Lisle and Lisle - [2008] FMCAfam 1466

FEDERAL MAGISTRATES COURT OF AUSTRALIA

LISLE & LISLE

[2008] FMCAfam 1466

FAMILY LAW – Property – add-backs – section 75(2) considerations – just and equitable order.

Family Law Act 1975, ss.75(2), 79

C v C (2005) FLC 93-220
Hickey & Hickey & Attorney-General of the Commonwealth of Australia (Intervener) (2003) FLC 93-143
AJO v GRO (2005) FLC 93-218

Applicant:

MR LISLE

Respondent:

MS LISLE

File Number:

SYC 31 of 2008

Judgment of:

Altobelli FM

Hearing date:

26 November 2008

Date of Last Submission:

26 November 2008

Delivered at:

Sydney

Delivered on:

27 November 2008

REPRESENTATION

Counsel for the Applicant:

Mr Thornberg

Counsel for the Respondent:

Mr Watkins

Solicitors for the Respondent:

Felicio Law Firm

ORDERS

That the Wife do all things and sign all documents to transfer to the husband within 30 days of the date of these Orders the property known as Property F, being Folio Identifier [1] and simultaneously with this transfer the Husband shall do all things and sign all documents to refinance the mortgage over that property into his name and indemnify the Wife in relation to any monies owing in relation to that property.
That simultaneously with Order (1) above the Husband shall pay to the Wife the sum of $100,000.
That the Wife shall retain her Kia motor vehicle having registration number [A] and her camper trailer and the wife shall indemnify and keep indemnified the husband in relation to any monies owing in relation to those motor vehicles.
That the Husband retain the caravan in his name having registration number [R] and indemnify and keep indemnified the wife in relation to any monies owing in relation to that vehicle.
That the Wife retain to the exclusion of the Husband any superannuation she holds in her name.
That for the purposes of these Orders, the Fund means the husband’s interest in the local Government Superannuation Scheme, Member number. [6] (the Fund”).
That the superannuation splitting Order shall have effect from the operative time being the fourth business day after the day on which a sealed copy of the Orders is served on the trustee of the Fund.
That having been accorded procedural fairness the superannuation splitting Order will bind the trustee of the Fund.
That pursuant to section 90MT(4) of the Family Law Act 1975 (“The Act”) the base amount of $23,000 of the husband’s interest in the Fund be allocated to the Wife and that pursuant to section 90MT(1)(a) whenever a splittable payment becomes payable in respect of that interest, the Wife is entitled to be paid the amount calculated in accordance with the Family Law (Superannuation) Regulations in respect of the base amount and that there be a corresponding reduction in the entitlement of the Husband.
That the parties do all things and sign all documents to close any joint account in their names and equally divide the balance of any such account.
That the parties otherwise retain to the exclusion of the other all other property and liabilities in their names and possessions.
That if either party fails to comply with any order contained herein, then the other party shall be at liberty to approach the Registrar of the Federal Magistrates Court in Sydney and the Registrar shall be authorised pursuant to section 106A of the Family Law Act to sign any documents on behalf of the defaulting party.
It is intended pursuant to section 81 of the Family Law Act of 1975 that these Orders are to finalise all property matters between the parties and to be signed by both parties.

IT IS NOTED that publication of this judgment under the pseudonym Lisle & Lisle is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYC 31 of 2008

MR LISLE

Applicant

And

MS LISLE

Respondent

REASONS FOR JUDGMENT

(Ex tempore)

