HARLEY & JACOBS
[2019] FCCA 458
•1 March 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| HARLEY & JACOBS | [2019] FCCA 458 |
| Catchwords: FAMILY LAW – Property – addbacks sought – monies accrued on mortgage post-separation – legal fees – initial contribution – respondent’s earning capacity – recognition of an unsecured liability – contributions. |
| Legislation: Family Law Act 1975 (Cth), ss.4, 79, 90SF, 90SM |
| Cases cited: Af Petersens & Af Petersens (1981) FLC 91-095 Antmann & Antmann (1980) FLC 90-908 Bevan & Bevan (2013) FLC 93-545 Biltoft & Biltoft (1995) FLC 92-614 NHC & RCH (2004) FLC 93-204 Clives & Clives (2008) FLC 93-385 C & C (2005) FLC 93-220 Kowaliw & Kowaliw (1981) FLC 91-092 Pierce & Pierce (1999) FLC 92-844 Selby & Robilliard [2018] FamCA 214 Shepherd v Shepherd (2016) FCCA 3038 Stanford & Stanford (2012) 247 CLR 108 Trevi & Trevi [2018] FamCAFC 173 Vass & Vass [2015] FamCAFC 51 [X]s & [X]s [2007] FamCA 313 |
| Applicant: | MS HARLEY |
| Respondent: | MR JACOBS |
| File Number: | HBC 356 of 2017 |
| Judgment of: | Judge Baker |
| Hearing dates: | 28 September 2018 11-12 October 2018 6 November 2018 10-11 December 2018 25 January 2019 |
| Date of Last Submission: | 25 January 2019 |
| Delivered at: | Hobart |
| Delivered on: | 1 March 2019 |
REPRESENTATION
| Counsel for the Applicant: | Mr Turnbull |
| Solicitors for the Applicant: | Jacobs Family Law |
| Counsel for the Respondent: | Mr Trezise of Counsel |
| Solicitors for the Respondent: | Simmons Wolfhagen |
ORDERS
Within sixty (60) days of the date of this order the Mother shall transfer to the Father (“the transfer”) all her right title and interest in the real property situate at Property A in Tasmania and more particularly described in Certificate of Title Volume … Folio … (“the property”).
Contemporaneously with the transfer referred to in paragraph1, the Father shall:
(a)Discharge the mortgage to Commonwealth Bank of Australia (“the bank”), Mortgage No. … (“the mortgage”) registered on the title of the property and procure a release from the bank in favour of the Mother from any liability outstanding in respect of the mortgage; and
(b)Pay to the Mother a sum of $68,952.
If the Father is unable to comply with paragraphs 1 and 2, he shall immediately list for sale the property and for that purpose the following will apply:
(a)The selling agent shall be such agent or agents as the parties may from time to time agree or in default of agreement as hereinafter provided.
(b)The listed sale price and method of sale and manner of advertising for sale shall be as agreed by the parties and in default of agreement as hereinafter provided.
(c)The terms and conditions of sale, including the acceptance or rejection of any offer to purchase the property, shall be as agreed between the parties and in default of agreement as hereinafter provided.
(d)In default of agreement between the parties in respect of any of the matters referred to in sub-paragraphs (a) to (c) inclusive hereof:
(i)Either party may request the President of the Law Society of Tasmania or his nominee (hereinafter called ‘the Arbitrator’) to determine the matter in dispute;
(ii)The cost of the Arbitrator’s determination shall be borne equally between the parties.
The parties shall do all such acts and things necessary and co-operate in every way with the selling agent, including signing all documentation requested by the agent in relation to the listing for the sale of the property.
If the property is sold pursuant to paragraph 3, after payment of agent’s commission and costs and legal costs on the sale, the net sale proceeds will be paid in the following priority:
(a)To effect a total cash payment to the Mother of $68,952.
(b)The balance to the Father.
Pending the sale or sales, the Father shall be responsible for the payment of the mortgage instalments, council rates and taxes, and all outgoings in respect of the property.
The Mother shall retain the net sale proceeds from the sale of Town E property.
Subject to the terms of this order, the Mother shall relinquish in favour of the Father any claim she may otherwise have to an interest in the following:
(a)Any savings, money in the bank, car sale proceeds, or investments of the Father;
(b)Any furniture, household effects, or any items of personalty in the possession of the Father;
(c)Any entitlement of the Father to any superannuation whether by way of lump sum, pension or otherwise;
(d)Any motor vehicles and motor bikes in the possession of the Father; and
(e)The Father’s sole trader business, known and trading as “Business 1”.
Subject to the terms of this order the Father shall relinquish in favour of the Mother any claim he may otherwise have to an interest in the following:
(a)Any savings, money in the bank or investments of the Mother;
(b)Any furniture, household effects, the dinghy or any items of personalty in the possession of the Mother;
(c)Any entitlement of the Mother to any superannuation whether by way of lump sum, pension or otherwise;
(d)Any motor vehicles in the possession of the Mother.
Unless otherwise specified in this order and except for the purposes of enforcing payment of any money due under these or any subsequent order, each party is solely entitled to all property and financial resources (and choses in action) in their possession on the date of this order to the exclusion of the other. For the purposes of this order:
(a)Banking and other accounts are deemed to be in the possession of the person whose name appears on the records of the relevant financial institution;
(b)Insurance policies are deemed to be in the possession of the policy holder named in the policy;
(c)Superannuation entitlements are deemed to be in the possession of the person named as the worker whose age or working future provides the conditions for payment out of such entitlements; and
(d)Each party is solely liable for and indemnifies the other against any liability encumbering any item of property or financial resource to which that party is entitled under these orders.
