LEDARN & LEDARN

[2014] FamCA 866

FAMILY COURT OF AUSTRALIA

LEDARN & LEDARN [2014] FamCA 866

FAMILY LAW – PROPERTY – Division of assets

Family Law Act 1975 (Cth)

APPLICANT: Ms Ledarn

RESPONDENT: Mr Ledarn

FILE NUMBER: MLC 6423 of 2010

DATE DELIVERED: 14 October 2014

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Cronin J

HEARING DATE: By way of written submissions

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Geddes QC

SOLICITOR FOR THE APPLICANT: Taussig Cherrie Fildes

COUNSEL FOR THE RESPONDENT: Mr Mawson QC with Mr O'Shannessy

SOLICITOR FOR THE RESPONDENT: Aughtersons

Orders

1. That all outstanding applications are adjourned to Friday 17 October 2014 at 9.00am for the purposes of determining the drafting issues as between the parties.

2. That the drafting of the disputed minutes be prepared in terms of the reasons given this day.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Ledarn & Ledarn has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 6423 of 2010

Ms Ledarn

Applicant

And

Mr Ledarn

Respondent

REASONS FOR JUDGMENT

1. Arising out of orders made by the Court on 1 November 2013, the husband and the wife have requested specific determinations about four things. To understand how these issues remain alive and can be determined, an explanation of the background is necessary.

2. As a result of the way the parties litigated, the orders made on 1 November 2013 contained the following provisions:

   1.That the wife retain to the exclusion of the husband, the business known as the [Ledarn] Group.

   2.That the husband and wife sign all necessary documents to give effect to these orders.

   3.That the assets of the parties as defined in paragraph 115 of the reasons for judgment this day be divided as to the husband 57.4 percentage and as to the wife, 42.6 percentage.

   4.That the parties draw the minutes necessary to give effect to these orders.

3. Notwithstanding the aspirations of everyone for a quick resolution, it has taken almost a year for the parties to reach a position where there is agreement save for four matters upon which written submissions have been filed. It is based upon those submissions that I am making the determination.

4. Before doing so, but taking into account the orders at the commencement of these reasons, there are a small number of matters that require attention in respect of the draft that was sent electronically to the Court at 4.22 pm on 19 September 2014. They are as follows:

   (a) Paragraph 33 refers to s 104A. It is probably meant to be s 106A and the wording needs to coincide with the section as (for example) a transfer of land may not be recognised by the relevant Land Titles Office;

   (b)    Paragraph 33 should also have some sort of provision so that the registrar knows the basis upon which the default determination is to be made because otherwise, the matter needs to be heard as an application in open court;

   (c)    Paragraph 19 (leaving aside the determination further below) requires chattels to be returned to the husband within 14 or 60 days but there could be an inconsistency between the time in the order and the requirement to locate in (a), (e), (g) and (i). Does that paragraph mean that after the 14/60 days, if not located in that time, the husband forgoes the interest?

   (d)    Further in paragraph 19 (h) does that mean that notwithstanding the motor vehicle is in the possession of Ms Q Ledarn (“Q”), the wife can and will provide it within the 14/60 days?

   (e)    Further, paragraph 19 (j) refers to “any interest” in the Ledarn X Superannuation Fund. Is this a reference to the husband’s member account because paragraph 24 then requires the wife to transfer her in that fund. What (if anything) is to happen to the interest of Q?  Section 90MS limits the types of orders that the Court can make to splitting orders. It is unclear, but it may be obvious to the parties, where the power lies to make the orders as drafted in paragraphs 19 (j) and 24.  Paragraph 25 is a very clear example of the exercise of the power in relation to the other superannuation fund and there appears no difficulty there.

5. I turn then to the four issues which are:

   (a)There is a mortgage to be discharged on PP Property. The wife wants 2 years to do it whilst the husband wants it done in 60 days;

   (b)There is an agreement in relation to the return of chattels and the wife wants them delivered in 14 days whilst the husband wants 60 days;

   (c)There is a dispute over a Toyota motor vehicle and each party wishes to keep it;

   (d)There is a dispute about whether or not loans in the various entities which are called the Division 7A loans (a reference to Division 7A in the Income Tax Assessment Act 1936 (Cth)) should be the responsibility of the wife or divided on the percentages mentioned in paragraph 2 above.

6. Notwithstanding the impasse, the four determinations must be made on the basis of the jurisdiction and power of the Court to make the orders sought in the light of the evidence presented by the parties. In this case, I have the additional advantage of receiving significant written submissions from counsel including senior counsel for both parties.

The mortgage on PP Property

1. Counsel for the husband submitted that the determination of the asset pool had been known since November 2013 and the wife had had since then to prepare and make arrangements for the restructuring of her finances.

2. Counsel for the wife submitted that the wife did not have the capacity to borrow to discharge the loan in addition to all of the other commitments proposed under the orders. She proposed to pay the mortgage out from the sale of a real property which is where she currently resides. That residence however was described as a “substantial lifestyle” property and there was no guarantee of a sale within a short period. The wife’s proposal was that she would provide a second mortgage favouring the husband over her residence and she would repay or cause to be paid all principal and interest repayments on the loan encumbering PP Property pending the discharge of the mortgage.

