Kernahan and Kernahan
[2007] FMCAfam 952
•7 December 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| KERNAHAN & KERNAHAN | [2007] FMCAfam 952 |
| FAMILY LAW – Property settlement – spousal maintenance – where children completely estranged from husband and spend no time with him – where wife's initial financial contribution slightly greater than husband's initial financial contribution – where husband’s earning capacity at least 10 times greater than wife's earning capacity – consideration of whether certain liabilities should form part of the property "pool" – analysis of wife's potential income from receipt of capital sum as a result of property settlement orders. |
| Family Law Act 1975 (Cth) |
| Anast & Anastopolous (1982) FLC 91-201 McMahon (1995) FLC 92-606 Mezzacappa (1987) FLC 91-853 Norbis (1986) FLC 91-712 Oriolo (1985) FLC 91-653 |
| Applicant: | P J KERNAHAN |
| Respondent: | C M KERNAHAN |
| File Number: | MLM 2988 of 2006 |
| Judgment of: | Walters FM |
| Hearing dates: | 16 – 20 April 2007 |
| Date of Last Submission: | 20 April 2007 |
| Delivered at: | Melbourne |
| Delivered on: | 7 December 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr Cantwell |
| Solicitors for the Applicant: | Carew Counsel Pty Ltd |
| Counsel for the Respondent: | Ms Molyneux QC |
| Solicitors for the Respondent: | Grice & Grice |
ORDERS
The net assets of the husband and the wife be divided between them as follows:
(a)62.25% to the wife; and
(b)37.75% to the husband.
The wife’s application for spousal maintenance be dismissed.
There be liberty to apply in relation to the implementation of the within Orders.
All extant applications be otherwise dismissed.
IT IS NOTED IN CONNECTION WITH THESE ORDERS that the judgment of Federal Magistrate Walters delivered this day will for all publication and reporting purposes be referred to as Kernahan & Kernahan.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLM 2988 of 2006
| P J KERNAHAN |
Applicant
And
| C M KERNAHAN |
Respondent
REASONS FOR JUDGMENT
Introduction
Before the Court are the parties’ competing applications for property settlement. The wife also seeks an order that the husband pay spousal maintenance (at the rate of $1,000 per week) for 5 years.
The parties agree that the total net value of the property available for distribution between them is at least $3.2 million. They disagree as to how that “pool” should be divided. The wife argues that she should receive 70%. The husband argues that she should receive 52.5%.
The wife concedes that the husband should not have to pay spousal maintenance if she is awarded 70% of the available property. If she is awarded less than 70%, however, then she argues that spousal maintenance should be payable. The husband opposes the claim for spousal maintenance irrespective of the outcome of the property settlement part of the proceedings.
Background
The husband was born in August 1962. He is now 45. The wife was born in April 1956, and is now 51. Their relationship began in late 1985 or early 1986, and within a short time they commenced living together. They married on 9 February 1991.
The parties separated on 23 July 2004, and were divorced in May 2006. It was the husband’s first marriage and the wife’s second.
As is apparent from the above details, the husband was 23 and the wife was 29 when they commenced their relationship, and they lived together for close to 19 years.
There are two children of the marriage. B was born in December 1991, and A was born in April 1995. Both children live with the wife in the former matrimonial home in Y Avenue. B is in Year 11 at B High School. A is in Year 6 at C Girls’ Grammar School.
Regrettably, neither child has any contact with the husband, or with any members of his family. Each of the parties has a different view as to the reasons for the breakdown of the children’s relationship with their father. Those reasons were not explored during the trial. Indeed, final orders relating to parenting issues were made on 16 April 2007 ─ being the day before the formal commencement of the (property) trial. Those orders provide for the parties to have joint responsibility for the long-term care, welfare and development of the children, and for the children to live with the wife.
Although the parenting orders made on 16 April 2007 suggest that the husband will be spending time with the children, the reality is otherwise:
… (the children) have been absolutely resolute insofar as their refusal to see their father. They are now profoundly alienated from him, acknowledge no ambivalence towards him whatsoever, reject him and any person known or related to him in totality, and when seen in the company of their father, refer to him with disdain, and intolerance and contempt. [1]
[1] See Mr Vincent Papaleo’s report dated 27 April 2006, being Annexure PJK-1 to the husband’s affidavit sworn 25 September 2006.
The husband now lives with Ms SA in what he describes as “a defacto relationship”. There is some dispute as to the date upon which that relationship commenced. Suffice it to say (at this stage) that Ms A asserts that they commenced their relationship in the second half of 2004 (but after August 2004) and that they commenced living together in April 2005.[2]
[2] See 19 April 2007 transcript page 244 and page 3 of Ms A’s affidavit.
Ms A is now 25 or 26 years of age. She first met the husband in 2001, when she commenced employment as a Receptionist/ Administrative Assistant in the husband’s accounting and financial planning practice. She was then approximately 19 or 20. She still works in the husband’s practice as a financial planner.
Certain aspects of the husband’s financial relationship with Ms A were explored during the trial. Relevantly, the circumstances surrounding a loan which the husband allegedly made to Ms A in mid 2004, and various other payments which the husband made to her, or on her behalf, were examined. I shall say more about those transactions later in these Reasons.
As recorded above, the husband is a self employed accountant and financial planner. He currently operates his practice from offices in A. The practice employs 15 staff, including 8 accountants and graduate/trainee accountants, 2 financial planners and 5 administrative assistants and reception staff.[3]
[3] See paragraph 18 of the husband’s affidavit sworn 10 April 2007.
The business name “Kernahan & Co” is owned by P J Kernahan & Co Pty Ltd (“the practice company”). The husband is the sole director of the practice company. He and the wife each hold 12 shares in the practice company – although 11 of the husband’s shares are voting shares (and one is not), whilst only one of the wife’s shares is a voting share (and 11 are not).
Beyond reference to the practice company, the precise structure of the entities through which the husband conducts his business is unclear. It is poorly described in the various valuations relied upon by the parties[4]. Suffice it to say that the parties are both directors of Kernahan Business Services Pty Ltd (“KBS”), and that they each have one share in KBS. KBS is the trustee of the PJ & CM Kernahan Family Trust (“the Family Trust”). In the past, the practice company paid service or management fees to KBS (as trustee for the Family Trust). The Family Trust paid a proportion of the administrative and operational expenses of the business. It appears that the Family Trust now plays a minor (if any) role in the management of the practice.
[4] See the affidavits of Mr F sworn 13 April 2007, 5 April 2007 and 26 September 2006, the affidavit of Mr S sworn 16 November 2006 and the affidavit of Mr M sworn 28 March 2007.
At the end of the day, the details relating to the structure of the husband’s business are of little relevance. That is so because:
a)the value to be attributed to the business (in the broadest sense – and from time to time described as “the Kernahan Group”) is agreed;
b)it is also agreed that any final property settlement orders to be made by the Court will involve the wife withdrawing from the Kernahan Group and the husband indemnifying her in respect of all liability arising out of or otherwise associated with her involvement in the entities comprising it;
c)neither party suggested that the formal structure of the business (or the entities comprising the Kernahan Group) is relevant to any of the issues that the Court might be called upon to determine; and
d)the husband conceded that the Kernahan Group is, to all intents and purposes, his alter ego; in other words, irrespective of the formal structure of the entities comprising the Group, the husband has complete control over them.
The parties have an interest in a self managed superannuation fund, referred as “KWERF”. The values of the parties’ respective entitlements in the fund are agreed.
The wife also has superannuation entitlements in a commercial fund managed by AXA.
At the commencement of their relationship, the husband had recently completed his undergraduate studies leading to a Bachelor of Commerce from the University of Melbourne. He was employed on a full time basis by the Department of Defence Support, where he had been working for a number of years. The wife was working in the same Department.
The parties disagree as to their respective asset positions at the time that they commenced their relationship. The husband’s version is as follows:[5]
At the commencement of our relationship in 1985, neither the wife nor myself had net assets of any significance. The wife owned a property (in Essendon) which she retained from her first marriage. Her net interest in that property approximated $25,000. I had savings and superannuation of approximately $14,000.
[5] See paragraph 20 of the husband’s affidavit sworn 10 April 2007
The wife’s version is as follows:[6]
When (the husband) and I commenced to reside together in 1985, I owned a motor vehicle valued at approximately $1,000 and was the sole registered proprietor of a property (in Essendon). The property was sold on 20 August 1986 for the sum of $82,000 and mortgaged to the State Savings Bank for approximately $26,000. In addition I had furniture and household contents valued at approximately $15,000. Paul had minimal superannuation and nominal savings.
[6] See paragraph 12 of the wife’s affidavit sworn 12 April 2007
In July 1986, the husband established his own public accounting practice in partnership with another person. That partnership came to an end after approximately one year, and the husband moved his practice to a different location. After some four years in that location, the husband sold part of his practice and commenced working from home. After approximately nine years (covering the birth of both children and the time leading up to their commencement at primary school), the husband moved his practice to commercial premises in East I (in July 2000), and then East K (in July 2001). The practice relocated to its current address (in A) in May 2006.
The wife resigned from the public service in 1988[7], at or about the time that the husband terminated his initial partnership arrangement and commenced practice in his own right. The wife worked in the husband’s practice (on a full time basis) until B’s birth in December 1991. Thereafter, she worked in the practice on a part-time basis – with the level of work reflecting her involvement with the children. According to the husband, the wife worked between 12 and 20 hours per week when the children were infants and toddlers, and between 20 to 30 hours per week after they started school. Again according to the husband, her duties included “… the banking, book- keeping, reconciliation of bank accounts, reconciliation of receivables, collection of receivables where necessary, preparation of payroll, management and reconciliation of the company trust account, processing of tax returns and deduction of fees where necessary, issue of invoices, maintenance of files, payment of accounts, management of staff contracts and salary adjustments, management of all administrative systems, management of incoming and outgoing correspondence, answering all phone calls, progressing of returns and other related liaison with the tax office and other business administrative tasks as necessary. She also managed the book keeping for a major client … As the business grew her responsibilities increased”.[8]
[7] After leaving the Department of Defence Support, the wife worked in the Department of Community Services for a relatively short period.
[8] See paragraph 19 of the affidavit sworn 10 April 2007.
The wife continued to work in the practice until early to mid 2004.
The parties lived in a variety of properties from the time they commenced cohabitation in late 1985 or early 1986. They initially lived in rented premises. According to the husband, the wife’s property in Essendon was leased “sporadically”[9]
[9] See paragraph 21 of the husband’s affidavit sworn 10 April 2007.
The Essendon property was sold in or about 1976, and a property in N was purchased. In or about 1990, the N property was sold and a home was purchased in Strathmore. After purchasing and selling other properties (and building two houses), the parties purchased the former matrimonial home in B.
The B property is registered in the wife’s sole name. It was purchased for $1.9 million, utilising the proceeds of sale of the parties’ previous home in I and significant bank borrowings. The B property comprises land on two separate certificates of title. The house sits on one block. There is a tennis court on the other block. The values to be attributed to the two properties comprising the formal matrimonial home are agreed. The house block is valued at $1,780,000; the tennis court block is valued at $1,475,000.
