L and K

FEDERAL MAGISTRATES COURT OF AUSTRALIA

L & K [2001] FMCA fam 117

PROPERTY SETTLEMENT – Value of property – erosion of contribution over time – property and financial resources – West & Green formula – adjustment for s 75(2) factors.

West & Green (1993) FLC 92-395
Crapp & Crapp (1979) FLC 90-615
Money & Money (1994) FLC 92-485
Bremner & Bremner (1995) FLC 92-560

Applicant:

K E L

Respondent:

P K

File No:

ZH2144 of 2001

Delivered on:

24 August 2001

Delivered at:

Launceston

Hearing Date:

8 August 2001

Judgment of:

Roberts FM

REPRESENTATION

Counsel for the Applicant:

Mr. McGuire

Solicitors for the Applicant:

Temple-Smith Barclay

Counsel for the Respondent:

Mr. McVeity

Solicitors for the Respondent:

McVeity & Associates

ORDERS

That within thirty days the Husband, P K do pay to the Wife, K E L the sum of $116,825.00.
That upon payment of the said sum of $116,825.00 the Wife do transfer to the Husband all her right, title and interest (if any) in the following:
a)The motor vehicle and any other chattels currently in the Husband’s possession or control
b)Any shareholding that the Husband may have in AXA Limited or AMP Limited
c)Commonwealth Roll-over Fund Policy No. 11218770
d)Any proceeds of sale of the property at L Street, P in Tasmania
That the Husband do transfer to the Wife all his right, title and interest (if any) in the motor vehicle and any other chattels currently in the Wife’s possession or control.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT HOBART

ZH2144 of 2001

K E L

Applicant

And

P K

Respondent

REASONS FOR JUDGMENT

Background

The applicant in this matter is K E L. She was formerly known by the surname “K”, but she has reverted to using her maiden name. The respondent is P K. Although they are divorced, I shall refer to them as the “Husband” and the “Wife” because these proceedings arise out of their marital relationship.
The parties were married at Ulverstone on 25 March 1978 and they separated on 3 June 1999, so their cohabitation lasted slightly more than twenty-one years.
There are four children of the marriage, namely D aged 21 years, C aged 19 years, A aged 16 years and A aged 13 years.
The eldest child is independent and does not live with either party.
The second eldest child is a university student at A in NSW, majoring in languages. The other two children are still at school.
C, A and A all reside with the Wife in a home that she has purchased in Armidale.
Currently, the Wife is not working and she is in receipt of Centrelink benefits, Family Allowance and Child Support which totals $459.69 per week. C receives a Youth Study Allowance of $99.00 per week, from which she provides for many of her needs. However, it is the Wife’s unchallenged evidence that she is required to supplement C financial support.
A is in Year 11 and he receives a Youth Study Allowance of approximately $74.00 per week, which he also uses to contribute to his own support.
The Husband contributes $57.69 per week for the maintenance of A and A.
The Husband has remarried and he lives with his new wife and her children in her house at W in Tasmania , which is not subject to a mortgage.
The Husband’s new wife was a widow before he married her. She has two children aged 17 and nearly 16 years. On 26 March 2001 an Order was made in this Court which provided that the Husband and his new wife share joint responsibility for the welfare and development of his new wife’s two children and that they reside with them. His new wife was the applicant in those proceedings and he did not oppose the making of that Order. With the benefit of hindsight, it is fairly easy for me to see that the major “advantage” to the Husband from that Order was that his child support for his own children would be reduced. The Wife in this matter was not consulted about the making of the Order in relation to his stepchildren.

Applications

The Wife filed her Application in the Family Court of Australia on

13 June 2000 and the Husband’s Response was filed in that Court on 5 September 2000. Those proceedings were transferred to this Court on 6 March 2001.
There is no need to detail what the parties were seeking in those documents because there have been changes in the parties’ circumstances since then and they are no longer seeking the orders detailed in those documents. Suffice it to say that the Wife was originally seeking a division of property on the basis of 80% to her and a further division of superannuation benefits at some stage in the future when those benefits vest. The Husband sought to make a cash payment to the Wife in return for a transfer of some real estate.
At the date of the hearing, the parties’ applications were different. The Wife was seeking orders whereby she would receive 75% of the net value of the property of the parties and the Husband was seeking orders whereby the Wife would receive 60% of the net value of the property of the parties.

