Larkins and Pullman
[2009] FMCAfam 628
•3 July 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| LARKINS & PULLMAN | [2009] FMCAfam 628 |
| FAMILY LAW – Property settlement – legal principles to be applied. |
| Family Law Rules 2004, r.24.01 Family Law Act 1975, ss.75(2) & 79 |
| Hickey & Hickey & Attorney-General for the Commonwealth of Australia (Intervenor) (2003) FLC 93-143 Rosati & Rosati [1998] FamCA 38 NHC & RCH(2004) FLC 93-204 |
| Applicant: | MS LARKINS |
| Respondent: | MR PULLMAN |
| File Number: | ADC 514 of 2007 |
| Judgment of: | Cole FM |
| Hearing dates: | 24 February & 6 March 2009 |
| Date of Last Submission: | 24 April 2009 (by written submission) |
| Delivered at: | Adelaide |
| Delivered on: | 3 July 2009 |
REPRESENTATION
| Counsel for the Applicant: | Ms Dickson |
| Solicitors for the Applicant: | Ann Josephson Lawyers |
| Counsel for the Respondent: | Mr Jordan |
| Solicitors for the Respondent: | Howe Martin & Associates |
ORDERS
The husband within sixty (60) days of the date of this Order pay to the wife the sum of FOUR HUNDRED AND EIGHTY SEVEN THOUSAND NINE HUNDRED AND SEVENTY SEVEN DOLLARS ($487,977.00).
Upon receipt of the sum referred to in paragraph 1 of this Order by the wife, each party retain the assets in their current possession, power or control and indemnify the other and keep them indemnified in respect of any liabilities arising therefrom.
The husband pay the wife’s costs thrown away for the hearing on 6 March 2009 fixed in the sum of ONE THOUSAND TWO HUNDRED AND FIFTY DOLLARS ($1,250.00) plus GST.
There be liberty to the parties to apply to re-list this matter for argument on the issue of the costs of these proceedings.
All extant proceedings do otherwise stand dismissed.
IT IS NOTED that publication of this judgment under the pseudonym Larkins & Pullman is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
ADELAIDE
ADC 514 of 2007
| MS LARKINS |
Applicant
And
| MR PULLMAN |
Respondent
REASONS FOR JUDGMENT
Introduction
This matter concerns the applications of the parties for orders for, amongst other things, the division of the matrimonial assets.
Proceedings were commenced by the wife on 10 August 2007, with the husband filing his Response on 24 September 2007. The matter eventually came on for trial before me on 24 February 2009 and concluded on 6 March 2009, with written submissions being filed by the husband on 22 April 2009 pursuant to an administrative extension of time and by the wife on 24 April 2009.
Background
The parties married [in] 1992 and separated some twelve years later on 15 October 2004.
They divorced on 12 August 2006.
The wife was born [in] 1960 and is aged 49 this year. The husband was born [in] 1956 and is aged 53 this year.
There are two children of the marriage, namely [X] born [in] 1996 and [Y] born [in] 1998. [X] is thirteen this year and [Y] is eleven. Proceedings were resolved regarding the parenting arrangements for the children when orders were made on 9 February 2006.
Those parenting orders were subsequently amended in 2007, although the basic format remained the same, namely that during the school term the children live with the wife and spend time with the husband each alternate weekend from the conclusion of school on Friday until the commencement of school on Monday and in each intervening week from the conclusion of school on Thursday until the commencement of school on Friday. The school holidays are shared. The wife is the primary caregiver.
History
At the commencement of co-habitation it is agreed that the husband had the following assets (although there is no agreement as to value and no independent evidence of value):
a)Property D;
b)a vacant block of land at Property P;
c)two units in Brisbane; and
d)investment debentures (some of which the husband says had been purchased with the $150,000 he alleges was lent to him by his father).
The husband also claims a liability of $150,000, being money lent to him by his father on 27 January 1991. This will be discussed later in these Reasons.
The wife had $14,000 in savings (which is agreed).
The parties married in Adelaide, moving immediately to reside in Perth where the husband was working. The husband was employed [in the Engineering Industry] and the wife obtained a job with an [company omitted].
In 1993, the husband’s father died and the husband inherited his entire estate, including his parents’ house. The husband subsequently transferred his parents’ house to his mother for no consideration.
The wife worked until the parties’ first child [X] was born [in] 1996.
In March 1997, the husband and the wife returned to South Australia.
On 13 March 1998, the wife transferred a portion of her shares in [Mr Larkins] & Sons Limited (UK) (her family’s business) (“the Company”) to her brothers (reducing her shareholding from 25 per cent to 17 per cent). The value of that 8 per cent of the company shares that was transferred to her brothers remains in dispute (and how it should be treated).
On 19 March 1998, the parties’ son [Y] was born. There is no dispute that both children were conceived with the assistance of the IVF program which was paid for by the wife.
In 2000, the husband ceased employment and commenced working from home [in the Financial Industry], primarily he says for health reasons. At around this time the wife started receiving dividends from the family business in the UK.
It is not apparent how much the husband made from his activities [in the Financial Industry]. His evidence was, however, that in addition to paying the rates and taxes in respect of the properties, he contributed $200 per week to the household expenses. The rest, it appears, came from the wife’s income.
