Kellett and Kellett (No.2)
[2015] FCCA 2692
•8 October 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| KELLETT & KELLETT (No.2) | [2015] FCCA 2692 |
| Catchwords: FAMILY LAW – Property – where both parties became bankrupt after proceedings commenced – minimal property – superannuation split – orders just and equitable. |
| Legislation: Bankruptcy Act 1966, ss.58, 60, 116 |
| Kellett & Kellett [2015] FCCA 1649 Stanford & Stanford [2012] 293 ALR 70 Hickey & Hickey (2003) FLC 93-143 Bevan & Bevan [2013] FamCAFC 116 C and C (2005) FLC 93-220 |
| Applicant: | MS KELLETT |
| Respondent: | MR KELLETT |
| File Number: | DGC 3110 of 2011 |
| Judgment of: | Judge O'Sullivan |
| Hearing dates: | 12, 13 & 14 November 2014 13, 14 & 15 April 2015 |
| Date of Last Submission: | 20 August 2015 |
| Delivered at: | Melbourne |
| Delivered on: | 8 October 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr R. Hoult |
| Solicitors for the Applicant: | Ruffin Lawyers |
| Counsel for the Respondent: | Mr T. Hutchings |
| Solicitors for the Respondent: | Trapski Family Law (until 20 August 2015) |
ORDERS
That the $4,758.54 held in Messrs Adrian McKay & Associates trust account on behalf of the parties forthwith be released to the Wife.
The base amount allocated to the Wife out of the defined benefit interest held by the husband in the (employer omitted) Superannuation Plan) (“the Super Fund”) is $72,200.
Pursuant to s.90MT(1)(a) of the Family Law Act 1975, whenever the Trustee of the Super Fund makes a splittable payment from the interest held by the Husband, the Trustee will pay to the Wife or her administrators, executors, beneficiaries, heirs or assigns the entitlement calculated in accordance with Pt 6 of the Family Law (Superannuation) Regulations 2001 and there shall be a corresponding reduction in the entitlement the Husband would have had in the Super Fund but for these Orders.
Order 2 has effect from the operative time.
The operative time of these Orders is 7 days after the date the Orders are made.
The Wife serve a copy of these Orders on the Trustee of the Super Fund within 7 days of the date of these Orders by ordinary pre-paid post.
The Trustee of the Super Fund, in accordance with the obligations set out under the Family Law Act 1975 and Family Law (Superannuation) Regulations do all such acts and things and sign all such documents as may be necessary to calculate the entitlement of, and make payment to, the Wife in accordance with paragraph 2 of these Orders.
That unless otherwise specified:
(a)each party be solely entitled to the exclusion of the other to all other property (including choses-in-action) in the possession of such party as at the date of these Orders;
(b)monies standing to the credit of the parties in any joint bank account are to become the property of the Husband;
(c)each party forego any claims they may have to any superannuation benefits belonging to or earned by the other;
(d)insurance policies remain the sole property of the beneficiary named thereon;
(e)each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to these orders.
(f)any joint tenancy of the parties in any real or personal estate is hereby expressly severed.
All extant applications be otherwise dismissed.
IT IS NOTED that publication of this judgment under the pseudonym Kellett & Kellett (No.2) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
DGC 3110 of 2011
| MS KELLETT |
Applicant
And
| MR KELLETT |
Respondent
REASONS FOR JUDGMENT
Before the Court are proceedings between Ms Kellett (“the wife”) and Mr Kellett (“the husband”).
On 6 August 2015 for the reasons set out in Kellett & Kellett [2015] FCCA 1649 (‘Kellett No.1’) the Court made final parenting orders and adjourned the remaining dispute over property orders.
These reasons, which concern the resolution of the dispute over property orders between the wife and the husband, should be read in conjunction with those in Kellett No.1.
