JPDJ v DADJ
[2005] FMCAfam 86
•23 March 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| JPDJ & DADJ | [2005] FMCAfam 86 |
| FAMILY LAW – Property – contributions – full and frank disclosure – valuation of family company based on future maintainable earnings discussed – insufficient evidence to value on future maintainable earnings – Elias principle discussed – where husband has greater earning capacity and the child resides with him – where party legally represented court need not be overly cautious in accepting concession made on their behalf. |
| Family Law Act 1975, ss.75, 79 Child Support (Assessment) Act 1989 |
| Nelson v Nelson 184 CLR 538 In the Marriage of Clauson (1995) FLC 92-595 Weir v Weir (1993) FLC 92-338 |
| Applicant: | JPDJ |
| Respondent: | DADJ |
| File Number: | PAM1809 of 2004 |
| Judgment of: | Ryan FM |
| Hearing date: | 2 March 2005 |
| Delivered at: | Parramatta |
| Delivered on: | 23 March 2005 |
REPRESENTATION
| Counsel for the Applicant: | Mr D. Roberts |
| Solicitors for the Applicant: | FD Hammond & Associates |
| Counsel for the Respondent: | Mr S. Cairns |
| Solicitors for the Respondent: | Dooley & Associates |
ORDERS
Within ten (10) weeks of the date of these orders the wife pays to the husband the sum of one hundred and sixty four thousand three hundred and forty eight dollars ($164,348.00).
In the event the wife fails to comply with Order (1) the parties do all such acts and execute all such documents as may be required to effect a sale of the property at Parklea in the State of New South Wales to be sold by private treaty at a price agreed upon between the parties and failing such agreement to be determined by the President of the Australian Property Institute of New South Wales or his nominee.
Upon the completion of the sale proceeds of the sale are applied as follows:
(a)To pay all costs, commissions and expenses of the sale and to pay any council and water rates and maintenance levies outstanding in respect of the matrimonial home.
(b)Thirty eight (38) per cent to the husband from which he shall immediately pay the wife eighty two thousand six hundred and fifty one dollars ($82,651.00).
(c)Balance then remaining to the wife.
In the event that the matrimonial home has not been sold by or before a date three (3) months from the date order (3) becomes operative then the wife shall make all such arrangements and do all such acts and sign all such documents and pay all monies equally necessary to procure a sale by public auction of the matrimonial home upon the following terms:
(a)The auctioneer shall be a real estate agent nominated by the wife;
(b)The reserve price shall, unless agreed upon by the parties, be as proposed by the auctioneer.
(c)That auction will take place within three (3) months of this order becoming operative.
(d)Each party has the right to bid at the auction.
(e)The proceeds of sale of the auction shall be distributed in accordance with order (3).
Upon compliance by the wife with order (1) the husband shall do all acts and execute all documents as are necessary to transfer to the wife in registrable form the Mazda Tribute currently in her possession. In the event that the ATO requires payment of taxation because of the transfer by either party or the husbands company the taxation levied shall be paid by the husband or company in the first instance. The wife shall reimburse the husband or the company within fourteen (14) days of receiving the ATO notice of assessment. In the event that the wife fails to pay the money due under this order interest calculated in accordance with the Family Law Rules shall accrue on the balance outstanding from the date reimbursement was first due.
Until completion of the sale or transfer to her of the husband’s interest the wife has the right to occupy the property to the exclusion of the husband subject to wife paying the council and water rate instalments; household building and contents insurances; as they fall due, keeping the property tidy, clean and in repair having regard to its present condition and permitting inspection by agents and prospective purchasers at all reasonable times:
Unless otherwise specified in these orders:
(a)Each party be solely entitled to the exclusion of the other to all other property and chattels of whatsoever nature and kind in the possession of such party as at the date of these orders and that for this purpose bank accounts are deemed to be in the possession of the person whose name appears on the banks’ record thereof, insurance policies are deemed to be in the possession of the beneficiary thereof and superannuation entitlements are deemed to be in the possession of the person who is named as the worker whose age or working future provides the conditions for payment out of such entitlements.
(b)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.
All exhibits tendered in these proceedings shall be returned at the expiration of one calendar month unless an appeal is lodged.
The solicitor who issued any subpoena collects that subpoenaed material and returns it to the owner within seven (7) days.
All outstanding applications are dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PARRAMATTA |
PAM1809 of 2004
| JPDJ |
Applicant
And
| DADJ |
Respondent
REASONS FOR JUDGMENT
Introduction
These are proceedings for the adjustment of property pursuant to s.79 of the Family Law Act 1975. When the hearing commenced there was an outstanding issue concerning with whom the parties’ only child, J D J “the child” should reside. During the first day of the hearing, parenting orders were agreed which essentially provide that the child lives with his father and has regular contact with his mother.
The applications
JPDJ (“the husband”) started the proceedings when he filed an application for final orders on 1 April 2004. On 17 August 2004 he filed an amended application, changing only his proposed parenting orders. Simply put, the husband proposed that the proceeds of sale of the former matrimonial home are distributed equally and that the wife pays him an adjusting sum of $40,000. During closing addresses the husband’s counsel submitted that the court would find that his client’s s.79(4) factors were 35 per cent compared to the wife’s 65 per cent and that the court would make a 2-3 per cent adjustment pursuant to s.75(2) in his client’s favour if satisfied that the husband has a significantly greater earning capacity than the wife. If the court accepted the husband’s submission that his earning capacity was in the vicinity of approximately $50,000 per annum, then it followed that the s.75 (2) adjustment made in the husband’s favour should increase to
5-7 per cent. Thus, the husband’s case is that there should be an overall adjustment to him within the range 37-42 per cent.