Neither the Mother nor the Father shall incur in the name of the other any account debt or any other liability and subject to the provisions of this order each shall pay or discharge all accounts debts and other liabilities presently standing in their respective names or hereinafter incurred by either of them and shall at all times keep the other indemnified therefrom and from all claims actions and other expenses in connection therewith.
IT IS NOTED that publication of this judgment under the pseudonym Harley & Jacobs is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT HOBART |
HBC 356 of 2017
| MS HARLEY |
Applicant
And
| MR JACOBS |
Respondent
REASONS FOR JUDGMENT
Introduction
The applicant and mother of two children, [X] born … 2006 (aged 13), and [Y] … born … 2008 (aged 10), sought a property adjustment order. In response, the father sought parenting orders. The parenting application settled during the hearing. It was agreed that the parents have equal shared parental responsibility for the children, and that they live in an equal shared care arrangement. A remaining issue about schooling settled after the hearing.
Background
The parties commenced cohabitation in 2004 and separated on 30 May 2016. They lived under the one roof until the final separation on 10 December 2016.
The mother was the primary carer of the children during the relationship. After separation she moved out of the former matrimonial home with the children. The parties agreed that the children would live in a week about shared care arrangement.
In August 2018, [X] stopped spending time with the mother. [Y] continued to live in a week about arrangement.
After several days of the hearing, and when the matter was adjourned part-heard on 12 October 2018, interim consent orders were made that the children live with each parent on a week about arrangement.
Circumstances of the parties
The mother is 39 years of age. She is employed with Employer on a part-time basis. She earns around $38,000 per annum and receives a family tax benefit of $10,244 per annum. She had been assessed to pay child support of $17 per week to the father. Upon the settlement of the schooling issue, the parties entered a binding child support agreement, which provides that neither party pays child support. The father has agreed to be responsible for the children’s private school fees.
The mother works full-time when the children live with her. She also works during school hours each alternate week, when they are living with the father. She rents a property at Suburb B.
The father is 40 years of age. He is a self-employed tradesman. He had a taxable income of $15,011 for the 2018 financial year. He receives a family tax benefit of around $6,167 per annum. He lives in the former matrimonial home.
Credit of the Parties
The father was an unimpressive witness. His income and his tax deductions were disputed, but he did not produce his income tax returns submitted by his accountant to the Australian Tax Office (‘ATO’). He produced a copy of a handwritten 2018 income tax return,[1] notices of income assessment from 2010 to 2018[2] and a copy of his 2013 tax return.[3] These documents did not assist the court to understand the difference between his taxable income and total business income. He was evasive when questioned about his expenses, set out in his MYOB journal. He said the journal contained the expenses, which he believed he could deduct, and is the raw data which he gives his accountant.[4] For example, he was asked about whether a Business entry of $1,050 was a business expense. At first, he said it was like a sponsorship but, when pressed, he agreed it was a personal membership, and not a sponsorship. As with a number of items in the journal, such as business entries and business, he justified these entries by saying the accountant was responsible for sorting out what could be deducted. He did not produce appropriate documentation or call his accountant to give evidence to support these claims. He failed to provide documentation in respect of his expenditure of the funds from the children’s bank accounts. His evidence about the alleged debt to Mr C was also unsatisfactory.
[1] Exhibit M9.
[2] Exhibit F3.
[3] Exhibit M8.
[4] Exhibit M18.
I consider that the father’s action in arranging the repossession of the motor vehicle 1 by … Finance and his evidence about this, indicated that he was bitter about the mother separating from him. I do not accept his evidence that he could not afford to pay the lease instalments. I do not accept his evidence about his income, and consider that he has a greater earning capacity than he indicated. His application, after separation, to Finance Ltd for a car loan of $47,000 included his estimated income at $9,000 per month. His explanation of attributing his estimated income to an Finance Ltd employee was not credible. Also, the mother gave evidence, which I accept, of their comfortable lifestyle during the relationship, indicating a much greater income than disclosed.
The mother was a credible witness. She made appropriate concessions. For example, she agreed that the father had a strong work ethic, he was keen to succeed financially, he was keen to provide for his family and he did so provide. She conceded that she was angry and upset when the father arranged for the motor vehicle to be repossessed. She was a witness of truth.
I consider that the mother’s evidence should be preferred to that of the father where it conflicts, unless I otherwise indicate.
Proposals
The mother sought a division of the property on a 52.5/47.5 per cent basis in the father’s favour; 60/40 per cent for contributions and, a 7.5 per cent adjustment in her favour for s.90SF factors.
The father sought a division of the property on a 70/30 per cent basis in his favour, with no adjustment for s.90SF factors.
