Lukacs & Lukacs
[2021] FedCFamC1F 177
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)Lukacs & Lukacs [2021] FedCFamC1F 177
File number(s): SYC 6545 of 2019 Judgment of: REES J Date of judgment: 4 November 2021 Catchwords: FAMILY LAW – PROPERTY SETTLEMENT – Marriage of 28 years – Where the parties owned property and business interests both jointly and separately – Where the wife made greater initial contributions to the marriage – Where the husband applied inheritance to joint assets during the marriage – Shares to be treated as property of the marriage – Contributions assessed as equal – No adjustment made under the Family Law Act 1975 (Cth) s 75(2) – Orders for the net assets to be divided equally. Legislation: Family Law Act 1975 (Cth) ss 75(2), 79 Cases cited: Kennon & Kennon (1997) FLC 92-75
Vass v Vass (2015) 53 Fam LR 373
Division: Division 1 First Instance Number of paragraphs: 168 Date of hearing: 27-29 October 2021 Place: Sydney Counsel for the Applicant: Mr May Solicitor for the Applicant: York Law Family Law Specialists Counsel for the first Respondent: Mr Stewart with Mr O’Reilly Solicitor for the first Respondent: Mills Oakley Lawyers Counsel for the second Respondent: Mr Gardiner Solicitor for the second Respondent: Eakin McCaffery Cox ORDERS
SYC 6545 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS LUKACS
Applicant
AND: MR LUKACS
First Respondent
MR M LUKACS
Second Respondent
ORDER MADE BY:
REES J
DATE OF ORDER:
4 NOVEMBER 2021
THE COURT ORDERS:
1.That within 30 days of the date of these orders, the wife notify the husband in writing whether she wishes to retain the property at J Street, Suburb B (“Suburb B”).
2.That each of the husband and the wife do all things required to divide equally the money held in their joint account with Westpac Bank in an account ending #...92.
3.That other than as provided in these orders, each party will be solely entitled to all items of property and personalty in her or his possession at the date of these orders.
IF THE WIFE RETAINS SUBURB B:
4.That in the event that the wife notifies the husband as provided in order 1, that she retains Suburb B then the husband and the wife shall do all things required to:
(a)Sell the property at L Street, Suburb D (“L Street”); and
(b)To pay from the gross sale price the agents’ commission, costs of sale and the capital gains tax referable to the sale; and
(c)To divide the balance equally between them.
5.That the husband do all things required to transfer to the wife his interest in Suburb B and that, simultaneously with that transfer, the wife:
(a)Pay to the husband the sum of $390,723; and
(b)Discharge the existing mortgage over Suburb B.
6.That the wife will be solely responsible to pay the outgoings in Suburb B, including but not limited to strata levies and mortgage interest from the date of these orders.
IF THE WIFE DOES NOT RETAIN SUBURB B
7.
That in the event that the wife does not give notice to the husband as provided in
order 1, then the husband and the wife shall do all things required to:
(a)Sell the properties at Suburb B and L Street; and
(b)To pay from the gross sale price the agents’ commission, costs of sale and the capital gains tax referable to the sales; and
(c)To pay to the wife one half of the net proceeds; and
(d)To pay to the wife the sum of $814,261.50; and
(e)To pay the balance of the proceeds of sale to the husband.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym Lukacs & Lukacs has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
Rees J:
Ms Lukacs (“the wife”) and Mr Lukacs (“the husband”) married and commenced co-habitation in 1991 and separated in 2019 after a relationship of almost 28 years.
They had no children together.
In order to understand their dispute, it is necessary to understand some of the history of the marriage and their financial dealings.
The wife had two daughters of her previous marriage, Ms N who was 14 years old when the parties married and Ms O. There is no evidence of Ms O’s age. Ms N asserts that the children lived with the parties until 1995 when they moved to live with their father. They spent time with their mother and occasionally stayed overnight until 1998 when they continued their relationship away from the mother’s home.
It is the husband’s case that the wife’s daughters lived with him until 2006.
The husband had a son, Mr M Lukacs who is the second respondent in these proceedings. Mr M Lukacs was aged 25 years when the parties married and was living independently.
THE HEARING
The wife relied upon an affidavit sworn by her on 22 April 2021 and a Financial Statement sworn 22 April 2021. She also relied upon affidavits sworn by her brother, Mr P; her former sister-in-law, Ms Q; her daughter, Ms N and a former employee, Ms R.
The husband relied upon two affidavits sworn by him on 20 April 2021 and 25 October 2021 and a Financial Statement sworn 4 May 2021.
The second respondent relied upon an affidavit sworn by him on 20 April 2021.
A single expert provided evidence of the value of the former matrimonial home at Suburb B, an investment unit in L Street, Suburb D and the underlying real estate assets of the two companies F Pty Limited and K Pty Limited. That evidence was the subject of cross-examination.
The wife sought to retain the Suburb B unit. The husband sought its sale.
The wife sought an overall property adjustment of 55 per cent in her favour. The husband similarly sought an adjustment of 55 per cent in his favour.
BACKGROUND
Prior to the marriage, the wife had sold a property at Suburb S for $340,000.
She used those funds to purchase a business and two units.
The wife, who was a qualified and experienced sales professional, deposed that she used some of those funds to purchase, in August 1990, a business at Suburb T using a corporate vehicle, V Pty Limited, in which both she and the husband were shareholders and directors. The wife deposed that the purchase price was $120,000 and that she provided the funds from the sale of her pre-owned property. The purchase included ongoing clients. She also purchased further property as detailed below. It is the husband’s case that the wife paid $50,000 for the franchise and that he contributed $25,000 to the purchase.
By the time of the marriage, the wife also had a half interest in a property in W Street, Suburb D, which had been purchased in February 1991 for $112,000 and was subject to a mortgage of $26,000. She owned a unit in Suburb X which had been purchased in July 1991 for $89,000 and was subject to a mortgage of $26,000.
