Merrill and Burt
[2018] FamCA 609
•10 August 2018
FAMILY COURT OF AUSTRALIA
| MERRILL & BURT | [2018] FamCA 609 |
| PROPERTY SETTLEMENT – Just and equitable – Whether it is just and equitable to make orders altering the property rights and interests of the parties – De facto relationship – Consideration of factors under s 90SF(3) of the Family Law Act 1975 (Cth) – Whether to “add back” certain post separation expenditure into the pool or take into account the expenditure as a s 90SF(3)(r) factor – Consideration of the contributions of the parties. |
| Family Law Act 1975 (Cth) ss 79, 90SF, 90SF(3)(r), 90SM, 90SM(1), 90SM(3), 90SM(4) |
| Bevan & Bevan [2013] FamCAFC 116 Biltoft & Biltoft (1995) FLC 93-614 Browne & Green (1999) FLC 92-873 CPL & CPL [1998] FamCA 143 Chorn & Hopkins (2004) FLC 93-204 Clauson & Clauson (1995) FLC 92-595 Clifford & Lodge [2000] FamCA 1666 Cunningham & Cunningham (2005) FLC 92-212 Finlayson v Finlayson & Gillam (2002) FLC 93-121 Hickey & Hickey & Attorney-General for the Commonwealth of Australia (2003) FLC 93-145 Holland & Holland [2017] FamCAFC 166 In Re Sabri; ex parte Brien (1997) FLC 92-732 Kouper & Kouper (No 3) [2009] FamCA 1080 Kowaliw & Kowaliw (1981) FLC 91-092 Mayne & Mayne (2011) FLC 93-479 Pierce v Pierce (1999) FLC 92-844 Rosati v Rosati [1998] FamCA 38 Stanford & Stanford (2012) 247 CLR 108 Thurston & Loomis & Ors [2018] FamCA 26 Vass & Vass [2015] FamCAFC 51 Waters & Jurek (1995) FLC 92-635 Zaruba & Zaruba [2017] FamCAFC 91 |
| APPLICANT: | Ms Merrill |
| RESPONDENT: | Mr Burt |
| FILE NUMBER: | LM | 9912 | of | 2013 |
| DATE DELIVERED: | 10 August 2018 |
| PLACE DELIVERED: | Adelaide |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Berman J |
| HEARING DATE: | 3, 4, 5, 6, 10, 13 April 2017, 31 July 2017 and 16 October 2017 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Bartfeld QC with Ms Fisken |
| SOLICITOR FOR THE APPLICANT: | Farrar Gesini Dunn |
| COUNSEL FOR THE RESPONDENT: | Mr Jones QC with Mr Hall |
| SOLICITOR FOR THE RESPONDENT: | Efron & Associates |
Orders
That in full and final settlement of all claims that either party may have against the other for property settlement pursuant to the provisions of the Family Law Act 1975 (Cth) (as amended) (“the Act”):-
(a)That on or before forty five (45) days from the date of this order the husband do pay to the wife the sum of SIX HUNDRED AND FOURTEEN THOUSAND ONE HUNDRED AND NINETY SEVEN DOLLARS ($614,197) (“the settlement sum”);
(b)That contemporaneously with the payment of the settlement sum the wife shall transfer her estate and interest in the property situate at L Street, Suburb E described in Certificate of Title Volume … Folio … (“the L Street property”) to the husband;
(c)That within fourteen (14) days of this order the wife do sign the settlement agreement with the Australian Taxation Office (“ATO”) with respect to the taxation liabilities in the total sum of TWO MILLION FIVE HUNDRED AND THIRTEEN THOUSAND SEVEN HUNDRED AND SEVENTY THREE DOLLARS ($2,513,773) for the following entities:-
(i)CPL Pty Ltd;
(ii)OPL Pty Ltd as trustee for the 6 M Street Unit Trust;
(iii)S Pty Ltd as trustee for the S Street Trust;
(iv)U Pty Ltd;
(v)The wife as assessed on distributions from OPL Pty Ltd;
(vi)Shortfall interest charge (SIC) and general interest charge (GIC);
AND that the wife indemnify the husband in respect of any taxation liability that arises in respect of the named entities.
(d)That within thirty (30) days of this order the husband do all acts and things as may be necessary to withdraw caveats currently lodged by him and/or on his behalf against any and all real property owned by the wife or CPL;
(e)That SS and/or TT do all such acts and execute all such documents as are required to transfer within fourteen (14) days of orders being made the shares in CPL Pty Ltd (ACN …) held in their names to the wife;
(f)That if in the discharge of the wife’s liability to the ATO or in respect of her other liabilities she proposes to sell any or all of the real property held by CPL Pty Ltd THEN the wife shall give the husband thirty (30) days’ notice of any intention to sell and the husband will have the first right of refusal and a first option to purchase the nominated property or properties at the following value:-
(i)2 and 3, M Street, Suburb D $1.9 million;
(ii)1 M Street, Suburb D $630,000;
(iii)N Street, Suburb D $750,000;
(iv)5, 6 and 7 at N Street, Suburb D $65,000;
PROVIDED that the husband’s right of refusal and first option to purchase shall be discharged within eighteen (18) months of the date of this order;
(g) That the wife retain to the exclusion of the husband the following:-
(i)CPL Pty Ltd subject to the husband’s first right of refusal and option to purchase;
(ii)The balance of proceeds of sale of 5 M Street;
(iii)Her German motor vehicle;
(iv)Her personal belongings and effects.
(h) That the husband retain to the exclusion of the wife the following:-
(i)Subject to the payment of the settlement sum the L Street property;
(ii)His 4WD motor vehicle;
(iii)His personal belonging and effects;
(i)That the wife retain and the husband be restrained by injunction from making any claim with respect to any funds received by her arising from the VCAT proceedings number …;
(j)That in default of the payment of the settlement sum and should the default continue longer than fourteen (14) days, the parties will cause the property situate at L Street, Suburb E to be placed on the market for sale by public auction or private treaty with the net proceeds of sale to be applied in the following manner:-
(i)To pay all costs, commissions and expenses of sale in respect of the said property;
(ii)To discharge any mortgage or any other encumbrance affecting the said property;
(iii)Such sum as shall then be required to pay such of the settlement sum either in whole or in part as shall remain outstanding together with default interest calculated from the date of default pursuant to the Family Law Rules 2004 (Cth) and Family Law Regulations 1984 (Cth) with the balance remaining to be paid to the Trust Account of Efron and Associates for and on behalf of the husband;
(k)That the husband do all such acts and things and sign all such documents as may be required to transfer to the wife:-
(i)All shares held by him in OPL Pty Ltd; and
(ii)All shares and/or units held by him in the 6 M Street Unit Trust;
(l)That in the event that either of the parties do not execute and/or deliver to each other any instrument or deed required to be executed by him or her pursuant to these orders THEN a Registrar of this Court is authorised pursuant to s 106A of the Act to execute any necessary documents on behalf of either of the parties as may be required to give effect to these orders.
That all extant applications be otherwise dismissed.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Merrill & Burt has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT ADELAIDE |
FILE NUMBER: LM 9912 of 2013
| Ms Merrill |
Applicant
And
| Mr Burt |
Respondent
REASONS FOR JUDGMENT
INTRODUCTION
The proceedings relate to the settlement of property arising from a de facto relationship spanning 26 years from 1987 until the date of separation in October 2013.
Ms Merrill (“the wife”) commenced proceedings by way of an Initiating Application filed 14 November 2013 seeking parenting and other orders. An Amended Initiating Application was filed on 4 April 2014.
Mr Burt (“the husband”) by Response filed 20 December 2013 opposed the orders sought and in addition introduced orders for property settlement.
By Further Amended Initiating Application filed 19 February 2016, the wife opposes the general order for property settlement as sought by the husband and contends that there should be no adjustment of interests as between the parties pursuant to s 90SM(3) of the Family Law Act 1975 (Cth) (“the Act”). The wife argues at [78(a)] of her final submissions filed 23 June 2017 that “the parties made a conscious and overt decision in or around 2009 to transfer ownership and control of all assets from the husband to the wife”. In consequence of the conduct of the parties and to give effect to their clear intention the wife submits at [79] of her final submissions that the Court should determine it is not just and equitable to make a finding under s 90SM(3) of the Act.
The husband seeks orders pursuant to s 90SM(1) of the Act that there be an alteration of the interests in the parties to the matrimonial property of the wife transferring to the husband all of the wife’s right, title and interest in property held by her including her interest in the former matrimonial home, settlement funds received in respect of Victorian Civil and Administrative Tribunal (“VCAT”) proceedings and the assets principally comprising real estate in various companies currently controlled by the wife. The proceedings are replete with complexity. The husband argues that the wife has received a “premature distribution” of matrimonial assets to the value of $3.7 million which should be treated as an “add back”.
The orders sought by the wife are as follows:-
(1)That there be no adjustment of interests as between the wife and the husband pursuant to any section of Part VIIIAB of the Act.
(2)That within 28 days of the orders being made:-
(a)That the husband withdraw caveats lodged by him or on his behalf against any and all real estate property owned by the wife and/or [CPL Pty Ltd] (ACN …) (“[CPL]”);
(b)That the husband vacate the property situate at L Street, Suburb E in the State of Victoria (“the former matrimonial home”) and shall deliver up to the wife all remote controls, keys, and access codes relating to the former matrimonial home and indemnify the wife in relation to any damage or repairs to the former matrimonial home caused by or arising from the husband’s occupation of the home post separation.
(3)That the husband be restrained from interfering with any sale or any proposed sale by the wife or [CPL] in respect of the following:-
(a)The former matrimonial home;
(b)1 M Street, Suburb D;
(c)2 and 3, 316-320 M Street, Suburb D;
(d)N Street, Suburb D;
(e)[Property] at [4 M Street, Suburb D], registered in the name of [CPL].
(4)That leave be given for [SS Pty Ltd] (ACN …) (“[SS]”) and [TT Pty Ltd] (ACN…) (“[TT]”) (collectively “[UU]”) to be joined as parties to the proceedings and that [SS] and/or [TT] do all such acts and execute all such documents as may be required to transfer the shares in [CPL] held in their name/s to the wife.
(5)That within 28 days of orders being made the husband repay to the wife the sum of $435,000 being reimbursement for monies paid to him on his behalf pursuant to orders of this Court on 19 October 2015 and 8 February 2018.
