James and James

[2013] FCCA 1188

FEDERAL CIRCUIT COURT OF AUSTRALIA

JAMES & JAMES [2013] FCCA 1188

Catchwords:
FAMILY LAW – Whether husband’s gambling and associated expenditure constitutes waste – whether add backs for receipts and expenditure after separation should be included.

Legislation:  

Family Law Act 1975 (Cth), ss.75(2), 79(1), 79(2), 79(4)
Child Support (Assessment) Act 1989, ss.123, 124

Hickey [2003] FamCA 395, [2003] FLC 93-143

C & C [2005] FamCA 429, [2005] FLC 93-220
Stanford v Stanford [2012] HCA 52

Applicant: MS JAMES

Respondent: MR JAMES

File Number: WOC 793 of 2012

Judgment of: Judge Phipps

Hearing date: 23 May 2013

Date of Last Submission: 23 May 2013

Delivered at: Dandenong

Delivered on: 23 August 2013

REPRESENTATION

Counsel for the Applicant: Mr Stavris

Solicitors for the Applicant: Mr Bennett

Counsel for the Respondent: Mr Hoult

Solicitors for the Respondent: Ms Lisa Speakman

ORDERS

1. That the balance of funds from the sale of the parties former matrimonial home at Property A, (“the fund”) be disbursed as follows:

   (a)Firstly in payment of school fees to the end of the 2013 school year for the parties’ children X born (omitted) 1996 and Y born (omitted) 2000;

   (b)Secondly by paying an amount to the wife calculated as follows:

   (i)Subtract the amount paid under paragraph (1)(a) from the amount of the fund;

   (ii)Add $100,000 to the amount calculated under paragraph (1)(b)(i);

   (iii)calculate 75% of the amount determined by paragraph 1(b)(ii);

   (iv)subtract $50,000 from the amount calculated in accordance with paragraph 1(b)(iii).

   (c)Thirdly, by paying the balance to the husband.

2. The husband remain solely liable for and indemnify the wife against all payments in respect of:

   (a)The joint credit card debt;

   (b)(omitted) line of credit;

   (c)The loan on his BMW vehicle.

3. Otherwise each party be solely entitled to the exclusion of the other to all superannuation and other property (including choses-in-action) owned by or in possession of such party as at the date of these orders.

IT IS NOTED that publication of this judgment under the pseudonym James & James is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL CIRCUIT COURT OF AUSTRALIA

AT DANDENONG

WOC 793 of 2012

MS JAMES

Applicant

And

MR JAMES

Respondent

REASONS FOR JUDGMENT

Introduction

1. The parties, Ms James, the wife and Mr James, the husband apply for property orders.  The major asset is $392,570 held in a solicitor’s trust account.  This is the amount left from the sale of the former matrimonial home.

2. Significant issues are:

   a)Whether some amounts already paid should be added back into the list of assets and liabilities;

   b)Whether there should be an allowance against the husband for excessive expenditure on gambling and alcohol and the loss of his business;

   c)Whether an amount should be reserved for payment of the children’s school fees.

Property provisions

1. Section 79(1) of the Family Law Act 1975 (Cth) provides that in property settlement proceedings the court may make such order as it considers appropriate. The following sub-sections set out the considerations the court is to take into account in deciding what is appropriate. Prior to the decision of the High Court of Australia in Stanford v Stanford [2012] HCA 52 this was a four step process. First, determine what are the assets and liabilities of the parties, next consider the parties’ contributions taking into account the matters in s.79(4)(a)-(c), next consider whether an adjustment should be made taking into account the matters referred to in ss.79(4)(d), (f) and (g) and s.75(2) insofar as they are relevant, and finally consider whether in all the circumstances it is just and equitable to make the proposed order[1].  The four step process was usually applied to superannuation and non superannuation assets separately, but there are cases where this may not be appropriate.[2]  The decision in Stanford v Stanford means that the four step process must be modified.  The court must identify the matrimonial property and the legal and equitable interest of each party in the property applying normal principles.  Except for questions about add backs that presents no difficulty in this case because the parties agree on the identity of the property.

   [1] Hickey [2003] FamCA 395, [2003] FLC 93-143.

   [2] C & C [2005] FamCA 429, [2005] FLC 93-220

2. The court must determine, as required by s.79(2) whether it is satisfied that in all the circumstances it is just and equitable to make an order. In this case the parties have separated, the separation is permanent, and both parties apply for the court to make an order. The basis upon which they lived together with their children in their principle asset, the former matrimonial home, and shared their finances is gone. It is just and equitable to make an order for division of property in accordance with the provisions of s.79.