The husband studied for and obtained the requisite qualification to work in the business, under the supervision of a qualified professional, in this case, the wife and they both worked in the business. They agree that the wife primarily attended to sales and the husband administered the financial side of the business.
Prior to the marriage the husband had sold three properties, the last sale being in August 1991, from which sales he deposed that he received a total of $320,000. The wife disputed that assertion.
The husband had a share portfolio which he estimated to be $20,000, savings and an entitlement to superannuation, in relation to which there is no evidence of value of any of those items.
Further, the husband owned a half share of a unit at 1 W Street, Suburb D (“the mother’s unit”) which he held with his mother who lived there as tenants in common in equal shares. There was a mortgage over the unit which the wife asserts was paid using funds from the business. It is the wife’s case that the husband sold that unit in 2001 and gave his share of the proceeds to the second respondent.
Before the marriage, the parties purchased a property together at Y Street, Suburb Z (“Suburb Z”) for $320,000. The husband deposed that he contributed $100,000 from the sale of his pre-marriage assets, that they borrowed $200,000 and the wife contributed nothing. The wife deposed that the husband contributed $100,000 and the mortgage was $150,000. The mortgage was in evidence. The amount was $150,000. It is not clear from the wife’s evidence how she asserts the balance was funded but she does not assert that it came from her. I am satisfied that the husband contributed $170,000 to the purchase of Suburb Z.
The husband and the wife, separately and together, bought and sold investment properties. Since I do not understand there to be any controversy about the source of funds or the disposition of proceeds of sale, I do not propose to set out here the history of those transactions with the exception of two transactions, the sale of the mother’s unit and the sale of one of the wife’s units, one of a chain of purchases which resulted in the wife giving a benefit to her daughters. The evidence of the wife does not provide the complete history of these transactions but, doing the best I can with the available evidence, I will set out what is likely to have happened.
In February 1991, the wife purchased a unit known as 2 W Street, Suburb D (“2 W Street”) for $112,000 unencumbered. She held one half of that unit on trust for her former husband, Mr AA. The purchase money came from the wife’s pre-marriage funds.
In July 1991, the wife borrowed $26,000 secured over 2 W Street and used those funds, together with savings, to purchase a unit at BB Street, Suburb X (“BB Street”) for $89,000.
In February 1998, the wife purchased a unit at 3 W Street, Suburb D (“3 W Street”) for $200,000. The wife deposed that the whole amount was borrowed. The title of the unit was registered in the name of the wife and her two daughters as tenants in common in equal shares.
In April 1998, the wife sold 2 W Street for $178,000. Assuming that the mortgage had not been greatly reduced, it is likely that the net proceeds of sale, after discharge of the mortgage, were about $150,000. Half of that amount was paid to Mr AA, leaving the wife with $75,000 which she applied to the mortgage over 3 W Street, leaving a balance of about $125,000.
In November 1995, the husband and the wife purchased a company title unit at
L Street, Suburb D (“L Street”) for $193,000 subject to a mortgage to the Commonwealth Bank, the balance being funded by the husband’s credit card.
In December 2001, the wife sold 3 W Street for $277,000. Assuming that the balance owed pursuant to the mortgage was about $125,000, the net proceeds of sale would have been about $152,000. The wife deposed that she shared the net proceeds equally with her daughters who would have received about $50,000 each. The husband contends that the transaction, whereby $100,000 was given away, was a distribution by the wife of assets of the marriage and must be taken into account when considering matters relevant to s 75(2) of the Family Law Act 1975 (“Cth”) (“the Act”)
The next transaction which gives rise to controversy between the parties arose in January 1992 when the husband and the wife were alerted to an investment opportunity in a shop and an apartment at Property F, K Street, Suburb D. In these reasons, this transaction will be referred to as “the Property F transaction”.
The circumstances of this transaction will be detailed at length later in these reasons.
The parties established a self-managed superannuation fund, the Lukacs Superannuation Fund (“the LSF”) in 2001. V Pty Limited was the trustee of the fund.
In 2001 the business was sold and the parties retired. The sale price of the business was $800,000. The wife asserts that the husband had control of the sale and managed the proceeds. She asserts that the husband has failed to account for a substantial portion of those funds. It is the husband’s evidence that the funds were paid into the parties’ self-managed superannuation fund. The wife disputes that assertion and contends that some $370,000 is unaccounted for.
In May 2003, the husband inherited a unit in Suburb CC from the late Ms DD. The husband sold the unit in 2005 for $287,000. He asserted that he used the funds to discharge the mortgage on Suburb Z of $126,307 and to discharge the mortgage over L Street. The wife disputes that assertion.
In 2012, the parties sold the Y Street property and used the funds to buy a unit in Suburb B which became the matrimonial home until separation in July 2019 when orders were made giving the wife sole occupation of that property.
The wife’s mother died in 2019 leaving an estate which was divided between her children. The wife’s entitlement was $389,962.
At the time of the hearing the husband and wife owned the unit at Suburb B subject to a mortgage; the unit at L Street, unencumbered; the Property F shares; the husband’s share portfolio; superannuation entitlements; bank accounts and personalty.
ISSUES TO BE DETERMINED
Before the commencement of the hearing, each party was invited to submit a list of the issues of fact and law to be determined. The husband and the wife did so. The following list is taken from the narrative above and from the lists provided by the husband and the wife.
·What was the husband’s initial contribution?
·What was the cost of the business franchise and who provided the funds?
·How did the husband deal with the proceeds of sale of his mother’s unit?
·How did the husband deal with the proceeds of sale of the business franchise?
·How should the shares in the Property F transaction be treated?
·How did the husband deal with the proceeds of sale of Ms DD’s Suburb CC unit?
·The value of the Suburb B property.
·The wife’s Kennon claim.
