Hobbs and Severs - [2007] FMCAfam 84

FEDERAL MAGISTRATES COURT OF AUSTRALIA

HOBBS & SEVERS

[2007] FMCAfam 84

FAMILY LAW – Property – property pool – use of joint funds after separation for construction of matrimonial home – lack of documentation – add backs – valuation of miscellaneous assets – contributions pre and post separation – section 75(2) factors – earning capacity – responsibility for children.

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

Chorn and Hopkins (2004) FLC 93-204
Kardos v Sarbutt (2006) 34 Fam LR 550
Omacini and Omacini (2005) FLC 93-218
Townsend and Townsend (1995) FLC 92-569

Applicant:

CINDY MERIKA HOBBS

Respondent:

JASON PAUL SEVERS

File Number:

CAM 1930 of 2004

Judgment of:

Mowbray FM

Hearing dates:

6 and 7 February 2006 and 19 May 2006

Date of Last Submission:

19 July 2006

Delivered at:

Canberra

Delivered on:

6 March 2007

REPRESENTATION

Counsel for the Applicant:

Mr I Nash

Solicitors for the Applicant:

McGuiness Eley

Counsel for the Respondent:

Mr G Brzostowski SC

Solicitors for the Respondent:

KJB Law

ORDERS

Within 21 days of these orders, each party take all necessary steps to have the proceeds of the sale of the former matrimonial home currently in trust distributed between the parties as follows:
(a)payment to the wife in the sum of $224,780;
(b)payment to the husband in the sum of $102,220.
Any interest that has accrued on the monies held in trust be distributed 69 per cent to the wife and 31 per cent to the husband.
The husband discharge all child support arrears within 7 days of distribution of the trust monies.
The motorbike and bogie trailer be sold with 65 per cent of the net proceeds to be distributed to the wife and 35 per cent to the husband.
The parties share equally all costs associated with the winding up of J & C Contractors Pty Ltd by Rangott & Slaven.
Except as otherwise specified in these orders, each party be solely entitled to any interest in property, including any chattels, superannuation and choses in action, held in the name of that party.
Each party have liberty to apply on seven days notice on matters concerning the implementation of these orders.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
CANBERRA

CAM 1930 of 2004

CINDY MERIKA HOBBS

Applicant

And

JASON PAUL SEVERS

Respondent

REASONS FOR JUDGMENT

This matter commenced as a dispute between the parties on parenting orders for their three children and the distribution of their property interests. The wife filed an application on 1 February 2005 for alteration of property interests and for parenting orders.
I made consent orders on 6 February 2006 on the parenting issues. These were supplemented by orders on 16 February 2006 covering the costs associated with the time the children spend with their father.
At the hearing the wife sought a payment of $285,000. She said that this amounted to a 68/32 distribution in her favour. The husband wants a 65/35 distribution. However, as will become obvious, the real dispute is over the size of the property pool.
The main issues are:
·the size of the pool of property
·particularly what should be added back into the pool because of funds taken by the husband during construction of the house after separation
·valuation of various miscellaneous assets
·contributions, both before and after separation.

Background

The wife is 35 years old and the husband 37. They commenced their relationship in December 1991 and separated in November 2003. Their period of cohabitation was therefore about 12 years.
There are three children of the marriage, James now 13, Aaron 10 and Jack who turns 7 in May 2007. The children reside with the wife and spend half school holidays with the husband.
At the time of the hearing neither party had repartnered. The wife lived in Canberra with the children. The husband had moved to Queensland in May 2004 and was living with his mother and stepfather.
In May 2003 the parties purchased 70 acres of land at Michelago in NSW. In August 2003 the husband ceased work as an excavation contractor to devote his time to construction of a house. The parties became owner/builders for the house. At separation work had commenced on construction of the house which continued through 2004. The house had not been completed when the property was sold in November 2004.
Further relevant facts will emerge in the balance of these reasons.

Relevant law

The approach to the determination of an application under section 79 of the Family Law Act1975 is well established by authority, requiring a four-stage process.
The first stage involves making a finding as to the parties' assets and liabilities – the property pool. The second stage requires consideration of the contributions of various types made by the parties, and, if appropriate, an alteration of the property interests. The third stage involves consideration of such of the matters set out in section 75(2) of the Act as are applicable and again, if appropriate, altering the interests of the parties in the property. The final stage requires an overview of the result derived from the second and third stages to determine if overall that result is just and equitable.