Relevant Legislation
Section 90SM(1) of the Family Law Act 1975 (Cth) (“the Act”) provides that after the breakdown of a de facto relationship, a court may make such order as it considers appropriate. Section 90SM(3) provides that ‘the court must not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.’ Section 90SM(4) sets out the factors which the court must take into account, as follows:
(4) In considering what order (if any) should be made under this section in property settlement proceedings, the court must take into account:
(a) the financial contribution made directly or indirectly by or on behalf of a party to the de facto relationship, or a child of the de facto relationship:
(i) to the acquisition, conservation or improvement of any of the property of the parties to the de facto relationship or either of them; or
(ii) otherwise in relation to any of that last‑mentioned property;
whether or not that last‑mentioned property has, since the making of the contribution, ceased to be the property of the parties to the de facto relationship or either of them; and
(b) the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the de facto relationship, or a child of the de facto relationship:
(i) to the acquisition, conservation or improvement of any of the property of the parties to the de facto relationship or either of them; or
(ii) otherwise in relation to any of that last‑mentioned property;
whether or not that last‑mentioned property has, since the making of the contribution, ceased to be the property of the parties to the de facto relationship or either of them; and
(c) the contribution made by a party to the de facto relationship to the welfare of the family constituted by the parties to the de facto relationship and any children of the de facto relationship, including any contribution made in the capacity of homemaker or parent; and
(d) the effect of any proposed order upon the earning capacity of either party to the de facto relationship; and
(e) the matters referred to in subsection 90SF(3) so far as they are relevant; and
(f) any other order made under this Act affecting a party to the de facto relationship or a child of the de facto relationship; and
(g) any child support under the Child Support (Assessment) Act 1989 that a party to the de facto relationship has provided, is to provide, or might be liable to provide in the future, for a child of the de facto relationship.
The court is required to firstly consider whether it is just and equitable to make a property order by identifying the existing legal and equitable interests of the parties in the property. Having regard to those existing interests, the court must be satisfied that it is just and equitable to make a property settlement order.[5]
[5] Stanford & Stanford (2012) 247 CLR 108.
The parties’ interests in property
The parties disputed whether the following should be included in the list of property and liabilities; the monies accrued in the children’s bank accounts by the father; a $62,500 liability claimed by him for building works on the Property A property; his legal fees; and the monies accrued on the mortgage since separation.
Addbacks
The mother sought to addback an amount for the increase of the parties’ mortgage in the sum of $4,974, due to the father’s failure to make some repayments.
It has been a practice of courts to make ‘notional addbacks’ to property in circumstances, where there has been a unilateral disposition of property by one of the parties during the relationship or following separation. It might be asserted that the property still exists and should therefore, be considered as part of the existing property interests.
In other circumstances, wastage such as gambling or extravagant living, might be asserted. In the decision of Kowaliw & Kowaliw,[6] Baker J stated:
As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a) where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
(b) where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
Conduct of the kind referred to in para. (a) and (b) above having economic consequences is clearly in my view relevant under sec. 75(2)(o) to applications for settlement of property instituted under the provisions of sec. 79. [7]
[6] (1981) FLC 91-092.
[7] Ibid 76,644.
Since the decision of Stanford & Stanford,[8] courts have been more cautious about adding back property which no longer exists, and have increasingly dealt with addbacks under s.75(2)(o). In Bevan & Bevan,[9] the Full Court discussed the practice of courts making ‘notional addbacks’ to property to account for the unilateral disposal of assets. Bryant CJ and Thackeray J stated:
We observe that “notional property” which is sometimes added back to a list of assets to account for the unilateral disposal of assets, is unlikely to constitute “property of the parties to the marriage or either of them” and thus is not amenable to alteration under s79. It is important to deal with such disposals carefully, recognising the assets no longer exist, but that the disposal of them forms part of the history of the marriage-and potentially an important part. As the question does not arise here, we need say nothing more on this topic, save to note that s79(4) and in particular s75(2)(o) gives ample scope to ensure a just and equitable outcome when dealing with the unilateral disposal of property.[10]
[8] (2012) 247 CLR 108.
[9] (2013) FLC 93-545.
[10] Ibid [79].
Although it is not an error to adjust actual property interests by notionally adding back expended funds,[11]courts have shown a preference to deal with addbacks under s.90SM(4)(e) or s.79(4)(e).
[11]Vass & Vass [2015] FamCAFC 51.
Between March and November 2017, the father did not make payments of $922 per fortnight that had been made previously. The mother froze the account, which meant that the periodic deductions were not debited. When the father opened a new account, he did not arrange to continue the payments. Between March and November 2017, he made only one small payment. Interest on the mortgage of between around $650-$750 per month accrued. As a result, the mortgage principal outstanding increased by $4,974.[12] It was submitted that the father had the ability to pay interest payments, which accrued unnecessarily. He was living rent free, and he had access to available monies, as demonstrated by his bank account. His available income was greater than $15,000 per annum. In comparison, the mother was paying rent of $345 per week.
[12] Exhibit M13.
I consider that the evidence indicates that the father had the capacity to make the repayments from his income.
Since November 2017, the father has made interest payments only. Counsel for the mother calculated that there would have been a reduction in the mortgage principal of $27,237 had he continued to make repayments of $922 per fortnight.[13] This calculation was not disputed by the father. Counsel for the mother submitted that I should take this into account under s.90SF factors.
[13] Exhibit M20.
In the exercise of my discretion, I consider that the father has behaved ‘wantonly’,[14] which has had the effect of reducing the value of the assets. I intend to take this account under s.90SM(4)(e), rather than add any amount.
[14] Kowaliw & Kowaliw (1981) FLC 91-092, 76,644.
Legal Fees
The mother sought that the sum of $23,653 be added back, for legal fees paid by the father from the Business 2 account, as documented in the MYOB records.[15] Counsel for the mother explained that this sum was claimed, rather than the total of all legal fees paid, because it can be identified from these records. The records demonstrate that the father’s payment of a total $23,653 in legal costs commenced in October 2016.