DADJ (“the wife”) relied on her response filed 4 May 2004. In short, she said that the parties should each keep the assets that they currently have without further adjustment. Because the wife was concerned that the husband had failed to fully disclose his financial circumstances in her counsel’s case outline she reserved the right to vary the relief sought once the evidence was complete. During his closing addresses, the wife’s counsel submitted that the court would find that s.79(4) contributions and other factors favoured the wife 80-85 per cent and that there should be a 5-10 per cent adjustment in her favour pursuant to s.75(2). Dispassionate analysis of the facts makes such an outcome plainly overly ambitious. It appears that the wife’s submissions reflected her desired outcome irrespective of the available outcomes determined by reference to the operative law.
The hearing
The applicant husband relied on the following evidence:
·His affidavits sworn and filed 27 July 2004 and his affidavit filed 28 January 2005.
·His financial statement filed 1 March 2005 and his oral testimony.
The respondent wife relied on the following evidence:
·
Her affidavit filed 3 February 2005, her financial statement filed
3 February 2005 and her oral testimony.
·Affidavit of Brain Pickup, accountant, filed 3 February 2005. This witness was not cross examined and I accept his evidence.
Current orders
Excluding procedural matters, on 1 March 2005, by consent, the court made the following final parenting orders:
1.The father has residence of “the child” born in 1992.
2.The parties have the responsibility for the day to day care, welfare and development of the child while he is in their respective care.
3.The child have contact with the mother:
(a) Commencing 10 March 2005 each alternate week from the end of the child’s school day on Thursday until the commencement of the child’s school day the following Monday or if a long weekend until 3 pm on the last day of the long weekend.
(b) For one half of all school holidays being in the second half of each such period in odd years and the first such period in even years commencing:
(ii)In respect of the first half of such period at the conclusion of school;
(iii)In respect of the second half of such period at 9 am on that day which is half way mid term in such holiday period until noon on that prior to the commencement of the next school term;
(c) Christmas Day from 3 pm until noon Boxing Day in years ending with an odd year and in those years when the child is in the mother’s care for the first half of summer holidays the child will have contact with the father from 3 pm on 25 December until noon Boxing Day.
(d)Each Thursday following the contact referred to in paragraph 3(b) hereof until 8 pm and the wife shall collect the child from school.
(e)For three hours on the child’s birthday at a time agreed between the parties.
(f)For five hours on Mother’s Day at a time agreed between the parties.
4. The parent in whose care the child is residing at any period when the child is not being collected from school shall be responsible for delivery of the child to the other parent’s residence for the purposes of contact.
The issues
The principal issues raised in these proceedings are:
·Whether the husband gave full and frank disclosure.
·If he did not do so, the consequences of his failure to fully disclose.
·The value of the family company.
·The husband’s earning capacity.
·What adjustment, if any, should be made pursuant to s.75(2).
Short history
The husband was born in New Zealand in 1962 and is 42 years old.
The wife was born in England and is 40 years old.
The parties married on 19 January 1985. They did not cohabit prior to their marriage.
There is one child of the marriage who was born in 1992.
The parties separated in September 2002. Cohabitation ended in about November 2002 at which time the husband left the former matrimonial home.
On about 1 November 2002 the parties settled the sale of an investment property at Glenwood. After payment of outgoings and other adjustments, they received approximately $137,000. The husband retained the sale proceeds and used about $55,000 to family business.
In January 2004 the parties settled the sale of the former matrimonial home at Dural. This home sold for $1,125,000. After payment of the mortgage to ANZ Bank, the parties received net proceeds of $883,000. From the proceeds, the wife received $711,630 which funds she used to buy a home in her name at Parklea for $650,000. The husband received $167,578.69 from the sale proceeds of former matrimonial home. He has used some of these monies to meet his living expenses and retains the balance.
The marriage still subsists.
Relevant law
The approach to the determination of an application under s.79 is well established by authority (In the Marriage of Lee Steere and Lee Steere (1985) FLC 91-626; In the Marriage of Ferraro (1993) FLC 92-335; In the Marriage of Clauson (1995) FLC 92-595) the process ordinarily involves a multiple part procedure. Firstly, identifying the property, liabilities and financial resources of the parties at the time of the hearing. Secondly, evaluating the contributions made by the parties as defined in s.79(4)(a) to (c) and the effect of any proposed order upon the earning capacity of either party. I must then evaluate the matters contained in s.75(2) insofar as they are relevant, any other order made under the Act affecting a party or child and any child support under the Child Support (Assessment) Act 1989 that a party to the marriage is to provide, or might be liable to provide in the future, for a child to the marriage.
One of the important issues concerns the parties’ obligation to make full and frank disclosure, which means that they are required to disclose all material facts. In Weir v Weir (1993) FLC 92-338, the Full Court said at 79,593: “This Court has pointed out in a line of cases leading up to the recent decision of the Full Court in Black v Kellner (1992) FLC 92-287, that it is the duty of a party involved in property proceedings in this jurisdiction to make full and frank disclosure of their financial affairs.” See also Junti (1986) FLC 91-759 and Mezzacappa (1987) FLC 91-853. And further on: “Irrespective of any obligation created by the Family Law Act or the Family Rules that we have identified, in our opinion the obligation of full and frank disclosure applies because of the duty of the Court to consider all of the circumstances of the case. See Jenkins v Livesey (1985) 1 All ER 106. This is particularly important in cases where the financial circumstances of the parties may be relevant. It is not sufficient for a party to simply adhere to the obligations specified by the rules of court. If the relevant rules are deficient in identifying an aspect of a party's financial circumstance then this is not a basis for a plea that there was non-disclosure because the rules did not identify an aspect of a party's circumstances that may be relevant.”
