Jarrott & Jarrott (No 2)
[2012] FamCAFC 72
•4 June 2012
FAMILY COURT OF AUSTRALIA
| JARROTT & JARROTT (NO. 2) | [2012] FamCAFC 72 |
| FAMILY LAW ─ APPEAL ─ Re-exercise of trial Judge’s discretion ─ Where both parties requested the Court to do so ─ Where neither party sought to adduce further evidence for the purposes of the re-exercise of the trial Judge’s discretion ─ Trial Judge’s discretion re-exercised |
| Family Law Act 1975 (Cth) ss 75(2), 79 |
| Allesch v Maunz (2000) 203 CLR 172 Coghlan & Coghlan (2005) FLC 93-220 Hickey & Hickey (2003) FLC 93-143 Jarrott & Jarrott [2012] FamCAFC 29 Kardos v Sarbutt (2006) 34 Fam LR 550 Norbis v Norbis (1986) 161 CLR 513 Pierce & Pierce (1999) FLC 92-844 |
| APPELLANT: | Mr Jarrott |
| RESPONDENT: | Ms Jarrott |
| FILE NUMBER: | SYC | 1134 | of | 2009 |
| APPEAL NUMBER: | EAA | 104 | of | 2011 |
| DATE DELIVERED: | 4 June 2012 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | By way of written submissions |
| JUDGMENT OF: | Coleman, May & Thackray JJ |
| HEARING DATE: | 3 February 2012 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 12 August 2011 |
| LOWER COURT MNC: | [2011] FamCA 819 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Lethbridge of Senior Counsel |
| SOLICITOR FOR THE APPELLANT: | McDonell Milne Toltz Family Lawyers |
| SOLICITOR FOR THE RESPONDENT: | Self Represented |
Orders
In addition to the orders made on 2 March 2012, it is further ordered that:
The parties shall do all things necessary and execute all documents to cause the property at U (“the former family home”) to be sold at a price agreed between the parties, and failing agreement as determined by the President of the Real Estate Institute of New South Wales or his nominee, and the proceeds of sale shall be disbursed in the following manner and priority:
(a)payment of agent’s commission and legal expenses of the sale;
(b)discharge of any mortgage secured over the former family home;
(c)in the event of the proceeds of sale of the former family home being insufficient to meet the liabilities referred to in (a) and (b) thereof the husband shall indemnify the wife as to 62 per cent of such shortfall and the wife shall indemnify the husband as to 38 per cent of such shortfall;
(d)in the event of the said proceeds of sale exceeding the liabilities referred to in (a) and (b), such surplus shall be divided in proportions 62 per cent to the husband and 38 per cent to the wife.
The husband shall pay to the wife the sum of $722,355.46 within 42 days of the date of settlement of sale.
Until the settlement of sale of the former family home the husband shall be responsible for mortgage payments and outgoings on the property, provided that the husband shall be entitled to apply any rental income generated by the former family home to the payment of such outgoings.
Until the husband has complied with Order 2 hereof, the husband shall continue to pay $200 each week to the wife by way of spousal maintenance and for this purpose the wife shall provide to the husband details of a bank account into which such payments shall be made.
In the event of the husband incurring a capital gains tax or other taxation liability arising out of or in relation to his interest in the D Group as a consequence of his compliance with Order 2, the parties shall each indemnify the other and the wife pay 38 per cent of that shortfall and the husband the balance.
IT IS NOTED THAT: the sum payable by the husband to the wife pursuant to these orders includes credit for the sum of $16,564 payable by the wife to the husband with respect to valuation expenses previously paid by the husband on behalf of the parties.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Jarrott & Jarrott (No. 2) has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EAA 104 of 2011
File Number: SYC 1134 of 2009
| Mr Jarrott |
Appellant
And
| Ms Jarrott |
Respondent
REASONS FOR JUDGMENT
On 2 March 2012, for reasons which it then published, the Court allowed the husband’s appeal against orders for settlement of property made by Cleary J on 12 August 2011 in proceedings between himself and the wife pursuant to Part VIII of the Family Law Act 1975 (Cth) (“the Act”).
