McLusky & McLusky - [2014] FamCA 93

FAMILY COURT OF AUSTRALIA

MCLUSKY & MCLUSKY

[2014] FamCA 93

FAMILY LAW – PROPERTY – Value of property – Expert Evidence – Gift from the husband’s father – Gift from the wife’s parents.
FAMILY LAW – PROPERTY SETTLEMENT – Just and equitable – Contributions – Where the husband is deemed to have made the greater contribution – Adjustment pursuant to s 75(2) – Where the wife is deemed to require an adjustment – Earning capacity.
FAMILY LAW – SPOUSAL MAINTENANCE – Where an application is made for short term spousal maintenance for the wife – Where the application is dismissed.

Family Law Act 1975 (Cth) ss 66K(5), 66L, 75(2), 75(2)(e), 75(2)(o), 79(4).

Stanford & Stanford (2012) 247 CLR 108
Bevan & Bevan [2013] FamCAFC 116
Chorn & Hopkins (2004) FLC 93-204
Bowe & Bateman [2013] FamCA 253

APPLICANT:

Ms McLusky

RESPONDENT:

Mr McLusky

FILE NUMBER:

BRC

7380

2010

DATE DELIVERED:

26 February 2014

PLACE DELIVERED:

Brisbane

PLACE HEARD:

Brisbane

JUDGMENT OF:

Forrest J

HEARING DATE:

21 & 22 November 2012

REPRESENTATION

COUNSEL FOR THE APPLICANT:

Mr Kirk QC

SOLICITOR FOR THE APPLICANT:

Peter Sheehy Solicitor

COUNSEL FOR THE RESPONDENT:

Mr Hamwood

SOLICITOR FOR THE RESPONDENT:

Dixie Ann Middleton & Associates

Orders

The wife’s application for periodic spousal maintenance is dismissed.
That in the event that a draft Minute of Order agreed upon between the parties as being appropriate orders for the Court to make to give effect to the Court’s findings contained within the Reasons for Judgment published this day is not jointly forwarded to my Associate beforehand, this matter will be listed before me at 9.30 am on Tuesday, 1 April 2014 for the hearing and/or taking of further submissions from each party as to the precise orders to be made by the Court.

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

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRC 7380 of 2010

Ms McLusky

Applicant

And

Mr McLusky

Respondent

REASONS FOR JUDGMENT

Mr and Ms McLusky began to live together as a couple in 1991. Each had been previously married for a little while and Ms McLusky had a daughter of that previous marriage, born in 1990. They married in May 1992 and then had two sons, the first born in 1993, the second born in 1994. Some years later the husband adopted the wife’s daughter as his own child.
When they commenced cohabitation, the husband was a young professional and owned, in partnership with another man, a suburban practice. He has owned that practice on his own ever since 1993.
The couple’s relationship broke down and they separated in July 2009 – a few months short of 18 years after they began to live together. The husband moved from the family home and the wife and the three children, then aged 19, 16 and 15, remained living there. They were still living there at the time of the trial in November 2012.
They had, as a couple, through their joint efforts, some assistance from their extended families and through inheritance, accumulated a couple of a million dollars’ worth of property. They have remained in dispute since their separation approximately four and a half years ago as to how to divide up this property between them and how to end their entwined financial relationship. That responsibility is now one for this Court.
A trial took place in this Court over two days on 21 and 22 November, 2012. The parties were both represented by very experienced solicitors and barristers.
At the end of the trial, the parties remained locked in dispute about several significant matters. They disagreed in a number of respects about what constitutes the pool of property to be divided between them. They disagreed as to the notional division of the property that ought to be effected having regard to their contributions from the commencement of their cohabitation until their separation. They disagreed as to the level of adjustment that should be made to that notional division arrived at after considering contributions having regard to s 79(4)(e) of the Family Law Act 1975 (Cth) (“FLA”), including all those matters that are relevant pursuant to s 75(2) of the Act. They did agree though that there should be such an adjustment in the wife’s favour. Finally, they disagreed as to the nature of the orders that should actually be made as to how property adjustment is effected and, also, as to whether the husband should pay periodic spousal maintenance to the wife on an ongoing basis.
The trial was heard prior to the High Court delivering judgment in Stanford.[1] Neither party submitted that no property adjustment orders should be made in this case, and neither party has, since my judgment has been reserved, sought to make any further submissions in the light of the High Court’s decision. As each party seeks property adjustment orders, I am quite satisfied that it is a case in which it is just and equitable to make property adjustment orders as between the parties.
[1] (2012) 247 CLR 108.
Furthermore, neither party submitted that the Court’s determination of appropriate orders dividing the property of the parties or either of them in a manner that the Court considers just and equitable should not be undertaken pursuant to the four step process that has been authoritatively accepted as the generally appropriate method for doing so.[2] The continued use of this approach to “illuminate the path” to determining the just and equitable orders to be made does not, in my view, offend any of the reasoning in Stanford. I consider that the Full Court accepted as much in Bevan & Bevan [2013] FamCAFC 116. I intend to follow that four step process.
[2]See, for example, Hickey & Hickey and Attorney General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143; and also Coghlan & Coghlan (2005) FLC 93-220.
Before I do, I observe, with regret, that it is now fifteen months since the trial was concluded and just over fourteen months since final written submissions were received and I am now delivering my judgment in this matter. I acknowledge and appreciate that the length of this delay between trial and judgment will have been a source of concern to the parties that may very well have added to the distress they already would have been experiencing being involved in marriage breakdown and highly contentious property division litigation. I apologise for the delay which I attribute to the heavy responsibility of hearing and determining so many other cases in this Court in that period of fifteen months. It is to be hoped that with this judgment the parties will now be able to move on with their lives.