In the matter of Luciano (2000) FamCA 401, O'Ryan J summarised the principles that emerge from these cases as follows.
·“In proceedings in the Family Court in relation to financial matters, there is an obligation of each party to make a full and frank disclosure of his/her financial circumstances and all matters relevant thereto.
·The obligation arises because of the necessity for the court in such proceedings to consider all aspects of the financial circumstances of each party.
·The obligation is not created by the rules or the practice of the court and the rules simply set out the procedure by which that obligation may be fulfilled.
·If there is a deficiency in the practice adopted for the purpose of making such a disclosure, mere compliance with the requirements of the relevant rules if deficient, is not enough.
·If there is non-disclosure in the relevant sense then the failure to disclose undermines the whole process of adjudication of the proceedings in relation to financial matters.
·A finding of non-disclosure may in appropriate cases, depending on the circumstances, result in the other party being granted without more, the relief sought.”
Assets, liabilities and financial resources as at the date of hearing
The parties agree on the value of most of their assets and liabilities.
I find that the assets, liabilities and financial resources as at the date of hearing are as set out in the table below:
| Assets as at the date of hearing | $ |
| Parklea Home (W) (agreed) | 650,000 |
| Mazda Tribute sedan (W) (agreed)[1] | 22,500 |
| ANZ Bank account (W) (agreed) | 1,500 |
| ANZ Bank account (H) (agreed) | 113,817 |
| Mitsubishi Pajero (H) (agreed)[2] | 25,000 |
| Jet ski (H) (agreed) | 2,500 |
| Household contents (W) (agreed) | 15,000 |
| Household contents (H) (agreed)[3] | 4,000 |
| Superannuation Trust Fund (H) (agreed) | 250 |
| TOTAL ASSETS | 834,567 |
| Liabilities as at the date of hearing | |
| GST (W) (agreed) | 19,000 |
| TOTAL LIABILITIES | 19,000 |
| NETT ASSETS | 815,567 |
[1] An asset owned by the company
[2] An asset owned by the company
[3] Includes tools owned by the company
The only contentious issue concerning the asset pool is the value of the husband’s. The husband incorporated the company in late 2000/2001. He is its sole director and when the company incorporated, owned 950,000 shares. JHP, a colleague, owned the remaining 50,000 shares. The company manufactures sofas and lounges which were supplied inter alia to Harvey Norman, a well known furniture outlet. Harvey Norman was its primary customer. Although the company was earning $700,000 in sales when the parties separated, in the last 18-24 months the business has reduced. At its height the company had eight employees and operated from commercial premises. The company no longer employs staff and uses subcontractors for its manufacturing. Presently, the business operates from the husband’s home. There is only one subcontractor who performs the majority of the manufacturing. The husband’s unchallenged evidence is that he is now the company’s sole shareholder and director.
The husband says that he wound the business back because, although at its peak performance sales grossed $700,000, the company produced little profit. He was advised by his accountants to reduce the costs of sales in order to improve profitability. Unable to do so, the husband decided the company was inevitably going backwards and wound down production. The wife believes that it is no coincidence that the husband wound back production at the same time as he commenced these proceedings. Basically, she suspects that he both continues to trade and has hidden the profits and business activity or, that this is merely a hiatus and that as soon as the proceedings are over the husband will re-establish the business profitably.
The wife’s counsel cross-examined the husband at length, focusing on transactions in the company’s cash disbursements journal[4] which he compared to the companies receipts journal and its bank statements[5]. The husband was asked about a series of transactions that appeared in the journals but not in the bank statements. The thrust of the wife’s counsel’s cross-examination was that because these impugned transactions did not appear in exhibit E the husband’s records were inaccurate and here was evidence that he had failed to bank cash sales. The husband appeared very angry with this suggestion and repeatedly asked if the wife’s team had inspected all of the relevant records. Although his question went unanswered it became apparent full inspection had not taken place. During re-examination the husband produced records that showed the impugned transactions had occurred in the reporting period earlier than that covered by exhibits E and F.
I accept the husband’s evidence that the relevant transactions are recorded in the cash disbursements journal and cash receipts journal for the period to which they relate. Their omission from exhibits E and F is of no moment. In fairness to the wife’s counsel he all but conceded that this cross-examination was fully rebutted during re-examination. No mention of it was made during closing addresses.
[4] Exhibit F
[5] Exhibit E
Nonetheless the wife’s case is significantly predicated upon the husband’s failure to fully disclosure and a claim that he has deliberately wound the company down. With respect to her there is insufficient evidence to maintain either claim. I accept the husband’s evidence that he supplemented the company’s income through his own advances sourced from the sale proceeds of the Glenwood investment property, his share of the sale proceeds of the former matrimonial home and monies borrowed from the ANZ Bank on the company’s behalf. He has used credit cards to meet personal expenditure repaid with drawings taken from the company. I have no doubt that he continues to intermingle his personal and the company’s affairs. However provided this intermingling is properly reflected in the company’s accounts nothing sinister, as the wife claims, necessarily follows. On balance I am not persuaded that the husband has hidden assets, has retained for his own use cash receipts not recorded in the companies accounts or that he has deliberately wound the company down.
