Harper & Harper
[2013] FamCA 528
•19 July 2013
FAMILY COURT OF AUSTRALIA
| HARPER & HARPER | [2013] FamCA 528 |
| FAMILY LAW – PROPERTY SETTLEMENT – whether in all of the circumstances it is just and equitable to make orders for property settlement – whether there has been full and frank disclosure – whether the husband’s legal fees or post-separation expenditure should be added back to the pool of property available for the distribution – Stanford v Stanford [2012] HCA 52 considered – assessment of contributions – where contributions as a homemaker, parent and breadwinner during the marriage are equal – where the husband has received an inheritance during the marriage – where wife’s contributions post-separation are greater than the husband’s – section 75(2) relevant matters – where husband has greater future income earning capacity – where husband has benefited from the family business post-separation – split of superannuation entitlements. FAMILY LAW – CHILD SUPPORT – whether there should be a departure from the current assessment – form of payment |
| Evidence Act 1995 (Cth) Child Support (Assessment) Act 1989 (Cth) Family Law Act 1975 (Cth) Family Law Rules 2004 (Cth) Family Law (Superannuation) Regulations 2000 (Cth) |
| Stanford v Stanford [2012] HCA 52 Watson & Ling [2013] FamCA 57 |
| APPLICANT: | Ms Harper |
| RESPONDENT: | Mr Harper |
| FILE NUMBER: | MLC | 2221 | of | 2010 |
| DATE DELIVERED: | 19 July 2013 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Macmillan J |
| HEARING DATE: | 25 – 27 March 2013 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr O'Shannessy |
| SOLICITOR FOR THE APPLICANT: | Lander & Rogers |
| COUNSEL FOR THE RESPONDENT: | Mr Weil |
| SOLICITOR FOR THE RESPONDENT: | Susan Snyder |
IT IS NOTED that publication of this judgment by this Court under the pseudonym Harper & Harper 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 MELBOURNE |
FILE NUMBER: MLC 2221 of 2010
| Ms Harper |
Applicant
And
| Mr Harper |
Respondent
REASONS FOR JUDGMENT
The parties in this case separated under the one roof in April 2009 after having lived together for some 20 years. The husband moved out of the former matrimonial home in August 2009.
The marriage was what is often described as a traditional marriage, with the husband as the primary breadwinner and the wife as the primary homemaker. Whilst they are now somewhat critical of the role each of them played during the marriage and their part in the breakdown of the marriage, it would appear that they both contributed in their own way to the welfare of the family. It was submitted by both parties that their contributions during the marriage should be treated as being equal, notwithstanding the different nature of those contributions, save and except for the husband’s inheritance.
At the time they separated, the husband was successfully operating the family-owned plumbing business. The business was sold in March 2012 and it appears that much of the ongoing dispute over the course of the proceedings related to questions of the benefits the husband received from the business prior to its sale, whether the sale was necessary, the consequences of the sale and what happened to the proceeds of sale of the business, all post-separation.
The wife asserts that the husband “wasted”, as described in Kowaliw & Kowaliw (1981) FLC 91-092 (‘Kowaliw’), what she says was significant income generated by the family plumbing business, and having the benefit of that income failed to provide adequate support for she and the children. She asserts that the husband failed to provide full and frank disclosure. It is this assertion that underpins her case and it is her submission that I should view the husband’s evidence in the context of that failure to provide full and frank disclosure.
The issues that arise in this case and which I must consider include the following matters:
a)whether the husband needed to sell the business and if he did or did not what impact that has on the outcome of the case;
b)what, if any, amounts should be added back to the asset pool, having regard to the husband’s application of the funds to which he had access to from the business following separation, including the payment of legal fees;
c)how the husband’s inheritance was applied and what weight should be given to it;
d)what the parties’ respective entitlements should be to the assets available for distribution based upon the matters to be considered in s 79(4) of the Family Law Act 1975 (Cth) (“the Act”), having regard in particular to the weight to be given to the husband’s inheritance, the parties’ respective income earning capacities and the wife’s ongoing responsibility for the youngest child of the marriage; and
e)whether there should be a departure from the current assessment for the payment of child support and what child support and in what form it should be paid.
Counsel for the wife was critical of the husband for not having produced the necessary documents and not having analysed the documents he had produced in order to satisfy the wife, her legal representatives and the Court as to what he did with the money he inherited. However, it was ultimately conceded by counsel for the wife that, as asserted by the husband, I could find on the basis of the evidence that the husband had applied the inheritance he received from his mother’s estate for the benefit of the family which included the acquisition of the former matrimonial home and monies used in the business.
Documents Relied Upon by the Parties
The wife, who was the applicant in the proceedings, relied upon the following documents:
a)her Amended Initiating Application filed 1 August 2012;
b)her Affidavit sworn 31 July 2012 and filed 1 August 2012;
c)her Financial Statement sworn 22 March 2013 and provided to the Court on the first day of hearing;
d)the Affidavit of Ms B filed 27 September 2012; and
e)the Affidavit of Prof C (who was not required for cross-examination) filed 1 August 2012.
Both parties relied upon the various reports prepared by Mr D, the single expert. Those various reports and correspondence were annexed to the wife’s Affidavit filed 1 August 2012, the Affidavit of Ms B filed 27 September 2012 and the most recent report, dated 1 October 2012, was marked as exhibit “W1”. Mr D was not required for cross-examination by either party.
The husband relied upon the following documents:
a)his Response filed 26 March 2010;
b)his affidavits filed 26 March 2010, 20 June 2012 and 24 October 2012;
c)his Financial Statement filed 24 October 2012;
d)the Affidavit of Mr E (who was not required for cross-examination) filed 7 September 2012;
e)the Affidavit of Mr F (who was not required for cross-examination) filed 21 September 2012;
f)the Affidavit of Dr G filed 5 April 2012 (who was not required for cross-examination);
g)the Affidavit of Dr H filed 5 April 2012; and
h)the Affidavit of Dr I (who was not required for cross-examination) filed 19 May 2011.
The wife sought to cross-examine Dr H, however Dr H could not be contacted despite various attempts made by the husband’s solicitor.
Background
The husband is 47 years of age. He is a qualified tradesman and both established and ran his own business during the marriage. He is currently running J Pty Ltd (“J Pty Ltd”) which imports and supplies trade supplies to third parties.
The husband is generally in good health but deposes to having suffered from depression and stress since the separation. He also deposes that he suffers from a thyroid condition for which he receives ongoing treatment. Although there has been some dispute as to the nature of the husband’s thyroid condition and the relevance of that condition in relation to his decision to sell the business it is not in any event his case that it now precludes him from working.
The husband has a new partner. She is in employment and is financially independent.
The wife is 48 years of age. The wife worked in both of the family’s businesses during the marriage and it is her case that she was “primarily responsible throughout the marriage for the care welfare and development” of the four children which she said included “all cleaning, cooking, washing, ironing and maintenance of the inside and outside of the homes we lived in throughout the marriage.” The husband’s case is that he shared responsibility for the household and the children with the wife, subject to his availability.
In September 2009, after separation, the wife obtained part-time employment taking up full-time employment in 2011. The wife is currently employed as a receptionist earning approximately $587 net per week. The wife has recently completed a Diploma of Community Services. She is generally in good health although she, like the husband, deposes that she has suffered from stress, anxiety and depression and has sought counselling since separation.
The parties commenced a relationship in 1987 and were married and commenced cohabitation in 1988.
The parties have four sons who are 22, 21, 18 and 14 years of age respectively. The husband is estranged from the two eldest children who currently live with the wife. The parties’ third child is in the armed services and is independent of the husband and the wife. On 19 August 2011 final parenting orders were made by consent providing for the youngest child of the marriage, K to live with the wife and spend five nights per fortnight and half the school holidays with the husband.
At the commencement of cohabitation the husband had a 50 per cent interest in a holiday house at L Town with a friend worth between $50,000 and $60,000. The husband subsequently purchased his friend’s interest in the property and borrowed money to renovate the kitchen and bathroom. The wife owned a motor vehicle. The parties had no other assets of significance.
In the early stages of the marriage the husband was a Victorian public servant. He was diagnosed with cancer of the thyroid and had a thyroidectomy in 1996. The husband left the public service in 1998 and the parties moved to Queensland where the husband returned to work as a tradesman. Shortly thereafter they established a business. In 2000 after that business failed the husband returned to Melbourne to take up employment with M Pty Ltd and was followed by the wife and the children at the end of the school year.
In 2003 the husband established a business called N Pty Ltd. He later changed the name of the business to O Pty Ltd (“O Pty Ltd”). The business had a particular trade speciality. In or about 2008 the husband established J Pty Ltd. O Pty Ltd carried out the work and J Pty Ltd was established to purchase and supply the materials used by O Pty Ltd.