The involvement of SS and TT appears to be uncontroversial. SS is an entity controlled the accountants who assisted the husband in the incorporation of CPL in 1994. That entity holds the shares in CPL. They have been served with proceedings and the parties agree that SS will abide any order of the Court and will transfer shares held in CPL as the Court may direct.
The husband seeks virtually all of the property held by the wife. More particularly the husband seeks that:-
(1)That the wife assign her entitlement to conduct and retain the proceeds, if any, in respect of proceedings before the VCAT in proceedings … in the matter of “[Merrill] v …”.
(2)That the wife indemnify the husband in respect of all claims arising out of or in connection with any assessment of taxation liability either made or to be made by the Australian Taxation Office (“ATO”).
(3)That it be declared the wife has received a premature distribution of a proportion of the matrimonial assets to the sum of $3.7 million.
(4)That pursuant to s 90SM(1) of the Act there be an alteration of the interests in the parties to the matrimonial property with the wife relinquishing and/or transferring to the husband her right, title or interest in the following:-
(a)The former matrimonial home;
(b)Any and all funds received with respect to the VCAT proceedings;
(c)The assets of [CPL];
(d)The assets of [OPL Pty Ltd] (“[OPL]”);
(e)The assets of [S Street Pty Ltd] (“[S Street]”);
(f)The assets of [T Pty Ltd] (“[TPL]”); and
(g)The assets of [U Pty Ltd] (“[U]”).
(5)That the parties otherwise retain interest in chattels and personal property in their separate possession or control.
DOCUMENTS RELIED UPON
The wife relies upon the following documents:-
(1)Further Amended Initiating Application filed 19 February 2016
(2)Trial Affidavit of the wife filed 19 February 2016
(3)Financial Statement filed 19 February 2016
(4)Financial Statement filed 17 February 2017
(5)Affidavit of Ms F filed 19 February 2016
(6)Affidavit of Ms F filed 19 August 2016
(7)Affidavit of Mr DD filed 21 March 2017
(8)Affidavit of Mr VV filed 31 March 2017 (annexing a valuation of the chattels of each party)
(9)Affidavit of Mr WW filed 31 March 2017 (annexing the valuation of N Street, Suburb D)
(10)Affidavit of Mr XX filed 31 March 2017 (annexing valuations of 1 M Street, Suburb D and 5, 6 and 7, N Street, Suburb D)
(11)Affidavit of Mr YY filed 31 March 2017 (annexing valuation of L Street, Suburb E)
(12)Affidavit of Mr ZZ filed 31 March 2017 (annexing valuations of [2 and 3 and the associated property at 4 M Street, Suburb D].
The husband relies upon the following documents:-
(1)Response to Further Amended Initiating Application filed 30 May 2016
(2)Trial Affidavit of husband filed 30 May 2016
(3)Trial Affidavit of husband filed 3 April 2017
(4)Financial Statement filed 18 August 2016
(5)Financial Statement filed 3 April 2017
(6)Affidavit of Mr W filed 28 July 2016
(7)Affidavit of Mr W filed 28 February 2017
(8)Affidavit of Mr BC filed 28 July 2016.
CHRONOLOGY
1952
Date of birth of husband.
1968
Date of birth of wife.
1986
Wife takes up residence in Australia.
March 1987
Together with business partners, husband purchases a business and the premises at 6 M Street, Suburb D.
22 May 1987
OPL is registered with the husband holding the majority shareholding.
4 Sept 1987
Husband is appointed as director of OPL.
Oct 1987
Wife and husband commence cohabitation at CD Street, Suburb D (a property purchased by the husband in August 1987) noting the wife asserts the date of cohabitation was April 1987.
1 Oct 1987
The 6 M Street Unit Trust is established with OPL as the trustee.
Dec 1987
Purchase of freehold land and business at 6 M Street is settled. The partners run the business while the husband works in his profession.
1988
The husband’s partners in the business relinquish their claim to any interest in the trust or its property.
1989-1995
Wife works in the husband’s office and from time to time in the operation of the business.
1988-1989
The wife acquires one of the four shares issued in OPL.
1989-1990
The husband sells his property at CD Street and his interest in a hotel.
April 1990
The husband is mugged and sustains serious life-threatening injuries.
9 Feb 1994
CPL is registered with the wife and Mr DE appointed as directors later that year.
10 May 1994
Following the sale of the hotel for $1,150,000 the parties purchase a house property at EF Street, Suburb B (the “EF Street property” in the name of TPL Pty Ltd (“TPL”).
21 Dec 1994
2 and 3, and 1 M Street, Suburb D are purchased by CPL.
1995
The property at N Street, Suburb D is purchased by CPL.
… 1996
Date of birth of Ms FG and Ms OO.
1998
Property at 5 M Street, Suburb D is purchased in the name of OPL.
… 1999
Date of birth of Ms JJ.
9 Dec 1999
S Pty Ltd is registered with the wife as the sole shareholder and the husband as the sole director and secretary.
3 Feb 2000
Purchase of S Street, Melbourne.
… 2000
Date of birth of FF.
2006-2007
Husband’s health deteriorates.
Oct 2008
Husband’s professional licence is suspended. Husband’s business transferred first to Mr Y, then to Mr HI (now deceased) and then to Mr IJ.
July 2009
Husband is admitted for treatment following a major depressive episode.
16 Nov 2009
Husband resigns as director and secretary of S Pty Ltd and is replaced by wife.
11 Dec 2009
Husband resigns as director and secretary of OPL and is replaced by wife.
2010
The EF Street property is transferred from TPL Pty Ltd to wife.
2010
Husband is the subject of litigation by a colleague seeking $500,000 in unpaid monies. Judgment is entered against the husband at VCAT.
2010
Pursuant to a claim against the husband’s income protection insurance LM commences to pay $4,600 per week.
1 June 2010
Wife enters into an agreement to purchase the husband’s debtors.
17 Dec 2010
The husband enters voluntary bankruptcy.
25 March 2011
The husband loses professional accreditation.
12 Oct 2011
Wife enters a deed of settlement of assigned debts and debts of the office are assigned by the husband to the wife and ratified by the husband’s trustee in bankruptcy in the sum of $60,000.
2011
Premises at S Street, Melbourne is sold and proceeds of $1,400,000 deposited into an account held by CPL.
2011
The EF Street property is sold and proceeds applied to purchase L Street for the sum of $3,475,000.
21 Feb 2013
Total and permanent disability payment of $882,803 is paid to husband into the account of CPL.
17 Oct 2013
The parties separate with the wife leaving the family home and with the children taking up accommodation in a serviced apartment.
Nov 2013
FF takes up residence with the father.
22 Sept 2015
The wife signs a contract for the sale of 5 M Street for $1,250,000.
SCHEDULE OF ASSETS AND LIABILITIES
The Court has received summary submission documents from each of the parties which identify a balance sheet of assets and liabilities.
The parties are in agreement as to the value of most of the property and some of the liabilities.
Save as to certain liabilities, the following are agreed:-
ASSETS
Current Owner
Description
Value
Wife
L Street, Suburb E
3,350,000
CPL
2 and 3 M Street, Suburb D
1,900,000
CPL
1 M Street, Suburb D
630,000
CPL
N Street, Suburb D
750,000
CPL
5, 6 and 7 at N Street, Suburb D
65,000
Wife
German motor vehicle
70,000
Husband
(JK Pty Ltd)
4WD
18,000
Wife
Jewellery in her possession
60,000
Wife
Chattels in her possession
19,790
Husband
Chattels in his possession
101,120
Wife/Husband
Balance of proceeds of sale of 5 M Street and VCAT settlement funds as at 31 January 2018 as per judgment delivered 16 March 2018
161,653
TOTAL
$7,125,563
LIABILITIES
Wife/husband and entities
ATO debt
(not agreed)
-
Wife/husband and entitles
Estimated capital gains tax on CPL properties (not agreed)
-
Wife
German motor vehicle finance
70,000
Wife/husband
Outstanding MM School fees (agreed)
46,561
Wife/husband
Legal fees to GG Lawyers re insurance claim (agreed)
11,550
ISSUES IN DISPUTE
Whilst there is general agreement as to the identity of assets and their value for each of the parties little else is agreed. Without intending to be comprehensive, the more significant issues in dispute are as follows:-
(1)The wife does not consider that there should be any adjustment of property as between the parties. The husband seeks that there be a division of property pursuant to s 90SM(1) of the Act. The wife submits that no finding should be made that would enable the Court to make an order.
(2)Should the Court determine that it is proper to make an order under s 90SM(1), then a detailed consideration needs to be given to the liabilities of each of the parties. The wife contends that she has a taxation liability both personal and in respect of her associated entities that should be recognised and brought to account at $2,513,773. The husband considers that the alleged tax debt has not been resolved and there remains the possibility that if a tax debt is brought to account the amount properly payable to the ATO could well be significantly less than the amount the wife is prepared to accept.
(3)Whether the settlement by the wife of litigation in the VCAT proceedings should be considered as “wastage” by the wife in that the settlement was wholly inadequate.
(4)The husband seeks that the post-separation conduct of the wife, particularly in relation to her personal expenditure, should be considered either as a “negative contribution” or as a factor pursuant to s 90SF(3)(r) either by way of an add back into the asset pool in the sum of $3,095,000 or by way of a “substantial adjustment in [the husband’s] favour.” The wife contends that whilst her expenditure might be considered as “generous” there is insufficient evidence to support the husband’s quantification of monies spent was not inconsistent with the pre-separation spending taking into account their standard of living and lifestyle.
BACKGROUND
The husband was born in 1952 and is 66 years of age. He is not employed in any professional capacity and it appears uncontroversial that he is unlikely to return to any form of significant paid employment. He lost his professional accreditation in 2011. There is no suggestion that he will return to work in his previous profession.
His health appears poor and he suffers from a number of chronic conditions including ischaemic coronary artery heart disease, significant hearing loss, obstructive sleep apnoea and on-going neurological deficit.
The wife was born in 1968 and is currently 50 years of age. She does not engage in paid employment and to date her income is derived from rental received from the commercial properties held by CPL. The wife appears to enjoy reasonable health.
The husband currently lives in the former matrimonial home, whereas the wife resides in rental accommodation.
