Knightsbridge and Knightsbridge
[2009] FamCA 694
•17 July 2009
FAMILY COURT OF AUSTRALIA
| KNIGHTSBRIDGE & KNIGHTSBRIDGE | [2009] FamCA 694 |
| FAMILY LAW – PROPERTY – INTERLOCUTORY DETERMINATION – Contentious components of valuation of corporate entities and family trust – whether money advanced to respondent constituted over-drawn money that should be added back to the value of the trust – what rate of taxation should be applied to profits in the last financial year |
| Family Law Act 1975 (Cth) s 79 |
| APPLICANT: | Ms Knightsbridge |
| RESPONDENT: | Mr Knightsbridge |
| FILE NUMBER: | CAC | 1925 | of | 2007 |
| DATE DELIVERED: | 17 July 2009 |
| PLACE DELIVERED: | Canberra |
| PLACE HEARD: | Canberra |
| JUDGMENT OF: | Faulks DCJ |
| HEARING DATE: | 9 July 2009 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Ms Tonkin |
| SOLICITOR FOR THE APPLICANT: | Mrs Evans |
| COUNSEL FOR THE RESPONDENT: | No appearance |
| SOLICITOR FOR THE RESPONDENT: | Mr Nicholl |
Orders
The matter is adjourned to me in Chambers at 9.00 am on 19 October 2009.
IT IS NOTED that publication of this judgment under the pseudonym Knightsbridge & Knightsbridge is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT CANBERRA |
FILE NUMBER: CAC 1925 of 2007
| MS KNIGHTSBRIDGE |
Applicant
And
| MR KNIGHTSBRIDGE |
Respondent
REASONS FOR JUDGMENT
Introduction
This is an interlocutory determination relating to the disputed value of certain salary payments and consequent taxation treatment with respect to advanced money paid by the parties’ family trust to the respondent husband. Ultimately, my determination of these issues should clarify the total pool of assets of the parties, which is yet to be the subject of the primary dispute of the parties to s 79 of the Family Law Act 1975 (Cth).
Brief background
By way of brief background (as the finalisation of this matter has not yet occurred), the applicant wife initiated proceedings in the Federal Magistrates Court in October 2008. The proceedings were transferred to the Family Court of Australia in April 2009. The applicant wife is 47 years of age and has worked as a registered nurse. She states that she is not at present in remunerated employment because of chronic fatigue and anaemia. The respondent husband is 49 years of age and is a builder/carpenter. The parties commenced cohabitation in 1987, were married in September 1988, separated in January 2006 and divorced in October 2007. There are three children of the marriage. They do not directly affect these proceedings.
The orders sought by the parties
The applicant wife effectively seeks the right to retain a property at V in the ACT, her superannuation entitlements and certain parcels of shares and savings. The wife also seeks the sum of $400,000 from the husband in consideration for the transfer of her right to a jointly‑owned property at B in NSW. The wife also seeks orders effecting the transfer of her shares in one of the companies run by the respondent husband in consideration of a $200,000 payment. The wife concedes that the husband should retain a property located at W, NSW, a commercial property in K, ACT, several corporate and trust entities, and his superannuation entitlements and certain parcels of shares.
The respondent husband effectively seeks the transfer of the applicant wife’s interest in the B property to him, her resignation as director from the relevant commercial entities and indemnification of any interest the wife may have as a beneficiary from a family trust. The respondent husband also sought to transfer to the wife a motor vehicle, subject to the wife re-financing in her own name a loan secured on that motor vehicle.
The applicant wife had also sought on an interim basis for the payment of spousal maintenance. Orders were made by consent on 15 July 2009 in respect of this issue.
The issues in dispute as at 9 July 2009
The primary issue in dispute at the date of the duty listing was the valuation of the Knightsbridge Family companies and trusts (“the Knightsbridge Group”). The parties had in June 2009 each submitted their estimated values for the Knightsbridge Group – the applicant wife asserting its worth to be $386,000; the respondent husband, $99,863. The difference between the parties in terms of their valuations was approximately $286,000.