During the course of the hearing, both parties requested that, if the husband’s appeal succeeded, this Court re-exercise the trial Judge’s discretion rather than remit the proceedings for re-hearing by a single Judge. Neither party then signified any intention to adduce further evidence for the purpose of the re-exercise of the trial Judge’s discretion (see Allesch v Maunz (2000) 203 CLR 172). The Court nevertheless preserved the rights of the parties to adduce further evidence and/or seek that the trial Judge’s discretion be re-exercised by a single Judge at first instance.
On 30 March 2012, written submissions were filed on behalf of the husband in relation to the re-exercise of the trial Judge’s discretion. On 13 April 2012, the wife filed written submissions in relation to the re-exercise of the trial Judge’s discretion. On 20 April 2012, pursuant to orders of the Court made on 17 April 2012 permitting her to do so, the wife filed amended submissions in support of the orders sought by her and an amended response to the husband’s submissions. On 4 May 2012 the husband filed submissions in response to those submissions.
Consistent with the positions adopted by each party at trial, the submissions of both parties, to which we have referred, urged this Court to re-exercise the trial Judge’s discretion, rather than remit the matter for re-hearing by a Judge at first instance. Also consistent with their positions at trial, neither party sought to adduce any further evidence for the purpose of the re-exercise of the trial Judge’s discretion. We record these matters primarily because, the husband’s appeal with respect to the trial Judge’s findings as to the contribution based entitlements of the parties succeeded substantially in reliance upon grounds asserting that the trial Judge had inadequately exposed the process of reasoning which led to her decision. In the absence of those reasons, re-exercising her Honour’s direction on the basis we have been invited to is problematic.
In its judgment in the substantive appeal, the Court recorded:
93.Although it could arguably be inferred that her Honour concluded that the husband’s initial capital contributions were “eroded” (see Pierce v Pierce (1999) FLC 92-844 and Kardos v Sarbutt (2006) 34 Fam LR 550) by the contributions the parties made between the commencement and conclusion of cohabitation, that does not arise by necessary implication from her Honour’s Reasons (see Wen & Thom [2010] FamCAFC 81). In the absence of such exposition, this Court is unable to determine whether or not such a division fell within the ambit of a reasonable exercise of discretion. Appellate intervention is thus enlivened.
94.As the submissions of the parties to this Court reveal, each raised issues which, if resolved, would have potentially impacted upon the assessment of the contribution of the parties. How the trial Judge resolved those issues is unclear from her Honour’s reasons.
95.As is not unusual when challenges to the adequacy of judicial reasons are successful, we are not able to determine whether the trial Judge’s conclusion with respect to the contributions of the parties fell outside the ambit of a reasonable exercise of discretion. The fact that her Honour’s conclusion may well have been “within the range” does not disentitle the husband to succeed with this complaint (see De Winter & De Winter (1979) FLC 90-605).
The absence of reasons of the kind there referred to, or findings of fact with respect to such issues elsewhere in her Honour’s judgment, renders the task of re-exercising the trial Judge’s discretion, and revealing the reasoning process employed by us for that purpose in the manner the authorities require, extremely difficult. Albeit necessarily with less than optimal intellectual rigour, the Court is satisfied that it can determine a just and equitable division of the property of the parties to the marriage by reference to the undisturbed findings of fact recorded by the trial Judge. The fact that the parties have requested the Court to do so, and that a new trial would take time, cost money, and possibly result in a further appeal, have influenced our decision to re-exercise the trial Judge’s discretion.
It is convenient for the purpose of re-exercising the trial Judge’s discretion to adopt the “four step” approach discussed by this Court in Hickey & Hickey (2003) FLC 93-143. The Court must quantify the asset pool before determining the entitlements of the parties, albeit, having done so, for reasons explained by this Court in its judgment in the substantive appeal, in so far as they relate to the realisation of the U property, the Court’s orders will necessarily be expressed in percentage terms. So doing addresses any sale of U for more or less than the figure of $1,100,000 which emerges from the only evidence which can be relied upon with respect to the property’s value.
The trial Judge determined the property of the parties to the marriage to be worth $2,182,917 net. Included in that sum was the husband’s post separation inheritance from his mother’s estate of $110,000. Senior Counsel for the husband submitted that such sum should be excluded from the asset pool. Whilst the wife made submissions with respect to other aspects of the balance sheet, she did not engage with the suggested exclusion of the sum of $110,000 with respect to the husband’s post separation inheritance from the asset pool.