The husband’s evidence is that in late 2011 he decided that it would be advisable to sell the business O Pty Ltd. He instructed his solicitor to advise the wife’s solicitor that he intended to sell O Pty Ltd and, although the wife later disputed the need to sell that business, it is common ground that she was kept advised of matters relevant to the sale and she raised no objection to the proposed sale. It is the husband’s case that he sold the business because of a combination of factors, including that he was suffering continuing stress and anxiety not only as a result of the breakdown of the marriage, but also because of the pressures of the business and what he said were his concerns about the future financial viability of the business.
O Pty Ltd which was valued by Mr D, the single expert witness valuer, at $760,315 in his 15 February 2012 report was sold for $625,000 with settlement on 1 March 2012. According to Mr D the sale of the business left a range of assets and liabilities in the company and that the liquidation of the remaining assets would produce a further amount of $125,318 for the benefit of the family. This figure was not disputed nor was it the wife’s case that the business had been sold for less than its value. It was the wife’s case that the amount received was depleted to meet various expenses including rates for the former matrimonial home, mortgage payments and expenses arising from what the wife said was the husband’s failure to pay the mortgage pursuant to the orders, interim payments of $4,600 to the husband and the wife, the fees for the preparation of Prof C’s report, tax payable on the sale and the broker’s commission on the sale. It was also the wife’s case that the husband had taken monies out of the business which would have otherwise formed part of the property available for division. I have addressed these aspects of the wife’s case later in my reasons.
The husband’s mother died in 2005. Although both the husband and the wife relied upon a number of different figures in relation to the amount he inherited in their various affidavits and respective case outlines, I am satisfied on the basis of the figures put to the husband in cross-examination that the amount he inherited after payment of the bequests to the children of the marriage was $353,500.
In January 2007 the husband and the wife purchased the property at P Street, Suburb Q (“the Suburb Q property”) for $565,000. The property was registered in the wife’s name. The parties used some of the husband’s inheritance and borrowed $400,000 from the Commonwealth Bank to complete the purchase. The wife wishes to retain this property as part of her property settlement.
On 30 March 2010 orders were made by consent which provided inter alia as follows:
[3]. That the husband further pay the weekly sum of $600 by electronic transfer to the wife’s nominated account.
[4]. That until further Order, the husband pay or cause to be paid as and when they fall due and be solely liable for the following expenses (including any and all arrears):
(a)All mortgage payments in respect of [Suburb Q];
(b)All rates, taxes and insurances and any arrears thereof, (including home and contents insurance in respect of the [Suburb Q] property) at the level of cover which applied as at 10 August 2009;
(c)Family health insurance premiums for the wife and the children of the marriage:
(i)[R] born on … 1993 aged 16 years;
(ii)[K] born on …1997 aged 12 years;
(collectively, “the children”) at the level of cover which applied as at 10 August 2009;
(d)All payments in relation to all life insurance premiums in respevt (sic) of cover applicable as at 10 August 2009;
(e)All motor vehicle registration, third party and comprehensive insurance premiums, loan repayments and all necessary maintenance and repair costs in respect of the wife’s … motor vehicle registration number … but such maintenance and repair costs are limited to scheduled servicing and routine maintenance as per the car owners manual;
(f)All necessary repairs and maintenance costs in respect of the [Suburb Q] property but excluding renovation work or the completion of incomplete renovations;
IT IS NOTED:
(g)That upon the Court being satisfied pursuant to sections 116, 117(1) and 124 of the Child Support Assessment Act (the CSAA), the grounds for departure exist in the special circumstances of this case, and that it is just and equitable as regards to children, the husband and the wife, and otherwise proper to make Orders under Divisions 4 and 5 of the CSAA, pursuant to section 124 of the CSAA, the husband further pay until further Order child support for the children [R] and [K] otherwise than in the form of periodic amounts paid to the wife, and further that the husband pay or cause to be paid as and when they fall due the following expenses of and incidental to the care, welfare and development of [R] and [K]:
(i)All school fees and other related expenses including the extra curricular and sporting expenses for [R] at [S School] and for [K] at [T School];
(ii)School uniforms, including sports uniforms for each child and sporting requisite (sic);
(iii)Excursion and/or school camp fees or levies;
(iv)Sporting registration, participation and uniform fees;
(v)Books, stationary (sic), materials and text;
(vi)Computer requisites and/or levies;
(vii)School travel expenses;
(viii)Hospital, medical and dental and pharmaceutical expenses to the extent not covered by health insurance or Medicare rebates.
Legal Principles
The High Court has recently considered the operation of s 79 of the Act in Stanford v Stanford [2012] HCA 52 (‘Stanford’).
In Stanford French CJ, Hayne, Keifel and Bell JJ observed at paragraph 36 that “…while the power given by s 79 is not ‘to be exercised in accordance with fixed rules’, nevertheless, three fundamental propositions must not be obscured.” Those propositions are as follows:
First, it is necessary to begin consideration of whether it is just and equitable to make a property settlement order by indentifying, according to ordinary common law and equitable principle, the existing legal and equitable interests of the parties in the property. So much follows from the text of s 79(1)(a) itself, which refers to ‘altering the interests of the parties to the marriage in the property’ (emphasis in original). The question posed by s 79(2) is thus whether, having regard to those existing interests, the court is satisfied that it is just and equitable to make a property settlement order;
Second, although s 79 confers a broad power on a court exercising jurisdiction under the Act to make a property settlement order, it is not a power that is to be exercised according to an unguided judicial discretion……
Because the power to make a property settlement order is not to be exercised in an unprincipled fashion, whether it is ‘just and equitable’ to make the order is not to be answered by assuming that the parties’ rights to or interests in marital property are or should be different from those that then exist. All the more is that so when it is recognised that s 79 of the Act must be applied keeping in mind that ‘[c]ommunity of ownership arising from marriage has no place in the common law’. Questions between husband and wife about the ownership of property that may be then, or may have been in the past, enjoyed in common are to be ‘decided according to the same scheme of legal titles and equitable principles as govern the rights of any two persons who are not spouses’. The question presented by s 79 is whether those rights and interests should be altered.
Third, whether making a property settlement order is ‘just and equitable’ is not to be answered by beginning from the assumption that one or other party has the right to have the property of the parties divided between them or has the right to an interest in marital property which is fixed by reference to the various matters (including financial and other contributions) set out in s 79(4). The power to make a property settlement order must be exercised ‘in accordance with legal principles, including the principles which the Act itself lays down’. To conclude that making an order is ‘just and equitable’ only because of and by reference to various matters in s 79(4), without a separate consideration of s 79(2), would be to conflate the statutory requirement and ignore the principles laid down by the Act. ..
The fundamental propositions that have been identified require that a court have a principled reason for interfering with existing legal and equitable interests of the parties to the marriage and whatever may have been their stated or unstated assumptions and agreements about property interests during the continuance of the marriage.
The plurality went on to say at paragraph 42 that “in many cases where an application is made for a property settlement order, the just and equitable requirement is readily satisfied by observing that, as the result of a choice made by one or both of the parties, the husband and wife are no longer living in a marital relationship” and that:
It will be just and equitable to make a property settlement order in such a case because there is not and will not thereafter be the common use of property by the husband and wife. No less importantly, the express and implicit assumptions that underpinned the existing property arrangements have been brought to an end by the voluntary severance of the mutuality of the marital relationship. That is, any express or implicit assumption that the parties may have made to the effect that existing arrangements of marital property interests were sufficient or appropriate during the continuance of their marital relationship is brought to an end with the ending of the marital relationship. And the assumption that any adjustment to those interests could be effected consensually as needed or desired is also brought to an end. Hence it will be just and equitable that the court make a property settlement order. What order, if any, should then be made is determined by applying s 79(4).
In Stanford the plurality highlighted the need for the court to address two fundamental questions, that is whether pursuant to s 79(2) it is “just and equitable” to make an order and having determined that it is just and equitable to make an order having considered the relevant factors in s 79(4) what order it is appropriate to make in all of the circumstances of the particular case.
Although how the matters identified in s 79(4) should be dealt with was not directly considered in Stanford, arguably it is inherent in the identification of the two discreet lines of inquiry that what for many years has been described as the “four step” approach is not necessarily the approach the court should be taking and that as suggested by Murphy J in Watson & Ling [2013] FamCA 57 (‘Watson & Ling’) the approach may be less compartmentalised and is essentially “holistic”. Given the Act does not identify an order in which the matters should be considered or attribute any priority to the various matters in s 79(4), there is some obvious logic to the approach taken by Murphy J.