The property pool

As noted above the major dispute in this matter is over determining the size of the property pool. The areas of contention are:
·funds taken by the husband from the accounts of the company established by the parties, J & C Contractors Pty Ltd
·funds taken by the wife from the accounts of J & C Contractors Pty Ltd
·tools and equipment held by the husband
·a motorbike
·a bogie trailer.

Funds taken by the husband

It is common ground that at separation the company cheque account held just over $49,000. To this were credited the proceeds of the sale of excavator implements, a Harley Davidson motorbike and a Landcruiser, plus a small amount of interest. This with the $49,000 totalled just over $110,000.
The wife says that only about $26,800 of these funds can be legitimately accounted for by the husband: $7,170 documented with receipts for building materials, $941 for credit from Esanda Finance, $13,500 withdrawn by the wife for living expenses and school fees and $5,200 claimed by the husband for living expenses. The remaining $83,200 of these joint funds the husband used for his own benefit. They should therefore be added back under the principles laid down in Townsend and Townsend (1995) FLC 92-569, and more recently Chorn and Hopkins (2004) FLC 93-204 and Omacini and Omacini (2005) FLC 93-218.
The husband has attempted to account for almost $104,000 of the $110,000. The most significant elements are $44,150 for cash payments to identified tradesmen, $13,500 to the wife for living expenses and school fees, $28,450 for payments by cheque for a range of goods and services, $5,200 claimed by the husband for living expenses and $7,700 for other expenses.
The wife contends that adequate proof has not been adduced for most of these payments, particularly for the $44,150 the husband says he paid in cash to tradesmen. Mr Nash for the wife points to the lack of receipts and other documentation, the absence in many cases of any record in the husband’s diary, the husband’s vague explanations about withdrawals of large sums from the account and the use of these funds both for paying tradesmen and personal living expenses. The husband also said he kept large sums of cash hidden in a shed on the property for payment at the appropriate time. Mr Nash says that not one of the cash payments to the tradesmen can be substantiated.
In his affidavit the husband said at [44]:
I ceased contract work when we purchased the Michelago property and for the following 12 months or so I worked full-time on constructing the home. I was involved in every aspect of the construction of the home. For those tasks that a tradesman needed to be hired including the brick laying, erecting the wall frames and roof trusses, electrical work and building the verandas I laboured for the tradesman to reduce the cost of the tradesman. The cost of the tradesman was further reduced by agreeing to pay them ‘cash-in-hand’ for their work. As the tradesmen were paid in cash and cash withdrawals made from the business account to do so I really have no way to objectively verify that various cash withdrawals were used to paid tradesmen.
Under cross examination the husband conceded that he did not work full-time on this project, nor on every aspect of construction. He nevertheless confirmed his role in coordinating construction and labouring for tradesmen.
Mr Brzostowski for the husband submitted:
·the parties together as owner/builders negotiated arrangements with tradesmen to construct the house
·they endeavoured to pay the tradesmen in cash to benefit from lower quotes
·it was a joint decision between the two parties to deal with people who would reduce their quotes if paid in cash
·it would be quite inequitable for the wife to suggest that the tradesmen should be forced to give evidence in this matter
·the husband thus has some difficulty in proving all the payments
·following separation the house was in the course of being constructed
·building materials such as plasterboard and battens, for example, were supplied to the site into the 2004 year
·the date of delivery of the plasterboard and battens of 24 February 2004 which were to be paid by cash of $5,083 on delivery was just after 18 February 2004 when the largest cash withdrawal of $24,500 was made from the company cheque account
·the plasterboard was installed as evidenced by photographic evidence produced to the Court – showing the state of construction before and after the plasterboard was in place
·the photographs showed the progressive construction from about December 2003 until May 2004
·the husband specifically named the tradesmen to whom he made payments and apart from one estimate the actual amounts paid
·the wife’s submissions fail “to give credence for the labour component”.
I agree with Mr Brzostowski substantially for the reasons he has given that the wife’s position on the $44,150 should be rejected. Furthermore, the husband’s diary although clearly a far from complete record does contain entries which support the husband’s position. For example, on 21 February 2004 “J & B Plumbing Geoff” was “paid in full $4200 cash”. The entry on 24 February 2004 records “Tom’s placing total gyprock order, should be here within the week. Gave 10,000 cash towards job (materials, labour etc) didn’t want money spent on other stuff”. These were a few days after the $24,500 cash withdrawal.
In my view I should accept the husband’s evidence on payment of the tradesmen. The materials were purchased, the photographs show the work was done – the house did not simply materialise – and there is some supporting documentation showing a rough coincidence between some of the cash withdrawals and work on the house. The Court “is not required to undertake a reductionist process analogous to the taking of partnership accounts” in these matters (see Kardos v Sarbutt (2006) 34 Fam LR 550 at [36]). Having regard to the evidence, to disregard this work and the costs associated with it would not be just and equitable.
Consequently I find that the husband expended $44,250 on cash payments for tradesmen. The husband’s calculation of $44,150 in annexure E to his affidavit is incorrect.
The husband also claimed that he made cash payments of $2,664 for which he obtained receipts. I reject a number of these as being clearly personal expenses – the expenses associated with his motor vehicle, electricity and Dick Smiths. I accept that $1,591 can properly be characterised as joint payments.
In addition the cash payments of $5,084 to Professional Plaster Supplies (annexure D6 to the wife’s affidavit) and $216 to Bunnings (annexure D17) should also be accepted.
I reject the husband’s figure of $1,136 for diesel for his motor vehicle. He was not able to point to anything other than personal use for this expenditure, for example trips to Canberra, Cowra, Milton and Pambula. He also provided no means for estimating what proportion of this figure could be attributed to construction of the house.
The husband also says that he made cheque payments totalling $28,457 between 5 December 2003 and 25 March 2004 towards the home construction and asset maintenance. A significant number of these payments were personal or could not be substantiated. I am satisfied that $20,132 went towards joint expenses.
The only further amounts which are properly accounted for are: $941 Esanda Finance direct debits, $2,000 to the wife for school fees, $11,500 to the wife for living expenses and $5,200 notionally to the husband for living expenses for approximately six months.
Undertaking this type of accounting exercise can never be an exact science. Nevertheless in the result I am satisfied that about $90,900 of the $110,000 has been roughly accounted for by the husband leaving a figure of $19,100 which should be added back.

