Hyndman & Garside
[2022] FedCFamC1F 14
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Hyndman & Garside [2022] FedCFamC1F 14
File number(s): MLC 6824 of 2019 Judgment of: HARTNETT J Date of judgment: 21 January 2022 Catchwords: FAMILY LAW – PROPERTY – Division of property interests – Where it is just and equitable to adjust the parties’ property interests – Where the parties were married for fourteen years – Where the wife’s initial contributions are disputed – Where the parties are directors and shareholders of a number of companies – Where the parties’ have a self-managed superannuation fund – Where the parties own a business - Where the self-managed superannuation fund owns 50 per cent of the parties’ business – Where the husband and wife each hold 25 per cent shares in a second business – Where the wife seeks to retain B Company and C Company – Where the husband seeks that B Company be sold – Where the wife has greater income and earning capacity than the husband – Where the parties are guarantors to a number of loans – 50/50 division of net asset pool and superannuation – wife to retain B Company subject to a payment to the husband. Legislation: Evidence Act 1996 (Cth) s 140
Family Law Act 1975 (Cth)
Federal Circuit and Family Court of Australia (Family Law) Rules 2021
Cases cited: Beven & Beven (2013) FLC 93-545
Chorn v Hopkins (2004) FLC 93-204
Stanford v Stanford (2012) 247
Division: Division 1 First Instance Number of paragraphs: 117 Date of hearing: 13 – 15 January 2021 and 8 – 10 June 2021 Place: Melbourne Respondent husband’s Written Submissions: 9 July 2021 Applicant wife’s Written Submissions: 21 July 2021 Respondent husband’s Written Submissions in Reply: 28 July 2021 Counsel for the Applicant: Mr Williams Solicitor for the Applicant: Berry Family Law Counsel for the Respondent: Ms Smallwood SC Solicitor for the Respondent: Lander & Rogers ORDERS
MLC6824 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS HYNDMAN
Applicant
AND: MR GARSIDE
Respondent
ORDER MADE BY:
HARTNETT J
DATE OF ORDER:
21 JANUARY 2022
THE COURT ORDERS THAT:
1.That all previous orders be discharged.
2.There be Orders pursuant to Section 79 and Part VIIIB of the Family Law Act 1975 (Cth) so as to effect a division of the net asset pool inclusive of superannuation of $3,607,461 as to 50 per cent to the wife and 50 per cent to the husband.
3.So as to give effect to Order 2 herein:
(a)The wife shall retain the B Company and C Company and all entities and trusts comprising the Garside Group being:
(i)D Pty Ltd (“DPL”) which is the trading entity that operates B Company;
(ii)E Pty Ltd which is a corporate Trustee of the parties’ self-managed superannuation fund, E Super Fund (“SMSF”);
(iii)C Pty Ltd trading as C Company;
(iv)G Pty Ltd which is the corporate Trustee of G Trust;
(v)H Pty Ltd as Trustee for H Unit Trust;
(vi)The parties’ 50 per cent interest in 2 J Street, K Town in the State of Victoria (“B Company”) (owned as tenants in common in equal shares with the SMSF); and
(vii)L Street M Town in the State of Victoria (“L Street”), owned by the wife, subject to mortgage to Australia and New Zealand Banking Group (“ANZ”)
("the Garside Group")
subject to all liabilities including any personal guarantees of either or both of the parties.
(b)The wife shall do all such acts and things and sign all such documents as may be required to provide an indemnity and a discharge of any and all guarantees for which the husband would otherwise be liable in relation to any borrowings of the companies and trusts comprising the Garside Group and the conduct of the businesses within the Garside Group.
(c)The wife shall pay to the husband within 90 days of the date of these Orders ("the due date") the sum necessary to give effect to Order 2 herein (“the payment”) and the payment shall be made by way of cash and by way of superannuation split to include the provisions made in Orders 3(d) and 4 herein and calculated as if the E Super Fund had received the rental due to it from DPL of approximately $218,657.
(d)The wife shall retain the E Super Fund, inclusive of its 50 per cent interest in B Company.
4.That as part of the superannuation entitlements pursuant to a splitting order, the husband be entitled at his election to include the real property subject to its liability to the Commonwealth Bank (“CBA”) situate at 4 J Street, K Town in the State of Victoria (“N Property”) owned by the SMSF in specie in the rollout to him together with the balance of the E Super Fund interests save for that provided for in order 3(d) above.
5.Save for the purposes of giving effect to these Orders, the husband shall be and is hereby restrained both in his personal capacity and that of director of E Pty Ltd from otherwise requesting the Trustee of the E Super Fund to rollover and/or transfer any remaining transferrable benefits to another fund or to make any further payment to him from the E Super Fund.
6.That upon compliance with Order 2 herein, the husband shall forthwith resign from any position or office he may hold with the E Super Fund and the wife shall thereafter be solely liable for and indemnify the husband against any and all liabilities of the said fund including but not limited to all liabilities to the Deputy Commissioner of Taxation however arising including penalties and/or interest.
7.That upon compliance with Order 2 herein, the husband shall do all such acts and things and sign all such documents as may be required to resign as Director of E Pty Ltd and to transfer his shares in the said company to the wife.
8.That upon compliance with Order 2 herein, the husband shall do all such acts and things and sign all such documents as may be required to resign all office holdings and roles in all entities and trusts in the Garside Group and transfer all shareholdings and units in the companies and trusts to the wife as follows:
D Pty Ltd
(a) The husband shall resign as a director.
(b) The husband shall resign as secretary.
(c) The husband shall transfer all of his shares to the wife.
H Pty Ltd
(d) The husband shall resign as director.
(e) The husband shall resign as secretary.
(f) The husband shall transfer all of his shares to the wife.
G Pty Ltd
(g) The husband shall resign as a director.
(h) the husband shall transfer all of his shares to the wife.
G Trust
(i)The husband shall renounce all right, title and interest in the said Trust and disclaim his interest or that of any company of which he has been director and shareholder and/or as a creditor of the said Trust.
H Unit Trust
(j)The husband shall transfer all units held by him in the said Trust to the wife.
(k)The husband otherwise shall renounce all right, title and interest in the said Trust and disclaim his interest or that of any company of which he has been director and shareholder and/or as a creditor of the said Trust.
9.That upon compliance with Order 2 herein, the husband shall assign to the wife any credit loan accounts or unpaid present entitlements in his name or under his control in any of the companies and trusts comprising the Garside Group.
10.That upon the husband's compliance with Orders 6 to 9 herein, the wife shall thereafter be solely liable for and indemnify the husband against any and all liabilities of the companies and trusts comprising the Garside Group including but not limited to all liabilities to the Deputy Commissioner of Taxation however arising including penalties and/or interest.
11.That the parties shall each do all such acts and things and sign all such documents as may be required to give effect to these Orders.
12.That within 14 days of the date of these Orders, and upon prior notice to the wife, the husband:
(a)return to the wife the Motor Vehicle 1 owned by D Pty Ltd; and
(b)collect and remove his personal possessions from the O Property located at 2 J Street, K Town in the State of Victoria; and
(c)thereafter the wife have the sole use and occupation of the O Property and the property at 2 J Street, K Town in the State of Victoria.
13.That, save as otherwise may be provided for in these Orders, the wife otherwise retain, to the husband's exclusion, all of her right, title and interest in the following:
(a)B Company at 2 J Street, K Town in the State of Victoria, inclusive of all freehold plant and equipment, agricultural implements, tools, machinery, inventory, product stock, intellectual property, and like chattels used in the usual course of business;
(b)C Company situate at M Street, K Town in the State of Victoria;
(c) 2 J Street, K Town in the State of Victoria;
(d)L Street, M Town in the State of Victoria, subject to the mortgage to the ANZ Bank;
(e) The E Super Fund;
(f) All companies and trusts comprising the Garside Group;
(g) All credit balances in any bank accounts in her sole name;
(h)Save for the personal items of the husband located at the O Property, all personal property, goods, chattels, vehicles and wine in her possession or control; and
(i) Her F Company shares.
14.That the wife be solely liable for and indemnify the husband and forever hold the husband indemnified against all liabilities in her name, including but not limited to any credit card debts and personal loans.
15.That, save as may otherwise be provided for in these Orders, the husband retain, to the exclusion of the wife, all of his right, title and interest in the following:
(a)The sum of $14,000 withdrawn from the E Super Fund ANZ account on 26 March 2019;
(b)The sum of $50,000 received pursuant to Orders made on 5 May 2020;
(c)The sum of $34,495 received by way of part property settlement pursuant to Orders made on 10 June 2021;
(d) His boat, trailer, fishing equipment and all associated items;
(e) All credit balances held in any bank account in his sole name; and
(f) His F Company shares.