However, the plurality said nothing in Stanford which would suggest a departure from the principles in Norbis v Norbis (1986) FLC 91-712 as to whether the consideration of the matters in s 79(4) should be a global approach or on an asset by asset basis.
The Evidence
The relevant standard of proof I must apply in this case is the balance of probabilities. Section 140 of the Evidence Act 1995 (Cth) provides that, without limiting the matters the Court may taking account in applying that standard of proof, the Court must take into account:
(a) the nature of the cause of action or defence; and
(b) the nature of the subject–matter of the proceeding; and
(c) the gravity of the matters alleged.
For the purposes of reaching my decision in this case I have considered all of the evidence and had the benefit of observing the appearance and the demeanour of both the husband and the wife. Save and except for Dr H there were no other witnesses required for cross-examination and therefore the evidence of those other witnesses in the case is unchallenged. I have given careful consideration and make my findings having regard to all of the evidence, the nature of the proceedings, the seriousness of the allegations and the consequences that flow from my findings.
Generally speaking I found the wife a less persuasive witness than the husband. From what I both heard and observed her evidence was tempered by her distrust of and, what are clearly now quite negative, feelings towards the husband. Although I am satisfied she was not deliberately attempting to mislead the court she clearly found it difficult, cognisant of the likely impact of her evidence, to make concessions about evidence which she anticipated might be favourable to the husband’s case. The most striking example was her reluctance to concede that the husband had worked very hard building up the business and it made little sense in circumstances where her case had been put on the basis that he had been the primary breadwinner.
I found the husband on the other hand to be an open and forthright witness, conceding mistakes and clarifying aspects of his evidence even where he might open himself up to criticism for doing so. One example of this was when he pointed out errors in Mr O’Shannessy’s analysis of the income and expenses of J Pty Ltd and in particular which of those expenses were personal drawings.
Full and Frank Disclosure
It was submitted by counsel for the wife that I should find that the husband had not made full and frank disclosure of his financial circumstances. Mr O’Shannessy said that on that basis I should, in his words, “not be reluctant to be generous to the other party” and that on the same basis I should find that the husband was an unreliable witness. It was Mr O’Shannessy’s submission that the husband had in his affidavit of evidence in chief and financial statement made false statements about not working and not earning any income, which he said, coupled with the husband’s evidence about not being able to work as a tradesman because the wife had retained his tools, should lead me to the conclusion that the husband was an unreliable witness.
Pursuant to Rule 13.01 of the Family Law Rules 2004 (Cth) (“the Rules”) “each party to a case has a duty to the court and to each other party to give full and frank disclosure of all information relevant to the case, in a timely manner.” Rule 13.04 of the Rules provides as follows:
(1)A party to a financial case must make full and frank disclosure of the party’s financial circumstances, including:
(a) the party’s earnings, including income that is paid or assigned to another party, person or legal entity;
(b) any vested or contingent interest in property;
(c) any vested or contingent interest in property owned by a legal entity that is fully or partially owned or controlled by a party;
(d) any income earned by a legal entity fully or partially owned or controlled by a party, including income that is paid or assigned to any other party, person or legal entity;
(e) the party’s other financial resources;
(f) any trust:
i. of which the party is the appointor or trustee;
ii. of which the party, the party’s child, spouse or de facto spouse is an eligible beneficiary as to capital or income;
iii. of which a corporation is an eligible beneficiary as to capital or income if the party, or the party’s child, spouse or de facto spouse is a shareholder or director of the corporation;
iv. over which the party has any direct or indirect power or control;
v. of which the party has the direct or indirect power to remove or appoint a trustee;
vi. of which the party has the power (whether subject to the concurrence of another person or not) to amend the terms;
vii.of which the party has the power to disapprove a proposed amendment of the terms or the appointment or removal of a trustee; or
viii.over which a corporation has a power mentioned in any of subparagraphs (iv) to (vii), if the party, the party’s child, spouse or de facto spouse is a director or shareholder of the corporation;
(g) any disposal of property (whether by sale, transfer, assignment or gift) made by the party, a legal entity mentioned in paragraph (c), a corporation or a trust mentioned in paragraph (f) that may affect, defeat or deplete a claim:
i. in the 12 months immediately before the separation of the parties; or
ii. since the final separation of the parties; and
(h) liabilities and contingent liabilities.
The obligation to provide full and frank disclosure is absolute and its implications can be significant to the outcome of a case. As the Full Court said in Kannis and Kannis [2002] FamCA 1150 at paragraph 51 (‘Kannis’):
Whether the non-disclosure is wilful or accidental, is a result of misfeasance, or malfeasance or nonfeasance, is beside the point. The duty to disclose is absolute. Where the Court is satisfied the whole truth has not come out it might readily conclude the asset pool is greater than demonstrated. In those circumstances it may be appropriate to err on the side of generosity to the party who might be otherwise be seen to be disadvantaged by the lack of complete candour.
The approach the Court should take when it finds that one of the parties has failed to comply with his or her obligation of full and frank disclosure has been addressed by the Full Court on many occasions. In Gould and Gould (2007) FLC 93-333 the Full Court, having reviewed the earlier authorities, said at paragraph 27 as follows:
Rather the appropriate approach for his Honour to have adopted in this case would have been to have increased the asset pool to take account of non-disclosure by the husband…Alternatively, or even in addition, had his Honour been persuaded that on the balance of probabilities there existed assets other than those contained in the asset pool contained in his reasons, his Honour could have made some adjustment in favour of the wife on account of the husband’s non-disclosure pursuant to the provisions of s 75(2)(o), as did Holden CJ in Kannis.
The basis of the submission made by counsel for the wife that the husband had not provided full and frank disclosure was that the husband had deposed that he “was presently not working” and that “I have no present income”. It was submitted by Mr O’Shannessy that it had been put to the husband that he had contrived to make it look like his income was less than it was, that he had been given the opportunity in cross-examination to clarify his evidence but that he had failed to disclose the reality of his financial position voluntarily, leaving it up to counsel, doing the best he could on the basis of bank statements produced by the husband shortly before the trial, to elicit the true financial position. The bank statements upon which this analysis was based were for the business account operated by J Pty Ltd.
On my reading of the husband’s affidavit that statement of the husband’s evidence is taken out of context. The whole of that paragraph 3 of his trial affidavit read as follows:
That I am a [tradesman] by qualification but I am presently not working. I had hoped that with the conclusion of these proceedings I would be able to establish a small business as a self-employed [tradesman] but the proceedings have been adjourned on several occasions so my financial position is unknown. I have no capital to enable me to commence a business. I was completely burnt out after the sale of the previous business and have not sought employment as a [tradesman]. I accept that I have the capacity to continue to work as a [tradesman] even though I am presently not working. My ability to continue to work has been severely restricted by the [wife] failing to provide me with the tools which were stored at the former matrimonial home in which she has retained. I have not been able to purchase replacement tools as a result of my financial circumstances. I have no present income.
I am satisfied that this evidence relates to the husband’s employment as a tradesman. I am confirmed in this view by the next paragraph of that same affidavit where the husband goes on to say:
That with the sale of the business, [O Pty Ltd], one of the conditions of the sale was that I would continue to operate an ancillary business known as [J Pty Ltd]. [J Pty Ltd] supplies particular … equipment to [O Pty Ltd]. I have continued to operate this business, as I must pursuant to the contract, for a period of 2 years to March 2014, but the profit from this business has been far less than….the projected cash flow from [J Pty Ltd] is less than anticipated.
It is clear that at least for the purposes of his evidence in chief he distinguished between income from his plumbing business and income from J Pty Ltd. He did not say that J Pty Ltd had not earned any income or that he did not earn income from J Pty Ltd, in fact his evidence was to the contrary. Apart from his affidavit of evidence in chief in which he deposed that the projected cash flow had been less than anticipated when he swore his financial statement on 24 October 2012, he deposed to having income of $185 per week.
The husband was asked a number of questions about this issue in cross-examination as follows:
MR O’SHANNESSY: You say, “I was completely burnt out after the sale of the previous business and have not sought employment as a [tradesman].” Is that true?
[MR HARPER]: That’s true.
MR O’SHANNESSY: Yeah. “I accept that I have the capacity to earn as a [tradesman] even though I am presently not working.” Is that true?
[MR HARPER]: That’s true.
MR O’SHANNESSY: Is it still true?
[MR HARPER]: “I accept that I have the capacity to earn as a [tradesman] even though I am presently not working.” That’s, I still, I accept that I have the capacity to earn as a [tradesman], yes that’s true.
MR O’SHANNESSY: But I want to know the second bit: “even though I’m presently not working”. Are you presently not working?
[MR HARPER]: I’m working about one day a week on [J Pty Ltd].
MR O’SHANNESSY: And that, in terms of [J Pty Ltd], that never ceased did it [Mr Harper]?