Introduction and Background

This is an application for alteration of property interests under s.79 of the Family Law Act 1975 commonly known as an application for property settlement. The applicant husband is 42 years old and the respondent wife is nearly 40. They commenced cohabitation in 1999, married in November 1999, separated under the same roof in December 2006 and then physical separation took place in about April 2007 when the wife moved out of the home with the children and the husband remained in the home.
There are two children; [X] who is aged eight and [Y] who is nearly four. Yesterday I made consent orders in relation to the children and by way of summary and overview, there were final orders for [X] to live with her father and [Y] to live with her mother and interim orders that provide for no time for [X] to spend with her mother and for [Y] to spend, in effect, four out of 14 nights a fortnight plus about half the school holidays with the father. And I stress, that is just a summary overview of that.
The issues that are raised in the property settlement application are quite discrete. Firstly, there is an argument about add-backs in the context of the pool of assets though the pool of assets was otherwise agreed by the husband and wife. Secondly, there is an issue of s.75(2) considerations with the husband saying there should be a two per cent adjustment in his favour and the wife saying there should be a 15 per cent adjustment in her favour. Then there are issues that I describe as just and equitable issues going to the framing of the order. In this respect the husband and the wife have a slightly different approach in terms of methodology, with the husband saying that a percentage should be applied uniformly across both the superannuation and the non-superannuation pool, whereas the wife says that it should be 50/50 as regards the super and that the rest should be applied against the non-superannuation pool. I will embellish on that a little later on in my judgment. The husband and wife agreed that the contribution as at the date of the hearing should be assessed at 55 per cent in favour of the husband.
For the most part the proceedings were conducted in a very efficient and effective manner, with focussed cross-examination and submissions having regard to the issues that have been identified.
The applicable law in an application like this is of course contained in ss.79 and 75(2) of the Family Law Act. The Full Court in Hickey & Hickey & Attorney-General of the Commonwealth of Australia (Intervener) (2003) FLC 93-143 has prescribed a preferred method for dealing with these property settlements by reference to four inter-related steps.
a)Identify and value the property, liabilities and financial resources of the parties; and
b)Identify and assess the contributions of the parties and express them as a percentage of the net value of the property; and
c)Identify and assess the other facts relevant under s.79(4)(d)-(g) including s.75(2) and determine the adjustment (if any) to be made to the contribution entitlements at step two; and
d)Consider the effect of the above and resolve what order is just and equitable in all the circumstances.
The Full Court's decision in C & C (2005) FLC 93-220 describes the approach that can be adopted when a decision needs to be made about apportioning between superannuation and non-superannuation assets. Again, I incorporate into these my ex tempore reasons, paragraphs from that judgment that describe this process. By way of summary, I am given a considerable discretion as to how to ultimately apportion the property settlement as between the two different pools of assets or alternatively, to treat it as one pool of assets.
65.    In summary, then, the trial Judge has a discretion as to how superannuation interests will be treated in a particular case. If superannuation is not included in the list of property but rather made the subject of a separate pool, it will be necessary where a splitting order is sought, or extremely prudent where no such splitting order is sought (in order to ensure that justice and equity is achieved) to:
(a)     value the superannuation interest (according to the Regulations if an order under Part VIIIB is sought or according to the Regulations or otherwise if no order is sought);
(b)     consider and make findings about the types of contributions referred to in s 79(4)(a), (b) and (c) which have been made by the parties to the superannuation interests on either a global approach or an asset by asset approach depending on the circumstances;
(c) consider the other factors in s 79(4) being the matters in s 79(4)(d), (e), (f) and (g); and
(d)     ensure that pursuant to s 79(2) the orders in relation to the parties’ property, and any order under Part VIIIB in relation to superannuation interests are just and equitable.
66.    In the context of a consideration of the matters referred to in [s.79(4)]… the following matters may well be relevant: the relationship between years of fund membership and cohabitation; actual contributions made by the fund member at the commencement of the cohabitation (if applicable), at separation and at the date of hearing; preserved and non-preserved resignation entitlements at those times; and any factors peculiar to the fund or to the spouse’s present and/or future entitlements under the fund.
67.    If this approach is adopted, whereby superannuation interests are dealt with separately from property as defined in s 4(1), but are subject to the considerations in s 79(4), then not only will any contributions, both direct and indirect, by either party to such superannuation interests be more likely to be given proper recognition, but the real nature of the superannuation interests in question can also be taken into account, both in consideration of the s 75(2) matters and in the final assessment of whether the ultimate order is just and equitable.
68.    When we refer to “the real nature” of the relevant superannuation interest, we are referring to the fact that notwithstanding that its value according to the Regulations may well be calculated to be a very significant amount, that superannuation interest may be no more than a present or future periodic sum, or perhaps a future lump sum, the value of which at date of receipt is unknown.