16.That the husband be solely liable for and indemnify the wife and forever hold the wife indemnified in relation to all liabilities in his name not otherwise provided for in these Orders including but not limited to any credit card debts and personal loans.
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 property (including choses-in-action) in the possession of such party as at the date of these Orders.
(b)Monies standing to the credit of the parties in any bank account are to become the property of the named owner.
(c)Each party forego any claims they may have to any superannuation, long service leave, redundancy, retirement, retrenchment and like benefits belonging to or earned by the other.
(d) Insurance policies remain the sole property of the named owner.
(e)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 any other liability that may be in their respective names.
(f)Any joint tenancy of the parties in any real or personal estate is hereby expressly severed.
In the event that there is a default and the wife fails to meet the payment by the due date
18.That in the event that the wife fails to make the payment by the due date then Orders 3 to 17 are discharged and to effect the property and superannuation division in Order 2 herein:
(a)The real property situate at 2 J Street, K Town in the State of Victoria and more particularly described as Certificate of Title Volume … Folio … be sold as soon as practicable and each party do all things required and sign all documents necessary to facilitate and complete the sale.
(b)That the net proceeds of sale of the moiety owned by E Super Fund be paid into the SMSF, the net calculated after adjustment and payment of half the costs and commissions of sale, and any rates or levies required to be paid in relation to that moiety.
(c)That the net proceeds of the moiety owned by the wife be applied as follows:
(i)to pay half the costs and commissions of sale, and any rates or levies required to be paid in relation to that moiety;
(ii)to discharge entirely the following debts of D Pty Ltd to which the parties jointly are guarantors:
1. Ms P in the sum of approximately $200,000;
2. Ms Q in the sum of approximately $100,000;
3. Ms R in the sum of approximately $80,000;
4.Ms Q and Ms R in the sum of approximately $100,000; and
5.T Pty Ltd as Trustee of the T Super Fund in the sum of approximately $600,000.
(iii)To discharge entirely the following debts of DPL to which the wife is solely guarantor:
1. Mr and Ms S in the sum of approximately $300,000.
(iv)The balance if any be distributed between the parties to effect an overall equal division of non-superannuation assets between them.
(v)In order to effect an overall equal division of assets IT IS DECLARED THAT the wife shall retain the equity in L Street M Town in the State of Victoria and the husband has retained $34,495 pursuant to the order made on 10 June 2021.
19.That the parties each do all things required and sign all documents necessary to cause the orderly winding up of DPL and each party be and is hereby restrained from seeking payment of any loan account or debt either owing by or due to DPL personally and if in the winding up process there is any formal recognition of any such loan to or benefit outstanding to either of them then it shall be shared equally between them.
20.That pursuant to Order 19 herein all plant equipment and property of DPL be sold, and the proceeds, if any, after payment of rental arrears outstanding to SMSF in the sum of approximately $218,657, but otherwise excluding any debt purported to be owed to or by either party, be divided so as to effect an equal division of assets.
21.The wife retain all of her right title and interest in:
(a)the real property situate and located at L Street, M Town in the State of Victoria subject to encumbrance;
(b)her F Company shares;
(c)all bank accounts in her name;
(d)her interest in G Trust; and
(e)her interest in C Pty Ltd.
22.That the husband resign as a director and transfer his interest in the G Trust and C Pty Ltd to the wife and the wife contemporaneously provide an indemnity and a discharge of all guarantees for which he would otherwise be liable for any debt associated with those entities and the conduct of that business.
23.That there be an equal division of assets between the parties including the SMSF, calculated as if the SMSF has received the rental due to it from DPL of approximately $218,657.
24.That as part of the superannuation entitlements pursuant to a splitting order, the Husband be entitled to include the real property situate at 4 J Street, K Town in the State of Victoria (“N Property”), owned by the SMSF in specie in the rollout to him.
25.That the wife be at liberty to retain the SMSF for her own use as a self-managed superannuation fund, or in the alternative the SMSF be wound up after the implementation of the splitting order.
26.That in the event there are penalties levied against the SMSF as a result of compliance failure with respect to the non-payment of rent by DPL, the wife shall indemnify the husband for any such loss and the amount to be rolled out or retained by her in the SMSF shall be applied to pay any such penalty as and when it falls due.
27.That save as otherwise provided in these Orders and save for the purposes of enforcing the payment of any monies due under these or any subsequent Orders:
(a)Each party be solely entitled to the exclusion of the other to all personal property, goods, chattels, vehicles and wine and other property (including choses-in-action) in the possession or control of such party as at this date save that the husband shall retain ownership of his personal items located at the O Property;
(b)All insurance policies remain the sole property of the owner named thereunder;
(c)Each party be solely liable for and indemnify the other against any liability encumbering any assets to which that party is entitled pursuant to these Orders; and
(d)Any joint tenancy in any real or personal property be otherwise expressly severed
28.There is liberty to the parties to apply with respect to the terms and conditions of any sale or any matter pertaining to the operation of these Orders.
29.Otherwise all extant applications be dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Hyndman & Garside has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
HARTNETT J:
INTRODUCTION
For over two years the parties have been involved in litigation in the court primarily over whether the freehold land on which the parties’ B Company business is established, and on which the former matrimonial home (“FMH”) is situated, will be retained by, and otherwise transferred as to part, to the wife or will be sold. The parties’ self-managed superannuation fund, E Super Fund (“SMSF”) holds in particular, a 50 per cent interest in the freehold land on which the B Company business operates, raising further issues for the parties in determining how they should divide between them their property and superannuation assets.
Other issues in dispute included the parties’ 50 per cent interest in the property owned by the company G Pty Ltd, and how best to deal with that interest given the investor advances associated with both that property interest and B Company which trades from that freehold, namely the C Company (“the C Company”).
The quantification of the Applicant wife’s (“the wife’s”) initial contributions were also contested.
Issues which were ultimately intertwined with the court’s consideration of these matters were what the parties’ outstanding debts were, both personal and those of their entities and businesses, including the parties’ personal guarantees for approximately $1,080,000 and the wife’s personal guarantee for $300,000 (a total of $1,380,000).
The trial commenced on 13 to 15 January 2021 and continued on 8 to 10 June 2021 inclusive. On 10 June 2021, I made orders by consent that:
…within 7 days the parties in their personal capacities and/or their capacities as directors of E Pty Ltd as trustee of E Super Fund, do all acts and things and sign all documents necessary to enable the Husband to withdraw $34,495 (being 2.5 percent of the husband's retirement phase pension) held in the E Super Fund's ANZ account number …45, with any such withdrawal/s made by the husband to be recorded in the financial accounts of E Super Fund as a withdrawal from the husband's member balance, and characterised as a partial property settlement to the husband.[1]
[1] Consent Orders of 10 June 2021.
The parties made closing written submissions with the Respondent husband (“the husband”) filing his submissions on 9 July 2021 and reply submissions on 28 July 2021, and the wife filing her submissions on 21 July 2021.[2] In those submissions, the parties agreed, albeit with slightly different proposals, that the husband would transfer his interest in the C Company and the freehold to the wife and that the wife would indemnify the husband against, and secure the release of the husband from, or obtain a discharge of, all guarantees given by the husband in respect of any debt associated with the C Company entities and the conduct of that business.
[2] Pursuant to Orders of 10 June 2021.
The wife sought an overall 70/30 per cent split in her favour of the parties’ property and superannuation interests, with the husband to receive 30 per cent of such assets.
It was submitted by the wife that orders should be made whereby the wife retained ownership of the C Company and the B Company enterprises, including the parties’ interest in the freehold from which such businesses operated, and be liable for all associated liabilities including personal guarantees, and retain ownership and control of the SMSF. She sought the husband be required to renounce all roles in the companies and trusts that combined to make the Garside Group, (as defined hereafter) and transfer all his interests, title and right in such entities to the wife. Contemporaneously with the husband doing so, the wife proposed that she make a payment to the husband in such sum as determined by the court by way of 50 per cent cash and 50 per cent superannuation split. The wife further proposed that $111,357, being the value of the assets as claimed by her the husband would keep, be deducted from any payment she was ordered to make to the husband.
In addition, the wife sought orders that the husband return the Motor Vehicle 1 owned by D Pty Ltd (“DPL”) to the wife; collect all his belongings and possessions from the O Property situate on B Company freehold, and transfer all his hotel loyalty points to her. There was a paucity of evidence from either party about these loyalty points and I determine no just and equitable outcome in the making of such order in the entire circumstances of the case.
