M and M
[2002] FMCAfam 54
•10 January 2002
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| M & M | [2002] FMCAfam 54 |
| FAMILY LAW – Child support – departure application – actual income or earning capacity of payer parent – s.117 Child Support Assessment Act. |
| Applicant: | J C M |
| Respondent: | C M M |
| File No: | ZP3609 of 2001 |
| Delivered on: | 10 January 2002 |
| Delivered at: | Parramatta |
| Hearing Date: | 9 January 2002 |
| Judgment of: | Ryan FM |
REPRESENTATION
| Solicitor Advocate for the Applicant: | Mr Byrne |
| Solicitors for the Applicant: | John Byrne & Associates Solicitors DX 21011 Drummoyne |
| Counsel for the Respondent: | Ms L. Snelling |
| Solicitors for the Respondent: | Schrader & Associates Solicitors DX 8251 Parramatta |
ORDERS
That the administrative assessment of child support dated 2 February 2001 that assessed the applicant’s liability for child support be departed from.
That J M pay child support for the children E J M born 19 April 1984 and N J M born 19 April 1984 at an annual rate of Twelve Thousand Three Hundred and Seventy Six Dollars ($12,376.00), (monthly rate of One Thousand and Thirty One Dollars and Thirty Three Cents ($1,031.33)) for the period 10 January 2001 to 18 April 2002.
That the applicant pay the respondent’s costs of these proceedings in the sum of $2,500.00 within 28 days.
That all outstanding applications are otherwise dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PARRAMATTA |
ZP3609 of 2001
| J C M |
Applicant
And
| C M M |
Respondent
REASONS FOR JUDGMENT
The application
This is an application for a departure order from an administrative assessment of child support.
J M
, (“the applicant”), and paying parent, filed his application on
22 October, 2001. In essence he sought orders that the administrative assessment made by the Child Support Agency on 2 February, 2001 be set aside. C M, (“the respondent”) and carer parent filed her response on 18 December, 2001. In essence she sought that the application be dismissed.
The evidence
The applicant relied on the following documents.
·His affidavits sworn 22 October 2001 and 5 December 2001 as well as his oral testimony.
·His financial statement sworn 28 November 2001.
The respondent relied on the following documents.
·Her affidavit sworn 18 February 2001.
·Her financial statement sworn that same day as well as her oral testimony.
·The notice of decision of the Child Support Review Officer dated 16 December 1999.
·
The notice of decision of the Child support officer dated
2 February 2001 and
·
A document from the Child Support Review Officer dated
9 March 2001.
Both parties tendered documents that became exhibits in the proceeding.
Relevant facts
The applicant is in his fifties although his date of birth is not in evidence before me. The respondent was born on 14 October 1953.
The parties have two children, E and N, both of whom were born on
14 April 1984.
The parties separated finally on 5 February 1999, I infer the date upon which the sale of the former matrimonial home was completed. They had previously separated for a period during 1996 and resumed cohabitation in October 1996. They lived together from October 1996 to 5 February 1999. At separation, agreement was reached that provided E would live with the applicant and N would live with the respondent. E has suffered a depressive illness that had meant she could not cope with formal schooling. Her parents sought help from Rivendel, a specialist adolescent medical unit, and made the decision that E would be home schooled. This decision was implemented at separation.
During the marriage the applicant had worked as an engineer and achieved considerable professional success. By 1996 he was national sales manager for Toshiba. His taxation records disclose he earned taxable income as follows:
Income Tax Year Ended
Taxable Income
1994
$119,885
1995
$ 64,584
1996
$ 75,066
1997
$ 21,739
1998
$ 18,515
Curiously he has not lodged a taxation return since 1998. It is relevant that during 1997 and 1998 the parties were still living together. When the applicant assumed E's full time care, he gave up external employment. This was necessary for him to undertake his part in home schooling his daughter. Simultaneously he established a company,
U Consulting Services, as a corporate vehicle to run a consultancy business from home. He is the sole director and shareholder of the company. I am satisfied the company is his alter-ego and that he is the beneficial owner of all assets held by the company.