As recorded above, the wife and the children have occupied the former matrimonial home since the parties separated. All or almost all of the furniture, chattels and effects in the former matrimonial home remained there for the use of the wife and children.
The husband continued to service the loans encumbering the former matrimonial home after separation. He also paid the children’s tuition fees and various other expenses associated with their education. After initially allowing the wife to have unlimited (or almost unlimited) access to a mortgage drawdown account and a credit card, the husband eventually limited the amount of cash funds available to her to $1,000 per week (by electronic transfer of that amount into her bank account). According to the husband, he placed a limit on the funds available to the wife because, although he was paying the major expenses for the wife and the children whilst they occupied the former matrimonial home, the wife was spending an average of approximately $1800 per week from the drawdown and credit facilities available to her. On 20 December 2005, he wrote to the wife asking her to “show some restraint” as (according to the husband) he was unable to maintain the “ongoing drain on the business funds”.[10]
[10] See paragraph 13 of the husband’s affidavit sworn 29 September 2006.
According to the wife, her expenditure was reasonable at all times, and the husband acted unreasonably in reducing the amount of money available to her. Given the concessions made by the parties during the course of the trial, it is not necessary for me to deal with this issue in any detail[11]. Suffice it to say (at this stage) that I am not satisfied that the husband acted unreasonably when he wrote to the wife in December 2005 asking her to show some restraint in relation to her spending;[12] nor am I satisfied that he was attempting “to starve the wife into submission” or to force her to settle the property proceedings upon terms acceptable to him.[13]
[11] Although I have referred to it later in these Reasons
[12] See annexure PJK2 to the husband’s affidavit sworn 25 September 2006.
[13] See paragraphs 13 and 14 of the husband’s affidavit sworn 25 September 2006 and paragraph 68 of the wife’s affidavit sworn 9 November 2006.
The parties disagree regarding the extent to which the husband contributed in the role of home maker and parent. The wife’s version is as follows:
Throughout the marriage I have been responsible for all the domestic work in the household including cooking, cleaning, washing and running of the house. I have been responsible for parenting and upbringing of the children in addition to assisting (the husband) in his business activities. (The husband) worked long hours to establish the business and it was my role to run the household, care for the children, and work part-time in the business, to enable (the husband) to develop his professional career.[14]
[14] See paragraph 15 of the wife’s affidavit sworn 12 April 2007.
The husband’s version that is he was heavily involved in all tasks associated with the care and supervision of the children, and he emphasises the fact that he worked from home for 9 years from 1991 to 2000. He also asserts that he assisted with household chores and did work around the house.[15]
[15] See paragraphs 29 and 30 of the husband’s affidavit sworn 10 April 2007.
Once again, having regard to the concessions made during the trial, it is not necessary for me to make detailed findings regarding the parties’ respective contributions in the role of home maker and parent. I am satisfied, however, that whilst the parties lived together the wife was principally (but not solely) responsible for the care of the children, and for homemaking and housekeeping tasks. Since separation, it is fair to say that the wife has been solely responsible for the care of the children, and for all homemaking and housekeeping tasks in the former matrimonial home.
Concessions
During the course of the trial, Mr Cantwell (for the husband) argued that the parties’ contributions (in all their various guises) from the date of commencement of cohabitation to the date of trial should be regarded as being approximately equal. Ms Molyneux QC (for the wife) agreed – but with one exception. Ms Molyneux argued that the wife’s initial financial contribution should be given more weight than that of the husband. In other words, Ms Molyneux conceded that but for the wife’s initial financial contribution, the parties’ contributions (in all their various guises) from the date of commencement of cohabitation to the date of trial should be regarded as being approximately equal.[16]
[16] see 17 April 2007 transcript, pages 16, 19-20; 18 April 2007 transcript, pages 6-8; 19 April 2007 transcript, pages 223-8; 20 April 2007 transcript, pages 281-2
Having regard to Ms Molyneux’s concession, it is clearly unnecessary to make detailed findings regarding the parties’ respective financial and non-financial contributions to the acquisition, conservation and improvement of their property. Similarly, it is unnecessary to make detailed findings regarding their respective contributions to the welfare of the family. At the end of the day, the only relevant issue to be determined under the general heading of “contributions” is whether a relatively modest adjustment should be made in the wife’s favour to reflect her greater initial contribution. I shall return to this subject later in these Reasons.
Documents relied upon
The husband relied upon the following documents:
a)his affidavits sworn 25 September 2006 and 10 April 2007;
b)his financial statement sworn 10 April 2007;
c)affidavit of SA sworn 10 April 2007;
d)affidavits of KDF sworn 26 September 2006, 5 April 2007 and 13 April 2007; and
e)affidavit of PL sworn 10 April 2007.
The wife relied upon the following documents:
a)her affidavits sworn 28 November 2005, 2 December 2005, 11 July 2006, 9 November 2006 and 12 April 2007;
b)her financial statements sworn 4 May 2005, 11 July 2006 and 11 April 2007;
c)affidavit of RJM sworn 28 March 2007; and
d)affidavit of MJS sworn 16 November 2006.
Both parties relied upon an affidavit sworn by RD in March 2007. Mr D is a valuer. His affidavit attaches his valuation of the former matrimonial home (including the block on which the tennis court is situated).
Both parties supplied case outline documents shortly before the commencement of the trial.
A schedule headed “Agreed Assets and Liabilities” was handed up at the commencement of the trial. It identifies the property available for distribution between the parties. The schedule lists over 20 items, of which only 4 (all being liabilities) remain in dispute.
A number of exhibits were tendered during the course of trial.
Orders Sought
In broad terms, the husband seeks orders to the effect that the parties’ property be divided on the basis of 52.5% to the wife and 47.5% to him. According to Mr Cantwell, this split reflects an allowance of 50% to the wife (and 50% to the husband) on the basis of their respective contributions, and an adjustment of 2.5% to the wife to take account of the section 75(2) factors.
The wife seeks orders to the effect that the parties’ property be divided on the basis of 70% to her and 30% to the husband. According to Ms Molyneux, this split reflects an allowance of 55% to the wife (and 45% to the husband) on the basis of the parties’ respective contributions, with a further 15% to the wife for the section 75(2) factors.
The wife also seeks orders to the effect that the husband pay spousal maintenance at the rate of $1,000 per week for 5 years. Ms Molyneux conceded, however, that it would be “difficult to argue” that the wife should receive any amount by way of spousal maintenance if she is ultimately awarded 70% of the parties’ net property. Ms Molyneux submitted[17] that “the more the wife falls short of (receiving 70% of the property pool), the more significant her spousal maintenance claim becomes”.
[17] 20 April 2007 transcript page 327
The husband wishes to retain his business (in the broadest sense). The wife does not oppose the making of orders which will enable that to occur, provided that – in the final analysis – she is awarded something approaching 70% of the value of the parties’ property.
The above summary of the orders sought by the parties reflects their respective positions at the completion of the trial.
Property Settlement – The Law
The general approach that should be adopted by the court in relation to a property settlement application has been described in many cases[18]. The court must first identify the property of the parties. It must then attribute a value to each item of property – usually as at the date of the hearing. Thereafter, it must assess the extent of each party’s contributions under the various sub-headings described in section 79(4) of the Family Law Act. Finally, the court must consider the financial resources, means and needs of the parties, and the other matters set out in section 75(2) so far as they are relevant. An adjustment of the amount due to each party by way of contribution is then made by reference to the section 75(2) factors. It is not essential, however, that such an adjustment take place. Generally speaking, an adjustment is made because one party has greater needs and the other has stronger means.
[18] See, for example, Pastrikos (1980) FLC 91-987, Lee-Steere (1985) FLC 91-626, Ferraro (1993) FLC 92-335, Clauson (1995) FLC 92-595 and Whitely (1996) FLC 92-684
In relation to the
contributioncontributions of the parties under section 79(4) generally, it has been held that a “global” approach will usually be more convenient than an “asset by asset” approach – although the application of an asset by asset approach does not (of itself) amount to an error of law[19].[19] See Norbis (1986) FLC 91-712
The section 75(2) factors are related to the process of arriving at a just and equitable result. It follows that there may be circumstances in which the justice and equity of the case, and the specific provisions of section 75(2), support an adjustment in a party’s favour for matters which cannot comfortably be described as being of financial or economic significance[20].
[20] See McMahon (1995) FLC 92-606 at 82,043
Under section 79(2), the court is required to be satisfied that the property settlement orders that it proposes to make are just and equitable – and not simply that the underlying percentage division of the net value of the parties’ property is appropriate. In other words, in the consideration of whether the overall result of property settlement proceedings is just and equitable, it is the justice and equity of the actual orders, and not of the percentage distribution, which must be considered[21].
[21] See Russell (1999) FLC 92-877
The overall process to be applied in property settlement cases is summarised by the Full Court in Hickey (2003) FLC 93-143, where their Honours said:[22]
The case law reveals that there is a preferred approach to the determination of an application brought pursuant to the provisions of s.79. That approach involves four inter-related steps. Firstly, the Court should make findings as to the identity and value of the property, liabilities and financial resources of the parties at the date of the hearing. Secondly, the Court should identify and assess the contributions of the parties within the meaning of ss.79(4)(a), (b) and (c) and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties. Thirdly, the Court should identify and assess the relevant matters referred to in ss.79(4)(d), (e), (f) and (g), including, because of s.79(4)(e), the matters referred to in s.75(2) so far as they are relevant and determine the adjustment (if any) that should be made to the contribution based entitlements of the parties established at step two. Fourthly, the Court should consider the effect of those findings and determination and resolve what order is just and equitable in all the circumstances of the case…
[22] At paragraph 39
My view is that the testing of any proposed orders by reference to section 79(2) is not a fourth substantive step (properly so called) in the property settlement exercise.[23] In applying s.79(2), the Court has power to adjust the form, structure or balance (for want of a better description) of the orders that it is minded to make in order to give effect to its conclusion as to the parties’ respective entitlements after the application of the first three steps mentioned in Hickey. In other words, the determination of the proportional or other distribution or division of the parties’ property between them must necessarily be concluded before the court considers the justice and equity of the actual orders that are to be utilised to give effect to that distribution or division.
[23] See OSF & OJK (2004) FLC 93-191
In Baxendale (2006) FamCA 883, Faulks DCJ said[24];
If the judge has properly carried out his or her functions in determining the factors under section 79(4) (including those applicable factors under section 75(2)), the result overall should be just and equitable within the terms of the Family Law Act 1975. Accordingly, if a judge on reviewing his or her deliberations in relation to the first three stages concludes that the result does not appear to accord with justice and equity, then it is likely that the earlier adjustments were wrong. This fourth stage is really a description of a judicial thought process rather than a third discretionary phase. I do not accept the proposition that there is a third discretionary phase un-associated with contributions and/or the financial circumstances of the parties (or the other matters under section 79(4)) which somehow permits a judge in accordance with his or her conception of justice and equity to vary determinations otherwise properly made in accordance with the first two discretionary assessments.