Issues

In this case, it is probably easier to define what the issues are by first referring to what is agreed.
There was general agreement between the parties in relation to the property pool save that there was disagreement in relation to:
e)what value should be attributed to an investment property at L Street, P in Tasmania (“the investment property”)
f)whether the net balance of a debt repaid by the parties’ eldest child should be taken into account in the property pool.
In relation to the investment property, the evidence was that the property was purchased in 1993 for $49,000.00 and that the parties mortgaged their own home to be able to buy that property on the basis that it would be negatively geared and reduce the tax payable by the Husband. At that stage, he was in full-time employment and a relatively high income earner.
For some time after the parties separated, the Husband continued to reside in the former matrimonial home and collect the rent from the investment property. It would appear that there was a net loss from that investment property after payment of expenses, however, the Husband gained some tax relief from that loss.
The former matrimonial home was subsequently sold and in September, 2000 the Wife received the total net proceeds of that sale in the sum of $50,363.00. At that time, the mortgage was repaid and it seems that from that point onwards, the Husband retained the profits from the investment property. He says that those profits were minimal, however, it does seem that he would have received a net income, after payment of estate agents’ fees and council rates, in the sum of approximately $80.00 per week.
It is clear that the investment property was on the market for a period of approximately eighteen months before the Husband accepted an offer from a purchaser and signed a Contract to sell that property on