Although, for reasons given in its judgment in the appeal, the Court did not accept that the trial Judge erred by including the husband’s post separation inheritance in the asset pool, we consider that, for the purpose of re-exercising her Honour’s discretion, it is preferable to treat the inheritance as a separate asset (see Norbis v Norbis (1986) 161 CLR 513) or in a “separate pool” (see Coghlan & Coghlan (2005) FLC 93-220). That is because the inheritance was received after the separation of the parties, and the wife made no contribution, direct or indirect, financial or non-financial, to its acquisition, conservation or improvement. In those circumstances, however viewed, and at whichever “step” it is considered, the significance of the inheritance ultimately turns on its impact as a financial resource of the husband pursuant to s 75(2) of the Act.
On behalf of the husband a number of submissions were made with respect to “the treatment of the property at [U]”. It was submitted, correctly, that the evidence before the trial Judge was that the U property was valued at $1,100,000 but was subject then to a debt of $1,058,832. A number of submissions were made with respect to events subsequent to judgment, and in recent times, the effect of which, in terms of the balance sheet asserted on behalf of the husband, was less than clear, albeit articulated in that context.
On behalf of the wife, it was submitted, correctly in our view, that the only evidence before the trial Judge, or this Court, supports adopting a value for the property of $1,100,000, subject to a debt of $1,058,832. Accordingly, this Court could adopt the approach taken by the trial Judge to the U property which was, in essence, to exclude both the value of the asset and the mortgage, as established by the evidence before her Honour, the effect of so doing, after recognising the realisation costs of the property of approximately $41,000 being to result in the parties having no equity in the property.
Although not impacting upon the balance sheet, the matters asserted on behalf of the husband with respect to the property subsequent to the trial Judge’s judgment, and in recent times can be considered in the context of the evaluation of the parties’ contributions. Senior Counsel for the husband submitted that:
1.6The Wife has, pursuant to the trial judge’s orders, vacated the premises. The Husband has re-occupied [U property] as a means of limiting the parties’ ongoing financial loss pending its sale. The alternate courses open to him would be either to seek a short-term tenant or leave the premises vacant. On the evidence before the trial judge, leaving the premises vacant would have left the Husband or his partner responsible for the rental of the premises he occupied at the date of trial. Re-occupation of the premises has therefore reduced the Husband’s outgoings but also better enabled him to continue to meet the mortgage repayments in the amount of over $9,000 per month pending its sale.
1.7It had been the Husband’s position for some time prior to the trial that the [U] property should be sold. The trial judge found that although that issue was ventilated by the Husband, it was on balance reasonable for the Wife to resist sale pending the trial. In a situation of potential loss and following the Judgment, an issue which arises with respect to the re-exercise of discretion is the manner in which ongoing holding costs should be treated where both parties sought a sale and neither contemplated occupation pending sale. Those holding costs comprise the following:
· The mortgage payments at $9,403 per month.
· The municipal rates including water.
·The reasonable costs incurred by the Husband directly related to the preparation of the property for sale and its maintenance in reasonable condition.
1.8While the Husband remains in occupation, as is anticipated until the completion of the sale of the [U] property, an allowance is necessary against the holding costs to take account of the benefits derives [sic] from occupation. That allowance should be an amount equal to the Fair Market Rental for the property whilst the Husband remains in occupation. If it is necessary to quantify that amount, it would be quantified in the following manner:
“Fair Market Rental: The fair market rental for the premises at [U] is the rental agreed between the parties to represent that amount or in default of their agreement the fair market rental as determined by a registered valuer appointed by the President for the time being of the Real Estate Institute of New South Wales whose appointment and whose nominees’ determination shall both be final and binding as between the parties.”