In relation to add-backs, the applicable law can be found in decisions such as the Full Court's decision in AJO v GRO (2005) FLC 93-218 and again I will incorporate into these my ex tempore reasons, relevant passages from that Full Court decision that describes the situations in which add-backs are appropriate.
30.    To date, three clear categories of cases have emerged where the Court has determined that it is appropriate to notionally add back to the pool of assets, that is, assets that no longer exist. They are:
(a)     Where the parties have expended money on legal fees. In DJM and JLM (1998) FLC 92-816 the Full Court said at 85,262:
“11.6 For reasons set out in Farnell, s 117 provides that each party to proceedings under the Family Law Act shall bear their own costs unless the Court otherwise orders. Failing to add back monies expended by parties on costs frequently has the effect of defeating the policy of s 117 by permitting the pool of available assets for distribution between the parties to be diminished by any monies that either of the parties have managed to spend on their costs up to the date of trial. We are of the view that the normal approach ought be to add costs already paid back into the pool. Whilst there may be cases where that approach is inappropriate, the reasons why it is not taken ought normally be spelt out.”
(b)     Where there has been a premature distribution of matrimonial assets. In Townsend and Townsend (1995) FLC 92-569 Nicholson CJ as he then was with whom Fogarty and Jordan JJ agreed, said at 81,654:
“In my view, what occurred in this case, as I said during the course of argument was, in fact, a premature distribution of a proportion of the matrimonial assets. What the husband did was to distribute to himself an asset in which the wife had a legitimate interest. In such circumstances I consider that it would be unjust in the extreme to simply treat such conduct by the husband as a matter to which regard should be had under section 75(2). It seems to me that the husband has had the benefit of that money. Had he retained, for example, the taxi licence instead of selling it, that would have been brought into account as an item of property which would have been dealt with in the same way as the remaining items of property in this case. Accordingly, I am of the view that the correct way in which to deal with the husband’s receipt of those moneys is to bring them into the pool of assets on a notional basis and make a distribution accordingly.”
(c) In the circumstances outlined by Baker J in Kowaliw and Kowaliw (1981) FLC 91-092 at 76,644:
“As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a)     where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
(b)     where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
Conduct of the kind referred to in para. (a) and (b) above having economic consequences is clearly in my view relevant under sec.75(2)(o) to applications for settlement of property instituted under the provisions of sec.79.”
31.    As the Full Court said in Browne and Green (1999) FLC 92-873 at 86,360:
“44. We agree with her Honour that the principles stated by Baker J in Kowaliw certainly do not constitute any form of fixed code. They are no more than guidelines for use in the exercise of the discretionary jurisdiction conferred by s 79 of the Family Law Act 1975. Nevertheless, they have over the considerable period of time since they were enunciated, become a well accepted guideline in this jurisdiction – a guideline the use of which assists in the achievement of the important goal of consistency within the jurisdiction.”
The evidence consisted of the affidavits filed by the husband and the wife. I will identify those. There is the husband's affidavit that was filed on 21 November 2008 and the wife's affidavit that was sworn on 21 November 2008. I also have the benefit of course of the cross-examination of both the husband and the wife.
The husband's application is contained in an amended application filed 21 November 2008 and in effect he seeks orders that enables him to retain the former matrimonial home, that he pay to the wife $75,000, that she retain her car, that he retains the caravan, that she keeps her superannuation and that there be a superannuation split in her favour out of the husband's superannuation fund of $25,000. In effect, the husband proposes that there be an adjustment in favour of the wife of about $100,000.
The wife's proposals are contained in her amended response to initiating application filed 11 February 2008 and she proposes that the former matrimonial home be sold, that after the expenses of the sale and the mortgage are paid that she receive 75 per cent of the balance and that there then be an adjustment by way of what she asserts to be an add-back for moneys used by the husband to pay the mortgage. She further seeks a 50 per cent super split of the husband's superannuation fund and some incidental orders that are not relevant for present purposes.
In terms of the evidence, there were some faint issues of credit raised in the cross-examination of the wife. Whilst the context of the cross-examination was evidence relating to contribution, which of course was not an issue in this case, the husband's counsel submitted that the evidence of the wife in relation to financial matters was somewhat vague. The cross-examination related primarily to the wife's evidence at paragraphs 57 and 62 to 67 of her affidavit of where she sets out her evidence about contribution. I agree with the submission made by counsel for the husband that the wife's evidence was vague insofar as it related to financial matters. However, it was not submitted that the wife's evidence was untruthful and if it had been so submitted I would not have accepted this submission. I simply do acknowledge however that the husband's evidence about financial matters was much clearer and where there is a difference between the evidence about financial matters given by the husband and the wife, I would prefer his evidence over hers. I must say that not much turns on this because really the only issue was in the context of add-backs.
The pool of assets in this matter is as follows; at the commencement of the hearing on 26 November I was presented with a document that purported to represent the agreed pool of assets.
I incorporate into these my ex tempore reasons the document that I have entitled, "Agreed Pool Lisle".

