Hulls and Hulls

[2015] FamCA 535

FAMILY COURT OF AUSTRALIA

HULLS & HULLS [2015] FamCA 535

FAMILY LAW – PROPERTY – Interim – Where the husband and wife bring competing interim applications for property and related orders – where orders are made in relation to the declaration, payment and distribution of company dividends – where orders are made in relation to the sale of the former matrimonial home and the distribution of the net sale proceeds – where an order is made restraining the husband from causing his salary to be increased without the wife’s consent or further court order.

Family Law Act 1975 (Cth)

APPLICANT: Ms Hulls

RESPONDENT: Mr Hulls

FILE NUMBER: BRC 6292 of 2013

DATE DELIVERED: 14 July 2015

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Forrest J

HEARING DATE: 2 July 2015

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms Carew QC

SOLICITOR FOR THE APPLICANT: McPhee Lawyers

COUNSEL FOR THE RESPONDENT: Mr Jordan

SOLICITOR FOR THE RESPONDENT: Simonidis Steel Lawyers

Orders

1. That the parties do all things necessary to cause E Pty Ltd to declare a dividend in the sum equal to the funds that it holds not including anticipated statutory and accounting fees and pay same to F Pty Ltd as trustee for the Hulls Family Trust.

2. That upon receipt of the funds referred to in (1) above, the franked dividend from E Pty Ltd be distributed by the Hulls Family Trust as follows:

   (a)       $400,000 to the applicant wife;

   (b)       the balance to the respondent husband;

   (c)that the distributions referred to above, be declared by the Trustee of the Hulls Family Trust for tax purposes for the financial year in which it is received as follows:

   (i)to the applicant wife the first $400,000 of franked income;

   (ii)to the respondent husband the balance of the trust income.

3. That within sixty (60) days (“the default date”) the real property situated at and known as H Street, Suburb I in the State of Queensland, and more particularly described as Lot 3 on Registered Plan … being the whole of the land comprised and described in the Certificate of Title Reference … (“the home”) be listed for sale by a private treaty with such agent or agents as may be agreed between the parties or failing agreement, as may be fixed by the Chief Executive Officer of the Real Estate Institute of Queensland or his nominee at a price to be agreed between the parties or failing agreement, as may be fixed by the Chief Executive Officer of the Real Estate Institute of Queensland or his nominee.

4. That for the purpose of selecting an agent the wife shall within 14 days propose in writing three agents to the husband and the husband shall within a further 14 days select one of the agents.  If the husband does not select one agent within that period the wife shall select one of the nominated agents.

5. That the costs of:

   (a)All necessary repairs and maintenance including pool chlorinator replacement and sprinkler system repairs;

   (b)All marketing including staging and selling costs;

   be met from the Westpac Mortgage Choice Account … (“the Westpac account”).

6. That in the event that the home has not been sold by or before a date three (3) months from the date of listing, at the election of either the husband or the wife the home be auctioned:

   (a)The auctioneer be as agreed between the parties or as may be fixed by the Chief Executive Officer of the Real Estate Institute of Queensland or his nominee;

   (b)For the purpose of selecting an auctioneer the wife shall within three months and fourteen days propose in writing three auctioneers and the husband shall within a further fourteen days select one.  If the husband does not select an auctioneer within that period then the wife shall select one of those nominated;

   (c)The auction shall take place within two (2) months after a reserve price being agreed between the parties or fixed by the Chief Executive Officer of the Real Estate Institute of Queensland for auction of the property;

   (d)The payment of auction expenses payable before the home is auctioned shall be met from the Westpac Account ...

7. That in the event that the property is not sold by auction or private negotiation within 14 days after the said auction, then the husband and the wife shall do all acts to relist the property for sale.

8. That upon completion of the sale the proceeds of sale shall be applied as follows:

   (a)Firstly to pay all costs, commissions and expenses of the sale and pay any council land water rates and maintenance and levies outstanding in respect to the real property;

   (b)Secondly to discharge the Registered Mortgage Number … in favour of Westpac Banking Corporation;

   (c)The balance to the wife.

9. That the balance of any funds remaining in Westpac Mortgage Choice Account … after the mortgage has been extinguished be distributed equally between the husband and the wife and thereafter within 14 days of completion of the sale each party shall do all acts and things to close the account.

10. That pending the sale:

    (a)       The wife shall have the sole use and occupation of the home;

    (b)The husband and his agents are restrained from entering or remaining in the vicinity of the home except for attendance at the auction or with the prior written consent of the wife.

