Kouros and Kouros
[2009] FMCAfam 242
•20 March 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| KOUROS & KOUROS | [2009] FMCAfam 242 |
| FAMILY LAW – Property – whether leave should be added into the property pool – contributions – just and equitable. |
| Family Law Act 1975, ss.75, 79 |
| Hickey and Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143 AJO v GRO (2005) 33 FLC 93-218 |
| Applicant: | MS KOUROS |
| Respondent: | MR KOUROS |
| File Number: | SYC 2500 of 2007 |
| Judgment of: | Baumann FM |
| Hearing dates: | 17-18 November 2008 |
| Delivered at: | Sydney |
| Delivered on: | 20 March 2009 |
REPRESENTATION
| Counsel for the Applicant: | Mr Watkins |
| Solicitors for the Applicant: | CM Lawyers Solicitors & Attorneys |
| Counsel for the Respondent: | Mr Dura |
| Solicitors for the Respondent: | Armstrong Legal |
IT IS NOTED that publication of this judgment under the pseudonym Kouros & Kouros is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYC 2500 of 2007
| MS KOUROS |
Applicant
And
| MR KOUROS |
Respondent
REASONS FOR JUDGMENT
Introduction
The financial history of the parties in this matter, the applicant wife, Ms Kouros, and the respondent husband Mr Kouros, demonstrated how through hard work and a focus on saving, parties are able to amass a comfortable pool of assets.
During a marriage which lasted over 13 years and bore one child (now aged 14 years), the parties worked hard in their respective roles and were given support from each of their families.
They come to the Court because they are unable to resolve how their pool of available assets of approximating $1.9 million should be divided – the Husband by final submissions contending for a 60/40 division in his favour whilst the wife submits that she ought to receive a 62% share. The reasons which follow identify why neither of those positions found favour with the Court.
Principles
The preferred or usual approach to determining property proceedings under s.79 of the Act was the subject of a succinct summary by the Full Court in Hickey and Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143) at [39] where the Court said:-
“39. The case law reveals that there is a preferred approach to the determination of an application brought pursuant to the provisions of s79. 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 for 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), (“the other factors”) including, because of s79(4)(e), the matters referred to in s75(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: Lee Steere and Lee Steere (1085) FLC 92-626; Ferraro and Ferraro (1993) FLC 92-335; Davut and Raif (1994) FLC 92-503; Prpic and Prpic (1995) FLC 92-574; Clauson and Clauson (1995) FLC 92-595; Townsend and Townsend (1995) FLC 92-569; Biltoft and Biltoft (1995) FLC 92-614; McLay and McLay (1996) FLC 92-667; JEL and DDR (2001) FLC 92-075 and Phillips and Phillips (2002) FLC 9.-104.”
Pool
By the time of final submissions the experienced Counsel, Mr Watkins, for the wife and Mr Dura for the husband, had sensibly resolved many of the initial issues in dispute about the constitution of the pool. A collaborative balance sheet (which I have marked “Exhibit 5”) reveals the extent of the concessions including:
a)Disregarding of small bank accounts and the parties contents.
b)Allowance, relying on the unchallenged evidence of CPA Mr M and more recent discovery (since 30 June 2006 financials and balance sheet were prepared) of assets available to the husband from the Kouros Family Trust. This trust is controlled by the husband’s father Mr K (as appointer) and although the husband is a trustee (appointed with his sister after the death of his mother in 2001), Mr M opines that the husband and wife “have no direct beneficial interest in the equity of the Trust” although the husband has “loaned” funds to the Trust over the years (likely to be income distributed to him at the discretion of the Trustee yearly but not actually paid) and also the wife an agreed Trust Distribution pending. These allowances (totalling $204,021 are incorporated in the pool of assets as found by me.
c)It was established on the evidence that post separation the Husband borrowed $250,000 from his sister [name omitted] which he has lent unsecured to a female friend in China, Ms Z. Although the husband says he has an obligation to pay his sister interest (at 8% pa payable in advance), the arrangements for either repayment of principal and/or interest by Ms Z is uncertain. As a result of the transactions being “balance sheet neutral”, the loans are not incorporated in the pool either as an asset or as a debt.