The parties met in 1987 and commenced cohabitation that year. They separated on 17 October 2013. The wife commenced proceedings on 14 November 2013.
Following separation the wife left the former matrimonial home with the four children. FF returned to live with the husband in November 2013. The wife continues to reside in rental accommodation.
Ms FG exhibits cognitive and learning disabilities as a consequence of a brain tumour diagnosed when she was four years old. Notwithstanding that she is 21 years of age, her special needs appear to be recognised and supported by the parties.
To a greater or lesser degree the adult children and FF rely upon financial support from the parties, but in particular the mother.
The wife became the director and secretary of CPL in December 1994. As discussed, the shares in CPL are held in the name of SS. It appears that the transfer of the shares from UU to the wife was overlooked and it is not controversial that UU will comply with an order of the Court that directs to whom UU should transfer the shares held in CPL.
CPL is the registered proprietor of the following properties:-
(1)2 and 3, M Street, Suburb D.
(2)1 M Street, Suburb D.
(3)N Street, Suburb D.
(4)5, 6 and 7 at N Street, Suburb D;
(collectively “the CPL properties”).
The CPL properties are unencumbered.
The wife is the sole director of OPL which is the trustee for The 6 M Street Trust. OPL owned the property at 5 M Street, Suburb D. The proceeds of sale were retained and have been the subject of interim orders. The wife remains the sole director and shareholder of S Pty Ltd and KK Pty Ltd. Neither entity trades or holds assets of value.
The wife acknowledges that as at the commencement of cohabitation she did not own any assets of value. The husband was a solicitor and practised in his own right.
The husband had a number of properties and businesses either in his own right or held by various corporate and trust entities that he controlled.
Shortly prior to the commencement of cohabitation the husband purchased a house property at CD Street, Suburb D which was sold in July 1989 with some level of capital gain. The property was the subject of a mortgage.
He also held an apartment in GH Town, Queensland with an estimated value of between $650,000 and $750,000 as at the date of cohabitation. The property was subsequently sold for $750,000.
The husband purchased the property at 6 M Street, Suburb D in early 1987 together with a business.
The husband also held interests in two hotels purchased in July 1985 and June 1987. Both interests were sold by 1990 with the husband enjoying a capital gain.
Soon after the commencement of cohabitation the wife gained secretarial skills and assisted with typing in the husband’s office. From time to time she also assisted in the other business.
The parties disagree as to the extent of work undertaken by the wife in the office and the business. The wife contends that she assisted the husband with administration and bookwork and then in the business for between five and six nights per week.
Whilst the parties may disagree as to the extent of the wife’s involvement, there is no suggestion that the parties did other than work cooperatively and for the common purpose of advancing their financial circumstances.
In April 1990 the husband was attacked and robbed late at night. He was stabbed 19 times and underwent emergency and ultimately life-saving surgery.
The injuries sustained by the husband were severe and the extensive nerve damage and ongoing pain resulted in the husband not being able to return to his office or to work in the business for some time. As the disability arising from the injuries began to abate, the husband was able to return to work but in a limited capacity.
He sustained deteriorating health and from 2006 was unwell and suffering from pain, anxiety, sleeping disorder and depression.
In 2009 and 2010 the husband required two lengthy periods of hospitalisation for severe depression and anxiety.
In 1994 the parties sold a property for $1,150,000 which was considered by them to be a windfall. It enabled the purchase of the family home at EF Street, Suburb B registered in the name of TPL Pty Ltd (“TPL”) as trustee for the O Trust. The parties were the only directors and shareholders of TPL with the wife as the sole unit holder in O Trust.
The wife was appointed a director of CPL in December 1994 and the company commenced to purchase various properties.
Ms FG and Ms OO were born in 1996, Ms JJ in 1999 and FF in 2000. It appears that the wife provided the primary care to the children but she acknowledges that the husband gave assistance when he was able to do so.
As discussed, the ongoing care of the children was demanding given that their proximity of age and exacerbated by the prognosis of Ms FG’s brain tumour. It is agreed that the medical and allied health requirements of Ms FG were onerous and took both a financial and emotional toll on the parties.
The husband’s professional certificate was cancelled in October 2008 and he lost professional accreditation in March 2011.
The husband had become unwell in 2006 and experienced severe depression and anxiety. There was at least one period of hospitalisation.
The husband lodged a claim in respect of an income protection insurance policy taken out with LM a number of years earlier. The claim was successful and upon the husband being declared totally and permanently disabled for employment, a payout of approximately $882,803 was received and thereafter monthly payments of $20,197.
Because the husband had assigned his benefit under the policy to the wife accordingly the payments were received in her name and deposited into an account under her control.
In recognition of the husband’s deteriorating physical and mental health and fearful of the possible adverse financial consequences, he transferred his directorships, shareholdings and bank account authorities to the wife.
She acknowledges that thereafter she was the sole owner and controller of the assets of the parties.
The husband was declared a bankrupt in December 2010.
In 2012 the parties purchased the former matrimonial home in the sum of $3,475,000. This became the family home until separation. The property was registered in the sole name of the wife. The EF Street property was sold for $3,400,000.
The parties separated in October 2013.
IS IT JUST AND EQUITABLE TO ALTER THE PROPERTY INTERESTS OF THE PARTIES?
It is submitted on behalf of the wife that the Court should not be satisfied that it is just and equitable for an order to be made that alters the property interests of the parties pursuant to s 90SM(1) of the Act.
If the wife’s position is accepted then no order need be made and the parties would retain their legal and equitable interests in property free from any further claim by the other.
The wife’s reasoning is founded upon the application of the observations of the plurality in Stanford & Stanford (2012) 247 CLR 108 at [41]:-
… If the parties have made a financial agreement about the property of one or both of the parties that is binding under Pt VIIIA of the Act, then, subject to that Part, a court cannot make a property settlement order under s 79. But if the parties to a marriage have expressly considered, but not put in writing in a way that complies with Pt VIIIA, how their property interests should be arranged between them during the continuance of their marriage, the application of these principles accommodates that fact. …
The wife contends that notwithstanding a relationship of 26 years, each of the parties made a conscious decision that the husband would transfer ownership and control of the assets of the relationship to the wife.
There is some contention as to the underlying reason for the decision of the husband to transfer his interest in the assets to the wife and her preparedness to accept same.
The husband entered voluntary bankruptcy in December 2010 and was removed from the roll of legal practitioners in March 2011. He does not accept the wife’s submission that the transfer of his interest in property was undertaken with the intent or express purpose of removing property that might be available to his creditors.
The wife points to the husband becoming acutely aware of various claims by creditors and it is only against this background that the husband’s actions in late 2009 and early 2010 to transfer the EF Street property from TPLs to the wife can be understood.
The wife contends that the transfer of ownership and control of property to her was consistent with the husband’s concern to ensure that the wife and children “are financially secure”.
The wife’s position is summarised by the following extract from paragraph 78(g) of her final submissions document filed 23 June 2017:-
The Husband represented to his creditors via the trustee in bankruptcy that he owned no (or little) property and that the assets under his former control were owned by the wife thus giving rise to a public interest question as to whether the husband can now seek property under a Family Law Act order after being discharged from bankruptcy. It would be an affront to public interest if a person in the husband’s position was able to obtain financial protection afforded by the Bankruptcy Act and represent to the world at large that he is unable to pay his lawful debts while at the same time benefiting from and being able to recover property kept from his creditors which should have been available to meet the debts. It must be remembered that most of the property subject to this application existed at or about the time of bankruptcy …
The husband claims that over the period of cohabitation the method and manner by which property was acquired and held was largely determined by the relevant circumstances of each of the parties at any particular time.
The husband denies that the transfer of his ownership and control in property in late 2009 was the first step leading up to his voluntary bankruptcy in 2010.
He highlights that the transfers of his interest to the wife in 2009 were entirely transparent. No action was taken by his trustee in bankruptcy to suggest that his actions were either designed to or did in fact contravene the provisions of the Bankruptcy Act 1966 (Cth), nor was it asserted that the husband had a deliberate intention to disadvantage his creditors.
His representation to his trustee in bankruptcy that he did not hold any interest in any asset of value was an accurate statement of fact. The fact that he had transferred his interest in property twelve months prior to his bankruptcy is irrelevant providing it cannot be demonstrated that he has made a fraudulent misrepresentation and there is no successful application made by the trustee to claw back property of value into the husband’s bankrupt estate.
Prior to the consideration of s 79(2) and s 90SM(3) by the High Court in Stanford (supra) “the preferred approach” is best encapsulated in the approach adopted and endorsed by the Full Court in Hickey & Hickey & Attorney-General for the Commonwealth of Australia (2003) FLC 93-145 where the Court supported what had commonly been referred to as the “four step approach”.
The husband seeks orders under s 90SM for an adjustment of the interests of the parties in property under the Act. It is the husband’s contention that it would be just and equitable for a settlement of property to be made, in particular the circumstances that would likely result in a transfer of property to him from the wife. The wife opposes the orders sought by the husband and contends that the Court is not able to be satisfied that it would be just and equitable to make those orders.
In Stanford (supra) the majority held:-
[35]It will be recalled that s 79(2) provides that “[t]he court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.” Section 79(4) prescribes matters that must be taken into account in considering what order (if any) should be made under the section. The requirements of the two sub-sections are not to be conflated. In every case in which a property settlement order under s 79 is sought, it is necessary to satisfy the Court that, in all the circumstances, it is just and equitable to make the order.
[36]The expression “just and equitable” is a qualitative description of a conclusion reached after examination of a range of potentially competing considerations. It does not admit of exhaustive definition. It is not possible to chart its metes and bounds. …
Importantly the court found that whether it is just and equitable to make an order is not to be answered by assuming that the parties’ rights to all interest in marital property is or should be different from those that then exist.
It is therefore not a matter of assumption that a party to a marriage has a right to an interest in property by reference to matters arising under s 90SM(4). A party cannot pull themselves up by their own bootstraps by asserting a contribution under s 90SM(4) and therefore using the position to satisfy the obligation imposed by s 90SM(3).
The following appears in [43]:-
By contrast, the bare fact of separation, when involuntary, does not show that it is just and equitable to make a property settlement order. It does not permit a court to disregard the rights and interests of the parties in their respective property and to make whatever order may seem to it to be fair and just.