Brian Pickup who is a chartered accountant was retained by the wife’s solicitors, “To prepare a forensic accounting report pertaining to discovery of financial documentation of JPDG and the company”. Although on 27 July 2004 the court gave the wife leave to serve a request that the husband give discovery, no notice for discovery was served. Accompanied by the wife’s counsel, Mr Pickup attended the husband’s solicitors’ office on 11 October 2004 to inspect documents relating to the company. The results of his inspection are contained in his report dated 14 October 2004. He concluded that as at 31 December 2002 the company had assets in excess of liabilities of $25,425 and at 30 June 2003 assets in excess of liabilities of $6,937. During the inspection Mr Pickup interviewed the husband. The husband informed him that the company had wound down its work and that the company no longer manufactured for Harvey Norman, formerly its biggest customer. After conducting a bank reconciliation for the period 25 May 2004 to 26 July 2004, Mr Pickup reports that after GST is deducted, the company deposited $53,601 for the two months period. This compares to sales for the year ended 30 June 2003, which were averaging $60,291 per month. At par 9.3 of his report Mr Pickup says, “If it was established that the company was continuing to trade profitably with Harvey Norman and other customers, it may be in the interest of your client to obtain a valuation report and authorise us to complete more work. If we accept that the company no longer trades with Harvey Norman and is unlikely to trade with a profit after an adequate salary to the owner, it is unlikely that goodwill exists. This means that the value of the company will be the value of its net assets at any particular time”.
The wife did not instruct Mr Pickup to value the company.
The husband’s evidence is that the company no longer trades with Harvey Norman. The last payment by Harvey Norman was received in the period ending 26 July 2004. Whether this payment relates to a contemporaneous sale or goods delivered earlier was not explored. The company’s only assets are the motor vehicles that the parties drive and a selection of tools and saws kept in the husband’s garage. These are identified in his financial statement. By agreement these assets are included in the asset pool as belonging to the party in whose possession they are at present. Both parties agree that they will retain these assets. This continues a pattern established long ago whereby the parties intermingled personal and corporate affairs without regard for any distinction between private and corporate entities. As the husband is the company’s sole shareholder and director no concerns arise about potential adverse consequences to other shareholders. Nonetheless taxation may be payable if company assets are transferred to either party.
During closing submissions, the wife’s counsel submitted that the court would find that the company continued to trade and determine its value. When I inquired of counsel the precise finding the court would make concerning the company’s value, he hesitated. I asked which of the various valuation methodologies was appropriate, for example future maintainable earnings or asset backing. I asked him to address me on the raw data and factors that the court would take into account in determining its value. Given the paucity of relevant evidence counsel had obvious difficulty taking me to the figures and information that the court needed in order to make the finding of the type contended for. Eventually he submitted that the court would find that the company gave the husband a monthly income of between $39,000 and $57,000 and that this would be multiplied by three, meaning that the company’s value was between $117,000 and $171,000. This assumes that all of the monies expended by the husband were sourced from the company and that all monies received were from earned income and not capital. The formula contended for bears no obvious relationship to any with which I am familiar. Although I expressed interest in seeing movements in the husband’s loan account with the company the loan account did not form part of either parties case. It appears that the husband has loaned the company money both from the sale proceeds of the Glenwood investment property and borrowed from the ANZ Bank. Thus the husband’s drawings partly reflect income drawn from the company that the company has borrowed. Concerning any loan account, although he may have monies due to him from the company unless the company has the capacity to pay him from income or realising assets his loan account is a debt he is likely to have to write off. This appears likely. Similarly although he clearly has taken more from the company than appears in his income taxation returns[6] these amounts partly comprise drawings. At some stage there must be a reconciliation and it may be that the husband, if he does not write off his loan account, will carry a significant personal taxation liability.
[6] Exhibit D
Valuations based on future maintainable earnings are also referred to as “capitalisation of maintainable profits”.Very subjective elements go into the calculation. Lonergan writes[7] “Where the assessment of the fair market value of an entity is undertaken by reference to the capitalisation of its underlying profitability, this will usually entail the valuer determining the core underlying profits or FMP of the entity. These profits do not necessarily represent either the latest historical, or immediate forecast earnings. ....In valuing on the basis of capitalisation of FMP, the value of the underlying net assets will also be reviewed, although this is normally only to ensure that the profitability of the entity will be maintained in the future and to assess the implied value of goodwill.” The maintainable earnings figure should reflect an average of the expected earnings with variability around this average built into the capitalisation rate. The capitalisation rate is “rate of return which will attract to and maintain in a particular field a supply of capital and entrepreneurial ability sufficient to maintain its relative position in view of the fundamental conditions of demand and supply”. See Adamson on Company Shares and Valuation of Businesses 7th ed p 124. Counsel made no submissions concerning either the appropriate capitalisation rate or the factors which the court would consider in determining the appropriate rate. Nor did counsel outline the factors that the court would use as a guide to earning capacity to produce maintainable profits. With respect to him, the evidence is insufficient to enable me to value the company on a future maintainable earnings basis. When the cautions outlined by the wife’s accountant are taken into account it appears that the business has no goodwill and at best the company’s value is reflected in its few assets. As I have already found these are included in the table set out at the start of this section.
[7] The Valuation of Businesses, Shares and Other Equity 4th Edition at page23
Section 79(4) contributions and other factors
Section 79(4) requires that the court looks at the entirety of the contributions, both financial and non-financial to the welfare of the family, as well as the acquisition, conservation and improvement of those assets. Contributions are not required to be tied to the acquisition, conversation or improvement of a particular asset and are to be taken into account generally as contributions in a total sense.
