KILMER-SUTTON & SUTTON

[2011] FamCA 112

FAMILY COURT OF AUSTRALIA

KILMER-SUTTON & SUTTON [2011] FamCA 112

FAMILY LAW – PROPERTY -  Settlement in relation to marriage

APPLICANT: Ms Kilmer-Sutton

RESPONDENT: Mr Sutton

FILE NUMBER: SYC 6960 of 2008

DATE DELIVERED: 1 March 2011

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Cohen J

HEARING DATE: 30 June 2010

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Campton

SOLICITOR FOR THE APPLICANT: Pearson Family Lawyers

COUNSEL FOR THE RESPONDENT: Mr Schonell

SOLICITOR FOR THE RESPONDENT: Barkus Doolan Kelly

Orders

1. That by way of implementation of Order 7 of the Orders made 10 December 2008 (and throughout these orders the reference to “the property” refers to the property at P) the parties forthwith do all acts and things and execute all documents necessary to effect a sale of the property for the best price reasonably obtainable as set out in the following manner:

   (1.1)list the property for sale by private treaty within fourteen (14) days of the date of this Order with such agent as the parties may agree to appoint and in default of agreement as to agent within fourteen (14) days of the date of this Order with such agent as the President of the Real Estate Institute of NSW shall appoint (“the agent”) and the costs of and incidental to such appointment to be borne equally by the parties as and when same fall due;

   (1.2)the sale price shall be such price as may be mutually agreed upon by the parties or, in the absence of agreement reached within fourteen (14) days hereof the price shall be the price nominated as the fair market value thereof by a valuer appointed by the President for the time being of the NSW Division of the Australian Property Institute (Inc) Incorporated (“the valuer”) and the costs of and incidental to such appointment and valuation to be borne equally by the parties as and when same fall due;

   (1.3)the parties shall follow the reasonable recommendation of the agent as to the best method of marketing and selling the property.

2. The parties forthwith do all acts and things to approach B Shire Council to obtain a final building/occupation certificate for the property certifying that the building has been constructed in accordance with Council’s requirement, and the costs of obtaining that certificate shall be paid out of the ANZ account referred to in Order 4.

3. Upon the sale of the property, then on settlement of the sale of the property, the proceeds of sale be paid in the following manner and priority:

   (3.1)all costs and expenses of sale including legal costs and disbursements, agents’ commission, advertising expenses, valuers’ fees, and auction expenses;

   (3.2)the amounts required to pay all municipal and water rates outstanding with respect to the property;

   (3.3)all loans due to ANZ bank secured against the property;

   (3.4)in repayment of the mortgage secured against the title to the property situated at and known as R; and

   (3.5)the balance to be invested in a controlled monies account in the joint names of the parties and administered by Pearson Family Lawyers pending further order.

4. That, by consent, pending the sale of the property, the wife shall have responsibility for management of the property including the payment of expenses referrable to the maintenance and renting of the property. The wife shall cause all income received on the property to be paid into the ANZ account currently used for this purpose and be restrained from operating on the ANZ bank account into which the rental income from the property is paid other than to meet the expenses of the property. The wife shall account to the husband in writing on a monthly basis identifying all transactions on the account including any receipts for expenses paid.

5. That by consent the husband do all things and execute all documents necessary to appoint the wife the trustee of Australian Scholarships Group Fund No. … and thereafter the wife shall administer the said fund so that it is used for the payment of the costs of and incidental to the parties’ children’s school attendance and school activities.

It is noted that publication of this judgment under the pseudonym Kilmer-Sutton & Sutton is approved pursuant to s 121 (9) (g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC 6960 of 2008

Ms Kilmer-Sutton

Applicant

And

Mr Sutton

Respondent

REASONS FOR JUDGMENT

1. By her amended application in a case filed 11 May 2010 the wife has sought numerous orders. She does not wish to proceed with all of them, only with orders 7 to 9 inclusive and 12 to 19 inclusive. These can be placed in categories. They are:

   a)variation orders for sale of real property at P made by consent on 9 December 2005 to give the wife sole control of the sale, and, after discharge of the mortgage secured by  that property and payment of costs of and associated with its sale, the use of the balance to pay so much of the debt secured by mortgage over the former matrimonial home at R as it will allow and if there are any funds remaining after discharge of that mortgage payment of that fund to the wife;

   b)orders which allow the wife to manage the property at P pending its sale;

   c)that the husband do everything necessary to give control of the fund held by the Australian Scholarship Group (ASG) to the wife;

   d)an order for interim property settlement of $50,000;

   e)an order that the $72,000 (approximately) balance held in a controlled moneys account from the proceeds of sale of Property C be paid to the wife’s solicitors as an interim costs payment with the issue of characterisation of that payment reserved for the final property settlement hearing; and,  

   f)that the husband pay the costs of the wife’s application on an indemnity basis.