11. That the consideration, treatment and/or characterisation of the receipt by the wife and the husband of the payments to each of them provided for in these Orders be a matter for the Judge who determines final property adjustment Orders in these proceedings.

12. That the husband in his capacity as Director of G Pty Ltd be restrained from causing his salary paid by that company to be increased without the prior agreement of the wife or further Order of this Court.

13. That otherwise all interim applications heard on 2 July 2015 are dismissed.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Hulls & Hulls 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 BRISBANE

FILE NUMBER: BRC 6292 of 2013

Ms Hulls

Applicant

And

Mr Hulls

Respondent

REASONS FOR JUDGMENT

1. On Thursday, 2 July 2015, I had listed before me for hearing competing interim applications of the husband and wife in this matter for property and related orders. At the commencement of the hearing, I was informed by counsel for the parties that agreement had been reached on some matters and that, consequently, I would be asked to make certain orders with the consent of the parties but that I would be required to determine some remaining disputed matters.

2. A draft of proposed orders that I was asked to make was handed to me and I was asked to make orders in those terms, with the consent of the parties, there and then. I did that.

3. To set context for the determination of the remaining matters, I observe that the parties operated a security business during their marriage and have continued to do so since separation, whilst awaiting finalisation of their competing property adjustment applications. The security business is conducted by a company in which their discretionary family trust is the sole shareholder, through its corporate trustee. The husband is the sole director of the company that runs the business and is the manager of the business. The wife was employed as the financial controller of the business until her employment ceased some months ago.

4. On the other hand, the wife controls the family trust and is the sole director of the corporate trustee.

5. The wife and the parties’ two daughters have continued to live in the former family home in Brisbane since the parties’ separation. It is mortgaged securing substantial debt which the parties have been repaying using money sourced from income generated by the security business. Since the parties’ separation, the husband has bought himself a home in a nearby suburb for him and the girls (when they are in his care) to live in. It, too, is mortgaged securing substantial debt.

6. The parties came to the Court on this occasion with competing interim applications in respect of the declaration and payment of dividends by the company running the security business, the distribution of income by the corporate trustee of the family trust, the sale of the former family home, the distribution of the net sale proceeds of that sale and in respect to the issue of restraints sought by the wife on the husband’s sole management of the security company.

7. Relevantly, the orders that the Court made with the parties’ consent at the commencement of that hearing were as follows:

   1.That the husband forthwith do all acts and things to cause [G Pty Ltd (G)] to declare and pay a fully franked dividend of $400,000 to the [Hulls] Family Trust forthwith;

   2.That upon receipt of the funds referred to in 1 above, the franked dividend from [G Pty Ltd] (and including the sum paid on 5 May of $100,000 which has been deposited into Westpac account number …) be distributed by the [Hulls] Family Trust as follows:

   2.1The sum paid on 5 May 2015 of $100,000 in to Westpac Mortgage account … to be used in accordance with paragraph 3(a) of the Order made 25 July, 2014 and as set out herein;

   2.2$200,000 to [Mr Hulls] by payment to account advised by [Mr Hulls];

   2.3$200,000 to [Ms Hulls] by payment to the wife’s account ING BSB … Account number …;

   2.4That the distribution referred to in 1 above be declared by the Trustee of the [Hulls] Family Trust for tax purposes for the year ended 30 June 2016 as follows:

   2.4.1    [Mr Hulls] 50 per cent of the trust income;

   2.4.2    [Ms Hulls] 50 per cent of the trust income.

   3.That the Wife be at liberty to declare the [Hulls] Family Trust final distribution for tax purposes for year ended 30 June 2015 referred to in paragraph 3 of the Order made 25 July, 2014 as:

   3.1[B] – $410;

   3.2[C] – $410;

   3.3[Ms Hulls] – the next $203,884.49 of franked income as per the Trustee Resolution dated 16^th April 2015;

   3.4[Mr Hulls] – 50 per cent of the balance of the trust income;

   3.5[Ms Hulls] – 50 per cent of the balance of the trust income.

The remaining dispute about the sale of the former family home and the distribution of the net proceeds of sale

1. The wife, the applicant in the interim proceedings, sought orders for the sale of the former family home, including associated machinery orders, and for payment of all of the net proceeds of sale of that property to her, and for continued sole occupation of the property until sale.