THE HUSBAND’S INITIAL CONTRIBUTION
The husband deposed that, shortly before the marriage, he sold three properties and received about $320,000. In cross-examination he conceded that the amount was an estimate and he provided no document to support that estimate.
The husband deposed that he sold a property at EE Street, Suburb S in January 1991 for $307,000, discharged a mortgage of $80,000 and received $113,500 being half the net proceeds. The property had been bought in 1988 with a mortgage of $180,000. The husband conceded in cross-examination that he could not have paid off $100,000 in three years and that the mortgage outstanding in 1991 was probably $180,000. Allowing for costs of sale, the husband probably received about $60,000.
The husband deposed that he sold a property at FF Street, Suburb UU in August 1991 for $235,000 and received $135,000 net after discharging a mortgage of $100,000.
Mortgage documents demonstrated that the mortgage at the time of the purchase in June 1987 was $150,000. The husband did not concede that it was unlikely that he had been able to reduce the mortgage balance by $50,000 between June 1987 and August 1991 but he provided no evidence that he had or how that might have been done. I do not accept that the husband received $135,000 from the sale. I am unable to find what he might have received except to say it was not less than $85,000.
The husband’s evidence that he received $71,500 from the sale of a property in January 1991 was not challenged.
I find that the husband’s initial contribution was not less than $216,500. The husband’s evidence is that he used those funds:
·To purchase his half interest in his mother’s unit $30,000
·To purchase a half share in the business franchise $25,000
·To purchase Suburb Z $170,000
·To purchase the shares in the original Property F transaction $82,000
·To purchase Mr GG’s shares $45,000
Total $352,000
Clearly, the husband did not make the contributions to the purchase of assets that he asserts. In cross-examination, the husband said that the evidence to which he deposed in his affidavit was from his recollection, not assisted by documents. There were many instances where, confronted by records such as mortgage documents, the husband conceded that his recollection was inaccurate.
WHAT WAS THE COST OF THE BUSINESS FRANCHISE AND WHO PROVIDED THE FUNDS?
There are no documents provided by either the wife or the husband to substantiate their respective assertions.
V Pty Limited was incorporated in 1990. Also in August 1990, the wife sold her property in Suburb S for $340,000 and the business franchise was purchased.
At August 1990, the husband had not sold any of the three properties upon which he relies as providing his initial contribution. He gave no evidence about where he might have sourced funds to pay for his alleged contribution.
The wife’s evidence that she had a conversation with the husband at the time of the purchase of the Suburb Z property when he said to her “You paid for my share of the business so I will register the property in both our names with you as 35% owner. I have calculated that the amount you paid for the business is equal to 35% of Y Avenue [Suburb Z]” was not challenged. The sum of $120,000 that the wife asserts she paid for the franchise is the equivalent of 37.5 per cent of the purchase price of Suburb Z.
I accept the evidence of the wife that she paid $120,000 for the franchise from her pre-marriage funds.
HOW DID THE HUSBAND DEAL WITH THE PROCEEDS OF SALE OF THE BUSINESS FRANCHISE?
The franchise was sold for $800,000. The husband’s evidence was that the whole of the amount was paid into the superannuation fund. That was demonstrably not correct. The records of the superannuation fund were in evidence.
The husband made no real attempt to account for the funds.
Both the husband and the wife, in cross-examination, gave evidence that, as between them, the husband managed their financial affairs. The wife said she trusted the husband’s financial acumen and the husband said he was experienced, qualified and confident to manage their funds. The husband was a registered tax agent and he prepared the wife’s tax returns. It would appear that, whatever the husband may have done with these, and other, funds of the marriage, the wife was content to let him make the decisions and did not enquire about them.
The evidence established that, at the time of the receipt of the proceeds of sale, the parties’ superannuation was held in the Super Fund 1. There is no evidence that $800,000 or any similar sum was paid into that fund.
Documents annexed to the wife’s affidavit demonstrate that, in March 2001, a sum of $288,380.05 was rolled out of the Super Fund 1 and into the LSF in respect of the husband’s interest in the fund. At the same time, there was a roll-over of the wife’s entitlement in the Super Fund 1 to the LSF of $166,332.14.
The Financial Statements of the LSF for the year ended 30 June 2001 show “Benefits Transferred In” of $456,734, which funds appear to have been substantially invested in
“unlisted companies”. The amount paid into the LSF is approximately the same as the amounts rolled over from the Super Fund 1.
A letter signed by the husband, addressed to the accountant of the LSF, dated 13 March 2002 and expressed to be for the purpose of preparing the 2001 financial statements, refers to a:
Deposit of $449,712.19 from our [husband and wife] Super Fund 1 for which documents are enclosed.
The husband has not explained where those funds went, in circumstances where he deposed that the sale was not liable for capital gains tax.
In his oral evidence, the husband referred to an investment in the HH Unit Trust but gave no evidence of what became of the investment. However, the husband’s letter to the accountant states:
Withdrawal of $450,013.00 was for an investment of $450,000.00 into The HH Unit Trust being a property trust. Application and Unit Certificate are enclosed. The $13.00 were fees for bank cheque.
Presumably, the funds of the LSF were invested almost in their entirety in the HH Unit Trust. What became of those funds is not known.
However, I am conscious of the fact that these parties have not had any income from exertion since the sale of the franchise and they have lived off their retirement investments.
I accept that about $350,000 remains unaccounted for but the wife has not established that $350,000, or any other amount, was used for any purpose other than their joint living expenses or that the husband has those funds secreted away.
HOW DID THE HUSBAND DEAL WITH THE PROCEEDS OF SALE OF HIS MOTHER’S UNIT?
The mother’s unit was purchased in late 1991 for $135,000. The husband asserts that he contributed $30,000 from the sale of his pre-marriage properties to the purchase. The balance was provided by the husband’s mother and a mortgage to the TT Bank.