[MR HARPER]: Since the day it started?
MR O’SHANNESSY: Sorry, I apologise. Since the first of March?
[MR HARPER]: No, it never ceased.
MR O’SHANNESSY: That’s right. So however unwell you were you were able to run [J Pty Ltd]. Would you agree with that?
[MR HARPER]: Yes.
MR O’SHANNESSY: And you would agree, would you not, that last week Mr Henderson sent your solicitor a letter that asked for copies of the bank statements of all your bank accounts from 30 June up until the end of last week. Correct?
[MR HARPER]: Yes. I agree.
MR O’SHANNESSY: And on Friday, I believe, you provided by your solicitor in response to that request copies of the bank statements up to that time?
[MR HARPER]: That’s correct.
HER HONOUR: What was the date sorry?
MR O’SHANNESSY: Last Friday Your Honour, I apologise. But it was your position, [Mr Harper], not to provide the bank statements until they were asked for by [Ms Harper], wasn’t it?
[MR HARPER]: It was, I’m just trying to get my head around the question. It was my position?
MR O’SHANNESSY: I’ll withdraw the question, I’ll put it another way. Why did [Ms Harper] have to wait for her solicitor to ask for the bank statements for you to provide them? Why wouldn’t you just say, “hang on, you’ll need those up-to-date bank statements”?
[MR HARPER]: I didn’t see, I didn’t expect that that’s what they wanted. I didn’t know that they would want them until they asked for them and as soon as they did they were provided.
MR O’SHANNESSY: Because the moment that we see those bank statements, particularly in regard to [J Pty Ltd], that it’s false to say that you’re not working and you have no income isn’t it?
[MR HARPER]: I’ve already said that it’s changed since the affidavit was prepared. I agree.
MR O’SHANNESSY: And you’ve also said that it didn’t change since the first of March, [Mr Harper].
[MR HARPER]: No, what you said to me was it didn’t cease trading since the first of March.
MR O’SHANNESSY: You didn’t stop working with [J Pty Ltd]?
[MR HARPER]: No, I couldn’t.
MR O’SHANNESSY: That’s right. No one else runs [J Pty Ltd], it’s only you.
[MR HARPER]: That’s right.
Although the husband did say that his circumstances had changed some weeks prior to the trial, the series of questions put to the husband by Mr O’Shannessy were predicated on the husband having deposed to not working and having no income, whereas I am satisfied that that was not the case. The husband’s answer to the question that he had continued to operate J Pty Ltd after the sale of O Pty Ltd, therefore he could not say that he had not been working, was that he had to keep running J Pty Ltd. That is exactly what he deposes to in his affidavit of evidence in chief. In those circumstances it is not correct as submitted by Mr O’Shannessy that the exercise of taking the husband through the bank statements produced by the husband at the request of the wife’s solicitor the Friday before the commencement of the trial had demonstrated that the husband’s evidence about not working and not earning any income was false. What those bank statements demonstrated was J Pty Ltd’s level of income and expenditure during the relevant period in circumstances where the husband had deposed to and reiterated in cross-examination that he had continued to operate J Pty Ltd because he was contractually committed to do so.
It was not submitted that the husband had failed to provide documents to the single expert or for that matter had failed to produce the bank statements used for the purposes of this aspect of cross-examination when called upon to do so. Rather it was argued that it should not have been necessary for the wife’s solicitor to have to ask for those documents, and that it should not have been necessary to go through the process during the course of cross-examination of analysing the bank statements to establish the husband’s true financial position between July 2012 and the hearing in February 2013. Although that analysis did provide a more detailed picture of exactly what the husband was earning, it was not necessary for the purposes of demonstrating that he was working when he said he was not because that was not his evidence.
The consequences of a finding that a party has failed to provide full and frank disclosure are serious, as is a finding as to the credit of a witness. At its highest, the husband did not until asked to do so provide up-to-date bank statements for J Pty Ltd. However, I am not satisfied in those circumstances that I should find that the husband has generally failed to provide full and frank disclosure or that that would lead me to conclude that the whole truth has not come out, and that in those circumstances I should err on the side of generosity in favour of the wife.
Although there is some force in what Mr O’Shannessy submitted about the husband’s evidence regarding not being able to work because the wife had not returned his tools to him, I am not satisfied on the basis of that evidence or the evidence with respect to his income that I should find that the husband was not a reliable witness. To the contrary, as I have already found, my impression of the husband in the witness box, as I put to Mr O’Shannessy, was of a surprisingly forthright witness.
Parties’ Positions with Respect to the Property
The parties agreed upon the divisible property save for a number of exceptions, as follows:
Asset
Husband’s Value
Wife’s value
Suburb Q property
$750,000
$750,000
Remaining proceeds of sale of O Pty Ltd (not including interest)
$371,000
$375,476
J Pty Ltd
$35,300
$35,300
Motor vehicle
$20,000
$20,000
Add Backs
Husband’s legal fees
Nil
$115,740
Money wasted by the husband
Nil
$139,000
Total Assets
$1,176,300
$1,435,516
Liabilities
Mortgage secured over Suburb Q property
$380,000
$380,000
Arrears of school fees
Not Known
Nil
Husband’s outstanding taxation liabilities
Not Known
Nil
Total Liabilities
$380,000
$380,000
Superannuation
Husband’s superannuation
$99,600
$99,600
Wife’s superannuation
$38,000
$52,830
TOTAL PROPERTY
$933,900
$1,207,946
The husband has superannuation entitlements of $99,600 and I accept the wife’s figure as to her entitlements of $52,830, giving a total of $152,430 superannuation. The parties agree that I should make orders splitting the husband’s interest in favour of the wife, albeit in different proportions. It is the husband’s case that there should be two separate pools and that it would be appropriate to split the combined superannuation on a 50/50 basis. The wife’s case is that the superannuation should be dealt with in the same manner as the other property and divided in the same proportions.
There was no evidence other than a general assertion as to there being arrears of school fees or in relation to the husband’s taxation liabilities in support of the inclusion in the balance sheet in his outline of case of arrears of school fees or his taxation liabilities. In the absence of any evidence to the contrary it seems likely that the husband has had the benefit of the income and in those circumstances he should be liable for any tax that is payable. It was also part of the husband’s case that although he did not continue to make all of the payments pursuant to the orders made 30 March 2010 that he did continue to pay school fees for the youngest child. In all of the circumstances I do not propose to take them into account.
The husband’s case was that the remaining proceeds of sale were approximately $371,000 plus interest. The figure the wife relied upon for the purposes of her case outline was $375,476 which she said after adjustment should be $381,966. It is not clear from the evidence how that figure was calculated, whether it included interest or upon what basis it was put that the figure should be “adjusted”. The remaining proceeds of sale of the business have been invested on behalf of the parties by the husband’s solicitor and are earning interest. The proceeds of sale have also been used to meet mortgage repayments. The balance therefore fluctuates. I have included the figure of $371,000 on the basis that the husband’s solicitor is likely to have had the most up to date figure and that orders can in any event be made to take into account any fluctuation in the balance of that account as a result of any interest that is earned and any mortgage payments that have been made.
Add Backs
It was submitted on behalf of the wife that there should be two add backs to the pool of assets available for division between the parties or, in the alternative, having regard to the case of Stanford, that they be taken into account in the assessment of the parties’ contributions or pursuant to s 75(2)(o) of the Act.
It is generally accepted that what used to be described as the first step of the “four-step process” identified in Hickey and Hickey (2003) FLC 93-143 was to identify and value the property of the parties to the marriage as at the date of the hearing, the exception being what are commonly referred to as add backs to the asset pool.
In Omacini & Omacini (2005) FLC 93-218 the Full Court identified three categories of add backs as follows:
i.Where money has been spent by either or both of the parties on legal fees;
ii.Where there has been a premature distribution of the property of the parties; and
iii.In the circumstances described by Baker J in Kowaliw & Kowaliw (1981) FLC 91-092 at 76,644:
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.
Albeit that the Full Court has repeatedly emphasized, even before Stanford, that add backs should be an exception rather than the rule, there are very few property cases where there is not some argument about potential add backs. As Murphy J said in Kouper v Kouper (No 3) [2009] FamCA 1080 (‘Kouper’) at paragraph 107:
In the case of paid legal fees, that might, on the authorities, be understandable enough, particularly where, for example, it is clear that paid legal fees have come from funds or property otherwise potentially divisible between the parties. Leaving aside paid legal fees, however, it seems to me that, consistent with the authorities just referred to, an approach which starts with a proposition that the property of the parties should include add backs runs the risk of, jurisprudentially, putting the cart before the horse: add backs are the exception, not the rule.