d)The valuation of the parties interests in superannuation were agreed and both Counsel contended for the superannuation to be included in the one pool, notwithstanding the preferred (but not mandatory) approach identified by the Full Court in C & C (2005) FCAFC 429. Accordingly I do so.
e)The parties agreed on the value (on present earning rates) of the Husband’s accrued entitlements for annual leave ($15,120) and long service leave ($24,192) although there was no agreement as to how their entitlements should be treated. The husband has been employed by [H] Pty Ltd as a [omitted] for over 15 years. It is my view, consistent with authority such as Gould (1996) FLC 92-657; that to the extent there are financial resources – being future entitlements – then if they are to be weighed into the discretion to occur when assessing the relevant s.75(2) factors. They are a contingent benefit to the husband, have not yet been vested and should not be included in the pool at this first step of the analysis.
The major issue of dispute relates to the extent to which the parties have utilised funds available at cohabitation for their own purposes such as to engage the principles set out in Townsend (1995) FLC 92-569. It is appropriate to reply upon the statements of the Full Court in decisions such as AJO v GRO (2005) 33 FLC 93-218 and Re NHC and RCH (2004) FLC 93-204.
The wife concedes that $50,000 withdrawn from the husband’s Commonwealth Bank account available to him at separation has been expended on legal expenses and that in accordance with the decision in Farnell (1996) FLC 92-681 should be added back. After separation the wife acknowledged some funds were withdrawn from Esanda debenture stock on maturity in December 2006. The total sum of $19,200 was paid by the wife to her mother. In circumstances where I am not satisfied the wife’s parents made “loans” to her (as I discuss below) I do not regard the payment of $19,200 as a repayment of a loan. It should be added back – even though Ms L says she has now spent the money.
Additionally the wife acknowledged in cross examination that she had withdrawn post separation:
a)$2,034 from the Westpac Bank account which she said she accessed for living expenses as “she needed funds”.
b)$2,060 in two separate withdrawals from the Commonwealth Bank account in mid December 2006 which the wife says she used for a “removalist and other accounts on my credit card”.
c)$1,840 withdrawn just after Christmas 2006 from the Commonwealth Bank. This was the account the Husband’s wage was deposited to, and the wife says she used this for living expenses.
The husband says these additional funds of $5,934 should be added back as he was still supporting the wife and [X] at that time – though separated. In view of the size of the pool; the minimal income available to the wife and her asserted use of the funds, I choose not to add back any of these additional withdrawals.
The wife contends that the husband has accessed and should be regarded as having the benefit of a premature disposition in respect of the: -
a)$63,453 reduction in the Commonwealth Bank account number [2]; and
b)$21,200 reduction in the St George Bank Account
Commonwealth Bank Account [2]
It is clear on all the evidence that the parties joint decision to live, as the husband described it, as “frugally and inexpensively” as they could, resulted in significant savings being accumulated into this account – which was the reservoir for the savings. Bank statements from September 2001 (when the balance was $17,258) to 22 November 2008 (“Exhibit 4”) when the balance reached its highest level of $37,3295 were shown to the husband (who operated the account in his name) and he accepted those balances. His wage was paid into this account on a fortnightly basis. Regular payments to a joint cheque account (accessible by the wife) and to the Mastercard account were revealed. The court did not conduct an independent audit of all the funds, nor is it the Court’s responsibility to do so. Exhibit 4 comprises statements on this account from 1 November 2006 to 17 November 2008. This account was a “working account” for the husband and the credits to that account appear at least to be to the date of hearing $145,066.79 for wages.