2. For his part, the husband agreed that the property be sold but opposed the payment of all of the net proceeds of sale to the wife. He sought orders that distributed the net sale proceeds of that sale equally between them.

3. The Court was informed that the wife’s position is that if she is not able, by Court order, to access all of the net proceeds of sale of the property, she opposes the sale of the property and would prefer to continue living in it until final property adjustment orders are obtained by agreement or after a contested trial. Financial reasons where cited as the basis for that.

4. There is no dispute between the parties that the sale of that property, worth about $2.7 million, is likely to net, after discharge of debt secured by mortgage, around $900,000 to $1 million.

5. The wife’s affidavit evidence had her deposing to wanting to purchase another, as yet unidentified, residential property for her and the girls (when they are in her care, which is the majority of the time) to live in for a purchase price of around $1.3 million. Her case is that such funds would be available to her only if she receives all of the net proceeds of the sale of the property, along with the $200,000 she will now receive pursuant to paragraph 2.3 of the orders the Court made on 2 July 2015, referred to above, and only if she then receives further funds pursuant to a combination of two other orders that she seeks for distribution of dividends and trust income to her that would, it was submitted on her behalf, result in her receiving a further $120,000 net after provision for income tax payable on the gross amount received.

6. There is no dispute that there is around $550,000 available for payment by a company of the parties as a dividend to the corporate trustee of the discretionary family trust. The wife’s interim application seeks orders that the parties do all that is necessary to cause that to happen and for the trustee to then distribute that income to her as to $400,000 and to the husband as to the balance (which the Court was told would be around $150,000). The husband seeks an order be made that the income be distributed equally as between them, along with the equal distribution of the net proceeds of sale of the property.

7. It can be seen that orders made in accordance with the wife’s application would result in her obtaining $1.27 to $1.32 million dollars (if her evidence about the tax impact is accepted). It is said she will use that to buy a house that will remain property against which final property adjustment orders might ultimately be made. The wife’s proposed orders would have the husband receive the amount of $200,000 provided for in the orders made last week, plus up to a further $150,000. Of course, those payments would also be subject to some taxation impact.

8. It can be seen that orders made in accordance with the husband’s proposal would result in each party receiving the agreed payment of $200,000, a further $450,000 to $500,000 from the net sale proceeds of the former family home and the gross sum of around $275,000 that would be then subject to taxation. This would see each getting a gross amount of $925,000 to $975,000 before any taxation impact.

9. In support of the wife’s application, senior counsel referred to the wife’s evidence that she requires at least $1,300,000 to accommodate herself and the children who are, pursuant to parenting orders, living most of the time with the wife and alternate weekends with the husband.  Ms Carew also referred to the differential in income between the husband and the wife and submitted that the wife has untested, limited capacity to borrow and repay funds to buy the property that she requires, whilst the husband already has bought a house, was able to borrow most of the purchase price of that property and has a demonstrated, clear capacity to repay the loan that he took to buy that property and still have residual funds available each week.

10. The evidence is that the husband is paid $4,910 per week gross by the security company he manages and also receives a benefit worth about $100 per week in the form of a motor vehicle provided to him. He pays $840 per week in repayments on the mortgage liability that he incurred in buying the property he lives in. He values the property at $950,000 and owes $875,000 secured by mortgage on it. That gives him equity of $75,000 or just under 8 per cent of its total value. The husband’s evidence is that he has a surplus of income over expenditure of about $533 per week. His expenditure includes his tax and his average weekly expenses for himself and the girls when they are in his care. That average weekly expenditure includes $250 per week for holidays and $350 per week paid to the wife to assist her to financially support the children when in her care, after many of the children’s fixed expenses are paid for by money both parties have set aside previously, of which there was about $66,000 left in April 2015 when the wife filed an affidavit of evidence.

11. In her affidavit evidence the wife also said that she is employed as an accountant on a casual basis, working for two different employers. She deposed to earning a net weekly income of $1,179. She deposed to having expenses for the two girls, that are not met from the money set aside in the bank account. Those she listed as averaging $768 per week. As already observed, the wife receives $350 per week from the husband to assist her to meet these expenses, leaving her with $418 per week to meet from her income. She also deposed to her own personal expenditure requirements averaging $1,264.60 per week. As the sum of these two expenditure amounts equals $1,682, it can be seen that the wife does not currently have the capacity to meet mortgage repayments on any borrowings, nor the capacity to pay rent if the former family home is sold and she is left to rent.