3. The appropriate way then to proceed is to undertake the second and third steps of the four step process, contributions and possible adjustment, and then again consider whether the proposed order is just and equitable.  Stanford v Stanford has not affected the earlier decisions concerning the separate treatment of superannuation and non-superannuation property.

Background

1. Some background is necessary to understand the proposals of the parties and how the parties approach the determination of the assets and liabilities.

2. The wife was born on (omitted) 1968 and is aged 46.  The husband was born on (omitted) 1967 and is aged 45.  The parties commenced a relationship in 1990.  They married on (omitted) 1993 and separated on 12 October 2010.  There are two children of the marriage, X born (omitted) 1996 aged 17 and Y born (omitted) 2000 aged 13.  Both children attend (omitted) Grammar School.  Consent orders made on 23 May 2013 provide for the parties to have equal shared parental responsibility for the children, for the children to live with the wife and spend time with the husband for half of school holidays and two weekends in each term.  The husband lives in New South Wales and the order provides for him to organize the children's travel.

3. The parties purchased their first matrimonial home at (omitted) for $180,000.  They renovated it and sold it for approximately $230,000.  They then purchased Property A for $273,000 in November 1999.  They did extensive renovations and installed a swimming pool.

4. Both parties worked during the marriage and shared the family expenses including mortgage payments and cost of renovations.  They differ on the cost of the renovations.  The husband says approximately $250,000, including the cost of the swimming pool was spent.  The wife's figure is about $210,000.  The difference is immaterial.  Payment was made largely by increasing borrowings.

5. The husband worked as a (omitted) until 2008.  He then conducted his own business as the (omitted).  Both businesses he was engaged in (omitted).  The wife worked before the birth of the children, and after the birth of the children, worked casually as an (omitted) for between 24 and 36 hours per week.  She had the major part of the care of the children including taking them to and from school and any extracurricular activities.  The husband assisted consistent with his full-time employment.

6. The husband’s income prior to prior to working in his own business was $97,00.00 in the year ending June 2004 increasing to $158,798.00 in the year ending June 2008.  In the year ending June 2009 it was $78,000 in June 2010 $98,663.  However this must be seen in the context of the parties being in their own business.  He was being paid a salary as a director of the business and the husband says the wife was as well.  The business lasted only two years and then went into liquidation with a deficiency of $900,000.

7. On 24 April 2008 an investment property was purchased for $1,000,000 at Property C and used as the business premises.  The entire purchase price was borrowed from (omitted) Bank.  The business paid the mortgage repayments of $10,413 a month.  It appears that it was purchased in the company name, (omitted) but that is not now material.

8. The Property C property was sold in 2011.  After discharging the mortgage and paying other expenses an amount of $20,463 remained.  Pallet racking was sold for $5,500 and the wife says that there was return of insurance money $2,200.  She says that all of these amounts were retained by the husband and should be added back into the property pool.  The husband says he spent the money on various payments for the business and other expenses.

9. The mortgage over the matrimonial home was increased by $20,000 on 4 February 2009 and $16,000 on 9 April 2010.  The amount was paid into the business and the wife now alleges that that money should be added back into the property pool and treated as money paid to the husband.

10. The matrimonial home was sold after separation.  The business overdraft, taxation liability and the husband's credit card were paid out from the sale of the matrimonial home, a total of $242,204.  The balance of $493,869 was paid into the trust account of Holt and McDonald, solicitors.  On 2 November 2011 $100,000 was taken out and each party was paid $50,000.  On 7 December 2012 $34,099 was used to pay children’s school fees to (omitted) Grammar School.

11. The husband is living in New South Wales.  He has repartnered.  He and his partner intend marrying in the future.  His partner is pregnant.  They have purchased a block of land for $340,000.  They intend spending about $360,000 building a house, for which construction has started.  The purchase of the block of land was financed by his partner and her parents selling property elsewhere.  The husband says that a document will be drawn up to show the amounts his partner has put into the block of land.  They are borrowing from the (omitted) Bank to pay for the cost of building.

12. I do not need to attempt to estimate the value of the husband's beneficial interest in this property. It was acquired after separation and so the wife has made no contribution to it and so I will not include it in the parties’ assets. Its relevance is that the husband will have a new home in which he will be residing with his new partner and that he and his partner will have substantial equity in the home. It is relevant to s.75(2) considerations.

13. Both parties propose that the net proceeds of the sale of the matrimonial home and the $100,000 distributed out of the proceeds be included as assets.