Other non personal exertion income was credited as set out below. Identifiable withdrawals from the account include the following:
Mastercard transfers
$38,794.68
Transfer to Joint Account
$4,000
Payment to wife
$50,000
Total
$92,794.68
In assessing as best I can, that the husband’s personal expenses in the period of almost 2 years post separation have reasonably been met by his personal earnings or by a subsidy (beyond reasonable limits) of the balance in this account which reduced by $11,0884 in the period ($372,536-$261,652) I have considered the following matters:
i)Of this sum, $92,794 is accounted above. I am prepared to accept, consistent with the party’s lifetime habit that the Mastercard payments were generally for living expenses.
ii)This could mean, at least for the wife’s argument that the husband had use of the sum of $46,658, calculated as below, in addition to his net wages namely: -
Difference in balances less $92,794
$18,089
Interest
$11,395
Dividends ([P], [O], [B])
$19,174
Total
$46,658
I do not ignore the likely additional income tax incurred by the husband on the interest earnt and also on the dividends (although some franking credits were likely to be achieved).
iii)During this period, $24,519 was transferred to Armstrong Legal (who are his solicitors on the record for this matter) and $5,600 was paid to Harvey Norman. As furniture has been ignored, I say nothing further about that payment.
iv)In the most recent financial statement filed by the husband he claims that his living expenses exceed his income from all sources by over $630 a week – however when allowance is made for the claimed payment of interest to his sister of $336 a week (which I intend to disregard) the nett deficit is approximately $300 a week. These expenses include “general living expenses” (Item 32) although because Part N was not completed, the court is not able to test the reasonableness of those claims.
Because of the position I have taken in respect of the MasterCard payments as noted above, and doing the best I can in respect of a number of entries which were put to the husband in cross examination, I believe the fairest “add back” is the identified payments for legal expenses. I therefore propose to add back against the husband, the sum of $24,519.
St George Account
The husband acknowledged that the account in his name and control had a balance of $53,400 at separation and for the purpose of this trial now has a balance of $32,100 – a reduction by $21,300. Additionally the balance would have swelled with interest being credited for the period. In cross examination the husband asked how the funds were used – and his reply was “for my own purposes.” Whilst I accept that the wife who contends for an add back of this sum bears some evidentiary onus, in circumstances where the husband controlled the funds – and the use of funds is in issue – he also has a duty in my view to establish the funds have been reasonably expended. In this regard the whole transaction with the husband’s friend and that relationship suggest funds have been used to both maintain the relationship and also support the purchase of the China property. Having taken the view that eventually the funds in the Commonwealth Bank account have been jointly accounted for with the add back for both parties for legal expenses, I am not satisfied that the husband needed the additional $21,300 for living expenses. All he tells the Court about this account is at paragraphs 92 and 95 which suggests that between $12,000 - $13,000 was used “as he needed them in China.” I propose to “add back” as a premature disposition made by the husband, the sum of $21,300.
Additionally the husband conceded the sum of $15,000 should be added back for the destroyed diamond ring.
On this basis I find the pool to be as follows:
| Assets | Net Value | |
| Property M | $530,000 | |
| Property W | $310,000 | |
| Property V | $106,250 | |
| 1997 Toyota motor vehicle | $5,200 | |
| Commonwealth Bank Account – streamline [2] | $261,000 | |
| St George Account number [8] | $32,100 | |
| [O] Shares (code [O], 1430 shares @ $3.24 per share) | $4,633 | |
| [P] shares (code [P] 11815 shares @ $26.89 per share) | $317,705 | |
| [B] Shares (code BSL 2363 shares @ $4.27 per share) | $10,090 | |
| 1992 Ford Telstar motor vehicle | $3,000 | |
| 2004 Holden Calais motor vehicle | $20,000 | |
| Loan Account in Kouros Family Trust | $159,408 | |
| Trust distribution from Kouros Family Trust | $44,613 | |
| $1,803,999 | ||
| ADD BACK – Husband Legal fees St George Account Diamond ring Wife Legal fees | $24,519 $21,300 $15,000 $50,000 | $110,819 |
| $1,914,818 | ||
| LIABILITIES – Mortgage W Mortgage M | $296,000 $67,400 | $363,400 |
| $1,551,418 | ||
| SUPERANNUATION Husband [M] Super Wife [F], [R], [C] Super | $347,468 $1,152 | $358,989 |
| TOTAL POOL | $1,910,407 |
Contributions
Apart from the extent to which the families of the parties financially assisted their child (and through that child, the family unit) most of the factual matrix is not in dispute. On the pool as I have found it to be, the husband says at trial the contribution entitlements should be assessed as to 70% to the husband and 30% to the wife – the wife contends for a 47%/53% division in the husband’s favour.