1.9The Husband’s loss comprises two elements: the net amount calculated by deducting the fair market rental from the holding costs whilst he remains in occupation prior to completion of the property’s sale and the amount by which the repayment of the mortgage debt and the costs of sale exceed the net sale proceeds. Where neither of these amounts is capable of precise calculation, it is appropriate that the parties bear the loss when it arises in proportion to their ultimate entitlement for settlement of property. It is submitted that it is only in this manner that a just and equitable outcome can be achieved because first, as stated, the loss is borne proportionately to entitlement and secondly because in a loss situation, it is in each party’s interests to be reasonable and sensible in relation to the other in order overall to minimise their respective losses. Where they each bear part of the ongoing loss, there is an incentive for each party to minimise that loss. On the other hand, to leave the Husband, as it would almost certainly be, responsible for the ongoing losses, particularly in relation to holding costs, would place the Wife in a position of advantage and in a position whereby there would be little incentive for her to act speedily to crystallise the loss at a reasonable level. (Footnotes omitted).
The wife submitted that the Court should approach the re-exercise of the trial Judge’s discretion on the basis that the property of the parties, exclusive of the husband’s post separation inheritance of $110,000, is worth $2,072,917 net. In theory, at step 2, the Court could consider contributions with respect to the husband’s inheritance. So doing is unnecessary and unproductive given that the contributions to the acquisition of the sum were entirely by or on behalf of the husband. At step 3, when the Court considers the impact of relevant s 75(2) factors, the husband’s post separation inheritance will be considered. As this Court noted in its judgment in the substantive appeal, and as the High Court suggested in Norbis v Norbis (supra), how this sum is approached does not preclude or guarantee a just and equitable determination of the entitlements of the parties. It does however in our view, and for reasons which will become apparent, remove the scope for uncertainty which the trial Judge’s approach to this sum created.
The contributions of the parties require consideration in two contexts. Such consideration is informed by the undisturbed findings of fact, and conclusions based upon them of the trial Judge. The first relates to the impact, to the date of separation, of the disparity of the initial capital contributions of the parties. The second relates to the impact on the contribution entitlements of the parties of post separation contributions, including those subsequent to the trial Judge’s judgment.
This Court recorded, at paragraph 92, in the substantive appeal, that the husband’s initial contributions of approximately $450,000 represented approximately 95 per cent or more of the property of the parties at the commencement of cohabitation. The wife made a number of submissions in relation to the trial Judge’s conclusion with respect to the initial contributions of the parties. The wife did not file a cross-appeal with respect to the trial Judge’s decision. Nor did she file anything constituting a notice of contention with respect to the trial Judge’s findings in relation to the respective initial contributions of the parties, or otherwise challenge the trial Judge’s findings in that regard.
The wife submitted in the substantive appeal that the trial Judge’s decision that she receive 35 per cent of the property of the parties as found by her should stand. In the absence of further evidence, and none has been sought to be adduced pursuant to Allesch v Maunz (supra), we are not able or prepared to go behind the trial Judge’s findings as to the respective initial capital contributions of the parties. No aspect of the appeal turned upon the correctness of the trial Judge’s findings with respect to the initial capital contributions of the parties, but rather their significance. The issue for consideration is the significance of those contributions, when the parties separated, and at the present time. Consistent with the approach adopted by the trial Judge, and the parties in their submissions, it is appropriate for this Court to determine the contribution based entitlements of the parties as at the date of separation, and then have regard to their contributions after separation.
The trial Judge concluded, at paragraph 155, that, other than with respect to initial contributions of capital, the parties’ contributions from the commencement of their cohabitation to the date of separation were equal. That finding was not controversial in the substantive appeal, and does not appear to have become controversial for the purpose of re-exercising the trial Judge’s discretion. To the extent that it may be, there is no evidentiary or other basis for going behind the trial Judge’s undisturbed findings with respect to the contributions of the parties during their cohabitation.
As earlier recorded, the basis upon which appellate intervention was enlivened with respect to the issue of contributions creates not insignificant difficulties for this Court in determining the impact which the disparity of initial capital contributions should have on the parties’ entitlements. Inferentially, the wife continued to maintain that the 70/30 disparity concluded by the trial Judge was appropriate. In the submissions of Senior Counsel for the husband it was submitted that:
2.6… to the point of separation, the appropriate finding is that the parties’ contributions would favour the Husband in the proportions of 70% - 75% to the Wife’s 30% - 25%.