[15] Exhibit M18.
The father borrowed funds from his sister, Ms D, to create a float for the business and to pay legal fees. He has repaid some of the funds, but it was conceded by counsel for the mother that it is difficult to prove what has been repaid. As at 23 July 2018, she had lent him a total of $77,400, including $6,416 of legal fees paid by her direct to his lawyers. He has repaid most of these funds, leaving $8,900 owing at 23 July 2018. He gave oral evidence on 11 October 2018 that his sister has since paid $6,000 of legal fees for him, and another invoice of $7,000 is due to his lawyers. She has also paid an invoice for his counsel’s fees.
The father did not dispute that $23,653 of legal costs has been paid by him from the Business 2 business account. It was submitted by counsel for the father that the funds had been generated by the father’s personal endeavours post-separation and all legal fees were paid by him from a working account. Therefore, the funds should not be added back.
Counsel for the mother submitted that the father had the ability to pay substantial legal fees from his post-separation income, whilst the mother has not been able to do so. As such, unlike the father, a significant portion of the mother’s property settlement will be spent on legal fees, which will have a significant impact upon her financially. Counsel for the father submitted that, if not added back, the legal fees should be considered under s.90SF.
In NHC & RCH,[16] the Full Court of the Family Court held that the treatment of legal fees is a matter of discretion for the trial judge, although regard should be had to the source of the funds. The Full Court said:
If the funds used existed at separation, and are such that both parties can be seen as having an interest in them (on account, for example, of contributions), then such funds should be added back as a notional asset of the party, who has had the benefit of them.
If funds used to pay legal fees have been generated by a party post separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance), they would generally not be added back as a notional asset; nor would any borrowing undertaken by a party post separation to pay legal fees be taken into account as a liability in the calculation of the net property of the parties.[17]
[16] (2004) FLC 93-204 [56].
[17] Ibid [57]–[58].
Counsel for the mother relied on the decision of Shepherd v Shepherd,[18] which involved parties who had lived together for 26 years, and where the accumulation of their joint assets occurred during the marriage, and their respective combined contributions were equal. Judge [X]s added back the respondent’s paid legal fees and stated:
The inevitable result of any property settlement is that the applicant’s legal fees will be deducted from the capital she will receive. This will not be the case for the respondent, as he has had the benefit of payment of his legal fees from income from the joint asset. If the respondent’s legal fees, which have been paid from joint assets are not notionally added back into the property pool I consider this would result in a significant inequity for the applicant.[19]
[18] (2016) FCCA 3038.
[19] Ibid [126]–[129].
It was submitted by the mother’s counsel that the business is a resource, to which the mother made a contribution during the relationship.
Counsel for the father cited the recent Full Court decision of Trevi & Trevi.[20] The Full Court cited NHC & RCH[21] and at paragraph 41 noted:
The passages from NHC & RCH… draw a distinction between legal costs met from property that would otherwise be available at trial and legal costs met from funds “generated by a party post separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance)”. The proposition there advanced, that such expenditure “would generally not be added back”, also needs to be seen as a guideline informing the relevant discretion rather than determining it. A further distinction is suggested in NHC & RCH between funds generated in that manner and “[f]unds generated from assets or businesses to which the other party had made a significant contribution or has an actual legal entitlement.”[22]
[20] [2018] FamCAFC 173.
[21] (2004) FLC 93-204
[22] Trevi & Trevi [2018] FamCAFC 173, [41].
The father has worked post-separation to earn an income from the business, to which the mother has made a contribution. The mother is a partner of Business 2. She undertook bookwork for the business during the relationship. She has made a contribution to the business by caring for the children and enabling the father to work long hours.
In her financial statement filed 26 September 2018, the mother estimated her outstanding legal fees, which were $41,000 at the date of trial. A substantial part of her property settlement will, therefore, be spent on legal fees, whereas the father will not need to pay substantial legal fees from his settlement.
I consider that it is just between the parties that the father’s paid legal fees amounting to $23,653 be added back to the property.
The Company 3 Liability
The father included in his list of liabilities a debt of $62,500 to Company 3, operated and owned by Mr C.
Counsel for the mother contended that this unsecured liability should not be taken into account in the property division because there is uncertainty about the liability and there is also a real question of whether or not it can be enforced.
Counsel for the father submitted that the debt should be included in the liabilities because the debt was clearly established, that Mr C was a witness of truth and that it was clear that the funds are owing to him. Counsel submitted that the father has repudiated the agreement between him and Mr C, there has been a breach, and the father is now exposed to a claim for damages for the funds which are claimed. It was submitted that this could be assessed either on a quantum meruit claim or a damages claim. It was submitted that the father is exposed to a claim for the work that was done and it needs to be repaid in some way. Finally, it was submitted that it is just between the parties to include the debt because the work has enhanced the value of the Property A property.
Both counsel cited Biltoft & Biltoft,[23] in which the Full Court of the Family Court stated:
... Where the assets are not encumbered and moneys are owed by the parties or one of them to unsecured creditors, the court ascertains the value of their property by deducting from the value of their assets the value of their total liabilities, including the unsecured liabilities. See Prince and Prince; General Credits Australia Limited (Intervenor); A-G for the State of Oueensland (Intervening); A-G for the Commonwealth of Australia (Intervening) (1984) FLC ¶ 91-501, Evatt CJ. at p 79,076 said:¾
“... the outcome of the applicant's application will depend upon findings made by the Court as to the parties' assets and liabilities, their contributions and their respective financial resources, means and needs. It would be necessary for the Court to determine so far as is possible the value of the property held by each party. In accordance with the usual practice this would be done by deducting the value of outstanding mortgages, debts, and other liabilities (e.g. Albany and Albany (1980) FLC ¶ 90-905, p. 75,717 ). The Court may have to determine, as between the parties, the existence of a particular liability (Af Petersens and Af Petersens (1981) FLC ¶ 91-095).