Initially the husband’s assets exceeded those of the wife. The husband before graduating from University in 1987 in [qualifications omitted], commenced employment with [P] in South Australia in 1983. By the time of marriage in January 1993 I find the husband’s assets comprised:
a)Approximately $137,000 in savings (see pages 1 – 3 of “Exhibit JK1”).
b)Interest in [P] Superannuation fund of approximately $20,000.
c)Approximately 3760 shares in [P] (see paragraph 5.1 of Report of Mr P) which the husband at paragraph 22 of his affidavit says had a value of $14.40 per share a gross value of about $54,144.
d)An accumulating (but not yet vested) claim to long service leave.
Although the husband is not precise as to any liabilities it is clear from pages 33 – 36 of “Exhibit JK1” that probably 3000 of the total 3,760 shares at the time were issued under Employee Share Plan and that an ESP loan attached to the shares. For example, the 1000 ESP shares allotted in May 1992 had a loan attached of $12,720. It is reasonable therefore to infer that the nett equity the husband enjoyed in the [P] shares at the time of marriage was significantly less than $54,144. Perhaps if this loan is a guide attaching at an equivalent rate to the remaining 2,000 ESP shares – then the equity may have been around $25,000. In making this estimate I have taken into consideration the cost base set out at paragraph 5.1 of the “[Mr P] Report”.
The wife’s initial contributions were significantly less than that of the husband, partly of course due to the generous gift of $100,000 provided to the husband by his parents as an engagement present, but also due to the fact that the wife’s income as a [omitted] was much less than the husband’s. The wife says she had savings of $12,000. I accept that estimate. The wife also had a quarter share in a family property at Property V. The wife says a block of land was purchased in 1984 (when she was 18) she says, and I accept, that the wife did not make any contributions to the acquisition or improvement of that property.
Apart from the acquisition of an investment unit in Property W Queensland in 2003 (which was purchased for $282,500 and negatively geared), the only other major purchase was the former matrimonial home at Property M in May 1993 for about $250,000 borrowing $112,000. That sum borrowed has now reduced to approximately $67,047.
I accept that the parties contributed their remaining savings (of which the husband’s were greater) to the improvement of the property. The husband at paragraph 44 of his affidavit sets out the tasks undertaken.
It is clear that during the marriage the husband was the primary breadwinner and his financial contributions were superior. The wife was devoted to the role of homemaker and parent to their only child [X], who was born in 1994 and is now 14 years old. The wife did work in the initial years of the marriage and at times casually after the birth of [X] however the husband acknowledges that his job “required me to work long hours and travel both internationally and domestically” including many times on weekends. This obviously increased the home responsibilities for the wife.
It is obvious from both the tenor of the affidavits and the evidence that the husband was very careful with money and kept the wife on a fairly strict budget. This was a joint endeavour shaped by the desire to create a nest egg for retirement. The impressive savings history demonstrates the discipline applied to this goal – however the family also had the benefit of assistance from their respective families.
It is difficult to assess precisely the levels of contribution from family as little in the way of documentary evidence was offered to confirm:
a)The husband’s father’s statements, under oath, that he and his late wife made additional contributions by regular cash payments “up to a total of $58,000”; or
b)The wife’s mother’s statements again under oath, that she provided $10,000 for a car and $5,000 for a computer. Ms L also says she provided smaller sums for food, clothes, and other expenses.
It is common ground that for about 12 months prior to marriage the husband was a rent free boarder in the wife’s parent’s home and after marriage the couple lived rent free for 12 months. Whilst the husband claims (I sense as some set off) that he assisted with [omitted] and some work around the house of his parents-in-law, I do not regard those contributions as significant, or more than a person living in the home would do.
Overall this couple did derive support from each family – but in different ways and about of equal benefit.
