M and D
[2003] FMCAfam 351
•27 June 2003
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| M & D | [2003] FMCAfam 351 |
| FAMILY LAW – Property settlement – just and equitable to make order splitting husband’s superannuation – orders not pronounced until procedural fairness to trustees afforded. |
| Applicant: | M |
| Respondent: | D |
| File No: | BRM6760 of 2002 |
| Delivered on: | 27 June 2003 |
| Delivered at: | Brisbane |
| Hearing dates: | 19 & 20 June 2003 |
| Judgment of: | Baumann FM |
REPRESENTATION
| Counsel for the Applicant: | Mr Jordan |
| Solicitors for the Applicant: | J.B. Stevenson & Co |
| Counsel for the Respondent: | Mr McGregor |
| Solicitors for the Respondent: | P.M. Lee & Co |
ORDERS
THE COURT ORDERS THAT:
The HUSBAND retain as his sole property the following assets:
(a)the former matrimonial home situate at Camp Hill in the State of Queensland;
(b)the Mitsubishi Pajero wagon;
(c)the parties camper trailer/van;
(d)the furniture and contents of the former matrimonial home;
(e)all the HUSBAND’S interest in his superannuation funds being his private superannuation, his employer sponsored superannuation, and all his right title and interest in his AMP life insurance;
(f)the AMP shares registered in his name;
(g)subject to all encumbrances secured thereon.
The WIFE retain as her sole property the following assets:
(a)all her right title and interest in and to the business;
(b)all her right title and interest in and to the real property situated at Carina in the State of Queensland;
(c)all her right title and interest in and to the property situated at Thorneside in the State of Queensland;
(d)all the jewellery in the WIFE’S possession;
(e)all the WIFE’S interest in her employer sponsored superannuation, and all her right title and interest in her life insurance.
By 22 September 2003:
(a)the WIFE do all acts and things and sign all documents reasonably necessary so as to procure the release of the HUSBAND from all loans taken out for the purposes of any of the property referred to in paragraph 2 of these Orders and of all guarantees provided by him in relation to any loan taken out by any other person or entity for the purposes of any of the property referred to in paragraph 2 hereof and in particular, but without limiting the generality of the foregoing, to obtain the HUSBAND’S release from any liability as principal debtor or co-debtor or as guarantor under mortgage over the property situated at Carina;
(b)the HUSBAND shall pay to the WIFE $95,500.
The following Order has effect from the operative time:
A.(i) That in accordance with s.90MT(1) and (2) of the Family Law Act 1975 whenever a splittable payment becomes payable to D from his interest in AMP Superannuation Plan, M is entitled to be paid an amount calculated in accordance with Part 6 of the Family Law (Superannuation) Regulations 2001, using the base amount of $8440, and there is a corresponding reduction in the entitlement would have had but for these Orders:
(ii)this Order binds the Trustee of the said fund;
(iii)the operative time for this Order is 14 days from the date the Order is received by the Trustee.
B.(i) That in accordance with s.90MT(1) and (2) of the Family Law Act 1975 whenever a splittable payment becomes payable to D from his interest in Suncorp Metway Easy Super Plan, M is entitled to be paid an amount calculated in accordance with Part 6 of the Family Law (Superannuation) Regulations 2001, using the base amount of $14,330, and there is a corresponding reduction in the entitlement D would have had but for these Orders;
(ii)this Order binds the Trustee of the said fund;
(iii)the operative time for this Order is 14 days from the date the Order is received by the Trustee.
Each party be solely liable for and indemnify the other from and against all and any liability relating to any asset retained by them under the terms of these Orders.
Unless otherwise specified in these Orders and except for the purposes of enforcing the payment of any money due under these or any subsequent Orders, each party shall be solely entitled to the exclusion of the other to all property (including choses-in-action) in the possession of such party as at this date and each party shall be liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to these Orders.
Pursuant to s.106B of the Family Law Act1975 in the event either party fails or refuses to sign any document reasonably required of him or her under the terms of these Orders for a period of seven days then the Registrar or a Deputy Registrar of the Family Court of Australia at Brisbane be appointed to execute all deeds and documents in the name of that party and do all acts and things necessary to give validity and operation to all such deeds and documents so as to effect the terms of these Orders.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRM6760 of 2002
| M |
Applicant
And
| D |
Respondent
REASONS FOR JUDGMENT
I deliver my reasons for judgment. I deliver my reasons orally.
Introduction
This matter involves the division of property between the applicant wife M and the respondent husband, D, as a result of the cessation of their relationship which commenced in 1982. The wife was 39 years old at trial and a self-employed graphic artist whilst the husband, 45 years old at trial, is employed as an engineering draftsman.
The parties have three school aged daughters, Q 17, A 16 and E nearly 12. They live in the family home with their father and have regular and flexible contact to their mother.