Agreed Pool Lisle

Schedule of Assets & Liabilities	Value
1. Property F	$410,000.00
2. IAG shares – 194 shares @ 3.47c	$725.00
3. Kia Sportage	$8,500.00
4. Household contents (W)	$5000.00
5. Caravan	$31,000.00
6. Superannuation in wife’s name: 1) Colonial First State 2) Local Government Superannuation Scheme	$3,500.00 $30,569.00
7. Superannuation in husband’s name: 1) Local Government Superannuation Scheme 2) MLC 3) Ausfund	$67,000.00 $4,827.00 $1,299.00
8. Add back of Macquarie Bank withdrawals (W)	$21,000.00
9. House hold contents (H)	$10,000.00
TOTAL ASSETS	$572,420.00
Liabilities
12. Perpetual Trustees Victoria Ltd home loans	$111,000.00 $117,000.00 $228,000.00
13. Arrears for [R] School fees	$1,066.00
TOTAL LIABILITIES TOTAL	$229,066.00 $343,354.00

Add-backs

Let me deal with the first issue which was that of add-backs. The husband asserts that there should be an add-back as notional property on the wife's part, of $21,000 being money withdrawn from the parties' joint Macquarie Bank Account and used, as the evidence indeed indicated, for payment of the wife's legal fees and some personal expenditure. The wife's counsel, Mr Watkins, quite properly conceded that it was appropriate to make that add-back and I record that it is the finding I would have made on the evidence anyway and it was a sensible concession to make and therefore I add back $21,000 as notional property attributable to the wife.
Now the wife asserts that there should be an add-back on the husband's part in a notional sense of $12,000 that he received from insurance claims that were used by him to pay his legal fees. The evidence confirms that this is the case and indeed there was no real submission from the husband's counsel to the contrary and I agree it is appropriate that $12,000 be added back as notional property on the husband's part.
The wife further submits that there should be an add back on the husband's part of $15,612 which he withdrew from the Macquarie Bank Account and used to pay the mortgage on the former matrimonial home which he occupied at all relevant times. All of this occurred at a time when he continued to earn his normal income. The evidence was that prior to the husband using the funds in question for this purpose, $700 per fortnight out of his salary was used to pay the mortgage. The bank statements in question indeed indicate that repayments on the mortgage averaged about $1,600 per calendar month and that these payments were made using the $15,612 in question.
Now, if the husband had continued to use $700 per fortnight out of his own wage, out of his own salary, to pay the mortgage, he would have paid the equivalent of $1516 per calendar month. In other words; $700 per fortnight multiplied by 26 divided by 12. Now the wife's case is that the husband, in effect, saved $1516 per calendar month of his own post-separation earnings and used $1,600 per calendar month of joint funds drawn out of a joint liability to service a joint debt. Now to be fair, from the husband's perspective, he says that the wife received a similar amount which he thought the wife would use to pay her share of the mortgage. But the fact is, that is not what happened. The evidence indicates that she used at least part of this money to pay for legals and that had already been determined.