The First Step – Determining the ‘pool’ of property the parties have interests in

At the conclusion of the trial, the husband and wife agreed that the ‘pool’ of property and superannuation in which they had interests includes the following assets and superannuation interests and that those interests are to be considered at the stated values:
ASSETS and SUPERANNUATION INTERESTS

1. Net assets of the McLusky Family Trust  $530,272
2.Debt owed to the wife by the McLusky Family Trust                   $119,165
3.     Debt owed to the husband by the McLusky Family Trust            $211,008
4.     Joint shareholdings (the husband 2 shares, the wife 1 share)
in the company A Pty Ltd  $493,827
5.     Value of the practice operated by the husband through
various entities (has a negative value)   ($1,288,434)
6.Debt owed to the husband and the wife by the jointly owned
company, A Pty Ltd  $128,796
7.The husband’s half interest in an investment property
partnership with a third person   $141,278
8.The husband’s half interest in a rural property including the
plant, equipment, stock and debt relating thereto  $243,709
9.Mitsubishi motor vehicle in the husband’s
possession  $5,000
10.Honda motor vehicle in the wife’s possession  $10,000
11.Investment property registered in wife’s sole name at
B Street, Suburb C  $455,000
12.Former family home registered in wife’s sole name,
situated at D Street, Suburb E  $1,200,000
13.Money held in wife’s solicitor’s trust account  $3,056
14. Company F shares  $1,250
15. GST refund that was to be received for the financial year
30 June 2011   $4,908
Sub-Total  $2,258,835
14.Husband’s superannuation interest in the McLusky
Self-managed Superannuation Fund   $211,508
15.Wife’s superannuation interest in the McLusky
Self-managed Superannuation Fund  $203,476
Total  $2,673,819