The unit was sold in November 2001. The settlement statement, which is annexed to the husband’s affidavit, confirms the evidence of the husband that the net amount received was divided equally between the husband and his son, the second respondent. The husband received about $135,000. Since the husband’s mother was entitled to a half share of the funds, it was open to her to give those funds to her grandson if she wished and I do not accept that this transaction was a diversion of matrimonial funds.
HOW SHOULD THE SHARES IN THE PROPERTY F TRANSACTION BE TREATED?
It is the husband’s case that this transaction did not involve the wife; that the wife did not contribute any money to it and that any property generated by the transaction is not property of the marriage.
The wife asserts that the transaction was an enterprise of the marriage and that the property generated by the transaction is property of the marriage. Further the wife contends that the husband, by ultimately transferring to his son, the second respondent, half of his interest in the shares, has alienated property of the marriage and that property should be dealt with as if it were the property of the husband for the purpose of this determination.
As to the contention that the shares are not property of the marriage, I reject that proposition. Section 79 of the Act gives the Court power to deal with “the property of the parties or either of them”.
The husband does not contend that there was a specific agreement between himself and the wife that the Property F transaction would be his alone or that it would be quarantined from the matrimonial pool. Even if there had been such an agreement, it would not oust the jurisdiction of the Court to make an order adjusting the respective interests in that property.
Whatever may have been the source of the funds used in the transaction, it could only have been the wife’s initial contribution; the husband’s initial contribution or the funds earned by the business franchise. In any of those events, the property should be dealt with as being part of the matrimonial property and available for distribution between the husband and the wife or to be accounted for in any overall distribution.
It is necessary to understand the transaction and the intention of the parties to it.
The owner of the relevant shares was Ms JJ who ran a business from the premises.
Ms JJ was a friend of the wife. Ms JJ told the wife that she wanted to sell and the wife told the husband. The wife deposed that she then left the negotiations and the acquisition of the shares to the husband. The wife deposed that she always understood that the investment was for the benefit of the husband and the wife. She had no reason to think otherwise.
While the husband asserted that the wife must have known about the circumstances of the acquisition of the shares in his sole name and the subsequent alienation of a portion of his interest in them, he also conceded that he had not told her.
I accept the evidence of the wife that the husband dealt with the shares and conducted the subsequent transactions without her knowledge.
On 21 January 1992, the husband, Mr GG and Ms Q entered into an agreement to purchase 12,840 shares in K Pty Limited (“K Street”) and 12,000 shares in F Pty Limited (“Property F”) for $410,000. Those shares entitled the purchasers to the use of a shop and a unit.
Mr GG was not related. Ms Q was married to the wife’s brother.
The Deed of Agreement for the purchase, dated 21 January 1992, states that the shares are to be held by Ms Q as to 40 per cent, Mr GG as to 40 per cent and the husband as to
20 per cent, as tenants in common.
In order to fund the purchase, the purchasers borrowed $240,000 from the TT Bank, secured against the lease. The balance was paid by Mr GG as to $68,000 and Ms Q as to $68,000. The husband asserts that he paid $82,000. Why he would have paid more than Mr GG and Ms Q (who were each entitled to a 40 per cent interest) for a 20 per cent interest, is not explained. I do not accept that the husband paid $82,000. The purchase price was $410,000. They borrowed $240,000 and Mr GG and Ms Q contributed $136,000. The balance required to fund the purchase was $34,000 and it is likely that was the amount paid by the husband.
The husband contends that the funds provided by him came from the sale of property by him before the marriage, or shares. The wife contends that the funds came from the sale of
BB Street. BB Street was purchased by the wife in about July 1991 for $89,000. The mortgage for the purchase of the shares was executed on 19 June 1992 and it is likely that settlement of the purchase took place shortly thereafter. The sale of BB Street settled in March 1992. It is not necessary to determine this issue. It is impossible that the husband’s pre-marriage funds funded all of the investments to which he deposed. It is equally impossible to know which he funded and which he did not. On either case, the purchase was funded by the sale of pre-marriage assets which comprised the initial contribution of each of them.
In August 1993, Mr GG sold his interest in the shares to the husband and Ms Q for $90,000. The share transfer form notes that the shares are to be held by Ms Q as to
60 per cent and the husband as to 40 per cent. The husband asserts that he contributed $45,000 from the sale of his pre-marriage assets. Again, it is unlikely that the husband had funds and more likely that, as the wife asserted, the funds came from the business.
On 14 October 1999, the husband transferred 40 per cent of the shares in each company to his son, the second respondent, and Ms DD for stated consideration of $125,000. The shares were then held by the three of them as joint tenants. Whether that sum was ever paid to the husband is not known. The second respondent does not assert that he paid the husband anything. The husband deposed:
I received the total amount of $130,000 from [Ms DD] on account of her interest in the shares in K Pty Limited and I transferred an interest to [the second respondent].
If the value of a third of 40 per cent of the shares was $130,000, it is difficult to understand how that transaction did not produce a capital gain for the husband which should have been included in his tax return for the year ended 30 June 2000.
If the husband received $130,000 from Ms DD, there is no evidence of what he did with that money.
The husband was Ms DD’s attorney pursuant to a Power of Attorney executed on
5 March 1999. Ms DD was in an aged care facility and had been suffering from dementia for some years, according to her death certificate. On Ms DD’s death, in 2002, the husband and the second respondent received her entitlement to the shares by survivorship.
As to the consideration for the transfer of an interest in the shares to the second respondent, the husband deposed that he had a conversation with the second respondent where he said that he would transfer the shares to reward the second respondent for his efforts in building up the business. Neither the husband not the second respondent suggest that the wife was privy to or present during any such conversation.
The second respondent had no industry experience when he commenced working for the business.
The second respondent was paid award wages during the period he worked in the business. Nothing in his own description of what the second respondent did in the course of his employment demonstrates a contribution to the business over and above that for which he was paid. Both the wife and Ms R gave evidence that the performance of the second respondent was lacklustre.