The factual and procedural background is set out in Kellett No.1. Both the wife and the husband became bankrupt following the commencement of the proceedings. Following the making of the parenting orders for the reasons set out in Kellett No.1 the solicitors for each of the parties gave their clients’ respective bankruptcy trustees notice of the orders they sought in relation to property. [1]
[1] See Exhibits A9 and R9.
At the mention of 20 August 2015 Counsel for each of the parties confirmed as much but told the Court that notice to those trustees had only been given on 19 August 2015.
Bankruptcy Act
Under s.58(1) of the Bankruptcy Act 1966 (‘the Bankruptcy Act’) property of a bankrupt vests in the trustee:
“(1) Subject to this Act, where a debtor becomes a bankrupt:
(a) the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and
(b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee.”
The effect of s.60 of the Bankruptcy Act upon an action commenced by a person who subsequently becomes bankrupt is:
a)to stay the action until the trustee makes election, in writing, to either prosecute or discontinue the action (s. 60(2)); and
b)if the trustee does not make such an election within 28 days after service of notice of the action, the trustee shall be deemed to have abandoned the action (s.60(3)).
Given the above I am satisfied that the bankruptcy trustees of the parties have received notice of these proceedings. Those trustees have not made an election in writing either to prosecute or discontinue the proceedings.
As more than 28 days have passed since the trustees received notice/s the trustees are deemed to have abandoned the action by virtue of s.60(3) of the Bankruptcy Act.
As both parties are bankrupt, it is necessary to comment on what items are in terms of the Bankruptcy Act exempt property and therefore available for distribution between the parties.
In that regard the categories of exempt property are detailed pursuant to the provisions of s.116(2) of the Bankruptcy Act. The property that is exempt includes the bankrupt’s household property, property used by the bankrupt in earning income by personal exertion, the bankrupt’s primary means of transport (though the aggregate value of that should not exceed the current prescribed by the relevant regulations). Also exempt are life insurance and importantly for the purposes of these proceedings their superannuation entitlements.
At the mention on 20 August 2015 Counsel for each of the parties confirmed that all that was left for distribution by way of property settlement following both parties being declared bankrupt was superannuation and monies held on trust for the benefit of the parties’ child.
Submissions
The wife’s submissions filed at the close of the evidence had asked the Court to consider the following in relation to property:
“14. FINANCIAL MATTERS
210. Both parties are bankrupt.
211.There is nothing to suggest that the parties will be bankrupt for longer than the statutory 3 years.
212.It is wrong in law to suggest, as the husband does in paragraph 29 of his counsel’s submissions that there is no prospect of the husband discharging his bankruptcy in the foreseeable future.
213.It is wrong to suggest that the wife will receive “considerable financial assistance” whatever that may mean.
214.The husband lived in the former matrimonial home and did not pay the mortgage.
215.The husband did not pay the mortgages on the parties’ investment properties situated at Property H and Property J, Queensland.
216.The Property H property was sold by the mortgagee on 1st October 2012 leaving a shortfall between the selling price and mortgage of $256,942.92. This shortfall resulted in the parties becoming bankrupt.
217.The Property J property was sold by the mortgagee during June 2014 leaving a shortfall between the selling price and mortgage of $92,777.00. The Wife’s parents are guarantors for the mortgage and have been served with a claim issued by the mortgagee seeking payment of the shortfall.
218.The husband accessed his superannuation ($24,980) without the consent of the wife.
219.The husband’s counsel has misstated the husband’s bankruptcy and its effect on the husband’s financial position. There is no evidence as to the level of the husband’s income, the self-support amount or the amount required by the husband to contribute to his bankruptcy and hence his financial position.
220.In any event the wife is bankrupt too and at this stage does not receive child support.
221. The husband has an interest in remainderman.
222.The husband has an interest in a superannuation fund worth $211,000(E) and wife’s interest is about $46,000(E).
223.The husband’s superannuation is held in a regulated fund and hence is non divisible; that is it is exempt and cannot form part of the bankrupt’s estate and therefore cannot be claimed by the trustee.