Whilst clearly the Court has a significant obligation to consider the justice and equity of making any order that adjusts the property rights of parties, I do not consider that Stanford (supra) goes so far as to suggest that there can be no regard to the matters that might fall for consideration under s 90SM(4) of the Act. It is the very nature of the suite of contributions made by parties to a de facto relationship which in and of themselves have the ability to create equitable interests in the property of each of them.
Whilst applied in a different context, the following statement by Chisholm J In Re Sabri; ex parte Brien (1997) FLC 92-732 at p 83,869 has application:-
It might be arguable that this first condition is an unduly restrictive reading of the authorities. Be this as it may, in my view it is satisfied in this case. There has been an enrichment of the assets of the bankrupt by the wife. This is not as direct as if, for example, money had been paid to the bankrupt, but it is clear nevertheless. It is not necessary that there be an identifiable fund upon which the doctrine can operate. The parties combined their efforts and each made contributions to their combined fortunes, financial and otherwise. Had it not been so the property might have had to be sold, or mortgaged. The wife has given evidence of the specific contributions she has made, and has not been cross-examined. It would be an odd inference to draw that the bankrupt’s assets were not increased by those contributions, and in the absence of any evidence to the contrary or challenge to the wife’s evidence I am not prepared to draw such an inference. I have no doubt on the evidence that the bankrupt’s assets have been enriched during the course of the marriage by the wife’s contributions.
In Stanford (supra) the High Court sought to define its likely application to future cases in the following manner:-
[42]In many cases where an application is made for a property settlement order, the just and equitable requirement is readily satisfied by observing that, as the result of the choice made by one or both of the parties, the husband and wife are no longer living in a marital relationship. It will be just and equitable to make a property settlement order in such a case because there is not and will not thereafter be the common use of property by the husband and the wife. No less importantly, the express and implicit assumptions that underpinned the existing property arrangements have been brought to an end by the voluntary severance of the mutuality of the marital relationship. That is, any express or implicit assumption that the parties may have made to the effect that existing arrangements of marital property interests were sufficient or appropriate during the continuance of their marital relationship is brought to an end with the ending of the marital relationship. And the assumption that any adjustment to those interests could be effected consensually as needed or desired is also brought to an end. Hence it will be just and equitable that the court make a property settlement order. What order, if any, should then be made is determined by applying s 79(4).
In Bevan & Bevan [2013] FamCAFC 116 the majority of the Full Court said (in relation to the previously quoted paragraph in Stanford):-
[70]In our experience, the circumstances described in the paragraph above encapsulate the vast majority of cases. Hence, the reminder in Stanford of the pivotal role of s 79(2) is unlikely to have any impact in most cases, although it will serve as a reminder to trial judges that the precondition to making any order is a finding that it is just and equitable to do so.
In [73] the Full Court in Bevan (supra) stated that the decision of Stanford (supra) can be reduced to three fundamental propositions:-
(1)The Court needs to consider the existing property interests of the parties and to identify those interests (by reference to common law and equity);
(2)The direction must be exercised in accordance with legal principles and not in respect of any assumption that the parties interests should be different from those determined by common law equity; and
(3)Section 79(2) cannot be conflated by reference to matters in s 79(4) (or by reference to s 90SM(3) by reference to s 90SM(4)).
In Zaruba & Zaruba [2017] FamCAFC 91 at [38] – [39]:-
In the vast majority of cases, it will be appropriate to address the s 79(2) question by ascertaining the legal and equitable interests in property without making distinctions between individual assets. That is because [referring to Stanford] the “express and implicit assumptions that underpinned the existing property arrangements” can be seen to apply (to the extent and degree to which they do apply) to all of the property of the parties or either of them, including property in which the legal interests vary.
However, the position is likely to be different in circumstances where, as here, the characteristics of the property and the circumstances of its acquisition, improvement and the like can be seen to differ significantly and where, as here, the parties’ relationship has taken on quite different characteristics during the period to which the s 79 inquiry is directed.
The Full Court in Holland & Holland [2017] FamCAFC 166 said at [31]:-
Thus, the nature of a particular interest or interests in property and when and how it was acquired, utilised, improved or preserved may be very relevant to each or all of the three central questions: should a s 79 order be made at all; whether contributions should be assessed “globally” or “asset by asset” or by reference to two or more “pools”; and, what is the nature and extent of each party’s contributions. However, there is no basis for excluding from consideration any property in which the parties have an existing legal or equitable interest.
The wife accepts that at the commencement of cohabitation in 1987 she came to the relationship with little or no assets of value. The husband held the qualification of a legal practitioner and was running his own office. He asserts that he had interest in various property held both personally and by his control of relevant corporate entities. There is little evidence that establishes the likely net value to be attributed to the husband’s pre-cohabitation interests in property, but it is likely to have been substantial.
The wife also concedes that there were various other properties purchased which are likely to be explained only by reference to the husband’s income and the valuable interest in property that he held.
It is not controversial that the financial circumstances of the parties prospered during the period of cohabitation, at least until the husband’s ability to work was significantly affected by the debilitating injuries he received in the 1990 mugging incident.
There is general agreement that during the period of cohabitation the parties each made a valuable contribution. The husband would argue that his was predominantly financial. The wife would argue that hers was as a homemaker given the significant demands of four children and after 2009, the ongoing care of the husband and her need to continue the proper running of the household given the extra burden imposed by the husband’s depression, anxiety and deteriorating health.
The contributions of each of the parties, but in the context of this consideration, the husband’s contributions both financial and non-financial, are not intended to conflate s 90SM(3) with s 90SM(4) but rather, it is to inform the Court as to whether to enliven the power to make an order under s 90SM(1).
The parties separated in October 2013.
Leading up to separation there were a number of significant financial events that took place.
Following the resignation of the husband as director and secretary of various corporate entities and the transfer by him of ownership and control of the property to the wife, the husband was the subject of litigation by a barrister seeking $500,000 in unpaid fees. The litigation was concluded with a judgment entered against the husband.
As discussed, the husband’s health was sufficient to trigger a successful claim against his income protection insurance. The husband says a lump sum of $882,803 was paid by KL Super in February 2013, and a weekly income protection payment of $4,600 commenced being paid by LM Insurance in 2010.
The premises at S Street was sold in 2011 and monies were paid into the account of CPL.
In June 2010 the wife entered into an agreement to purchase the husband’s debtors and ultimately in October 2011 the husband’s trustee in bankruptcy ratified the assignment for $60,000.
The husband argues that given the financial circumstances of the parties, it was open to them to consider that the financial arrangements that then existed were appropriately retained. There is no evidence led on behalf of the wife that the transfer of interest and control to her was intended to reflect a permanent arrangement.
Presumably it was not contemplated by either of the parties that they would separate in 2013. Up until that date the clear intention of the parties was to engage in a marital partnership in order to best provide for the family taking into account the difficult circumstances in which they found themselves. The parties were challenged by the husband’s health, issues in relation to a complex and potentially parlous financial situation and the ongoing needs of the children.
The wife properly admits that she was unfamiliar with the complexity of the legal issues that the parties (or the husband) were facing and there was a financial naivety about her presentation.
The separation of the parties represents a “severance of the mutuality of the marital relationship”. I find that had the parties’ relationship continued it was likely that the arrangements that existed at the time may or could have been the subject of future change in response to or recognition of the changing circumstances of the family. The opportunity for consensual change was brought to an end by the breakdown of the relationship.
Accordingly, I find that it is just and equitable for the Court to consider an order pursuant to s 90SM(1) of the Act and to consider an alteration of the property interests of the parties.
ASSETS AND LIABILITIES
The parties are in general agreement as to the identity of their assets and the value to be attributed to them. The total is the sum of $7,125,563. The Court has been assisted by the various summaries of assets and liabilities that have been attached to the Case Outline documents filed on behalf of the parties. The agreed position is also supported by the husband’s updated Balance Sheet filed 9 May 2018.
Without ignoring the husband’s add back argument arising from a consideration of the legal fees of the parties and the husband’s complaint that the wife’s expenditure post-separation amounts to wastage of the property of the parties, the focus is on the purported liabilities of the parties but in particular the following:-
(1)ATO debt;
(2)Capital Gains tax on CPL properties;
(3)MM School fees;
(4)Outstanding legal fees to solicitors concerning the insurance claim.
ATO debt
The wife contends that in late 2013 she became aware that there may be a significant taxation liability.
The wife’s evidence is that even with the assistance of her accountants she was not able to ascertain the extent of the potential liability.
The wife specifically instructed Ms F to assist her in determining the potential liability and then if possible to negotiate a settlement with the ATO.
Consequent upon the evidence of Ms F and her colleague Mr DD (“Mr DD”), the wife seeks that the collective taxation liability both personal and of her associated entities should be brought to account at $2,513,773.
The parties disagreed as to the extent to which documents that may have been in the possession of the husband were withheld from the wife thereby hindering her from more easily assessing the extent of the taxation liability.
The husband does not deny that a tax liability may exist.
Paragraph 286 of the husband’s trial affidavit is relevant:-
I note [the wife’s] complaints that tax returns were not filed for the entities that she now controls. I admit that due to my health problems, as detailed above, I was simply not capable of preparing and filing tax returns from approximately 2009 onwards.
The submission made on behalf of the husband is that there is no evidence that would elevate the proposed liability determined following the negotiations with the ATO to be accorded the status of a debt. The husband argues that no tax liability has been proven, no deed of settlement has been reached and without there being certainty, the alleged tax liability should not be brought to account.
The husband further complains that the wife was implacably opposed to any involvement by the husband in the negotiations with the ATO.
Ms F’s evidence is contained in her Affidavits filed 19 February 2016 and 19 August 2016.
In her affidavit filed 19 February 2016 Ms F asserts that she sought documents from the family accountant Mr BC from January 2014. Mr BC apparently was not able to assist in the provision of documents and Ms F provided the wife’s solicitors with a list of the documents necessary for the preparation of financial reports and tax returns for the wife and her associated entities. An initial estimate was that the tax, penalties and interest could exceed $5,000,000. Ms F considered that the ATO should be approached with a request for a Private Ruling. Income tax returns were prepared for the wife and associate entities with lodgement to be deferred until an agreed taxation assessment had been obtained.