I accept that in some cases there may be a minor adjustment required, for example to enable a cash-poor litigant to retain some real estate when he or she has no capacity to make any payment to the other party. For
Frommy part, it seems to me that even that sort of adjustment is more appropriately incorporated into the first two discretionary phases.[24] In paragraphs 105 & 106
In Brice (2007) FamCA 170, however, Kay J suggested – in a passage that is clearly obiter – that section 79(2) is itself a source of substantive power. His Honour continued[25];
If the sum of the parts created by section 79(4)(a), (b) and (c) contributions and section 79(4)(e) considerations adds up to too much or too little, then further adjustments may be made in order to meet the over-riding dictate that an order must not be made unless it is just and equitable.
[25] At paragraph 19
For the reasons that I set out in OSF & OJK (2004) FLC 93-191 (and, in particular, in paragraphs 26 to 28 thereof), I prefer the analysis of Faulks DCJ in Baxendale to that of Kay J in Brice.
At the end of the day, though, the precise nature of the final step or stage in the property settlement exercise is of no significance in the present case. It is enough to record that the process involves the Court metaphorically “stepping back” to consider whether the proposed orders (arrived at after the application of the first three steps described in Hickey) are just and equitable.
Credibility
By and large, I was impressed by both parties as witnesses. Save for the aspects of their evidence to which I shall refer below, they both answered questions in a clear, direct and appropriate manner. I am satisfied that they were endeavouring to assist the Court, and that their evidence reflected that desire.
The husband’s evidence relating to his financial arrangements with Ms A in mid-2004, however, did him little credit. The husband is clearly an intelligent, focused and capable man, but he appeared wary throughout his evidence in relation to this subject, and was guarded in the comments that he made. Some of his answers were vague and difficult to follow. Others were non-responsive. I find that he has not been open and frank with the Court in relation to this subject.
Similarly, the husband's evidence regarding an application that he made to the National Australia Bank in 2005 for a loan of some $200,000 was less than impressive. Mr Kernahan said that he regarded the acquisition of finance from the bank as "a device" to assist him with "the management of all of the other situations", and that a statement that he had made to the bank to the effect that he expected the revenue of the business to be $2.6 million was no more than a “very optimistic pitch to the bank". In answer to questions from the court, Mr Kernahan denied that he put forward an inaccurate, overly optimistic estimate of the likely future income of the business for the purpose of gaining a financial advantage, but he seemed unable to explain what other reason he may have had for giving the information to the bank. After denying that his intention was to mislead the bank, he eventually (and reluctantly) conceded that the income estimate is "within the bounds of reasonable, the high end of reasonable"[26].
[26] see 18 April 2007 transcript, pages 58-60 and 66
To use a colloquialism, it is clear that Mr Kernahan "ducked and weaved" in giving his evidence regarding his financial dealings with Ms A in mid-2004 and his approach to the bank in 2005. He also "ducked and weaved" when cross examined on his statements (contained in paragraph 16 of his affidavit sworn 25 September 2006) that certain "significant personal and company tax liabilities became due and payable as at March 2006" and that he has “been unable to meet these commitments". It quickly became clear that this statement was inaccurate and exaggerated. In endeavouring to support it, however, Mr Kernahan said that[27]:
a)although one of the liabilities (being the wife's tax for the 2005 year) was not actually "due and payable" (given that the wife’s income tax return had not been lodged at that time – and still had not been lodged at the time of the trial), it was "going to have to be paid the moment it was lodged";
b)another of the liabilities (being the BAS for the company for December 2005) had already been paid;
c)yet another of the liabilities (being the BAS for the company for January 2006) is likely to be an error;
d)"… perhaps what I should have said is that I have been unable to meet all of these commitments; maybe that's what I should have said …”;
e)"… obviously, what it's doing is trying to state what the situation was at particular prior point in time and I've been unable to meet these commitments or I probably should have said unable to meet all of these commitments and I’ve entered into an arrangement with the ATO to pay the company tax at a rate of $10,000 That's the one that hasn't been able to be met. The rest of them have been able to be met, other than the wife's, which is a tax return and that hasn't been lodged"; and
f)apart from the first item in the list (which is itself slightly inaccurate), all the other liabilities referred to in the list had either not been incurred or had already been paid.
[27] see 19 April 2007 transcript, pages 176-180
The husband also tried to suggest that the relevant paragraph of his affidavit does not say that he has not paid the various commitments and that he is unable to meet them (when, clearly, that is precisely what the paragraph does say)[28].
[28] see 19 April 2007 transcript, page 180
Ms A, for her part, was not an impressive witness. Like the husband (when he was giving evidence about his financial relationship with her in mid 2004), Ms A appeared wary, and she too was guarded in her comments. She appeared resentful that she had been required to attend and give evidence. For example, after admitting that she does not like the wife she was asked: "What has made you dislike (the wife)?" Her answer was: "Well, the fact that I am here now." The irony of Ms A's response – given that it is at least arguable from the wife's point of view that if it had not been for the husband's relationship (including his initial financial dealings) with Ms A (amongst other things, of course), there is some possibility that the parties themselves may not have become embroiled in the present proceedings – was not apparent to her.
Ms A's evidence in relation to her financial relationship with the husband in mid 2004 lacked balance and candour. More importantly, it was not credible. I find that neither she nor the husband has been open and frank in relation to this subject.
In paragraph 28 of his trial affidavit, the husband said:
Following the separation between the wife and myself I commenced a relationship with (Ms A) who is employed at Kernahan and Co. We had developed a friendship prior to the breakdown of the marriage but did not commence our relationship until I had separated from the wife. … (Ms A) has sworn an affidavit in these proceedings in which she … addresses in detail a personal loan she borrowed from me in June 2004 and payments received by her via Kernahan and Co between July and November 2004 for back payment of salary. I have read (Ms A's) affidavit and I confirm that the contents therein that are within my personal knowledge as true and correct.
In paragraphs 9 and 10 of her affidavit, Ms A said:
From November 2003 until November 2004 I continued to be paid the salary I was receiving for my position as a receptionist/administrative assistant despite the fact that I had moved into the company's financial planning department and had assumed a more responsible position. In late June 2004 I raised this issue with (the husband) and requested he pay me the back payment of salary due to me. Upon my request and at my direction (the husband) deposited funds due to me in two separate accounts in my name which I operated for personal purposes. Five payments of $510 each were paid into my St George Bank account … commencing 6 July 2004 and monthly thereafter and four payments of $1360 into my Bendigo Bank account on 6 July 2004 and monthly thereafter. A total of $7,990 was paid in respect of net salary due from November 2003 until November 2004. In December 2004 2005 (sic) (the husband) adjusted my income on the company's payroll and I was paid at the appropriate rate thereafter ($55,000 per annum). The moneys paid to me between July and November 2004 are accurately reflected in my income-tax return for the year ended 30 June 2005 and in the company's books of account.
At the same meeting in late June 2004 I also asked (the husband) if he could advance me a loan. I needed to change my residence and had no funds to do so. (The husband) agreed to loan $8,000 plus one month’s rent and the bond totalling the sum of $10,254. That loan was repaid as follows: in cash $900 September 2004, $1111 October 2004, $1890 April 2006, $1500 May 2006, and $4960 via untaken net wages for additional hours worked between July 2004 and November 2005. The wages were reflected in my 2006 group certificate.
During cross examination, Ms A's evidence was as follows (or the following effect):
a)She had had more than one salary increase between 2001 (when she was first employed) and June 2004.
b)At the time of the making of the loan, she had some funds (no more than $500), but not enough funds to move from her then accommodation.
c)She borrowed $10,254 to pay the first month’s rent and the bond (totalling approximately $2500). The rest of the funds were needed for “furniture”.
d)Having received the loan, she moved into her new accommodation (a flat in K) two days later.
e)She does not know the name of her landlord in the K flat.
f)Within two days of the loan being made, the entirety of the sum of $10,254 had been spent.
g)Her loan repayments were made in cash, and she has no records to show that they were made.
h)She does not know whether the loan came from the husband personally or from Kernahan and Co.
i)She received an increase in salary in June 2004, but could not remember the amount of the increase. She said that it "took (her) up to about 55".
j)Between assuming additional responsibilities at work in late 2003 and receiving a salary increase in 2004, she had "mentioned" to the husband the fact that she had not been receiving a salary commensurate with her additional responsibilities. She later said that she may have raised it with the husband in November 2004. She then said that she did not know when she raised it with the husband.
k)In response to my question as to what was discussed at the meeting in late June 2004, she said: "I asked (the husband) if the company could advance me a loan so that I could move out of where I was living and also if he could address my back pay, my salary."
l)When I raised with her the relatively unusual situation of a 22-year-old employee speaking to her (much older) boss regarding both back pay issues and a personal loan in the same conversation, she said: "I didn't ask him to back pay me. I asked him to fix up my salary going forward. (The husband) offered to back pay me, I believe".
m)When I asked her if any discussion had taken place at the meeting regarding the terms of repayment of the loan, she answered: "Not that I recall, no. I think it was just when I could."