9 July 2001. The sale price was $30,000.00 and, because the sale had not settled at the date of hearing, the estimated proceeds of sale were $29,199.00.
It is the Husband’s evidence that the investment property was placed on the market at $50,000.00 early last year. No purchaser was forthcoming so the price was dropped to $47,000.00. Still no purchaser was forthcoming so the Husband changed the agent and advertised the property between $35,000 and $45,000.00. He received only one offer of $30,000.00 and it is clear that he accepted that offer.
The Husband’s counsel sought to persuade me that the market has determined the value of the investment property in that the sale was orderly and over a reasonably lengthy period.
However, the Wife’s counsel sought to persuade me that I should accept her valuation of the investment property at $43,000.00 because of the following:
a)The property was purchased in 1993 for $49,000.00
b)The only valuation of the property before the Court is the valuation report of the Tasmanian Valuer General which shows that on 13 March 2000 the property had a value of $45,000.00.
c)The Husband did not consult the Wife before accepting the offer of $30,000.00 at a time when he knew that this matter was listed for a hearing and there was no pressure upon him to sell because the property was bringing in a profit.
Indeed, I calculate that if the investment property was worth only $30,000.00 at a time when it was bringing in a net income of $80.00 per week, it would be returning in excess of 13% per annum. That is a particularly good investment in this current economic climate, so it would appear that the purchasers of that property have done very well.
It was not disputed that the Wife only found out about the sale of the investment property on the day of the hearing. Her counsel pointed out that if the Husband chose to accept such a low price for that property, he should bear the loss. Because he did not inform her of his intention to sell that property, she was deprived of the opportunity of having that property transferred to her rather than having it sold.
Weighing up all these arguments, I come to the conclusion that the Husband has undersold the investment property and that an appropriate value to take into account for the purpose of these proceedings is $43,000.00.
In relation to the debt repaid by the parties’ eldest child, it seems clear that after separation the eldest child repaid the sum of $3,500.00 to the Wife. It is agreed that she discharged a debt of the marriage to a credit card company in the sum of $1,890.00. The Husband seeks to have the balance of $1,610.00 brought into account on the basis that the Wife retained it for her benefit.
The Wife’s evidence was that the second eldest child, who was an AFS student in Germany for a period, incurred a debt while she was there. The Husband accepted that she was an exchange student while she was still at school and he believed that she incurred expenses but they were out of his control.
In my view, the debt repaid by the parties’ eldest son was used entirely to discharge debts that should have properly been paid by the parties, so I have not taken into account the sum received from their eldest son or those liabilities that were discharged by the Wife.
It is clear that the major issue between the parties is the manner in which I should deal with a sum of money that was placed by the Husband in a roll-over fund with the Commonwealth Bank as a result of an eligible termination payment that he received from Australian Paper Manufacturers in 1994. The Husband commenced work with that company in February, 1973 and he finished work in 1994.
I was not provided with any details of the eligible termination payment that he received from Australian Paper Manufacturers, but his unchallenged evidence is that he placed that payment into a roll-over fund of the Commonwealth Bank. Some of those funds are preserved pursuant to current superannuation legislative requirements. However, the bulk of those funds are not preserved and the Husband can gain access to those funds at will. Indeed, it is quite clear that the Husband has made an application in the past for $4,000.00 from the non-preserved component of that fund. I shall deal with that particular $4,000.00 later in these reasons.
The Husband’s unchallenged evidence is that he placed the entirety of his eligible termination payment from Australian Paper Manufacturers into a Commonwealth Bank roll-over fund in 1994. Further, his unchallenged evidence is that on 2 August 2001 he was informed that the gross value of the investment was $136,517.84 and that the non-preserved component of that investment was $107,453.97.
It follows that he has $29,064.00 as a preserved component of superannuation in that Commonwealth Bank roll-over fund.
It also follows that he can immediately require the Commonwealth Bank to pay him $107,454.00 (to the nearest dollar). The Husband’s unchallenged evidence is that if he did withdraw that sum, he would have to pay $14,730.00 in additional tax. It is clear, therefore, that the net value of the non-preserved component of his roll-over fund is $92,724.00.
The Husband’s evidence is that if he withdraws money from the fund, the funds withdrawn will be treated as income, and will therefore have an effect on his Family Tax Benefit. However, I have no evidence of the quantum of this effect, so I cannot take it into account. Notwithstanding this, I doubt that it would be very significant, in any event.
Because the Husband commenced his employment with Australian Paper Manufacturers in 1973 and the parties did not marry until 1978, the Husband’s counsel suggested that the non-preserved component of his superannuation should be treated according to the formula in West & Green (1993)FLC 92-395. In that case the parties were married for twenty years. The Husband had entered into a superannuation scheme prior to marriage and remained in the scheme throughout the marriage. At the date of hearing the Husband had a potential for another fifteen years service as an engineer before compulsory retirement at age 65 years. Further, it was common ground between the parties at the hearing that the Court should fix the Wife’s entitlement at that time with the same to vest upon the Husband’s retirement. The presiding Judge held that both parties had worked throughout the course of their marriage and contributions throughout the marriage should be treated as equal. He saw no reason for deviating from that division when determining the Wife’s entitlement to superannuation.
In this particular case, the Wife’s counsel pointed out that the Husband’s pre-marital contribution to his eligible termination payment from Australian Paper Manufacturers was such that West & Green should not apply to such a contribution.
It is perfectly clear to me that the Husband’s reliance upon West & Green is ill-conceived. That case applied to a future expectation of superannuation benefits. This case is dealing with a quantifiable and available fund of money.
In 1979 the Full Court of the Family Court of Australia decided in Crapp & Crapp (1979) FLC 90-615 that there was a significant distinction between “property” and “financial resources”. That decision has had significant ramifications in family law ever since it was published.
In this particular case, it is quite clear to me that, because the Husband can immediately withdraw funds from the non-preserved component of his Commonwealth Bank roll-over fund, the non-preserved component is property for the purposes of Section 79 of the Family Law Act 1975. On the other hand, the preserved component is clearly a financial resource of the Husband.
It follows, that if the non-preserved component of his Commonwealth Bank roll-over fund is property, any notional income tax liability should also be taken into account.
As mentioned above, the Husband has already withdrawn $4,000.00 from his non-preserved Commonwealth Bank roll-over fund. The evidence is that he retained $3,000.00 for his benefit and he paid $1,000.00 to the Wife for a computer upgrade. The Wife’s counsel attempted to convince me, without the benefit of any particular evidence, that I should find that the sum of $1,000.00 was applied to the benefit of the children. Without evidence I cannot do that.