A more considered taxation liability is detailed in Ms F’s Affidavit filed 19 August 2016. The calculation for the relevant entities and the wife totalled $1,942,085 excluding penalties and interest.
Following discussions, the ATO produced a calculations document (“Exhibit 10”) which sets out the estimate tax penalties and interest for each of the relevant entities with a breakdown of the tax calculation broken down annually for the period 2001 – 2016 inclusive.
The calculation is relevant to the husband’s contention that there is no sum certain that has been accepted by the ATO. However, in the alternative, if that is incorrect then the Court should not bring to account a taxation liability for any entity that is either deregistered or does not have assets sufficient to discharge its own liability.
The following schedule is taken from Exhibit 10:-
Name of Entity
Basis of Calculation
Estimated tax penalties and interest
TPL Pty Ltd (trustee for O Trust)
Main Residence
Nil
CPL
Income Tax
$125,663
GST payable
$ 82,716
Penalties
$ 20,838
Sub Total
$229,217
OPL (trustee for the 6 M Street Unit Trust)
Net GST payable
$146,957
Penalties
$ 14,699
Sub Total
$161,653
S Pty Ltd (trustee for S Street Trust)
Income Tax
$408,978
Net GST payable
$102,579
Penalties
$ 51,156
Sub Total
$562,713
U Pty Ltd
Income Tax
$669,970
Net GST payable
$ 89,279
Penalties
$ 75,925
Sub Total
$835,174
[the wife] assessed on distributions from OPL
Income Tax
$437,122.33
Penalties
$ 43,712.23
Sub Total
$480,834.56
Shortfall interest charge (SIC) on operating entities
$150,629
General interest charge (GIC) on operating entities
$ 93,535
TOTAL
$2,513,773
The wife accepts the calculation in Exhibit 10. The husband does not but does concede the taxation liabilities for CPL and the wife.
The wife relied upon the evidence of Ms F and Mr DD to support her contention that the accounting evidence was sufficiently reliable for the Court to determine that the total ATO debt should be brought to account in the sum of $2,513,773.
In her evidence, Ms F confirmed that the wife’s personal tax liability was $437,122.
Ms F accepted the proposition that the only assets that might be available to satisfy the entirety of the taxation debt were those held by the wife personally and the property held by CPL. The following exchange appears in the transcript on 5 April 2017 page 219, line 23:-
Q:No. Well, you accept there are none. But are you working on the assumption that all of the matrimonial property would be charged in those terms of settlement with payment of all of these liabilities?
A:I’m not working on that assumption.
Q:No, because that’s why I’m really asking you as a very experienced accountant. You have been doing it a long time?
A:Yes.
Q:And still, is it not for you, as [the wife’s] accountant, a relevant question as to why should she, as director of [CPL], and she’s the sole director, charge the assets of [CPL] to pay tax liabilities of anything else than [CPL]?
His Honour: Sorry, Mr Jones, is that what’s happening?
Mr Jones:Well, that’s what we apprehend, your Honour.
His Honour: Well, I don’t – sorry, that’s different.
Mr Jones:But we don’t have the terms of settlement, but we assume that they will come forward in a form that the tax gets…
His Honour: But is there some information that you’ve received? I’m assuming there’s a reason why you’re asking the question, and I have assumed that it may have been something that Mr…
Mr Jones:Well, the assumption is, your Honour…
His Honour: …Jones may have spoken to you about, I don’t know.
Mr Jones:Yes, it’s based on what he said that…
His Honour: Otherwise, there would be no reason to ask the question, and there’s no…
Mr Jones:That’s right.
His Honour: There’s nothing that suggests that I’m aware of, but maybe there is, that…
Mr Jones:No, that’s based, your Honour, on what…
His Honour: …says that if the settlement is struck with the ATO, that it is struck with a charge used as security in respect of the assets of [CPL].
Mr Jones:I’m working on the assumption, based on what he said…
His Honour: I don’t know what he said, but…
Mr Jones:No, but, your Honour, if your Honour might hear me. That the ATO is looking to the assets of the marriage to pay all of the debts of all of the entities. And I’m suggesting to you and the witness the relevant question has to be as to why [the wife], as director of [CPL], would agree with the Tax Office to pay a tax liability owed by any entity other than [CPL]. That’s what I’m suggesting to the witness.
Q:Do you understand that?
A:I understand the question.
Q:And wouldn’t that be a relevant consideration for you?
A:It would be a relevant consideration, but I haven’t seen the terms of settlement and…
Ms F conceded that the wife did not have any obligation to pay a taxation liability of anyone else or any other entity other than herself. She was however firm in her evidence that there was an appropriate liability that had been calculated for the other entities, but she was not aware of how it was to be paid.
Ms F was questioned as to whether it was likely the ATO would consider the tax liability of each separate entity and of relevance to the dispute between the parties is the extent to which, if at all, the tax liability of one entity is interrelated with the tax liability of another entity.
The following appears at page 229, line 45:-
Q:That, in your experience, that I’m suggesting the practice of the Tax Office is not to chase deregistered companies with no assets?
A:That – look, that would be correct in cases where they’re one-off companies, but this is a very entirely different matter, so I – I couldn’t say that, with this particular matter, that that would be the case, no.
Q:But you just don’t know; is that the position?
A:Well, in this matter, I don’t – don’t know what they would…
Q:Right?
A:…and wouldn’t do, or wouldn’t have done.
Q:Right. See, I suppose if we look at some of the other large liabilities here, you have this, don’t you. You have – if you look at this – well, [OPL], number 3, item 3?
A:Yes.
Q:It, on this calculation, owes about $120,000?
A:Correct.
Q:And, well, I should say to you that there is some – an excess of that in the wife’s solicitor’s trust account for that company, so – but there is money under trust referable to that company. But if we looked at, say, number 4, the Street Trust. This is this [S Street]…?
A:Yes.
Q:[S Street]. That property was sold, wasn’t it?
A:Yes.
Q:Then the trust has no assets, does it?
A:No.
Q:And it’s taxed as a trust, isn’t it; it’s not taxed as a company?
A:That’s correct. As a trust.
Q:So if it’s taxed as a trust and it has no assets, then the Tax Office has no recourse, does it?
A:Again, if you look at it sole – individually, then, no.
Q:But that’s why, I suppose, I’m asking you a general question. If one has a trust, so there’s no issue of directors liability or anything else, shareholders liability, and the trust itself has no assets, then the Tax Office has no recourse to anyone, does it?
A:No.
Q:That’s it for the Tax Office?
A:See, sorry. I will take a step back it is a trust, sorry, they could issue or – I know there are no assets, but they still could issue an assessment whereby the trustee would have to pay tax at the top marginal rate.
Q:Right. And what’s the trustee for that trust, do you know?
A:S Street.
Q:But, again, that has got – you know, that has got no other assets, does it, so…?
A:No, it doesn’t.
The issue was explored in the cross examination of Mr DD at page 281, line 22:-
Q:And what I am asking is whether you see it as your role as the partner of the firm responsible as her accountant to advise her whether or not it’s prudent as a director of [CPL] to agree to sell assets of [CPL] or cross-collateralise or secure those assets to meet obligations which are not owed by [CPL]?
A:My engagement with [the wife] would be to advise her of her obligation to make the payment to the ATO.
Q:Okay?
A:And then discussing how she does that is a separate matter.
Q:Right?
A:And whether I’ve – whether I was comfortable in a position at that point to say, “This is what I think you should do”…
Q:All right?
A:Would need to be considered based on my qualifications and what I’m allowed to advise of.
Mr DD was pressed to give his opinion as to whether the wife may have some personal liability in respect of each of the separate entities. He conceded that where a company is deregistered with no assets there would be little or no basis for the ATO to recover.
At page 282, line 13:-
Q:I mean, would you consider if [the wife] had come to you and the only company involved was [UPL], it – look at its liability. What’s that? 669, 89. What are we looking at? Well 8,750. I was just looking at point 5 and what do you reckon those add up to? 670 plus 90?
A:740.
Q:Yes. If she came to you and you had that liability and the company was deregistered and it had no assets, then one view is you would say to her, “Well, the ATO will never seek to recover,” wouldn’t it?
A:Yes, but I would also seek the advice of our insolvency division.
Ms F returned to Court on 6 April 2017 to complete her cross examination. She confirmed that the CPL properties were the source of income. At page 335, line 12 the following appears:-
Q:Because it seems to be the evidence in this case is that, for better, for worse, that rent coming from those properties of [CPL] and [M Street] is really the weekly or the monthly source of revenue to [the wife]?
A:That’s correct.
Q:Right. So, in respect of that you had to do, what, two exercises, did you? You had to look first to the company’s position in terms of it being liable to tax, in terms of its receipt as income for the company. Is that the …?
A:Correct.
Q:And that’s 30 per cent?
A:Yes.
Q:And then you had to work out [the wife’s] personal position for that year and work out what marginal rate would apply to that, and then she would be paying tax on the amount received by her from the company at the difference?
A:Well, this was an issue raised with the Tax Office in…
And then at page 335, line 35:-
Q:So what does that mean in terms of effective tax rate applied to [the wife] for the money that she received from [CPL] prior to the end of – prior to the beginning of the next financial year?
A: At this stage my understanding is the ATO are not pursuing that.
Q: So is she paying tax for that income?
A: The company will pay the tax on that income.
Q: At 30 per cent?
A: And at 30 per cent, and that’s where it ends.
Under examination, the wife’s counsel posed the following proposition at page 344, line 17:-
Q:Thank you. You were asked a number of questions about the tax and the calculation. In your opinion, is it possible to – for [the wife] to negotiate with the tax office in relation to her own tax and put aside all the other issues that are part of this process?
A:So – sorry, just to clarify, you’re saying to put aside her…
Q:Put aside the companies and just deal with the 437 – 470,000 being her tax penalties in relation to her tax?
A:And – and dismiss the other – or put aside…
Q:Well, no?
A:With the tax office the other entities?
Q:Yes?
A:In my opinion, I don’t believe so.
Q:And are you able to tell his Honour why you formed that view – your opinion?
A:Well, because – because, firstly, it all formed part of the voluntary disclosure, but also because [the wife] was director of those entities, the ATO are able to determine – for example, if we were just to go with [the wife’s] information, they can determine whether or not she is associated with any entities and then seek to – lodgements on those. So I don’t believe that we can just put those entities aside.