The husband's evidence in relation to this subject was as follows (or to the following effect):
a)Ms A came to him in June 2004 and said that she knew that she was being underpaid. She also said that she needed some money to move out. He said: "She didn't have any furniture or funds and was hoping that I might – you know, because I hadn't been paying her appropriate wage would help her out with that, and I agreed to do that".[29]
b)The agreement was that “… Ms A would pay the loan back out of tax refunds etc”.[30]
c)The discussion with Ms A took place around 24 or 25 June 2004. The practice was "in the middle of tax planning" and "it was a very busy time". He continued: "I imagined that she had been underpaid in the vicinity of a good $8-$10000 or thereabouts and that I would allow her to take a sum of, you know, 400, or $450 per week or something along those lines. She would come back to me and organise how it would be paid, how she would like it paid, which she did, and I told her that we would just continue with that arrangement and at some time in the future I would do a reconciliation and tidy things up but essentially that's what the those payments were.”[31]
d)The payments into Ms A's personal accounts were paid from a new Bendigo bank account that the husband established (and not from the practice company’s account). The husband's explanation for this arrangement was as follows: "Look, at the time we had had a new bookkeeper there for three months. She was, you know, young and inexperienced and I hadn't yet taken her into my confidence in respect of these things. I regarded it as being a pretty sensitive matter that there be loans to staff known about by other staff, and also, you know, it's of some embarrassment that I'm admitting that I'm back paying significant wages because I had been underpaying people and so I decided that that bank account would just be used to handle those transactions and that would be it and the account was closed in November."[32]
e)He treated the loan to Ms A (totalling $10,254) as a loan from himself personally, even though the funds had been taken from the company. In other words, it appeared in the company's accounts as a loan to the husband.[33]
f)He made no arrangement to pay Ms A her back pay at the time that the loan for $10,240 was paid. It was a few days later that he organised her salary to be paid. He said: "I decided to call it a loan which is decision I made". He then said: "Sorry … I decided to make it part of … no, I decided to repay, just to tidy up the salary as a separate matter. So she was responsible to pay that loan back, and the back pay that she was owed I made a separate matter." Shortly afterwards, he said: "The amount I loaned her wasn't the right amount of the back pay that should have been owed. I hadn't even at that stage calculated what the back pay should be. I just knew it was a substantial amount and it needed to be repaid. So I compartmentalised that issue by setting that up as a loan, and I calculated the back pay on the salary as a separate matter."[34]
g)After saying that the payment of $10,254 was "a separate issue", the husband said: "The fact that I gave her a loan is because she had been short paid her salary".[35]
h)He did not tell the wife about his arrangement with Ms A because "it would have started World War III".[36]
i)In response to my questions, the husband said that he was aware that Ms A was being underpaid when she asked him for the loan in June 2004. Although she apparently commenced paying off the loan, and although she started receiving moneys paid towards her wage back payment, the husband said: "I actually didn't quantify exactly what the wage back payment was due until around about October (2004). I actually didn't calculate the full amount of it. When I calculated it I decided that the arrangement would finish in November and that she would just go back to having an appropriate amount come out on the payroll."[37]
j)Although the loan was made in June 2004, the amended accounts revealing the loan arrangements (as the husband asserted them to be) were not finalised until August 2006 (over two years later and, of course, well after the current proceedings had commenced).[38]
[29] 17 April 2007 transcript, page 40
[30] 17 April 2007 transcript, page 40
[31] 17 April 2007 transcript, page 41
[32] 17 April 2004 transcript, page 41
[33] 17 April 2007 transcript, page 62
[34] 17 April 2007 transcript, page 63
[35] 17 April 2007 transcript, page 64
[36] 17 April 2007 transcript, page 65
[37] 19 April 2007 transcript, page 233
[38] 19 April 2007 transcript, page 234-5
It is quite clear from the above (overly inclusive) summary of the evidence given by the husband and Ms A that their version of events is simply not credible. The loan arrangement occurred in late June 2004 and, according to Ms A, they commenced a relationship after her birthday in August 2004. Further, if Ms A moved into her new flat only two days after obtaining the loan from the husband, then obvious questions arise regarding her capacity to enter into lease arrangements before she had secured the loan. After all, her evidence was that she had no more than $500 in savings prior to obtaining the loan from the husband – but it is a reasonable inference that she must have made arrangements to rent the K flat well before she moved into it. Further questions arise regarding the illogicality, uncertainty and commercial unsoundness of the entire alleged arrangement, and it was never satisfactorily explained why the two arrangements could not have been offset against each other in some sensible and tax effective manner.
The wife's evidence was also unimpressive in parts. For example, she (like the husband) "ducked and weaved" whilst being cross examined regarding her expenditure during the 2005 calendar year, and regarding her commitments relating to the care of the children and the impact of those commitments, and her health, on her ability to obtain and maintain paid employment. At times, her evidence was vague and her answers non-responsive[39]. At other times, the wife was perfectly capable of giving clear, crisp answers. She, like the husband, is an intelligent and capable person, and the lapses described above cannot, in my opinion, be satisfactorily explained by the understandable nervousness that a witness feels during the course of giving evidence.
[39] see, for example, 20 April 2007 transcript, page 267
Unfortunately, both parties seemed unwilling to "back down" when it became clear that their stated positions were inaccurate, or were something less than wholly accurate.
As I have indicated above, with the exception of the matters to which I have referred, the evidence of both the husband and the wife was generally credible. Save for those regressions, both parties presented as calm and composed in the witness box, and I am confident that I can rely upon their evidence.
I might add that I have no discomfort with the husband’s evidence regarding the practice’s change from paying tax on a cash basis to paying on an accruals basis. I understand and accept the husband’s explanation for the change. I also accept the husband’s explanation for his frustration with Mr L of the National Australia Bank.
I shall refer to other aspects of the parties’ evidence later in these Reasons.
Property and Liabilities as at the date of trial
The first step in the property settlement exercise relates to the identification and valuation of the property of the parties at trial.
Subject to comments to be made later in these Reasons, I find that the parties’ property and liabilities are as follows:
Assets Amount Sub Total 1. house block $1,475,000 2. tennis court block $1,780,000 3. Furniture and contents $20,295 4. 2003 Ford Explorer $20,000 5. US & Telstra Shares (wife) $31,933 6. Husband’s Business $888,951 7. Timbercorp $11,027 8. 1996 Saab $4,275 9. NAB $4 10. Bendigo Bank $995 11. Unclaimed Monies $1,326 12. Superannuation (wife’s “external” Superannuation) $60,125 13. Superannuation (husband) $99,623 14. AXA (wife) $14,319 15 Wife’s legal fees paid $8,000 16 Husband’s legal fees paid $77,000 $4,492,873 Liabilities 17. NAB Mortgage ($873,133) 18. NAB Flexi Plus 1 ($100,641) 19. NAB Flexi Plus 2 ($201,278) 20. NAB Ford Explorer ($10,413) 21. Timbercorp ($5,514) 22. Wife’s tax ($26,598) 23. Visa Card ($20,855) ($1,238,432) TOTAL $3,254,441
It can be seen from the above that the total net value of the parties' property is $3,254,441 – of which $99,623 comprises the husband's superannuation entitlements and $74,444 comprises the wife's superannuation entitlements.
It was not in dispute that the parties' respective superannuation entitlements should be included in the overall "pool" of property available for distribution between the parties. In other words, neither party suggested that superannuation should be included in a separate list[40], to be treated differently from the remaining items of property. Further, there was no suggestion that the parties' contributions to their superannuation interests should be treated or assessed any differently to their contributions to other items of property. In other words, a "global" approach was adopted.
[40] see Coghlan (2005) FLC 93-220, at para.63
It was also agreed that the amounts paid by the parties for legal fees should be “added back” to the pool, and treated as notional assets.
Agreed values
The values to be attributed to the items of property and liabilities comprising the pool are agreed. The only items in dispute were four "additional liabilities" which the husband requested the court to take into account.
Of the four liabilities, I have concluded that the wife's tax (amounting to $26,598) and the Visa card debt (amounting to $20,855) should be included. I have decided that the remaining two liabilities should not.
Before dealing with each of the four debts (or alleged debts), I reiterate that the usual practice in dealing with property settlement matters is to include all items of property, and all liabilities in existence at the date of trial. There are well recognised exceptions to that rule.
In Biltoft (1995) FLC 92-614, the Full Court said[41]:
A general practice has developed over the years that, in relation to applications pursuant to the provisions of s. 79, the Court ascertains the value of the property of the parties to a marriage by deducting from the value of their assets the value of their total liabilities. In the case of encumbered assets, the value thereof is ascertained by deducting the amount of the secured liability from the gross value of the asset. See Ascot Investments Pty Ltd v. Harper & Anor[42] where Gibbs J. (as he then was) pointed out[43] that the Court ''must take the property of a party to the marriage as it finds it. The Family Court cannot ignore the interests of third parties in the property, nor the existence of conditions or covenants that limit the rights of the party who owns it'' . Where the assets are not encumbered and moneys are owed by the parties or one of them to unsecured creditors, the court ascertains the value of their property by deducting from the value of their assets the value of their total liabilities, including the unsecured liabilities. See Prince and Prince; General Credits Australia Limited (Intervenor); A-G for the State of Queensland (Intervening); A-G for the Commonwealth of Australia (Intervening)[44], where Evatt CJ said:[45]
... the outcome of the wife's application will depend upon findings made by the Court as to the parties' assets and liabilities, their contributions and their respective financial resources, means and needs. It would be necessary for the Court to determine so far as is possible the value of the property held by each party. In accordance with the usual practice this would be done by deducting the value of outstanding mortgages, debts, and other liabilities …. The Court may have to determine, as between the parties, the existence of a particular liability ….
The assessment of debts and liabilities is not necessarily arrived at by a strictly mathematical or accountancy approach in all cases. While some liabilities are charges upon the property which can be accurately assessed at a certain date, others are at large, or have not been precisely determined, e.g. tax liabilities …. In some cases the amount of the liability can only be estimated generally …. The Court can make an allowance for a particular liability if appropriate to do so. In some cases there are sufficient uncertainties as to the alleged liability to lead the Court to disregard it entirely or partly (e.g. a loan from a parent of the party not likely to be enforced; …). In other cases, the Court may take the view that because of the circumstances surrounding the incurring of the liability it ought in justice and equity to be wholly or partly disregarded in determining the appropriate order to make under sec. 79 as between the parties to the marriage. Such a result could be reached where a spouse had incurred a liability in deliberate or reckless disregard of the other party's potential entitlement under sec. 79 …. Complex issues can arise in regard to liabilities to third parties …
Of course, the Court cannot ignore the fact that there is or may be a liability; the effect is simply that it does not consider that the other spouse should be called upon to in effect 'contribute' to the liability by having that spouse's fair share in the parties' property reduced by virtue of its existence. The effect may be that the party who has incurred the liability will be left to meet it out of whatever funds remain to that party after satisfying the property order made under sec. 79 …
."The Court, in that case, went on to dismiss the appeal of the wife against an order staying her proceedings for property pending the outcome of proceedings on foot in the Supreme Court because, inter alia, ''[i]t would not be until those proceedings had been completed that it would be known whether there was any property in the estate in respect of which orders could be made pursuant to sec. 79'' . The clear indication of the Full Court in that statement was that the property of the parties for the purposes of an order pursuant to s. 79 means net property.
[41] all references removed
[42] (1981) 148 CLR 337
[43] at p 355
[44] (1984) FLC
¶91-501[45] at p 79,076
The Full Court continued (at p. 82,127):
Notwithstanding the general practice which has developed, the Court has indicated that it may properly determine not to take into account or to discount the value of an unsecured liability in certain circumstances. Such liabilities would include but are not limited to a liability which is vague or uncertain, if it is unlikely to be enforced or if it was unreasonably incurred…
There is no requirement that the rights of an unsecured creditor or a claim by a third party must be considered and dealt with prior to the Court making an order under s. 79, nor is there a rule of priority as between a creditor claimant and a spouse. Those rights, however, cannot be ignored. They must be recognised, taken into account and balanced against the rights of the spouse…
In a similar context, the question of how to deal with liabilities which have been "unreasonably incurred
"", or the loss of assets by a party prior to the trial in circumstances which can be regarded as reckless or unreasonable, usually leads to consideration of cases such as Kowaliw (1981) FLC 91-092 and Townsend (1994) FLC 92-569.In Kowaliw, Baker J said (at page 76,643-4):
Marriage is for most couples an economic partnership. Married couples live together and work together with the ultimate object of purchasing a home, paying it off, acquiring other assets with the overall object of attaining a higher standard of living. The reported decisions in respect of applications for settlement of property under sec.79 of the Act are unanimous that both parties should share the economic fruits of a marriage, having regard to the provisions of sec. 79(4) and sec. 75(2), although not necessarily equally.
Is not, however, the converse equally sustainable? In other words, should not financial losses incurred by parties to a marriage or either of them, whether incurred jointly or severally, be shared by them in the same manner as the financial gains?