The parties agreed that they had a liability not already taken into account in calculating the above values which was a debt to the Commonwealth Bank that they agreed was to be considered at $164,225. That liability reduces their net interests in property and superannuation to $2,509,594.
On the face of the balance sheets ultimately contended for by each of the parties, there was disagreement as to whether each party had personal tax liabilities in respect of the financial year ended 30 June 2011. However, I understand Senior Counsel for the wife to have conceded that the amounts asserted by the husband should be included in determining the net value of the parties’ interests in property and superannuation for the purposes of the property adjustment determination. The husband’s debt was $11,628 and the wife’s debt was $7,121. Including these liabilities reduces the total value of the net interests in property and superannuation to $2,490,845.
Counsel for the husband included in his schedule an amount of $5,967 as a liability for land tax. Senior Counsel for the wife makes no reference to this in his written submissions. The evidence the husband adduced of the liability is fairly limited. In the table of assets and liabilities that he includes in paragraph 53 of his trial affidavit filed 10 May 2012 he lists as item 9 in the Liabilities table a land tax liability for the McLusky Family Trust of $2,052 and as item 10 a land tax liability for the McLusky & G Unit Trust the sum of $3,915. No other evidence is adduced, but it seems that the husband is asserting that the land tax liabilities are liabilities of the two trusts to which he refers.
My understanding of the evidence that was before me and the agreed positions presented by the parties is that the values attributed to those two trusts by the single expert accountant, Mr H, were to be the values ascribed to those trust entities and utilised in determining the values that I have set out above as agreed values of the parties’ interests in property. I further understand the agreed values were based on values attributed to the entities by Mr H as at 30 June 2011 with agreed adjustments. I read Mr H’s report attached to his affidavit filed 10 May 2012 as reflecting that he included land tax liabilities for both of the trusts in his valuation that the parties accepted and agreed upon. Accordingly, I do not consider it appropriate to include any further liabilities for land tax attributed to those two trust entities by the husband.
In addition, the evidence establishes, and the parties agree, that the value of number of the real properties owned by the parties or their entities reflect capital gains that will give rise to Capital Gains Tax on sale. Neither party wants to keep any of those properties. Indeed, the husband’s case is that they must be sold to pay down debt that he cannot afford to continue to service as he has been up until now. Although of course, the CGT liabilities will only be able to be determined after the sale of each of the properties and relevant tax returns are lodged, there is no dispute that the current estimate of the total amount of CGT that will be payable having regard to the current values of those properties is around $215,000. There will, of course also be costs involved in selling those properties. The evidence was that those costs are likely to be about $112,000 having regard to the agreed values of the subject properties.
Similarly, the evidence establishes that the company, A Pty Ltd, owned as to 2 shares by the husband and 1 share by the wife has retained earnings that would on payment of dividends to the shareholders be taxable. The evidence of the current estimate of that total tax liability is approximately $105,000. The wife does not want to retain her share in that company. The husband does not want to retain the company either and submits it should be wound up. It is agreed that winding up would crystallize the tax liabilities attached to the retained earnings.
Deducting those notional amounts from the net figure already arrived at produces a figure of $2,058,845.
Although Senior Counsel for the wife, made it clear that the wife’s position was that the husband could and should retain the real properties and the company, thus relieving the wife, at least, of any liability for the CGT, the realisation costs and the tax that might be payable in respect of the company’s retained earnings, I understood him to concede at the commencement of the trial that the Court should not force the husband to keep the properties and the shares in the company if he did not want to keep them. I consider that a proper concession. I would not consider it just and equitable to order the husband in this case to retain property that neither he nor the wife wanted to retain, particularly when there is substantial tax liability attached to it. On the other hand, Senior Counsel rightly pointed out that various legitimate strategies may be able to be utilised to minimise the total tax liability of the parties when the properties are sold and the company is wound up. The parties can legitimately be expected to take advantage of those if they possibly can and can be given an opportunity to do so by allowing them to agree on the way in which maximum benefit can be achieved through orders made by the Court that they draft that reflect the Court’s findings. That is what I was asked to consider doing, at least by Senior Counsel for the wife.
Finally, as to the calculation of the divisible pool, the parties disagree as to the appropriate treatment of the husband’s paid legal fees. Although the wife incurred liabilities for legal fees and outlays up to and including the trial of approximately $82,763, at the trial she had not paid any of those. Clearly, she was to pay those from her share of the property retained after the Court’s property adjustment orders were made. I expect that is yet to occur. The husband had though already paid $5,000 to one firm of solicitors, $74,944 to his current solicitors and had $34,4521 in his current solicitors’ trust account on account of anticipated fees and outlays that were expected to exceed that amount. Accordingly, he had outlayed $114,397 in legal fees and outlays at the time of the trial.
It is apparently agreed that $30,000 of that amount was sourced by the husband from the proceeds of sale of a real property situated at I Street, Suburb C, the sale of which settled on 27 April 2012. Senior Counsel for the wife accepts that in his submissions in reply filed 17 December 2012. The evidence also establishes, as counsel for the husband correctly points out in his written submissions, that the price for which the said property sold in April 2012 is included as the value attributed to the property in the valuation of the McLusky Family Trust that Mr H arrived at and which the parties accepted. Accordingly, as long as the husband retains control of the McLusky Family Trust and its assets, with regard being had to the full value of that property at that figure that Mr H took into account, it would be inappropriate to notionally include an amount in the ‘pool’ of the parties’ net interests in property and superannuation representing that amount of $30,000 and attributing that as a further “notional” asset of the husband’s. With respect, I do not accept the submission of Senior Counsel for the wife in his written submissions in reply that the husband has not even “added back” that $30,000 that he took from the proceeds of sale of the property.
As to the balance of the husband’s paid legal fees of $84,397, it seems that they have probably been paid by the husband by credit card in the first instance as they were incurred. There does not appear to be real disagreement that he paid off his credit card, from time to time, using income generated between separation and trial from the various sources of income generation that he had access to, but most particularly from the income generated by the practice that he operated and managed.
Senior Counsel for the wife submits that an amount should be “notionally” added to the ‘pool’ of the parties’ net interests in property and superannuation that are taken into account in the determination of appropriate and just and equitable property adjustment orders to reflect the pre-trial payment of legal fees by the husband. Counsel for the husband argues that this should not happen and he points to the Full Court decision of Chorn & Hopkins (2004) FLC 93-204, particularly paragraph [58], in support of his submission.
Notionally including or “adding back” amounts to the parties’ net interests in property and superannuation in order to determine a “pool” that is considered throughout the balance of the process of determining property adjustment orders has been authoritatively considered to be the exception, rather than the rule.[3] The Full Court in Chorn & Hopkins acknowledged that the treatment of funds used to pay legal costs prior to trial is ultimately a matter for the discretion of the trial Judge but that regard should be had to the source of the funds used to pay legal fees in determining how to exercise that discretion. The Full Court certainly did make a point of distinction as to how the discretion should be exercised depending upon whether the funds used existed at separation of the parties or were generated by a party post-separation from his or her own endeavours or received by way of gift or inheritance, saying, in respect of the latter, that the money spent on legal fees would generally not be added back as a notional asset. In doing so, I accept, as Senior Counsel for the Wife pointed out, the Full Court was expressing a ‘guideline’, one that the Full Court itself later acknowledged was not considered to have binding effect, but one that could, for appropriate reasons, be departed from.[4]
[3]See Farnell & Farnell [1995] FamCA 140; DJM & JLM [1998] FamCA 97; Chorn & Hopkins (2004) FLC 93-204; Omacini & Omacini (2005) FLC 93-218.
[4] See Harrington (2007) FLC 93-317 at [19].
Relevant to consideration of the issue in this case is not just the ‘guideline’ I have referred to in the previous paragraph but also the further passage at the end of [58] in Chorn & Hopkins where the Full Court did say though that:
Funds generated from assets or businesses to which the other party made a significant contribution or has an actual legal entitlement may need to be looked at differently from other post-separation income or acquisitions.
As Senior Counsel for the wife pointed out, although the husband owned the practice at the commencement of the cohabitation that lasted 17 years, it was a fledgling business at that point in time and the income that it was generating for the husband post-separation that he apparently principally used to pay for $84,000 of his legal fees, was generated by the business that he had worked extraordinarily hard in over the previous 17 years, often six days per week and up to fifteen hours per day. During those same years the wife cared for the three children, ran the home, worked from time to time in the business, and practically and emotionally supported the husband in his endeavours to build that business. Clearly, I am satisfied, she made significant indirect contributions to the husband’s capacity to generate the income that he did in the business, even after separation.