12. Of course, as counsel for the husband submitted, the wife could put aside some of the money that would be distributed to her on the making of the orders sought by the husband and use that to make mortgage repayments on any borrowings or rental payments. However, making orders that caused the wife to do that would, in my judgment, put her in a distinctly different and disadvantageous position to the husband. Whichever of the orders sought by the parties were made, the husband would be able to reduce his mortgage debt by a not insubstantial sum if he chooses. Thus, he could reduce his weekly debt repayments on an ongoing basis and have an even greater surplus of income over expenditure on a week to week basis to spend as he determines appropriate.  If the orders the husband seeks were made, he could repay most, if not all, of his current mortgage debt which would give him up to $840 per week in additional surplus funds. Thus he would have surplus of income over expenditure of up to $1,373 per week, whilst the wife would not have the capacity to make loan repayments or pay rent without utilising part of the money she received under the orders for that purpose.

13. Plainly, the basis for the wife’s position that if she does not receive all of the proceeds of sale of the former family home she would prefer for it not to be sold so that she can continue to live in it is clear, after observation of the matters just discussed.

14. For the husband, counsel submitted that there are issues of “fairness” involved from which the husband’s stance is driven and upon which the determination of orders should be based. For him, it was submitted that “fairness” requires an equal distribution of capital and income on this interim basis and that “fairness” requires a determination that the wife, too, should settle for purchasing a property of around the same value as that purchased by the husband. At the same time, it was submitted for the husband that the former family home should be sold as the reduction in principal and interest debt repayments, rates, maintenance and other outgoings will assist the parties preserve capital pending resolution of their property adjustment dispute. Currently those expenses are being met out of past distributions of income of the trust, sourced from income generated by the security business. If they no longer have to be met, as that income is generated in the future, it will, presumably, accumulate and be available to be distributed as further income to each of the parties, by agreement between them or by further order of this Court.

15. There was no submission made on behalf of either the wife or the husband that this Court does not have the power to make the orders that the other party seeks. Indeed, each conceded that the Court does have the power. In my judgment, that is correct. Although little was said about the actual source of the power, I am of the view that the power given the Court in s 114(1) of the Family Law Act1975 (Cth) (“FLA”) to make “such order or grant such injunction as it considers proper with respect to the matter to which the proceedings relate” in proceedings between the parties “arising out of the marital relationship” supports the making of the orders that are sought by each of the parties in this matter at this interim stage. Alternatively, s 79 and s 80(1)(h), combined provide a source of power for orders adjusting property on an interim basis.

1. There is little dispute between the parties that the total net value of their interests in property, jointly or severally held, including amounts previously received by them described as “partial property payments” (being $300,000 to the wife and $200,000 to the husband), exceeds $5,000,000. Further, there is already an order in place, by consent, that the security business be sold, and the parties agree that has an estimated value of around $3.1 million.

2. I am quite satisfied that it is proper and just and equitable to make interim orders that require the sale of the former family home so as to reduce outgoings with a view to improving the parties’ overall capital position. I am quite satisfied, having regard to the agreed estimated net value of the parties’ property interests, the pending ordered sale of the business, the wife’s stated intention of purchasing another property to live in (which I accept), and the husband’s stated intention of reducing his own mortgage debt and increasing his equity in his residential property (which I accept) that interim orders as sought by each of the parties can be made without any prejudice to either party’s capacity to continue to seek and obtain property adjustment orders from this Court pursuant to s 79 of the FLA that are determined to be just and equitable. I consider that it would indeed be proper to make such orders, along with an order that the consideration, treatment and/or characterisation of the receipt by each party of whatever amount each ultimately receives pursuant to the orders be a matter for determination by the Judge who might hear and determine the competing applications for final property adjustment orders.

3. After considering the evidence and the submissions made on behalf of each party, I am satisfied that the proper orders to make in respect of the sale of the former family home and the distribution of the sale proceeds and other income payments are the ones the wife seeks. I am satisfied that they are reasonable, just and equitable in the interim circumstances in which they are made.

4. The wife deposed to wanting to relocate within the same general area in which she and the children now live. The children go to school in the same suburb in which they live. The suburb where the husband purchased his home is nearby, but further from that school. The wife deposed to wanting to purchase a smaller home and having spent time investigating the cost of suitable properties. She deposed to finding that those places fall within a range of values from $950,000 to $1,800,000 with the average cost being $1,300,000.

