MONROE & MONROE
[2009] FamCAFC 173
•18 September 2009
FAMILY COURT OF AUSTRALIA
| MONROE & MONROE | [2009] FamCAFC 173 |
| FAMILY LAW - APPEAL – PROPERTY SETTLEMENT – From a decision of the Federal Magistrates Court – where it was conceded that a mortgage liability was not deducted from the asset pool by the Federal Magistrate – where it was conceded the parties’ superannuation should have been included in the asset pool – appeal allowed FAMILY LAW - PROPERTY SETTLEMENT – COMPOSITION OF THE POOL – where the husband disputed the composition of the pool – whether a tax liability should have been included in the pool – where no evidence was adduced to substantiate the liability – where it was partly incurred post-separation when the wife was no longer involved in the business – whether capital gains tax potentially payable on a property should have been included in the pool – where there was no evidence that the property would be sold in the near future – found that the Federal Magistrate’s treatment of both matters was appropriate FAMILY LAW - PROPERTY SETTLEMENT – NON-DISCLOSURE – whether the Federal Magistrate erred in finding that a party had engaged in a pattern of non-disclosure – where incomplete business records were provided to the court appointed valuator such that the true value of the business could not be determined – where the husband failed to provide the business’ bookkeeper for cross-examination – found that in the circumstances the Federal Magistrate was entitled to make such a finding FAMILY LAW - RE-EXERCISE OF DISCRETION – where there are adequate findings to enable the Full Court to re-exercise the discretion – discretion re-exercised |
| Family Law Act 1975 (Cth) Federal Magistrates Court Rules 2001 |
| G and G [2002] FamCA 766 Gronow v Gronow (1979) 144 CLR 499 Hickey and Hickey (2003) FLC 93-143 House v The King (1936) 55 CLR 499 Hunt and Zuryn (2005) FLC 93-2268 Kowaliw and Kowaliw (1981) FLC 91-092 Omancini and Omancini (2005) FLC 93-218 Weir and Weir (1992) FLC 92-287 Whiterod and Taylor (2006) FLC 93-266 |
| APPELLANT: | Mr Monroe |
| RESPONDENT: | Ms Monroe |
| FILE NUMBER: | BRC | 3418 | of | 2007 |
| APPEAL NUMBER: | NA | 88 | of | 2008 |
| DATE DELIVERED: | 18 September 2009 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Warnick, May, O'Ryan JJ |
| HEARING DATE: | 19 February 2009 |
| LOWER COURT JURISDICTION: | Federal Magistrates Court |
| LOWER COURT JUDGMENT DATE: | 29 August 2008 |
| LOWER COURT MNC: | [2008] FMCAfam 935 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Leotta |
| SOLICITOR FOR THE APPELLANT: | Mr Rafty Schultz Toomey O’Brien Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr George with Mr Gunn |
| SOLICITOR FOR THE RESPONDENT: | Adrian Hawkes Lawyers |
Orders
The appeal is allowed.
The sum to be paid by the husband to the wife (as ordered in paragraph 14 of the orders made 28 August 2008) be varied to $163,289. Such sum be paid to the wife within 28 days from today.
The husband file written submissions in relation to costs of the appeal within 28 days. Upon receipt of those submissions the wife file submissions in reply within 14 days. Upon receipt of those submissions the husband file any submissions in reply within 14 days.
IT IS NOTED that publication of this judgment under the pseudonym Monroe & Monroe is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT BRISBANE |
Appeal Number: NA 88 of 2008
File Number: BRC 3418 of 2007
| Mr Monroe |
Appellant
And
| Ms Monroe |
Respondent
REASONS FOR JUDGMENT
Introduction
This appeal concerns property orders made by FM Coates on 29 August 2008. The orders provided, in essence, that the wife transfer to the husband a property referred to as the “L property” and the husband indemnify the wife in relation to liabilities including capital gains tax related to that property. The husband was ordered to transfer to the wife the former matrimonial home referred to as “Q” and pay her the sum of $252,578. Other orders provided for indemnities by the husband in relation to the business he operates as a tradesman.
The effect of the orders is that once the husband indemnified the wife against liabilities in relation to the L property, the wife was to indemnify the husband in relation to the mortgage on the Q house.