In June 2003, the wife returned to work.
On 14 or 15 October 2004, the parties separated.
These proceedings were initiated on 10 August 2007. The matter came to trial in 2009.
The children have remained in the primary care of the wife post-separation, with the husband spending regular time with them.
From late October until December 2004, it is the husband’s evidence that he paid child support until the wife’s income was re-assessed by the Child Support Agency (“the Agency”). That income was then found to be greater than the husband’s earnings and she was required to pay child support to the husband.
This arrangement was terminated after the wife took issue with it (having filed appeals with the Agency on three separate occasions).
The husband says that he continues to support the children and contributes to their care. He pays for [Y]’s school fees, music and instruments as well as sporting commitments. He pays [X]’s school fees and her music instruments. He also has a significant involvement in the children’s school.
At the date of trial the husband was not paying child support but was contributing to the children’s expenses.
The husband has retained most of the assets held by him at the date of the commencement of co-habitation. He continues to reside in the former matrimonial home and continues to work [in the Financial Industry].
The wife and children reside in rental accommodation and the wife works part-time [in the field of Office Administration].
Documents relied upon by the parties
The wife relies on:
a)her Application filed on 10 August 2007;
b)her Trial Affidavit filed on 28 May 2008;
c)her further Trial Affidavit filed on 8 December 2008;
d)her Financial Statement filed on 8 December 2008; and
e)the Affidavit filed by Ms J on 16 January 2009, in its three volumes, containing the reports obtained for the valuation of the wife’s interest in the Larkins family business together with copies of the Articles of Association and other relevant documents relied upon in support of those valuations.
The husband relies on:
a)his Response filed on 24 September 2007;
b)his Affidavit filed on 26 May 2008;
c)his Affidavit filed on 3 December 2008;
d)his Financial Statement filed on 3 December 2008; and
e)the Affidavit of Mr D filed on 9 December 2008.
The parties also admitted by consent the folder prepared by Mr H containing the joint statement of Mr H ([company omitted]) and Mr C ([company omitted]) in respect of the valuation of the Company.
Also admitted was the response of Mr H annexed to the Affidavit of Ms J filed on 25 March 2009 responding to the evidence and in particular the comparative table of Mr C.
In addition, there was a document filed pursuant to Rule 24.01(1)(h) of the Family Law Rules 2004 setting out a Joint Balance Sheet detailing the Assets and Liabilities of the parties.
The husband disputes the valuations of the wife’s interest in the Company by Mr C (his witness) and Mr H. He also sought to rely on his evidence of value of the wife’s United Kingdom pension. He did not seek to produce any further expert evidence to rebut that presented to the Court by his expert (with whom he did not agree) and that of the wife.
The law
In determining what order should be made for the division of the matrimonial assets I am required to take an approach that involves four inter-related steps, namely to:
a)identify and value the property, liabilities and financial resources of the parties at the date of the hearing (“the Asset Pool”);
b)identify and assess the contributions of the parties within the meaning of s.79(4)(a), (b) and (c) of the Family Law Act 1975 (“the Act”) and determine the contribution-based entitlements of the parties expressed as a percentage of the net value of the property of the parties (“Contributions”);
c)identify and assess the relevant matters referred to in s.79(4)(d), (e), (f) and (g), including the matters referred to in s.75(2) of the Act 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 2 (“Financial Resources and Needs”); and
d)consider the effect of these findings and determinations and resolve what order is just and equitable in all the circumstances of the case.
(see Hickey & Hickey & Attorney-General for the Commonwealth of Australia (Intervenor) (2003) FLC 93-143).
I will now consider those matters.