5. I do not consider it unreasonable for the wife to want to continue to live in the same area as she and the girls currently live, not too far from the school the girls attend. I accept her evidence about the likely cost of purchasing a suitable replacement home in that area. I have already set out what I accept is the state of the wife’s capacity to borrow and service a loan, given her current income and expenditure circumstances. I have already set out the state of the husband’s current capacity to continue to meet his current expenditure requirements, including the repayments on his $875,000 mortgage debt, and the potential for that to be improved further consequent upon orders being made in terms sought by the wife.

6. “Fairness” of treatment of parties in dispute about matters such as these parties are, is not necessarily achieved, at least in my judgment, simply by equality of interim distribution of capital and income. Certainly, in making the interim orders that the wife seeks, when the orders are all complied with, the wife will have received substantially more than an equal distribution of the money that has been distributed between the parties on an interim basis. However, that will put her and the parties’ children in suitable accommodation that the wife can afford to own and maintain on her income, until finalisation of all property adjustment matters, whilst at the same time, the husband is in suitable accommodation that he can afford to own and maintain on his income, and the outlays of the parties overall will be reduced.

7. The differential in the parties’ receipt of interim distribution of income and capital will, of course, be a matter that will be properly considered, in the fullness of time, by the parties in a consensual resolution of their property adjustment issues or by a Judge of this Court who ultimately has to determine final property adjustment orders that are just and equitable as between the parties. As I have already observed, I am quite satisfied that the orders that I will make that will provide for unequal receipt of funds on an interim basis will not in any way inhibit or prejudice just and equitable final property adjustment between these two parties.

8. Accordingly, I will make orders in the terms sought by the wife in respect to the sale of the property, the distribution of net sale proceeds, the declaration and payment of dividends and the distribution of income to the parties satisfied that they are the proper orders to make in the circumstances.

The remaining issues in dispute

1. The wife also sought injunctions against the husband in respect of certain aspects of his management of the security company. Ultimately, they were particularised by senior counsel for the wife to be interim injunctions restraining the husband from causing his salary to be increased without the wife’s consent or further order of this Court and restraining the husband from causing the salary of any employee of the security company to be increased greater than mandated award increases and CPI annual review increases without the written agreement of the wife. Both were opposed by the husband.

2. The evidence of the wife, undisputed by the husband, is that the husband’s salary prior to the parties’ separation was $107,952 net per year but that in the course of these proceedings being before the Court he has unilaterally caused that to be increased to a net amount of around $135,000 per year and more recently to a net amount of $160,000 per year. Evidence of the external accountant who has been retained to undertake work for the security company, adduced by the husband, is that the husband’s current salary is commensurate with acceptable levels of remuneration for a person in his position. That may indeed be the case and I have no reason not to accept that evidence as being correct.

3. However, as I intimated during the course of the hearing in an exchange with counsel for the husband, the security company’s business that is now solely managed by the husband is a business ultimately owned by the parties’ family trust that is solely controlled by the wife. The business was acquired by the parties during their marriage. It was operated and run by both of them during their marriage. It is, in my judgment, fair to describe it as their “family business”. It still is, at least until property adjustment is effected between the now separated parties. The wife has a legitimate interest in the ongoing operation and management of the business. Her qualifications and prior experience working as its Financial Controller, no doubt, heighten that interest.

4. Expenditure in the form of salaries paid to employees, including the Managing Director, is but one of the many factors relevant to the determination of value of the business. The wife has a legitimate interest in that. Arguments about efficiency in management do not persuade me that the husband should have unfettered discretion, pending finalisation of the sale of the business, to be able to continue to unilaterally determine the salary he is paid by the company. The fact that he has unilaterally increased his salary by around 50 per cent since separation causes me to be satisfied that he should now be subject to restraint against increasing his salary without the agreement of the wife or further order of the Court. I will make such an order.

5. However, in respect of the restraint sought against the husband increasing the salary of other employees, I am not so persuaded. I was not taken to any evidence adduced by the wife to support a finding that the husband has unilaterally increased salaries of any other company employees since separation. In the absence of such evidence, the need for such restraint is not demonstrated, in my judgment. It is possible that significant decisions in respect of salary increases for key personnel in the context of the business being on the market might have to be made within very short time frames and that restraint on the husband might hinder that process. I will not make such an order.

6. I make the orders set out at the commencement of these reasons for judgment.

I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Forrest delivered on 14 July 2015.

Associate: 

Date:  14 July 2015