The trial Judge clearly recognised, at paragraph 153, that the husband’s initial contributions greatly outweighed those of the wife (95 per cent to 5 per cent), and that the husband’s initial contributions included the provision of a “home for the family and space for a home office”. To the extent that the parties’ affidavit material revealed other matters which, had findings of fact in those terms been made, could have informed the trial Judge’s determination of this issue, this Court is not in a position to make such findings where the evidence is in conflict. We have not been referred to any affidavit evidence of the parties which is asserted to have uncontroversially raised other factual circumstances relevant to the evaluation of the parties’ contributions. Nor have we been referred to any concessions made in that regard.
As the Court noted in its judgment in the substantive appeal, at paragraph 93, it could possibly have been inferred that the trial Judge concluded as she did by reference to statements emerging from decisions such as Pierce v Pierce (1999) FLC 92-844 and Kardos v Sarbutt (2006) 34 Fam LR 550. In our view, and particularly having regard to the submissions of Senior Counsel for the husband to which we have referred, albeit, for the reasons we have earlier suggested, we are not able to articulate meaningfully in any greater detail than the trial Judge did why we so conclude, we regard the contributions of the parties to the property which we have quantified at $2,072,917 as favouring the husband by 70 per cent to the wife’s 30 per cent. In our view the resultant disparity, of approximately $800,000 reasonably reflects the quantum and subsequent impact of the husband’s initial capital contributions, the use made of them, and impact they had upon the financial fortunes of the parties subsequent to the commencement of cohabitation, whilst recognising the unchallenged finding of the trial Judge that the parties’ contributions in all other respects were equal. In our view, although necessarily arbitrary to some extent, and less than able to be optimally explained, a finding with respect to contributions to the date of separation of 70 per cent to 30 per cent reasonably accommodates the matters to which we have referred.
The husband asserted that the post separation contributions should result in his entitlement being increased by 5 per cent. We have earlier recorded those submissions. The wife made a number of submissions with respect to the post separation period, some of which were purportedly in reliance upon findings made by the trial Judge, others of which were not. As we have earlier explained, in the absence of the trial Judge having so found, or our being referred to uncontroversial evidence, or matters which were conceded before the trial Judge, we cannot go beyond the findings of fact which the trial Judge made. Not dissimilar observations are relevant in relation to a number of submissions made on behalf of the husband which we have earlier recorded.
Senior Counsel for the husband submitted:
2.7Post-separation the Husband’s contributions have significantly outweighed those of the Wife. That imbalance arises essentially for two reasons. First, there is the significant increase in the value of the [D] Group during that period and, secondly, the cost to maintain the Wife in the premises at [U]. This submission assumes that the Court will treat the receipt by the Husband of the inheritance from his mother as a factor to be taken into account pursuant to s.75(2)(o) rather than as an asset to be taken into account in the calculation of respective contributions. Adjustment at this stage would see the Husband’s contributions increased by a further 5% to 75% - 80% compared to the Wife’s contributions of 25% - 20%.
The trial Judge considered the post separation period and recorded, uncontroversially that:
156.Between separation and hearing the father was entirely responsible for the repayment of the mortgage on the property in the order of $8,500 per month. He also paid child support and spouse maintenance and was responsible for certain other expenses including home maintenance. The mother provided the majority of the care of the children who were very young at the date of separation.
As this Court noted in its judgment in the substantive appeal, the trial Judge allowed as a liability of the husband, the sum of $350,999 which he had incurred to the D Group in part “in order to meet the mortgage and spouse maintenance expenses” in the post separation period. As this Court recorded in its judgment in the substantive appeal:
80.So doing, albeit to an extent which her Honour did not quantify, and may not have been able to have quantified, must have reduced any potential enhancement of the husband’s post separation entitlement by virtue of the contributions to which her Honour referred in paragraph 156 of her Reasons.
This Court observed in its judgment in the substantive appeal that the 5 per cent adjustment in favour of the husband to the contribution based entitlements of the parties by reference to the post separation period was, to some unspecified but apparently significant extent, influenced by the trial Judge’s treatment of the husband’s post separation inheritance of $110,000. The 5 per cent adjustment in the husband’s favour resulted in a disparity of 10 per cent in his favour, which approximated $200,000 in monetary terms.