The treatment of the mortgage is a central issue in the appeal. The orders are confusing because they refer in one order to the husband indemnifying the wife and in another to the wife indemnifying the husband. In addition, the calculation by the Federal Magistrate of the sum payable to the wife was apparently based on the husband paying to her a sum representing 70 percent of the gross assets, less the value of the property she was to retain. This calculation did not take into account the liability for the mortgage other than to observe that the wife could pay the mortgage from that sum.
The reasons for judgment related to both parenting and property orders. The husband appeals only from the property orders, in particular the order requiring him to pay to the wife the sum of $252,578. It was submitted in the appeal that the wife received a percentage of the property which was outside the range proper discretion would allow.
The grounds of appeal centre on the composition of the property pool including the use of “add backs”, and the Federal Magistrate’s methodology, said to be inconsistent with settled principles.
It was submitted that the Federal Magistrate after drawing adverse conclusions against the husband, in effect double counted at several points in the judgment.
The wife’s application asked for orders whereby she would receive the Q property, the husband the L property and he would pay her a cash sum. At trial, the submissions of the wife were that she should receive 75 percent of the property pool.
The husband asked for the same orders in relation to the real property but proposed a payment to the wife of $17,500. The orders in relation to vehicles, debts in their names, other property in their names or possession and superannuation were in similar terms in each case. The terms of those orders are not in issue in the appeal other than how the overall division was effected including the mathematical calculations.
The order made by the Federal Magistrate was said by him to be as follows:
152.I will make the alteration of the interests in the manner on the division of 70 percent of the total pool (assets and liabilities) to the wife, the rest to the husband. That effectively means that the wife will retain the [Q] home, her vehicle and bank account, valued at $505,500.00 and her superannuation. As the total pool, excluding superannuation is $1,082,969.00, 70 percent of that is $758,078.00. She therefore requires a top up of $252,578.00, which will ensure the $96,000.00 mortgage is paid out.
The husband seeks that the appeal be allowed and that this court re-exercise the discretion of the Federal Magistrate and make orders having the effect that:
·Order 14 be amended by substituting the amount of $43,360.00 for $252,578.00;
·The wife pay half the costs of the Court expert, Mr W, in relation to the preparation of his report and the cost of Mr W in attending the trial and for clarification of a previous order being that the wife pay half the costs of the Court expert, M.
Background
The factual background as set out in the reasons for judgment is not in dispute. The wife was born in March 1960. The husband was born in October 1961. They had three children, one now over the age of 18 and the others aged 16 and 14 years. The children live with the wife and have time with the husband as agreed.
As the Federal Magistrate said:
56.Summarising their time together - they met in Darwin in about 1985 and commenced cohabitation in [an island nation] in about mid-1985, the husband stating June and the wife August. They married [in] August 1988 in [North America]. The wife alleged they separated under one roof on 1 January 2006 and the husband alleged they separated on 20 January 2007 when he moved out. That date coincides with the wife’s claim that he cut off her access to money from the jointly-run [family] business.
…
61.The business had been run in partnership, but the husband took over as a sole trader on 31 January 2007.
Under the heading “STEP TWO-CONTRIBUTIONS” in the judgment the following factual findings relevant to the appeal were made:
102.The husband was and is [a tradesman].
103.The wife [worked in the beauty industry] and eventually worked in the family…business.
104.Both parties agree they brought little by way of real assets, goods or chattels to the marriage.
105.Neither stated the income they initially had at the beginning of the relationship. By the time they moved from Darwin to [an island nation] in 1984 the husband was earning up to $40,000.00 dollars a year and was given accommodation.
106.[While there] the wife contributed financially by … and baking occasionally. She contributed non-financially by keeping the home and cooking. She did not earn a great amount of money. She paid a housekeeper who was terminated after three months because she could not clean or cook and was stealing her goods.
107.The husband paid for the wife to travel to Brisbane and to [North America] and return to [the island nation]. There appeared to be a contest as to these facts, but essentially, there was no evidence to suggest the husband’s larger financial contribution during the early years of the relationship should not be assessed as anything but equal to the wife’s financial and non-financial contributions. They cohabited and set up house in a foreign country and socialised as a young couple. That the wife did … and baking indicates she wanted to work but she had no visa. In any case, the husband, at paragraph 14 of his affidavit filed 23 January 2008 stated “the wife kept the house tidy with the assistance of a house girl”.