The assessment of debts and liabilities is not necessarily arrived at by a strictly mathematical or accountancy approach in all cases. While some liabilities are charges upon the property which can be accurately assessed at a certain date, others are at large, or have not been precisely determined, e.g. tax liabilities (Kelly and Kelly (No. 2) (1981) FLC ¶ 91-108 p. 76,801). In some cases the amount of the liability can only be estimated generally (Albany (supra), p. 75,717). The Court can make an allowance for a particular liability if appropriate to do so. In some cases there are sufficient uncertainties as to the alleged liability to lead the Court to disregard it entirely or partly (e.g. a loan from a parent of the party not likely to be enforced; Af Petersens (supra); Quirk (1983) unreported). In other cases, the Court may take the view that because of the circumstances surrounding the incurring of the liability it ought in justice and equity to be wholly or partly disregarded in determining the appropriate order to make under sec. 79 as between the parties to the marriage. Such a result could be reached where a spouse had incurred a liability in deliberate or reckless disregard of the other party's potential entitlement under sec. 79 (Kimber and Kimber (1981) FLC ¶ 91-085xc g; Kowaliw and Kowaliw (1981) FLC ¶ 91-092 ; Antmann and Antmann (1980) FLC ¶ 90-908 ; Af Petersens (supra) ). Complex issues can arise in regard to liabilities to third parties (see, e.g. Pockran and Crewes; Pockran (1983) FLC ¶ 91-311 ).
Of course, the Court cannot ignore the fact that there is or may be a liability; the effect is simply that it does not consider that the other spouse should be called upon to in effect 'contribute' to the liability by having that spouse's fair share in the parties' property reduced by virtue of its existence. The effect may be that the party who has incurred the liability will be left to meet it out of whatever funds remain to that party after satisfying the property order made under sec. 79 (Af Petersens (supra) ).”[24]
[23] (1995) FLC 92-614.
[24] Ibid 82,124–82,125.
In Af Petersens & Af Petersens,[25] Nygh J stated:
normally the court will distribute amongst the parties the net value of their assets after deduction of all debts. But this is not invariably the case: the Court will not normally take account of debts incurred after the separation and on some occasions has ignored debts, although incurred during the marriage, for which it felt one of the party should bear exclusive responsibility: Antmann and Antmann (1980) FLC 90 – 908. Needless to say, a debt due does not diminish the property of the parties until it is paid or execution is levied. Nor, as has been pointed out earlier, is there anything in the decision of the High Court in Ascot Investments Pty Ltd v Harper and Harper to suggest that this Court cannot make an order dividing the assets of the parties because such a division might hamper a third party in his or her chances of recovery of a debt.[26]
[25] (1981) FLC 91-095.
[26] Ibid 76,669.
I turn to consider the evidence to determine whether the Company 3 debt should be included in the liabilities.
Evidence
The father did not give any evidence about this Company 3 debt, in his affidavit filed 26 September 2017, apart from identifying it. It was not referred to as a liability by him in his child support response to change of assessment, dated 7 November 2018.[27] The mother deposed that the father spoke constantly about money during the relationship, but had never mentioned this debt.
[27] Exhibit M17.
During cross-examination, the father denied that the debt did not exist. He agreed that Mr C started doing work on the work shop in … 2015. The agreement was for him to do work for Mr C on his property, to repay him for his work. He said that he has not done the work because he has not had time. I asked him why he will not undertake the work. He answered that he has to pay the debt back somehow. He agreed that this would be done by him doing the work, because that was what was agreed. He said that paying Mr C financially would be ‘the easiest’ if he cannot get to his property to do the work. He conceded that the note of urgency for payment on the Company 3 invoice is a generic note, included on any invoice, and he did not take it seriously.
The father does not know how Mr C calculated the amount of the invoice and he has not asked him. He said, ‘I can see what the value is on the property and…I trust his word.’
Mr C swore an affidavit and gave oral evidence. He deposed that from … 2015, he completed work and provided materials for a workshop on the Property A property. The invoice for $62,500.00, dated 10 June 2017, provided a breakdown of the work and materials purchased. It also indicated: ‘Labour: 264 hours @ $120.00 per hour $31,680.00.’ It was noted on the invoice: ‘URGENT This invoice far exceeds our trading terms and requires your immediate attention.’
Mr C deposed that:
…When I had completed the work on Property A, Mr Jacobs and I agreed that he would pay my invoice dated 10 June 2017, by completing work for me.
Unfortunately, Mr Jacobs has been unable to complete any of the work for me and the invoice remains unpaid.
I require the outstanding invoice to be paid in full as soon as possible. I have been very patient with Mr Jacobs to date however I cannot afford to continue with this arrangement.
Contrary to this evidence, during cross-examination, Mr C conceded that the agreement for the father to repay the work in-kind was made before he did any work on his property.
Mr C said that the tasks he wants the father to complete to repay the debt include fencing, roads, servicing equipment, clearing, and ‘bits and pieces’ on two of his properties.