The asset pool
The parties presented a joint balance sheet showing the items in the matrimonial asset pool that are agreed, a copy of which is set out below:
| ASSET | WIFE | HUSBAND | VARIANCE |
| Property D (H) | $520,000 | $520,000 | Agreed |
| Vacant land at Property P (H)(the average of three appraisals) | $78,500 | $78,500 | Agreed |
| Property L, Qld | $135,000 | $135,000 | Agreed |
| Property B, Qld | $125,000 | $125,000 | Agreed |
| [Pullman] Enterprises P/L (NAB account at separation) | $348,059 | $348,059 | Agreed |
| Husband’s savings at separation (NAB) | $258,271 | $258,271 | Agreed |
| Wife’s savings at separation (BSA) | $39,800 | $39,800 | Agreed |
| Wife’s savings at separation (CBA) | $5,700 | $5,700 | Agreed |
| Wife’s savings at separation (ANZ) | $1,600 | $1,600 | Agreed |
| Wife’s 1200 Telstra shares @ $3.75 (23/2/09) | $4,500 | $4,500 | Agreed |
| Wife’s 396 News Corp shares @ $10.32 (23/2/09) | $3,940 | $3,940 | Agreed |
| Proceeds of sale of wife’s 122 News Corp shares | Delete | Delete | Delete |
| Wife’s 114 [Larkins] Banking Group shares | $130 | $130 | Agreed |
| Wife’s interest in [Mr Larkins] & Sons Ltd | $119,500 - $149,300 | $213,300 - $243,700 | Disputed (husband disputes both experts) |
| Wife’s interest in [S] & Sons Ltd | $7,900 | $7,900 | Agreed |
| Proceeds of sale of wife’s Toyota Camry | $3,500 | $3,500 | Agreed |
| Husband’s Honda motor vehicle | $1,500 | $1,500 | Agreed |
| Husband’s furniture and effects | $2,000 | $2,000 | Agreed |
| Wife’s furniture and effects (acquired post separation) | $2,000 | $2,000 | Agreed |
| Husband’s Australian Super (as at 30/6/04) | $80,383 | $80,383 | Agreed |
| Husband’s Australian Super (as at 30/1/09) | $87,610 | $87,610 | Agreed |
| Wife’s Super SA (as at 30/6/05) | $3,314 | $3,314 | Agreed |
| Wife’s Super SA (as at 30/6/08) | $13,549 | $13,549 | Agreed |
| Wife’s Statewide Superannuation Trust (as at 30/6/04) | $1,294 | $1,294 | Agreed |
| Wife’s Statewide Superannuation Trust (as at 30/6/08) | Nil | Nil | Agreed |
| Wife’s C/W Super Select (as at 30/6/04) | $3,342 | $3,342 | Agreed |
| Wife’s C/W Super Select (as at 30/6/08) | $5,740 | $5,740 | Agreed |
| Capital value of wife’s UK pension | Nil | $110,000 | No independent evidence |
| Wife’s C/W Financial Services account (current balance) | $34,701 | $34,701 | Agreed |
| ADDBACKS | WIFE | HUSBAND | VARIANCE |
| Wife’s disposition of 8% of the shares in [Mr Larkins] & Sons Ltd | NK | $114,682 | Not agreed |
| Legal and accounting fees | NK | $44,460 (to 23/2/09) | Not agreed yet |
| LIABILITIES | WIFE | HUSBAND | VARIANCE |
| Queensland mortgages | $68,141 | $68,141 | Agreed |
| Capital Gains Tax on property sold to meet settlement | NK | NK | NK |
| Husband’s loan from his mother | Nil | $209,000 | Not agreed |
It is apparent from this that the main points of issue are:
a)the value of the wife’s interest in the Company;
b)the capital value of the wife’s UK pension;
c)the husband’s “loan” from his father;
d)the wife’s disposition of 8 per cent of the shares in the Company to her brothers; and
e)the legal and accounting fees in relation to these proceedings.
In addition, the wife submits:
a)her furniture and effects acquired post-separation should be excluded; and
b)the Commonwealth Bank Financial Services account, which holds the money received from the Family Trust for the child [X] (and which she says is now held for both children), should also be excluded.
[Mr Larkins] & Sons Limited
Reports were filed by Mr H, on behalf of the wife, and Mr C setting out their respective opinions in respect of the value of the wife’s interest in the Company. A joint report was subsequently filed by Mr H and Mr C identifying the areas of agreement and those that remain in issue.
The wife accepted and put forward the report of Mr H as evidence of the value of her interest. The husband, whilst putting forward the evidence of Mr C, did not accept his opinion and urged the Court to consider this matter on the basis of a net tangible asset valuation.
Joint statement of experts
The joint statement showed that the experts agreed on the appropriate method of valuing the wife’s shareholding but they could not agree on the following:
a)the appropriate dividend capitalisation rate; and
b)the appropriateness of an allowance for income tax on the dividend received.
The range of valuations of the interest of the wife in the Company, expressed in Australian dollars with a rate of exchange at $0.46 to the pound, was:
Expert
High Value
Low Value
Mr H
$149,300
$119,500
Mr C
$243,700
$213,300
From the joint statement submitted by the parties’ experts it can be noted that, inter alia:
a)the wife has 3,400 shares or 17 per cent of the issued shares in the Company - the remaining shareholders are family members;
b)no single shareholder has a controlling interest in the Company;
c)the Company receives its income from:
i)ground rents for the freehold properties held by it;
ii)interest received on its cash reserves; and
iii)the sale of freehold ground rents;
d)the wife holds a minority shareholding in the Company and is not able to unilaterally obtain access to the Company’s underlying assets;
e)it is agreed that the proper basis of the valuation of the wife’s shares in the Company should be based on the present value of the risk-adjusted estimated cash flows that the wife will receive from her shareholding in the Company;
f)
it is agreed that on the basis of the directors’ actions over the past three years and the correspondence dated 1 July 2007 and
11 February 2008 that the Company appears to be controlled by Mr L (one of the wife’s brothers);
g)
it is likely that the Company will continue to pay dividends of
3 pounds per share for the foreseeable future;
h)the most appropriate valuation method to apply in valuing a minority interest in a private company that is likely to pay annual dividends of an equal amount for the foreseeable future is by the process known as ‘the capitalisation of estimated future dividends’;
i)it is agreed that having regard to Mr L’s apparent intentions and in the absence of a change in the Company’s directors or in Mr L’s actions concerning the timing and extent of further dividends, valuing the wife’s shares by capitalisation of estimated future dividends is appropriate;
j)Mr H considered that a comparable listed company dividend yield would be in the order of 8 to 10 per cent but should be increased by 30 per cent to 10.4 per cent or 13 per cent to allow for the relative illiquidity of the wife’s minority shareholding in the Company;
k)Mr C considered that a premium of 30 per cent above a comparable listed company dividend yield is reasonable but considers that:
i)the listed companies referred to in the report for comparison are in substance incomparable with the Company; and
ii)the higher end of the starting yields of 10 per cent adopted by Mr H is too high;
l)it is agreed that the wife is an Australian resident and on that basis the dividends received by her from the Company should form part of her taxable income in Australia - it is agreed that if the wife’s taxable income is in the range of between $34,000 and $80,000 her personal marginal rate will be 30 per cent;
m)Mr H considers it is appropriate to reduce the estimated future dividend per share by 30 per cent to allow for the income tax that the wife is likely to pay on the dividends received in her personal tax return; and
n)Mr C considers that no such allowance is necessary because:
i)the range of rates of return upon which the capitalised sum is based are effectively after-tax rates of return and therefore income tax on the dividends that are likely to be received has already been taken into account and to make a further allowance for income tax at the rate of 30 per cent is double counting the income tax effect; and
ii)income tax should only be taken into account in the manner contemplated in Rosati & Rosati [1998] FamCA 38 and to Mr C’s knowledge those circumstances do not exist in this matter at the present time.