Although the history of the relationship and the parties' contributions in various roles during the marriage was the subject of cross-examination and fully dealt with in the parties' affidavits, as a result of the concessions made by Counsel that contributions both financially and as home-maker and parent during the relationship to separation were equal, no useful purpose is served by reciting that history.
All that needs to be said is that after considering the work histories; the obligations of care for their young family; the improvement to their financial position by the extensive renovations principally and passionately undertaken by the husband with assistance from tradesmen and the wife; and the development of the wife's business – I would have found contributions at trial to be equal.
Principles
The principles in a matter to determine property division are well established by authority. There is a four step process involved. The first being the identification of the pool of assets. Secondly, to consider the factors pursuant to section 79(4) and the contributions of both indirect and direct financial and non-financial way and by reference to s.79(4)(e), consideration of the section 75(2) factors. The overarching principle which a Court is required to apply is to consider the orders that arise from such analysis to ensure that they are just and equitable to the parties.
Pool of assets
As a result of independent valuations and proper concessions made by the parties most of the items consisting of the pool of assets were agreed. Before summarising the complete pool of assets I deal with issues in dispute.
Home at Camp Hill
The family home was purchased in the husband's name solely in October 1982 and has been extensively renovated including it being raised to accommodate an office or billiard room underneath. It is located in an inner City suburb which has become attractive to persons seeking to renovate older style Queenslanders or post-war weatherboard homes for profit. Often it would seem, depending on the size of the allotment, it is possible to subdivide the land. This is not possible with the subject property.
Two qualified valuers were called using a combination of comparable sales evidence and experience in the area to determine as an expert the market value of the property at trial. The parties had agreed that the property had a value of $340,000 in December 2002. Dispute arises from the degree of increase in value since that time and therefore the current market value.
The wife's valuer, Mr Trevor Matthews, opines its current value at $380,000. He was cross-examined as to the properties he used as comparable sales including sales evidence in the street itself and the adjoining property. He conceded the rear landscaping was unfinished and that the home required painting and roof repairs. He estimated that with it fully completed the value was around $400,000 and he would estimate the costs of work required to complete at $20,000. Mr Matthews has been a real estate agent in neighbouring suburbs for some 40 years. Even though he conceded he does not actively sell in Camp Hill, I accept he conducted appropriate investigations of properties he considered comparable in coming to his view of the increase in value at trial to $380,000.
Mr Stuart Cameron, a valuer called by the husband had it seems not considered the street’s sales used by Mr Matthews (being too old in his view), but did consider another sale in the same street and also a neighbouring street sales in early 2003. Although he acts for clients looking to buy with a view to renovation or development and has looked at buying in the area personally my impression of his evidence was that he relied more heavily on the available data than did Mr Matthews. Although his research in Camp Hill found the median house price for April 2003 was $370,000 he considered that median house prices was not always a compelling guide. He conceded that for people wanting to buy a family home the number of bedrooms was important.
Both valuers say the 728 square allotment offers street appeal and that the market is steadily rising. Mr Cameron described the level of market activity as strengthening. I had the opportunity of seeing the two experts give their evidence. I prefer the evidence of Mr Matthews on this occasion and I adopt his opinion and value of $380,000.
Wife's interests in business
The value of the wife's half interest as shareholder and working director in the business was an issue. It is common ground that the wife acquired an interest in the graphic design business in 1990. The company operates now from a property purchased in 2000 in Carina and the company's equity in that property at trial was agreed at $101,540 being the value of $245,000 less mortgage of $143,460. There being no other substantial assets or equipment other than goodwill both accountants called who offered expert valuation evidence, Mr Cowley for the wife and Mr Garner for the husband, used the net maintainable earnings methodology as a basis for valuing the company excluding the real property. The written valuations and separate statements of each expert arising from the ordered joint conference were before me. I also had the benefit of observing the experts under cross-examination.
The first factor in the establishment and recognised methodology is to assess the net maintainable earnings. I have as exhibit 3, Financial Statements for the years ended 30 June 1998 (included in the 1999 statement), 30 June 1999, 2000, 2001 and 2002. I also was provided with statements for the period from 1 July 2002 to 30 April 2003. During cross-examination some attention was directed to such issues as:
a)Whether the salary and benefits received by the working directors was at a commercial rate;
b)Whether there had been any increase in sales and/or profits;
c)The effect of the company's decision to purchase two new motor vehicles in August 2002.
It was conceded in final submissions that the net maintainable earnings should be assessed at $45,000 per annum. Before moving to a consideration of the appropriate capitalisation rate I should say that I do not propose to reduce the net maintainable earnings by income tax at 30 per cent as suggested by Mr Garner. The only basis he did so was as a result of some advice by a presenter at a seminar he went to some years ago. Mr Cowley did not do so. It is, in my view, not consistent with the usual calculation made which excludes interest and taxation.