I do not accept that there was any consideration for the transfer of the interest in the shares to the second respondent.
Whatever may have happened, it is an agreed fact that nothing done by the husband could have unilaterally severed the tenancy in common between himself and Ms Q as the husband purported to do.
The 40 per cent interest in the shares, as tenant in common with Ms Q as to 60 per cent, is currently held by the husband and the second respondent as joint tenants. They have been valued by the single expert valuer at $1,056,100.
In these proceedings, the wife seeks a declaration that the shares currently held by the second respondent are held upon trust for the husband.
It is not necessary to make the declaration.
The manner in which the husband treated the shareholding sufficiently demonstrates that he did not, during the marriage, intend that the second respondent should have the benefit of ownership but rather that those benefits would be retained by him.
Further, I accept that the investment in the shares was a joint enterprise of the husband and the wife, entered into using their mutual funds and from which the wife had every expectation of benefiting. The series of transactions by which the husband alienated a portion of the interest should be treated as a premature distribution of the asset.
I propose to treat the value of the shares, as between the husband and the wife and for the purpose of this determination, as being an asset of the husband.
There are a number of factual matters which support that finding:
·The second respondent did not receive any share of the rents referable to the shares until after the husband and the wife separated. Prior to separation, the husband retained the whole of the rent.
·There is no evidence, and it is not asserted by the husband, that Ms DD received any portion of the rent. In cross-examination, the husband agreed that Ms DD never received any share of rent.
·After October 1999, there were a number of leases and subleases entered into between the husband and Ms Q as lessors and tenants. The second respondent was not referred to on any of the lease documents until after the husband and the wife separated.
·From October 1999, the husband prepared and sent to the tenants, a tax invoice, every eight weeks for rent. In each invoice, the lessors were himself and Ms Q. There was no reference to the second respondent or to Ms DD.
·The husband’s tax return, which he, himself prepared, makes no reference to any capital gain or loss of the disposal of shares in the financial year ended 30 June 2000, the year in which he disposed of a portion of his interest in the shares.
·The second respondent travelled overseas in 2010. Because he did not have a will, he sent an email to the husband setting out his wishes for the disposition of his assets in the event of his death. No mention was made of the second respondent’s interest in the shares.
·
The husband did not tell Ms Q about the purported transfer of shares in
October 1999.
·
Mr P, who is a solicitor and who provided legal advice to Ms Q, gave evidence that he did not find out about the transfer of the shares until late 2019.
Mr P was indignant because the purported effect of the transfers was that
Ms Q “became a co-owner with people she didn’t know about”.
Although the husband denied that he did not tell Ms Q about the transactions because he knew she would tell the wife, that is a likely explanation for his failure to do so.
The approach to add backs and the determination of the parties' existing interests in property is as set out in Vass v Vass (2015) 53 Fam LR 373 as follows:
138.There is no error committed per se in adjusting the parties' actual property interests by a calculation involving notionally adding back into the pool sums which have been dissipated by the parties. We reject any suggestion that the decision of Bevan & Bevan (2013) FLC 93-545 - or, more particularly, the decision of the High Court in Stanford & Stanford (2012) 247 CLR 108 - is authority for any necessary contrary solution. Some statements made by the High Court may lead to the conclusion that references to "notional property" as have been referred to in decisions of this court and at first instance may need to be reconsidered.
139.The decisions referred to seek to remind the Court that, however the exercise of discretion might seek to deal with property that is said to be the subject of "add back", proper consideration must be given to existing interests in property, and the question posed by s 79(2) as a separate inquiry from any adjustment to property interests by reference to s 79(4) if a consideration of
s 79(2) reveals that it is just and equitable to alter existing interests in property.
The shares, in this instance, are not notional property. They exist and are still in the possession and control of the husband. The husband alone determines how the shares, and the income they produce, will be dealt with. The interest in the shares will be treated as the property of the husband for the purpose of determining whether it is just and equitable to alter interests as between the husband and the wife.
HOW DID THE HUSBAND DEAL WITH THE PROCEEDS OF SALE OF THE UNIT INHERITED FROM MS DD?
The unit was sold by the husband in April 2005 for $287,000.
The husband deposed that he used $126,307 to discharge the mortgage over Suburb Z and applied a further $70,000 to discharge the mortgage over L Street. The husband relies on a copy of his LL Bank passbook showing a withdrawal on 20 April 2005 of $70,000.
The documents annexed to the wife’s affidavit contradict the husband’s assertions.
The wife’s Ext. 41 is a cheque butt dated 20 April 2005 showing a cheque in the sum of $126,307 drawn to the “Lukacs Super Fund – FLS Contribution”.
The wife’s Ext. 42 is a cheque butt dated 20 July 2005 showing a cheque in the sum of $70,000. The payee is “V P/L” and the purpose is described as “loan from Mr Lukacs”.
The total of those payments is $266,307.
However, it appears that the L Street property is, in fact unencumbered.
In relation to Suburb Z, the evidence does not disclose whether it was unencumbered when it was sold in 2012 and the proceeds applied to the purchase of the Suburb B unit. The wife does not depose to any mortgage over Suburb Z at the time of the sale.
I accept that the husband’s inheritance from Ms DD was applied to the enterprise of the marriage.
THE VALUE OF THE SUBURB B PROPERTY
Mr KK, the single expert valuer, valued the Suburb B property in May 2021 at $2.7 million.
In cross-examination by counsel for the wife, Mr KK said that his estimate of the value at trial was that the property was worth $2.7 million.
Mr KK said that, in his opinion, any increase in the market since May 2021 was offset against the fact that the NN Company development had been approved in July 2021. The subject unit overlooked the site of the plant which is a factor that a purchaser would take into account. Mr KK described the plant as “an eyesore”. Absent the batching plant, Mr KK would have ascribed a 10 per cent increase in the value of the property.