Funds taken by the wife

It is agreed that the wife withdrew $10,000 from the company account shortly after separation for living expenses. She later transferred $1,500 by phone for similar use. A further $2,000 was withdrawn for school fees (see [27] above). The husband does not take issue with these, accepting that they have been reasonably incurred living expenses (Chorn and Hopkins at [42]). Likewise the wife has conceded a notional sum of $5,200 for self support for the husband (again see [27] above).

Tools and equipment held by husband

Valuation of the tools and equipment presents another difficulty. The husband accepts that apart from the Briggs and Stratton engine, the Triton work bench, the welding bench and the fire extinguishers, all the tools listed at annexure E to the wife’s affidavit are in his possession or control. He estimates their current value at $10,000 but has provided no valuations or other proof. The wife says that I should use the values in the document at annexure E which was drawn up for insurance purposes in 2003 and signed by both parties as directors of J & C Contractors Pty Ltd. This gives $16,219 as the total value.
Neither approach is satisfactory. A third alternative would be to order the sale of the tools and equipment and for the proceeds to be distributed in accordance with my ultimate orders. I am however reluctant to do this as there are many small tools for which the costs of sale – as well as any valuation – would be out of proportion to their worth. Furthermore I suspect that some at least are needed for the husband’s work.
Although it is far from satisfactory, I have decided to accept the 2003 insurance valuation of $16,219 rather than force a sale or valuation of these items. As I have noted, this was the valuation accepted by both parties earlier in the year of separation for insurance purposes.

Motorbike and bogie trailer

The maternal grandparents purchased a motorbike for the children for $3,488. This is in the husband’s possession. He says it is worth $2,000, the wife says $3,000.
The parties bought a ‘bogie trailer’ for $1,430 in August 1998. To this was added a water tank and pump. The husband says he left this trailer at the Michelago property when he relocated to Queensland. He says he does not know where it now is. The wife estimates its value at $6,000.
No valuation from a qualified expert has been provided for these items. I therefore propose to exclude them from the pool and order that they be sold. The proceeds will be distributed in accordance with the ultimate distribution for the property.