This Court, at paragraph 85, recorded that it was not persuaded that, as was inferentially the case, a disparity of $90,000 inadequately reflected the post separation factors, other than the contribution of $110,000 by him from his inheritance, favouring the husband. For the purpose of re-exercising the trial Judge’s discretion, we are not persuaded that any adjustment to the parties’ contribution based entitlements at the date of separation other than to the extent of $90,000, would be appropriate. That is largely because the balance sheet includes, as the trial Judge found, the debt which the husband owed the D Group of $350,999 which in some unquantified manner was in part referable to the mortgage and spouse maintenance expenses met by the husband in the post separation period. Our inability to conclude that the trial Judge erred in this context is also influential. To achieve such an outcome an adjustment of $45,000 in the husband’s favour is appropriate. Such sum represents approximately 2 per cent of the net asset pool we have earlier identified.
Although a number of submissions have been made by Senior Counsel for the husband in support of his contention with respect to the husband’s contributions in the post separation period, we have not been referred to any findings of fact of the trial Judge, or uncontroversial evidence before her Honour which provides a sufficient factual underpinning for the adjustment sought on the husband’s behalf.
It remains to consider whether matters subsequent to trial should, as Senior Counsel for the husband submitted, increase the contribution based entitlements of the parties. As we have noted at the outset of these reasons, neither party sought to adduce further evidence for the purpose of the re-exercise of the trial Judge’s discretion. Each party has made submissions in respect of which there is no, or insufficient evidence in reliance upon which we could accept those contentions. It is unnecessary in those circumstances to refer in detail to the submissions of Senior Counsel for the husband [as set out above in par 12]. We observe however that the husband has, on such evidence as is before the Court, and having regard to the unchallenged findings of fact of the trial Judge, been in a significantly stronger financial position than has the wife during the period subsequent to the parties’ separation.
We accordingly assess the contributions of the parties to the asset pool which we have earlier identified and quantified as favouring the husband by 72 per cent to the wife’s 28 per cent.
It is then necessary to consider the impact of s 75(2). Although a challenge raised on behalf of the husband [ground 2 of the Amended Notice of Appeal filed 8 November 2011] required a consideration of the trial Judge’s evaluation of s 75(2) factors, no finding of fact made by her Honour in that context was challenged. The undisturbed findings made by the trial Judge inform our determination of the adjustment appropriate to be made pursuant to s 75(2) of the Act. Those findings are as follows:
159.The parties are in their early forties and are in good health. The husband has a wife who is both employed by him and independently self-employed. They are expecting a child together.
160.The mother does not have a new partner, is not in the paid workforce and has the majority care of the two children. She will need to refresh her skills to be able to return to her former employment …, or to carry out the kind of work she was doing in the family business. She will probably have to take up lower paid employment initially.
161.The mother expects to earn $20 to $25 per hour. She would like to return to [her original] work and to develop a business in that regard, but expects that she is more likely to take up contract administration which will be more remunerative.
162.As has been discussed, the mother indicated that she had put in hours and hours of unremunerated work to the father’s business when the marriage was still in tact. She designed websites and undertook specific projects. She created valuable intellectual property which is still in use by the father and now by his wife. However, it is not unreasonable that the mother will need time to update her skills before she is able to generate anything like the kind of income received by the father from his businesses. The mother said this:
I was very invested in [D]. We act [sic], lived and slept [D]. It was our life. It was just as much mine as his. We spent every weekend at cafes looking to see what worked. Its success has a lot to do with what I did.
163.On balance the mother is likely to develop a business of her own in due course if proper arrangements can be made for the children.
164.The father has the capacity to go on developing his business in a variety of ways, some of which were illuminated during the hearing. The father will have the benefit of the financial partnership of his new wife, whose business interests are similar to his own and who I have found will be a benefit to him financially in that regard. The father will have to raise the money to pay out the interest of the mother. He may sell shares or raise a further debt once he has been relieved of repayment of the mortgage on the family home.