Counsel for the wife confirmed at the closing of the trial that the wife “wants to keep B Company and the C Company and she will refinance all of the financial loans into her name solely so the husband is completely clear.”
If the wife were unable to make such payment to the husband, as is ordered by the court, the wife proposed orders to sell the SMSF “N Property” real property, and if those net sale proceeds did not satisfy the payment due, then there be a sale of the B Company business conducted by the parties together with the freehold on which it operates. The wife did not propose to sell the parties 50 per cent interest in the C Company entities in any circumstances, in particular where there was likely to be no interested buyer willing to take on a half interest in a business with potentially considerable debt attached to it. The husband, not surprisingly, no longer wished to remain as a 25 per cent shareholder in this venture given the hostile nature of the relationship between the persons owning the other 50 per cent interest – who say they will not work with him – and the breakdown of the relationship between he and the private investors external to the owners. He is content for the wife to retain this long term investment of the parties.
The husband sought an equal division of the parties’ property interests including superannuation. He proposed the sale of the B Company and its freehold known as and situate at 2 J Street K Town in the State of Victoria (“B Company”) with the net proceeds of sale after the costs and commissions of sale, and the discharge of all debts of D Pty Ltd (“DPL”), to be applied as follows:
(1)approximately $200,000 to Ms P;
(2)approximately $100,000 to Ms Q;
(3)approximately $80,000 to Ms R;
(4)approximately $100,000 to Ms Q and Ms R;
(5)approximately $600,0000 to the T Pty Ltd SMSF; and
(6)approximately $300,000 to Mr and Ms S
with any balance to be divided equally between the parties.
The husband sought that the plant and equipment of DPL be sold and that rental arrears to the SMSF (acknowledging there were also rental arrears to the wife personally in differing percentage) be paid and that DPL be wound up. He sought that both parties retain all bank accounts in their own names, and their own shares in F Company both holdings in relation to which there was no value, with the wife to keep L Street, M Town in the State of Victoria being a property land holding registered in her sole name.
The husband sought that he retain the real property on which the N Property, currently owned by the parties’ SMSF, were built upon any superannuation split between the parties and that otherwise the wife retain the SMSF for her own use or alternatively that the SMSF be wound up.
MATERIAL RELIED UPON
The wife relied upon the following documents:
(1)Amended Initiating Application of the wife filed 2 October 2020;
(2)Trial Affidavit of the wife filed 2 October 2020;
(3)Financial Statement of the wife filed 2 October 2020;
(4)Reply Affidavit of the wife filed 24 November 2020;
(5)Affidavit of Ms U filed 28 April 2020;
(6)Affidavit of Ms S filed 28 April 2020;
(7)Affidavit of Ms W filed 28 April 2020;
(8)Affidavit of Mr T filed 28 April 20202;
(9)Affidavit of Ms R filed 28 April 2020;
(10)Affidavit of Ms Z filed 4 January 2021;
(11)Affidavit of Single Expert Witness by Mr AA filed 24 November 2020;
(12)Outlines of Case of the wife filed 4 January 2021 and 17 June 2021; and
(13)Written Submissions of the wife filed 21 July 2021.
The husband relied upon the following documents:
(1)Amended Response to Final Orders of the husband filed 30 October 2020;
(2)Affidavit of the husband filed 4 November 2020;
(3)Financial Statement of the husband filed 30 October 2020
(4)Outlines of Case of the husband filed 11 and 12 January 2021; and
(5)Written Submissions of the husband filed 9 and 28 July 2021.
The husband also sought leave to rely on the Affidavit of Mr BB filed 12 January 2021 which was opposed by the wife. Leave was not granted by the court.
Both the wife and the husband were cross-examined on the contents of their affidavits, financial statements and other relevant matters. The wife corrected paragraph 24 of her trial affidavit and affirmed that it should read “balance” and not “savings.”[3]
[3] Transcript 14 January 2021, p. 16 line 20.
Each of the witnesses of the wife, save the Single Expert, Mr AA and Ms R (the wife’s maternal aunt) were cross-examined by Senior Counsel for the husband. Where no cross-examination occurred that evidence was not challenged by the other party and that evidence was accepted by the court. In particular, the evidence of the Single Expert was accepted by the court and any contrary views in submissions as expressed by the husband were given no weight.
Statements of fact in these reasons are findings of fact on the balance of probabilities.[4] It is not necessary in these reasons for judgment to comment upon the entirety of the evidence including the evidence of each witness, nor to comment on every exhibit tendered. However every piece of evidence relied upon by the parties has been read and carefully considered by me.
[4] Evidence Act 1995 (Cth) s 140.
Single Expert Witness Mr AA
Mr AA of CC Valuers undertook valuations of B Company business and freehold on which B Company operated, and the C Company business and freehold from which that entity operated. Mr AA was approached by the parties subsequently to provide an updated report in February 2021 given the parties uncertainty about the inclusion of certain items in B Company business valuation. He confirmed by letter to the solicitors for the parties dated 18 February 2021, that his valuation included the plant and equipment of B Company. He valued B Company business and freehold on 9 October 2020 at a market value of $3,000,000. In his correspondence of 18 February 2021 he did not alter his valuation figure. He valued the C Company business and freehold on 9 October 2020 as having a market value with vacant possession at $825,000. The market net rental value of the business was $70,000 per annum.
BACKGROUND
The history of the parties’ relationship was mostly not in dispute. The parties met in 2002, were engaged in 2002, and commenced cohabitation and married in 2003. After approximately fourteen years of a mostly happy and productive marriage, the parties separated in July 2017 and divorced on 15 September 2018. Their two children, X, who at trial was 17 years of age, and Y, who at trial was 16 years of age (“the children”) have lived with the wife since separation which occurred over four years ago.
The wife was 46 years at trial. The wife holds a university degree, is a company director, and project manager. The wife and the children reside at the former matrimonial home, being the main house situate at 2 J Street K Town in the State of Victoria, which is the freehold land on which the parties’ business, B Company (“B Company”) operates. The wife is in good health and operates the parties businesses as hereafter described.
The husband was 69 years at trial. The husband has three adult children from a previous marriage. The husband is “essentially retired” aside from being a director of a number of the parties’ companies. He was previously employed as a scientist and tradesperson. The husband re-partnered and has, since 2019, lived with his de facto partner Ms EE, in Suburb V. She has provided for his day to day living expenses and made payment of his legal costs. I observe that those costs are a personal debt of the husband owing to Ms EE, not proper to include in the asset pool. Nor does the husband seek that. Likewise, the wife’s post separation personal debt is her own. The husband is generally in good health but has, “ongoing issues with skin cancer, hearing loss and vision loss.”[5]
[5] Affidavit of husband filed 30 October 2020 p 3.
Since separation, X has had almost no contact with the husband, and Y has had some contact with her father. At the time of the wife filing her trial affidavit, X was attending FF School in GG Town as a border, when his health and circumstances permitted, and as funded by the wife to the extent that was required. Y was attending HH School in JJ Town as also funded by the wife. The husband has made no real contribution to the support of the children since the cessation of receipt by him of his pension from the parties SMSF in early 2019.
Over the course of the parties relationship, and ongoing, the parties have operated, through a corporate and Trust structure their business enterprises. Collectively, that structure is referred to as the Garside Group which consists of the following:
(1)DPL (the trading entity that operates B Company). Both the husband and the wife are each the director and secretary of DPL but the husband is the sole shareholder, holding 100 per cent of the shares;
(2)E Pty Ltd (“EPL”) which is the trustee of the parties’ SMSF. The husband and wife are both directors of the E Super Fund and are both 50 per cent shareholders. The SMSF holds cash in the bank and interest in the following real property:
(a)50 per cent of 2 J Street, K Town ( on which “B Company” operates); and
(b)4 J Street, K Town (“N Property”) subject to a mortgage to the Commonwealth Bank of Australia.
(3)C Pty Ltd trading as the C Company, situate at M Street, K Town (“the C Company”). The husband and wife and Mr and Ms U (“the U Family”) are each directors and 25 per cent shareholders. Ms U and the wife are company secretaries;
(4)G Pty Ltd (“G Company”) which is the trustee of the G Trust (“G Trust”). It owns the freehold for the C Company. The parties and the U Family are each directors and shareholders. The SMSF holds a 50 per cent interest and the U Family Super Fund holds the other 50 per cent interest;
(5)H Pty Ltd (“HPL”) which is the Trustee for H Unit Trust (“Unit Trust”). The parties are both directors and shareholders of the Trustee Company. The Trust is inactive;
(6)the wife’s 50 per cent interest in 2 J Street, K Town (on which “B Company” operates) held as a tenant in common in equal shares with the SMSF;
(7)L Street M Town, (“L Street”) owned by the wife, subject to mortgage to Australia and New Zealand Banking Group (“ANZ”).