Mr C and the father made it clear that the debt was to be paid by the father undertaking personal work for Mr C, and not through the jobs they undertake together for customers. Mr C said, ‘he’ll honour what he said, he’ll come and work on the property.’
Mr C and the father work together on jobs for customers. When the father undertakes work for Mr C, he provides him with an invoice, and Mr C then pays him. The father has not repaid any part of his debt by buying materials for Mr C for these jobs.
Mr C said that he did not require payment of $15,000 for materials he purchased for the father because he needed so much work done on his property, and he ‘wanted to keep it there.’ He said his turnover is $1,000,000 per annum, so $15,000 does not impact the business. He then added that the Company 3 invoice was raised only because it formed part of his marital separation. Mr C said that he did not come out of this well, ‘so the money will come in handy.’
Mr C gave evidence that the last time he worked on the property was at the end of 2017. He could not give an exact date, but worked on ‘the fitout side of things.’ When counsel for the mother pointed out to him that the date on the invoice of 10 June 2017 was, therefore, incorrect, he reiterated that the only reason the invoice was raised was due to his marital separation. He had to realise a figure at some stage, to determine what hours the father had to undertake, to work out the debt.
Mr C was asked whether he had a diary of work entries, for the actual hours worked. He answered that his ex-wife ‘probably has those documents.’ He did not produce any documents.
On the invoice under ‘Works Include’ an entry reads: ‘Supply and install new kitchen $5437.00’.
The market valuation conducted by Company 4, dated 30 June 2017 and after the date of the invoice, reported ‘Kitchen/Lounge No fitout, aluminium sliding door to a possible future deck.’
The father and Mr C both conceded that the use of the term ‘install’ on the Company 3 invoice was inaccurate.
The father’s explanation for this was that the kitchen could have been made and could have been sitting in a shed, waiting to be installed. The Company 4 valuation, dated 21 September 2018, indicated that the kitchen was installed with no cupboard doors, back facing panel or range hood.
Mr C has not consulted a lawyer to try and recover the debt. However, he said that he expects the father to pay the debt.
Although the mother disputed the work done by Mr C, I accept his evidence that he has completed work on the workshop for the father. However, I am not persuaded about the total number of hours worked nor the exact value of the debt. There was no documentary evidence to corroborate the number of hours worked.
Mr C has taken no steps to enforce the debt. The invoice was prepared for the purpose of Mr C’s separation negotiations. Mr C knows that the father will work off the debt. The father does not take the demand for payment seriously. I am not persuaded that the debt will be enforced in monetary terms by Mr C. I consider that Mr C expects the father to work off the debt. The father has said that he would be doing this work because that was what was agreed.
I exercise my discretion not to include the debt for the purpose of division between the parties. I will take into account under s.90SM(4)(e) that the father will retain the debt.
Children’s Bank Accounts
At the beginning of the trial both parties included the sum of $5,891 in the property pool for monies held by the father in the children’s bank accounts with the Commonwealth Bank of Australia (“CBA”).
During cross-examination on 11 December 2018, the father said that he used the money to pay for the home loan, truck, Client account and a council fine. He closed the children’s bank accounts with the CBA two weeks prior and opened MyState accounts, because he was tired of the CBA. He deposited $500 into each account for the children. The teller gave him the remaining $4,891 in cash, as he said that the CBA does not transfer the whole amount to a new account.
When he was asked whether he could obtain receipts, he answered that he could obtain a receipt from Client. He said he still has the other money to put towards his other account for the truck payment. He said that he ‘probably has $1,800’ left and he paid $3,000 to Client. He agreed that he has $21,000 coming from his customers on 28 December. He would then pay the next Client account due. When he was asked whether he would put $3,000 back into the children’s accounts, he answered that would depend on how much money he has left over to pay his bills.
On 30 November 2018, he had $12,430 in his account. He said that this money was used to pay his recent trading accounts, the truck, and the excavator. He said his sister would not lend him any more money and that he had been stuck.
The father’s evidence about the children’s bank accounts was confusing. He had no documentation to show the expenditure of the remaining $4,891. Counsel for the mother submitted that it is coincidental that the funds he has left equate approximately to the children’s funds in the mother’s control. He submitted that the amount had been agreed at the start of the trial,[28] and the father produced no corroboration of the expenditure. It was also submitted that his reason for changing the accounts from CBA to MyState, because he was sick of the CBA, did not make sense, as he still has his other accounts with the CBA.
[28] Exhibit F7.
I agree with the submissions of counsel for the mother. I consider that the father’s evidence about his expenditure of the funds was unsatisfactory. I am not persuaded by his evidence that he spent the savings on reasonable expenses. I shall include in the property, the children’s bank accounts in the husband’s control at $5,891.
Conclusions about Property
I find the parties have the following property and superannuation:
Property
| Property A House | 625,000 |
| Value of father’s interest in block at Town E | 31,600 |
| Town E sale proceeds | 253,000 |
| House contents | Divided by agreement |
| Motor vehicle 2 | 42,000 |
| Motor vehicle 3 | 8,000 |
| Excavator | 26,000 |
| Truck | 48,000 |
| Boat | 11,000 |
| 2 motor bikes | 4,500 |
| Tools and trailer | 13,700 |
| Accounts (M) | Negligible |
| Invested Funds | 54 |
| Children’s Bank Accounts M’s control | 2,773 |
| Children’s Bank Accounts F’s control | 5,891 |
| Part Property Payment to Mother | 12,000 |
| Part Property Payment to Father | 2,000 |
| Addback of Father’s Paid Legal Fees | 23,653 |
| Total Assets | $1,109,171 |
Liabilities
| CBA Mortgage Excavator Loan 71. 72. Total | 177,173 73. $267,359 74. 75. $841,812 |
Superannuation
Employer-mother 30,054
Super Fund-father 31,230
Total61,284
Is it just and equitable to make a property order?