Legal Fees
The first of those two amounts sought to be added back by the wife is the husband’s legal fees, which counsel for the wife submitted, based upon the subpoenaed documents was $115,740. That $115,740 figure included $17,300 paid to Meier D G, and counsel for the wife said that $17,300 figure had been obtained from the subpoenaed documents. However, during evidence the husband said that he had only paid $4,800 to Meier D G, being $12,500 less than what was asserted by the wife. Based on the husband’s evidence, the overall figure was reduced to $103,240. No explanation was provided by the husband as to the difference between the two figures and the best evidence in all of the circumstances would appear to be the figure disclosed in the documents subpoenaed from the husband’s previous solicitors. On that basis I accept that the figure should be $115,740.
The Full Court in Chorn & Hopkins (2004) FLC 93-204, having reviewed the earlier authorities, confirmed at paragraph 56 that “…while the treatment of funds used to pay legal costs remains ultimately a matter for the discretion of the trial Judge, in determining how to exercise that discretion, regard should be had to the source of the funds.” The Full Court went on to say at paragraphs 57 – 60 as follows:
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. Funds generated from assets or businesses to which the other party had made a significant contribution or has an actual legal entitlement may need to be looked at differently from other post-separation income or acquisitions.
Outstanding legal fees themselves are generally not taken into account as a liability.
If in the exercise of the discretion, it is determined that legal fees already paid should be taken into account as a notional asset, then normally any liability associated with the acquisition of the monies used to pay the legal fees should also be taken into account.
It was submitted on behalf of the husband that he had paid his legal fees from income and not capital prior to the sale of the business. The husband said it could not be correct, as submitted by counsel for the wife, that if a man is self-employed his legal fees are added back but if he is an employee his legal fees are not added back. The question is not whether the party in question is or is not self-employed, the question is whether, as the Full Court said in Chorn & Hopkins, the funds were generated from a business to which the other party has made a significant contribution or has an actual legal entitlement. The husband in this case has used funds generated from the business established and built up during the marriage, to which the wife has made a contribution and to which she has a legal entitlement. In all of the circumstances I am satisfied that justice and equity requires that the legal fees of $115,740 paid by the husband from income of the business post-separation should be added back to the pool.
Between 29 September 2009 and the hearing on 26 March 2013 the wife had been billed and paid costs of $254,937.22. The unbilled costs as at that date were $11,998.82 and her solicitor estimated his further costs to be $15,000 plus counsel’s fees. It was submitted by counsel for the husband that if I were to conclude that the husband’s legal fees should be added back to the pool, I should also add back the wife’s legal fees. The wife deposed in her affidavit filed 1 August 2012 that she had borrowed in excess of $250,000 from her family to meet living expenses and the costs of the proceedings. In her outline of case that figure was said to have increased to $286,500. The wife does not seek to have this debt taken into account as a debt of the marriage for the purposes of these proceedings.
It was submitted on behalf of the husband that the wife’s legal fees should be added to the pool but that the associated debt should not be taken into account because the husband had not conceded that it was a debt and the wife had not proved the existence of that debt. The husband did not take issue with the alleged debt in his trial affidavit nor was the wife cross-examined about it other than by general reference to that debt. I am satisfied on the balance of probabilities that the wife has used funds she has obtained from her family to meet her legal fees. There is some uncertainty in my mind, given the limited evidence in relation to this issue and the way in which the wife puts her case, whether the funds the wife obtained from her family were a gift or a loan and, if it is a loan, whether and upon what terms it will have to be repaid. If it were a loan the corresponding liability would equal those fees and if it were a gift there would in my view be no basis for that gift to be treated as a notional asset of the parties and available for division. The source of the funds used by the wife to pay her legal fees can be clearly distinguished from the source of the funds used by the husband to pay his legal fees and, on that basis, I am not satisfied that it would be just and equitable to add back the wife’s legal fees.
Other Add-Backs
In Kouper Murphy J, whilst acknowledging that ultimately it was a discretionary matter, reviewed the authorities and set out what he said those authorities indicated was the approach to be taken to add backs by reference to five questions:
(a)Is it contended that property (including money), that would otherwise be available for distribution between the parties if a s 79 order is made, has been dissipated with a consequential loss to the property otherwise potentially divisible between the parties at the date of trial?;
(b)If so, is it alleged that the dissipation of property was in respect of things other than what, in the particular circumstances of this particular marriage, can be classified as “reasonable living expenses”?;
(c)If it is asserted that any loss to the divisible property results from dissipation of property other than in respect of such expenses, why is it asserted that the result should be a sharing of that loss by the parties other than equally?
(d)If it is contended that this be the result, why should there be an add back (which brings to account, dollar for dollar, such past expenditure in current dollars) as distinct, for example, from there being an adjustment being made pursuant to s 75(2)(o)?; and
(e)How should either any “add back”, or adjustment pursuant to s 75(2)(o), be quantified?
The clear statement of principle in Stanford is that in order for the Court to determine whether it is just and equitable to make orders pursuant to s 79, it must first identify the existing legal and equitable interests of the parties in the property. As Murphy J said in Watson & Ling at paragraph 30, the concept of “‘notional property’ appears to run contrary to the thrust of the decision in Stanford”. Whilst justice and equity might require recognition of either the unfairness of the conduct of one of the parties, which arguably would apply to both the Kowaliw type situations or where there has been a premature distribution of property, as noted by Murphy J, that conduct could be taken into account pursuant to s 75(2)(o).
It is not yet clear how add backs will be approached as a result of Stanford. Mr O’Shannessy submitted that Stanford was not an add back case and that it would not preclude me from adding notional property to the pool. It is quite possible that that as a result of the decision in Stanford there will be little place for add backs in the assessment the Court must make of the parties’ legal and equitable interests. At the very least the decision in Stanford is likely to emphasise once again the exceptional nature of add backs.
The second add back sought by the wife is what her counsel described as waste by the husband from between 1 July 2009 to 31 December 2011 and caused by what he submitted was the husband’s “reckless huge post-separation increase in expenditure”, described in the wife’s outline of case to have been made “with ‘intentional or reckless disregard to the diminution of the asset pool’. The wife’s outline of case referred specifically to “substantial sums expended on overseas and interstate travel, motorcycles and road bikes”. Although there was lengthy and detailed financial analysis of the results of the business prior to its sale, ultimately the figure of $139,000, which the wife sought to have added back, was calculated on the basis of what was said to be the cash benefit the husband received from the business less what it was submitted I should find were his reasonable expenses. The wife calculated what she said were the husband’s reasonable expenses on the basis of his Financial Statement filed 26 March 2010 less a further allowance for mortgage payments of $700 per week, and less the sum of $115,740 which the husband applied to his legal fees. This analysis was set out in the wife’s case outline as follows:
Year Ending
30 June 2010Year Ending
30 June 2011Six months to
31 December 2011Cash taken
$278,697
$275,357
$138,805
Husband’s claimed expense at $2,221 per week
-$115,492
-$115,492
-$57,746
Mortgage paid at $700 per week
-$36,400
-$36,400
-$18,200
30 March 2010 at $600 per week
-$9,100
-$31,200
-$18,200
Waste/legal fees
$117,705
$92,265
$44,659
The Full Court said in M & M [1998] FamCA 42 at paragraph 2.11 that:
There seems to be no appropriate basis for notionally adding back monies that existed at separation but which have been subsequently spent on meeting reasonably incurred living expenses. Neither the Family Law Act nor the case law require that parties go into a state of suspended economic animation once their marriage breaks down pending the resolution of their financial arrangements. Parties are entitled to continue to provide for their own support. Whether any expenditure so incurred is reasonable or extravagant is a matter that can be determined by the trial judge.
In this case the add back is not sought in relation to funds that existed at separation, the add back is based upon income earned since separation which it is submitted would have formed part of the available property had the husband not spent it. Whilst it is income generated from a business in which the wife has an interest, it is the husband who has continued to operate and work in the business generating that income.
The first step is to consider the evidence upon which the wife relies in support of her case that funds she says the husband has wasted should be added back to the property that I must divide.
In his Financial Statement filed 26 March 2010, the husband deposed that his total personal expenditure was $2,221 per week. This included the following expenditure:
Income tax
$484
Rent
$348
Home and contents insurance premiums for Suburb Q
$22
Contents insurance premiums for U Street
$9
Comprehensive insurance for the wife’s car
$13
Motor vehicle registration
$12
Credit card repayments
$35
Other expenditure
$1,298
Total
$2,221
On 30 March 2010 the husband consented to orders for the support of the wife and the children. The husband’s evidence was that this maintenance package cost him in excess of $170,000 per annum and accounted to a significant extent for the increased cash paid from the business.