In cross-examination, Mr KK did not resile from that evidence.
I accept his evidence.
THE WIFE’S KENNON CLAIM
The principles to be applied in such a claim are stated by the Full Court in Kennon & Kennon (1997) FLC 92-757 in the following terms:
However, it is important to consider the “floodgates” argument. That is, these principles, which should only apply to exceptional cases, may become common coinage in property cases and be used inappropriately as tactical weapons or for personal attacks and so return this Court to fault and misconduct in property matters - a circumstance which proved so debilitating in the past. In addition, there is the risk of substantial additional time and cost.
However, in our view, s 79 should encompass the exceptional cases which we described above. It would not be appropriate to exclude them as a matter of policy because of this risk. It is a matter of commonsense for the lawyers involved and, where that may not be sufficient, it is a matter for a firm hand by the Court at an early stage when a case appears to raise those issues.
It is essential to bear in mind the relatively narrow band of cases to which these considerations apply. To be relevant, it would be necessary to show that the conduct occurred during the course of the marriage and had a discernible impact upon the contributions of the other party. It is not directed to conduct which does not have that effect and of necessity it does not encompass (as in Ferguson) conduct related to the breakdown of the marriage (basically because it would not have had a sufficient duration for this impact to be relevant to contributions). Similarly, in Killick v Killick (1997) 21 Fam LR 331 at 341, in proceedings under the De Facto Relationship Act 1984 (NSW), the Court of Appeal rejected the argument for the male partner that incidents of infidelity during the relationship by the female partner should be taken into account as diminishing her contribution as homemaker or parent.
The wife deposed to the husband’s being verbally abusive and demeaning towards her to the extent that there were arguments between him and her daughters about his treatment of their mother. That evidence was corroborated by both the wife’s daughter, Ms N and a former employee of the business, Ms R. The husband agreed that there was no animus between himself and Ms R and no reason for Ms R to fabricate evidence.
I accept that the husband behaved in the manner described by the wife and her witnesses.
I also accept that the husband flaunted a long term affair to the extent that his mistress was regularly invited to the matrimonial home and that the wife found this distressing.
However, I do not consider that the facts of this case, where the wife has established that the husband used derogatory language but she has not alleged physical violence towards her, fall within that category of “exceptional” cases posited by the Full Court.
SECTION 79(2)
Both the husband and the wife seek an adjustment of their interests in their respective property. They have separated and can no longer use their combined property for their joint future support.
In those circumstances, it is just and equitable to make an order adjusting their interests.
THE PROPERTY POOL
At the commencement of submissions, the husband and the wife tendered a joint balance sheet, setting out their respective contentions. I will deal with the disputes evident on the balance sheet using the item numbers on the document.
ASSETS No Ownership Description Wife’s Value Husband’s Value Real Estate 1 J J Street, Suburb B $2,700,000.00 $3,000,000.00 2 J L Street, Suburb D $1,000,000.00 $1,000,000.00 Bank Accounts 3 H LL Bank Access a/c #...41 $26,576.00 $26,576.00 4 H LL Bank Access a/c #...49 NIL NIL 5 H LL Bank Access a/c #...21 $1,854.00 $1,854.00 6 H LL Bank Global Currency a/c #...75 NIL NIL 7 H Undisclosed bank accounts NK NIL 8 J Westpac Bank a/c #...92 $6,008.00 $6,008.00 9 W MM Bank account #...67 (as at 15.10.2021) $1,319.00 $1,319.00 10 W MM Bank account #...47 (as at 19.10.2021) $440.00 $440.00 11 W Westpac Bank Choice account #...00 (as at 19.10.2021) $8,429.00 $8,429.00 12 W ANZ Account #...97 (as at 18.10.2021 $16,662.98 - Inheritance Account) $0.00 See item 23A 13 W LL Bank Access Account #...01 (closed) $0.00 NK Investments/Shares 14 H 8% interest in F Pty Limited and K Pty Limited (entitlement to shop and units above). Wife's value includes shares "transferred" by husband to his son. $1,056,100.00
$528,050.00
15 H ASX Shares $263,767.00 $263,767.00 16 J 5450 shares in the OO Pty Ltd - Company owns L Street property (see note) See item2 Motor Vehicles, Boats Etc. 17 H Motor Vehicle 1 $8,000.00 $8,000.00 18 W Motor Vehicle 2 $10,000.00 $10,000.00 Household Effects, Artwork & Jewellery 19 H Household contents NIL NIL 20 J Household contents NIL NIL 21 H Jewellery NIL NIL Other Property 22 H Other Property not disclosed by Husband in Australia or overseas NK NIL 23 W 50% of monies paid by the wife towards Strata fees and utilities re Suburb B property which under the Orders should have been paid from the parties joint account - $20,305.50 to be reimbursed to the wife by the husband from his property settlement entitlement. Included so as not to be overlooked NIL 23A W Interest in the Estate of the Late Ms QQ (estimated) NIL NIL 23B H Funds held in Mills Oakley Trust Account $106,924.00 $106,924.00 23C W Funds held in York law Trust Account ($139,993 held - source of funds - ($100,000 loan advance from
Ms N and $39,993 from wife's inheritance)$139,993.00
$139,993.00
Total $5,329,410.00 $5,101,360.00