The former matrimonial home (“FMH”) is situate in K Town in country Victoria in part as a result of the husband’s living arrangements prior to meeting the wife. In 1988, the husband purchased the real property on which B Company business was initially established and developed by him. That property was situate at 2 J Street, K Town in the State of Victoria (“2 J Street”). The husband set up the corporate structure DPL to develop B Company enterprise. B Company at trial continues to trade through DPL. B Company was previously known as “KK Company” but that trading name was changed by the husband to “B Company”. In 1998, Mr and Ms LL (“the LL Family”) purchased a 50 per cent interest in DPL. The husband was the “primary manager” for B Company.[6] This initial purchase by the husband, and then sale of a part of his interest to the LL Family, preceded the commencement of the husband’s relationship with the wife. In 2006, some three years after the commencement of the parties’ cohabitation, the LL Family indicated their desire to exit DPL and B Company business. Up until that time, the LL Family had placed significant funds into B Company business for the purposes of expanding it including by necessary infrastructure. Whilst B Company business was running at a loss, the parties ultimately benefitted from that expansion and injection of funds by the LL Family who lost money in the process of their investment. The parties purchased the LL Family’s 50 per cent interest in B Company and the freehold in the sole name of the wife at a cost price of $414,000 as well negotiated by the wife. Shortly after, the parties built the former matrimonial home on the freehold from which B Company operated. They expended over $1.1 million on the home.
[6] Outline of Case of husband filed 12 January 2021 p 1.
Around 2010, the husband’s 50 per cent interest in the J Street real property was transferred to the parties’ SMSF.
In 2014, the parties built the O Property, at B Company premises, and built the N Property at 4 J Street, K Town (“N Property”).
In 2016, the parties, along with the U Family, purchased the C Company enterprise. Each of the U Family and the parties have a 50 per cent interest in the real property and in B Company. The C Company was extensively renovated/rebuilt between 2016 and 2017 and contributed to by the parties and the U Family by virtue of hard physical labour where tasks were able to be completed by them. The C Company was subsequently opened around September 2017, just after the parties’ separation.
On 25 October 2018, DPL was served with a Magistrates’ Court Complaint by the company’s former accountants, MM Accountants, seeking that the company pay them $97,770.10 plus interest and costs (“the MM Accountants matter”). The husband had little to do with this litigation which was run by the wife. In November 2020, the MM Accountants matter settled and the parties made a payment of $35,000 to MM Accountants on 18 December 2020. Additional to that sum, however, the parties paid their own costs of the litigation in the sum of approximately $70,000.
Following the parties’ separation under one roof in July 2017, and on 20 December 2018, the parties signed a Heads of Agreement which the husband subsequently refused to proceed with on the anticipated settlement date of 31 January 2019. He would not consent to the making of final property orders in the terms of the Agreement after having sought further legal advice. The Agreement provided for the husband to receive an upfront sum of $600,000 followed by eight instalment payments of $50,000 over eight years.
In March 2019, the husband withdrew $14,000 from the SMSF’s bank account. He needed money on which to live. These were funds to which he was entitled. He had received no funds of any description from the operation of the parties businesses or from the SMSF since January 2019. Prior to that, he had received pension phase payments from the fund since 2014. In January 2019, the wife took out of the SMSF account an amount of $600,000, partially comprising borrowings of $300,000 from third parties at arm’s length Mr and Ms S (“the S Family”), to pay out the husband the Heads of Agreement stipulated sum. When that settlement did not proceed, the wife did not reconstitute the SMSF until September 2019, when by consent order the parties were injuncted from removing any of those funds. Thus, the husband has not been able to access any pension payments from the SMSF from January 2019. He is not able to access Centrelink benefits because of the parties’ property and superannuation interests. The wife did not return the borrowings to the S Family who at trial were content to leave their monies invested with the wife.
On 16 September 2019, a registrar of the court made orders by consent, inter alia, for the valuation by a single expert witness of B Company (including the freehold, water rights, buildings, improvements and business specific plant and equipment), the product stock of DPL, and the C Company freehold; for a market appraisal of the N Property; restraining the parties by injunction from removing funds from the SMSF bank account and the loan account with DPL unless with the written consent of the other or by court order.
On 5 May 2020, the court made further orders, including for the husband to withdraw $50,000 from the SMSF’s bank account as a withdrawal from the husband’s member balance with such withdrawal to be characterised at trial. It was not a part property payment as suggested by the wife at trial. At that stage, the husband had been without funds for 16 months, save for the earlier referred to $14,000 and was reliant on the support provided by his de facto partner. He needed funds to live on, and was entitled to withdraw such monies from his own superannuation fund. Such withdrawals in these circumstances should not be characterised as a part property payment to the husband.
IS IT JUST AND EQUITABLE TO MAKE A PROPERTY SETTLEMENT ORDER?
Section 79(1) of the Family Law Act 1975 (Cth) (“the Act”) provides that the Court may make such orders as it considers appropriate altering the interests of the parties to the marriage in the property of the parties. Section 79(2) of the Act provides as follows:-
The Court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.
If the Court is so satisfied that it is just and equitable to make an order altering the interests of the parties in property, s 79(4) of the Act sets out the matters which the Court must take into account when considering what order (if any) should be made.
The High Court of Australia (“the High Court”) in Stanford v Stanford (2012) 247 CLR 108 (“Stanford”) revisited the process for trial judges in altering property interests of parties pursuant to s 79 of the Act for married parties, and s 90SM of the Act for de facto couples. The High Court emphasised the requirement for the Court to establish firstly, that it be just and equitable in the particular circumstances of the case to make any alteration of property interests. In this process, the question presented by s 79(2) of the Act, namely, “whether, having regard to those existing interests, the Court is satisfied that it is just and equitable to make a property settlement order,”[7] must not be merged with, or supplanted by the inquiries under ss. 79(4)/90SM(4) of the Act.[8] In determining whether it is just and equitable to make an order, the matters which can be taken into account do “not admit of exhaustive definition.”[9] However, there must be a “principled reason for interfering with the existing legal and equitable interests of the parties to the marriage.”[10]
[7] Stanford v Stanford (2012) 247 CLR 108 [37].
[8] Ibid [51].
[9] Ibid [36] referring to Mallet v Mallet (1984) 156 CLR 605, 608 per Gibbs CJ.
[10] Ibid [41].
The High Court stated further at [42]:
42. 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. 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).
Both parties sought that I alter the existing legal and/or equitable interests in property of each of them, and both argued that it would be just and equitable to do so.
The Asset Pool
The following table outlines the legal and equitable interests of the parties as determined by the court including superannuation:[11]
[11] Written Submissions of husband filed 9 July 2021 p 1-3; Written Submissions of wife filed 21 July 2021 pp 22- 23.
A. Personal asset and liabilities of the parties
Assets & Liabilities
Owner
Value
2 J Street, K Town (B Company)
50% interest – wife
$1,500,000
L Street, M Town ($250,000 Less: ANZ mortgage of $181,621)
wife
$68,379
Wife’s SS Company Shares (purchased 4 Feb 2021) (less bank liability of $30,000)
wife
$Nil
Subtotal – personal property
$1,568,379
B. Interest in D Pty Ltd (husband 100% owner)
Product Stock of B Company (as at 12 Nov 2019) DPL (as at 12 November 2019) $729,790 Motor vehicles and caravan DPL $145,513 Plant and equipment inclusive of Motor Vehicle 2 (not included in CC Valuers valuation) as agreed
DPL $92,650
Less: unpaid rent of $8,850 per month to 30 April 2021
and continuing, including COVID 25% discount applied
DPL
($218,657)
Less: Hire purchase debts DPL ($61,356) Less: Loan from Ms P DPL ($200,000) Less: Loan from Ms Q DPL ($100,000) Less: Loan from Ms R
DPL
($80,000)
Less: further loan from Ms Q and Ms R
DPL
($100,000)
Less: loan from T Family SMSF
DPL
($600,000)
Less: loan from Mr and Ms S
DPL
($300,000)
Less: Debt owing to Australian Taxation Office (as at 11 Jan 2021) DPL ($55,204) Subtotal – DPL
($747,264)
C. Interest in E Super Fund (“SMSF”)
Interest in B Company (50% interest)
E Super Fund
$1,500,000
Unpaid outstanding rent of $8,850 per month to April
2021 and continuing, including COVID 25% discount applied
E Super Fund
$218,657
4 J Street, K Town (the "N Property")
E Super Fund
$770,000
Less: Commonwealth Bank loan over N Property
E Super Fund
($225,370)
Cash held in ANZ bank account
E Super Fund
$373,059
42 (including $34,495 as paid out to the husband as a part property payment by order made on 10 June 2021)
Loan from E Super Fund to the C Company
E Super Fund
$150,000
Subtotal – SMSF
$2,786,346
D. Other
50 per cent interest in G Trust
husband and wife
Nil
50 per cent interest in C Pty Ltd
husband and wife
Nil
Subtotal $Nil TOTAL
$3,607,461
ISSUES IN DISPUTE IN CALCULATION OF THE ASSET POOL
Office Equipment
The husband included office equipment at $16,083. It was conceded at trial that the CC Valuers valuation report included all plant and equipment, save that agreed.