   The last claim should not be answered until the parties have the benefit of reading this judgment.

2. The husband and wife have agreed that the order the wife seeks in (e) should be made provided any funds the wife receives from the ASG are paid to the children’s school to meet the children’s school fees. I shall make an order which achieves this.

3. Although the husband’s filed response to the wife’s application is to seek dismissal of all the wife’s claims and seeks no alternative orders, at the hearing the husband provided a more appropriate minute of the orders he seeks. By it he seeks:

   a)that the sale of the property at P be undertaken by an agent agreed to by the parties or failing agreement by one appointed by the President of the Real Estate Institute of NSW at a price agreed by the parties or in default by a valuer appointed by the President of the Australian Property Institute (NSW Division) by the method of sale recommended by the agent;

   b)the proceeds of sale are to be used after payment of the costs of and incidental to sale to discharge all loans secured by mortgage over the property, including a $200,000 line of credit which the husband also seeks.

   c)any balance of the proceeds of sale to be held in trust pending further order;

   d) that the parties be ordered to apply for a bank line of credit for $200,000 to be secured over the property at P on which the parties could draw equally and which would be repaid on sale of the property at P;  

   e)that the wife take over management of the property at P pending its sale but use the income from it solely to meet the outgoings on it and keep the husband informed of all financial transactions involved in management;

   f) that the $72,000 held in the controlled moneys account be distributed to both parties equally;

   g) that the parties obtain the final building/occupation certificate from B Shire Council the husband says is necessary to permit sale of the property at P;

   h)that a single expert be appointed to provide an opinion on the salary the husband could command as an employed professional for the purpose of valuing the goodwill of his practice.

   The final order the husband seeks is really a matter for the trial judge. I shall leave it for him to decide how to deal with evidence for the final hearing.

4. The effect of success by the wife in her amended application would be to receive the following moneys:

   1.the balance of the proceeds of sale of the property at P;

   2.the funds in ANZ Bank A/C …, which does not appear to exist or is the husband’s business overdraft account which is over drawn to close to its limit;

   3.the ASG Fund;

   4.$50,000 from the husband;

   5.$25,000 from the husband;

   6.the controlled moneys account balance in the sum of about $72,500 which would be paid towards the wife’s costs.

5. In each instance, the Court may, but is not obliged as an interim measure, to determine the character that each such receipt ought to be given in the final proceedings if any of the orders sought by the wife result in a receipt of funds by her.

6. The husbands cross application in its final form would result in use of the proceeds of sale of the property at P to discharge debts secured by it or incurred as a result of ownership of it and also in discharge of the mortgage over the former matrimonial home, with the balance to be held on trust pending further or final orders. Before sale, the parties would be ordered to borrow $200,000 against the security of the property at P. Strangely, and in my understanding for no particular purpose, the husband seeks that the fund in the controlled moneys account as a result of the sale of Property C “be divided equally between the parties” with the categorisation of the receipt to be decided by the judge who finally decides the matter. I cannot understand why there is any need to resort to a controlled moneys account if it is to be no more than a conduit for division of the net proceeds of sale less the mortgage debt on the former matrimonial home between the parties.

7. The parties married in 1986 after having lived together for a short time. They have daughters born in January 1992 and February 1996. In January 2008, when the parties separated the wife withdrew $20,000 on the husband’s overdraft facility. The husband then removed her as a signatory to the account and cancelled all her credit cards except her David Jones card. Thereafter, as the wife was not in paid employment, she approached the husband’s mother and brother for money when she needed it. She used the David Jones’s card to purchase food and clothing for herself and the parties’ two daughters but, it can be inferred, the husband paid this account. The children lived with the wife after separation in January 2008. The husband went to live on a boat he owned. She and the children remained in the former matrimonial home.

8. The husband is a professional. The wife was a housewife at the time of separation. Not long after withdrawing the $20,000 the wife drew a further $150,000 from a joint cheque account and put it into an account which was solely in her name. In March 2008, the husband commenced to pay the wife $700 per week for spousal maintenance and child support. The child support had been assessed at $187 per week. As this is not enough to meet her ordinary weekly outgoings, she drew on the funds she had already obtained.

9. On 10 December 2008, the parties agreed to interim orders which were made on that day. The husband agreed to pay the wife $800 for spousal maintenance and any child support he was assessed as liable to pay. In addition, he agreed to pay the children’s school and extracurricular tuition and sports fees and costs and to pay for their books and uniforms. He also agreed to make the mortgage instalments payable on the loan secured by the former matrimonial home, as well as the rates, taxes and insurance for the property and the private health insurance for the wife and children. In addition, the parties agreed to sell the property they own at P and to use the sale proceeds to discharge a mortgage over the property and pay the balance into a controlled moneys account.