224.It is submitted that he (sic) Court can make an order for the wife to receive the sum of $4,748.54 held in trust. Being under $5,000 such does not form part of the estate.
225.The Bankruptcy and Family Law legislation Amendment Act 2005 made it clear that the trustee is able to and in some cases obliged to participate in family law proceedings.
226.Even though the orders sought in this case relate to a non divisible asset within the meaning of section 116 of the Bankruptcy Act it is submitted that as an abundance of caution the trustee should be put on notice as to the orders sought and the state of proceedings and that the matter be listed for telephone mention prior to the court making a determination.
272.Under the caveat of the appropriate notice given the court is asked to consider the following:
(a)The husband lived in the former matrimonial home and allowed the mortgage to fall into arrears.
(b)The husband failed to pay the mortgages on the parties’ two investment properties and both were sold by the mortgagees with significant loss.
(c)The Husband has already had the benefit of $24,980 of his superannuation
(d)The husband has a higher earning capacity than the wife
(e)The husband does not pay child support
(f) The husband has not paid spousal maintenance.
(g)The husband has an interest in remainderman.
228.In taking into account the above matters an order should be made for the split of 90% of the husband’s superannuation to the wife.”
The husband’s submissions were inter alia that in so far as the Court was considering a superannuation splitting order the matters under s.75(2) of the Family Law Act 1975 (Cth) (“the Act”) were of “no relevance” and contributions should be assessed 70/30 in his favour. The husband’s submissions filed after the close of the evidence were:
“PROPERTY
27.As to property, the Husband instructs that a Sequestration Order was made against him on 14 May 2015. The Husband does not know what has happened in relation to the Wife, but it is noted she was/is a Respondent to the Bankruptcy proceedings.
28.In the event the Wife is not bankrupt, it is submitted that the only order required in relation to the property aspect of these proceedings is that all applications be dismissed. This is so because the Husband will be unable to enjoy any income he receives, save for a minimal amount for living expenses. Child Support will continue to be deducted from his salary as though he continues to receive his full income. It is unclear how long the Husband may be bankrupt for. In contrast, the Wife will be able to work and enjoy the fruits of her labour. The Husband will continue to carry the entire financial burden of the relationship.
29.The Wife receives considerable financial assistance from her family, and will continue to do so. The Husband is bankrupt, with no prospect of discharging his bankruptcy in the foreseeable future. The Husband’s dire financial position is also relevant to the question of relocation, given he will not have available resources to pay for accommodation, transportation and activities. He will also struggle to pay for flights notwithstanding that he is currently employed by an airline.
30.In the event the Court considers a superannuation splitting order, it is submitted that the s75(2) factors are of no relevance given neither party can access superannuation until retirement age, which for each of these parties is many years away. As to contributions, these ought be assessed as 70/30 in favour of the Husband given his post separation contributions which are self-evident, although unquantified.”
Orders sought
In submissions filed after the close of the evidence the orders sought by the wife were:
“15.That the Husband is to retain the Commodore, boat, trailer and accessories and household goods and furniture currently in his possession;
16.That the $4,758.54 held in Messrs Adrian McKay & Associates trust account on behalf of the parties forthwith be released to the Wife.
17.That within 7 days, the Wife have possession of her personal belongings and photographs, childhood Leggo, X’s toys and books and the contents of X’s wardrobe and cupboard in her bedroom at the Property I property.
18.That the Husband and Wife be equally liable for the $30,000 debt owing to the Wife’s parents;
19.That the Wife forego any interest she may have in the property situated at Property R, Victoria.
20.The base amount allocated to the Wife out of the defined benefit interest held by the husband in the (employer omitted) Superannuation Plan) (“the Super Fund”) is $185,000.00.
21.Pursuant to s90MT(1)(a) of the Family Law Act 1975, whenever the Trustee of the Super Fund makes a splittable payment from the interest held by the Husband, the Trustee will pay to the Wife or her administrators, executors, beneficiaries, heirs or assigns the entitlement calculated in accordance with Pt 6 of the Family Law (Superannuation) Regulations 2001 and there shall be a corresponding reduction in the entitlement the Husband would have had in the Super Fund but for these Orders.