The cross-examination on the appropriate capitalisation rates to be adopted centred on the assessment a prudent and arm's length purchaser would apply to this business of the risk of maintaining the earnings of $45,000 per annum. The business is a small business employing few staff and deriving, as it has done historically, the overwhelming bulk of its income from two clients. Mr Cowley who spoke to the wife about such issues calculated that 89 percent of gross income came from these two clients. In calculating an initial capitalisation rate of 50 percent he broke the calculation down as follows:
Interest5 percent
Small business risk 20 percent
Premium risk 25 percent
Under cross-examination he was prepared to concede that if the directors gave appropriate undertakings to a prospective purchaser which would better secure the flow of income from the two major clients then he may reduce the premium risk from 25 to 20 percent. A net overall capitalisation rate of 45 percent was the lowest figure he was prepared to accept.
Mr Garner relied entirely on statements and information given to him by the husband about the business including a calculation of a
26 percent growth in profits. Even though he did not believe an additional risk of 25 percent for the reliance of the company on the two major clients was appropriate, he would have increased his capitalisation rate by between five and seven percent if he did not assume that the clients may not remain if one director left. Ultimately he was, after cross-examination and depending on the findings of the Court, prepared to concede a capped rate as high as 42 percent might be appropriate.
Overall I found Mr Cowley's evidence more persuasive. The major clients are not contracted in any way to this small business and just as directors in the company could change so could the business direction and commitment if the two major clients alter, with significant effect upon the wife and her business colleague.
I adopt a capitalisation rate of 45 percent. I therefore value the wife's half-interest in the company as follows:
Interest in property $101,540
Goodwill (45 percent of the $100,000
capped rate of 45 percent)
Total$201,540
Divided by two equals $100,770
Furniture and savings
The wife says at paragraph 73 of her affidavit that only some of the items noted as at her unit by Mr Black, the furniture valuer, were in existence at separation. I accept her evidence in this regard which was not seriously challenged. It is reasonable to infer that the wife used some of her withdrawal from the joint funds, approximately $3490 each, to purchase furniture and to establish initially, rental accommodation. Similarly, I infer the husband used his share of the joint account of $3481 and the smaller Commonwealth Keycard account for living expenses and family/children's needs. I elect not to include any bank account balances in the pool of assets nor do I bring into account credit card liabilities which appear to have been created since separation. The husband says that the sum of $67,000 outstanding on the home mortgage he made a draw down to enable him to pay part of his legal fees, estimated to be $11,000. I intend to add back that sum of $11,000 in accordance with authorities such as Farnell.
I would therefore estimate the pool of assets as follows:
| House at Camp Hill | $380,000 |
| Wife’s unit at Thorneside | $110,000 |
| Wife’s jewellery | $1340 |
| Husband’s camper van | $3000 |
| Husband’s Pajero | $13,500 |
| Husband’s AMP shares – 1458 x $5.18 each | $7552 |
| Husband’s furniture | $8140 |
| Wife’s furniture brought into account | $930 |
| Wife’s shareholding in the company | $100,770 |
| Wife’s AMP Whole of Life Policy | $4256 |
| Husband’s AMP Whole of Life Policy | $12,426 |
| Husband’s Superannuation:- AMP Suncorp Total Husband’s Superannuation | $22,276.89 $37,811.54 $60,088 |
| Wife’s Superannuation AMP | $7759 |
| Add back the Husband’s draw down for legals | $11,000 |
| TOTAL ASSET POOL | $720,761 |
| LESS LIABILITIES | |
| Home Mortgage | $67,000 |
| Mortgage on Thorneside unit | $89,322 |
| TOTAL LIABILITIES | $156,322 |
| TOTAL NET ASSET POOL | $564,439 |
I also note the husband has an interest in a financial resource being his interest in AMP deferred annuity with a balance agreed of $11,990.
Post-separation contributions
The husband's Counsel in final submissions asserted that a weighing in favour of the husband for his contributions to the children, in particular since separation, should be allowed. The children were in an essentially "week about" regime from separation in July 2001 until approximately March 2002. Since that time predominantly they have lived with their father although, as may be expected, the older girls seek out opportunities to have some extra time with their mother outside of the prescribed regime.
The mother has been paying child support of approximately $500 per month for some months which I accept is unlikely to meet 50 percent of the children's reasonable needs. The wife says, and I accept, she contributes to mobile phone costs and health costs as well as some of the transport.
The husband has had the benefit of remaining in the family home and his payments on the mortgage were likely to be less than the wife's rental and less than she now meets on her unit mortgage. Factors submitted as requiring an adjustment when seen within the context of a relatively short span of time during the relationship as a whole do not compel, in my view, a further adjustment in the husband's favour.