In any event, even if what the husband said is correct, I am not satisfied that it provides a reason not to simply look at what he has done and assess whether it is an add-back. I think it is. I think the fact is that he saved $700 per fortnight whilst using joint funds to pay a joint debt. I am satisfied that there should be an add-back but not in the sum of $15,612 because the money was half his, the debt that he paid was half his, and therefore to avoid double dipping, the add-back should be limited to $7,800. It must be remembered in this context that he remained in occupation of the former matrimonial home. Accordingly, there will be an add-back, by way of notional property on the husband's share, of $7,800.
Having regard to the findings I have made about add-backs and taking into account that there is an agreed asset pool, the final property pool consisting of both superannuation and non-superannuation assets is as follows. Firstly, there is the former matrimonial home at Property F which is jointly owned and has an agreed value of 410,000. There is the wife's IAG shares, $725, there is the wife's motor vehicle, a Kia Sportage, $8500, there is the wife's contents, $5,000, the husband's caravan, $31,000, the add backs for the husband of $19,800, the add backs for the wife of $21,000, the contents owned by the husband, $10,000, the wife's super of $34,069, the husband's super of $73,126. That's a total gross pool combined of $613,220.
There are liabilities consisting of the mortgages that have a combined balance of $228,000. That means the net combined pool is $385,220 which consists of superannuation assets $107,195 and non-superannuation assets, $278,625.

Section 75 considerations

I turn now to consider the s.75(2) considerations and I refer to the paragraphs contained in s.75(2). Paragraph (a) refers to the age and state of health of each of the parties and there are no relevant matters under this consideration. Paragraph (b) talks about the income, property and financial resources of the parties and their capacity for appropriate gainful employment. It should be noted that the assets in this case are quite modest. The husband earns a higher income than the wife but it must also be acknowledged that he has a modest income. He does have a greater capacity for employment than the mother at this stage as the mother has the care of the youngest child. What is notable is that even though the father has the care of the oldest child, it has not affected his earning capacity and he continues to work full time. Accordingly, this consideration, on balance, favours the wife.
Paragraph (c) refers to the care and control of children. The husband has one hundred per cent care of the older child and about 30, maybe more, percent care of the younger child. However, as indicated above, his caring responsibility has not affected his earning capacity.
Paragraph (d) talks about commitments. Both parties have certain commitments that I will describe as being off the agreed balance sheet, that include some residual credit cards and legal fees.
Paragraph (e) talks about the responsibilities of either party to support any other person. There is no such person as such other than the fact that there are child support liabilities and I appreciate this is also referred to in paragraph (a), but in that regard the evidence satisfies me that at least in the foreseeable future the wife will not be able to pay child support and this thus means that the husband will have the sole care of the older child without any meaningful financial support from the wife.
Paragraph (f) talks about eligibility for pensions etc. and I note that the wife is in receipt of Centrelink Benefits.
Paragraph (g) does not apply on the facts of this case.
Paragraphs (h) and (j) talk about the maintenance in the context of retraining or the extent to which a person has contributed to the income, earning capacity, property and financial resources of the other party. I appreciate of course this is not a maintenance application but it is a relevant 75(2) consideration. The wife has been out of the workforce and been caring for the children and this has disadvantaged her in an economic sense.
Paragraph (h)(a) does not apply.
Paragraph (k) picks up one of the issues I have just referred to, that is the duration of the marriage and the extent to which it has affected the earning capacity of the wife. It has affected her earning capacity but the evidence does indicate that she could go back to work, subject of course to her desire to care for [Y], a matter that paragraph (l) of s.75(2) acknowledges as legitimate. That is, the wish of a parent to continue in that role.
Paragraph (n) refers to the terms of an order and again in this regard I acknowledge that it is a modest asset pool.
The different s.75(2) considerations do tend to balance out even though the husband arguably has some needs arising out of his care of the children, which I guess measured in a collective or holistic sense is greater than that of the wife. Nonetheless, he does have a greater earning capacity than the wife.
When all of these considerations are balanced one against the other, I think that the end result is that s.75(2) still favours the wife to the extent of five per cent.