Additionally, included in the parties’ net interests in property is a liability for $25,000 that the husband has to his father for money borrowed from him for the husband’s use on the Town J property owned by the husband and his sister. Although almost $19,000 of that is represented in assets which are also included, there is a net loss of approximately $6,000 in respect of that borrowing. That is $6,000, at least, that might not have had to be borrowed, or could have at least been repaid had the husband not spent the $84,397 on legal fees. In fact, the whole of the borrowings could have been repaid in such circumstances, saving quarterly interest payments that have been made by the husband to his father in that same period. Other liabilities of the parties could very well also have been reduced by the use of that income as well, instead of the payment of legal fees.
In principal, I consider there are good reasons to depart from the Chorn and Hopkins “guideline” relied upon by the husband. However, before simply determining that the amount of $84,397 be notionally added to the parties’ net property interests I consider it important to observe that since Stanford was decided, the discretionary treatment of what are generically described as “add backs”, in the light of the High Court’s decision, has been discussed by a few of my judicial colleagues on this Court.[5] Young J proffered the view that the decision in Stanford would likely “ensure a change in approach” to the way in which the issue of “add backs” is dealt with. Murphy J in Bowe & Bateman [2013] FamCA 253 observed that the principles relating to “add backs” “may need to be examined in light of the decision of the High Court in Stanford”.
[5]See Watson & Ling [2013] FamCA 57 and Bowe & Bateman [2013] FamCA 253 per Murphy J and Sebastian & Sebastian (No5) [2013] FamCA 191 per Young J; see also what the Full Court said about the issue in Bevan & Bevan [2013] FamCAFC 116.
After those single Judge decisions, in Bevan & Bevan, the Full Court said, at [79], that it is important to deal with this question of “adding back” notional property carefully, recognising that the money or property no longer exists but that its disposal forms a potentially important part of the history of the marriage. The Full Court acknowledged that s 79(4), and in particular s 75(2)(o) gives “ample scope to ensure a just and equitable outcome when dealing with the unilateral disposal of property”. I observe that the Full Court did not say that the issue could not be dealt with as it has been in the past, prior to the decision in Stanford.
I am satisfied that in this case the matter could be dealt with justly and equitably by considering the husband’s expenditure of the $84,000 as part of the assessment of contributions or at the stage of considering the matters set out in s 75(2), but I am nevertheless of the view that it is equally appropriate, as well as just and equitable, to notionally add the amount to the parties’ net property interests and superannuation at this first stage of the determination process. Doing so, the value of that ‘pool’, without any deductions for the CGT, realisation costs and tax on the retained earnings of the company, is equal to $2,575,242. Notionally deducting the amounts estimated for those other liabilities gives a figure of $2,143,242.

Assessment of Contributions of the Parties

I accept the evidence that the husband contributed about $90,000 that he obtained from the sale of a property that he owned prior to the cohabitation of the parties towards the purchase of the parties’ first home. I also accept that the wife contributed about $18,000 sourced from properties that she owned pre-cohabitation towards the purchase of the parties’ first property. Each of the parties owned a motor car at the time they started living together, the wife’s worth around $5,000 and the husband’s encumbered by debt. Each also contributed household furniture. Of course, the husband had his half interest in the practice he was running in partnership at that time. There is no evidence to suggest that was worth much, if anything, at that time.
I accept the evidence that the husband and his brother-in-law purchased a property from the husband’s father’s family trust in 2000 for the sum of $200,000 in respect of which the husband and his brother-in-law borrowed $100,000 each from a bank, allowing each of them to negatively gear the rental income received from this investment property. I also accept the husband’s evidence that he then received $100,000 by way of a gift from his father’s trust which he used to reduce the mortgage debt the parties had over their home at the time.
The wife’s evidence, given for the very first time during her cross-examination at the trial, was that the husband did not tell her of this gift and she had learned of it for the first time when she read about it in his trial affidavit. She said that she did not accept that it had happened. In his cross-examination, the husband gave evidence that he had told her of it. The trial was in November 2012. The husband’s trial affidavit in which he deposed to the fact was filed in May 2012. I have no reason to consider that it was not served on the wife soon after it was filed. Given that she said she learned of it on reading his affidavit and she did not accept it had happened, the absence of any evidence being adduced asserting or proving it had not happened before her oral evidence under cross-examination, in addition to the commercially sensible nature of the manner in which the husband asserted he and his brother-in-law went about structuring the gift of the investment property from the husband’s father, persuades me to accept the husband’s evidence that he did receive such a gift in 2000.
I also accept that the husband inherited from his late mother in 2005, along with his sister, equal shares in the property at Town J that is now worth $500,000. Since inheriting the half interest in that property, the husband has spent many weekends at the property and undertakes basic repairs and maintenance work as well as tending to the few livestock that he and his sister run on the property. However, he has been paying his father interest only on a quarterly basis in respect of the loan of $50,000 he and his sister borrowed to use in respect of that property since September 2009. That is equal to $100 per month, without any reduction in the principal debt and it derives, I am satisfied, from his net-after tax income.
It is also agreed that the wife’s parents contributed $50,000 towards the parties’ home loan mortgage debt and that some of that has been repaid to them, although there was no evidence from which I could make a finding as to how much has been repaid.
There is no dispute between the parties about the quality of the respective contributions each made throughout the 17 years of their cohabitation. I accept that each of them devoted themselves to the tasks that each set themselves as part of their common purpose of building their lives together around their family and their business. I am also satisfied that each continued to contribute in the same roles they had maintained throughout their marriage after their relationship broke down and separation occurred. The wife continued to care for the three children and maintain their home. She did so against a factual backdrop of the children growing into adulthood and undertaking tertiary studies, and where their relationships with the husband continued to deteriorate. The husband continued to manage the business and financially support the wife and children to a substantial degree, as well as meeting the loan repayment obligations required of him.
Against that factual background, Senior Counsel for the wife submitted that the Court would assess contributions of the parties from commencement of cohabitation to trial as equal. With respect, I do not consider that such an assessment is properly open to the Court. The husband’s initial direct financial contributions that went into the parties’ first home were greater than the wife’s by approximately $72,000. In addition, the Court must give adequate weight to the contributions, effectively made by the husband, of the inheritance in 2005 of an interest in a property worth $250,000 at trial and the gift of $100,000 that he received from his father’s trust in 2000 that was utilised in a way that saved the parties interest on their home loan and effectively converted that interest into an expense deductible against the husband’s income. Of course, the $50,000 the wife’s parents gave them that was also used to pay down their mortgage debt must also be given adequate weight as a contribution of the wife’s in this process.
Counsel for the husband submitted that the ‘leap’ from qualitative assessment of contributions to quantitative determination should properly result in an assessment of overall contributions proportioned as between the parties as to 55 per cent to the husband and as to 45 per cent to the wife. Such an assessment, resulting in a 10 per cent differential between them, creates a differential in notional dollars of approximately $214,000 between the parties, having regard to the notional ‘pool’ of net property interests and superannuation of approximately $2,143,242 after allowing for the estimated tax and realisation liabilities already discussed. I am quite satisfied that such a differential justly and equitably recognises the greater direct financial contributions made by the husband.