For reasons which were articulated in its determination of ground 2 of the Amended Notice of Appeal filed 8 November 2011, this Court does not propose to have regard pursuant to s 75(2) to the liability of the husband for Capital Gains Tax (“CGT”) of $80,000 to $90,000 which may arise as a consequence of his complying with the orders which we shall make. As explained in the Court’s substantive judgment, the preferable course in the circumstances of this case is to provide by separate order that, in the event of a CGT liability materialising, that liability be borne by the parties in the shares in which their property is to be divided. So doing preserves the integrity of the percentage division of the property of the parties which this Court concludes to be just and equitable. The course precludes any s 75(2) adjustment in the husband’s favour by reference to a potential liability for CGT.
Conversely, having excluded the husband’s post separation inheritance of $110,000 from the balance sheet, at step one, it is necessary to consider the impact of the inheritance as a financial resource of the husband in the context of s 75(2). In so doing, the Court is mindful of the magnitude of the inheritance relative to the property to which each party is entitled by virtue of their contributions (see s 75(2)(m)), and that the financial resource was received by the husband after separation, and in the absence of any direct or indirect contributions of any kind to its acquisition, conservation or improvement by the wife. In the circumstances, a modest adjustment for the financial resource represented by the husband’s post separation inheritance would be appropriate.
The factors which inform a s 75(2) adjustment in the wife’s favour to which the trial Judge referred in the terms we have recorded above together with the husband’s financial resource represented by the husband’s post separation inheritance suggest that a substantial s 75(2) adjustment in the wife’s favour is appropriate. Senior Counsel for the husband submitted that an adjustment of 5 per cent to 7.5 per cent was appropriate.
The wife submitted that:
...The trial judge’s treatment of s 75(2) factors did not sufficiently address the disparity between my capacity to earn an income and the Husband’s. The Husband has now remarried and has an income earning partner. I am a single parent and I have not re-partnered. The Husband retains the income earning …company and its assets which, when we were together, was the sole source of income for both of us. The Husband has control of the sale of the matrimonial home. He has taken steps to defeat and delay the sale of this property thereby delaying the payment of my settlement sum […]. …
Although the wife did not indicate the adjustment which she submitted to be appropriate, it can reasonably be inferred from her submissions that an adjustment of more than 10 per cent, determined by the trial Judge, was sought.
In our view, an adjustment by virtue of s 75(2) in the wife’s favour of 10 per cent would be appropriate. Such adjustment represents a 20 per cent disparity which translates in dollar terms as approximately $400,000. We consider such sum to adequately accommodate the numerous factors to which the trial Judge referred, and the financial resource represented by the husband’s post separation inheritance of $110,000. It will be readily apparent that removing the allowance which the trial Judge inferentially made in the husband’s favour by reason of his possible CGT liability on the one hand, and taking into account his inheritance as a financial resource worth $110,000 leaves the essential basis of the undisturbed adjustment determined by her Honour intact.
It is necessary to consider whether the proposed division of the property of the parties of 62 per cent to the husband and 38 per cent to the wife constitutes a just and equitable division of their property.
Asset pool
1.
Agreed estimated value of U
$1,100,000
2.
Husband’s NAB account
$2,287
3.
Husband’s interests in D Group
$1,720,569
4.
Wife’s car
$28,000
5.
Wife’s bank accounts
$1,100
6.
Ride on mower
$300
7.
Wife’s household contents
$1,000
8.
Husband’s household contents
$6,500
9.
Husband’s paid legal fees
$189,972
10.
Wife’s paid legal fees
$32,501
11.
Husband’s superannuation
$104,800
12.
Wife’s superannuation
$43,919
$3,230,948
Liabilities:
1.
Mortgage liability
$1,058,832
2.
Estimated selling costs of U
$41,168
3.
Wife’s Visa debt
$2,000
4.
Wife’s loans from her father
$49,867
5.
Wife’s HECS debt
$1,679
6.
Wife’s debt to valuer
$4,485
$1,158,031
Assets:
$3,230,948
Less Liabilities:
$1,158,031
TOTAL
$2,072,917
Husband’s (post separation inheritance) mother’s estate
$110,000
A 38 per cent entitlement of the net asset pool of $2,072,917 is the sum of $787,708.46. Of that sum the wife has: motor vehicle ($28,000), bank accounts ($1,100), lawn mower ($300), household contents ($1,000), paid legal fees ($32,501), superannuation ($43,919), less: visa debt ($2,000), loans from father ($49,867), HECS debt ($1,679) and debt to valuer ($4,485), total net sum of $48,789. The wife is thus entitled to receive an additional $738,919.46 from which the wife should pay $16,564 to the husband with respect to valuations paid for by the husband, bringing the total net sum to $722,355.46.