I consider that it is just and equitable that a property adjustment order be made. The parties were in a relationship for approximately 12 years and accumulated property together during this time. They need to finalise their financial relationship.
What approach should be taken by the Court?
The usual approach in property proceedings is for a court to consider the property of the parties as an overall pool. The parties have taken this global approach. This approach is appropriate in the circumstances of a long relationship and two children.
Superannuation
The court has a discretion about how superannuation interests will be treated. In C & C,[29] the Full Court said that the preferred approach was to deal with superannuation separately from property as defined in s.4(1) of the Act. However, the Full Court said that superannuation can be included in the one pool with non-superannuation property by agreement if: the court is satisfied that the interest is property within the definition of s.4(1) of the Act; the interest is not within that definition, but is of relatively small value in terms of other assets; or, there are features about the interest which lead the court to conclude that this is an appropriate approach.
[29] (2005) FLC 93-220.
The father proposed a two pool approach. The mother firstly proposed a one pool approach. It was then conceded by her counsel that superannuation should be considered in a separate list from the non-superannuation property. The mother agreed with the father that each party should retain his or her entitlement, which are of similar value.
Contributions
The mother owned a Motor vehicle 4 at the commencement of co-habitation in 2004.
She worked and earned income until [X]’s birth in … 2006. She returned to employment in 2011. She also did the bookwork for the business.
During the relationship the mother was the primary homemaker and parent. She made non-financial contributions by gardening and helping with some construction works on the Property A home, and, also, at the business work sites.
The father made an initial contribution of the Property A property. He purchased it in 1999 for $48,000. He borrowed $4,800 from his father, and had $20,000 in savings. He borrowed $30,000 from the Commonwealth Bank. He repaid most of the $30,000 loan in two years, with approximately $1,000 left owing at that time.
In early 2000, he borrowed $20,000 from his parents to build a shed on the property. He built it himself. He also connected power to the property and installed plumbing. He put in linings, lighting, hot water and a wood heater. He also created a gravel road to the property to allow access to it and built a gate.
In 2001, he extended the mortgage with the Commonwealth Bank from $1,000 to $110,000. He used this money to build a house on the property in 2001. He deposed that he ‘did all of the planning, purchasing of materials and majority of the building on my own.’
In 2003, he received a first home owner’s grant of $10,000. He used these funds to reduce the mortgage. By the start of 2005 and, prior to the commencement of the relationship with the mother, he had paid off the majority of the $110,000 Commonwealth Bank mortgage. He said that there was $15,000 to $20,000 remaining.
At the commencement of cohabitation, the father also owned a Ute, which he purchased in 2002, all of his work tools and two motorbikes.
The father was self-employed. He was a hard worker and worked long hours.
In 2007, the parties purchased a property in Town E in joint names for $150,000. They borrowed the funds from the Commonwealth Bank, which were secured against the Property A property. They extended the loan in … 2008 to build a shack. The build cost $75,000. The father built the shack. His father assisted him.
The family moved to live in the shack in 2008. The Property A property was rented whilst they lived in Town E. The rent was used towards payment of the mortgage. They returned to live at Property A in late 2010. The Town E property has recently been sold for $260,000.
In 2009, another block was purchased at Town E for $70,000 by Company 5. The father is a shareholder of the company together with his mother and step-father. The father paid $23,000 for his share of the purchase price. The parties agreed that the father’s interest in the land is worth $31,600.
The paternal grandfather gave the father an excavator valued at $35,000 in December 2015.
The mother received an inheritance from her grandparents of $5,000 in 2008/2009. These funds were used towards the purchase of a Motor vehicle 5.
Post-separation, the father has reduced the ANZ debt by $24,000 and the Excavator debt by $11,000.
The father has had the benefit of living in the former matrimonial home, whilst the mother has paid rent. He received the benefit of rent proceeds of the Town E shack of around $5,000. He also received income of around $4,479 from rentals.
Both parties have made parenting contributions. The father cared solely for [X] for several months in late 2018.
The way the assets brought into a marriage by the parties are to be treated was considered in the decision of the Full Court in Pierce & Pierce.[30] The Full Court stated:
[30] (1999) FLC 92-844.
In our opinion, it is not so much an erosion of contribution but a question of what weight is to be attached, in all the circumstances, to the initial contribution. It is necessary to weigh the initial contributions by a party with all other relevant contributions of both the husband and the wife. In considering the weight to be attached to the initial contribution, in this case of the husband, regard must be had to use made by the parties of that contribution. In the present case that use was a substantial contribution of the purchase of the matrimonial home.[31]
[31] Ibid [28].
In [X]s & [X]s[32] the Full Court stated:
[32] [2007] FamCA 313.