The husband called an accountant Mr W who accepted his instructions to act as “and independent accountant to assess the tax liability” of the Merrill/Burt entities.
Mr W relied upon his Affidavits filed 28 July 2016 and 28 February 2017. Mr W sought a range of documents and information from Ms F presumably to enable him to comment on whether the proposed taxation liability for each of the entities represented a reasonable compromise with the ATO.
Mr W agreed with the proposition that he was presenting as an expert in taxation and was experienced in ATO procedures.
Mr W had received “Exhibit 10” which is the taxation summary as supplied by the ATO shortly prior to his evidence. He had also seen a letter from the ATO indicating that they were prepared to negotiate a settlement on those terms. His evidence was that he was familiar with the letter and its contents.
Mr W considered that in his experience a voluntary disclosure by a tax payer usually results in significant benefit in being able to negotiate in terms of either the overall tax payable or a compromise or reduction in the quantum of penalty interest and other penalties that the ATO can raise.
The advantage of a voluntary disclosure resulting in “distinct advantages flowing to the tax payer” was considered by him to be “enormous”.
Mr W had had an opportunity to consider the contents of “Exhibit 9” which provided a detailed breakdown of the income, expenses and taxation and penalties for each of the relevant entities. The summary distilled to a potential taxation sum of $5,544,854, but with preparedness on the part of the ATO to accept $2,891,684.47.
Following the provision of documents that comprise “Exhibit 9” to Mr W three days prior to his evidence, the following appears at page 360, line 1 of the transcript from 6 April 2017:-
Q:Try and understand my question, sir. Have you been asked by anybody whether the figure of 2.5 million is too much? I’m talking about the settlement figure?
A:I haven’t been asked specifically that question. I like the sound of the figure but I want to know which entity it relates to and who’s going to pay it.
And then at line 11:-
Q: You like the sound of the figure?
A:My correspondence from [EE Accountants] was three to five million and I addressed that in my affidavit, that it should be less. In fact, I was the one suggesting less than three. So if the figure is 2.5, that sounds good but I want to know which entity has the exposure and whether the entities have the capacity to pay it, whereas the ATO correspondence treats it as an all-in, suggesting that the spouse pay the figure.
Q: I see. So your real complaint or concern is who’s going to pay it?
A:My question is who is legally exposed to that tax liability – which entity.
Q:Well, Mr W, that’s a matter for his Honour, I think, you needn’t trouble yourself with. But the reality of the situation is you like the sound of the $2.5 million figure?
A:It’s what I projected should be the result from my preliminary review in the affidavits I’ve stated that.
Section 90SM(1) requires the Court to calculate “property of the parties”. It is not argued that if a taxation liability exists it should not be brought to account in determining the property of the parties available for division as between the parties.
The husband contends that whilst there is likely to be an outstanding taxation liability, it is far from being a figure that is settled. He further considers that in relation to two of the entities namely, S Pty Ltd and U Pty Ltd, the substantial tax liability may never be enforced or recoverable by the ATO in circumstances where no asset exists to offset any tax liability and the entities have not traded for a number of years.
The consequence of the husband’s argument suggests that whilst there is not likely to be much dispute as to the assessment of taxation for CPL, OPL and the wife personally in circumstances where the assumption by the ATO in terms of their offer of settlement following the wife’s voluntary disclosure, does not take into account that a significant component of the proposed sum of $2,513,773 may not be recoverable or enforced and therefore should not be paid.
The wife counters the husband’s argument by asserting that given the significant dereliction of the entities and the parties in not attending to the preparation of financial statements and tax returns for the relevant years, namely 2001 to 2016, the potential tax liability could have been much higher than the ATO settlement sum and the acceptance by her represents a compromise by the ATO, but only offered by reason of a resolution of tax liability owed by all of the entities irrespective of the question of enforceability or recovery.
It is a correct observation that the ATO and the wife have not crystalized the tax calculation of $2,513,773. The wife has been keen to do so, the husband has sought to restrain the wife from entering into any settlement agreement. He argues that if given an opportunity to do so he may well be able to significantly reduce the tax liability notwithstanding that Mr W considered that the figure negotiated between the ATO and the wife appeared reasonable.
Again, I suspect the issue is not so much whether the overall calculation is reasonable, but whether it is able to be recovered and enforced in its entirety.
In Biltoft & Biltoft (1995) FLC 93-614 at page 82,124 the Full Court said:-
A general practice has developed over the years that, in relation to applications pursuant to the provisions of s. 79, the Court ascertains the value of the property of the parties to a marriage by deducting from the value of their assets the value of their total liabilities. In the case of encumbered assets, the value thereof is ascertained by deducting the amount of the secured liability from the gross value of the asset. … Where the assets are not encumbered and moneys are owed by the parties or one of them to unsecured creditors, the court ascertains the value of their property by deducting from the value of their assets the value of their total liabilities, including the unsecured liabilities.
I do not consider that I am bound to apply a strict arithmetical approach to the calculation and determination of liabilities. Some liabilities are not capable of absolute determination and a decision must be made as to whether there is sufficient certainty as to the quantum of the liability that it should be brought to account.
The issue here is not one of bona fides. There is no suggestion by the husband that the taxation liability has been exacerbated or unnecessarily incurred by either the husband or the wife. The extent that the outstanding taxation liability has increased as a result of penalties and interest charges, it is the inaction of both parties that has created the current taxation predicament.
The wife’s concern is that unless the entirety of the taxation liability is paid, there remains the possibility that she will be pursued personally in her capacity as director of the various associated entities.
The duty of the Court to end financial relations between the parties as provided for in s 81 of the Act should also not be ignored.
The parties have been engaged in constant litigation since 2013. It has been ruinously expensive to each of the parties by reason of the costs of litigation. Whilst the consideration for finality of outcome cannot in and of itself justify a determination or a decision that is not otherwise open to the Court, it is reasonable to have regard to the taxation issues that affect the wife and the associated entities as a relevant consideration.
The wife seeks that any liability that she may have to the ATO should be resolved. She considers this is best achieved by the payment to the ATO of the overall proposed tax liability. The husband concedes that there is likely to be some taxation liability, but without him being given the opportunity to engage in negotiations with the ATO, he does not concede that he should necessarily accept the sum as promoted by the ATO.
I consider that there is sufficient evidence that the wife could settle the outstanding issue of taxation by accepting the figure of $2,513,773. The ATO have agreed the sum in full and final settlement and but for the current injunction the wife would be in a position to enter into the settlement agreement annexed to the wife’s Affidavit filed 26 October 2017.
The husband proposes that should the Court consider that the taxation settlement sum, then if an opportunity is given to the husband to negotiate with the ATO and should those negotiations be successful, then the amount that is not required to be paid should be distributed between the parties in the proportion of any adjustment made.
At the very least, the evidence supports a finding that the wife either is or could reasonably be liable for the outstanding taxation liability that attaches to CPL, OPL and the wife personally, together with SIC and GIC.
By reference to “Exhibit 9” GIC and SIC are calculated on the balances owed by CPL, OPL and the wife. GIC uses an interest rate of 19.7097 percent and SIC uses an interest rate of 12.2419 percent.
By reference to “Exhibit 10” the following calculations are of tax liabilities are likely to be enforceable by reference to the property of the wife and assets of the relevant entities:-
CPL
$229,217
OPL
$161,653
The wife
$480,834
SIC
$150,629
GIC
$ 93,535
Total
$1,115,868
There is currently invested in the trust account of the wife’s former solicitors an amount sufficient to discharge the taxation liability referable to OPL.
CAPITAL GAINS TAX ON CPL PROPERTIES
The wife called evidence from Mr DD to calculate the capital gains tax (“CGT”) payable in the event that the properties owned by CPL were required to be sold.
“Exhibit 8” sets out the CGT calculations which calculates the potential for CGT on the basis of the properties held by CPL to have a cost base of $820,000 and a current valuation of $3,345,000. Taking into account costs of sale that would equate to two percent of the valuation amount, Mr DD considers that the CGT properly payable would be $737,430.
The wife concedes that the decision of Rosati v Rosati [1998] FamCA 38 is clear authority for the proposition that the Court is entitled to bring to account an allowance for future CGT if a sale of the properties is inevitable and there is then some certainty that CGT will likely be levied.
In Rosati (supra) the Full Court considered the proper approach to be adopted by a Court in proceedings under s 79 (90SM(1)) at [6.36]:-
It appears to us that although there is a degree of confusion, and possibly conflict, in the reported cases as to the proper approach to be adopted by a court in proceedings under s.79 of the Act in relation to the effect of potential capital gains tax, which would be payable upon the sale of an asset, the following general principles may be said to emerge from those cases:-
(1)Whether the incidence of capital gains tax should be taken into account in valuing a particular asset varies according to the circumstances of the case, including the method of valuation applied to the particular asset, the likelihood or otherwise of that asset being realised in the foreseeable future, the circumstances of its acquisition and the evidence of the parties as to their intentions in relation to that asset.
(2)If the Court orders the sale of an asset, or is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings.
(3)If none of the circumstances referred to in (2) applies to a particular asset, but the Court is satisfied that there is a significant risk that the asset will have to be sold in the short to mid term, then the Court, whilst not making allowance for the capital gains tax payable on such a sale in determining the value of the asset, may take that risk into account as a relevant s.75(2) factor, the weight to be attributed to that factor varying according to the degree of the risk and the length of the period within which the sale may occur.
(4)There may be special circumstances in a particular case which, despite the absence of any certainty or even likelihood of a sale of an asset in the foreseeable future, make it appropriate to take the incidence of capital gains tax into account in valuing that asset. In such a case, it may be appropriate to take the capital gains tax into account at its full rate, or at some discounted rate, having regard to the degree of risk of a sale occurring and/or the length of time which is likely to elapse before that occurs.
Neither the husband nor the wife seek the sale of the CPL properties. The wife considers that it may need to occur depending upon the outcome.
The Court is not asked to order the sale of the CPL properties or any of them and as such I do not consider that it would be appropriate to bring to account a possible or potential capital gains tax liability.