What should the adjustment to that notional 55/45 assessment be having regard to s 79(4)(d) to (g) of the FLA in so far as those matters are relevant?

Much time and energy was put into preparing and arguing a case about this part of the determination of the appropriate property adjustment orders by each party and his and her legal representatives. In the end, Senior Counsel for the wife submitted that the factual circumstances support an adjustment assessed as high as 15 per cent of the total of the value of the notional ‘pool’ of net property interests and superannuation. On the other hand, counsel for the husband submitted that the adjustment should be limited to 5 per cent of that notional pool.
The husband was almost 51 years of age at the time of the trial and the wife was already 51 years of age. The wife was in good health whilst the husband gave evidence that he was “morbidly obese”, on medication for his blood pressure, suffering from sleep apnoea and in urgent need of some expensive dental work. None of those assertions were challenged, but I observe that the husband gave no evidence that any of those matters directly impacted his earning capacity, or that his obesity and blood pressure were matters that were not able to be addressed by some lifestyle changes, including dietary changes and some exercise.
At the time of the trial, the husband was still operating and managing his practice. He had been, on his own evidence, the principal and practice manager of that practice for 25 years. Historically, that practice has provided an income that for the 17 years of the marriage and the 3 years between separation and trial supported the husband, the wife and their three children without the wife herself working in employment to generate income outside the home or the practice itself. That income had allowed the parties to acquire investment properties as well as a valuable home in an appealing suburb. It had allowed the parties to drive luxury motor cars. It had given the parties the means to have the three children educated at expensive private schools and to enjoy overseas holidays to attractive destinations. Since the parties separated, the income the practice has generated has enabled the husband to continue to financially support the wife and the three children, as well as supporting himself in a different household. At the same time, that income has provided for his continued payment of the parties’ loan repayment obligations as well as providing just under $80,000 for his legal fees. It has also provided for the husband’s retention of his half interest in a rural property to which he could travel most weekends, that has actually cost him money to keep rather than producing any net income for him. The income the practice has generated also allowed the husband to enjoy further overseas and domestic holiday travel with his new partner after his separation from his wife.
Despite all that, counsel for the husband submitted to me that I would find on the evidence that was adduced in this case that the husband would very soon after the trial no longer be operating and managing his practice and that, at best, he would be working as an employed practice manager in someone else’s practice and not as an employed professional. He submitted that I would find that the husband would be closing the doors of his practice and walking away from it. Counsel for the husband submitted that I would find that the wife has an earning capacity that she has made no reasonable effort to exploit since the separation. In essence, his submission as I understood it was that I should find that the husband’s earning capacity is not that much greater than the wife’s and, as such, the adjustment that consideration of all of the relevant s 79(4)(d) to (g) matters, most particularly the respective earning capacities of the parties, would result in should be limited to 5 per cent. With respect, I do not make the findings that he submitted I would.
In his trial affidavit, the husband set out the net profit of the practice after expenses and before tax for the six years ending 30 June 2011. He also set out his own personal taxable income for those six years. That evidence was as follows:
Year  Practice income                  Personal income
30 June 2006                   $220,684  $98,200
30 June 2007                   $158,601  $97,688
30 June 2008                   $143,107  $37,284
30 June 2009                  ($91,960)  $77,995
30 June 2010                   $100,036  $36,201
30 June 2011  ($8,837)  $61,793
The husband deposed in his affidavit to the practice having “suffered a major financial decline with the onset of the financial crisis in 2008”. He said that fees have declined significantly between 2006 and 2011 and that his taxable income over those years has also declined.
The report of Mr H was in evidence. It listed the professional fees rendered by the practice over those same years. They were:
Year               Professional fees rendered
2006  $1,700,567
2007  $1,782,293
2008  $1,640,047
2009  $1,399,638
2010  $1,668,796
2011  $1,338,350
Whilst those figures reveal a downturn from 2006 and the better year of 2007, in the last four of those years listed, the 2010 year was markedly better than 2009 and 2011 and really not that far below the better years of 2006 and 2008. At least, the difference in that year, 2010, could not be described as “a major financial decline”.
Indeed, after Mr H adjusted the net profit figures for the practice for each of those six years to have regard to the various matters that appear to be the usual adjustments that valuers make in these determinations, such as borrowing and interest costs and the like, he arrived at the following figures:
Year  Adjusted earnings
2006  $277,729
2007  $326,246
2008  $241,104
2009  $100,225
2010  $196,561
2011  $41,380
Those adjusted figures show a similar pattern as the previous figures showed, and certainly support the view that 2011, particularly was not a good year for the practice. Mr H actually listed estimated future earnings at $197,208 before related parties commercial costs. That was the average taken from those six years. He then attributed no value to the business after making allowance for a notional “commercial” remuneration and superannuation of $262,000 for the owner.
The husband said in his May 2012 trial affidavit that the practice, at that time, was “stagnant with little hope of recovery in the foreseeable future.” At the trial, the husband obtained leave to rely upon an affidavit filed on 20 November 2012 to which he exhibited documents that reflected professional fees rendered for the year ended 30 June 2012 down to $1,254,781 and the making of a loss of $42,335 overall for that year. However, other exhibited documents revealed those figures included an expense of purchasing ‘work in progress’ by the new entity that the husband had created to run the practice at the start of the 2012 financial year from the entity that formerly operated the practice in a sum of $97,000. Adjusting for that, as I consider is appropriate, the profit of the practice would have been around $55,000 for that year. That is better than for 2011 but still not as good as it had been. However, another exhibited document revealed that the husband’s estimated taxable income for the 2012 financial year, having regard to income to be distributed by the family trust of $83,754 and the $97,000 purchase of the work in progress was expected to be about $120,000. The document contained a note that reflected a proposal to reduce that to $70,400 by making a $50,000 contribution to superannuation by transferring “the farm” to the self-managed superannuation fund. If the husband’s income was to be $120,000 for the year and the practice made a loss of $42,000, then the net amount of income to the husband would be $78,000.
However, in another document exhibited to the husband’s November 2012 affidavit, a letter from the business broker with whom the husband has listed the business for sale, the broker writes, in respect of the 2012 accounts – “after adjustments for expensed items deemed non applicable to a prospective buyer the Proprietor’s Earnings before Interest and Tax (PEBIT) is approximately $157,028.” That figure, coming from that business broker, I consider, far more likely to be properly reflective of the true return to the husband of his investment in time, effort and money in continuing to operate and manage the business for that 2012 year than the other figures the husband presented to the Court.
Of course, that is not equal to the “commercial” rate of income that Mr H opined was appropriate for the husband as principal and manager of his practice, but it is nevertheless an income and, I consider at least, an improvement on the year before and much closer to the adjusted return that Mr H reported on for the 2010 financial year.
The husband also exhibited a document to the November 2012 affidavit that was titled Profit and Loss Statement for the period July 2102 to September 2012. It included $342,225 in professional fees rendered and a net profit of $148,858 for the period, but I note it did not include any expense for the rent on the building in which the legal practice operates, which seems to be paid in June of each year in a lump sum amount in advance for the next year (or at least recorded as such). Annualised, the fees rendered figure equals $1,368,900, a slight improvement on the 2011 financial year. A document headed Profit and Loss Statement for October 2012 was also exhibited and it had professional fees of only $62,417 included and a net profit of $10,896. Annualising that month added to the other three months, gives a figure of only $1,213,926, which, of course, is lower than the previous years. However, I do not consider it appropriate to simply take that one month and find that it is indicative of the likely monthly results from that point on, given the financial data presented for all of the time leading up to that one month.
The husband gave evidence in his trial affidavit that he had placed the practice on the market for sale in November 2011 for the amount of $169,000 plus the cost of work in progress. He had withdrawn it from sale in August 2012 after having received two offers. Apparently after an extensive due diligence process, the first offer was withdrawn. The second offer was for $169,000 plus the cost of work in progress that was estimated to be $70,000. That offer was made subject to due diligence investigations. After receiving that offer, the husband simply withdrew the business from the market, asserting at Court that he did so because the trial in these proceedings was coming up.