Mr O’Shannessy was critical of the husband’s evidence in relation to what he said the maintenance package had cost him and was particularly critical of what he said was the husband’s broad brush approach. However, at the heart of Mr O’Shannessy’s submission as to the husband’s waste was what he said was the husband’s obligation and, in this case, his failure to provide full and frank disclosure in relation to his real income. In summary, it was counsel’s submission that if the husband cannot be trusted in relation to the evidence of his income since separation, his evidence in relation to his expenditure is also not to be trusted. Counsel said that as a result I should err on the side of generosity in favour of the wife and find that the husband has embarked on a course of conduct designed to reduce or minimise the value of the asset pool or acted recklessly, negatively or wantonly with matrimonial assets so as to minimise their value. It was on that basis that counsel submitted that I should add back the amount sought by the wife.
As I have already found, I have some difficulty with this submission given the husband’s evidence that he was continuing to operate J Pty Ltd and the income he disclosed in his financial statement. Even if I were satisfied that the husband had failed to provide full and frank disclosure, I am not satisfied that would necessarily lead me to the conclusion I was urged to reach by Mr O’Shannessy. It is not enough that the husband may not have provided full and frank disclosure, there must be some evidence of the conduct envisaged by Baker J in Kowaliw.
Mr O’Shannessy’s analysis of the husband’s expenditure was based upon the expenditure in his financial statement plus the mortgage payments of $36,400 per annum and the periodic spousal maintenance of $31,200 per annum. Mr O’Shannessy conceded that he had not included the payments for the wife’s car. There was no evidence as to what those payments were, however Mr O’Shannessy submitted that they would be likely to be in the vicinity of $6,000 per annum. That would take the husband’s commitments, on the wife’s case, to $189,000 per annum.
I have some difficulty with Mr O’Shannessy’s submission as it assumes that the only additional expenses that the husband was required to meet after he consented to the maintenance order beyond those contained in his financial statement were the periodic spousal maintenance, the mortgage payments and the car payments. Although the husband’s financial statement does include expenses that he was ultimately required to pay pursuant to the order, there were other expenses such as rates and life insurance premiums that were not included in that financial statement. It is also clear that some of the expenses in the husband’s financial statement were expenses incurred when the children were in his care rather than the totality of the expenses referable to the sum he was required to make for their support pursuant to the orders. For example, the figure of $100 for children’s activities would not necessarily relate to all of the children’s activities as envisaged by the orders, and although the husband did allow for education expenses, it is not clear whether this includes any allowance for uniforms, books or school travel.
Although I found the husband to be a truthful witness, given the general nature of his evidence that all up the maintenance package cost him about $170,000 per annum, I am not able to make a specific finding as to the exact amount he paid for the wife and the children although I am satisfied that the payments the husband made for his own support and pursuant to the orders are likely to have exceeded the figure relied upon by Mr O’Shannessy in his analysis. On that basis, the amount the husband could be said to have had the benefit of to the exclusion of the wife would be less than the figure which was sought to be added back by the wife.
The evidence did not support the wife’s case that the husband expended substantial sums “on overseas and interstate travel, motor cycles and road bikes” or that there had been a “reckless huge post-separation increase in expenditure” made with “intentional or reckless disregard to the diminution of the asset pool”. However, I also cannot find that all of the husband’s expenditure was for reasonably incurred living expenses.
The evidence in this case demonstrates the difficulty of the mathematical exercise required to fix a figure if it were considered appropriate to include an add back as notional property. The Full Court has pointed out on many occasions that the determination pursuant to s 79 of the Act is not and should not be a mathematical exercise. There is also the problem of adding back an amount already expended in current dollar terms.
Ultimately, I am of the view that the maintenance package the husband consented to was not ungenerous. In circumstances where he was the person operating the business, having made proper provision for the wife and the children, at least until the sale of the business, even if add backs are appropriate post-Stanford this is not a case in which it would be just and equitable to do so. This does not preclude these matters being taken into account pursuant to s 75(2)(o) of the Act.
Husband’s Security Deposit
During the course of the husband’s evidence and in particular the analysis of his income and expenditure leading up to the hearing, it became clear that the husband paid a security deposit of $16,500 for the premises he is now living in. It was conceded that the husband may not recover all of that amount when he vacates the property and that it may not be readily accessible. I am nonetheless satisfied, subject to those matters to which I will have regard in reaching my decision as to what orders are just and equitable, that it is property of the husband and should be included in the property in relation to which the Court can make orders.
Property of the Husband and the Wife
On the basis of my findings, the property in relation to which orders might be made pursuant to s 79 is as follows:
| Asset | Joint | Husband | Wife | Total |
| Suburb Q property | $750,000 | |||
| Proceeds of sale of O Pty Ltd (not including interest) | $371,000 | |||
| J Pty Ltd | $35,300 | |||
| Motor vehicle | $20,000 | |||
| Husband’s legal fees | $115,740 | |||
| Husband’s security deposit | $16,500 | |||
| Total non-superannuation property | $371,000 | $167,540 | $770,000 | $1,308,540 |
| Liabilities | ||||
| Mortgage secured over Suburb Q | $380,000 | |||
| Net non-superannuation Property | -$9,000 | $167,540 | $770,000 | $928,540 |
| Superannuation | ||||
| Husband’s superannuation | $99,600 | |||
| Wife’s superannuation | $52,830 | |||
| Total superannuation | $99,600 | $52,830 | $152,430 |
Is it Just and Equitable to make an order?
Both parties sought orders for property settlement. It was submitted by Mr O’Shannessy in his closing address that this case falls clearly within what was described at paragraph 42 of Stanford as follows:
…the just and equitable requirement is readily satisfied by observing that, as the result of choice by one or both of the parties, the husband and wife are no longer living in a marital relationship. It will be just and equitable to make a property settlement order in such a case because there is not and will not thereafter be the common use of property by the husband and the wife. No less importantly, the express and implicit assumptions that underpinned existing property arrangements have been brought to an end by the voluntary severance of the mutuality of the marital relationship…
I am satisfied that in all of the circumstances of this case it would be just and equitable to make orders for property settlement.
Contributions
It was submitted by both parties and I am satisfied that their contributions during the marriage both as homemaker and parent and breadwinner were equal.
In this case the argument as to contributions focussed on two issues. Throughout the proceedings, both leading up to and during the hearing before me, there was ongoing dispute as to how the husband had applied the $353,500 that he inherited from his mother. By the conclusion of the case, it was conceded that the husband’s inheritance had been applied for the benefit of the family. The dispute was then one of what weight should be given to that inheritance as a contribution made by the husband.
It was submitted by Mr Weil for the husband that the parties’ contributions being otherwise equal, the husband should be entitled to an additional 10 per cent to 15 per cent on the basis of his inheritance. Mr O’Shannessy for the wife submitted that the 5 per cent adjustment proposed by the wife in her case outline “would be the very, very best it could possibly be given the size of the money” and that a 60/40 division “would be about right in a very long marriage”.
If I were to assess the husband’s contributions, allowing 10 per cent for his inheritance, the disparity between the parties’ respective positions, not including their superannuation entitlements, based upon their contributions during the marriage and having regard to the husband’s inheritance would be $205,708. I am satisfied, taking into account the length of the relationship, the amount of the husband’s inheritance, when it was received, how it was applied, and what it represents vis-à-vis the value of the property, that a 10 per cent allowance for that inheritance is appropriate in all of the circumstances.
Negative Contributions
The second issue with respect to contributions is what was described in the wife’s case outline as the husband’s “negative contribution”. If I, as Mr O’Shannessy submitted I should, added back the husband’s legal fees and his post-separation expenditure of $139,000 it was his submission that I should adjust the contributions by 10 per cent in favour of the wife because of the husband’s non-disclosure and what he described as the “post-separation broad conduct” of the husband. He submitted that if I did not add back either the husband’s legal fees or the sum of $139,000, that adjustment should be higher. Mr O’Shannessy did not address me as to the percentages I should apply if I did not include either add back or if I did, as I have done, added back the husband’s legal fees but not the further sum of $139,000.
The other aspect of what was described in the wife’s case outline as the husband’s negative contributions was what she said was his determination not to present at the final hearing with a business worth about $750,000 net and an annual income of $250,000 per annum. The wife submitted that as a consequence of that determination, the husband crystallised and/or incurred liabilities that would not otherwise have been incurred and further as a result of his diminished income he depleted the proceeds of sale to meet his ongoing commitments. It was also part of the wife’s case that as a result of the sale of the business the husband had failed to meet his maintenance obligations.
It was submitted on behalf of the wife that the evidence would not support a finding that the husband had sold the business because he suffered from clinical depression. Although I agree that the evidence would not support a diagnosis of clinical depression, in my view it is not necessary for the husband to justify that the sale of the business was for health reasons, particularly in circumstances where the business was sold for fair value and the wife was given notice of the proposed sale and did not object. Nor was this the basis upon which the husband said he had sold the business. It was the husband’s evidence that it was “for reasons associated with his health and also my assessment of the future financial position of the business, I decided it would be advantageous to sell the business”.