Neither expert disputes that the value to be determined is the fair market value (defined as the price that would be negotiated in an open and unrestricted market between a knowledgeable and willing but not anxious purchaser and a knowledgeable and willing but not anxious vendor acting at arms length).
The husband attempted to challenge the reports of the experts without success.
He also sought to provide evidence himself of what the appropriate value should be. He is not an expert and the evidence in those circumstances can be given no weight.
With respect to the experts’ evidence I accept the joint recommendation that:
a)the appropriate method is capitalisation of estimated future dividends;
b)it is reasonable to estimate the future dividends per share at approximately $6.52 per share;
c)the Company has significant reserves of approximately 700,000 pounds;
d)the Company is engaged in low risk activity, receiving its income from ground rents, interest earned on the cash reserves and the sale of the freehold titles held by the Company; and
e)a discount should be applied for the wife’s minority share.
It is clear that save for the minority shareholding that the risk associated with this asset is low. As stated, the Company derives its income from the sale of some of the freehold titles from time to time, rent received from the remaining properties and interest received on its cash reserves.
There is the potential to increase the dividend to shareholders, however, the current strategy is to minimise the risk of the Company’s profits attracting a higher rate of tax.
There is no evidence to suggest that the dividend income stream should decrease, particularly in view of the Company’s significant cash reserves of some 700,000 pounds.
I have considered the evidence of the experts and their arguments in support of their opinion as to the appropriate capitalisation rate.
There is no evidence, other than the fact that the wife has a minority shareholding, to suggest this is a risky investment. She has not challenged Mr L’ control of the Company and in fact has not even asked for any variation in the Company’s policy of dividend distribution. Her evidence is that she has been a passive recipient and she has not challenged the Company’s direction nor does she complain that she has been treated unfairly as a shareholder.
I do not accept the submission that Mr C’s conclusion makes insufficient allowance for the risks associated with the minority shareholding of the wife and I accept his reference to the appropriate rate of return.
For these reasons it would be appropriate to adopt the capitalisation rates proposed by Mr C.
The next issue is then what allowance, if any, should be made for income tax on the dividend received. There is no dispute that the value is based on what the willing but not anxious purchaser would pay.
It is clear that the circumstances of the theoretical purchaser may vary.
Mr H says that tax at the rate of 30 per cent should be deducted before the capitalisation rate is applied.
Mr C says an allowance for tax is made when he nominates the capitalisation rate.
It is agreed that, in addition to the tax paid by the Company, there is additional tax to be paid on the income received in Australia without allowance for the tax already paid to the United Kingdom (UK).
The experts concede that the value of the shareholding if it was sold to a United Kingdom tax payer, where the income may be treated as a franked dividend, would be more although no value is provided. There is no reason to exclude the prospect of a purchaser from the United Kingdom.
If the approach of Mr H is adopted, it would follow that the Company would be worth less to a person on a higher tax rate (say 40 cents in the dollar) and would be worth more to someone on a lower tax rate (say 15 cents in the dollar).
It is not possible to say, however, what the tax structure for any theoretical “purchaser” in Australia will be and I therefore find the approach adopted by Mr C to be more appropriate in these circumstances.
In view of the fact that the Company is not engaging in any new business and appears to be confining itself to the management and sale of its existing assets with distribution of profits kept at the existing level solely for the purposes of minimising tax, I consider it appropriate that the higher value nominated by Mr C be adopted, namely $243,700.
Father’s loan
There is no dispute that some money was lent by the husband’s father to the husband prior to the date of the parties’ marriage, although it is not agreed that the debt remains. Those funds formed part of the savings/investments the husband held as at the commencement of co-habitation.
The husband relies on the handwritten note prepared by his father that is annexed to his Affidavit filed on 24 September 2007.
It is not disputed that when the husband’s father died in 1993 the husband inherited his entire estate.