22. Order 20 has effect from the operative time.
23.The operative time of these Orders is 7 days after the date the Orders are made.
24.The Wife serve a copy of these Orders on the Trustee of the Super Fund within 7 days of the date of these Orders by ordinary pre-paid post.
25.The Trustee of the Super Fund, in accordance with the obligations set out under the Family Law Act 1975 and Family Law (Superannuation) Regulations do all such acts and things and sign all such documents as may be necessary to calculate the entitlement of, and make payment to, the Wife in accordance with paragraph 20 of these Orders.
26. That unless otherwise specified:
(a)each party be solely entitled to the exclusion of the other to all other property (including choses-in-action) in the possession of such party as at the date of these Orders;
(b)monies standing to the credit of the parties in any joint bank account are to become the property of the Husband;
(c)each party forego any claims they may have to any superannuation benefits belonging to or earned by the other;
(d)insurance policies remain the sole property of the beneficiary named thereon;
(e)each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to these orders.
(f)any joint tenancy of the parties in any real or personal estate is hereby expressly severed.”
However at the mention on 20 August 2015 Counsel for the wife abandoned all of the above orders save for Order 16 and Orders 20 to 26 above.
In submissions filed after the close of the evidence, and as confirmed by his Counsel at the mention on 20 August 2015, the orders sought by the husband were:
“19. That all applications relating to a division of property be are hereby dismissed.”
Approach to property settlement
The approach to a property settlement proceeding under the Act was considered in the decision in Stanford & Stanford[2] which noted that the approach requires first of all that:
“The Court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.”
[2] [2012] 293 ALR 70.
The Court is required to consider whether it is just and equitable to make an order under s.79 at all before embarking on the four step process set out by the Full Court of the Family Court in Hickey & Hickey.[3] The High Court said in relation to the approach to property settlement under the Act:
“37.First, it is necessary to begin consideration of whether it is just and equitable to make a property settlement order by identifying, according to ordinary common law principles, the existing legal and equitable interests of the parties in the property…
38.Second, although s.79 confers a broad power on a court exercising jurisdiction under the Act to make a property settlement order, it is not a power that is to be exercised according to an unguided judicial discretion… (but) “in accordance with legal principles, including the principles which the Act itself lays down”.
[3] (2003) FLC 93-143.
…
40.Third, whether making a property settlement order is “just and equitable” is not to be answered by beginning from the assumption that one or other party has the right to have the property of the parties divided between them or has the right to an interest in marital property which is fixed by reference to the various matters (including financial and other contributions) set out in s.79(4).[4]”
[4] Stanford v Stanford (supra) at [37]-[38] & [40] per French CJ, Hayne , Kiefel and Bell JJ.
Given the above and the decision in Stanford the following matters should be determined in applications brought under s.79 of the Act:
·whether the parties have separated;
·the assets and liabilities of each party;
·the contributions of each party;
·the future needs of each party;
·bearing in mind all the foregoing matters, whether it is just and equitable to make any orders altering the interests of the parties in their property; and
·what orders, if any are just and equitable in all the circumstances of the case.
Consideration
The Court is now asked to divide the property of the parties not affected by their bankruptcies pursuant to s.79 of the Act.
During the trial there was no evidence about superannuation the parties brought into the relationship. There was however tendered what was at that time an agreed list of assets and liabilities.[5] The value of the husband’s superannuation contained therein was $190,000. The best evidence before the Court of the parties’ respective superannuation interests is that the husband now has $190,000 and the wife has $45,582. The value of the monies on trust is not in dispute.
[5] See Exhibit R1.
The property in this case is now limited to the party’s respective interests in superannuation and the money held on trust by a firm of solicitors.