The applicant’s intention was to trade in electric engines and to consult generally in his area of professional expertise. I am satisfied that his decision to change the nature of his work was motivated primarily by E's health and educational needs. I do not accept the respondent’s submission that this step was taken to minimise his income for child support or any other purpose.
In about July 1999, N decided to live with the applicant. Thereafter the applicant had the full time care of both children until February 2000. In February 2000, E returned to live with the respondent. N followed his sister and returned to live with the respondent in December 2000. Both children have lived with her continuously since.
Because there was a child support assessment dated 16 December 1999 that required the respondent to pay child support to the applicant for the children until 30 June 2001, she applied to change the assessment on 22 November 2000. Insofar as her application sought to discharge her liability to pay child support for the children, the applicant consented to it.
In relation to the respondent’s application for an assessment of the applicant’s liability to pay child support, a Child Support Agency conference was conducted on 22 January 2001. The Child Support Agency notified the parties of its decision on 2 February 2001. This assessment required that the applicant pay child support in an annual amount of $15,600 for the two children to the respondent for the period 10 January 2001 until 18 April 2002. It is this decision that is the subject of these proceedings.
On 8 March 2001 the applicant lodged an objection to the 2 February 2001 assessment.
On 5 April 2001 the Child Support Agency garnisheed $2900 from the applicant’s Commonwealth Bank account. Since that time other than a credit card account he has conducted all his personal financial transactions through the company.
On 3 May 2001 the applicant’s objection was disallowed.
On 29 October 2001 a further assessment issued which is operative from and to 19 April, 2002. Apparently it operates for one day. No issue is taken in relation to that assessment.
On 5 February 1999 the parties implemented a property agreement that was the result of consent orders entered that same day. The parties’ main asset was their former matrimonial home at 1 F Street, H. On
5 February 1999 settlement of the sale of the property took place as a result of which each of the parties received $615,371.70. It may be that there had earlier been a partial distribution to each of them of the deposit paid by the incoming purchasers. In any event the effect of their property orders was that they distributed equally the entire matrimonial assets.
The relevant law
The obligation to pay child support is created by the provisions of the Child Support Assessment Act. Section 3 contains the obligation that parents maintain their children. The objects of the Act are found in section 4. These are well known and do not need to be recited. Each of the objects need to be borne in mind when deciding an application under the Act.
When interpreting the Act it should be construed to the greatest extent consistent with the attainment of its objects:
a) To permit parents to make private arrangements for the financial support of their children, and
b)To limit interferences with the privacy of persons.
Sections 114 and 121 identify that the further objects of Divisions 4 and 5 of part 7 include,
(a)That children have their proper needs met from reasonable and adequate shares in the income, earning capacity, property and financial resources of both of their parents, and
(b)That parents share equitably in the support of their children.”
The Full Court of the Family Court in Gyselman (1992) FLC 92-279 set out a three step process that courts must follow in determining an application for a departure order under section 117. The first step is whether one or more of the grounds for departure in section 117 is established. If so, the next step is whether it is just and equitable within the meaning of section 117(4) to make a particular order. The final consideration is whether it is otherwise proper within the meaning of section 117(5) to make a particular order.
During submissions counsel for the respondent referred to Ross v McDermott (1998) 23 FLR 613. Whilst of some relevance DJM v JLM (1998) FLC 92-816 is a more useful authority as to the circumstances in which a court dealing with a child support departure application might properly base its decision on earning capacity rather than actual income. It is clear from these authorities that a court can take into account earning capacity in situations other than those in which a person has deliberately weakened the economic position in an attempt to avoid their responsibility.
What distinguishes these cases from cases in which the court does focus on the actual and reduced income in calculating the level of child support? Clearly the facts of each case must be considered. Ultimately, although the language in the cases varies, the decisions seem to turn on whether the person acted reasonably in all the circumstances in taking the step that led to the reduced income. See for example discussion in DJM v JLM (supra).