Whilst it does seem clear that the fees being generated by the business have decreased in recent years, and that, consequently, the income the business produces for the husband has also generally decreased over the same period, I do not accept that the circumstances are such that the husband must or will simply close his practice and no longer work as a professional. I do not accept that he will have to go out to the employed workforce and find employment as a practice manager of another practice when, by continuing to run his own practice, he is truly earning more than he potentially could as an employed practice manager at another practice. I am quite satisfied that the business actually generates income for him of at least around $100,000 per annum, and probably more than that, in real terms. I am satisfied that when these Court proceedings are completely finished and the parties’ financial affairs are separated, that with conviction and application the husband will be able to maintain his earning capacity at around the same level as I have found he currently demonstrates he has and that he is likely to be able to improve on it even further.
The wife, on the other hand, has been out of the employed work force for over 20 years. Ms K, a recruiter in a national recruitment firm, gave evidence that even if the wife were to retrain by doing the courses recommended to her by Ms K, due to the current nature of the job market and the lack of any recent experience of the wife, it will be very difficult for the wife to re-enter the paid workforce. Ms K said that every day she sees highly skilled and highly trained candidates who are struggling to find work.
The husband, through the submissions of his counsel, submits that the wife could have begun the retraining process and employment search soon after separation and that if she had done so she could have been earning an income now.
The wife had not done any re-training or found employment at the time of trial. She attributed that to the fact that she has continued to maintain the home in which she and the three children of the parties live, and she has continued to provide the children (the youngest who turned 18 in July 2012) with practical and emotional support through the difficult years following the separation during which school commitments were concluded and tertiary education has been commenced and undertaken. The wife also said she had the responsibility to provide care for her elderly 94 year old grandmother and her 86 year old year old father who had fallen ill, including taking them to medical appointments and doing things for them during the day.
I am satisfied that it has been reasonable for the wife to want to continue to provide practical and emotional care for the three children of the family, as she had done, by agreement right through their childhood until separation, during their transition into independent adulthood. It is also not unreasonable for her to be providing care to her father and grandmother. However, I am satisfied, given her age and her state of health, that she has a residual earning capacity and one that could be improved a little with some retraining and that she could have done some of that retraining by now. The reality though, in my view at least, is that the earning capacity that she does have, or could have with that retraining, which at the very best might be around $40,000 gross per annum, is nevertheless substantially inferior to that of the husband who has been able to work, improve and maintain his own earning capacity over the many years of the marriage, largely assisted by the support given by the wife maintaining the family home and principally parenting their children. I am satisfied it will always be substantially inferior.
Even if I am wrong with respect to the unlikelihood of the husband closing his practice, I am satisfied that in the event that he does he will be far more able to find employment than the wife and will still be able to earn substantially more than she will be able to. This disparity in their earning capacities and the reasons for the disparity are without a doubt, in my view, the most significant matters to consider in determining further adjustment to the property division in order to arrive at orders that are just and equitable.
In addition, Senior Counsel for the wife submitted that the wife’s continued financial, physical and emotional support of the three, now adult children for a few years to come is a relevant factor. At the time of the trial they were all still living at home with the wife. The parties’ daughter had one year to complete her Masters post-graduate degree. Their eldest son had two years to complete his degree and their youngest son was only in the first year of his combined degrees. Senior Counsel submitted that a 5 per cent adjustment for this fact alone is justified.
On the other hand, counsel for the husband submitted that s 66L of the FLA expressly provides the Court with power to make maintenance orders in relation to children who are over the age of 18 if satisfied that the provision of maintenance is necessary to enable the child to complete his or her education or because of a mental or physical disability of the child. Counsel further submitted that s 66K(5) of the FLA requires the Court to consider the capacity of a parent to provide maintenance by way of periodic payments before considering the capacity of each of the parties to provide maintenance by way of lump sum or by way of transfer or settlement of property. Counsel for the husband submitted that it is not appropriate to use the provisions of s 79(4)(e) and s 75(2) of the FLA to provide financial support for adult children from one spouse to the other through property adjustment orders as opposed to using s 66L.