When the parties commenced cohabitation the wife was working as an assistant to the medical superintendent, earning approximately $28,000. The husband was earning approximately $20,000 per annum from his full time position as a sales manager with a furniture company. At the commencement of cohabitation neither party had any assets or liability of significance. Their financial positions were basically identical.
By about 1986 the husband was state manager and about the same time the wife began working with QANTAS as cabin crew. The wife worked full time with QANTAS until around May 1991, when she took one years paid leave in order to start a family. Following The child’s birth she returned to QANTAS for one season, presumably a precondition for paid maternity leave. On her resignation from QANTAS she received a total payout of about $45,000. The payout included $14,768 superannuation. Other than the superannuation the wife paid all of her termination moneys onto the Baulkham Hills property mortgage. At the husband’s behest her superannuation was rolled over into a self managed Superannuation Fund. The wife helped the husband with his business ventures, basically with administrative tasks and later design. At its most demanding she worked about one day a week for a few months. On average she worked one or two days a month in the businesses. Relevantly she was paid a salary which enabled the parties to in effect income split the profits earned from the husband’s companies.
The husband left the furniture company and after working for one year with another company, established a business importing and marketing mineral supplements. He was earning between $25,000 and $30,000 per anum during the two years this business operated. Between 1988 and 1989, together with another colleague, the husband commenced a furniture store and marketing enterprise known as, “WF”. Initially successful, the business changed its name to “FF Pty Limited”. The husband says that towards the end of its operation, the business was returning his holding company, “SH Pty Limited” approximately $250,000 per annum. The corporate entity trading as FF Pty Limited became insolvent and went into voluntary administration. The husband attributes the business failure to overly ambitious expansion into Victoria, promoted by an investor brought in during 1993. After administrators were appointed to FF Pty Limited the husband continued in the company in 1995 for a further six months. When the company went into voluntary administration, it had outstanding creditors of approximately $1.3 million.
In 1994 the parties sold their first home at Blacktown, to which both had equally contributed, and used the $55-65,000 net proceeds as a deposit on their home at Baulkham Hills. They purchased Baulkham Hills for $365,000, borrowing between $200-250,000 from ANZ Bank towards its purchase, later increased by an additional $30,000 for improvements. In 1995, the parties offered the home as security for an overdraft facility used by FF Pty Limited. In late 1995 the husband sold his interest in FF Pty Limited to Freedom Furniture at a price which enabled the company to discharge its liabilities to its bankers. The Baulkham Hills property was thus freed of its security to the companies bankers.
After the husband stopped working with FF Pty Limited, he was unemployed for about six months. Although the wife says that she resumed part time work in about 1995, working as an interior designer and with a television station, I am satisfied that she did not start working in television until about 1999 and that during those six months, neither party was in paid employment. Unable to pay the mortgage, the parties sold Baulkham Hills for approximately $465,000. By that time the principal due on the mortgage to the ANZ Bank was about $200,000. The parties invested the sale proceeds and lived in a rented home for about twelve months. Both parties agree that the wife contributed the entire net proceedings from this sale of $265,000. By that it is agreed that this is a contribution made solely by her to the parties’ assets. Although their logic is somewhat contorted, there appears no good reason why the court would not accept this agreed fact.
In late 1995/early 1996 the husband obtained employment as general manager of HSM, on a total salary package of approximately $50,000 per annum. During his employment with HSM, by 1998 his salary package increased to approximately $150,000 per annum and remained at that level until between 2000 and 2001. As part of his work with HSM, he travelled overseas monthly. On a number of occasions, the wife and child travelled with him.
By 1999 the wife was working part time, including on a television show. Through her work as an interior designer and on television, she was earning approximately $30,000 per annum.
In 1999, the parties purchased vacant land at Dural. The parties used part of the Baulkham Hills sale proceeds and did not need to borrow any money in order to complete the purchase. They contracted with Denton Homes for the construction of a project house on the land. The construction price was approximately $250,000. The parties initially borrowed $220,000 from the ANZ Bank and later a home improvement loan of approximately $30,000 in order to complete the construction. The property, which stands on one acre, was extensively landscaped and improved. The improvements are identified at paragraph 72 of the husband’s affidavit. The home improvement loan was extended in order to fund some of the capital costs associated with the improvements and both parties contributed towards smaller out of pocket expenses needed for their new home.
In approximately 1999/2000 the parties purchased an investment property known as the Glenwood investment property. In her affidavit, the wife said, “Following our separation, it came to my knowledge that JPDG had purchased an investment property located at Glenwood. I was not made aware that I was noted on title for this property. I do not recall signing a contract or any other documentation effecting the original purchase or sale of the property. The wife retracted this evidence. Clearly she was involved in the purchase and saw the property prior to its acquisition. The wife signed all documents needed to acquire the property as joint tenants with the husband. The gravamen of the wife’s written evidence appears to be that the husband secretively undertook significant financial transactions without reference to her. It followed that because the wife was a joint registered proprietor the husband must have engaged in chicanery or at worst document fraud. She also appeared to be trying to construct a claim that the husband alone should take responsibility for the capital gains tax she is liable to pay. It is difficult to know whether her claim was vexatious or merely foolish. Prior to the hearing the husband’s solicitors showed the source documents that disproved the wife’s evidence. She then abandoned this claim. Because she retracted the evidence in chief it was submitted that this erroneous claim should not count against her. I do not agree. This is because it contributes to my belief that the wife was prepared to make serious allegations without a proper foundation for doing so. Unfortunately it has undermined her credibility.