Non-Payment of Rent
The parties SMSF is non-compliant as advised by the auditor of the fund to the parties and to the Australian Taxation Office (“ATO”). On 31 March 2021, the ATO wrote to the trustee of the SMSF and informed the trustee that the SMSF was non-compliant and needed to be rectified. The contraventions of the fund are the non-payment of rental by the parties. In her affidavit sworn 26 August 2020, the wife indicated her intention to pay, in 2021, to the SMSF, both the then arrears of rental and ongoing rental. Her position at trial was that there were not funds in DPL to pay the arrears and ongoing rental to either herself or the SMSF. Despite the non-payment of rent in the financial years ended 30 June 2020 and onward (and a small amount not paid in the 2019 financial year), being a period post separation, the DPL accounts prepared on an accruals basis, have made provision to accrue the rental expenses, in circumstances where such expenses have not yet been paid into the SMSF. A corresponding tax deduction has been obtained in the DPL accounts. On the basis of these matters, the husband included the rent accumulated and outstanding to the SMSF in the sum of $218,657 in calculating DPL’s property interests and those of the SMSF.
At trial, it was the wife’s evidence that the rental debt could likely be offset against the capital investment that the parties made in the O Property, or alternatively the debt could be written off. I note the capital investment is recorded in the accounts of DPL in the sum of $600,484, the traditional historical costs basis, and that its valuation as determined by the Single Expert is considerably less than the cost, namely $125,000. Further, that DPL invested these funds in the building of a home on a freehold owned by the wife and the SMSF, and being a freehold the wife seeks to retain.
The other trustee, being the husband, does not agree with the wife’s solution of writing off the debt or offsetting the capital investment, and the position of the ATO as to those proposals is not known. The husband seeks that the rent be repaid. It is clearly advantageous for the monies to the husband for the monies to be in the SMSF, funding his retirement as is the nature and purpose of such a fund. The wife’s evidence was “there’s no income to pay the rent.” The court does not accept that evidence.
DPL owes the SMSF $218,657 in rent. B Company has prioritised other payments, including payments to the wife, and the parties SMSF is now in default. Whilst there was no written agreement in relation to the payments, DPL historically paid rent to the SMSF and was required to do so.
On 10 June 2021, the court made orders that the husband be paid $34,495, being 2.5 per cent of the husband’s retirement phase pension, from the SMSF within seven days. The purpose of such consent order, as agreed between the parties, was to prevent the SMSF from committing a further contravention with the ATO.
The rental monies owing, I accept, should be included in the asset pool.
Payables
Inclusive of the outstanding rental expenses not paid as at the 30 June 2020, were expenses reported on an accrual basis that likewise were not actually paid. In total $522,165 of expenses claimed by DPL were not actually paid.
The husband sought to include “payables” of $522,165 as an asset of DPL. I do not accept such sum should be included in the asset pool available for division between the parties. The payables of $522,165 are not an asset of DPL as submitted by Senior Counsel for the husband, in my view, save the “payables” outstanding rental payments already included in the asset pool. Ms Z, management consultant and chartered accountant, who was called as a witness by the wife gave evidence that such description as “payables” described expenses claimed against income, but not paid. The liability for the payment remains.
It was Ms Z’s further evidence that the reference to “payables”, under “current liabilities” in the document prepared by her entitled “D Ltd Cashflow Statement, combined 2019-2022” was a reference to expenses, or as otherwise described by Ms Z as “just trade creditors”. Ms Z confirmed that of the listed expenses in that document of $1,135,479, the expenses of $522,165 “haven’t been paid yet.”
Ms Z’s evidence also established that of $1,035,479 expenses claimed, $522,165 had not been paid but that $513,314 had been paid. The income after costs of goods sold was $779,826. After deducting those expenses paid, a surplus of $266,512 approximately remained to be expended at the discretion of the wife. The issue is that surplus, and what became of it. The wife did not pay the rent owing to the SMSF, nor herself. She did not pay down debt. She did not save the monies. She paid herself and other’s salaries, and in all probability she paid the expenses that remained incurred in that financial year, but, were unpaid. It is not possible to include this amount as available funds to be distributed between the parties.
Addback of monies received by the husband in 2019 and 2020
I refer to paragraphs 33 and 35 of these reasons for my decision not to place these funds in the asset pool as agitated for by the wife.
Additionally, I accept the fulsome submission of Senior Counsel for the husband as to this matter, namely: [12]
The two sums withdrawn by [the husband] from his superannuation pension fund should not be added back into the asset pool. It is not contentious that those sums are the only financial benefit he has received since separation from the income producing capacity of the parties' assets, in circumstances where the very existence of his superannuation entitlements precluded him from receiving any Centrelink benefit. He has been entirely dependent on others. He is aged 69, and now retired. He had, during the marriage, created a superannuation pension stream of income for himself upon retirement. He was prevented from accessing that income, and as a result has had access to no joint money at all. In contrast the Wife has continued to receive a wage and benefits from the business, which she continued to occupy, to the exclusion of the Husband.
[12] Closing Written Submissions of husband filed 9 July 2021 at p 7.
Product stock Value
The wife deposed in her trial affidavit sworn 29 September 2020, to the DPL product stock value at $460,365 and repeated that assertion in her reply affidavit list of assets and liabilities. In closing submissions the wife asserted the value at $384,775 without leading any evidence to support the change. The value of the product stock was fixed by single expert, Mr NN, in his valuation as at 12 November 2019 at $729,790, which is the figure adopted by the husband in his asset pool calculation. Whilst that valuation was significantly outdated at trial, it was the only reliable evidence the court had. The wife chose not to update the Single Expert Valuation. No further valuation had been obtained by the wife and her assertion only, in the context of the court’s difficulty in relying simply on her assertions, without probative supporting material, was not compelling evidence. Indeed there was little reliable evidence regarding the actual financial position and dealings of DPL, apart from the uncontroversial capital debts to lenders totalling $1,380,000.
The C Company loans
The C Company is located at M Street, K Town.
The C Company business operates from this property. It currently operates at a loss.
The wife used her professional skills to manage significant renovations to the business. The wife manages the C Company with Ms U.
At trial the parties agreed with the evidence given by Ms U that the U Family’s loaned funds to the C Company business and that $666,000 was currently outstanding in respect of that loan. The parties themselves had advanced the sum of $150,000. For each of the parties, and the U Family, their investment was a long-term one, described as a “10 year plan”. That plan included a repayment of all outstanding loans, from the ongoing profits of B Company over that period.
The outstanding debts of the C Company and its entities included further loans obtained from Mr and Ms W’s SMSF in the sum of $1,200,000; and from Mr T’s SMSF in the sum of $600,000.
It was the wife’s position, which never altered, that the husband should transfer his 25 per cent interest in the C Company and its entities to her and that she retain all interests owned by the parties in the C Company business. The husband proposed initially that each of the parties retain their respective interests in the C Company. By the conclusion of the trial, the husband proposed that if he was removed as guarantor for all of the C Company’s and its entities’ debts, then he would be prepared to transfer his shareholding to the wife.[13] The wife agreed to that course.
[13] Affidavit of the husband filed 30 October 2020 page 34.
The husband submitted that while both the parties were guarantors for the outstanding debts of the C Company to the W and T Super funds, the wife “does not propose a payment of the debts” and that the investors, including the co-owners, had not called upon the parties to repay the debts.[14] The evidence accorded with that submission.
[14] Summary of Argument of husband filed 12 January 2021 p 4.