Assets and liabilities

1. The wife proposes that the following be included or added back into the list of assets and liabilities:

   a)$34,099 paid from the proceeds of sale for the children's school fees;

   b)$28,163 being the net proceeds of sale of the investment property at Property C .  This amount was retained by the husband;

   c)$5,500 proceeds from the sale of pallet racking in the investment property.  This amount, she says, was retained by the husband;

   d)Return of insurance money $2,200;

   e)Her Mazda motor vehicle, $15,770 purchased from the proceeds of sale of shares, $3,500, furniture, $11,000, and treadmill $2,800;

   f)Loss from car leased by respondent which the applicant wife sold and paid out $2,856;

   g)Bills left with applicant wife when parties separated $13,621;

   h)Husband (omitted) Bank account $5,100;

   i)Proceeds from sale of (business omitted) $27,000;

   j)Drawings from the family mortgage $36,000 plus interest.

2. The husband proposes that the following be included or added back into the list of assets and liabilities:

   a)Shares used by wife sold to purchase Mazda $3,500;

   b)Furniture used by wife to purchase Mazda $11,000;

   c)Treadmill [sold by wife] $2,800;

   d)(omitted) Bank joint account to remain with wife $2,500;

   e)Wife’s savings account $2,000;

   f)Proceeds garage sale $5,000;

   g)Loss on sale of wife's BMW $2,056;

   h)School fees owed for Y $9,000;

   i)Husband's personal tax $9000

   j)Wife's personal tax $700;

   k)Joint credit card $16,000;

   l)(omitted) line of credit for husband $3,375;

   m)Husband's BMW payout figure $38,300.

3. The general principle is that assets and liabilities are determined at the time of the hearing.  Amounts distributed or paid after separation may be added back in appropriate circumstances.  The general principle is that people are allowed reasonable expenditure to continue on with their lives.

4. The parties agree that the amounts of $50,000 paid to each party, total $100,000, should be added back.  The wife asserts that the $34,099 paid for the children's school fees from the proceeds of sale should be added back.  The wife submits that school fees were the husband's responsibility.  Prior to separation school fees were paid from the family income and money paid from the proceeds of sale of the parties home by agreement at separation should be treated in the same way.  They are part of the family’s cost of living which continued on after separation.  This amount should not be added back.

5. The husband says that $20,463.07 was the net proceeds of sale of the investment property.  He says that the amount of $28,163 includes the sale of pallet racking.  He says that the money was used to pay various joint liabilities such as the mortgage, the parties’ respective car loans, (omitted) Bank credit card and a weekly salary of $250 to him.  I see no reason to doubt what he says.  None of the amounts should be added back into the list of assets and liabilities.

6. Both parties have motor vehicles.  The husband says that the amount owing on his, $38,300, is more than its value, $30,000.  The wife used the proceeds of the sale of shares, furniture and a treadmill to purchase a motor vehicle.  She had to pay out $2,856 on the finance of the previous motor vehicle.

7. The amount of $38,300, the debt on the husband's motor vehicle, is not immediately payable.  As long as the husband remains in employment he will continue to pay the amounts due on the finance.  While the wife acknowledges she used proceeds of sale of family assets to purchase a motor vehicle she also was left with bills after separation, she says $13,621.  The husband says there is a joint credit card and a (omitted) line of credit.  Both parties propose that various amounts in bank accounts should be included.  The husband includes each party’s personal tax liability. 

8. Given the time since separation, the likelihood is that amounts in bank accounts have been expended on reasonable living expenses and have fluctuated over time as money received by the parties after separation was paid in and then used.  As for the other matters separating what is reasonable expenses for living from others is too complicated and not an exercise to be carried out reliably.  This includes the amount of approximately $28,000 the husband retained from the sale of the investment property pallet racking and perhaps some other small amount.

9. What I can discern is that there is certainly a debt for the children's school fees and it is reasonable to proceed on the basis that the full 2013 year’s school fees must be paid.  I do not have an exact amount but the order can be drawn in such a way that it takes this into account.

10. Otherwise, I consider that a reasonable way to proceed is to treat the various amounts received and paid out by the parties as either being reasonable living expenses, and if not, then they cancel each other out.  The husband has had the use of more money than the wife but he has a large debt.  He appears to accept that he is liable for the joint credit card debt.  The wife has a motor vehicle and has used family assets to purchase it but she has also paid bills outstanding at the time of separation.  She has the greater share of the care of the children, including the financial care.  The husband pays child support but the greater burden must fall on the wife even taking into account government payments that she may receive.

11. The wife proposes that $36,000 drawn down from the mortgage over the family home and put into the business should be added back against the husband.  This was before separation.  It is not now a debt and was not a debt at separation.  If it is to be taken into account at all it is a contribution consideration.  It is not something to be added back into the assets and liabilities.