10. The other property they owned (Property C), would be sold and the loan secured by mortgage over it discharged. The balance was to be paid into the controlled moneys account. They also agreed, subject to bank agreement, to distribute $100,000 to each from the controlled moneys account and for each to give notice to the other before disposing of or encumbering any asset worth more than $10,000.

11. Property C was sold on 19 December 2008 for $1,030,000. After distribution of $100,000 each, $240,150 was placed in the controlled moneys account. It is the one which the wife wants to resort to pay her legal costs and disbursements in the proceedings.

12. Slightly differing consent orders were made on 22 December 2008. These changed the nature of the payments of child support and spousal maintenance for technical reasons. As the assessment of child support was then $43.01 per week, the wife’s maintenance was $757.00 per week in cash plus the other payments the husband had agreed to by each consent order.

13. During the course of the parties’ marriage the wife had undertaken various tertiary or quasi tertiary courses, the most significant of which is a course leading to a professional qualification.  She had her own practice from 1994 to 1998. In about July 2009, she recommenced practice as a casual part time employee. Originally she received no wages because she needed to regain her skills. She is now working one day each week and is paid $324 net for that day.

14. By November 2008, she had about $110,000 in the account into which she had deposited the $150,000. With the additional $100,000 this became $210,000. She then paid $84,640 in legal fees and disbursements up to January 2010. She had, with the husband’s consent, bought a car for about $23,000 using funds from the controlled moneys account.

15. On 20 January 2010, a further order was made by consent for payment of another $100,000 to the wife and $37,500 to the husband, in each case to enable the parties to meet their lawyer’s fees. Of the $100,000, the wife has paid $81,315 to her lawyers. Yet, she has $50,339 remaining in her main account.

16. Thus the wife has from January 2008 to 30 June 2010, when these proceedings were heard, received cash amounts in addition to the other payments made pursuant to the orders. The husband paid the ownership costs of the former matrimonial home. The amounts received by the wife are:

    1^st withdrawal   $20,000

    2^nd withdrawal   $150,000

    2008 order   $100,000

    2010 order  $100,000

    Car  $23,000

    Spousal maintenance and child support      $93,600

    
    

    (from 03/08 to 06/10)

    Wages 1 year at $350 per week                  $17,000

    Property at P rent   $14,000

    $517,000

1. Of this, the wife paid $166,000 towards her legal costs and has about $50,340 left but has debts of about $14,200 not including school fees. This means that she has spent on day-to-day living costs plus a car $287,000 or $2,200 per week. She says that in the twenty weeks prior to the hearing the shortfall between her income of $1,124 per week and her spending has been about $2,000 per week on day-to-day living. $3,124 per week or even $2,200 seems to be a lot when there are no rent, mortgage, school fees, car lease payments or legal costs included.

2. The wife has had a forensic accountant examine and report on the husband’s financial situation. It discloses that the husband had or probably had the following net funds available to him from his earnings:        

   2007/8   $265,999

   2008/9  $173,041

   2009/0  $238,697

3. In 2008 he, too, received $100,000 and in 2010 he received a further $37,500 from the controlled moneys account. Thus, in the period when the wife spent $287,000 or $2,200 per week on living costs on average, the husband has had available to him $682,000 assuming that his income from January 2008 to the end of June 2008 was half his income for the 2007/8 financial year. $93,600 of this has been paid to the wife. The mortgage instalments on the former matrimonial home and the property at P are $3,154 per week. Thus he has paid $410,000 in mortgage instalments from January 2008 to the end of June 2010. This leaves $272,000. Since October 2008 the husband has lived in a flat at D. His rent is $600 per week. This would accrue a further outgoing of $54,600 leaving $217,400.

4. In August 2008 he sold the premises in which he had previously conducted his practice for $1,045,000. He paid $250,000 of this to his mother. He says she had lent him $1 million to purchase the former matrimonial home and he was obliged to repay part of that loan because he has promised to repay it in full when the property at P was sold. The wife says the $1 million was a gift. I am in no position to decide which version is true.

5. After payment of credit card debts of more than $76,000, GST of $95,000, $5,500 for the wife’s David Jones credit card debt, $5,000 for painting the property at P, rent of $3,333 to the new owner of the premises, outstanding strata levies of $4,000 and reducing his bank debt to $588,000, he had spent $1.027 million of the proceeds of sale leaving about $18,000, making $235,500 still available to the husband.