Ms W and her husband Mr W (“Mr W”) are Trustees of W Family Super Fund (“W Fund”). The W Fund loaned G Trust $1,200,000 pursuant to a loan agreement which made provision for interest payments to be made to the W Fund dated 4 May 2016. The repayment date was the 31 December 2019. No repayment of the loan was made. Ms W’s evidence was that it was the belief of Mr W and she that the parties’ family law matter had settled in December 2018. Accordingly, they agreed with the wife only, to extend the duration of the loan in January 2019, on the understanding that the funds were no longer being loaned to the husband and/or or his entities or trusts. The W Fund does not intend to seek repayment in full or any part of the loan at the present time and is prepared to continue to lend to G Trust provided that the husband has no involvement with the C Company. Mr T had a similar view as to the husband’s ongoing involvement. He wanted to deal solely with the wife. He also was happy to keep his SMSF monies invested in the C Company enterprise and had negotiated with the wife deferral of capital repayments and reduction of interest rates payable such that his current interest rate return was 6.75 per cent.
Ms U made clear her intention not to call up the $666,000 advanced by she and her husband’s self-managed superannuation fund because of her desire to keep B Company operating. Her intention was that the capital advanced by she and her husband would be repaid over a 10 year period of business operations. The U Family made clear their intention to continue to operate B Company enterprise in conjunction with the wife alone. Ms U gave evidence that “under no circumstances am I, nor is Mr U, agreeable to [the husband] retaining his interest in the C Company and therefore the entities involved.”
It was submitted by the husband that the C Company debts should not be taken into account when calculating and dividing the asset pool, because the husband “pays the wife, not the lenders, his portion of the debt outstanding”.[15]
[15] Written submissions of husband filed 9 July 2021 p 14.
I agree with the submissions of Senior Counsel for the husband as to the debts of the C Company, in particular, the evidence discloses the accuracy of these matters:
(a)The lenders to the C Company were cross-examined as to their intention to call in payment, and all said they would not do so, but expected to be paid at some time, effectively when affordable to the C Company enterprise. The wife’s evidence was that the lenders had agreed to not demand payment. Thus the debts are not due and payable now by the C Company, as no demand has been made, and oral agreement has been reached to the contrary.
(b)The parties are guarantors, not principal debtors. Until the lenders have unsuccessfully sought payment from the principal debtors, being the C Company corporate entities, C Pty Ltd and the G Trust, the parties’ liability remains contingent. There is not liability until the guarantee can be called up. The C Company enterprise would go into liquidation before that occurred.
(c)Any potential debt arising from the guarantees is both contingent and unable to be quantified. The guarantees on the debts are joint and severable between the four partners. The lenders could seek the entire amount from any one of the four guarantors. There is no debt certain to either party and thus the asset pool should not be calculated on the basis that there is.
The remaining matters in respect of the C Company enterprise were:
(a)It was the wife’s evidence that a $13,000 unpaid interest liability remained to Mr & Ms W.[16] However, it was Mrs W evidence that she was owed no interest and that the wife was reliable in meeting her loan obligations, save where the 2020 bushfires and COVID- 19 impacted the payments being made in a timely way for a short period. That evidence is accepted by the court. Mr and Ms W’s have no security for their W Family Super Fund advance of $1.2 million to the G Trust. They have “never asked for the money back”[17] but rather have requested that the money be reinvested. Interest continues to be paid to Mr & Ms W in respect of their investment being at trial, at the rate of 6.5 per cent.
(b)The wife also submitted that the G Trust has an ATO debt of $10,510. This was refuted by the husband who submits that if such debt existed “it should have been paid prior to the wife paying herself a ‘consultancy’ fee of approximately the same amount.” No satisfactory documentary evidence was placed before the court by the wife to support her assertion. The court can make no finding as to this. Such a debt suggests profits are being made.
(c)The wife sought also to include “creditors etc. $251,848” as a liability of the C Company. There was no probative evidence supported this assertion, and nor was there for the wife’s assertion of an ATO debt of $57,589 in circumstances where the C Company is claimed by the wife to be running at a loss. The court does not accept the accuracy or existence of these debts. Likewise, the G Trust liabilities claimed by the wife being “formation loans” and ATO debt. The court can make no finding as to the existence of these debts, or indeed what “formation loans” comprise.
[16] Case outline of the wife filed 17 June 2021.
[17] Transcript 8 June 2021, p. 348 line 30.
The Boat
It was the wife’s submission that the husband had an interest in a boat with his share being worth $12,000. No valuation evidence supported this assertion. The husband gave evidence that he and his friends had all purchased a boat some years ago and that he does not own nor have a severable interest in the boat.[18] It was his evidence that he had paid $20,000 toward the boat purchase, and that it has always been owned by Mr OO. The husband is not responsible for those expenses of an owner. Since moving to Suburb V, the husband’s evidence was that he had only been fishing in his “tinnie”, which is the only “boat” that he owns, worth $300, and that he has not had the ability to use the boat to which he contributed $20,000 for an extended period of time. I am satisfied that the husband does not have a severable interest in the boat and that it is not an asset of the parties.
[18] Ibid.
Addback: The wife’s Legal Fees
The husband submitted that the paid legal fees of the wife in the sum of $137,934 paid over a three year period should be added back to the asset pool. Senior Counsel for the husband referred the court to the decision in Chorn v Hopkins (2004) FLC 93-204.[19] In that case the Full Court held that:[20]
56. While the treatment of funds used to pay legal costs remained ultimately a matter for the discretion of the primary Judge, in determining how to exercise that discretion, regard was to be had to the source of the funds.
57. If the funds used to pay legal fees existed at separation, and were such that both parties could be seen as having an interest in them, then such funds were to be added back as a notional asset of the party who was to have the benefit of them.
58. If the funds used to pay legal fees had been generated by a party post-separation from his or her own endeavours or received in his or her own right, 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.
[19] Ibid p 7.
[20] Chorn v Hopkins (2004) FLC 93-204, [56] – [58].
The husband submitted that the wife has had the sole benefit of B Company, “paid herself a wage and consultancy fees, in addition to income she earned from consultancy work outside the business” and that if she had not applied that money to the legal fees she could have reduced the parties’ company debts. The husband further submitted that if the legal fees were not added back, it would contravene s 117 of the Act in so far that each party bear their own costs.[21]
[21] Ibid page 7.
The wife’s legal fees have been paid by borrowings from her friends and parents and from receipt by her of “off-farm income”[22] for the most part. She has worked very hard and taken on an array of jobs to meet all her various commitments. In the exercise of my discretion and given the overwhelming source of the funds, generated by the wife solely, post separation, I do not “add back” this sum as sought by the husband.
[22] Transcript 15 January 2021 p 40 lines 10 – 35.
Other
The wife led no evidence at all of personal tax, which she sought to include as a liability of $42,433. In any event it would be tax payable on income she had earned, and had the sole use of, since separation, and should not be included in the asset calculation.
The wife included as a liability a personal loan she asserted in evidence she had accumulated from a friend in the sum of $43,000 since separation. It is a debt personal to her, and should not be included in the asset pool calculation. The husband has borrowed very extensively from his partner since separation, and the evidence established she had paid his legal costs and provided lodging and all expenses for him. The husband confirmed in viva voce evidence that he was obliged to repay her, and would be doing so upon property settlement. The wife sought to include her personal debts in the asset pool calculation, yet makes no mention of the very large personal debt of the husband, which at the time of swearing his financial statement on 30 October 2021 was $145,000.
The wife also claimed a Westpac credit card liability of $43,357. This is also her personal debt and should not be part of the calculation of the asset pool.
IS IT JUST AND EQUITABLE TO MAKE PROPERTY ORDERS BASED ON THE PARTIES’ RELATIVE CONTRIBUTIONS?
Being satisfied that it is just and equitable to make orders adjusting the property interests of the parties, what follows is a consideration of s 79(4) of the Act, set out below:-
(4) In considering what order (if any) should be made under this section in property settlement proceedings, the court shall take into account:
(a) the financial contribution made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(b) the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(c) the contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent; and
(d) the effect of any proposed order upon the earning capacity of either party to the marriage; and
(e) the matters referred to in subsection 75(2) so far as they are relevant; and
(f) any other order made under this Act affecting a party to the marriage or a child of the marriage; and
(g) any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.
Whilst I have considered as a precondition to making an order for property settlement whether it is just and equitable in all the circumstances of the particular case to make such an order, the Full Court of the Family Court in Bevan & Bevan (2013) FLC 93-545 at [86] made clear that the just and equitable consideration is one that “permeat[es] the entire process”. I will now turn to the contributions of the parties.
Stanford Consideration
I am satisfied that in all of the circumstances of this case it is just and equitable to make orders adjusting the wife and husband’s property interests. Each of the parties seek that I make such adjustment and can reach no agreement as to how that should occur. There is no common use of the parties’ property post separation. The implicit and express assumptions the parties may have had as to the arrangements made by them concerning their property interests were brought to an end at separation and thereafter.
CONTRIBUTIONS
An assessment of contributions is “holistic” in nature.[23] It is nevertheless of assistance to consider that evidence of contributions in the manner as set out below to provide some structure to the task.