We think that there is force in the proposition that a reference to the value of an item as at the date of the commencement of cohabitation without reference to its value to the parties at the time it was realised or its value to the parties at the time of trial, if still intact, may not give adequate recognition to the importance of its contribution to the pool of assets ultimately available for distribution towards the parties. Thus, where the pool of assets available for distribution between the parties consists of say an investment portfolio of a block of land or a painting that has risen significantly in value as a result of market forces, it is appropriate to give recognition to its value at the time of hearing or the time it was realised rather than simply pay attention to its initial value at the time of commencement of cohabitation. But in doing so, it is equally as important to give recognition to the myriad of other contributions that each of the parties has made during the course of their relationship.[33]
[33] Ibid [26].
It is clear from Pierce & Pierce[34] that consideration must be given to the use that the parties made of the initial contribution. Counsel for the father relied on the decision of Selby & Robilliard.[35] In this decision Cronin J cited the Full Court in [X]s & [X]s,[36] which said that:
[34] (1999) FLC 92-844.
[35] [2018] FamCA 214.
[36] [2007] FamCA 313.
a reference to the value of an item at the date of cohabitation without reference to its value to the parties at the time it was sold or at the time of trial, may not give adequate recognition to the importance of its contribution to the parties’ assets to be distributed.[37]
[37] Selby & Robilliard [2018] FamCA 214, [87].
The weight to be attributed to initial contributions and other contributions is not required to be mathematical or a counting exercise.[38]
[38] Clives & Clives (2008) FLC 93-385.
The initial contribution of the Property A land and the house was a significant initial contribution. At the date of cohabitation it was worth around $385,000 (the mother’s case) or $395,000 (the father’s case). It is now worth $695,000. I attach considerable weigh to it. However, it must be considered in the context of a twelve year relationship and over two years post-separation, and the parties’ subsequent contributions.
I consider that, taking into account the initial contributions of the parties and all their contributions over the period of their relationship and post-separation, the father has made greater financial and non-financial contributions. The mother has made greater parenting and homemaking contributions.
I assess the contributions as 68 per cent in favour of the father and 32 per cent in favour of the mother.
Superannuation
The parties have accumulated superannuation, which is of approximately equal value. The mother has superannuation with Employer of $30,054. The father has superannuation with Super Fund of $31,230.
Both parties are around the same age and have a similar working life expectancy.
I am of the view that the agreement reached by the parties to retain their respective entitlements is just and equitable.
Section 90SM(4)(e)
The mother is 39 years old. She works in customer service at Employer , and is employed on a casual contract basis. She works full-time hours in the week when the children are not in her care, and works school hours (9:00 a.m. to 2:00 p.m.) in the week when the children are in her care.
The mother lives in rental accommodation. Her lease ends in January 2019. She does not have plans for her accommodation after her lease ends. She gave evidence that she would like to purchase a home, if possible. She does not believe she will be able to afford a property of a similar standard to Property A. She has a new partner, but does not live with him.
She earns $744 per week and is in receipt of Family Tax Benefit/ Rent Assistance. Her total weekly income amounts to $941. Her total weekly expenses amount to $1,231.
The parties will retain superannuation of similar value.
The father is 40 years old. He is a self-employed tradesman. He has had the benefit of living in the matrimonial home since separation.
In his financial statement, filed 26 September 2018, the father indicated that his total average weekly income is $655, including $190 from holiday rentals, $288 from his business and $128 from Family Tax Benefit. I have found that he has a greater earning capacity than disclosed and has a far greater capacity to earn income than the mother. He has the capacity to claim expenses to reduce his taxable income. He indicated his total weekly expenditure is $1,030.
The children live with the parties in a shared care arrangement. The parties entered a binding child support agreement so that neither party pays child support. The father has agreed to be responsible for the children’s private school fees.
The effect of the findings as to contributions is that the mother will receive property to a value of $269,380 and the father will receive property to a value of $572,432. There is a large disparity of property.
I take into account the unpaid mortgage instalments and the increase in the mortgage as a result of the father’s actions.
I take into account the father’s agreement with Mr C to undertake work for him on his properties, to repay him for his building work on the Property A property.
Taking into account all these factors, I consider that the mother should receive an adjustment of her contribution based entitlement by a further 8 per cent.
As a result of my findings, the mother shall receive 40 per cent of the non-superannuation property, which amounts to property of $336,725. The father shall receive property to a value of $505,087.
The effect of the order
The mother will receive the following property:
Town E sale proceeds 253,000
Children’s Bank Accounts M’s Control 2,773
Part Property Payment 12,000
Cash payment from the father 68,952
Total 336,725
The father will receive the following property:
Property A House 625,000
Value of father’s interest in block at Town E 31,600
Motor vehicle 2 42,000
Motor vehicle 3 8,000
Excavator 26,000
Truck 48,000
Boat 11,000
2 motor bikes 4,500
Tools and trailer 13,700
Invested Funds 54
Children’s Bank Accounts F’s control 5,891
Part Property payment 2,000
Addback Paid Legal Fees 23,653
Total 841,398
Liabilities
CBA Mortgage 177,173
Visa Negligible
Truck loan 32,186
Car Loan 47,000
Excavator Loan 11,000
Total Liabilities 267,359
Total 574,039
Less cash payment to the mother 68,952
Total 505,087
The mother will retain superannuation of $30,054 and the father will retain superannuation of $31,230.
I will give the father 60 days to arrange finance and, if he is unable to do so, the parties will need to sell the Property A property.
I consider that this result is a just and equitable one between the parties.
I certify that the preceding one hundred and twenty-three (123) paragraphs are a true copy of the reasons for judgment of Judge Baker
Date: 1 March 2019
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