Another significant contribution to the pool of assets is the husband’s interest in the Kouros Family Trust which was established in 1985. The evidence of expert Mr M (coupled with the husband’s evidence at paragraphs 68 to 88 of his trial affidavits) establishes that the trust was settled with a sum deposited by the husband’s parents (probably in the vicinity of $200,000) and there are a number of discretionary beneficiaries. The trust has no trading operations with the only income being interest earned on bank deposits. It is not entirely clear how the loan to the husband continued to grow, save that it may comprise distributions made but not actually paid – that is “loaned back”. This does not adequately explain the increase of nearly $30,000 in the loan amount in the 2002/2003 year (see annexure 3 to Mr P’s report) however as the report writer was not required for cross examination, the source of the increase must remain a mystery. It can not be the “loan back” of interest as for that year essentially all profits were distributed to the wife.
I do not ignore the post separation contributions where the husband has continued to enjoy the benefits of living in the family home at a very low mortgage payment on that loan. The wife has had the majority of responsibility for the care of [X] and unfortunately it now seems that the husband sees little of his daughter.
Whilst it is true, applying the principles often relied upon in Pearce (1998) FAMCA 74, to expect the significant disparity in initial contributions to be diminished in weight over the period of the marriage and now the extra 2 years to trial because of the other contributions made as set out above, in this case it is the use and effect of both the initial contributions and the later contributions which must also be recognised.
The husband’s initial savings provided the basis for the acquisition of the Property M property still owned today. The [P] shares were swelled by further additional shares acquired or provided as an employee bonus in 1993 – 1995 (an extra 1961 shares), and this aggregate (mostly accumulated prior to the marriage) gained the benefit in 2001 of the [P] Limited and [L] merger – doubling the holding – and then the 2000 and 2002 splits off of the [B] and [O] companies. I accept that joint funds, after marriage must have been used to discharge debts created under the Employee Share Plan (at least dividends were used for this purpose), yet the substantial value today of this asset originated in the earlier shareholding.
Finally the interest in the Kouros Family Trust is really a sort of gift to the husband by his father and whilst the husband may have been used to minimise tax, he is still the one with the benefit which now represents in total $204,021 of the pool or slightly more than 10%. I do not forget that the wife is eventually entitled to claim as a loan by her the sum of $44,613.
I have come to the view that the extra contributions made by or on behalf of the husband justify him, in essence, receiving the first 25% of the pool, or about $477,000. On this basis a contribution based division as to 62.5% to the husband and 37.5% to the wife is appropriate.
Section 75(2) Factors
Although the parties were both born in 1966 and are to turn 42 this year the husband’s earning capacity and income is superior and the wife, even if she can retrain, could never expect in her working life to earn anything like the husband – currently over $150,000 per annum gross. The wife although she will receive the assessed child support for [X], (currently about $1,649 each month according to the husband’s financial statement) the wife will carry the additional restrictions imposed on the primary carer – meeting [X]’s emotional needs; restrictions on employment availability and the like.
The evidence of psychologist Ms G opines that although the wife reports “being motivated to return to work and re-build her life” her high levels of depression and anxiety suggest ongoing therapeutic intervention is needed to support the wife reaching better functioning. In the witness box, the wife presented as a person who still feels “betrayed” by the breakdown of the marriage and the loss of the future that she had anticipated. I think that whilst the finalisation of these proceedings will assist the wife in moving forward, she clearly suffers some psychological challenges which do not confront the husband.
Even in a reasonably sizeable pool and considering [X]’s age, an allowance for these factors in the range of up to 15% might have been indicated however, I believe this adjustment needs to be slightly reduced because of:
a)The debt level which the husband will be required to service arising from the proposed order.
b)
The likely incidence of Capital Gains Tax if the husband sells the [P L] Shares. The assessment at paragraph 7.1 of the report of
Mr P is a guide. The evidence was not that the husband would inevitably sell these shares. If that were the case it would be, consistent with authority Rosati (1998) FLC 92-804, proper to include the calculated capital gains tax as a liability at step 1 of the analysis. I take this contingent liability into account.
c)The husband’s accumulated long service leave and annual leave entitlement seem likely to be utilised by the husband for the purpose they are designed – namely to have leave. He will, as he is entitled to do, receive payment when not going to work each day. Although the wife might say she is disadvantaged by the husband having the benefit of this relief from work (and that a reasonable proportion was accumulated during the marriage), I do not regard that is the case.