What is reasonable must be determined not only in the light of the particular facts but also in the light of the particular area of law involved. In child support cases an important part of the context for determining what is reasonable is the explicit statement of the objects of the Act in section 4 in which there is reference to the parents’ “capacity to provide financial support”. Thus a different answer to the “what is reasonable” question may be given in spouse maintenance as compared to child support proceedings. Partly this is because child support legislation prioritises the obligation of parents to support their children.
In the special circumstances of the case has the applicant shown a ground for departure?
I now turn to the first question that must be answered in this case. The application is mounted primarily on the basis of section 117(2)(c)(i). Although reference was made to section 117(2)(a)(iii)A, it is clearly subparagraph (c)(i) that is the primary ground relied upon to establish the special circumstances test.
The focus of the applicant’s case was on his income and actual earning capacity. The respondent alleged that his income was greater than disclosed and submitted that the court must also consider his earning capacity as well as his commitments. Quite clearly his commitment as the analysis in Ross and McDermott (ibid) makes clear must also be considered. This analysis of the applicant’s financial circumstances is undertaken within the context of the assessment issued on 2 February 2001.
I find that the applicant’s financial circumstances are these. He is the sole registered proprietor of a townhouse at 17/10 B Road, G. He purchased this property after separation and paid $312,000 for it. It is unencumbered and is currently valued at $380,000. He owns U Consulting Services, plus he owns a 1983 Mercedes car valued at $10,000 and computer equipment that has little value. He has Commonwealth Bank savings identified in exhibit B with a current balance of $270,000 and personal effects of $2000. Thus he has total assets of $662,000. He has no liabilities.
Although contained in a corporate structure the assets and income derived by U Consulting are beneficially owned by the applicant. As a consequence he has an obvious capacity to manipulate and intermingle his personal and company financial affairs. An example of him doing so occurred after the Child Support Agency garnisheed his personal bank account in May 2001 to collect arrears. The company assets have been loaned by the applicant to it. When he received his property settlement after purchasing the townhouse he deposited the remaining funds with the company. This enabled the company to have a fund against which it could secure bank security bonds that may be required for his business. Of course he could also have offered personal security for those bonds.
Just as the applicant can intermingle and manipulate his and the company's assets and liabilities, so too he can manipulate the treatment of income. In his financial statement he identifies a personal income of $405 a week which he describes as a loan repayment. Clearly he has decided the amount he will take from the company on a weekly basis. There was no evidence of a loan arrangement that limited the repayment to $405 a week. Nor any business case strategy that suggested this is the maximum amount that should be reasonably repaid to him.
He claims weekly expenses of $310 and unit levies of $95 per week. These amounts are reasonable and were not the subject of cogent challenge. I am satisfied that he has reasonable weekly expenses of $405 a week. I am satisfied that the applicant draws income to meet his expenses. He could draw more without really adversely affecting his financial circumstances. The Commonwealth Savings Bank Account is invested at 4.1 per cent producing $11,070 per annum. That in fact is the applicant’s actual income.
Ms S submitted that I should find his income is $539 per week. This was based on the loan repayment of $405 a week and $134 a week paid by the company for the car. I do not accept her submission. This is because the $405 and $134 is derived from drawing down to a significant extent on capital. The applicant has drawn down about $70,000 since separation, significantly depleting his cash reserves.
The applicant submitted that in the special circumstances of the case that I would be satisfied, partly because of his health, that he was unable to earn an income. I am not satisfied that the applicant has health difficulties that impair his capacity for employment.
The Child Support Agency assessed the applicant’s income at $68,259 per annum. He last earned an income at approximately that rate in 1996, three years prior to separation. His income had reduced consistently and substantially well prior to the breakdown of the marriage. I am satisfied, as I have already found, that his reason for finally withdrawing from the workforce is as a consequence of E's health and educational difficulties. It was a reasonable decision. Indeed it would seem to be a decision that the parties agreed needed to be implemented.