[23] Dickons & Dickons [2012] FamCAFC 154, [24].
Initial contributions
In 1988, the husband and his first wife purchased the real property known as and situate at 2 J Street K Town (“B Company”). The husband proceeded to establish B Company, the first of its kind in the local area.[24] When the parties married in 2003, the husband held a 50 per cent interest in B Company [25] with the LL Family holding the other 50 per cent interest as described in paragraph 27 of these reasons. The husband claimed that B Company was valued at approximately $2,400,000 and had a debt of over a million dollars at the commencement of cohabitation. There was no valuation evidence to support this assertion. Whilst B Company business was struggling,[26] the freehold interest was owned unencumbered by the husband and B Company had obtained significant capital input for expansion from the LL Family and at trial represented $1,500,000 of the parties’ asset pool. Additionally, the husband was in receipt of income from the enterprise of $146,473 for the 2002 financial year.
[24] Affidavit of husband filed 30 October 2020 at paragraph 5.
[25] Affidavit of wife filed 2 October 2020 page 4.
[26] Affidavit of husband filed 30 October 2020 paragraph 37.
It was the wife’s evidence that at the time of the parties’ marriage on 15 March 2003 she made an initial contribution of $632,916 as set out below.
The wife was the sole registered proprietor of PP Street, Suburb QQ (“PP Street”), which she purchased in 1999 for a purchase price of approximately $164,000. The stamp duty cost associated with this purchase was $5,500 making the total cost to the wife to be $170,000. The property was purchased with the assistance of a RR Bank mortgage obtained by the wife around the time of purchase being in July 1999. The mortgage sums obtained by the wife were approximately $150,000.
The wife paid out the balance of the RR Bank mortgage, on her affidavit evidence, “in full prior to marriage.” The wife’s evidence suggested, as agreed by her in cross examination, that the wife had approximately $300,000 of equity in PP Street at the time of the marriage. That however was not the position and misrepresented the wife’s equity. That misrepresentation was the wife’s assertion that she provided an initial contribution of around $320,000 of the initial $632,000 contribution asserted by her by virtue of her claimed equity in PP Street.
The wife purchased a further property, being DD Street, UU Town (“DD Street”) which she purchased for the sum of $180,000, becoming registered on Title on 30 December 2002. The wife’s evidence in respect of the purchase of this property was that DD Street was “also security for the Westpac overdraft and, accordingly, a mortgage to Westpac was registered on Title.”[27] The wife’s further affidavit evidence was that, in respect of her encumbrance of DD Street “as at the date of marriage, I owed $79,885 with respect to the mortgage overdraft.”[28]
[27] Affidavit of wife filed 2 October 2020 at paragraph 21.
[28] Ibid.
The wife conceded in cross examination that by her evidence she conveyed that she owned PP Street unencumbered and DD Street encumbered by a debt of only $79,885 (an equity of approximately $100,000). Thus she asserted these to be a significant component of her initial contributions. This was contested by the husband and the evidence established that the wife’s account was false.
DD Street was fully encumbered at the time of marriage and it was not until December 2005, almost three years after the parties were married, that it gained equity and capital growth.[29] In that period, the parties’ joint monies were applied to service the loan outstanding in respect of the purchase.
[29] Written Submissions of husband filed 28 July 2021 p 1.
The wife’s purchase of DD Street was enabled not only by the Westpac mortgage overdraft initially but subsequently by a Westpac mortgage advance of approximately $342,000 which was applied by her, as discovered by the husband’s solicitors, as to $134,000 in effectively refinancing the PP Street mortgage on 25 November 2002 and otherwise in payment of the balance of the purchase price and associated costs of purchase of DD Street and used as security for a Westpac overdraft facility for the wife’s sole trader business. These factual matters were obfuscated in the wife’s affidavit evidence.
The wife sold DD Street in June 2017. The servicing of the DD Street mortgage was achieved through the parties’ joint endeavours and income.
At the commencement of cohabitation, the wife also owned a recently purchased (post 1 July 2002) one third interest in TT Street JJ Town (“TT Street”), the wife’s equity being approximately $7,700, which morphed into a one third interest in subsequent properties. The wife’s one third sequential interest in those JJ Town properties, was accompanied by liabilities in respect of such purchases in relation to which she notionally received partial rental receipts. These rental receipts did not result in any capital reduction in the mortgage. These properties had been sold sequentially and in July 2017, the wife received approximately $40,000 which she applied for the benefit of the family.
The wife also claimed to have a shareholding, valued at approximately $95,000 in March 2003.[30] The court does not accept this evidence, the wife providing no documentary supporting evidence. The wife had, at varying times, a shareholding which has been exhausted by her over the years in a sum unable to be determined on the evidence.
[30] Ibid p 6.
The wife had superannuation of $15,250 and savings of $4,000 approximately. Her claim to have additionally WW Bank savings of approximately $45,000 was unsupported by the evidence.
The wife also owned a Motor Vehicle 3, which the wife claimed had a value of $40,000. She neglected however, in her affidavit evidence, to include the corresponding debt associated with the purchase of this vehicle. At trial the wife was unable to provide any evidence as to the quantum of the debt at the time of purchase of that vehicle. The vehicle purchase appeared to be fairly contemporaneous with the parties’ marriage and payments to XX Finance were made by the wife on a monthly basis in respect of the purchase of this vehicle but in what total sum is unknown to the court.
Finally, at commencement of cohabitation and just prior thereto the income earnt by the husband not surprisingly, given the age difference, exceeded that of the wife. Again, the wife wildly exaggerated and misrepresented her contribution. The wife claimed in her trial affidavit[31] that her “invoiced income” for 2003 from her own business was $260,517. Her evidence at trial was that her income was approximately $200,000. She had a taxable income of approximately $52,653 in the 2002 financial year, and in the financial year ended 30 June 2003 her taxable income was $63,593. The husband had a 2001 taxable income of $69,491, a 2002 taxable income of $146,473 and a 2003 taxable income of $71,468.
[31] At paragraph 21.
Contributions during the relationship
In July 2004, the wife purchased L Street M Town in the State of Victoria (“L Street”) subject to an ANZ mortgage. That mortgage was also funded through the parties’ income and joint endeavours.
In 2006, in order to purchase the LL Family 50 per cent interest in DPL, returning B Company business as to a 100 per cent shareholding to the husband, and the freehold ownership to the parties, the parties used PP Street, DD Street, L Street and the husband’s freehold as security for a mortgage to YY Finance and on 4 August 2006 bought out the LL Family for $414,640.10 which consisted of a payment of $114,640.10 partnership debt, and approximately $300,000 for the LL Family interest in the freehold. The wife’s evidence as to this was that she solely bought out the LL Family interests by virtue of her ability to obtain finance in circumstances where the husband had no such ability, in particular because the wife had assets against which the refinancing could occur. The wife’s evidence was, “The total cash advanced by me at the time I bought the LL Family interest in B Company was in fact $590,040”[32] and “But for my contribution, B Company would have been lost.”[33] This is not accepted by the Court, and not supported, at all, by the evidence.
[32] Transcript 14 January 2021, p 70 at lines 37-38.
[33] Affidavit of wife filed 2 October 2020 at paragraph 24.
The wife’s further evidence was that she had “savings”, which at trial she altered to the word “balance” as at 21 July 2006, in the sum of $507,243 which she used to assist in the refinancing of the parties’ debt. Again, the wife did not have savings as had been consistently earlier asserted by her, but rather such monies as sitting in her ANZ One savings account at this time were, almost in their entirety, borrowed funds being the proceeds of an ANZ loan draw down of $490,779.65. Not only were the properties held in the wife’s name (to which the husband had contributed extensively) used to secure the refinancing debt advanced to the parties, but so too were the husband’s and LL Family interest in the real property from which B Company operated, a fact initially denied by the wife but ultimately conceded by her, and further borrowed funds to which the parties contributed to the capital reduction of, over time.
The parties undertook significant work at B Company and built a three story office space, an underground vault for functions, a second underground vault for storage, an outdoor lounge, a paved dining area under a vine-covered pergola, a new restaurant kitchen, a goods dispatch area and system, 153 solar panel power system, and renovated the retail space.[34] The wife’s skills were used to manage the builds of the FMH, the O Property and the N Property at 4 J Street, K Town.[35]
[34] Affidavit of husband filed 30 October 2020 p 13.
[35] Affidavit of wife filed 2 October 2020 p 9.