Superannuation

The most recent estimates at the hearing for superannuation were $64,500 for the wife and $17,700 for the husband.
Both parties have included their respective superannuation entitlements in the pool of assets and have not sought splitting orders. Instead they want the superannuation treated in the same manner as the property pool. I propose to do so.

Liabilities

It was accepted at December 2005 that the husband owed about $5,750 in child support. I do not propose to include this in the pool but to require the husband to discharge his arrears from the property distribution.
The parties’ company is being wound up by Rangott & Slaven. The parties will be ordered to share the costs of this equally. It will not be included in the pool.

Net property and superannuation pool

Noting the findings above as well as the items agreed by the parties at the hearing, I find that the parties’ assets and liabilities including superannuation at the date of the hearing are as set out in the table below:

Assets	$
Money held in trust from sale of matrimonial home	327,000
Tools and equipment (husband)	16,219
Cash taken by husband (add back)	19,100
Resort trailer (wife)	700
Household furniture and effects (husband)	2,800
Household furniture and effects (wife)	3,520
Superannuation (husband)	17,700
Superannuation (wife)	64,500
Total assets	451,539
Liabilities	0

I therefore find that the net asset pool including superannuation is $451,539.

Contributions

The parties commenced their relationship in December 1991 and separated when the wife went to Queensland in November 2003. Their period of cohabitation was therefore about 12 years.
At the commencement the husband’s assets and personal belongings were only of a nominal value. The wife had about $8,000 in savings which were used as a deposit on a home in Banks in the ACT which was purchased in May 1992. She had also accumulated superannuation entitlements of about $14,500 over the four or five years she had worked for the ACT Government prior to cohabitation.
The wife says that she paid almost all of a termination payment of $40,000 she received from the ACT Government in June 2001 into the company accounts to pay bills, apart from $10,000 which went towards the mortgage on the Banks house. This is a significant and relatively recent contribution.
The wife seeks to rely on six months rent free accommodation for the couple at her parents’ home while the Banks house was being built. However this is not a contribution recognised in either section 79(4)(b) or 79(4)(c) of the Act. It was not a non-financial contribution to the ‘acquisition … of the property’, nor was it a ‘contribution made by a party to the marriage to the welfare of the family’.
The wife’s parents did however also provide an interest free loan of $98,000 in May 2003 to assist in building the house on the Michelago property. This was repaid when that property was sold in November 2004. The loan thus extended for 18 months, including some 12 months after separation. Again I accept that this was a recent contribution to which some weight must be given.
It is accepted by both parties that during the relationship the wife was the primary homemaker and carer for the three children. She also worked full-time until the eldest child was born and part-time thereafter.
The husband was the primary wage earner. His employment would require him to leave home before the children were awake and return home not long before their bedtime. After he ceased work in about August 2003 to work on the house he would see the children more regularly during the day and on weekends.
Since separation the wife has had virtually the entire burden and full-time responsibility for the care of the three children now aged 13, 10 and 7. Until the hearing the husband had seen the children only ‘sporadically’ and then only briefly. For example he says that when he saw the children in April or March 2005 for about 45 minutes he had not seen nor spoken to them for nearly 12 months. He had moved to Queensland in May 2004. He also built up a significant child support debt from April 2004.

Between August 2003 and May 2004 the husband worked on the construction of the Michelago house. He coordinated tradesmen and acted as their labourer to reduce the cost. Under cross examination however he agreed that this work on the house was not full time and did not involve all aspects of construction. There were periods when nothing was being done on the house. The house and property were eventually sold for $530,000.
The wife says that she should be credited with an overall division of at least 60/40 per cent in her favour for contributions.
Mr Brzostowski for the husband contends that the wife undervalues the worth of the husband’s personal contributions, at least until he moved to Queensland. In particular he refers to the husband’s employment and role as a breadwinner during the marriage and his contribution to the house construction after separation and before he went to Queensland. There was no warrant for ascribing other than an equal contribution until then.
In large measure I agree with Mr Brzostowski that contributions of both parties during cohabitation should be assessed as equal. This was a 12 year marriage. But I also must give some weight to the relatively recent termination payment of the wife’s of $40,000 and to a lesser extent her parent’s interest free loan. In addition the wife has made a much more significant contribution towards the welfare of the children than the husband since separation. Since the husband’s move to Queensland his contribution has been minimal.
Accordingly I assess the contributions as being 57.5 per cent for the wife and 42.5 per cent for the husband. The pool is in the order of $452,000. This then is equivalent to about $68,000 between the parties’ entitlements on a contribution based division.