As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a)where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
(b)where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
In Browne v Green (1999) FLC 92-873, the Full Court said:
While care should probably be taken
…… not to elevate Baker J's statement (in Kowaliw) to "a principle", we are nonetheless satisfied that it is certainly is a well-accepted guideline within the jurisdiction which has received the endorsement of successive Full Courts.I refer, as well, to the discussion of the Kowaliw principles in Omacini (2005) FLC 93-218 and Crampton (2006) FLC 93-269.
I am not satisfied that either party has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of the property available for distribution between them. Nor am I satisfied that either party has acted recklessly, negligently or wantonly in any way, or with any property. Whilst I recognise that the Court has a discretion which would permit it to ignore or to discount the value of an unsecured liability in certain circumstances, I am not satisfied that such circumstances adhere in the case now before me (at least, in relation to the two "additional liabilities" that have been taken into account). The debts included in the schedule above are neither vague nor uncertain. There is no evidence that they are unlikely to be enforced, or that they were unreasonable incurred. Put shortly, neither justice nor equity demands that either of the two "additional liabilities" included in the pool should be wholly or partly disregarded.
I turn now to the four "additional liabilities".
First “additional liability” – wife's tax
The amount claimed is $26,598.
According to the husband, this debt arises because one of the corporate entities declared a dividend in the year ended 30 June 2005, which dividend was split equally between the husband and the wife. As had been done in the past, the dividends were credited to the parties' loan accounts.
The wife's proposed 2005 income tax return was prepared by the husband, and is annexed to the wife's affidavit sworn 12 April 2007. According to the schedule attached to the return, the estimated tax payable by the wife is $44,232.[46] Exhibit H4 comprises the wife's proposed 2006 income tax return. The estimate attached to the 2006 return shows that the wife can expect a tax refund of $18,034.
[46] The wife's proposed 2005 income tax return also comprises exhibit H2
When the wife's 2005 tax liability (being $44,362) is offset against the wife's 2006 tax refund (being $18,034), the result is an overall tax liability of $26,598.
The husband agreed that "it has always been the case" that he is prepared to pay or cause to be paid the amount owing in respect of the wife's 2005 tax.[47]
[47] See 19 April 2007 transcript, pages 176-7
In my opinion, there is no reason why the wife's net tax liability (being $26,598) should not be included in the pool. I am satisfied that the husband has acted appropriately in relation to the preparation of the wife's income tax returns and that there is no adequate reason to treat the parties' income in 2005 any differently from the way that it was treated in prior years. Further, the wife did not suggest any alternative method by which her income tax liability could have been calculated. Given that no alternative figure has been provided for the wife's 2005 tax liability, and given that the husband was not cross-examined in any detail regarding his calculations leading to the preparation of the 2005 return, there is no reason why I should not find that the net amount owing (being $26,598) is a real, and relevant, liability.
Indeed, if I were to somehow ignore the wife's net tax liability, then I would run the risk of creating a situation which could lead to an injustice to one party or the other.
On the basis of the evidence before me, therefore, I find that the wife's net tax liability (amounting to $26,598) should be included in the pool as a liability, and should therefore be shared – or notionally shared – between the parties in the usual way.
Second and third “additional liabilities” – husband's 2005 tax and husband's BAS as at 31 December 2006
The husband alleged that his tax for the year ended 30 June 2005 (amounting to $7452) and his BAS as at 31 December 2006 (amounting to $3771) should be included in the list of liabilities and thereby shared between the parties. The fact of the matter is, however, that both of these amounts had been paid as at the date of the trial. They were, in any case, simply running balances reflecting the amount owing in respect of income tax and BAS payments as at 31 December 2006 – as exhibit W6 makes clear. The husband had been making periodic payments in reduction of his 2005 income tax assessment since April or May 2006. The initial amount owing was just under $56,000. By 31 December 2006, the husband had paid five instalments of $5000 and one of $10,000, and his 2006 income tax refund had been credited against the overall amount owing. Interest was also charged by the ATO.
The ATO operates a running balance account dealing with the husband's BAS liabilities. Exhibit W6 contains a copy of the ATO's running balance account relating to the husband's BAS liabilities. The account shows a significant number of debits and credits during the 2006 calendar year.
Given that both debts had been paid by the date of trial, I am not prepared to include them in the pool. In my opinion, there is nothing significant or unusual about the two debts, and there can be no justification for the husband receiving some sort of notional reimbursement for the relevant amounts.
To the extent that the husband (or Mr Cantwell on his behalf) sought to argue that these two amounts should be included in the pool as liabilities even though they are no longer owing, I was unable to understand the reasons for or logic behind such an approach. The fact that a "snapshot" of the husband's financial position as at 31 December 2006 may have revealed the existence of these two liabilities says nothing about why the liabilities, now paid, should be shared between the parties on some notional basis.
In the circumstances, I find that it is inappropriate to include the two liabilities in the pool. In other words, there are no satisfactory grounds for me to conclude that they should be "added back".
Fourth “additional liability” – Visa card
It is not in dispute that the amount owing in respect of the Visa card is $20,855. Although the husband was cross-examined in relation to the debt[48], I am unable to understand why the wife asserts that this debt ought not to be included in the pool. The debt remains owing, and it reflects purchases by both parties prior to separation, and by the wife after separation. No adequate reason was presented as to why the debt should be ignored.
[48] see 18 April 2007 transcript, pages 63-4
I note, as well, that the wife admits the existence of the debt in paragraph 49(g) of her affidavit sworn 12 April 2007. The inconsistency between the wife's approach to the existence of the debt in her trial affidavit and during the course of the hearing was unexplained.
Having regard to the general discussion relating to the treatment of liabilities appearing above, I am not satisfied that there is any basis for ignoring the debt. It does not, for example, reflect a course of conduct (on the part of either party) designed to reduce or minimise the effective value or worth of the property pool. It does not reveal that either party has acted recklessly, negligently or wantonly in any way, or with any property. No reason has been presented which would support a conclusion that the court should ignore or discount the value of the debt, and it is neither vague nor uncertain.
I find that the amount of $20,855 owing in respect of the Visa card should be included in the pool as a liability, and should therefore be shared – or notionally shared – between the parties in the usual way.
Contributions
I now turn to consider the second "step" of the property settlement exercise – namely, the identification and assessment of the parties' contributions in all their various guises. An appropriate starting point is Ms Molyneux's concession that, but for the wife's initial financial contribution, the parties' contributions from the date of commencement of cohabitation to the date of trial should be regarded as being approximately equal.
Leaving aside the wife's initial contribution, there was no suggestion that the parties' contributions (in all their various guises) from the date of commencement of cohabitation to the date of trial should be regarded as anything other than approximately equal. The parties lived together for nearly 19 years, and during that period both worked extremely hard. The husband's energies were primarily directed towards the running of his accounting and financial planning practices. The wife also assisted in the practices, but her principal focus was the home and the children. I have no doubt that the husband's contributions as homemaker and parent were significant, and that the wife's contributions to the Kernahan Group were important. Having regard to the manner in which the case was conducted before me, however, there is no need to analyse the financial and non-financial contributions made by the parties to the acquisition, conservation and improvement of their property – beyond what is necessary to deal with Ms Molyneux's submission relating to the weight to be attributed to the wife's initial contribution. Nor is there a need to analyse the parties' respective contributions to the welfare of the family.
In Bremner (1995) FLC 92-560 and Way (1996) FLC 92-702, the Full Court cited with approval a passage from the judgment of Fogarty J in Money (1994) FLC 92-485, as follows:
… an initial contribution by one party may be “eroded” to a greater or lesser extent by the later contributions of the other party, even though those later contributions do not necessarily at any particular point outstrip those of the other party.
In Pierce (1998) 24 FamLR 377 (at 385), the Full Court sought to put Fogarty J’s quotation “in its correct context”. After referring to an expanded passage from Fogarty J’s judgment in Money – in which his Honour said that: “… the respective contributions of the parties over a long period of marriage ‘offset’ the significance which might otherwise be attached to a greater initial contribution by one party” – the Full Court said:
In our opinion, it is not so much a matter of erosion of contribution but a question of what weight is to be attached, in all the circumstances, to the initial contribution. It is necessary to weigh the initial contributions by a party with all other relevant contributions of both the husband and the wife. In considering the weight to be attached to the initial contribution … regard must be had to the use made by the parties of that contribution.
The relevance of initial contributions has been discussed very recently in Williams (2007) FamCA 313. Before referring to dicta from Money and Pierce, the Full Court said[49]:
We think that there is force in the proposition that a reference to the value of an item as at the date of commencement of cohabitation without reference to its value to the parties at the time it was realised or its value to the parties at the time of trial, if still intact, may not give adequate recognition to the importance of its contribution to the pool of assets ultimately available for distribution between the parties. Thus, where the pool of assets available for distribution between the parties consists of, say, an investment portfolio or a block of land or a painting that has risen significantly in value as a result of market forces, it is appropriate to give recognition to its value at the time of hearing or the time it was realised rather than simply pay attention to its initial value at the time of commencement of cohabitation. But, in so doing, it is equally as important to give recognition to the myriad of other contributions that each of the parties has made during the course of their relationship.
[49] at paragraph 26
I have already recorded the parties' versions of their initial financial contributions.[50] Exhibit W1 reveals that in September 1986 (approximately 10 months after the parties commenced cohabitation) the wife's assets comprised:
·Essendon property (sold in August 1986): $82,000
·Less: mortgage: ($26,000)
·Savings: $300
·Motor vehicle: $1000
·Furniture: $15,000
·Credit card debt: ($200)
The total of these items is $72,100[51].
[50] see paragraphs 20 and 21 above
[51] the wife's Statement of Personal Financial Position dated 3 September 1986 – which is part of exhibit W1 – records the total of these figures as $82,100, which is clearly an arithmetical error.
Exhibit W1 also records that the wife sought to borrow $40,000 to assist in the purchase of the N property. The total purchase price of the N property was recorded as $93,000. The wife proposed to finance the purchase in the following manner:
·Proceeds from sale of Essendon property: $50,000
·"Accounts": $3000
·Finance from bank: $40,000
The total of these items is $93,000.
When they commenced living together, the parties lived in rental accommodation. The property in Essendon was leased to tenants.
During cross-examination, the husband confirmed that he also had a motor vehicle and household effects at the time of commencement of cohabitation. He had been working on a full-time basis since the age of 17, and had undertaken his university studies on a part-time basis. The husband said that he had superannuation worth approximately $8000 at the time of commencement of cohabitation. It was worth approximately $14,000 at the time that he commenced his first accounting business. Given that the wife did not deny the husband's evidence in this regard, I have no reason to disbelieve him.
The husband said that he elected to receive his superannuation at the time that he started his business, and that the funds were used "to survive" and "as capital to start the business going"[52]
[52] See 17 April 2007 transcript, page 45
The husband had completed his studies leading to a Bachelor of Commerce at Melbourne University by the time cohabitation commenced. The degree was not conferred on him, however, until early 1986. Still, he had sat his final examinations and had completed his formal studies.