VCAT PROCEEDINGS
The wife commenced proceedings in VCAT against the vendor of the former matrimonial home alleging that there were significant defects with a rectification cost of $300,000. The proceedings were listed for an extensive trial, however, the wife entered into a Deed of Settlement dated 21 April 2017 which settled the wife’s claim in the sum of $90,000. No order was made as to the costs of the parties to the litigation. The wife had outstanding legal fees to her solicitors and ultimately she received $26,502 which was paid into an interest bearing trust account on behalf of the wife and held by her solicitors.
The husband considered at [261] of his Trial Affidavit that the value of the claim was $330,000 based upon a building consultant’s report.
The husband complains that he was not able to appropriately participate in the VCAT proceedings. He was not able to communicate directly with the wife’s solicitors and was not advised of the state of negotiations from time to time.
Orders were made on 19 October 2015 that required the wife to instruct and authorise her solicitors to send copies of correspondence in relation to the VCAT dispute to the husband’s solicitors.
The wife complained that the husband sought to interfere with the litigation.
The husband filed an Application in the VCAT proceedings on 4 December 2015 seeking to be joined as a party. The application was apparently rejected and a chambers order was made refusing the proposed joinder.
The husband’s counsel submits that in light of the evidence as to the cost of rectification, the settlement sum of $90,000 inclusive of costs was “paltry”.
The assertion is that the expert evidence that had been filed and relied upon by the wife would have been persuasive and accordingly by the wife settling the proceedings for what the husband considers was a wholly inadequate settlement sum, the wife has effectively wasted more than $300,000.
No evidence was presented in respect of the prospects of success in the VCAT proceedings, nor that the wife acted contrary to the advice given to her by her solicitors.
At the time of the wife’s cross examination the VCAT litigation had not concluded.
It is only that the regime of written submissions following the close of the evidence extended to 10 August 2017 (the date of filing of the husband’s final submissions) that the outline documents referred to the resolution of the VCAT proceedings.
I find that the wife was entitled to conduct and conclude the VCAT proceedings. The Deed of Release indicates that the wife continued to instruct and engage her solicitors up to and including the date of the Deed of Settlement.
LEGAL FEES TO GG LAWYERS
The husband held an insurance policy with LM Insurance for income protection benefits and a lump sum payment if the insured suffered a total permanent disability.
The husband’s health is acknowledged by the wife to be poor and she considered that “he was completely incapacitated and unable to work”.
A claim was lodged in March and then June 2009. The parties received a lump sum payout of $882,803 as settlement for the total permanent disability component of the insurance contract and monthly payments of about $20,197.
Later in 2009 the husband transferred his rights and entitlement under the LM policy to the wife who thereafter caused the monthly payments to be deposited into her personal bank account. The wife concedes that the monthly income protection payments were intended to assist in the family’s living expenses.
The payments ceased in March 2014. The wife alleges that the insurer was obliged to continue payments until the husband turned 65 years of age. That would occur in 2017 and accordingly she contends that she is entitled to three years of payments totalling $727,000. The reason given by the insurer for the termination of payments is an assertion that the insurance agreement was “void” due to non-disclosure. There is a suggestion that the insurer may seek to recover $1,265,707.
No evidence has been led as to the current status of any dispute between the wife and the insurer. However, the wife seeks to bring to account as a liability outstanding fees to GG Lawyers of $11,550.
In the husband’s updated balance sheet he appears to concede the quantum of legal fees outstanding.
In the absence of argument, I propose to bring to account the fees outstanding.
MM SCHOOL FEES
As at 16 March 2018 the parties had an outstanding debt to MM School for FF’s school fees of $86,527.80. On that date I ordered that the sum of $39,966.79 be paid to the school leaving a balance of $46,561.
The husband contends that the outstanding school fees are in the sum of $30,852.
By reference to a statement of account directed to the parties dated 16 January 2018, the total amount due up to and including the end of the 2018 academic year was $86,527.
Accordingly, I propose to bring to account the amount as determined consequent upon orders made 16 March 2018.
It does not appear that the wife fundamentally disagrees with the husband’s assertion, but argues that there is limited evidence before the Court in respect of each of the transactions and in particular the extent to which the Court can quantify the extent of the husband’s contributions.
The wife contends in her submissions in reply of 8 September 2017 the following:-
The claims by the husband contained therein are:-
(1) Not supported by the evidence before the Court;
(2)Allegations that were not put to the wife in cross-examination by former Senior Counsel for the husband; and
(3)Not the subject of any application to adduce new or further evidence.
The treatment of the pre-cohabitation contributions of parties should not be considered as an exact science.
I do not consider, even if the evidence would permit the quantum of the husband’s real property and other interests to be valued was available, that the exercise should be approached on a strictly mathematical basis. If the evidence of quantum is available, at best it can do no more than to provide an imprecise starting point for consideration. Nonetheless, there is still significance that must be attached to the differing financial positions of the parties at the date of commencement of cohabitation.
In Clauson & Clauson (1995) FLC 92-595 the Full Court was faced with the fact of the husband’s substantial initial financial contributions followed by a 10 year period of cohabitation where the parties made direct and indirect contributions over what was described as “10 busy years”. The Full Court considered the husband’s initial financial contribution at 81,910:-
The circumstance that the significance of the initial contributions may be eroded over the passage of time because of the other contributions which the parties make over the duration of the marriage is, we think, not a matter of controversy: see the discussion in Money & Money (1994) FLC 92-485 at 81,054 and 81,063 per Fogarty and Holden JJ; contrast the approach adopted by Lindenmayer J at 81,060; see also the discussion in the earlier cases of White & White (1982) FLC 91-246 and Crawford & Crawford (1979) FLC 90-647, and the more recent judgment of the Full Court in Bremner & Bremner (1995) FLC 92-560.
Whilst it is not possible to even pretend that under the current legislation with its wide discretion, it is possible to be mathematical or scientific about these matters, the fact remains that the substantial initial contributions of the husband were gradually eroded in their ultimate significance by intervening circumstances. …
The Full Court in Pierce v Pierce (1999) FLC 92-844 revisited the question of “erosion of contribution” at [28]:-
In our opinion it is not so much a matter of erosion of contribution but a question of what weight is to be attached, in all the circumstances, to the initial contribution. It is necessary to weigh the initial contributions by a party with all other relevant contributions of both the husband and the wife. In considering the weight to be attached to the initial contribution, in this case of the husband, regard must be had to the use made by the parties of that contribution. In the present case that use was a substantial contribution to the purchase price of the matrimonial home…
There appears to be little focus by the parties on their contributions made during the course of cohabitation. The husband accepts that the wife has made a valuable contribution as a mother and homemaker, but highlights that he has also contributed to the ongoing welfare of the family and the care of the children, in particular FF who commenced to live with him shortly after separation.
The parties each do the other a disservice by their scant regard for the contributions made by each of them during this period.
It is accepted by the wife that at the commencement of cohabitation she was of relatively young age with limited employment experience and no substantial assets.
Whilst the husband may now be disparaging of her involvement in the various businesses conducted by him, I accept the wife’s proposition that she assisted the husband whenever asked and however she could.
It is impermissible to review the lives of the parties and attempt to undertake some form of audit. I have found that the wife was financially naïve and I consider that her contribution is principally as a homemaker but also in terms of an indirect contribution by the maintenance and preservation of the property of the parties.
Certainly from the birth of Ms FG and Ms OO in 1996, it is not disputed that the wife’s care of the children and the family was exemplary.
The wife seeks to criticise the business and other dealings of the husband by reference to him losing professional accreditation, his subsequent bankruptcy and all that flowed thereafter.
The marital partnership clearly demonstrates that the fortunes and circumstances of the parties waxed and waned across a long period of cohabitation.
The husband would argue that without his involvement the pool of property now available may have been significantly reduced or possibly completely exhausted. He criticises the wife for her gross financial mismanagement following the transfer of control of the property of the parties to her.
She counters that submission by highlighting her care of the children and the difficulty that she experienced following the serious assault on the husband and his debilitating downward spiral in his physical and mental health.
The husband acknowledges his professional difficulties and the deterioration in his health.
By reference to his inability to run and maintain his office, his general health and stamina suffered and he experienced various debilitating symptoms.
He concedes at [90] of his trial affidavit:-
By the time the prosecutions commenced, my mental and physical health had deteriorated significantly, to the point where I was not able to function normally or to carry out basic activities. I did not have the stamina or the capacity nor the will to vigorously and effectively challenge the allegations made against me. The conclusion of the proceedings, and subsequently the conclusion … was a relief.
Following his assault in 1990, the husband was not able to return to work, his office was closed and the business deteriorated. His health began to deteriorate even further around 2006, but by 2007 he was not coping and in 2009 and in subsequent years he required lengthy periods of hospitalisation to deal with his deteriorating mental health.
He concedes at [137] that:-
I also spoke to [the wife] about what she thought I should do. In retrospect, my state of mind became a heavy burden for [the wife] also.
And at [141]:-
I thought I was losing my mind. I was experiencing an inability to maintain stability and my thought processes. I had moments of some level of clarity that never lasted very long. At times I was near catatonic and was restricted to long periods in bed.
Following separation the wife initially cared for the four children, but she accepts that her relationship with FF was difficult and accordingly he has lived with the husband from late 2013. Whilst the post-separation financial arrangements between the parties is complex, the husband considers that he has made a contribution in that FF considers he is the “preferred parent”. The husband also argues that his care of FF was compromised by inadequate financial support by the wife.
She rejects that contention and considers that substantial sums have been provided to the husband.
The post-separation care of the children has not been straightforward for the wife. Ms FG suffered a brain tumour at an early age and her impairment both cognitively and physically are significant. The husband properly considered that Ms FG’s medical issues have been “traumatic” for the family. He concedes that Ms FG should continue to live with the wife and by necessary implication, accepts that Ms FG’s long-term care is best undertaken by the wife.
The wife considers that an assessment of the weight of the contributions made by each party should be reflected in an adjustment of 60 percent in her favour, When considered against a net asset pool of $5,906,881, the wife would be entitled to $3,544,128.
For his part, the husband contends that the gravamen of the consideration is a focus on s 90SF(3) factors and that on the basis of the husband’s adjustment of 20 percent, he concedes that the Court should consider the contributions of the parties to be equal.
This must be seen against his asserted pool of property of about $7.5 million (including an add back of $3.095 million). On that basis the wife would be entitled to $3,750,000 noting that given the notional addback the wife would receive nothing.