Property pool

Given what I have said above, and what was clearly agreed between the parties at the time that this matter came to hearing, the property for division is as follows:
Net proceeds of sale from former matrimonial home............. $50,363.00
Investment property.................................................................... $43,000.00
Husband’s car............................................................................. $10,000.00
Wife’s car.................................................................................... $10,000.00
Husband’s furniture and effects................................................... $4,860.00
Wife’s furniture and effects.......................................................... $3,110.00
Husband’s AXA shares................................................................ $1,634.00
Husband’s AMP shares............................................................... $5,615.00
Bank account at separation......................................................... $8,000.00
Proceeds National Mutual policies........................................... $10,802.00
Wife’s bank account at separation................................................. $840.00
Commonwealth Bank non-preserved fund............................ $107,454.00
Withdrawal from non-preserved fund.......................................... $4,000.00
Total: $259,678.00
The liabilities to be taken into account are:
Household debts at separation…………………. ……………….$764.00
Notional tax on roll-over fund…………………………………$14,730.00
Total: $15,494.00
The total notional value of the property pool for division is $244,184.00.
As mentioned above, counsel for the Husband attempted to persuade me to deal with the non-preserved component of the Commonwealth Bank roll-over fund on the basis of the formula in West & Green. I have rejected that. It follows that I must therefore consider how I deal with the contributions that the Husband made to his eligible termination payment prior to the marriage. He commenced work with Australian Paper Manufacturers in 1973 and the parties were married in 1978. However, I have no evidence of how much the Husband contributed to any superannuation component of his eventual payment, or how that eligible termination payment was made up. Consequently, I must only have a vague notion that he contributed something towards the component prior to the marriage.
I am therefore left with an unspecified contribution prior to the marriage. However, I consider that I am safe in assuming that at age twenty two years, the Husband was a relatively junior employee when he started with Australian Paper Manufacturers. If that is correct, I can also assume that his pay was relatively low and that his contributions to any future superannuation were also low. Notwithstanding this, his contributions were clearly a contribution prior to the marriage. However, it was a marriage of twenty one years, and it has been held that the initial contributions by one party may be eroded by time.
In Money & Money (1994) FLC 92-485 Fogarty J disagreed with the approach of his fellow Judge, Lindenmayer J, when he said that “an initial substantial 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 Bremner &Bremner (1995) FLC 92-560 the Full Court of the Family Court of Australia agreed with the reasoning of Fogarty J.
It seems to me therefore, that if a substantial contribution by one party can be eroded over time, a minor contribution should be ignored.
In all other respects, the parties agreed that their contributions were equal.

Section 75(2) factors

It follows that if the contribution aspects are equal, the parties property should be divided equally. However, there are some factors under Section 75(2) of the Family Law Act 1975 that I must consider.
It is clear that the Wife has the responsibility for the care of the three of the children of the marriage. The eldest child in her care, (the second eldest of the marriage) is over the age of eighteen years. However, she is a full-time university student in receipt of an income from the Commonwealth Government in the sum of $99.00 per week. The wife’s unchallenged evidence is that the sum of $99.00 per week is used for many of that child’s needs. However, the Wife is required to supplement that child’s financial support.
It is quite clear that while the Wife may not have a duty to maintain C pursuant to part (b) of subsection (2) of Section 75 of the Family Law Act 1975, she has clearly assumed a responsibility to support C pursuant to part (e).