3. It can be seen that the only issue of prejudice to the husband here lies in the fact that his residence would remain encumbered for up to 2 years because otherwise, there is no expense or cost to him. The husband’s position is that he says that the wife has had sufficient time to get her financial house in order. I accept that there has been a complicated process to reach this point and that the husband is clearly right that the wife has had much more time than that which has elapsed since the judgment in November 2013. Having said that, there is no evidence that the husband relies upon other than his desire to move on with his life. Nothing I have seen suggests that this is pressing or prejudicial to the interests of the husband.

4. Any order altering the interests of the parties must (because of s 79(2)) be just and equitable. In my view, making the husband wait up to two years to obtain an unencumbered property is still within the bounds of reasonableness taking into account the duration of the relationship during which all of these assets were acquired and the respective futures of the parties which were contemplated by the reasons delivered last November.  The forcing of an immediate discharge by the wife would potentially also bring down the intention of the determination made last November. I accept the wife’s position therefore on the basis that it is just and equitable to both parties.

The Toyota Motor Vehicle

1. This dispute is simply about who gets a vehicle.

2. As I understand the evidence, the vehicle actually belongs to the F Group through one of the entities.

3. The husband’s position was that it had been in his possession since separation and that it had no special attributes. He submitted that there would be a cash adjustment so the wife was not prejudiced.

4. The wife’s position was that it was valued in the F Group and it had unique features because it was a valuable research and development vehicle. The wife complained that whilst the husband had possession, that was because he had simply unilaterally taken it.

5. From a legal perspective, the legal and equitable interest appears to lie with the corporate entity. As I understand the evidence, the vehicle was valued as such as the property of the entity and the value is reflected in the assets list that appears at paragraph 115 of the reasons for judgment from November 2013.

6. Even though the company was (or is to be) joined as a party to the proceedings for the convenience of the parties, it is still an issue of whether it is just and equitable to make an order at all in respect of that property. I would be altering the interests of the entity rather than that of the husband and/or wife if I made the order sought by the husband.

7. In my view, as the vehicle was valued as part of the assets of the group and even allowing for an adjustment being offered by the husband, it would not be just and equitable to remove the vehicle from the company and give it to the husband. The wife’s position should therefore be accepted.

The timing of the adjustments

1. In respect of two paragraphs of the proposed minutes of “common orders”, the parties disputed whether the changeover should occur in 14 days or 60 days.

2. There is a sense of irony here where almost a year has gone by during which the parties have haggled over the best way for them to benefit from the settlement. They are reminded that I indicated that I wanted a quick resolution and that has not occurred. They are also reminded that the purpose of the November determination was to allow them to come up with the most efficacious solution to the division of their assets.

3. The wife observed that the time has elapsed and she wanted to finalise things yet she wanted delays in the area of the discharge of the mortgage.

4. The husband’s position was that there were a number of vehicles involved in the changeover and it was too cumbersome to do it all in 60 days.

5. It takes little imagination to understand that I am empathetic to the husband in respect of this issue having regard to the position that the wife has taken in respect of other things.

6. There is no science involved in this part of the exercise. In my view, discretion should favour the husband. He has the task of gathering together the vehicles and on that basis, a further delay is hardly unfair. I am also conscious that the questions I earlier raised may require redrafting or further submissions and that may also give the husband the time in any event.

7. In my view, it is just and equitable that the husband’s position be adopted on this point.

The Division 7A Loans

1. The husband seeks that the “Division 7A loans” be the responsibility of the wife and in turn, the wife seeks that they be divided in the same proportions as I set out in the November 2013 orders. The consequence of the order proposed by the wife would have significant taxation ramifications depending upon what each party did after the order was made.

2. The loans were referred to in the evidence in the trial. The valuer, Mr K, reported the details of the relevant loans based on information provided to him by the accountant for the businesses. He summarised the loans as relating to the houseboat, two properties at Town M, personal expenditure and money spent on the property at Town K. He made specific reference to the relevant entities through which these loans had been created in the books of account. The amounts involved were significant. Importantly, these loans were referred to as having been recorded in the wife’s name and I have inferred that was so because of the husband’s bankruptcy during the marriage at a time when there was a large amount of money owed to the Australian Taxation Office.

3. The “loans” did not affect the valuation because they were reflected in book entries.

4. The evidence of the wife’s accountant who had been the business accountant, was that if the Court made the order as sought by the wife under which she would retain the corporate structure, there would be no taxation consequences because the relevant entity would remain under the wife’s control. He had given evidence that if the husband’s position was accepted, transfers of property out of the private company would result in a deemed dividend.