I am not satisfied on the evidence that the applicant has an actual income nor an earning capacity at the amount or even approximating that assessed by the Child Support Agency for the operation of the assessment. Having regard to this finding I am satisfied that in the special circumstances of the case the application in relation to the child of the provisions of this Act relating to administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the carer parent for the child.
Is it just and equitable to make a departure order?
The next question then, having established special circumstances, is whether it is just and equitable to make an order. Although both children have had some part-time work during the holidays and have now completed school, both parties agree that I should approach this decision on the basis that neither child receives an income nor do they have any earning capacity, property or financial resources.
I will address firstly the respondent’s financial circumstances. Since separation the respondent has worked part-time as a receptionist. As a receptionist, she earns $321 per week. Her investments produce a weekly income of $220 and she has, averaged out over the last 12 months, received $55 per week child support. Thus her income is $596 per week. The respondent lives with C G who has no duty to maintain the children. There is no evidence that he does so. Mr G contributes $150 per week to household expenses, an amount that meets but does no more, the expenses incurred for him.
Putting aside Mr G's income and expenses then, the expenses that the respondent incurs in the household attributable to herself and the children are $714 per week. This is made up of $576 per week as her regular expenses and $138 per week as identified on page 3 of her financial statement. I accept that the expenses for herself and the children are reasonable expenses. In her affidavit, in particular at paragraph 20, she particularises to some extent the children’s expenses. She says:
“I estimate that my children cost me approximately $350 per week. I also have other expenses to pay for including food, electricity, petrol, phone, etcetera (for more details see financial statement).”
In her oral testimony she explained that these additional items, “food, electricity, petrol, phone, etcetera” relates to expenses not only for herself but also for the children. In both De Smeth (1992) 16 FLR 314, 320 and Bryant (1996) FLC 92-690 the Full Court has approved a broad-brush approach in child maintenance and child support cases. I adopt that approach. I am satisfied on the evidence that the respondent pays more than $350 per week for the children. When the two documents, that is her financial statement and affidavit are read together and regard is had to her oral testimony, which testimony I accept on this point, that is clearly the case.
Because her financial statement did not complete the relevant portion attributable to expenses for the children I am satisfied that as a consequence of my finding that I accept she is incurring greater expenses for the children than $350 per week, that I can have regard to the published Lee tables. The Lee tables identify that for teenagers the relevant weekly expenses are $267.86 per week. For two children it is thus an amount of $535.72 each week.
When I looked at the actual expenses for the respondent and two children at $714 per week in accordance with Bryant’s (supra) case that I could properly divide the $714 by three to come to an amount attributable to the support for each of the two children. These children are young adults and I am satisfied that it is proper to take that step. Thus I am satisfied that the respondent has expenses of $238 per week for each of the children, a total of $476 per week. This is less than the amount applicable from the Lee tables.
Her assets are set out at page 4 of her financial statement. She owns her home at 35 G Street, G which is valued at $485,000. It is unencumbered. Otherwise she has savings with Westpac of $4000; a share portfolio with a current value of $219,000; a 2001 Subaru worth $32,000; a 1985 Subaru Leoni worth some $400; personal assets and household effects of $11,000. Her total assets are $751,400. She has no liabilities. The respondent has superannuation of $4000. In the scheme of things it is insignificant.
Both parties submit that they would suffer hardship if an order were refused, (the applicant), or made (the respondent). Making the order will cause some hardship to the respondent in that he will need to draw down on his capital investments at a greater rate than he would prefer. It will not exhaust his savings. I take that into account. I am satisfied he can make the payments without reducing his standard of living. Other than that the effect on the applicant is minimal. The respondent submits that if the order is not made it will result in significant hardship to her in that it will require her to draw down on assets at an advanced rate. Refusal will result in a manifestly disproportionate contribution by her to the children’s expenses. I am not satisfied that this would be a hardship.