I accept that as a general proposition there is some merit in that submission. Whilst there exists statutory provision for adult child maintenance applications that have not been utilised by a parent who is voluntarily bearing the sole financial burden of supporting an adult child or adult children whilst they undertake tertiary study, that parent should not expect to look to property adjustment to provide additional financial support for those adult children over and above what might otherwise be just and equitable property adjustment. That said however, I am nevertheless satisfied that a parent’s practical and emotional support, and even their financial support of adult children who are still living with them whilst undertaking post-secondary school training or education is still a relevant factor to consider pursuant to s 79(4)(e) and s 75(2) in determining just and equitable property adjustment orders. Specifically, s 75(2)(e) requires the Court to take into account “the responsibilities of either party to support any other person”. Additionally, s 75(2)(o) requires the Court to take into account “any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account.” Parents of children cannot reasonably be expected to order those children out of the family home once they reach their statutory adulthood nor to simply cut off all forms of support for those children. It is easy to understand and accept that a parent considers it an ongoing “responsibility” to continue to support their children until they actually reach true independence from the parent. Whilst the parent might not have a legal “duty” to support an adult child, their voluntary support of adult children in the period between statutory minority and true adult independence, most particularly practical support such as the provision of accommodation in a family home and support with domestic tasks, but also general emotional support is not something that should be ignored and not considered in determining appropriate property adjustment orders that are just and equitable simply because the other parent no longer participates in the voluntary provision of that support.
In this case, of course, it is relevant to observe and have regard to the fact that the family trust owes the three adult children collectively an amount of $66,817 and that the parties have agreed that is to be paid to the three adult children as part of the property adjustment orders. That will certainly assist the three adult children financially. However, I am quite satisfied, in the circumstances of this case, that the wife will continue to provide support in a practical and emotional sense to the three adult children whilst they continue to live at home and to undertake tertiary studies which will be, at the most, I am satisfied, only a couple more years.
As I have already observed, by the time of the trial, the husband had re-partnered and was living in a unit with his partner. She was employed and at that time they were still keeping their finances relatively separate. Nevertheless, with living together as a couple comes natural savings with economies of scale. Renting one place together generally provides savings on the cost of one person renting his own place. Utility bills such as for water usage and electricity are generally shared. The cost of buying food and household supplies is similarly shared and allows for some savings. Holidays away together are often cheaper per person when taken as a couple. Although relatively minor, these matters are also taken into account at this stage of the determination.
Although Senior Counsel for the wife urged the Court to consider a 10 per cent adjustment for the disparity in earning capacity between the parties and a 5 per cent adjustment for the wife’s prospective care of the adult children, this part of the discretionary exercise is not to be a mathematical or accounting exercise. The Court must simply attribute such weight as it considers appropriate to the matters that are relevant in the discretionary exercise of quantitatively assessing an adjustment that will allow appropriate orders that are just and equitable to be made. If percentages are to be utilised, sight must not be lost of the actual value in dollar terms of a particular percentage adjustment.
I have already observed that in real dollar terms 10 per cent of the net property pool and superannuation interests, adjusted for the notional “add back” of the husband’s paid legal fees and for the notional deduction of estimated tax and realisation costs is approximately $214,000. The husband could earn that much more than the wife in net income in between two to four years and it has long been recognised that a good earning capacity is one of the best things to take out of the breakdown of a marriage, particularly a long one. However, both parties are in their 50’s now and the duration of their productive working lives is necessarily limited by that factor. The husband does not have too many more productive years of being able to exploit his substantially greater earning capacity in any event.
In all the circumstances of this case, I am of the view that adjusting the share of the property the wife is to retain by 13 per cent for the matters considered pursuant to s 79(4)(d) to (g), in so far as they are relevant, will allow appropriate orders to be made by way of property adjustment that are just and equitable.
In percentage terms, that would adjust the wife from an entitlement of 45 per cent to 58 per cent and the husband from an entitlement of 55 per cent to 42 per cent, giving the wife 16 per cent more in entitlement than the husband. That would be the equivalent of $1,243,080 of the notional ‘pool’ if the tax and realisation costs ultimately equal the estimates given by Mr H. In that circumstance, it would be $343,000 more than the husband retains.
Accordingly, I consider that orders that adjust the net property and superannuation interests of the parties as well as the notional “add back” of the amount of $84,000 for paid legal fees and the current “notional” deduction of the amounts likely to be paid in tax and realisation costs as to 58 per cent to the wife and as to 42 per cent to the husband will be just and equitable.
Having considered the draft orders proposed by each party in this matter and the request by Senior Counsel for the wife for the opportunity for the parties to see if they can reach agreement on terms of orders that will give effect to my findings, I will, give the parties the opportunity to reach agreement as to the terms of the orders that I should now make to actually adjust their property interests in accordance with my findings contained herein. There will need to be some potentially complex financial restructuring to give effect to the Court’s findings with tax consequences for each party as well as potential realisation costs. I consider that there are matters that the parties would probably want to consider, discuss and agree upon in this respect if they possibly can. I consider the provision of just over one calendar month sufficient time for the parties to be able to do so if they can. If they have not jointly forwarded an agreed draft of orders that should be made to give effect to these findings within that month, then I will hear and receive any submissions they make as to the precise orders to be made before I go on to make such orders.