While I have no evidence of how much it costs to support C, I am of the view that the Lovering and Lee tables can assist me in relation to the costs of supporting a teenager.
The Wife clearly is primarily responsible for the support of the youngest two children of the marriage. As mentioned above, A is sixteen years of age and A is aged thirteen years. The Husband is currently paying less than $30.00 per week child support for each of them. The tables to which I have referred above show me clearly that the Husband is contributing an insignificant proportion of the costs of their care.
I note from the Husband’s affidavit material that his taxable income for the year ended 30 June 2001 should be $47,542.00. I calculate that on the basis of that income, his child support payments for A and A should be in the vicinity of $185.00 per week (and not the sum of $63.00 per week that he claims to be currently paying). Even if he were to be given full credit for making child support payments to his stepchildren, I calculate that he should still be paying more than $125.00 per week for A and A.
Notwithstanding this, the Husband’s Financial Statement says that he is paying $63.00 per week and the Wife’s Financial Statement says that he is paying $57.69 per week. Because there was no cross-examination on this particular point, I cannot say which is correct. I can only say that the Husband is contributing significantly less than his share.
The Wife’s evidence is that she previously held qualifications as a nurse. However, those qualifications “became redundant many years ago”. The stipulation is that a nurse’s registration is cancelled if that person does not work for a five year period. The Wife has not worked since 1979 and she says that she would be required to “virtually start from scratch”.
She was cross-examined about that and she agreed that she could upgrade her qualifications by enrolling in a course at the University of NE in A, where she lives. Notwithstanding this, I accept that while she has the care and control of two children of the marriage who have not obtained the age of eighteen years, it may not be immediately appropriate for her to engage in a course to renew her nursing qualifications. I also accept that it may be particularly daunting for any person to return to a profession that she left twenty two years ago.
Pursuant to part (b) of subsection (2) of Section 75, I am required to take into account “the income, property and financial resources of each of the parties”. In this regard, the Husband clearly has a better income than the Wife and given his past income, I am of the view that he has the potential to earn a better income than he is currently earning. He also has financial resources that are not available to the Wife. In this regard, he has superannuation with the Connect Superannuation Plan for Electrical Contractors and Related Industries with a balance of over $18,000.00 as at 26 March 2001. He also had $3,000.00 in the BT Superannuation Fund and the preserved component of his Commonwealth Bank roll-over fund in the vicinity of $29,000.00. This gives him a current superannuation entitlement of approximately $50,000.00. I fully appreciate that he has no ability to call on these funds at this time. However, that figure assumes some significance in comparison with the Wife’s AMP Superannuation entitlement of $200.00.
Counsel for the Wife drew my attention to the fact that the Husband had the benefit of residing in the former matrimonial home after separation and that he also had the benefit of the positive income stream from the investment property after the mortgage was paid off upon the sale of the former matrimonial home. These are clearly factors that I must take into account pursuant to subsection (2) of Section 75.
Counsel for the Wife submitted that if I were to weigh up all the Section 75 (2) factors listed above, I could easily come to the conclusion that, if the parties’ contributions are equal, I should make an adjustment of 35% in favour of the Wife, thereby giving her an entitlement to 85% of the property pool. I agree, but the Wife is only seeking 75% of the property pool and it is clear to me that she has the opportunity to seek some form of review of the Child Support being paid by a husband to rectify the dismal sum being paid by him at present. I am therefore not prepared to make orders that give her any more than the 75% that she is seeking.

Property pool

As stated at paragraph 45 above, the notional net value of the property pool is $244,184.00. The Wife should receive 75% of that, which is $183,138.00.
The Wife has already receiving the following:
The proceeds of the former matrimonial home…………….$50,363.00
Her car …………………………………………………………$10,000.00
Her furniture and effects……………………………………….$3,110.00
Her share of the bank account at separation………………..$1,000.00
Her bank account at separation ………………………………...$840.00
Share of roll-over withdrawal ………………………………….$1,000.00
Total: $66,313.00
It follows that the Wife should receive $116,825.00 if she is to receive her property entitlement. I shall therefore make appropriate Orders to give effect to that.

I certify that the preceding sixty-five paragraphs (65) paragraphs are a true copy of the reasons for judgment of Roberts FM

Associate:

Date:

[2001] FMCAfam 117

8 October 2001