12. The wife says that $10,000 she drew out of her superannuation should be added back.  Again, this was prior to separation and if anything is a contribution consideration.

13. The husband includes a debt of $6,700 to his parents.  There is no documentation and no evidence from his parents.  Even if the debt does exist there is no evidence that his parents will require repayment.  The husband's counsel pursued the claim for this amount but faintly.  I will not include it in the assets and liabilities.

14. The assets and liabilities are:

    Assets

    Amount held in trust      $382,570

    Advance to husband      $  50,000

    Advance to wife            $  50,000

    Total  $482,570

    Liabilities

    School fees to end of 2013

15. Superannuation assets are

    Wife   $  61,732

    Husband   $  67,000.

16. Neither party proposes any order about superannuation given the near equality.

School fees

1. The wife proposes that the husband be responsible for the children's school fees at (omitted) Grammar School.  The children are in year eleven and year eight.  The amount required for school fees until the younger child finishes year 12 is about $70,000.  The husband's case outline proposes that a fund be set aside from the money held in trust to pay for school fees.  During his evidence he withdrew the proposal.  His position now is that there should be no order in relation to the school fees.

2. Sections 123(1) and 124 of the Child Support (Assessment) Act 1989 provide for payments and child support, other than periodic payments. The first requirement under s.124 is that the wife be a carer entitled to child support. The requirement is satisfied.

3. The other requirements are that the court be satisfied that it would be just and equitable as regards the child, the carer entitled to child-support and the liable parent and otherwise proper to make an order that the liable parent provide child-support otherwise than in the form of periodic amounts.

4. The husband commenced new employment on 4 April 2013.  His income is commission only and he said he expects to earn between $40,000 and $60,000 in the first year.  He expects to earn more in following years.  The child support assessment of his yearly salary is $75,000.  The wife asserts that the husband has the capacity to earn a higher income.

5. The children were enrolled at (omitted) Grammar School by mutual decision of the parties.  The wife says that the husband agreed to pay school fees and that is probably correct.  This was at a time when the parties were living together and had a combined income which allowed them to pay school fees at this level, mortgage repayments and their other expenses.  Probably the amount the wife earned from her part-time employment was sufficient to cover the school fees and the husband had relatively well paid employment.

6. The parties are now separated.  The circumstances in which the parties agreed that they would pay substantial amounts for school fees no longer exist.  The school fees are $22,000 a year.  Even if the husband has a capacity to earn, say, $100,000 per year, to require him to pay $22,000 a year for school fees in addition to child-support is well beyond anything which is just and equitable to him.  Nor would it be otherwise proper to make the order in these circumstances.

Contributions

1. The parties’ relationship was 20 years.  The husband worked full time and the wife worked casually as an (omitted), between 24 and 36 hours per week except for the times necessarily taken up by the birth and care of the children.  At the commencement of the relationship both parties owned a motor vehicle.  It appears that the wife's was more valuable than the husband's, but that is of no consequence now.

1. The wife was the principal child carer and home maker, but the husband contributed consistent with his work commitments.  They purchased and improved a comfortable family home.

2. The arrangement where the husband was the principal income earner and the wife the principal child carer and home maker was the way the parties arranged their lives.  The husband's greater financial contribution is balanced by the wife's greater child carer and homemaker contribution.  Apart from issues raised by the wife of the husband’s drinking, gambling and business losses, the parties submissions recognize that they made equal contributions.

3. The wife alleges waste by the husband through excessive drinking and gambling.  She claims he spent on alcohol $24,000 per year during the last four years of the marriage from August 2006 to August 2010 and in addition she claimed he spent considerable sums gambling.

4. The evidence relied on by the wife is withdrawals by the husband from the parties joint bank account, a (omitted) Bank account and credit card payments.  These show that at regular intervals, often less than weekly, the husband made cash withdrawals of several hundred dollars in a day from Automatic Teller Machines at hotels which also have gambling facilities.  When asked “what would you use cash for at a gaming venue”, his answer was "food, alcohol, have a punt".  He acknowledged regular betting on Thursday and Saturday nights.

5. Numbers of these withdrawals were put to the husband in cross examination and for many of them his explanation for the withdrawal was to drink and gamble.  He denied it was excessive.  He said many of the cash withdrawals were to pay tradesmen and others doing work or supplying his business that required cash payment.

6. The husband's explanation is not convincing.  The cash withdrawals are from the parties’ joint account, not a business account.  The husband says he made the cash payments from money in his pocket and this came from the joint account.  He gave details of the payments.  The only specific reference is to cleaners.  He produced no records and other than saying that the people paid wanted cash he gives no explanation for the irregular business practice.  I do not believe that the payments were made as the husband alleges.