I have indicated that I propose to deal with the issue of the wife’s alleged excessive expenditure as a s 90SF(3) factor.
I do not think the wife’s proposed adjustment properly reflects the contributions of the parties.
I find that the contributions of the parties should be reflected as each of them having made an equal contribution taking into account the initial contribution of the husband, the significant contribution of the wife during the course of the relationship and their equal contributions post-separation.
SECTION 90SF(3) FACTORS
The wife seeks a further adjustment of 10 percent of her pool for s 90SF factors.
The husband argues that there should be a 20 percent adjustment in his favour comprised of 15 percent representing the husband’s add-back argument that $3,095,000 should be added back to the asset pool and a further 5 percent to be attributed to the wife’s “mismanagement and failure to address the taxation issues” as have accumulated since 2009.
The husband calculates that the asset pool after add backs and the payment of taxation is $7,500,000. 70 percent to the husband to the husband represents an entitlement of $5,250,000 with the balance of 30 percent to the wife being the sum of $2,250,000. Given the husband’s submission that the figure of $3,095,000 should be added back, the outcome on the husband’s submission is that the wife has already received an amount by way of premature distribution in excess of the husband’s assessment of her entitlement.
The difficulty with the husband’s calculation is that if the Court were to find favour in the submission of the husband that there should be an add back into the pool of the sum of $3,095,000, then at least as to the component of 15 percent to represent the wife’s expenditure and alleged premature distribution would amount to double counting.
It is therefore necessary to consider the factors as set out in s 90SF(3) to the extent that they are relevant to the parties circumstances.
The importance of considering s 90SF(3) factors was the subject of comment by the Full Court in Waters & Jurek (1995) FLC 92-635 at page 82,376:-
In the majority of property cases little difficulty is encountered in the contribution step and increasingly in the general run of cases the conclusion is likely to be one of equality or thereabouts. There is no doubt that the centre of gravity in the determination of property cases has, especially in more recent times, moved to the evaluation of the s. 75(2) factors, and the significance of that has been heightened because of the recent Full Court decisions which have emphasized those provisions that indicated that they should be given real rather than token weight.
The connection between the s. 75(2) factors and a just and equitable property order is more difficult since the criteria are expressed very broadly and are fundamentally prospective in their operation. The provision does not invite a process of social engineering (Clauson and Clauson (1995) FLC 92-595 at 81,912). In Mallet, supra at FLC p 79,127; CLR 638 Wilson J said that:-
“The objective of a section is not to equalize the financial strengths of the parties. It is to empower the court, following a dissolution of a marriage, to effect a redistribution of the property of the parties if it be just and equitable to do so…”
SECTION 90SF(3)(a) – THE AGE AND STATE OF HEALTH OF EACH OF THE PARTIES
The wife is aged 50 years and the husband is aged 66 years. The wife’s health is reasonable. The husband’s health is poor. The medical evidence presented on behalf of the husband is overwhelming. There is no reasonable likelihood that the husband has the physical or mental capacity to re-enter the workforce at any meaningful level.
SECTION 90SF(3)(b) – THE INCOME, PROPERTY AND FINANCIAL RESOURCES OF EACH OF THE PARTIES
The wife has not held formal employment since the commencement of cohabitation other than assisting the husband in the early years of the relationship in the business and the husband’s office. It is conceded by the husband that the wife is financially naïve and there is nothing to contradict the wife’s evidence that she has no formal training, qualification or work experience. Whilst the wife considers that weight should be placed on the husband’s “dreams of starting a business”, I am persuaded by the husband’s evidence, his presentation and the medical evidence relied upon that I should find that the husband has no reasonable capacity for future employment.
SECTION 90SF(3)(c) – WHETHER EITHER PARTY HAS THE CARE AND CONTROL OF A CHILD WHO HAS NOT ATTAINED THE AGE OF 18 YEARS
FF continues to reside with the husband. He will turn 18 years of age in 2018. Given the proximity of the child’s 18th birthday I do not consider that the husband’s care of FF should be a relevant factor.
SECTION 90SF(3)(e) – THE RESPONSIBILITIES OF EITHER PARTY TO SUPPORT ANY OTHER PERSON
The wife has historically supported Ms FG and Ms OO. It is likely that Ms FG’s care will fall to the wife well into the future. The husband acknowledges that her interests are best served by her remaining with the wife.
No evidence has been presented as to the ongoing financial needs of Ms FG. I do not consider that I should bring to account any financial obligation of the wife to support Ms OO’s studies either in the US or anywhere else.
It may be the case that both parties are supportive of various endeavours as may be undertaken by the children, but I do not regard the future circumstances of Ms OO or Ms JJ as a relevant factor to be brought to account.
I am in no doubt that prior to separation the family lived a generous and comfortable lifestyle. Clearly, the children did not want for very much. The quantification of the children’s expenses cannot be measured against the wife’s evidence of their cost post-separation exceeding $500,000 per annum.
The parties are of course free to be as generous with their property towards their children as they consider appropriate. I do not propose to bring to account the likely financial impact of the parties continued support for their adult children.
SECTION 90SF(3)(r) – ANY FACTOR OR CIRCUMSTANCE WHICH, IN THE OPINION OF THE COURT, THE JUSTICE OF THE CASE REQUIRES TO BE TAKEN INTO ACCOUNT
The gravamen of the consideration of s 90SF(3) factors is whether and if so to what extent an adjustment should be made given my finding that the wife’s expenditure post-separation is in part unreasonable in that through her control of the assets, she has derived a benefit which has resulted in a diminution of the divisible property. It is not a matter of unsuccessful investment or enterprise but rather to an extent not easily able to be quantified aspects of the wife’s expenditure should be considered excessive and profligate.
I reject the husband’s contention that the extent of the waste can be quantified in the sum of $3.09 million. The evidence was not presented either in the trial affidavit material or in the lengthy cross examination of the wife by the husband’s senior counsel, such that it can be quantified, but I accept that the figure is substantial.
To some extent the outcome must be tempered by my treatment of adding back the differing legal fees paid by each of the parties in circumstances where the husband considered that the parties’ legal fees were similar and should be excluded from consideration.
The husband seeks that there be a further adjustment to bring to account the wife’s inaction in relation to the payment of taxation and the potential for her conduct to have increased the taxation liability by her inaction.
The evidence supports a finding that the outstanding taxation is in the sum of $2,513,773.
The husband transferred control of the various entities to the wife in 2009. The taxation liability has its origin in 2001. For whatever reason, when the husband was in control of the family finances, taxation was not dealt with.
The wife was left in the invidious position of having to resolve complex financial difficulties. She was financially naive but took advice and acted on it. She did the best that she could as must have been the husband’s expectation in 2009.
There is substantial evidence adduced by each of the parties as to the difficulty in ascertaining the extent of the taxation liability, if any. For her part, the wife says that she did the best that she could and utilised expert accounting advice. The husband argues that the tax liability is not yet settled and even if it is, he has not been given an opportunity to properly consider whether the amount purportedly outstanding could be reduced in respect of those entities that do not have any residual asset sufficient to discharge any tax liability.
The wife’s counsel submits that she has made full and frank disclosure and whilst not being prepared to allow the intervention of the husband in the negotiations with the ATO as conducted by Ms F sufficient information has been provided to enable the husband to assess the extent of the likely taxation liability.
The wife’s evidence is that by reference to Exhibits “9” and “10” there is potential for the tax liability to be significantly greater than the amount ultimately the subject of agreement with the ATO.
It is not as simple as accepting the husband’s proposition that $2,513,773 is the starting point and it may well thereafter be possible to either negotiate with the ATO or argue for a lesser sum.
The wife is concerned that there may well be personal liability in respect of outstanding taxation that places her at risk, particularly given the attitude of the husband.
The wife seeks to resolve any ATO liability in its entirety as evidenced by her making a voluntary disclosure. The husband appears to resist any settlement with the ATO.
The wife considers that she has been able to negotiate favourably with the ATO to the advantage of the entities at first instance, but the parties overall.
I am also mindful of the evidence of the husband’s accountant which supports in broad terms the settlement reached between the wife and the ATO.
A 7 percent adjustment in favour of the husband would represent an amount of $413,481, but in reality a differential amount of $826,964 when considered in respect of an overall adjustment of 57 percent to the husband and 43 percent to the wife.
Each of the parties would wish to retain the shareholding in CPL and the income producing properties.
There should be no difference between a party retaining an income producing asset as opposed to a settlement sum. It is a matter for the parties as to how they would conduct their financial affairs going forward (see Cunningham & Cunningham (2005) FLC 92-212).
CONCLUSION AS TO ALTERATION OF PROPERTY INTERESTS
I consider that the net asset pool should be divided as to 57 percent to the husband and 43 percent to the wife. Those percentages as seen against a net balance of $5,906,881 equals $3,366,922 and $2,539,958 respectively.
The wife holds the following:-
(1)German motor vehicle $ 70,000
(2)Jewellery $ 60,000
(3)Chattels in her possession $ 19,790
(4)Legal fees added back $ 825,493
(5)Value of CPL properties $3,345,000
(6)Balance of proceeds of sale 5 M Street $ 161,653
Total $4,481,936
The wife has the following liabilities:-
(1)ATO debt $2,513,773
(2)MM School fees $ 30,852
(3)Legal fees to GG Lawyers $ 11,550
Total $2,556,175
The net balance retained by the wife after the payment out of anticipated liabilities is $1,925,761.
Accordingly, the wife’s entitlement is $2,539,958 less net property retained by her of $1,925,761 leaving a settlement sum to be paid by the husband in the sum of $614,197.
The husband seeks to retain the L Street property. The transfer of the wife’s interest in L Street to the husband will be conditional upon the settlement sum being paid.
The wife seeks to retain her interest in CPL. However, given the ATO liability and the money outstanding to her solicitors it is likely that the sale of various CPL properties will be necessary.
Given the competing claims of the parties to CPL, it is reasonable that if the wife intends to sell any of the CPL properties that the husband has the first option to purchase at the valuation amount.
The wife will be obliged to complete the settlement declaration with the ATO and will indemnify the husband in respect of any outstanding ATO liability.
I make orders as appear at the commencement of these reasons.
I certify that the preceding three hundred and sixty-seven (367) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Berman delivered on 10 August 2018.
Associate:
Date: 10 August 2018
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