Section 75(2) factors

The wife submits that the section 75(2) factors favour her with the only exception being her superannuation.
Both parties are relatively young, the wife 35 and the husband 37. No evidence has been adduced on any health issues which may affect their future wellbeing.
The wife has an income of about $37,000 whilst the husband’s is about $50,390. Were he to gain employment as an owner operator of an excavator the wife says that he would be able to earn between $95 and $115 per hour rather than the current $22. The husband therefore has a significant advantage in earning capacity, particularly if he were to take up any opportunity to become an owner operator again.
The three children, James 13, Aaron 10 and Jack who will turn 7 in May 2007, will continue to live with the wife. They will spend half of school holidays with the husband. Having regard to the history since separation in November 2003 and the fact that the husband lives in Queensland, I have little doubt that the wife will continue to bear by far the major burden and responsibility for the children’s upbringing. As Jack is not yet 7, this will continue for over 11 years.
The wife accepts that the husband will regularly pay his child support in the future because it is now automatically deducted from his pay. However at December 2005 he had fallen into arrears of $5,800 and he has chosen not to pay that off as quickly as he might when the means of reducing the arrears has been at his disposal. Instead he reduces his arrears by only an extra $40 a week but pays his mother $150 a week board. In the meantime the wife has to bear the shortfall.
The husband pointed out that the arrears accrued between April and August 2004. For much of this time he was not earning any income. In November 2005 his arrears was about $7,600 which was reduced to $5,800 in December 2005. The husband is now paying what has been assessed plus $40 per week towards reducing the arrears.
On the evidence I am satisfied that the husband will continue to meet his weekly child support obligations. Nevertheless I can not be sure that he will make every effort to wipe out his arrears as quickly as he should. Thus the wife will continue to have a greater financial burden in the future than she would otherwise have to bear.
The superannuation entitlements favour the wife. She has $64,500 compared with $17,700 for the husband. However, as Mr Nash submits the weight to be given to this disparity should not be great given:
·the husband has a higher income and earning capacity
·the disparity will thus reduce over time
·$14,500 of the wife’s superannuation accrued before their marriage
·the wife will not be able to access her superannuation for at least 20 years.
Having regard to the considerations set out above, in particular the disparity in earning capacity and the wife’s long term responsibilities for the day to day care of the children, the section 75(2) factors clearly favour the wife. An adjustment of 7.5 per cent in her favour under this section is appropriate.

Overview

For this exercise I am not concerned with precise figures. The end result of examination of the contributions and section 75(2) factors is that an adjustment should be made in favour of the wife whereby she receives 65 per cent of the pool of property and superannuation and the husband 35 per cent. In money terms, this results in the wife receiving in the order of $294,000 and the husband $158,000, a difference of $136,000.
Taking all matters into account, and in particular the funds the husband expended on the construction of the house, the relative contributions and the fact that the wife will have the far greater responsibilities for care of the children for more than 11 years, I am satisfied that this result is just and equitable within the meaning of section 79(2).

Conclusions

The pool including add backs is $451,539. The wife's 65 per cent of this amounts to $293,500. The husband's 35 per cent is equivalent to $158,039. The property and superannuation currently held by the wife amounts to $68,720 and the husband $55,819.
This means that the $327,000 proceeds of sale of the house held in trust should be distributed with $224,780 to the wife and $102,220 to the husband. Any interest which has accrued on this sum should be distributed in the same proportions – 69 per cent to the wife and 31 per cent to the husband.
I also will order that:
·the motorbike and bogie trailer be sold with the proceeds to be distributed 65 per cent to the wife and 35 per cent to the husband
·the parties share the costs of winding up J & C Contractors Pty Ltd equally
·the husband discharge his child support arrears within seven days of distribution of the trust monies.
The orders of the Court will be as set out at the commencement of these reasons for judgment.

I certify that the preceding sixty-nine paragraphs are a true copy of the reasons for judgment of Mowbray FM

Associate: Natasha Werner

Date: 6 March 2007