The husband’s evidence was that, due to some issues being raised by the family, he subsequently transferred his parents’ home to his mother. He did not transfer any other item of the estate and it can be reasonably concluded that the loan was extinguished at the date of his father’s death when the husband inherited the entire estate.
Commonwealth Financial Services Account
The current balance of the Commonwealth Financial Services Account, which holds monies received by the wife on behalf of [X] from the Family Trust, is agreed at $34,701.
The source of the funds is not in general terms the subject of any dispute.
The funds came from the winding up of the [Mr Larkins] Trust. The distribution was made to the child [X] in 2000. The evidence of the wife is that the funds were received following a decision of the Trustees to pay out a cheque to the eldest grandchild in each family.
The Trust has been subsequently wound up. The funds were deposited into a Commonwealth Bank Account. The evidence of the wife is that those funds are now held on behalf of both children.
The husband argues that the wife’s treatment of those funds is sufficient to permit their inclusion in the asset pool. The wife, on the other hand, argues that the husband made no contribution to these monies and they should be accordingly excluded. Her evidence is that the monies are to be used to pay for the children’s education. There is no dispute that the funds were gifted to [X]. How they have been subsequently (and will be in the future) treated by the wife is something for [X] upon [X]’s coming of age.
In the meantime, I do not consider that these funds should form part of the matrimonial asset pool, although they are certainly a factor that can be brought to account under the provisions of s.75(2) of the Act.
Value of the wife’s UK pension
Save for the evidence of the husband, which cannot be accorded any weight as he is not an expert and does not purport to be, there is no evidence on which I can rely to assist me in determining that the wife’s UK pension should be regarded as an asset.
The husband’s Counsel in his written submissions concedes that there is no independent actuarial calculation before the Court and goes on to say at worst it could be said that the wife’s entitlement is a financial resource in her hands. I agree with this and accept the submission of the wife’s Counsel that this is a financial resource available to the wife on her reaching the eligible age.
The wife’s transfer of 8 per cent of the shares in [Mr Larkins] and Sons to her brothers
There seems to be no issue with the fact that the wife in 1998 transferred 8 per cent of her total shareholding in the Company to her brothers.
The wife’s evidence is that at the time she had no idea of the value of the shares. When her father died, her brothers Mr L and Mr M took over and built the company. They did all the hard work and as far as she and her sister Ms C were concerned, they deserved the shares and they were happy to hand them over.
The brothers asked for the transfer of the shares and the sisters were quite happy to hand them over because in the wife’s words:
… they did all the work. All we did was sit back and receive a dividend.
She cannot remember whether she discussed the transfer with her husband or not. Furthermore, she does not consider it appropriate to now seek some form of compensation or payment for the transfer made in 1998.
There is no evidence as to the financial position of the Company in 1998.
It is not possible to place a value on the shares transferred at that time or to calculate whether the transfer of the shares meant that the brothers worked that much harder to put the Company in its present sound, financial position. Furthermore, it is not appropriate on the evidence before me to pick the current value of the 8 per cent shareholding, were it to be added back.
In particular, however, there is no evidence to suggest that the wife disposed of those shares to reduce the value of the holding in the Company for the purposes of these proceedings. I accept her position that:
… they did all the hard work and, as far as myself and Ms C were concerned, that they deserved the shares and we were quite happy to hand them over.
I do not include the 8 per cent of the shareholding in the Company transferred by the wife to her brothers and find that it should not be added back into the asset pool.
In addition, I note that neither the husband nor the wife makes any mention of his voluntary disposition of the house he inherited to his mother. Both parties have therefore disposed of assets in the course of the relationship. It is not possible to find that either party did so in an attempt to reduce the asset pool available for distribution. It is not therefore appropriate to include either asset in the pool available for distribution.
Accounting costs
The wife seeks to add back her accounting costs incurred in the course of this litigation.
This does not address, in any substantive way, the submissions of the husband’s Counsel set out in Paragraph F on pages 5, 6, 7, 8, 9 and 10 of his written submissions.
In essence, he submits:
a)the wife has only responded following the agitation of the husband;
b)she has not assisted in the valuation of all of the companies; and
c)she has not produced documents or put information before the Court or filed any affidavit material from the directors, when such information would allow the further and better consideration of different valuation methodology.
I accept that it has been apparent from the beginning of this matter that one of the major issues would be the valuation of the wife’s minority shareholding in [Mr Larkins] and Sons.
I accept that this litigation has been delayed, due in some part to the difficulties encountered in obtaining information about the wife’s family’s business.
I have difficulty accepting that the wife could not apply some pressure to her family to provide proper disclosure of all relevant information early in the history of these proceedings.
I note that the trial listed for June 2008 had to be vacated to obtain further information regarding the Company and, indeed, on 2 September 2008 the husband had to file an interim application seeking an order for valuation of the freehold land and ground rents of the Company.
I also note that the report of the wife’s expert, for whom she now claims costs of in excess of $33,247, was not produced until 24 December 2008.
However, it is notable that the husband in his written submissions concedes the costs of both parties should be added back on the assumption that they are approximately equal. Although, the information I have does not show this to be the case.