I indicated to the parties by way of orders made at a directions hearing on 19 June 2009 that I would take the oral evidence of the parties’ respective accountants before the matter further proceeded. This occurred on 9 July 2009 by way of a contemporaneous witness session, where both accountants were available at the same time in the witness box. By that time, the difference in the values of the parties had narrowed somewhat to approximately $100,000.
At the end of the hearing on 9 July 2009, and the parties submitted to me in Chambers what they agreed to be the total amount disputed between them. The parties agreed that the “beneficiary loan” of $74, 945 and the difference in profits arising from the different taxation rates of $12,328. Ultimately, it was agreed by the parties that the total difference in the valuations of the Knightsbridge Group is between $304,115 (by the applicant wife) and $216,420 (by the respondent husband); being a difference of $87, 273.
Overdrawn loan account
On 9 July 2009, the parties’ respective accountants, Ms S (for the applicant wife) and Ms E (for the respondent husband) identified the primary difference between their valuations of the Knightsbridge Group. Ms S assessed that a “beneficiary loan” had been made to the respondent husband from one of the trusts within the Knightsbridge Group of approximately $161,135. Ms S’s assessment of the total profits of the Knightsbridge Group as at the end of the 2008/2009 financial year was approximately $194,841.
In the ordinary course of events the loan of $161,135 would have been an asset in the company and given that the company was being valued on a net tangible assets basis would have represented one of the net tangible assets of the company and would have appropriately been included in the assets that constituted the basis for the valuation.
However, the parties’ accountants (obviously with their clients’ consent) agreed that the figure should be adjusted to take account of a reasonable market salary in respect of the husband. Although there was some disagreement about what constituted such a salary and the way it should be ascertained for a variety of reasons in the end, it was agreed that the amount of loan remaining should be in the order of $75,000 ($74,945).
It is not uncommon that the affairs of privately owned companies are conducted in a less formal way than would be the affairs of a publically listed company. It is appropriate in this situation that the parties should reach some agreement about appropriate remuneration for the husband as the principal person in the operation of the business.
The balance of money it seemed to have been argued might well have been advanced for private purposes and might have constituted part of the proper remuneration of the husband. However, it was agreed that there were no records that would enable such a calculation to be made and moreover there had been a measure of compromise not only about the salary but about the question of what constituted what may have been otherwise described as over-drawings in any event. On this basis, it seems to me that it is inappropriate to treat the remaining $74,945 of the loan account as other than an asset in the company and accordingly it is appropriately included in the valuation.
I mention in passing that although Ms E, on behalf of the husband, seemed to argue that this may have been an atypical year, such an argument is substantially irrelevant in these proceedings. All valuations in relation to Court proceedings must necessarily represent to some extent a snap‑shot of valuation at a period agreed. Sometimes this favours one party, sometimes another. The question is one of relevance and in these circumstances, as the parties have agreed on methodology and in essence agreed on the figures, it would now be unrealistic further to discount those figures by reference to what might occur in the future.
Taxation applied to 2008/2009 financial year profits
A further adjustment was sought in relation to the profits for the 2008/2009 year. The difference between the accounts on this point was relatively small and resulted in a different figure of $12,328. This was brought about by the fact that Ms E assessed that tax should be levied at the corporate rate of 30 per cent. Ms S on the other hand suggested that there should be an averaging rate applied at 25 per cent because the tax would not have been paid in the company but on distribution to various tax payers whose marginal rates may have been different. She was satisfied these rates could properly (in accordance with her professional experience) be averaged out at 25 per cent. I accept Ms S’s reasoning in relation to this matter and accordingly accept the adjustment for which he contends.
Conclusion
This means therefore that, in my opinion, on the basis of the information submitted and the evidence of the appropriate accountants the valuation of the Knightsbridge Group is $304,115, that being the amount contended for by the applicant wife.
I certify that the preceding sixteen (16) paragraphs are a true copy of the reasons for judgment of the Honourable Deputy Chief Justice Faulks.
Legal Associate:
Date: 28 July 2009
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