The evidence does not support a finding that the husband’s reasons for selling the business were not bona fide or that the husband sold the business to reduce or minimise the value of the property or acted recklessly, negligently or wantonly which has had the effect of reducing the value of the property, as outlined in Kowaliw. Even if he did, although the contributions of one party may be increased by the other party having failed to make the contribution that might otherwise be expected of them, so-called “negative contributions” should not be taken into account as part of the assessment of contributions pursuant to ss 79(4)(a), (b) or (c) of the Act (see Antmann and Antmann (1980) FLC 90-908).
Although I do not agree with Mr O’Shannessy’s submissions with respect to what he refers to as the husband’s negative contributions, I am satisfied however that since separation, and in particular since the sale of the business and as a direct result of the reduction in the husband’s income following that sale, the wife has made a greater contribution to the welfare of the family. That contribution includes having had to meet expenses that the husband was pursuant to the orders required to pay on her behalf or on behalf of the youngest child of the marriage. Those contributions were greater than she might be otherwise expected to have made had the business not been sold. In so far as some of the expenses associated with her support, the support of the youngest child and the maintenance of the home have been paid out of the proceeds of sale of the business, the wife has paid for at least half of those expenses.
I have assessed the parties’ contributions on a global basis and have considered their various contributions, both financial and non-financial, and their contributions to the welfare of the family. Taking into account the husband’s property at the commencement of the relationship, his inheritance and the wife’s contributions post-separation and subsequent to the sale of the business, I assess those contributions as to be 55 per cent to the husband and 45 per cent to the wife.
Section 75(2) Factors
Although I am attracted by what is described by Murphy J as the post-Stanford holistic approach, the parties in this case took the more traditional approach based upon an assessment of the contributions and an adjustment for the s 75(2) factors.
The husband and the wife are both aged in their late forties. Whilst they have both suffered from stress and anxiety and have sought counselling subsequent to the separation they are generally in good health.
The wife is employed full-time as a receptionist and earns $581 net per week. The youngest child of the marriage lives with the wife and spends substantial time with the husband.
The husband’s current income was analysed in great detail and is minimal compared to the income he earned from the business. I am satisfied that from the beginning of July 2012 until the hearing the husband’s personal drawings from the business, including an allowance for rent, were approximately $40,000. Although it is not possible to put a figure on what the husband is likely to earn in the future I am satisfied, as was conceded by counsel on his behalf, that after a reasonable period he will be back on his feet and will earn more than the wife. Given his work and business history it is likely to be substantially more than the wife can earn.
I have had regard to the child support the husband has paid since separation and the child support that he will have to pay going forward as a result of the orders I propose to make.
Counsel for the wife submitted that I should either add back the figure of $139,000 or that I should make an adjustment in favour of the wife pursuant to s 75(2)(o) of the Act. Section 75(2)(o) provides that one of the matters I must take into account is “any fact or circumstance which, in the opinion of the court, the justice of the case requires be taken into account”.
I was not satisfied that it was appropriate to make the add back sought by the wife for the husband’s expenditure post-separation. Although I found that the husband’s expenditure exceeded the amount attributed to him by the wife, I could not make findings on the basis of the evidence before me as to the exact amount of that expenditure. Doing the best I can on the evidence before me I am satisfied on the balance of probabilities that the husband had access to funds from the business which were in excess of what he required for his reasonable needs and to meet his obligations pursuant to the order and that justice and equity in this case requires that it be taken into account pursuant to s 75(2)(o).
Counsel for the husband submitted that having allowed an additional 10 per cent on contribution for his inheritance there was what he said was a certain inevitability about a 50/50 split which would be based upon an adjustment of 10 per cent in the wife’s favour, taking into account the s 75(2) factors. Counsel for the wife submitted that having regard to the disparity in incomes, a 10 per cent adjustment would be just and equitable albeit that was based upon there having been both add backs and a 10 per cent adjustment in favour of the wife as a result of the husband’s negative contributions. Whilst I have allowed the wife a further 5 per cent for her contributions since separation and in particular since the sale of the business I am satisfied that a further adjustment of 12.5 per cent would be appropriate, to take into account the disparity in their respective income earning capacities, the wife’s greater responsibility for the child of the marriage under the age of 18 in her care and having regard to the benefits received by the husband from the business following separation. The end result being a 57.5 per cent split in the wife’s favour.
The end result is that the wife would retain the Suburb Q property subject to the mortgage, assuming that she elects to do so, her Calais motor vehicle, and the sum of $143,910 from the proceeds of sale of the business. Any amount above the $371,000 that I have included that has accrued is to be divided in the same proportions as the other property or if the balance is now less than $371,000 the amount the wife is to receive should be reduced in the same proportions. The husband will retain the balance of the proceeds of sale of the business in the sum of $227,090, J Pty Ltd and his security deposit. The husband has also had the benefit of $115,740 applied to his legal fees.
Superannuation
The parties’ superannuation entitlements are relatively modest and in those circumstances a 7.5 per cent percentage difference between the parties’ interests is similarly relatively modest. I have found that the husband has a greater income earning capacity and it follows that going forward he is likely to be able to make greater provision for his retirement than the wife. In those circumstances, I am satisfied that it would be just and equitable to split the superannuation entitlements in the same proportions as the non-superannuation property, being 57.5 per cent in favour of the wife. The wife on that basis is entitled to a split of $34,817.25. That split would see the wife retain $87,647.25, being her current superannuation valuation of $52,830, plus the split of $34,817.25. The split would leave the husband with superannuation entitlements of $64,782.75.
Justice and Equity
I have taken into account the fact that if the wife is required to repay what she says is a loan from her family, it may be difficult for her to keep the Suburb Q property. It is a five bedroom home and although the wife’s evidence is that she wishes to retain the property so that she has room for those of the children not living at home when they visit, that is just one of the matters I must consider.
The husband’s case on the other hand is that he requires funds to invest in his business and I have confidence on the basis of his evidence that he believes that in time he will rebuild his business. On the basis of the orders I propose to make he will have the funds he needs to invest in his business. To that extent the orders I propose to make are likely to effect, in a positive way, the husband’s income earning capacity. They are unlikely to have any effect upon the wife’s capacity to earn income.
The wife has had the use of the Suburb Q property since separation and to the exclusion of the husband since August 2009, and throughout the proceedings has put her case on the basis that she wishes to retain the property. However her case was also put on the basis of there being add backs to the pool of property in addition to the husband’s legal fees which I have determined should be added back and on the basis that she should receive a greater proportion of that pool.
The orders I propose to make will give the wife the opportunity to retain the Suburb Q property but will also provide for a sale of that property in the event that she is unable or no longer wishes to retain the property. I do not consider however that the husband should be required to wait for payment of his entitlements in circumstances where the wife continues to occupy the property and has put her case on the basis that she wishes to retain the property. On that basis I propose that the husband be paid the sum of $227,090 out of the net proceeds of sale of the business and the orders will otherwise make provision for any adjustment that might be necessary out of the proceeds of sale of Suburb Q.
I am satisfied that the proposed division of the property and the orders are in all of the circumstances of this case just and equitable.
Child Support
The husband has been assessed to pay child support for the youngest child of the marriage, K, who is now 15 and a half years of age, in the sum of $1,302.25 per month. This is based upon the husband receiving an income of $261,902 per annum. According to that assessment the husband’s income represented 97.1 per cent of the combined incomes of both the husband and the wife. The child lives with the wife and spends substantial time with the husband.
The husband seeks, and it is conceded by the wife, that there should be a departure from that assessment, although they each seek a different outcome.
The wife in her case outline seeks a departure so that the husband pays:
a)All school fees and other related expenses including all extra curricular and co-curricular and sporting expenses for K at T School;
b)All school uniforms, including sports uniforms and sporting equipment requirements for K;
c)All costs and expenses of and incidental to K’s exchange program participation in 2013 in Spain;
d)All further or other excursion and/or school camp fees or levies;
e)All sporting registration, participation and uniform fees;
f)All books, stationery, materials and text;
g)All computer requisites and/or levies;
h)All school travel expenses;
i)All hospital, medical and dental and pharmaceutical expenses to the extent not covered by health insurance or Medicare rebates;
j)All guitar and/or other music tuition expenses; and
k)The further sum of $250.00 per week to the Wife.
The wife’s proposal was not quantified and was proposed to be until further order.
The husband for his part proposed that he pay the child’s tuition fees, uniforms and books. His case was that he had been paying the fees which amount to approximately $138 per week.