The objects of the Act are important in this decision. I am satisfied that it is proper to make a departure order. Because the applicant contributing to the support of the children other than in an equivalent amount to the contribution made by the respondent is not a proper outcome.
At present the respondent is required to contribute $300 towards $476 expenses for the children. That, in my view, is neither just nor equitable. A just and equitable result in the circumstances of this case where both parties have very substantial assets including substantial cash assets is that they both contribute to the cost of the children equally. I will order that there is a departure but the departure will not be as extensive as that sought by the applicant.
Is it proper to make a departure order?
The answer to that in the circumstances of this case is unarguably, yes. Both parties have an obligation to maintain the children. The assessment as it currently operates requires the applicant to make a much greater contribution to the children’s necessary expenses than the respondent does. Although the respondent has a greater income than the applicant does because of their assets, this does not mean she should make a greater contribution to the children’s expenses. In some cases it will but this is not one of them.
The orders sought by the applicant would result in the respondent meeting the entirety of the children’s costs without contribution by him. That would not be a proper outcome and is inconsistent with the objects of the Act. I am satisfied that I should as I have already indicated order an outcome whereby the parties meet the children’s costs equally. I have found that the children’s necessary expenses are $476 per week. That is $238 per week per child. I will order that the departure provide that the applicant pay child support at the rate of $12,376 per annum. This is simply multiplying by 52 one half of the weekly necessary expenses payable for the support of the children.
The costs application
At the conclusion of the proceedings the respondent has made an application that the applicant pay her costs. The application is primarily based on section 117(2)A(e). That is whether a party has been wholly unsuccessful in the proceedings. Section 117 is the relevant section, it provides that subject to sub sections (2):
“Each party to the proceedings under the Act shall bear his or her own costs. If the court is of the opinion that there are circumstances that justify it in doing so, the court may, having regard to the provision of section 117(2)A make an order for costs”
I will deal with the matters sequentially.
The respondent is in a slightly superior financial situation to the applicant. I have already made findings about the parties’ financial circumstances and do not repeat them.
Sub paragraph (b) does not apply.
Subparagraph (c) does not arise. Although there were submissions made by counsel for the respondent during the proceedings that the applicant had failed to make full and frank disclosure of the type discussed in the cases such as Black and Kellner and Oriolio (1992) FLC 92-287. I am not satisfied that that was so.
Subparagraph (d) does not arise.
Subparagraph (e) – Neither party has been wholly successful. The applicant has been wholly unsuccessful. The outcome of the proceedings is substantially more consistent with the approach taken by the respondent than it is with the approach taken by the applicant.
Subparagraph (f) does not arise.
Subparagraph (g) – I take into account that the applicant was given the opportunity to participate in the review process conducted on
22 January, 2001 by the Child Support Review Officer. There was no challenge during the course of these proceedings that the respondent had failed to lodge tax returns for the 1999 or 2000 financial years. Nor that he had failed to provide any documents evidencing a reduced earning capacity or details of his assets and financial resources to the Child Support Agency. Had he provided relevant information to the Child Support Review Officer, it may be that the Child Support Review Officer would have been in a position to make the findings that the court has made today. The failure of the applicant to participate in the Child Support Review process in any meaningful way is a factor I take into account pursuant to subparagraph (g). I am satisfied that it has contributed materially to the necessity for these proceedings to be undertaken and for the respondent to incur costs that she ought not to have had to incur.
I have taken submissions from the respondent as to the quantum of costs sought. She seeks an order that the applicant pay her costs assessed in the sum of $2500. Those costs, in my view, are reasonable and I am satisfied I should depart from the primary rule and order that the applicant pay the respondent’s costs.
I certify that the preceding fifty-seven (57) paragraphs are a true copy of the reasons for judgment of Ryan FM
Associate:
Date: 20 March 2002
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