The Glenwood investment property was purchased with entirely borrowed money. The land cost $130,000 and Henley Homes were contracted to build a project home for a price of $175,000. In total, the parties borrowed $320,000 from the ANZ Bank. After completing the property it was tenanted before it was sold in 2002 for $465,000. At settlement the ANZ Bank received $135,500 in partial reduction of the outstanding mortgage of $320,000. It appears that the mortgage facility provided to the parties for the Glenwood acquisition was an all monies mortgage, in which the bank took collateral security over the Dural property. Having initially received about $312,000 from the sale of the Glenwood investment property, the husband then paid the remaining $175,000 to the ANZ Bank. The net effect of this is that the parties received approximately $137,000 from the sale of the Glenwood investment property. From this, the husband used about $55,000 towards the start up costs for the company. The husband says that the balance was used to make mortgage payments on the Dural property, to acquire the Mitsubishi Tribute owned by the company and driven by the wife, for other company expenses and in payment of his capital gains tax levied as a result of the property sale. The wife’s capital gains tax liability is unpaid.
The wife remained living in the Dural property until its sale. The husband paid all outgoings and gave the wife about $300-$400 towards her living expenses. He lived in rented accommodation which rental he was able to claim as a business expense.
I am satisfied that both parties applied all income earned throughout the marriage to joint matrimonial purposes. At all times during the marriage the husband earned more than the wife. Although there were periods when both earned little, overall the husband’s income derived from employment and entrepreneurial activity generally enabled the family to enjoy a comfortable standard of living and eventually a valuable family home. The parties jointly decided that the wife would stop full time work in anticipation of starting a family. After their son’s birth, she returned to full time work briefly and since then predominantly assumed day to day care of the family and management of the home. When she returned to paid employment her modest income complimented the husband’s, but at no stage matched it. The wife’s diligent attention to the child and the home meant that the husband could pursue his career confident that the wife competently attended their son’s daily needs and the home. He trusted the wife to largely meet their joint parental responsibility for their son’s care and accepted her judgment in relation to the daily matters necessary to run their son’s life and the home. Their roles were complimentary and both parties gave all for the family. The husband in maintaining employment, establishing and building businesses, working to improve their homes and establish and maintaining the grounds. The wife in maintaining paid employment, including working in the husband’s businesses, assuming primary responsibility for the child and managing the home.
The husband made a real contribution to the welfare of the family to the extent that he was able to. The wife did not seriously challenge his written evidence concerning his role as home maker and parent. Quite apart from providing financially for the family, he spent as much time as he could with the wife and child in shared family activities. Since separation the husband has become more significantly involved in their sons care by virtue of his exclusive care when the child is with him. Since separation, the wife has had the child’s exclusive care, when the child has been with her. Basically, the child’s care has been divided equally since August 2003. Overall the wife’s contribution to the welfare of the family substantially exceeds the husband’s. Her contribution must be recognised in a real and substantial way. See Ferraro (supra).
Because the husband conceded that the wife alone contributed the sale proceeds from the Baulkham Hills property, evaluating the parties’ financial contributions is troubling. The wife’s counsel submitted, in essence, that both parties financial contributions as at the time they sold the Baulkham Hills property, crystallised in its sale proceeds. Thus, by conceding that the wife alone contributed the sale proceeds, as at 1995 only the wife had made a financial contribution to the acquisition, conservation and improvement of matrimonial assets. As it is uncontroversial that the husband worked from marriage until the Baulkham Hills property was sold, it is clear that this submission should be rejected. The husband’s concession has its genesis in the wife’s claim that because the husband claimed that he did not have any assets when FF Pty Limited went into voluntary administration, application of the Elias (1997) FLC 90-267 principle meant that he could not now claim an interest in the Baulkham Hills property pursuant to s.79 of the Family Law Act 1975. It appears that because he feared claiming an interest may involve the creditors, who it appears were largely unsatisfied, may belatedly obtain redress. In the Marriage of Jordan (1997) FLC 92-736 Chisholm J considered the Elias principle. Writing extra-judicially in an article titled, “Exclusion of Evidence Inconsistent with earlier statement: the rise and fall of the Elias principle” Chisholm J argued that although such a principal seems to be asserted in a number of Family Court decisions, it is inconsistent with High Court authority and does not represent the law.
In Nelson v Nelson 184 CLR 538 McHugh J at par 38 said, “In my opinion even if a case does not come within one of the four exceptions to the Holman dictum to which I have referred, the court should not refuse to enforce legal or equitable rights simply because they arose out of or were associated with an unlawful purpose unless: a) the statute discloses an intention that those rights should be unenforceable in all circumstances; or b)(i) the sanction of refusing to enforce those rights is not disproportional to the seriousness of the unlawful conduct; b)(ii) the imposition of the sanction is necessary, having regard to the terms of the statute, to protect its objects or policies; and b)(iii) the statute does not disclose an intention that the sanctions and remedies contained in the statute are to be the only legal consequences of a breach of the statue or the frustration of its policies”.
The conclusion reached by Chisholm J is compelling. He writes, “If the argument in this paper is accepted, the Elias line of authorities is wrong insofar as it suggests that there is a principle, apart from estoppel the court may or must prevent a party from leading evidence of a proposition that is inconsistent with an earlier statement made to a third party. It follows that in property cases the court will consider all the evidence and make findings about the property of the parties and about their contributions. Earlier inconsistent statements of the kind that feature in the Elias cases will of course be relevant to this fact finding exercise. The court will have to consider whether the earlier statement or the later statement is more likely to be true. Further, the contradiction will be taken into account in determining what confidence the court will have in that party’s evidence generally. That all of this falls into the ordinary process of fact finding: no evidence would be excluded, and there would be no presumptions that one or other of the inconsistent statements is more likely to be true”.