5. The wife maintained throughout the trial (and indeed opened her case accordingly) that she wanted to retain the business and I made the determination that she could do so. As part of her proposed orders, the wife agreed that she would indemnify the husband against any liability arising from the particular entity that Mr K had referred to as being one of the entities that had made the loans.

6. It was submitted by the husband that the first time the wife had altered her position was after the November determination when she sought the adjustment of the loans on the proportional basis to which I have referred. It was submitted that despite everything that had been said and done in the trial, this position had not been mentioned.

7. It was therefore submitted that it would not be just and equitable to compel the husband to take a portion of a loan. There was (and it appears remains) significant dispute about what the correct figures would be anyway as the figures that were used in the trial related to the financial year ended 2012 and there has been significant movement since then.

8. It was submitted by the husband and I agree, it is not clear what would happen if the orders she proposed were made. The impact of such an alteration of the loans may be different for each party depending upon their capacity to absorb the loans and/or pay any tax.

9. The submission on behalf of the wife began by stating that the loan balances totalled approximately $5.8 million. It was submitted that the loan balances existed well before the trial and arose over the financial years between 2006/7 and 2008/9 and were used for the acquisition of the properties as I have mentioned. It was then submitted that these were liabilities of the parties and as such, should form part of “the assets and liabilities for adjustment”. For the reasons that follow, I reject that.

10. It was submitted that it was not appropriate to include the loan balances as an asset in one entity and exclude them as a liability in another entity.  The wife referred to the fact that at the date of the trial, the taxation returns had been lodged up until the 2011/12 financial year and as a consequence, “only the tax attributable to the repayment of the Division 7A Loan Balances up to 30 June 2012 were included in the Asset Pool”. I find that perplexing because of the way in which the wife conducted her case. More importantly, I have made findings about the assets that were to be divided.

11. In relation to taxation liabilities, I said the following in my reasons:

    ·(t)he wife has the dominant legal control of the major corporate bodies.  She has the dominant role in each of those entities.  That effects the “equity” that the parties have in their various assets because, if the assets were again restructured in favour of the husband, there would be significant tax.  So too, if there are assets to be transferred to the parties individually, tax consequences will be significant.  It may be that satisfying the orders I propose will require sales of real properties and even the business itself.  Each or any of those steps may have tax consequences (paragraph 27) (my emphasis).

    I discerned in paragraph 67 that taxation was a live issue but that was in the context of paragraph 27 of my reasons above.

    ·In paragraph 106, I said:

    It seems to me that the only solution to that problem is that I determine the entitlements of the parties on a percentage basis of an overall finding of their total assets and to the extent that the parties cannot quickly come up with a solution as to how that outcome is achieved bearing in mind that I shall make an order that the wife be entitled to retain the business through its structure, the various assets will be sold and no doubt, that will trigger the various taxation implications for the parties.

    ·In paragraph 117 I returned to the opportunity to ensure that the best taxation outcome was achieved for each party by saying:

    It was the position of senior counsel for the husband and I suspect supported by the wife that when ultimately a decision is made about how the assets should be divided, the respective accountants should be given an opportunity to work out a way of doing it most tax-effectively.  Having regard to the delay in delivery of these reasons, there are clearly mortgages that have moved as well as the crystallization of taxation liabilities.  Further adjustments may need to be made for what the parties have drawn in excess of their existing entitlements under orders.

    ·At paragraph 119 in the last sentence, I said:

    I again therefore propose to give the parties an opportunity to address the division of the assets in the most efficacious way.

    ·At paragraph 169, I referred to the most efficacious way of dividing the assets was by percentages.

12. In the excerpts just mentioned, it can be seen that I was dividing a known set of assets that would only alter if there were consequences arising from a sale. The wife’s position now is that it would be just and equitable to alter the loan accounts according to the percentages. That approach would not accord with what I said in paragraphs 27, 106, and 119 because I had already determined what was just and equitable and had given the parties an opportunity simply to divide the assets in the most efficacious way with the wife retaining the business. I have not heard anything that would suggest that the wife’s approach is efficacious. I am not satisfied that the wife’s approach is just and equitable.

13. As a side issue, I have also considered the question of whether the loans are property at all for the purposes of being altered under s 79 of the Act. The assets referred to in my reasons were, in reality, the equity in the entities. It was not suggested in the proceedings that the loans were an asset or a liability of the parties as individuals and I have not mentioned them in paragraph 115 of the reasons. The property in the entities lies in the value to the shareholders and in this case, the wife retains the entitlements and by virtue of the November determination, that will remain.

14. What now seems to be contemplated (because the outcome of any proposed order remains unclear) is a liability that might arise if the deemed dividend was assessed. I cannot accept that there would be any other reason why the loan balances would now be divided if it were not for the purposes of dealing with the tax issue.  The wife was aware of the possibility of the liability arising because she had the expert evidence and had offered the indemnity to the husband as part of her case on the basis that she retained the entity.

15. Thus, I accept the husband’s submission that this is a new position or proposal.

I certify that the preceding Thirty Nine (39) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 14 October 2014.

Associate: 

Date:  14 October 2014