Just and equitable order

Now the question then is; what is the just and equitable order to make under the circumstances? The parties have agreed that contributions should be 55:45 to the husband. A s.75(2) adjustment of five per cent to the wife means that overall it should be a 50:50 property settlement. The husband says he wants to try to keep the former matrimonial home so he is seeking to minimise the cash payout he has got to make and maximise the super split so that he can keep the home for the benefit of the children and himself. I think it is appropriate to give him a chance to retain the former matrimonial home if he can, subject of course to the overall settlement being just and equitable from the wife's perspective.
The husband wants to pay the wife $75,000. From the wife's perspective, she wants to minimise a super split and maximise a cash payment so that she can, in effect, re-establish herself. What she wants to do is understandable. She has the care of [Y] and aspires to a measure of stability that might include a roof over her head.
In each case, what is sought to be done is to balance long term needs versus short term needs and the reality is that both the husband and the wife cannot both have what they have asked for.
Having regard to the pool of assets as I have found it; the husband's 50 per cent share would be $192,610 and he has super of $73,126 within that amount. Her share of course would be the same; $192,610 and her super is $34,069. I think it is legitimate for the husband to seek to retain the former matrimonial home if he can. But on that scenario, the husband's entitlement would be as follows. He would keep the home at $410,000, the caravan at $31,000, the notional add back of $19,800, his contents of $10,000 and super of $73,126 which would give him a gross entitlement of $543,926. Of course, he would have to take over the mortgage of $228,000, leaving a net entitlement of $315,926. In order to get to his 50 per cent share of $192,610, he would have to pay the wife $123,316.
Now the question is, how to apportion this amount as between super and non-super? The husband says it ought to be $75,000 cash and the balance by way of super split. Now if I were to implement this then the wife's share would look as follows. She would have shares of $725, her car at $8,500, contents of $5,000, the notional add back of $21,000 and superannuation of $34,069. In other words, total assets she already has, $69,294. Add her settlement of $123,316 takes her up to $192,610. Now, if the husband pays her $75,000 cash that means she gets a super split of $48,316.
Now the problem with this is; that it gives her a total superannuation entitlement of $82,385 which, in my opinion, is not just and equitable because it would give her too much superannuation and not enough non-superannuation assets. I think, under the circumstances, it is just and equitable that the wife's share, under the circumstances, be apportioned as to $100,000 in cash and $23,000 by way of super split. I am satisfied that, firstly, the $100,000 in cash will give her the opportunity to start again in a financial sense, even after meeting any off balance sheet personal liabilities. Secondly, I am satisfied that the husband could probably borrow $100,000 on the security of the property provided he can service the same, but certainly from the perspective of equity in the home he should be able to borrow $100,000.
Accordingly, the overall property settlement is 50:50 and on the basis that each party retain the assets that I have referred, there would have to be a payment to the wife in the sum of $123,000. I am going to round that off to 123,000 and that will be constituted by a cash payment of $100,000 and a super split of $23,000.
The orders I intend to make are in accordance with the husband's application amended as follows
Order 1 will be as sought. That provides for the wife to transfer to the husband her interest in the home within 30 days subject to him re-financing. Order 2 will provide for the husband to pay the wife $100,000. Now order 3 in the husband's application talks about a payment out of the wife's share to the Legal Aid Commission of New South Wales. I heard no evidence about this or any submissions about it and accordingly I cannot make the order. However, I do make the remaining orders that enable the wife to retain her Kia motor vehicle, the husband to retain his super, the wife to retain her super, that there be a super split in the wife's favour out of the husband's superannuation fund in the sum of $23,000 and then the ancillary orders that are referred to above.

I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of Altobelli FM

Associate: Anthony Thompson

Date: 4 February 2009