The husband confirmed that all of his superannuation entitlements and savings were used to set up the business and "to make sure I had enough money to get by".[53] The husband said, and I accept, that he continued to contribute to the rental payments and the bills that he had paid previously. He denied that he was reliant on the wife's income in any way, and I accept his evidence in that regard as well.
[53] see 17 April 2007 transcript, page 47
In addition to the work that the husband undertook as part of his new business venture, he obtained temporary work through Drake Consulting. He also worked at the City of Keilor.
After the husband ceased his employment in the initial partnership business, the wife ceased her employment with the government and commenced working in the husband's new business. The wife was the husband's second employee (the first being his brother, who worked for him for approximately four months). The wife remained the husband's sole employee until approximately 1999 or 2000. The husband does not dispute the fact that the wife did significant clerical work.[54]
[54] see paragraph 23 above
The husband conceded that the N property (which the wife had purchased in approximately September 1986) was sold in December 1988 for $145,000. According to the husband, he was the guarantor for the borrowings secured against the N property and the mortgage repayments were made from the parties' joint earnings.[55]
[55] see paragraph 21 of the husband's affidavit sworn 10 April 2007
Exhibits W4 and W5 reveal that the N property was used as security for a loan of $5000 (obtained in June 1998) "to assist with working capital in your business" and also as security for a bank guarantee covering a separate guarantee given by the husband's business to the Department of Defence in relation to "services in the establishment of an automated work-in-progress system". The husband said, and I accept, that the Department of Defence guarantee (and hence the bank guarantee) was never called upon. Still, the only real estate available to the parties to be used as security for these transactions was the wife's N property.
It is clear that the husband brought some assets and savings into the relationship. It is also clear that he had completed his studies and was poised to commence his career in the accounting profession. The husband said, and I accept, that he had additional skills in computer programming, which skills enabled him to obtain the contract the subject of the bank guarantee referred to above.[56]
[56] see 19 April 2007 transcript, page 222
During her cross-examination, the wife confirmed that the parties lived in the N property, but was vague regarding the husband's assertion that he had contributed to the mortgage securing the property. Her response was:
He may have contributed something to that.[57]
[57] see 20 April 2007 transcript, page 272
I prefer the husband's evidence to that of the wife in relation to this subject.
The wife downplayed her decision to leave the public service and commence employment with the husband. She said that she only left the public service "on the proviso that if it didn't work well, I could go back to the Department of Community Services".[58] She implied that commencing employment with the husband was some form of risk to the parties’ financial well-being. I do not accept the wife's evidence in this regard. Alternatively, I do not accept that the wife regarded the husband's commencement of an accounting practice as a venture that entailed serious risk of any kind. Indeed, the wife made no mention of any relevant risk in any of her affidavits. For example, in paragraph 13 of her trial affidavit, she simply stated that she "… supported (the husband) in opening his accounting practice in Keilor Road, North Essendon in 1987" and that she "resigned from (her employment) to establish and grow the practice into the business now known as Kernahan and Co".
[58] see 20 April 2007 transcript, page 273
Given the nature of the concession made on behalf of the wife, there is no need for me to discuss evidence relating to the contributions made by the parties beyond their initial contributions.
I make the following findings in relation to the parties' initial contributions:
a)Leaving aside both parties’ motor vehicles and household effects, the wife brought into the relationship her net interest in the Essendon property worth a maximum of $56,000 (given that some increase in the value of the property is likely to have occurred between the date of commencement of cohabitation and September 1986, when the Essendon property was sold), whilst the husband brought into the relationship savings and superannuation entitlements worth approximately $8000.
b)Both parties brought into the relationship their respective earning capacities. The wife had been employed for at least 10 years in clerical and administrative capacities. She does not appear to have had formal qualifications. The husband had completed all formal requirements leading to the conferral of a Bachelor of Commerce from the University of Melbourne. The husband's qualifications enabled him to progress in his career and ultimately earn a significant income.
c)From the date of commencement of cohabitation, both parties contributed towards their joint living expenses, and towards the payments in respect of the mortgage encumbering the N property. They also contributed to the rent for the premises that they occupied whilst the wife's Essendon property was leased to tenants.
d)The rental received by the wife from the Essendon property supplemented the parties' income derived from other sources.
e)Both parties contributed to the payments in respect of the mortgage secured over the N property. At the same time, the N property was used as security for the borrowing and guarantee referred to above
f)The net proceeds of sale of the N property amounted to approximately $100,000 (or perhaps a little more).
In my opinion, the ongoing contributions by the parties over the years since 1986 have offset, diluted or eroded the significance of the wife's initial contribution. Clearly, neither party's initial contributions are still intact (as it were). There have been (as the Full Court recognised in Williams) a myriad of other contributions made by the parties during the course of their relationship – including both financial and non-financial contributions. Nevertheless, when I take into account the findings that I have made regarding the parties' initial contributions, and their impact upon the parties' overall financial position and financial security at and shortly after the commencement of their relationship, I am not persuaded that each party's contributions should be given the same weight.
In my opinion, and in all the circumstances (including the length of the period of cohabitation and the fact that the current net value of the property available for distribution between the parties is in excess of $3.25 million), I find that the wife's overall contributions (in all their various guises) were of greater significance or weight than those of the husband by a factor of 2.5%. In other words, the difference between the weight to be given to the parties' respective contributions, in all their various guises, from the date of commencement of cohabitation to the date of trial, is 2.5% - attributable entirely to the additional weight to be given to the wife's initial contributions as discussed above. I therefore conclude that 51.25% of the overall property pool should be awarded to the wife on the basis of her contributions from the commencement of cohabitation to the date of trial. Conversely, 48.75% should be awarded to the husband.
Section 75(2) factors
So far, in considering the question of property settlement, I have dealt with the identification of the parties’ property and the question of their respective contributions. The Court has power to make an adjustment to a party’s property settlement entitlement based on such contributions in order to take account of, amongst other things, both parties’ respective means and needs. The Family Court has been critical of shorthand terms being used to describe this step in the property settlement exercise, preferring to refer to it simply as “the section 75(2) factors”[59] In essence, s.75(2) is concerned with the process of arriving at a just and equitable result.[60]
[59] See Clauson (1995) FLC 92-595.
[60] See, in that regard, Waters & Jurek (1995) FLC 92-635.
I have already recorded the age of each of the parties.
In her affidavit sworn 9 November 2006, the wife asserted that she was not fit for gainful employment by reason of her poor health. She said that she has suffered chronic back pain for approximately 10 years and that she is currently being managed by an osteopath. In essence, her back problems require regular muscular manipulation and adherence to an exercise program.
The wife suffered from anxiety and depression after separation. She was prescribed antidepressants in August 2006. Since that time, she has been seeing a psychologist for regular counselling appointments.
In paragraph 42 of her trial affidavit, the wife said:
My health continues to be a matter of concern and despite my inquiries, I have not been able to obtain gainful employment by reason of my health and the fact that I have no formal qualifications or experience and I am of an age where obtaining employment is very difficult.
In paragraph 43 of her trial affidavit, the wife said:
Furthermore, the children are of an age where they have very demanding educational, sporting and social commitments and were I able to obtain full or part time employment their quality of life would suffer considerably.
The wife was cross-examined at length regarding her health and earning capacity. The cross-examination was in the context of the husband's evidence to the effect that the Kernahan Group pays its bookkeeper approximately $45,000 per annum for a 38-hour week. The husband said that the bookkeeper has only one or two years' experience, and has no formal qualifications. Clearly, the wife has significantly greater experience than the Group's present bookkeeper (including experience with the accounting program, MYOB). The husband said that, if the wife were to work on a part-time basis (for, say, 20 or 25 hours per week), then she would "probably generate an income of something like $25,000 or $30,000 per year"[61].
[61] see 19 April 2007 transcript, page 188
The husband also produced a printout from seek.com.au, which became exhibit H6. The printout reveals that there are many suitable bookkeeping jobs available in the Melbourne metropolitan area (both full-time and part-time). The husband was of the view that there is no reason why the wife cannot begin to work on a full-time basis in the near future. Further, the husband emphasised that the wife has always worked, including when the children were much younger than they are now. The husband seemed to accept, however, that it would not be unreasonable for the wife to choose to work on a part-time basis.
The husband argued that the wife could have a substantial income after the completion of the proceedings:
I'm suggesting that (the wife) with $65,000 worth of investment income, plus $25,000 of child support off me, plus without having to pay any school fees or accommodation costs would have an income over $90,000, and if she chose to do a bit of work, 20, 25,000, 30,000, she'd have an income per year of $115,000 more or less net of tax. That would be a very substantial income.[62]
[62] see 19 April 2007 transcript, page 198
The reference to "$65,000 worth of investment income" relates to the husband's evidence to the effect that the wife should be able to invest something in the order of $650,000 after the proceedings, and that it is possible, without great difficulty, to earn an average of 10 per cent per annum on such an investment. The husband relied upon his knowledge, skills and experience as a financial adviser in making this assessment.
During the course of her cross-examination, the wife confirmed that she is very familiar with the MYOB system and well able to use parts of it. She agreed that a skill of that nature is an important skill, and that it could assist her to obtain employment. Nevertheless, the wife sought to play down her ability to obtain employment, emphasising the fact that she does not have formal qualifications. She eventually conceded, however, that she has made no real effort to obtain employment.[63] Under further cross-examination by Mr Cantwell, the wife endeavoured to suggest that her commitments to the children have the effect of preventing her from obtaining and maintaining paid employment. Similarly, the wife endeavoured to suggest that her physiotherapy and osteopathy appointments also impede her capacity to work. I do not accept the wife's evidence in relation to these subjects. To repeat the expression that I employed earlier, she "ducked and weaved" in relation to these subjects. I find that there is no reason why she cannot make satisfactory, alternative arrangements for the children, and for her physiotherapy and osteopathy appointments, so as to enable her to obtain and maintain suitable part-time employment.[64]
[63] see 20 April 2007 transcript, pages 263-4
[64] see 20 April 2007 transcript, pages 265-70
At the completion of Mr Cantwell's cross-examination of the wife in relation to these subjects, the following exchange took place:
HIS HONOUR: Ms Kernahan, as I understand what I've just heard from you, you're not really disputing the fact that if you put your mind to it you could probably get a part‑time position?---No, I'm not disputing that, your Honour. That's correct.
Nor are you disputing that in effect the children wouldn't prevent you. You would work around that. You've done it in the past and ‑ ‑ ‑?---Yes.
- - - you could do it if you were minded to do so now. Nor as I understand it is your health an entirely disqualifying factor; you've worked around that in the past. Although it has got a bit worse since you've got older and had the falls, one way or the other - perhaps by changing professional people or working around different hours - you could get around that too?---I could, yes.
Is there another reason why you feel the way you do about going to work?---Only in the past, as I mentioned to Mr Cantwell, it was only due to the stress from the marriage break‑up that managing the children, the house and keeping everything going - I just found that quite difficult.