ADDBACKS No. Ownership Description Wife’s Value Husband’s Value 24 H Unaccounted proceeds of sale of PP Company business retained by husband noting his evidence that business was sold for $800,000 and sale proceeds were paid to Super Fund 1 $370,000.00 $0.00 25 H Dividends received by husband and paid to his son Mr M Lukacs in relation to Property F/K Street property in FY2020 - $6,000 $6,000.00 $0.00 26 W Legal fees paid (SEE NOTE) $57,071.00 $350,227.00 26A W Funds held in Wife's solicitor trust account (source of funds - loan advance from Ms N) See item 23C See item 23C 26B W Funds held in wife's solicitor trust account (source of funds - Wife's inheritance - $39,993) See item 23C See item 23C 27 H Legal fees paid $242,786.00 $242,786.00 28 H Funds held in Husband's solicitor trust account See item 23B See item 23B 28A W Unaccounted proceeds of sale of 3 W Street, Suburb B NIL $152,000.00 Total $675,857.00 $745,013.00 LIABILITIES No. Ownership Description Wife’s Value Husband’s Value Mortgages 29 H Mortgage on Suburb B apartment (as at 15.10.2021 - #...65 = $128,937.11 and #...64 = $161,094.05) $290,031.00 $290,031.00 29A W Loan to Ms O $25,000.00 NIL 29B W Loan to Ms N $100,000.00 NIL 29C H Loan to Mr M Lukacs NIL $70,000.00 29D J CGT on L Street $101,114.00 Total $415,031.00 $461,145.00 SUPERANNUATION No. Member Name of Fund & Type of Interest Wife’s Value Husband’s Value 30 H Husband's interest in the RR Super Fund $149,887.00 $149,887.00 31 H Super Fund 3 $29,116.00 $29,116.00 32 W SMSF Tax Refund FY2019 and FY2020 - to be paid from H SMSF to Wife's Super $4,293.00 $0.00 33 W Super Fund 2 #...90 (as at 15.10.2021) $155,630.00 $155,630.00 33A W Super Fund 2 #...41 (as at 30.6.2021) $6,671.00 $6,671.00 Total $345,597.00 $341,304.00 FINANCIAL RESOURCES No. Ownership Description Wife’s Value Husband’s Value 34 W Interest in late mother's estate - yet to be received NIL TOTAL $0.00 $0.00 GROSS ASSETS $5,329,410.00
$5,101,360.00
LESS LIABILITIES $415,031.00
$461,145.00
NET ASSETS $4,914,379.00
$4,640,215.00
ADDBACKS $675,857.00
$745,013.00
NET ASSETS & ADDBACKS $5,590,236.00
$5,385,228.00
ADD SUPERANNUATION $345,597.00
$341,304.00
NET TOTAL ASSETS (INCLUDING SUPERANNUATION) $5,935,833.00
$5,726,532.00
Item 1 – the value of the Suburb B property
As has been explained, I accept the evidence of the single expert valuer that the property has a value of $2.7 million.
Item 14 – shares in F Pty limited and K Pty Limited
Those shares will be included in the balance sheet as an asset of the husband.
Item 23 – claim for reimbursement of money spent on Suburb B strata levies
Order 3 made 15 October 2019 provided:
3.That all rental income from the property and carpark at L Street
Suburb D in the state of NSW and all rental income, dividends or distributions received from the rental of and the profits made by the underlying properties owned by F Pty Limited/K Pty Limited, be paid into a joint account of the parties to be nominated by the wife and thereafter the rent be used to and be applied as follows:
(a)in meeting the mortgage repayments and outgoings including strata levies, rates and all taxes referrable to the Suburb B Apartment;
(b)in meeting the strata levies and outgoings referrable to the property at L Street Suburb D;
(c)the balance to be divided equally between the husband and the wife.
After that order was made, the husband continued to direct the tenants of the K Street properties to pay their rent into an account in his name.
In March 2020, the tenant stopped making payments and sought rent relief due to Covid-19. Thereafter the tenant made one payment of $693 which was applied to payment of strata levies.
The tenant vacated the premises on 19 June 2020 and the shop remained vacant until a new tenancy commenced in April 2021.
The wife deposed that the total amount paid by her since 15 October 20219 is $18,186.89.
It is not clear on what basis the wife claims to be reimbursed for the whole amount she has paid in circumstances where the husband was not ordered to pay a share of the charges.
The evidence does not allow a calculation of the amount which could have been met from the rents had the husband complied with the order between 15 October 2019 and March 2020.
I note, however, that the wife remained in occupation of the Suburb B property.
The evidence does not allow any adjustment to be made.
This item will be removed from the balance sheet.
Item 24 – proceeds of the sale of the franchise for which the husband has not accounted
This item will be removed from the balance sheet.
Item 25 – dividends paid to the second respondent in the financial year ended 30 June 2020
The parties separated in about September 2019. Because I propose to treat the shares as being beneficially owned by the husband, I will regard him as having received the income from the shares. No further accounting is required. This item will be removed from the balance sheet.
Item 28A – money from the sale of 3 W Street
I accept that $100,000 was paid to the wife’s daughters from the sale. However, that sale took place in 2001. The assets no longer exists. It is not possible to identify the funds in presently existing assets. The appropriate manner in which to deal with the alienation of the funds is to take it into account pursuant to s 75(2) of the Act. This item will be removed from the balance sheet.
Items 29A, 29B and 29C – loans from children
Each claims to have borrowed from their respective children. Neither has given any evidence about the loans. The wife’s daughter and the husband’s son gave evidence and did not refer to the asserted loans. In any event, a loan raised to pay legal fees is not a loan which would be taken into account in the balance sheet.
Absent evidence of the terms and conditions of the asserted loans, I propose to have no regard to them.
These items will be removed from the balance sheet.
Item 29D – CGT on L Street
I accept that CGT will have to be paid on the sale of the property but there is no evidence of the proper amount or how this sum was calculated. This item will be removed from the balance sheet and the orders will distribute the net proceeds of the sale of the property, after the payment of the CGT.
Paid legal fees
Both parties provided costs notices pursuant to the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) rule 12.06.
Both parties assert that he or she borrowed money for legal fees. The wife asserts that she borrowed $125,000 from her daughters, the husband asserts that he borrowed $70,000 from his son. Those amounts are relevant only to determine to what extent matrimonial funds were used to pay legal fees.
According to her solicitors, the wife has paid costs of $350,227 of which $129,778 was from her inheritance and $57,071 came from superannuation and credit cards. The source of the balance is not known.