It is not clear as to where these funds came from and whether they were in any way deducted from the agreed asset base which sets out the funds of the parties as at the date of separation.
The parties in agreeing the matrimonial asset pool have chosen to bring to account their savings as at the date of separation. To add back their costs now would be to increase the asset pool over and above what has been agreed, which is not appropriate. The parties in agreeing to take into account the saving at that date have effectively added back the costs that were subsequently incurred.
In so finding I have regard to the following extract from NHC & RCH (2004) FLC 93-204, where the Full Court summarised earlier Full Court authorities on the issue and said (at pp.79,322-3):
56. In summary, we consider that the above mentioned decisions of the Full Court establish that, while the treatment of funds used to pay legal costs remains ultimately a matter for the discretion of the trial Judge, in determining how to exercise that discretion, regard should be had to the source of the funds.
57.If the funds used existed at separation, and are such that both parties can be seen as having an interest in them (on account, for example, of contributions), then such funds should be added back as a notional asset of the party, who has had the benefit of them.
58. If funds used to pay legal fees have been generated by a party post-separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance), they would generally not be added back as a notional asset; nor would any borrowing undertaken by a party post-separation to pay legal fees be taken into account as a liability in the calculation of the net property of the parties. Funds generated from assets or businesses to which the other party had made a significant contribution or has an actual legal entitlement may need to be looked at differently from other post-separation income or acquisitions.
59. Outstanding legal fees themselves are generally not taken into account as a liability.
60. If in the exercise of the discretion, it is determined that legal fees already paid should be taken into account as a notional asset, then normally any liability associated with the acquisition of the monies used to pay the legal fees should also be taken into account.
Costs of hearing - 15 December 2008
For the reasons set out above, the history of this litigation has followed an extraordinary path to which some of the blame can be laid on the difficulty that has been encountered in obtaining information about and valuing the interests of the wife in the Company.
It is apparent the wife’s information was not available for this matter to proceed on 15 December 2008.
At the same time, the husband can be and is rightly subjected to criticism for his insistence that the matter proceed on that day, when it was clear that a significant valuation issue had yet to be resolved.
The parties are equally culpable in their own way and in the circumstances I do not propose to allow costs for the aborted hearing on 15 December 2008.
Costs of hearing - 6 March 2009
The husband’s Counsel readily conceded that he had not been provided with the report of 24 February 2009 by the time the matter had returned for trial on 6 March 2009. It is accepted that a half day was lost to enable Mr Jordan to read the report which should have been available to him.
In the circumstances I accept the wife’s submission that she should be awarded costs thrown away fixed in the sum of $1,250 plus GST for the need to adjourn the trial.
Wife’s superannuation benefit
The wife sought to have her superannuation valued as of the date of separation. It would appear from the written submissions that this claim was abandoned. The information available to me is the value of the wife’s superannuation as at 30 June 2008. No later information was supplied and the point is not taken by the husband. In the circumstances, I accept the value as it stands on the joint balance sheet for 30 June 2008 in view of the lack of available evidence of a more current value. Her post-separation contributions to her superannuation fund and any corresponding value increase can and should be reflected in any careful consideration of the contributions of the parties rather than treated in isolation as submitted by Counsel.
The wife’s furniture and effects
The wife’s furniture and effects have an agreed value of $2,000. There is no dispute they were acquired post-separation. The acquisition of the items has not made a corresponding reduction in the wife’s savings or the Asset Pool. It is appropriate they be excluded from the pool for division.
Capital Gains Tax
The husband in his Table of Assets and Liabilities included an item for Capital Gains Tax on the sale of his properties. There is no evidence before me that that he will sell the properties or, in the event that he did, how that should be calculated. The matter was not pressed by the husband and I have not included it in the pool.
The pool
I therefore find, for the reasons set out above, that the matrimonial asset pool is comprised of the following:
| ASSET | VALUE | VARIANCE |
| Property D (H) | $520,000 | Agreed |
| Vacant land at Property P (H)(the average of three appraisals) | $78,500 | Agreed |
| Property L, Qld | $135,000 | Agreed |
| Property B, Qld | $125,000 | Agreed |
| [Pullman] Enterprises P/L (NAB account at separation) | $348,059 | Agreed |
| Husband’s savings at separation (NAB) | $258,271 | Agreed |
| Wife’s savings at separation (BSA) | $39,800 | Agreed |
| Wife’s savings at separation (CBA) | $5,700 | Agreed |
| Wife’s savings at separation (ANZ) | $1,600 | Agreed |
| Wife’s 1200 Telstra shares @ $3.75 (23/2/09) | $4,500 | Agreed |
| Wife’s 396 News Corp shares @ $10.32 (23/2/09) | $3,940 | Agreed |
| Proceeds of sale of wife’s 122 News Corp shares | Deleted by Agreement | |
| Wife’s 114 [Larkins] Banking Group shares | $130 | Agreed |
| Wife’s interest in [Mr Larkins] & Sons Ltd | $243,700 | |
| Wife’s interest in [S] & Sons Ltd | $7,900 | Agreed |
| Proceeds of sale of wife’s Toyota Camry | $3,500 | Agreed |
| Husband’s Honda motor vehicle | $1,500 | Agreed |
| Husband’s furniture and effects | $2,000 | Agreed |
| Wife’s furniture and effects (acquired post separation) | Excluded | |
| Husband’s Australian Super (as at 30/1/09) | $87,610 | Agreed |
| Wife’s Super SA (as at 30/6/08) | $13,549 | Agreed |
| Wife’s Statewide Superannuation Trust (as at 30/6/08) | Nil | Agreed |
| Wife’s C/W Super Select (as at 30/6/08) | $5,740 | Agreed |
| Capital value of wife’s UK pension | N/A | Financial Resource |
| Wife’s C/W Financial Services account (current balance) | Financial Resource | |
| ADDBACKS | VALUE | VARIANCE |
| Wife’s disposition of 8% of the shares in [Mr Larkins] & Sons Ltd | Excluded | |
| Legal and accounting fees | Excluded | |
| TOTAL | $1,885,999 |
| LIABILITIES | WIFE | HUSBAND | VARIANCE |
| Queensland mortgages | $68,141 | $68,141 | Agreed |
| Capital Gains Tax on property sold to meet settlement | No evidence | ||
| Husband’s loan from his mother | Nil | Excluded |
| NETT | $1,817,858 |
Contributions
The evidence would support that the assets of the parties as at the commencement of co-habitation were as set out at paragraph 37 of these Reasons.