When I weigh up these factors I propose to make an adjustment in the wife’s favour of 10% on a pool as found. This is equivalent to the husband paying to the wife about $190,000. I regard this as fair in the circumstances to both parties.
Just and Equitable
The Court is required to consider whether a division, as to 52.5% to the husband and 47.5% to the wife creates an order that is just and equitable to both parties.
Whilst both parties seek, in their minutes of proposed orders, that they retain the ownership of the Property M property for the reasons advanced by the husband at paragraphs 129 to 132 of his trial affidavit, I propose an order which allows the husband to retain the home.
On this basis the husband would be required to pay to the wife a sum of money, the actual amount depending on the extent to which if at all a superannuation splitting order is made. In that respect the wife sought a split with a base amount of $210,000. I am satisfied procedural business has been offered to the trustee. Although the husband did not seek a splitting order of his superannuation I am satisfied justice and equity is achieved by making one – unless the husband prefers to borrow the extra funds.
On this basis I would calculate that the wife’s 47.5% if the pool would be made up as follows:
47.5% of $1,910,407 = $907,443
| Property V | $106,250 |
| 1997 Toyota Motor Vehicle | $5,200 |
| Add back for legal expenses | $50,000 |
| 47.5% of combined superannuation | $170,510 |
| $331,969 | |
| Payment by husband to wife | $575,474 |
| Total | $907,443 |
The Husband’s 52% share would be $1,002,964 made up as follows:
| Property M Home | $530,000 |
| Property W Unit | $310,000 |
| Commonwealth Bank Account | $261,000 |
| St George Bank Account | $32,100 |
| [O] Shares | $4,633 |
| [P] Shares | $317,705 |
| [B] Shares | $10,090 |
| 1992 Ford Telstar | $3,000 |
| 2004 Holden Calais | $20,000 |
| Interest in Kouros Family Trust | $204,021 |
| Add Backs | $60,819 |
| $1,753,368 | |
| Less liabilities | $363,400 |
| $1,389,968 | |
| Plus share of superannuation | $188,470 |
| $1,578,438 | |
| Less payment to wife | $575,474 |
| Total | $1,002,964 |
The husband could raise the payment, rounded off to $575,500, without selling his shares (and thereby incurring some capital gains tax) by increasing his borrowings by less than $100,000 and accessing his (and the wife’s) interests in the Kouros Family trust as well as his other savings as follows:
| Interest in Kouros Family trust | $204,021 |
| Commonwealth Bank Account | $261,000 |
| St George Bank Account | $32,100 |
| $497,121 | |
| Additional Borrowings | $78,379 |
| Total | $575,500 |
At currently low interest rates the extra costs of borrowing would be manageable by the husband. The husband of course may prefer to sell some of his shareholdings however on the evidence he may chose not to do so. The share market fluctuates and the value of the holding in [P L] shares (at trial estimated at $26.89 each) may well have increased with the calculation of capital gains tax depends on the actual sale price.
The base amount of the superannuation split of the husband’s [P L] Superfund interest will be $159,000 rounded up from $158,998). The husband’s remaining superannuation interests shall tally $188,470. At his level of income he is likely to replenish the superannuation split over his working life. The wife on the other hand, now at least has a reasonable base of superannuation which will be available when she retires from work.
I regard for these reasons that an order which achieves this division is just and equitable to both parties. I should record, that I have taken the view that the husband is in a position, should he wish, to access the funds in the Kouros Family Trust. His loan account could be the subject of an immediate demand which the trustees would be required to meet and the report of Mr M establishes the assets of the trust are available and able to meet the demand. No taxation implications in return of these “loans” are apparent.
I will hear from the parties as to the time the husband needs to pay to the wife the sum calculated as payable.
I certify that the preceding forty-eight (48) paragraphs are a true copy of the reasons for judgment of Baumann FM
Date: 19 March 2009
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