Look, I understand that, and I understand the stresses on people - both parties - following a marriage breakdown. It's very hard to refocus. That I do understand. But from what you've told me, and subject to what might happen with the house and arrangements of that nature, it's a fair inference, isn't it, that if you want to, you can go and do some part‑time work within the next few months, once this issue is behind you?---Yes, your Honour. I haven't said that I don't want to work. I have always worked. While the stress has caused me to be overloaded, I am looking and would look towards having some financial support from the settlement to be able to go and do some courses to ensure that those jobs that are available, as Mr Cantwell showed me, I could maybe be successful in.
More than that - and just correct me if I'm wrong. I don't want to put words in your mouth. What I'm hearing I think is that you probably want to work?---At some point, yes.
But in the fairly near future, do you agree with me it's probably a good thing for you?---Yes, your Honour.
I do not accept the wife's assertion that she is unable to obtain part-time employment as a result of ill health or due to her commitments to the children. The wife's evidence in relation to her health and earning capacity was unsatisfactory, and I find that she is capable of obtaining and maintaining suitable part-time employment as a bookkeeper. Further, I find that the wife has chosen not to work in paid employment since the date of separation in spite of the fact that she has had a reasonable opportunity to do so. I find that she previously worked as a bookkeeper and in other clerical capacities for around 20 to 25 hours per week at least. Finally, I find that the wife's decision not to work in paid employment (on, at least, a part-time basis) cannot be justified on the basis of her caring responsibilities or her state of health.
I find that the wife has an earning capacity of approximately $30,000 per annum[65] and that she will have little difficulty finding suitable employment whenever she is minded to seek it.
[65] see 20 April 2007 transcript, pages 322 and 325
There is no doubt that the husband has a significant income earning capacity. He has a successful and established business. The husband conceded that (given that the Kernahan Group can be regarded as his alter ego) his income comprises the net profit of the business, together with his salary. In the 2006 year, the net profit of the business was $268,000 and his salary was $90,000, making a total of $358,000. For the previous year (2005), the husband's gross income derived from the business (including his salary and superannuation contributions) was approximately $340,000.[66] It is unnecessary to analyse the husband's income further. In my opinion, it is sufficient to record that his earning capacity is at least 10 or 11 times greater than that of the wife. He is exercising that earning capacity and will continue to do so into the future.
[66] see schedule 1A in annexure KDF1 to the affidavit of KF sworn 5 April 2007
I note that, in Clauson (1995) FLC 92-595, the Full Court said[67]:
It has long been recognised that in most cases the most valuable "asset" which a party can take out of the marriage is a substantial, reliable, income-earning capacity.
[67] at page 81,910 – citing Best (1993) FLC 92-418
I have already dealt with the property available for distribution between the parties.
The wife has the full-time care and control of B and A. Due to the children's estrangement from the husband, the wife will have to embark upon all the various tasks associated with parenting the children without practical assistance from the husband – at least for the foreseeable future. That is not to say that the husband will not be supporting the children financially. He has agreed to do so, and he has not been ungenerous. He will be paying the children's school fees, together with child support of approximately $25,000 per annum.
I have made no findings regarding the cause of the children's estrangement from their father, and make no criticism of either party in relation to that subject. The sad fact of the matter is, however, that the heavy burden of caring for the children and dealing with their day-to-day concerns, issues and problems now falls upon the wife. It should not be forgotten – as the Full Court also said in Clauson[68]:
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 an independent lifestyle which the obligation to care for children usually entails.
[68] (1995) FLC 92-595, at page 81,911
According to the wife's financial statement sworn 11 April 2007, her total weekly expenditure (for herself and the children) is slightly in excess of $2000. Given that the former matrimonial home (which is large, and has extensive grounds) is to be sold, it is likely that the wife's weekly expenditure will reduce. In any event, I am not satisfied that the amount claimed by the wife properly reflects a reasonable allowance for the costs associated with the wife maintaining herself and the children.
The wife was cross-examined at length regarding her expenditure during the 2005 calendar year. I find that her expenditure during the course of that year was excessive, and that the husband acted reasonably in taking steps to limit the flow of funds available to her at the end of the year. The wife's evidence in relation to her expenditure during that period was vague and unsatisfactory. I find that she had the benefit of approximately $120,000 (or close to $120,000) during the 2005 calendar year. During that period, the husband paid or caused to be paid the mortgage and other loans secured against the former matrimonial home. He also paid the children's school fees, and for their books, uniforms, sporting equipment and extracurricular activities. In addition, the husband paid the repayments relating to the car used by the wife.
The husband said, and I accept, that living expenses for the household (comprising the husband, the wife, B and A) in 2004 totalled approximately $70,000. Those expenses excluded school fees.[69] The husband said, and I accept, that:
the major differential between that year (2005) and previous years is that living expenses rose from $70,000-odd for four people to $121,000 for three people. … (the) expenditure was well in excess of our previous lifestyle.[70]
[69] See 18 April 2007 transcript, page 19
[70] see 18 April 2007 transcript, page 64
For her part, the wife prepared a schedule[71] purporting to particularise her expenditure in 2005 and 2006. The 2005 figure is approximately $117,350 – which is very close to the husband's estimate of $120,000. During cross-examination, the wife eventually conceded that the living expenses for the whole family were between $70,000 and $75,000 for the previous three years.[72] She then conceded that her expenditure in 2005 was approximately $120,000.[73] Having made those concessions, the wife was simply unable to adequately or credibly explain why her expenditure was so much higher in 2005. She spoke of B participating in the Duke of Edinburgh awards program at his school, of the need to buy bigger beds for the children and of having to purchase snacks for the children's friends on the occasions when they visited the house. She also referred to the need to buy presents for the children's friends. Many of her responses were qualified with the preamble "maybe …". To put it bluntly, the wife's evidence was "all over the place", and I do not accept her purported explanation of the reasons for her increase in expenditure during 2005. I would add that the wife was clearly uncomfortable whilst being cross-examined in relation to this subject, and gave every appearance of intentionally keeping her responses as neutral and vague as possible.
[71] exhibit W7
[72] see 20 April 2007 transcript, page 284
[73] see 20 April 2007 transcript, page 285
There can be no doubt that both parties have a clear obligation to make a full and frank disclosure of their financial circumstances in a timely manner.[74].
[74] See Reichstein (2006) FamCA 1422 at paragraph 80.
The duty to make full and frank disclosure of one’s financial position has been set out in a number of cases determined by the Full Court over the years. Those cases were summarised in
ofChang v Su (2002) FLC 93-117. Full and frank disclosure is required as a matter of principle in proceedings between spouses or former spouses under the Family Law Act (see, for example, Oriolo (1985) FLC 91-653, Briese (1986) FLC 91-715 and Giunti (1986) FLC 91-759). Where, for example, the court cannot be satisfied as to the extent of a party’s property, it can be less cautious than might otherwise be the case when making relevant orders (see Mezzacappa (1987) FLC 91-853, Black & Kellner (1992) FLC 92-287 and Weir (1993) FLC 92-338).The authorities referred to above reveal that a judge (or federal magistrate) is entitled to take a “robust view” in relation to findings regarding a party’s financial position (including a party’s capacity to meet any proposed order) where that party has failed to make full and frank disclosure of his/her financial position.[75]
[75] See Chang v Su at paragraphs 71 an 72
In November 2002, the High Court dismissed an application by the husband in Chang v Su seeking special leave to appeal from the Full Court’s decision. In the course of argument, Callinan J observed:
It does not matter what the principle might be seen to be, a Court has to do the best it can. It does the best it can, having regard to the evidence that is adduced, and if the parties are not frank then naturally there is going to be a measure of imprecision about any findings that the Court can make.
I am not satisfied that the wife has been open and frank in relation to her expenditure during the 2005 calendar year. Nor am I prepared to accept that the commitments that are necessary to enable her to support herself (and the children) are accurately set out in part N of her financial statement sworn 11 April 2007. The wife was cross-examined about her expenses, and I find that, generally speaking, they are exaggerated and inaccurate.
I note that the husband formed the conclusion that the wife required an amount of $1000 per week in order to meet the living expenses for herself and the children (excluding mortgage payments, motor vehicle lease payments, school fees, rates and taxes and the like). Given the level of expenditure for the family prior to 2005 (being between $70,000 and $75,000 per annum for all four members of the family), and given that the husband appears to have always provided adequately for the family in the past, I find that the wife's living expenses for herself and the children (excluding the items previously met by the husband) are likely to amount to something approximating the amount of $1000 per week voluntarily paid by the husband. To err on the side of caution, and recognising that the children are older than they were when the husband was a member of the household and have more (and perhaps different) activities, and that the wife is effectively a single parent, I am prepared to find that a reasonable allowance for living expenses for the wife and the children is approximately $60,000 per annum.
The husband has more than adequate income available to him to meet his commitments to support himself.
Neither party is responsible for the support of any other person (apart from the children). Certainly, the husband has no obligation to support Ms A. I would add that Ms A has no obligation to support the wife or the parties’ children.
Both parties are entitled to a comfortable standard of living. In my opinion, the size of the property pool and the husband's substantial, reliable income earning capacity are sufficient to ensure that any orders that the Court might be minded to make will permit both parties to live reasonably comfortably in the future. Both parties accepted, however, that the former matrimonial home will have to be sold, and that the wife will have to purchase less expensive accommodation. There is no suggestion that the children will not continue to attend their present schools, and I find that their lifestyle is unlikely to be significantly affected by any orders that the court might make in relation to property settlement.
I recognise that a large proportion of the property that will be awarded to the husband as a result of orders that the court might be minded to make comprises the Kernahan Group (in the broadest sense), having a gross value of $888,951. I am well aware that the husband wishes to re-establish himself in a new home and that he will need some capital in order to achieve that result. The court can do no more, however, than endeavour to fairly and equitably balance the competing claims of both parties.
I have already dealt with the issue of the parties' contributions to their property.
The duration of the marriage has not (itself) adversely affected the wife's earning capacity. She worked in the business for many years, and acquired skills during the period of her employment in the husband's practices. There is no evidence to the effect that the wife would have or could have spent her time more productively elsewhere (including by undertaking a course of education or training).
Both parties wish to continue their roles as parents. The orders that I propose to make in relation to property settlement will have no impact upon those wishes, or their parenting roles. Tragically, and as I have recorded above, the children currently want nothing to do with their father.
The wife is not cohabiting with any other person. The husband is cohabiting with Ms A. I accept the husband's evidence regarding their financial relationship at the time of trial, and find that they share their living expenses – although not necessarily equally. I find that the husband pays a larger proportion of the living expenses – which is understandable, given his much higher income. At the end of the day, the financial circumstances relating to the husband's cohabitation with Ms A are not relevant to the property settlement orders that I propose to make.
It is not in dispute that the husband will be paying the top level of child support for the children (being an amount of approximately $25,000 per annum), and that he will be paying their school fees.[76] These commitments total approximately $40,000 per annum.[77]
[76] see 19 April 2007 transcript, page 199
[77] see 19 April 2007 transcript, page 203
Neither party suggested that there are any other facts or circumstances (beyond those referred to above) which the justice of this case requires to be taken into account.
Conclusion in relation to section 75(2) factors
Having regard to all the evidence before me, I am persuaded that it is appropriate to make an adjustment on the basis of the s.75(2) factors.