The wife’s claim is that she wants what would be over 90% of the husband’s superannuation on the best evidence of the value of that before the Court and a splitting order of $185,000 out of that entitlement. The husband’s position is simply that the proceedings in relation to property should be dismissed.
The background to this matter and the history of the party’s relationship is set out in Kellett No.1. The evidence of the parties such as it is referred to their history and their recent circumstances. The material did not really assist in determining what would happen in the future. The wife’s financial circumstances on the material before the Court are more tenuous than the husband, even though both are undischarged bankrupts.
Neither party really challenged the other in relation to their respective contributions during the time they were together and the only evidence I have is that they each contributed their respective resources (including the wife’s contributions from her parents) when they had the opportunity to do so.
Superannuation interests have been described by a majority of the Full Court in C and C (2005) FLC 93-220 at paragraph 43 as “another species of asset” in relation to which orders may be made in proceedings under s.79.
It is just and equitable to make an adjustment of the superannuation entitlements of the parties and to determine what should happen to the monies in trust. Having regard to the disparity of the two superannuation entitlements and the separation of the parties I find an order should be made. It is just and equitable to make an order having regard to the duration of the marriage and current situation of the parties.
The parties seemed to understand that, subject to some hardship provisions, superannuation for both of them might be of future benefit but there was little that they could achieve from it now or in the immediate foreseeable future.
Both parties contributed to the overall financial position. The husband worked and contributed to his superannuation through his salary and at the same time the wife was fulfilling a homemaker and parent role.
There is evidence that the husband unilaterally drew down on his superannuation without notice to or permission of the wife in the lead up to the trial last year. Whilst the husband and the wife made contributions which were largely equal up until separation, since then they favour the wife. Based upon the evidence the parties presented I find that their various contributions were equal during the relationship. After separation I find contributions favoured the wife.
Notwithstanding the submissions on behalf of the husband referred to earlier, s.79(4) requires a consideration of the matters in s.75(2).
·each of the parties has health and age on their side;
·the husband has much greater earning capacity;
·the husband hasn’t been paying child support;
·the wife will have the full time care of the child;
·both parties are capable of employment and neither suggests there are any health considerations that would preclude them from being employed;
·the parties are both in straightened financial circumstances and the wife has full time responsibility of the child;
·neither party indicated any other responsibility to maintain another person;
·neither party will get anything out of property settlement by way of real property;
·neither party has re-partnered;
·the terms of the orders that I propose to make have little or no impact on the current financial circumstances of the parties because on the evidence neither will be able to obtain the benefits of any superannuation adjustment for many years; and
·there are no unusual circumstances otherwise.
Other than the superannuation amounts themselves the wife will have the full time care of the child without the prospect of much assistance from the husband given his bankruptcy.
On any view the wife’s economic position is much weaker than the husband. The wife went out of the workforce for family reasons. Her superannuation is much smaller than the husbands.
The husband’s superannuation will not be effected by his bankruptcy. The wife’s superannuation will not grow whilst she is out of the workforce.
The wife should not be disadvantaged by virtue of the fact that the husband fulfilled the economic role and contributed to his superannuation.
Conclusion
Neither party suggested they would seek to access superannuation on hardship grounds. However the husband has already done so without notice to or agreement of the wife. There is no evidence the wife is working but she will have the support of her family in Queensland which would enable her to do so. The wife is left with no assets at the end of the parties’ relationship.
All of the circumstances point to a totalling of the superannuation and an adjustment that would provide them with an equivalent amount of superannuation. This reflects an adjustment arrived at having considered the relevant matters referred to above.
On the evidence before the Court the monies held on trust were intended for the purpose of the child’s education. In the circumstances they should be released to the wife who given her responsibility for facilitating the child’s education will I am satisfied use them for that purpose.
In my view it is just and equitable to make an adjustment of the husband’s superannuation such that a splitting order be made to the extent of $72,200 and the monies held on trust should be released to the wife.
I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of Judge O'Sullivan
Date: 8 October 2015
Key Legal Topics
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Family Law
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Equity & Trusts
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