The husband would retain NAB account ($2,287), interest in D Group ($1,720,569), household contents ($6,500), paid legal fees ($189,972), superannuation ($104,800) a total of $1,301,772.54 after paying to the wife the $722,355.46. The husband could also have his inheritance from his mother’s estate ($110,000) included, a total net sum of $1,411,772.54, inclusive of the $16,564 owed to him by the wife.
Having regard to the matters recorded with respect to s 75(2) and s 79, the Court is persuaded that a division of the property of the parties of 62 per cent to the husband and 38 per cent to the wife is just and equitable. Whilst the husband will have significantly more than will the wife, his far greater initial contributions and their impact, and the reality that the husband’s entitlement is “tied up” in the D Group whilst that of the wife will be in cash reinforce us in that conclusion. The integrity of that division will be preserved by making an order that the parties share in any surplus, or make good any shortfall resulting from the sale of the U property, in shares of 62 per cent to the husband and 38 per cent to the wife.
The trial Judge’s orders provided that the husband receive a maximum of $1,418,896 inclusive of his inheritance from his mother’s estate in the event that the proceeds of sale of U were sufficient to discharge the mortgage over the property and all the costs of sale. The orders which we propose will provide that the husband potentially receive $1,302,772.54 exclusive of the sum of $110,000 from his mother’s estate. Our orders will however:
i.Impose any CGT or other taxation liability which may eventuate proportionately on the parties whereas those of the trial Judge imposed any such liability solely on the husband;
ii.Impose any shortfall on the sale of U proportionately on the parties whereas those of the trial Judge caste any such shortfall upon the husband solely; and
iii.Divide any surplus on the sale of U in shares of 62 per cent to the husband and 38 per cent to the wife whereas those of the trial Judge awarded the wife the totality of any such surplus.
iv.Preserve a division of the property of the parties in shares of 62 per cent to the Husband and 38 per cent to the wife irrespective of the outcome of the sale of U, and whether any CGT or other taxation liability materialises as a result of the husband complying with these orders.
In reality, having successfully appealed against the trial Judge’s orders, the husband’s fortunes will potentially be significantly better then they could have been pursuant to those orders. Whatever transpires, the husband will not be financially disadvantaged. As the legislation (s 96) makes clear, there is no presumption that the re-exercise of discretion will result in a more advantageous outcome for a successful appellant than the impugned orders provided. In re-exercising the trial Judge’s discretion, this Court is required to make the orders which ought to have been made. This we have done.
Largely for the reasons advanced by Senior Counsel for the husband we do not propose to make an order for the sale of the husband’s interest in the D Group. Those submissions asserted:
3.3In particular, in relation to the form of orders sought by the Wife, it is respectfully submitted that it is not open to this Court to order the sale of a specific asset of an entity which has a significant minority shareholder (as found by the trial judge and not the subject of appeal), and furthermore is not itself a party to the proceedings. That position was not the subject of a successful application pursuant to s.106B of the Act. It is therefore respectfully submitted that it is not open to the Court to order the sale of an asset of the [D] Group, as the Wife seeks, in Order 4 of her proposed orders, namely the business trading as [“C L”] and located at [W].
If the husband fails to comply with the orders we shall make, relief of the kind sought by the wife may become an avenue which the wife could, or may need to pursue. We doubt that we have the power to order the sale of an asset of the D Group, but, if we do, could not exercise such power in the way the wife urges us to in the absence of an application and supporting evidence which the company and its third party shareholders had the opportunity to resist. As has not been in doubt before the trial Judge and this Court, the major asset of the parties is the husband’s minority interest in the D Group. That reality has legal implications which we cannot ignore.
I certify that the preceding forty four (44) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Coleman, May & Thackray JJ) delivered on 4 June 2012.
Associate:
Date: 04.06.2012
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