The husband also alleges that there was a liability to his father as evidenced by the handwritten note for $150,000.
The evidence is that the $150,000 is brought to account in the investments held by the husband as at the date of commencement of co-habitation.
I have subsequently found that the loan was extinguished when the husband inherited his father’s estate.
In the circumstances, the funds are brought to account as a contribution.
Throughout the course of the relationship, it would seem that:
a)the husband worked from the commencement of co-habitation until his retirement in 2000;
b)the wife worked until just prior to the birth of the parties’ daughter [X];
c)the husband on his evidence retired for health reasons, although he did not provide any expert evidence regarding his ongoing capacity to work;
d)his ongoing capacity to work is challenged by the wife;
e)the wife resumed employment in 2003;
f)the wife utilised her funds to pay for the IVF treatments which enabled the parties to have their two children;
g)subsequent to the husband’s retirement, the husband in addition to paying the rates and taxes for the properties contributed the sum of $200 per week to the parties’ household expenses which I find to be a minimal contribution to the household costs;
h)subsequent to the separation of the parties, the husband paid child support for approximately two months and then on a re-assessment of the parties’ respective incomes, the husband received child support from the wife (this was stopped on three occasions following an appeal);
i)the wife since separation has been the primary caregiver for the children;
j)the husband is currently not paying child support, however, is contributing towards some of the children’s expenses; and
k)the husband has remained residing in the former matrimonial home whilst the wife has been renting accommodation.
The wife concedes that there is no dispute that at the date of marriage the husband had a greater proportion of the assets. I accept this and find that the husband’s initial contribution was significant. The value of the assets at the commencement of the relationship is not admitted, however, I note that many of the assets held by the husband at the date of commencement of co-habitation remain in his possession. The current value of those assets has been agreed.
I also note, however, that the wife’s contribution throughout the period of the relationship, and in particular subsequent to the husband’s retirement from the workforce, was significant.
I note with concern the evidence confirmed by the husband in cross-examination that he contributed the sum of $200 to the weekly household expenses. This amount, initially for a family of three and then, subsequently after [Y] was born, a family of four, seems inadequate for the household expenses of a young family.
I also note with concern that there is no evidence to suggest that the husband did anything other than maintain the asset pool on his retirement as opposed to producing any significant income on which the family could rely on and utilise for their day-to-day commitments. There is nothing to suggest his efforts as a [occupation omitted] meant the family were able to enjoy a better standard of living.
I also note that the husband has continued to reside in the former matrimonial home whilst the wife has had to pay rent on the accommodation she has obtained for herself and the children.
On the basis of the above it is open to me and I find that the husband made the superior financial contribution to the acquisition, conservation and improvement of the matrimonial assets. It is also open to me and I find that the impact of that contribution was reduced by the husband’s subsequent actions in ceasing work and contributing what is best described as a modest amount to the ongoing household expenses.
I find that the parties’ non-financial contributions were equal whilst the wife’s contribution to the welfare and development of the family, due to, amongst other things, the roles the parties played in the marriage, was superior to that of the husband.
I also bring to account the events that occurred post-separation with the husband:
a)allowing a situation to arise where the primary caregiver was required to pay him child support; and
b)contributing to the children’s expenses, which in view of the assets retained by him, could be described as a “modest” child support contribution.
In the circumstances, and for the reasons set out above, I find the contributions of the parties to be 65 per cent to the husband and 35 per cent to the wife.
Financial resources and needs
There is no evidence to suggest that over and above his modest contributions referred to above the husband is intending to volunteer any periodic payment by way of child support for the children, who remain in the primary care of the wife.
There is no independent evidence that he is incapable of working and providing appropriate support for his children.
The husband’s evidence is that he trades in the name of his company, [Pullman] Enterprises, and in his own name.
