. The husband is to receive $277,715. The wife is to receive $251,266. If the husband retains the Property K property the division is 50/50, $264,491 each The division is:
Wife retains Property K property
Wife Husband
Property $268,185 $ 55,007

Bank $ 75,000 $ 75,000

Car $ 5,850 $ 11,500

Chattels $ 6,000

Shares $ 10,885

DVDs $ 520

Superannuation $ 21,034

Transfer –$135,688 $135,688

Husband retains Property K property
Wife Husband

Property $ 55,007 $268,185

Bank $ 75,000 $ 75,000

Car $ 5,850 $ 11,500

Chattels $ 6,000

Shares $ 10,885

DVDs $ 520

Superannuation $ 21,034

Transfer $ 96,714.50 –$ 96,714.50

I certify that the preceding fifty four (54) paragraphs are a true copy of the reasons for judgment of Phipps FM

Associate: Jan Smith

Date: 29 June 2009