Her solicitors hold in trust a further $141,051. Thus the wife has paid or has contributed, in total, $491,278. If she borrowed $125,000 from her daughters, then the amount paid from matrimonial funds was $366,278 which is a little less than her inheritance.
The husband has paid $238,788 from his own funds and funds lent by his son. How much was lent is not stated. Further, the husband’s lawyers hold $106,924 in trust on account of counsel’s fees and the costs of the hearing. Thus the husband has paid $345,712 of which he asserts $70,000 was borrowed from his son leaving $275,712 from matrimonial funds.
In so far as they have both paid legal fees from money which would otherwise have been available for distribution, those funds will be notionally added back.
That exercise is complicated by the fact that the wife gave evidence that she has applied her inheritance from her mother’s estate to legal funds.
The fairest way to account for the wife’s inheritance, given that she used it mostly for legal fees, is not to include it in the pool of assets, thus giving her no credit for its introduction, and not to add back her paid legal fees.
The husband has paid $275,712 from matrimonial funds (including the funds held in trust) and that sum will be added back.
I therefore find the assets and liabilities of the parties to be:
Ownership Description Value J J Street, Suburb B $2,700,000.00 J L Street, Suburb D $1,000,000.00 H LL Bank Access a/c #...41 $26,576.00 H LL Bank Access a/c #...21 $1,854.00 J Westpac Bank a/c #...92 $6,008.00 W MM Bank account #...67 (as at 15.10.2021) $1,319.00 W MM Bank account #...47 (as at 19.10.2021) $440.00 W Westpac Bank account #...00 (as at 19.10.2021) $8,429.00 H Interest in F Pty Limited and K Pty Limited $1,056,100.00
H ASX Shares $263,767.00 H Motor Vehicle 1 $8,000.00 W Motor Vehicle 2 $10,000.00 H Husband’s superannuation $179,003 W Wife’s superannuation $162,301 H Legal fees (paid from matrimonial funds and held in trust) $275,712 Total $5,699,509 Mortgages Mortgages on Suburb B apartment $290,031.00 Total net $5,409,478
Of the net assets of $5,409,478, the husband holds $1,811,012 and the wife holds $182,489.
CONTRIBUTION
At the commencement of the marriage the wife contributed $340,000 and the husband contributed not less than $216,500. Although the husband contends that he contributed more, the evidence does not establish how much that might have been. It is unlikely to have been a substantial sum given that the husband was in the throes of a property settlement with his first wife.
In the course of the marriage, the husband received an inheritance from Ms DD of $287,000 gross. I am unable to say what net amount he may have received after the costs of sale and the costs of administering Ms DD’s estate.
The wife’s greater contribution in 1991, balanced against the husband’s contribution of the inheritance in 2003, leads to an assessment of equal contribution.
SECTION 75(2) ADJUSTMENT
Neither the husband nor the wife contended for any adjustment based on age, health or earning capacity.
However, the husband seeks an adjustment because of the wife’s distribution of $100,000 to her daughters in December 2001.
After the husband and the wife separated in July 2019, the husband continued to retain, for his own benefit, the whole of the income from the Property F investment although I accept that the income was disrupted because of the restrictions due to COVID-19 from about April 2020. The husband also retained the tax refund of the superannuation fund.
As can be seen from the calculation of the net assets held aby the parties, the husband had control of the liquid assets and was able to use them for his own purposes.
The wife’s current income is from a pension of $104 per week and a superannuation payment of $65 per week.
The husband swore a Financial Statement on 3 May 2021 in which he deposed to a weekly income of $485 from rent, $120 from dividends, $220 from superannuation and no income from the Property F investment. However, on 7 January 2021, a lease was entered into for a period of three years, with a rent free period of three months. The annual rent is $70,000 to which, for the purposes of these proceedings, the husband will be entitled to 40 per cent or
$28,000 per annum, adding $538 per week to the husband’s income. Thus the husband will have an income of some $1,363 per week or almost $70,000 per annum.
In those circumstances, I do not propose to make any further adjustment in favour of the husband.
CONCLUSION
The net assets of the parties will be divided equally between them.
The wife wishes to keep the Suburb B apartment. The husband seeks its sale even if she is able to afford to keep it but advances no reasons for selling. Both parties propose the sale of
L Street.
No submissions were made in relation to the sale of Suburb B on behalf of the husband.
The orders will provide for L Street to be sold and the proceeds, after payment of the costs of sale and the capital gains tax, to be divided equally.
If the wife seeks to retain Suburb B, which has a net value of $2,409,969, she will retain net assets of $2,592,458 (the net value of Suburb B plus her personalty). The net asset pool (excluding L Street and the joint account) is $4,403,470. Of that pool, the husband is entitled to $2,201,735. He has $1,811,012. The wife would be required to pay the husband $390,723 from her share of the proceeds of L Street and to refinance the mortgage over Suburb B.
It is unlikely that she will be able to do that, but she will have the opportunity and she will be required to notify the husband within 30 days of the date of these orders if she proposes to retain Suburb B.
In the event that the wife does not, within 30 days, give notice that she will retain Suburb B, then the pool of assets, excluding L Street, Suburb B and the joint account, is $1,993,501. Of that pool, the husband retains $1,811,012. The wife would be entitled to $996,750.50. Thus the husband would pay the wife $814,261.50 and they would otherwise share equally the funds in the joint account and the net proceeds of the sale of Suburb B and L Street.
COSTS
Each of the husband and the wife contended for a five per cent adjustment in his or her favour. In an asset pool of $5,409,478, five per cent is $270,474. In pursuit of that amount, the wife spent $491,278 and the husband spent $345,712.
They would each have been better off had they acceded to the other’s application.
I certify that the preceding one hundred and sixty-eight (168) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rees. Associate:
Dated: 4 November 2021
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