Neither party focussed on this issue. Although I have the evidence of what the husband was earning leading up to the trial, it is also submitted that his income is likely to improve and once he receives his share of the proceeds of sale of the business there will arguably be nothing stopping him from either building up his business or alternatively working as a tradesman.
The wife’s evidence of her income and expenses was not the subject of challenge. The mortgage payments have until now been paid out of the proceeds of sale of the business and once these proceedings are concluded the wife will be responsible for those payments. This will have a significant impact upon the wife’s financial circumstances, albeit there may be some force to the submission that she does not require a five bedroom home.
Both parties want the child to continue at his present school, however I am conscious of the financial impact of this decision, particularly upon the wife. The husband has been paying those school fees since separation and more importantly since the sale of the business, notwithstanding the significant reduction in his income. I have some confidence on the basis of his evidence of the likely increase in his income that he can continue to pay the tuition, uniforms and books and that he should be able to afford to make a periodic payment of $100 per week to the wife.
Doing the best I can on the evidence I have in relation to this issue I am satisfied that on the basis of the current income and expenses of the husband, his capacity to earn income, the income and expenses of the wife and the child and the parties’ desire to continue the child’s education at his current school, that there are special circumstances which justify a departure from the current assessment and that is it just and equitable and otherwise proper to make an order requiring the husband to pay for the child’s tuition, uniforms and books. I am satisfied having regard to the parties’ respective incomes and income earning capacities, their needs and those of the child, that the order I propose is just and equitable and otherwise proper in all of the circumstances.
Although I do have some confidence on the basis of my observations of the husband and his evidence that he has the capacity to earn significantly more than he is currently earning it is not possible to find with any certainty how much the husband is likely to earn. Given that uncertainty about the husband’s income earning potential I am not satisfied that there should be a departure from the assessment for a period of more than 12 months notwithstanding that a longer period would give the parties the benefit of greater certainty. A departure for a limited period will protect both the wife in the event that the husband’s income increases significantly and the husband in the event that it does not.
The Proposed Orders
The orders proposed by the wife with respect to the property were that the parties abide by the recommendations of the single expert witness Mr D as to the implementation of the proposed division of the property. I have Mr D’s report in evidence and doing the best I can on the basis of that report the orders I propose to make, subject to any submissions as to form and subject to proof that the trustee of the husband’s superannuation fund has been afforded procedural fairness, are as follows:
1. O Pty Ltd and J Pty Ltd be joined as parties to the proceedings.
2. On or before 16 August 2013 the wife advise the husband in writing as to whether she proposes to retain the property at P Street, Suburb Q.
3. In the event that the wife elects to retain the Suburb Q property and within 14 days of her electing to do so O Pty Ltd and/or J Pty Ltd pay the net proceeds of sale of the business to the husband and the wife as follows:
a)To the husband the sum of $227,090 and 42.5 per cent of any amount in excess of $371,000 or if the balance of the net proceeds of sale are less than $371,000 less 57.5 per cent of the difference between the sum of $371,000 and the balance of the net proceeds of sale of the business as at the date of payment; and
b)The sum of $143,910 and 57.5 per cent of any amount in excess of $371,000 or if the balance of the net proceeds of sale are less than $371,000 less 42.5 per cent of the difference between the sum of $371,000 and the balance of the net proceeds of sale of the business as at the date of payment..
4. Contemporaneously with the payment in paragraph 3 hereof the wife do all acts and things and sign all necessary documents to transfer her shares in O Pty Ltd, J Pty Ltd and V Pty Ltd to the husband.
5. The wife be liable for and indemnify the husband and pay as they fall due all mortgage payments with respect to the Commonwealth Bank mortgage secured over the property at P Street, Suburb Q in the State of Victoria and contemporaneously with the payments referred to in paragraph 3 herein the wife do all acts and things and sign all necessary documents required to discharge the said mortgage.
6. In the event that the wife elects not to retain the Suburb Q property the property be forthwith sold altogether out of Court (“the sale”) upon the following terms:
a)The real estate agent appointed for the sale shall be as agreed between the parties, and in the absence of agreement, to be nominated by the President of the Real Estate Institute of Victoria or his or her nominee; and
b)Upon such terms and conditions and at a reserve price to be agreed by the parties and in default of agreement, to be fixed by the agent appointed for the sale as agreed or nominated by the President of the Real Estate Institute of Victoria or his or her nominee;
7. Upon completion of the sale, the proceeds of the sale be applied:
a)first, to pay all costs, commissions and expenses of the sale;
b)second, to discharge the mortgage and any other encumbrance affecting the real property;
c)third, the balance to be distributed as follows:
i. 57.5 per centum to the wife plus the sum of $157,251 to be paid to the wife out of the husband’s share of the net proceeds of sale; and
ii. 42.5 per centum to the husband less the sum of $157,251 to be paid to the wife out of the husband’s share of the net proceeds of sale of the property.
8. Pending completion of the sale of the Suburb Q property:
a)The wife have the sole right to occupy the property;
b)The wife pay all instalments pursuant to the mortgage and all rates, taxes and outgoings of the property as they fall due; and
c)Neither party encumber or further encumber the property without the consent in writing of the other party or prior order of the Court.
9. In the event that the wife elects not to retain the Suburb Q property and within 14 days of her electing not to do so O Pty Ltd and/or J Pty Ltd pay the net proceeds of sale of the business to the husband and the wife as follows:
a)To the husband the sum of $227,090 and 42.5 per cent of any amount in excess of $371,000 or if the balance of the net proceeds of sale are less than $371,000 less 57.5 per centum of the difference between the sum of $371,000 and the balance of the net proceeds of sale of the business as at the date of payment; and
b)To the wife the sum of $143,910 and 57.5 per centum of any amount in excess of $371,000 or if the balance of the net proceeds of sale are less than $371,000 less 42.5 per centum of the difference between the sum of $371,000 and the balance of the net proceeds of sale of the business as at the date of payment.
10. That husband and the wife be equally and jointly responsible for any taxation liability which may arise as a result of the implementation of these orders.
11. Paragraphs 12 to 16 of these Orders are binding on the Trustee of W (“the Fund”)
12. The base amount of $34,817.25 be allocated to the wife out of the interest of the husband in the Fund.
13. Pursuant to s 90MT(1)(a) of the Family Law Act 1975 (“the Act”), whenever a splittable payment becomes payable in respect of the superannuation interest of Mr Harper in the Fund, the wife shall be entitled to be paid an amount calculated in accordance with the Family Law (Superannuation) Regulations 2000 (Cth) (“the Regulations”), using the base amount and there is a corresponding reduction in the entitlement of the person to whom the splittable payment would have been made but for this order.
14. Order 13 has effect from the operative time.
15. The operative time for the purposes of Order 14 is four (4) business days after the date of service of these Orders upon the Trustee of the Fund.
16. That until the happening of any of the following:
a)The superannuation split to the wife pursuant to these Orders be rolled over into a separate account in the name of the wife in the Fund; or
b)The transfer or roll-over of the payment split into another superannuation fund nominated by the wife;
the husband be and is hereby restrained by himself his servants or agents from executing a death benefit nomination in favour of any person or doing any other act which would render any part of his interest in the Fund a “non-splittable payment” within the meaning of reg 12 or 13 of the Regulations.
17. That unless otherwise specified in these orders and save for the purposes of enforcing any monies due under these or any subsequent orders:
a)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 as at the date of these orders;
b)Each party forgo any claims they may have to any superannuation benefits belonging to or earned by the other;
c)Insurance policies remain the sole property of the beneficiary named therein;
d)Each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to these orders; and
e)Any joint tenancy of the parties in any real or personal estate is hereby expressly severed.
18. That upon the Court being satisfied pursuant to sections 116, 117(1) and 124 of the Child Support (Assessment) Act 1989 (Cth) (“the CSAA”), that grounds for departure exist in the special circumstances of this case, and that it is just and equitable as regards to the child, the husband and the wife, and otherwise proper to make orders under Divisions 4 and 5 of the CSAA, pursuant to section 124 of the CSAA, that for the period 1 July 2013 to 1 July 2014 there be a departure from the assessment of child support issued 5 December 2012 and that during the said period and in lieu of the assessment the husband pay by way of periodic and non-periodic payments of child support the following:
a)Periodic payments of $100 per week. The first payment to be made on 1 August 2013 calculated in arrears from 1 July 2013; and
b)Tuition fees, uniforms and books for the child K at T School or such other school as may be agreed by the parties.
19. That the payments by the husband count for 100 per cent of his assessed child support liability for K.
I certify that the preceding one hundred and eighteen (118) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Macmillan delivered on 19 July 2013.
Associate:
Date: 19 July 2013
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