6. I cannot say to what extent the wife’s withdrawal of $170,000 in January 2008 has affected the husband’s financial situation. His law firm had an overdraft of $320,974 at the end of the 2008/9 financial year and $397,471 at the end of the 2008 financial year. Although this deduction was probably dealt with within the business structure of his firm, the money to reduce the overdraft must have come from somewhere. It could only have come from the net profit the husband made from the firm and therefore from the net funds available to him from the firm. Thus the overdraft reduction should be included in the husband’s expenses leaving about $159,000.

7. Of the $159,000 the husband paid $96,164 to his lawyers, leaving him $63,000 or $485 per week. He had savings of $43,000 so if he had no savings at separation he had only spent $20,000 on meals, clothes and the like and other day-to-day living costs after paying his rent in two and a half years.

8. If one examines his financial statement of 20 January 2010, it discloses current gross income of $4,545 per week and outgoings of $8,983 per week. The husband claims that his assets are worth $2.96 million and his debts are $3.798 million. However, this only values the two properties, the former matrimonial home and the property at P at half their value because the wife owns 50% of each. The asset pool is therefore an additional $2.275 million, making the situation if one then adds the $72,500 in the controlled moneys account and the $50,000 the wife still holds less her $14,000 in debts that the parties have about $5.343 million in gross assets leaving them with net assets of only $493,000 if the debt to the husband’s mother is genuine and the $1.052 million of the wife’s share of mortgages is included.

9. Even if the husband’s mother’s debt claim is not genuine the wife is not likely to benefit much from establishing this because the husband’s contribution will be greatly increased. In any event, this appears to be a case where neither party will receive much. Except for the cash in the controlled moneys account, the $50,000 the wife holds and $43,000 the husband holds, the rest is tied up in land or assets which are unsaleable, unsold or should not be sold. I note there is a purported valuation of the husband’s legal practice by M Associates Pty Limited. This could not be sold for its supposed valuation. I have not included its valuation by that firm in the assets of the parties. There is a real basis for arguing that the practice has no value and/or the husband’s future earning capacity is a s. 75(2) factor and one cannot count both in full because to do so would be double counting. I cannot decide this potential dispute, but because the practice cannot be converted into cash, it is proper to leave any value it might have out of my considerations.

1. In view of the above, the legal fees are outrageous. I cannot tell whether this is the fault of the lawyers, the parties or both. The wife owes virtually nothing in legal fees but has paid about $172,500. The husband’s legal fees have been paid to date. He is expected to have legal fees, including those paid, of $192,000 to finalise the proceedings. The wife’s final legal costs are expected to be $238,000 including those paid.

2. In all the circumstances I can see no reason why the wife should be favoured over the husband in the orders I might make. All of the payment orders the wife seeks would unfairly favour her. It seems to be just and appropriate to leave matters as they stand except where the parties agree and except for the sale of the property at P. It would be just to leave the division of any proceeds of sale after discharging the mortgage over it and the mortgage over the former matrimonial home to the final hearing and require the parties to place the remainder, if any, in a controlled moneys account. I cannot accept that the wife should be given more money to spend than she already receives when the parties’ financial situation might be so modest. I certainly cannot accept that either party should be encouraged to continue to fail to restrain their legal costs which, in a case which is really quite simple and straight forward, are already about $268,000 and are expected to be about $430,000 altogether. I am not satisfied  that the wife will not be able to prepare her case for hearing and have it heard if she does not have further funds to pay her lawyers before judgment, especially as she has access to $50,000. She should, it seems to me, accept the reality that she and the husband are not as wealthy as she seems to think.

3. The husband says the wife should work full time as a professional. There is much to be said for that stance if she wishes to continue spending at the same rate as she has been since separation. I do not regard this as a case where the wife has any immediate need of financial assistance in addition to that which she is already receiving or as a case where there should be a further interim distribution of their assets. It is in the public interest that there be some restriction on the availability to each party of funds to pay their lawyers in this instance. This should cause them to rethink their attitudes and, possibly, make their lawyers more circumspect about the type of service they provide their clients when they should realise that in cases like this it is not in the clients best interests to engage in confrontational litigation when the result may be to use up most of their assets in legal costs unless those costs are subsequently successfully challenged.

4. I do not accept that the husband has obstructed the sale of the property at P but can see no reason why the parties should not continue to be required to sell this property. The orders originally made for its sale are too general. Those sought by the husband are appropriate. They provide for proper procedures if the parties, as is likely, cannot agree on aspects of the sale. I certainly do not regard it as appropriate for the parties to borrow more by way of a line of credit pending sale.

I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cohen delivered on 1 March 2011.

Associate:     

Date:              1 March 2011