I am so persuaded because the purpose of the s.75(2) adjustment is to assist the Court in the process of arriving at a just and equitable result. To refuse to make an adjustment in the present proceedings would be to run the risk of making orders which are neither just nor equitable.
In my opinion, the most significant of the s.75(2) factors are as follows :
a)the husband's income earning capacity is substantial, and some 10 or 11 times greater (at least) than the wife's earning capacity;
b)given the husband's estrangement from the children, the reality is that the wife is likely to have to continue to care for, supervise and support them without practical assistance from the husband (other than financial assistance) for the foreseeable future; and
c)the husband will be paying child support at the top rate, together with the children's school fees.
When I have regard to the above matters, together with all the other matters discussed under the general heading of the s.75(2) factors, I conclude that an appropriate adjustment of the parties' entitlements on the basis of contribution alone is to increase the wife's entitlement by something between 10 and 12 per cent. It would be intellectually dishonest of me to do other than choose the midpoint of that range. Thus, the adjustment should be 11 per cent.
It follows that the overall distribution of the property between the parties should be on the basis of 62.25 per cent to the wife and
37.75 per cent to the husband.
Just and equitable?
Under section 79(2), the court is required to be satisfied that the order to be made is just and equitable – and not simply that the underlying percentage division of the net value of the parties’ property is appropriate. In other words, in the consideration of whether the overall result of property settlement proceedings is just and equitable, it is the justice and equity of the actual orders, and not of the percentage distribution, which must be considered[78].
[78] see Russell (1999) FLC 92-877
Although I am of the view that the testing of any proposed orders by reference to s.79(2) is not a fourth substantive step (properly so called) in the property settlement exercise, and although I have considered the justice and equity of the overall “split” under the general heading of Conclusion as to s.75(2) factors, I propose to (metaphorically) step back and consider whether the outcome achieved by my consideration of the parties’ contributions and the s.75(2) factors has brought about a just and equitable result.
The Full Court has cautioned against assessing the s.75(2) factors in percentage terms, without considering the real impact of any proposed adjustment. In other words, the real impact in money terms is "the critical issue".[79]
[79] see Clauson (1995) FLC 92-596
In the present case, the s.75(2) adjustment equates to approximately $357,988 (being 11 per cent of $3,254,441). Such an adjustment creates a differential between the parties of 22 per cent of the property pool (or approximately $715,977). I am satisfied that such an adjustment is proper. Indeed, I am satisfied that the adjustment is proper even when regard is had to the differential between the wife's overall entitlement (being 62.25 per cent) and the husband's overall entitlement (being 37.75 per cent), which differential equates to 24.5 per cent of the property pool (or approximately $797,338).
I am very conscious that justice and equity must be done to both parties, and I am satisfied that the split that I have proposed achieves that result. It is clear that the former matrimonial home will be sold and the mortgage encumbering it discharged. It is also clear that the wife will be retaining the furniture and contents from the former matrimonial home, her motor vehicle (and the debt associated with it), the US and Telstra shares in her name, her superannuation entitlements and (notionally) her legal fees paid. The husband will be retaining the business, the Timbercorp shares (and their attached debt), his motor vehicle, the small bank accounts and unclaimed moneys, his superannuation entitlements and (notionally) his legal fees paid. The husband will be obliged to meet the wife's tax liability (being a net amount of $26,598). I shall leave it to the parties to determine how the Visa card debt and the two flexi-plus liabilities are to be dealt with.
The wife will have sufficient funds to purchase a new home for something in excess of $1 million (if she wishes to do so), and substantial funds left over to invest. The husband will retain his business, and hence his very significant earning capacity. He will also have a (relatively modest) amount of capital which he can utilise as he sees fit. The current mortgage encumbering the former matrimonial home will no longer exist. Whether the FlexiPlus liabilities remain will depend upon the manner in which the parties choose to structure the actual orders used to give effect to these Reasons. Both parties will retain their superannuation entitlements.
I turn now to consider the wife's application for spousal maintenance.
Spousal Maintenance – The Law
The distinction between property settlement and spousal maintenance orders was drawn in Anast & Anastopolous (1982) FLC 91-201. Relevantly, the Full Court distinguished a party’s entitlement to a property settlement based on contributions and the general factors arising under section 75(2) on the one hand, and a party’s entitlement to be maintained within the meaning of section 72 on the other. It held that an entitlement to an order under section 79 (including the section 75(2) factors) should be assessed before the question of entitlement to maintenance within the meaning of section 72 is considered. In some cases, a party’s property settlement entitlement (under section 79) will “exhaust” that party’s claim for spousal maintenance. In other cases, a maintenance entitlement under section 72 will remain, even after property entitlements under section 79 have been determined.
In Clauson (1995) FLC 92-959, the Full Court was at pains to clarify the distinction between a claim for spousal maintenance (properly so called) and that component of a s.79 property settlement order which attracts the terms of section 75(2). After describing the general approach which should be adopted in property settlement applications, the Full Court said[80]:
The result of the s.79 order may be such that the applicant for maintenance can no longer be described as being “unable to support himself or herself adequately” because he or she may have sufficient assets which, with or without income arising from the investment or use of those assets, will provide an adequate level of support. It also defines the other party’s capacity to meet any order.
[80] at page 81, 907
The Court has broad powers in considering what may be a proper or appropriate order for spousal maintenance. Although periodic maintenance is the most common form of spousal maintenance, section 80 makes it clear that, in exercising the powers under Part VIII of the Family Law Act, an order may take a variety of different forms. It follows that the Court may make an order for periodic spousal maintenance, lump sum spousal maintenance, or a combination of both. In making such an order, it is to be borne in mind that maintenance is not confined to a subsistence level of support, but is intended to provide such assistance as is reasonable in the circumstances of the particular case[81].
[81] See Mitchell (1995) FLC 92-601.
In Vautin (1998) FLC 92-827, the Full Court said:
…in the exercise of the power to order lump sum maintenance caution is usually appropriate because of the apparent finality of lump sum orders and the difficulties in making predictions into the future. However, it is a power, the exercise of which may be appropriate in particular cases. It may be ordered, amongst other reasons, to meet non-periodic expenditure for the maintenance of that person where there is an established need and a capacity to pay. It is not confined to cases of the capitalisation of periodic maintenance and/or where periodic maintenance is unlikely to be paid because of concerns about the capacity or willingness of the liable parent to pay…
In Bevan (1995) FLC 92-600, the Full Court stated that an award of spousal maintenance requires:
a)a threshold finding under section 72;
b)a consideration of sections 74 and 75(2);
c)no fettering principle that pre-separation standard of living must automatically be awarded where the respondent’s means permit; and
d)discretion exercised in accordance with the provisions of s.74, with “reasonableness in the circumstances” as the guiding principle.
Spousal Maintenance – Preamble
In broad terms, the result of the property settlement proceedings is that the wife will be receiving property worth approximately $2,025,890, and the husband will be receiving property worth approximately $1,228,551. If the wife retains her furniture and contents, motor vehicle (with its attached debt), the US and Telstra shares, and her (notional) legal fees paid (which together total approximately $144,260), then it is clear that she will receive a cash amount of approximately $1,881,630.
The wife can use the funds available to her as a result of the property settlement proceedings as she sees fit. If she were to purchase a home for between $1.1 and $1.2 million, however, then it is clear that she would have something in the order of $650,000 (at least) available to invest.
The husband’s evidence is to the effect that an amount of $650,000, properly invested, should generate an income of approximately 10% per annum. In other words, the wife should be able to receive an income of approximately $65,000 per annum, whilst at the same time preserving the whole of her capital.
Even if the husband is wrong, and if the wife can only generate earnings of, say, 7.5% from such an investment, it is clear that she can expect to receive an income approaching $49,000 per year (again, whilst preserving the whole of her capital).
Bearing in mind that the wife only seeks spousal maintenance for 5 years, another way of looking at the wife’s future financial position is to record that the wife will attain the age of 65 in 14 years, and the age of 70 in 19 years. According to the CCH Australian Family Law Handbook[82], the 3% “multiplier” relevant to a period of 14 years is 351.01[83]. The 3% “multiplier” relevant to a period of 19 years is 592.67. Working in reverse (as it were), an amount of $650,000 could be drawn down by the wife at the rate of $1,096 per week for 14 years (until the wife reaches the age of 65) or at the rate of $865 per week for 19 years (until the wife reaches the age of 70). At the end of those periods, the capital sum is likely to be exhausted.
[82] See paragraph 35-130
[83] I have referred to the 3% “multiplier” because of her discussion in Barrell Insurance Pty Ltd v Pennant Hills Restaurant Ltd (1981) 34 ALR 162, Todorovic v Waller (1981) 37 ALR 481 and Racine & Hemmett (1982) 8 FMLR 716
Spousal Maintenance – Discussion
The husband is only liable to maintain the wife to the extent that he is reasonably able to do so. Further, he is only obliged to maintain her if she is unable to support herself adequately for one of the reasons set out in section 72, and having regard to the matters referred to in section 75(2).
As a result of the property settlement orders that I propose to make, the wife will be retaining assets worth approximately $2 million. She can use the property available to her to rent suitable accommodation (and invest the balance) or to purchase a suitable home for whatever figure she considers appropriate having regard to her overall financial position.
As discussed above, the wife could purchase a suitable home for between $1.1 and $1.2 million and still expect to derive an income from the remaining capital (if appropriately invested) of something in the order of $850 to $1,100 per week for at least 14 years. Depending upon her degree of success as an investor, she may or may not have to erode the available capital in order to generate such an income.
But I have also found that the wife has an earning capacity of approximately $30,000 per annum. Although she has some health problems, I have found that they are unlikely to adversely affect her earning capacity to any significant extent. I find that the wife is able to exercise her earning capacity for the foreseeable future. There is no credible, persuasive evidence which could lead me to conclude otherwise.
The husband has agreed to pay child support for B and A. He is likely to be paying approximately $25,000 per annum until (at least) B turns 18 in December 2009.
I have already found that a reasonable allowance for the wife’s current living expenses (for herself and the children) is approximately $60,000 per annum. Given that the husband will be paying the children’s school fees, it seems clear that the wife will be able to meet all or almost all of her and the children’s living expenses from the husband’s child support payments and her earnings when she commences paid employment. Any shortfall will be comfortably covered by the wife’s investment income.
In all the circumstances, I find that – as a result of the property settlement orders that I propose to make – the wife is able to support herself adequately, and that she therefore has no “need” for spousal maintenance. In other words, I am unable to make the threshold finding under section 72 of the Family Law Act required as the first step before awarding spousal maintenance. It follows that there is no need for me to consider the other steps required before an award of spousal maintenance can be made (including the husband’s capacity to pay).
The wife’s claim for spousal maintenance will be dismissed.
Orders
I shall now hear Counsel as to the precise orders necessary to give effect to these Reasons.
I certify that the preceding one hundred and ninety-nine (199) paragraphs are a true copy of the reasons for judgment of Walters FM
Associate: Suzette De La Motte
Date: 7 December 2007
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