What appears plain, is that here, both parties were equally involved in protecting matrimonial assets from the risks associated with possible failed commercial ventures. Both benefited from it. Notwithstanding that I indicated that overnight I had reviewed the Elias principle and formed the view that it was probably morte the husband maintained his earlier concession concerning the treatment of the Baulkham Hills property sale proceeds. This fiction resulted in his concession that the wife’s financial contribution was greater than his. While objective analysis of the facts makes this unlikely he only seeks a finding that his total contribution comprised 35 per cent as compared to the wife’s 65 per cent. I will accept his concession although it is contrary to his interest. His concession is informed. The husband impressed me as an astute businessman, well able to understand complicated facts, figures and legal advice.
No real challenge was made to either parties evidence concerning their non-financial s.79(4)(b) style contributions and I accept both parties evidence on this issue.
As to the wife’s contention that her total contributions should be evaluated at 85 per cent overall, her contention is unsustainable. Were it not for the husband’s concession, it is not beyond the realms of possibility that the court would have concluded that the parties’ contributions were equal.
The orders I propose will not affect the earning capacity of either party.
Since separation the husband has paid modest child support and as at the date of hearing was only paying $25 per week. However, since August 2003 the child lived week about with each of his parents and while the husband has the child with him, he supports the child without child support paid by the wife.
I find, therefore, the parties total contribution should be assessed as being 35 per cent by the husband and 65 per cent by the wife.
Section 75(2) factors
Subsection (a). The husband is 42 years old and in good health. The wife is 40 years old and she too is in good health. I make no adjustment pursuant to the subsection.
Subsection (b). I have already made findings concerning the parties’ property and financial resources and do not repeat them. Their incomes and average weekly expense are outlined in their current financial statements. The wife has worked in a variety of positions. She is an experienced administrative assistant, flight crew, interior decorator and public speaker. Following the child’s birth she took a career break so that she could devote her energies to him. When she returned to work part time, she pursued interior design, public speaking engagements and the media. Because until recently she has been primarily responsible for the child’s care, the wife has not been able to devote her time exclusively to her career. Presently, she earns about $250 per week from casual speaking engagements. The wife impressed as a most capable person and now that the child resides with his father, she has a greater capacity to work in full time paid employment. Although she is unlikely to return to flying, the wife has the capacity to update her technical skills and also seek full time employment. Working full time, she is likely to earn more than the $30,000 per annum she earned working part time in 2003. The husband has also worked in a number of fields. Recently, he completed a real estate salesman’s licence and is now a licensed real estate agent. He plans to build a career in this industry and has established an agency. His intention is to operate at the top end of the real estate market, marketing selective properties. The husband has considerable experience in selling. He claimed superior entrepreneurial skills and income earning capacity, based particularly on FF Pty Limited and his work with HSM. For considerable periods during the marriage the husband earned between $150,000 and $250,000 annually. It is unlikely that the husband will devote himself to any venture unless he considers it will probably produce a comfortable income, more than he is presently earning. Although he has made errors of judgment in the past experience indicates that he is unlikely to waste too much time in a financially unrewarding enterprise. It seems likely that the husband has the capacity to earn a significantly larger income than he presently earns. While it may take him one or two years to establish himself professionally in the real estate industry, it is likely that he will pursue that venture only if he is satisfied that a far better income than he has earned in the last year or so is within his reach. The husband left HSM of his own accord. Whilst that particular employer will have replaced him, it is likely that the entrepreneurial skills he put to such good use with them are transportable to other industries and employers. Thus, while both parties presently have a modest income, reflected in their respective financial statements, both are likely to have an improved income in a relatively short timeframe. Comparatively, the husband has a considerably greater earning capacity than the wife and his greater capacity to earn an income warrants an adjustment in the wife’s favour.
Subsection (c). The child is nearly 12 years old. He lives with his father and will exercise regular contact with his mother. Day to day primary responsibility for his care will remain with the father. In Clauson (supra) the Full Court of the Family Court of Australia said, “In addition it should not be forgotten that the payment of child support in no way compensates the custodial parent for the loss of career opportunity, lack of employment mobility and the restriction on the independent lifestyle which the obligation to care for children usually entails”. As a licensed real estate agent, the husband is able to nominate the times that he works and be selective in the jobs that he takes on. He has a great deal of flexibility. The father expects, for example, that he will have no difficulty collecting the child from school in the afternoons. Although the child is nearly a teenager and gradually becoming independent, his full time care does place some restrictions of the type discussed in Ferraro’s case on the husband. In his case outline document the wife’s counsel argued “It will be submitted than an appropriate range under section 75(2) to the party who this Court will determine should provide for the residence of the child would be an additional factor weighted in that party’s favour between 5% and 7%.” Although case law demonstrates the risks associated with subsection by subsection percentage allocation it is revealing that before the wife conceded residence in the husband’s favour she believed that s.75(2)(c) warranted a significant adjustment. I am satisfied that there should be an adjustment in the husband’s favour pursuant to the subsection.
Subsection (d). This focuses on the financial needs of the parties, including their financial commitments supporting any children. The wife has the modest expenses identified in her financial statement. Her expenses will fall somewhat as a consequence of the child living primarily with his father. While her expenses have exceeded her income, this situation is unlikely to continue and the wife has the capacity in the future to provide for her expenses from her income. The husband’s expenses presently exceed his income; a situation is unlikely to continue indefinitely. Because he has been living in rented accommodation his fixed expenses have been greater than the wife’s have. On the available information, there appears no proper basis for an adjustment pursuant to subsection (d).