PP Street was sold in June 2009 for $393,000. The wife provided no real discovery as to the application of these funds but in cross-examination her evidence was that she used those proceeds so that the parties could finish the construction of the FMH. DD Street was sold in June 2017 for $315,000 with the proceeds of that sale providing a redraw facility against the L Street loan with those funds being drawn down by the wife for the purposes of the building of the O Property at B Company.[36] The cost of that construction was $600,484 with those funds being derived from both the DD Street proceeds and approximately $300,000 from DPL. The intention of the parties at the time was to build a house for the husband to live in on the property. The building of the house was not an “asset-building exercise” as stated by the wife, but rather a depletion of the asset pool by choice of the parties. It nevertheless now provides a rental income opportunity and prospect for capital gain of the freehold.
[36] Ibid p 7.
During the marriage, the husband worked at B Company. He received an initial weekly salary of $932 which by 2006 had gone up to $1,303 from DPL’s payroll which was paid into the wife’s bank account. The husband never operated a bank account. The wife worked for B Company managing the business, and estimates that she worked “more than 70 hours per week”.[37] She also undertook contractor work, and around 2017 worked for a start-up company in City VV called F Company.[38] In regard to the care of the children, while the parties’ occasionally had the assistance of nannies, the husband asserted that he was “the primary carer of the children” due to the wife’s work commitments.[39] There was no dispute between the parties that they each provided care for the children and that they each contributed equally both directly and indirectly to the welfare of their family and financial advancement of their wealth, including the maintenance of the parties’ assets during the period of cohabitation.
[37] Ibid p 8.
[38] Affidavit of husband 30 October 2020 p 4.
[39] Ibid.
In 2014, the husband commenced to receive a pension income from the parties’ self-managed superannuation fund. Such superannuation fund payments were paid into the wife’s bank account but it was only the husband who was at an eligible age to receive the payments. From the commencement of those payments until separation, the husband received a total of $490,000 which was used by the parties in the acquisition of their assets and for the benefit of their family.
Contributions post separation
Since separation the children have lived with the wife in the FMH. The wife has paid for all the children’s living and other expenses including private school fees and medical fees with contribution from the husband in the sum of $2,000 each month until such time as he was denied access to his superannuation pension. X is on a partial scholarship and in 2020 the school did not require the wife to pay any tuition fees for the third and fourth terms of his schooling. Additionally X was in receipt of a job keeper payment in 2020, albeit he was a full time boarder at boarding school. It was the wife’s evidence that he qualified by virtue of his being officially on the books of the C Company for the relevant period of time, being over the age of 16 years and described as living independently. In 2020, X applied $500 of his weekly Job Keeper payments toward his boarding school fees.
The wife has continued to manage B Company and the C Company, having effectively excluded the husband from the B Company and property. She has managed B Company through the 2020 Victorian Bushfires and COVID-19 pandemic. The wife seeks to continue her management of, and interest in, B Company and the C Company.
The husband ceased working at B Company and received his wage and entitlements including termination payments in January 2019.[40] He has not received any funds from the operation of any of the matrimonial assets since January 2019, save those referred to in paragraph 33, 35 and 5 herein, nor the rental receipts from DPL. The wife receives income from B Company as a subcontractor and otherwise has received consulting income from the C Company in two small payments. The husband has commenced to manage the N Property owned by the parties’ SMSF since May 2020.
[40] Ibid page 10.
The wife continues to pay the ANZ mortgage at $1,338 per month which is secured by the L Street property and is outstanding in the sum of approximately $185,000. The wife derived such monies for payment from (originally) B Company income, and at the time of trial from the parties’ SMSF, with those payments commencing in March 2017. The monies derived from the superannuation fund are transferred by the wife into her personal account. Such funds are then transferred by her to the residential loan account. Between 2017 and 2019, the SMSF was receiving rental payments from DPL. Those payments ceased on the basis, as claimed by the wife, of an inability to meet them. The L Street mortgage payments however continue to be taken by the wife, from the SMSF. The wife’s assertion that she solely was attending to the repayment of this loan out of personal funds did not withstand cross-examination on the matter.
The totality of the myriad of contributions referred to above and made by each of the parties have extended over a lengthy period. All have been taken into account, no particular contribution being isolated from another.
RELEVANT SECTION 75(2) MATTERS
The wife is some 23 years younger than the husband, she is in good health and has the ability to keep earning at a high level. She is very industrious, to her credit. The husband, while in relatively good health, has no cartilage in his right knee and “severely damaged cartilage” in his left knee. He has had ongoing treatment for multiple skin cancers with some having required removal. The husband was also diagnosed in 2018 with “retinal vein occultation which has resulted in permanent associated vision loss” and suffers some hearing loss.[41]
[41] Affidavit of husband filed 30 October 2020 page 16.
The husband’s earning capacity is significantly less than that of the wife considering his health, age, and his effective retirement since 2019. The husband receives no benefit from the parties’ companies. The husband’s financial statement provides his weekly income is $50.[42] The husband has had “no control of any matrimonial assets since separation, save for an old company car”.[43] The husband has accrued personal debt to his de facto partner in the past three years. The legal fees component of that is $145,000.
[42] Financial Statement of husband filed 30 October 2020.
[43] Affidavit of husband filed 30 October 2020 p16.
By contrast the wife’s income and earning capacity is secure and relatively high. She receives income from B Company and other sources, including consulting income from an external employer; has on ability to earn income as a professional with her skills having already been applied to the business, the O Property, the C Company, and the N Property, all save the N Property, which she shall retain together with their rental opportunities. The wife’s financial statement provides that the wife’s weekly income is $3,509 consisting of $1,650 from DPL and the C Company, child support received from the husband (it was $9 a week and at trial was nil) and approximately $1,850 from contracting work.[44] The wife also has access to “two company cars being Motor Vehicle 4 and Motor Vehicle 5”.[45] Additionally the wife obtained insurance payments, government grants and government support payments in respect of post separation bush fires in the B Company area and in respect of COVID-19.
[44] Financial Statement of wife filed 2 October 2020.
[45] Affidavit of husband filed 30 October 2020 p 16.
The children have been overwhelmingly supported financially and emotionally by the wife since separation. The wife’s support includes private school fees for the children.[46]
[46] Pursuant to s 66L of the Act.
Whilst the wife has had this significant parental responsibility she has also had the assets of the parties and occupation of the FMH to provide such support. The husband has not. The wife has nonetheless had to work very hard and take on considerable risk to continue to provide for the children and herself. She has not re-partnered as has the husband. The husband did not disclose his partner’s financial circumstances save that he and his partner reside in rental accommodation for which his partner pays the cost, as she does all his expenses.
CONCLUSION
Both parties should have a standard of living that is reasonable and that can be accommodated by an equal division of their assets and superannuation.
Each of the parties’ myriad of contributions were equal. Whilst the husband provided a greater initial contribution, the wife following separation has made greater contributions, such that the overall contributions are of equality as were the contributions during the marriage as conceded by the parties.
A consideration of the 75(2) matters overall did not alter the positon of an apportionment as between the parties of equality of their asset pool including superannuation. They both have personal debt, incurred post separation, at their discretion, which they will need to accommodate.
In my view, it is just and equitable that the wife be given the opportunity to retain B Company and freehold and thereby to continue to earn an income, including a rental income if she so desires; to obtain taxation benefits in the effective way she has to date; to obtain grants and the like which provided her with income of almost $160,000 in the 2020 financial year; and to obtain consultancy work which is more readily available to her as a result of her involvement in B Company enterprise. The wife will need such income to support herself and the children. She will also have the parties’ interest in the freehold and business of the C Company, by agreement between the parties, which has already provided her with some minimal consulting income, and which has the prospect of being a successful long-term investment. It also carries significant financial risk which is not unusual. The husband will be removed from this risk. The C Company’s establishment is already completed and the renovations concluded, but, they must still be paid for out of anticipated profits should they eventuate. The investors and co-owners are friends of the wife, and there is no call on any funds owing at present, or likely to be in the short term on the evidence of those who have advanced monies.
The wife has a bank approved capacity to borrow a sum of $1,380,000 to pay out the parties various debts together with a further $150,000 for B Company entity operations. She claimed to have ability to source further funds to meet a just and equitable payment to the husband.
The husband will have a superannuation asset in the N Property from which he can earn income. He will have cash available to him and no exposure to debt. Those matters are just and equitable to him given his age and retirement status. He has accommodation with his partner. The wife and children have accommodation in the FMH.
In the event the wife cannot meet the payment to the husband as required then the application of the husband shall succeed as no other viable option will be available. In those circumstances the parties can approach the court as to the terms and conditions of any sale.
I certify that the preceding one hundred and seventeen (117) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Hartnett. Associate:
Dated: 21 January 2022
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