Section 75(2) factors
Counsel for the wife conceded in final submissions that an adjustment in favour of the husband for these factors of five percent is appropriate. Counsel for the husband submitted the factor of 10 to 15 percent was within the proper range. On the evidence the husband's salary may be construed as slightly higher. However when one takes into account the benefits derived by the wife from the company and the capacity to minimise taxation on such benefits I would estimate that although the husband is in a superior income position the difference in real terms is not significant. The husband's earning capacity I would assess is superior arising from his long and generally uninterrupted work history, his formal qualifications and the middle management position he now holds with a civil engineering firm.
The wife has TAFE qualifications and many years experience as a graphic designer/artist but having worked for herself and as earlier noted essentially for only two clients for over 13 years she may not present as such an attractive option in a competitive job market as would the husband.
The husband has also the benefit of the AMP deferred annuity which is a financial resource and which, on a valuation basis on its current worth, represents in itself about two percent of the net pool.
I did not take into account the superior financial entitlements as a factor because of the orders I propose to make. Without the responsibilities of parenting I would have made no adjustment in the husband's favour. In fact, a small adjustment in the wife's favour may have been considered. I do believe that the added financial responsibilities which shall fall upon his shoulders for the children do encourage me to make an overall adjustment in his favour. The adjustment sought by the husband is well outside the range in my view. The two oldest children will both complete secondary school within two years and even though the younger daughter has the whole of her secondary education before her the husband's capacity to earn is not significantly reduced by his responsibilities to primary home-maker for the family.
The mother continues to enjoy a good relationship with the girls and it is reasonable to infer that after the children leave school there is a prospect of them seeking financial support and emotional support from both parents and every chance of them receiving it. I tend to agree with Mr Jordan that a five percent adjustment is at the higher end of the range. However I believe in this case, after consideration of all factors, such an adjustment of five percent is appropriate.
The net pool of assets should be divided as to 55 percent to the husband and 45 percent to the wife. I raised with counsel the equity of making a splitting order in respect of the husband's superannuation entitlements. Although the parties had reached agreement on valuation of the respective interests no notice has been given to the trustees at the time of trial of any proposed order. I am advised that the husband will give notice forthwith and by agreement the Court will be informed by letter of the attitude of the trustee to a splitting order. I proceed on the basis that being offered the opportunity to be heard on my intention to make an order splitting the husband's superannuation it is likely the trustees will not seek to be heard on the matter. The final order I propose to make will not be pronounced until I am satisfied this process has been completed.
I think it is just and equitable to split the parties total superannuation entitlements of $67,847 in the same proportions as the other property because:
(a) It will mean the husband needs to borrow less money to retain the home as he desires.
(b) The wife has little superannuation and her business income is not directed to its accumulation at this stage. Considering the superannuation accrued during the relationship a sharing of its benefits is indicated.
(c) The parties will share a similar degree of disadvantage in not being able to access the split superannuation for some years.
(d) It gives both parties some platform to create, if that is their wish and desire, a future benefit as a start to their retirement nest egg.
The net pool of $564,439 will be distributed as to $310,441 approximately to the husband and $253,998 approximately to the wife. In view of the calculations arriving at that distribution the husband will receive:
| Equity in the home | $313,000 |
| Campervan | $3000 |
| Pajero | $13,500 |
| AMP Shares | $7552 |
| Furniture | $8140 |
| AMP Policy | $12,426 |
| Money received drawn down from the home loan | $11,000 |
| Superannuation | $60,088 |
| Less superannuation to be transferred to the Wife | $22,770 |
| Less payment due by the Husband to the Wife | $95,495 |
| TOTAL | $310,441 |
The wife in respect of the assets which she will hold will obtain:
| Equity in Thorneside unit | $20,678 |
| Jewellery | $1340 |
| Furniture | $930 |
| Interest in company | $100,770 |
| AMP Policy | $2256 |
| Superannuation | $7759 |
| Plus share of Husband’s superannuation (split as to $8440 from the AMP Policy and $14,330 from the Suncorp Policy) | $22,770 |
| Plus cash payment due from the Husband | $95,495 |
| TOTAL | $253,998 |
Accordingly, the husband shall have 30 days from the date of my order to pay to the wife the sum of $95,500 and then retain the home. If he is unwilling or unable to do so the house will need to be sold.
I propose to make orders in accordance with the husband's draft order incorporating the splitting order as set out in these reasons and the requirement for the husband to pay to the wife the sum of $95,500.
I will not pronounce that order and time shall not run until I am satisfied procedural fairness to the Trustees of the superannuation funds has been afforded.I will direct that any application for costs is to be made in writing within 21 days.
I certify that the preceding thirty-five (35) paragraphs are a true copy of the reasons for judgment of Baumann FM
Associate:
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