Spousal Maintenance

The wife also made an application for spouse maintenance. She sought orders, in addition to orders for just and equitable property adjustment, obligating the husband to pay her periodic spousal maintenance for a period of 3 years.
As I observed, if the taxation liabilities and realisation costs ultimately are as Mr H estimated them to be, the wife will receive property interests and superannuation to a total value of approximately $1,243,080, some $343,000 more than the husband. I expect, given the superannuation interest she has of $203,476, that she may then have difficulty, given she is still some years short of her 55^th birthday and the ability to take her superannuation, albeit subject to a taxation liability, in retaining the Suburb E property. It may very well have to be sold, if it has not been sold already.
Whether it be sold or not, I consider it not unreasonable to expect the wife to actually accommodate herself in a less valuable property, even if she is still intent on providing some practical housing assistance to any of her adult children. Accordingly, I am satisfied that the wife should have some capital, over and above that actually needed for her own accommodation that she will be able to apply to her own reasonable self-support needs. I am also satisfied, as I have already observed, that the wife has an earning capacity, albeit not a great one, that she could exploit so as to contribute towards her own self-support.
The husband has provided quite an amount of financial support to the wife since they separated. Now that the property division is to be finalised between them, particularly having regard to what I consider will be the wife’s capacity to meet her own needs from the capital she will retain on the property division and her own ongoing earning capacity, I do not consider it proper to order the husband to continue to pay spousal maintenance to the wife. I will dismiss her application for periodic spousal maintenance.

I certify that the preceding seventy-three (73) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Forrest delivered on 26 February 2014.

Associate:

Date: 26 February 2014