Subsection (e). Other than their son neither party has any responsibility to support another person.
Subsection (f). At the time of the hearing the wife received a family allowance. However, as the husband now has residence of the child, this payment will stop. It is possible that the husband will become eligible to receive a family allowance, but the evidence was not so clear that I am satisfied that he will. I make no adjustment pursuant to the subsection.
Subsection (g). At separation the husband left the former matrimonial home. He has lived in rented accommodation and suffered a drop in the standard of living enjoyed during the marriage. The wife remained in the family home and since its sale has enjoyed the amenity of her own home and a standard of living greater than the husband’s. In the future, however, their respective standard of living is likely to improve, in which case I make no adjustment pursuant to the subsection.
Subsection (h) – (k). Neither party contends for an adjustment pursuant to these subsections.
Subsection (l). The husband contends that the child’s care will not seriously interfere with his employment. I have already made an adjustment in his favour pursuant to s.75(2)(c) and no further adjustment under subsection (l) is warranted.
Subsection (m). Both parties have re-partnered. However, neither party gains any real financial benefit by virtue of their relationship, as a consequence of which I make no adjustment pursuant to subsection (m).
Subsection (n). I have already made findings concerning the outcome of the contributions and s.79(4) phase and do not repeat them. There is no reason in the circumstances of this case that there should be any further adjustment pursuant to subsection (n).
Subsection (na). Although the husband is likely to ask that the wife pays child support, it is difficult to determine whether the application of the statutory formula will result in the wife’s liability to make a proper contribution towards the child’s expenses while living with his father. I have earlier concluded that it is likely that the husband will earn considerably more than he presently earns. It is unlikely that the wife will earn as much as the husband does. This suggests that at best, the wife’s child support payments will be modest. Accordingly, I make no adjustment pursuant to subsection (na).
There are no other relevant s.75(2) factors.
Having regard to all of the s.75(2) factors I find it appropriate that there should be an adjustment in the husband’s favour of 3 per cent. This accords with his counsel’s contention that the court would make a 2-3 per cent adjustment if satisfied that the husband has a significantly greater earning capacity than the wife. Any lesser adjustment, given the modest asset pool would be notional.
Section 79(2) is this a just and equitable outcome?
The outcome of s.79(4) and s.75(2) has resulted in a distribution favourable to the wife, 62 per cent as compared to the husband’s 38 per cent which is just and equitable within the meaning of s.75(2). I have already made findings concerning the application of s.79(4) and s.75(2) which do not warrant repeating. In coming to this conclusion I place particular reliance upon the husband’s concessions made through his counsel during the course of the trial and in closing submissions. Although the husband has the child’s care, the child has reached an age where, combined with the husband’s flexible employment, the husband is likely to earn a good income and re-establish himself financially. He is a man with considerable business acumen who is likely to once again do well. Throughout their marriage, the parties worked hard to maintain and improve their homes and secure their financial future. The wife’s career suffered setbacks by virtue of her career breaks and her primary responsibility for the home and family. However she too is now in a better position to re-establish herself financially and is also likely to once again do well.
The net assets to be distributed are $815,567. The wife is entitled to assets worth $505,651.54 and the husband is entitled to assets worth $309,915.46. The husband’s assets comprise his ANZ account, Pajero, jetski, household contents and superannuation, the total of which is $145,567. The wife’s assets comprise her home, Mazda Tribute sedan, cash at bank and furniture, which have a total value of $689,000. She has a GST debt of $19,000, giving her total net assets of $670,000. The wife must pay the husband the difference between $670,000 less $505,651.54. Rounded out this is $164,348.00. By way of cross check $309,915.46 less $145,567 is $164,348.46.
The wife will have ten weeks within which to pay the husband. This should be sufficient time to make loan inquiries and complete necessary paperwork. If she does not pay the husband within this timeframe, then her Parklea property must be sold. Although the home has an agreed value, the net proceeds of its sale cannot be known. The total assets excluding the home are $184,467, giving net assets of $165,567. At 38 per cent, the husband is entitled to have $62,915.46 from the reduced asset pool and at 62 percent; the wife is entitled to have $102,651.54. Of the reduced asset pool the wife has assets worth $20,000. Thus, from his share of the sale proceeds the husband must pay an adjustment of $82,651.00.
Pending settlement, the wife must maintain the Parklea property and pay rates, taxes and other necessary outgoings as and when they fall due. If there are outstanding rates and insurances these must be paid out of her share of the proceeds. In the event that the orders for the sale of the Parklea home become operative and a sale has not been achieved within three months, the Parklea home shall be sold at public auction. So that the sale is conducted as an arm’s length transaction, the wife shall nominate the real estate agent and auctioneer if Parklea’s sale is necessary.
In the event that by transferring the Mazda Tribute to the wife, the company incurs a taxation liability, the husband and the company must initially pay that liability. This is because the husband, via the company, has complete control of its income and are likely to be directly liable for payment of any taxation. However as the wife will ultimately take the asset she should ultimately pay the cost associated with the transfer.
In this difficult and at times unsatisfactory case, I am satisfied that overall the outcome is just and equitable.
For these reasons I make the orders identified at the start of this judgment.
I certify that the preceding seventy-three (73) paragraphs are a true copy of the reasons for judgment of Ryan FM
Associate: S. Mashman
Date: 23 March 2005
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