He concedes that during the “tech boom” he sustained some significant losses. He further concedes that those losses are being carried forward in his name and in the name of [Pullman] Enterprises where appropriate. He concedes that this probably explains why his gross taxable income on which the child support would be assessed is somewhat low.
The husband concedes that the wife should be allowed a s.75(2) adjustment for the future care of the children. He argues, however, that the payment to the wife of a capital sum by way of a settlement of property would impact on his capacity to earn an income as a self-employed [occupation omitted]. However, he does not produce any evidence of that fact and there is no evidence, save for the husband’s, to suggest he cannot return to his former profession.
He concedes the s.75(2) adjustment should be 10 per cent. This appears to accord with the submissions of the wife.
The wife in her submissions for a 10 per cent adjustment submits that:
a)there is no evidence to suggest the husband has any ill health which prevents him from returning to paid remuneration should he wish to do so. I accept this submission;
b)the husband has had the control and use of the bulk of the matrimonial assets since the date of separation. The wife by contrast has been living in rental accommodation with the children. I accept this submission;
c)she has not been receiving any child support from the husband notwithstanding that she is the primary caregiver of the children. (It is conceded the husband contributes to the children’s expenses, by way of State school fees, levies and extra curricular activities). I accept this submission; and
d)the husband will receive, at some indefinite period in the future, an inheritance from his mother. There is no evidence of the terms and conditions of the mother’s will. The evidence is that his mother is ill and so is his sister. There is some likelihood that he may inherit, although it is not possible to draw any conclusion in respect of this matter.
Against this must be weighed the fact that the wife will continue to receive funds from the Company.
Furthermore, whilst the Company has been valued as per the recommendations of the experts, the evidence is clear that there is also the potential for the Company’s strategy regarding the distribution of capital and dividend to change. Should this occur, then the wife could access the funds currently locked away.
There is no evidence to suggest that the wife is an oppressed minority shareholder. There is no evidence to suggest that the wife has challenged Mr L, who appears to control the Company (although he does not have a controlling interest), to seek her share, particularly in view of her current circumstances. When asked about this her response was that it had never been discussed.
In addition, it is conceded that the wife is entitled to receive a UK pension when she is 65, which at current rates is 32 pounds per week or, at $0.46 to the pound, approximately $70 per week.
Finally, the wife has a fund of some $34,000, which was provided by the Family Trust for [X]. Her evidence is it is set aside for both children. Either way, it is there and available to defray the costs of the child or children and it is appropriate that it be brought to account.
It is on the basis of the above factors that I reach the conclusion that the appropriate adjustment to make, taking into account the factors set out in s.75(2) of the Act, is 10 per cent in favour of the wife.
The fourth step
I am required pursuant to s.79(2) of the Act to review the proposed distribution to ensure that justice and equity is achieved between the parties.
I have done that and I am satisfied that the proposed division of assets is just and equitable in all the circumstances.
Conclusion
This is a relationship of some twelve years. The assets brought into the relationship at the commencement of co-habitation by the husband were significant and are still, to a large degree, held by him.
The parties have two children, now aged thirteen and eleven years respectively.
The husband appeared to have a minimal concept of the financial burden of raising a family. Furthermore, his application for child support post-separation was extraordinary in all of the circumstances.
It is also appropriate that the significant interest held by the wife in the family company be brought to account.
Both parties in the course of these proceedings can be rightly the subject of criticism. The wife’s prompt provision of information in respect of her interest in the Company was clearly inadequate. Having said that, it is clear from the evidence of the experts that there was enough information on which to form an opinion as to the appropriate valuation method and that was not disturbed by the cross-examination of each witness.
The husband’s decision to challenge the evidence of both experts and to attempt to value the wife’s UK pension did not assist the resolution of these proceedings.
Neither party can be particularly proud of the fact that this is their second trial (the first being on children’s issues) and it is hoped that this concludes the matter.
For the reasons set out above, I find that the appropriate division of the net value of the matrimonial asset pool is 45 per cent to the wife and 55 per cent to the husband.
This means that I have calculated the wife’s entitlement to be as follows:
| Net Value of the Asset Pool | $1,817,858.00 | ||
| 45 per cent of the Asset Pool less assets retained by the wife, being: | $818,036.10 | ||
| a) Savings - Bank SA | $39,800 | ||
| b) Savings - Commonwealth Bank of Australia | $5,700 | ||
| c) Savings - ANZ | $11,600 | ||
| d) Telstra Shares | $4,500 | ||
| e) News Corp Shares | $3,940 | ||
| f) [Larkins] Shares | $130 | ||
| g) Interest in [Mr Larkins] & Sons Ltd | $243,000 | ||
| h) Interest in [S] & Sons | $7.900 | ||
| i) Proceeds of sale of Toyota | $3,500 | ||
| j) Super SA | $13,549 | ||
| k) Super Select | $ 5,740 | $330,059 | |
| Amount due to the wife | $487,977.10 | ||
| Rounded to: | $487,977.00 | ||
I will hear from the parties in respect of their submissions for costs.
I certify that the preceding one hundred and forty-seven (147) paragraphs are a true copy of the reasons for judgment of Cole FM
Associate: Ms N. Julius
Date: 3 July 2009
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