7. The occasions about which the husband was cross-examined and for which he acknowledged that the money was spent on "food, alcohol, have a punt" show more than weekly occasions when he withdrew hundreds of dollars for this activity.

8. An example of the withdrawals put to the husband in cross examination shows cash withdrawals at various Automatic Teller Machines.  These are $200 withdrawn at (omitted) Hotel on 12 July 2009, $200 withdrawn from an Automatic Teller Machine in (omitted) on 13 July 2009, $200 withdrawn at (omitted) Hotel on 17 July 2009, $200 withdrawn at (omitted) Hotel on 18 July 2009, $200 withdrawn at (omitted) Hotel on 18 July 2009, $120 withdrawn at (omitted) Hotel on 21 July 2009, $120 withdrawn at (omitted) Hotel on 22 July 2009, and $200 withdrawn at (omitted) Hotel on 22 July 2009.  The cross examination continued with a similar pattern into August and September 2009.

9. The wife has prepared a schedule for the husband's withdrawals of cash and what she alleges is payment for alcohol for 2008, 2009 and January 2010 to October 2010.  She has three categories, cash withdrawals from the joint account, payments for alcohol and (omitted) Bank withdrawals.  The total for 2008 is $18,891, 2009 $43,511 and January 2010 to October 2010 $21,406.  Some of these amounts may have been for expenditure other than for gambling, and food and alcohol associated with the gambling, and some of it has to be accepted as legitimate entertainment and recreation, but I am satisfied that the pattern of withdrawals shown in the cross examination and the total amounts spent show attendance at gambling venues and associated expenditure well out of proportion to the family income.

10. The total of the amounts the wife has calculated from January 2008 to October 2010 is $83,798.  If only half of this is taken, say $40,000, this is about 10% of the property pool.  Precise arithmetical calculation is not the way contributions are to be assessed, but this figure gives some indication of the extent of the husband's excessive expenditure.  This is at a point where the family income was not much more than $100,000 per year.

11. I am satisfied that the husband’s gambling and associated expenditure on alcohol and food is waste and that there should be a 5% adjustment for this consideration.

12. The husband's business went into liquidation with a deficit of about $900,000.  They liquidator’s report says that the company may have been trading insolvent prior to the liquidation.  The wife submits that the husband's conduct of the business was so reckless that it constitutes waste and an adjustment should be made against him for this reason.

13. The liquidator, while expressing the opinion that there may have been insolvent trading, says that the liquidation came about because a supplier who had promised to supply equipment did not.  Based on the expectation of receiving the equipment the company had employed extra staff.  Non receipt of the expected equipment, and so lack of stock to sell, was the cause of the company's liquidation.

14. The evidence, such as it is, suggests that the failure of the business was due to circumstances outside the husband's control.  There is no evidence of waste for this reason.

15. Contributions are 55% by the wife and 45% by the husband.

Section 75(2)

1. The parties are in good health.  Apart from what she receives from this property settlement and personal possessions the wife has no property.  The husband has an interest in a home under construction in New South Wales.  Her partner has an income of $52,000 per year.  The husband and his partner are expecting a baby and I must take that into account.

2. If the wife is able to purchase a home it will be very modest and will require a substantial mortgage relative to the value of the home.  The wife has a partner but she does not live with him.  He appears to have little income.

3. The husband in the past has earned up to $130,000 before tax.  He says now he is employed on a commission only basis and expects his income to be $40,000 to $60,000 this year, but then increasing.  The wife is earning about $43,000.  The husband is assessed to pay $262.50 per fortnight in child support.

4. Given the age of the children the wife can work full-time if she can obtain the employment.  She has experience in (omitted) work and so she has a reasonable expectation of income in the $40-$50,000 range.  I am satisfied that the husband's income earning potential is in excess of $100,000.

5. The size of the property pool in this case is relatively small so that I need to look at the consequences of the adjustment rather than the percentage.  The husband has a home under construction.  The wife is renting.  The wife has the care of the two children who are attending a private school, and even if they do not, they are still at an age where their upkeep is expensive.  The husband is paying child support but even taking into account government payments the wife is bearing the greater burden.

6. Given the relatively small size of the property pool, the disparity in the parties’ income earning potential and the fact that the husband has a home under construction the proper adjustment for s.75(2) matters is 20%.

7. I propose to make orders that the children’s school fees to the end of 2013 be paid from the money held in trust and the balance be divided 75% to the wife and 25% to the husband.  I am satisfied that this order is just and equitable.

I certify that the preceding sixty-three (63) paragraphs are a true copy of the reasons for judgment of Judge Phipps

Date:  23 August 2013