108.In 1988 the wife went to [North America] because her father was ill and the husband followed.
109.They shared a house provided by the wife’s sister. The husband found work and the wife worked for a time and it appears that both contributed financially.
110.On that evidence it is clear that the husband’s working ability provided the financial resources.
111.After marrying in 1988 they returned to Brisbane where the husband worked as [a tradesman] but the wife could not work because being a [foreign] citizen, she did not have a work visa.
112.In 1989 the parties started [the family] business.
113.They also purchased a house at [Q].
114.The husband said most of the money from working in [the island nation] went to the purchase of that house although the wife refers to “our savings” and she believes it was about $20,000.00.
115.In the business the husband obviously did the [trade] work and the wife did the office work which included telephone, banking, book work, pick ups and deliveries.
116.She also raised the children.
117.On the evidence the business was profitable and figures were given by the wife as to before tax operating profits, being 2003/2004 $129,417.00; 2004/2005 $91,958.00 and for 2005/2006 $79,708.00 (six month period of separation on the wife’s assertion).
118.It was a partnership in the legal and marital sense. In the marital sense the evidence is that the parties as husband and wife and in order to raise their family, set out to establish a business in which to better themselves financially so that they could enjoy a reasonably comfortable lifestyle and raise their children.
119.Renovations were done to the [Q] house by the husband. He gives a long list of the work he did on the house at paragraph eighty-one of his affidavit. I accept that as I accept that while doing that the wife continued assisting in both the business and raising the children.
120. In 1997 the wife received $40,000.00 inheritance.
121.That was used to buy the land on [L] Avenue. The parties later built on it by borrowing against the [Q] House. There is no debt on the [L] house.
122.It was the wife’s contention that but for the inheritance they would not have the property.
123.While I accept that again it is merely another indication that the parties where conducting themselves as husband and wife setting out together to better their financial future by building a second house which was for investment purposes.
124.While the property could not be purchased without the inheritance the building could not occur without the income earned directly by the husband, which the wife assisted by contributing to the administrative work of the business and looking after the family. The weight given to this contribution, must I think over the years of marriage, be eroded as against the husband’s financial contributions. The parties were earning good money from a business and had a comfortable lifestyle due to both contributing within the meaning of s79 of the Act.
125.On separation the husband moved to the investment home.
126.Raising three children and contributing to the business is a non-financial contribution. The business was profitable for the family, firstly because of the husband’s ability to work in it and secondly because of the wife’s ability to keep the books, run the errands and do associated work. There can be no real mathematical measurement of such non-financial contributions and given that the couple have been married for 22 years, I would find that the contributions were equal. However in the later years, as the relationship deteriorated, the duty fell to the wife to exercise parental responsibility for the welfare of the family and in so doing, contributed non-financially. Given the evidence in relation to the childrens issues, this should be compensated because raising the children is an important issue, by a five percent weighting to the wife.
(emphasis added)
Reasons of the Federal Magistrate
At the commencement of the judgment in relation to the property proceedings, (paragraph 54) the Federal Magistrate referred to the approach to deciding property settlement cases as described in Hickey and Hickey (2003) FLC
93-143. Rather than listing the ten grounds of appeal separately as they appear in the Amended Notice we will refer to them at the same time as the relevant parts of the judgment. It is necessary to set out large parts of the reasons because grounds five and six directly take issue with the methodology applied by the Federal Magistrate. In addition, the husband complains that findings were made that cannot be supported on the evidence (ground 9).
A discussion of the evidence and findings of the Federal Magistrate in relation to the composition and value of the pool are referred to in the paragraphs below taken from the judgment. A summary of those topics is as follows:
1.How a tax refund in the sum of $6161 paid on 19 February 2008 disclosed by the husband the day before the trial should have been treated (paras 59-63) (ground 4);
2.Whether bank accounts including a Bank of Queensland account (“the business account”) were the husband’s, the business’ or a joint asset such that it should have been included in the pool of assets (paras 64, 70, 91 and 92);
3.Whether the business had debts and if so should they have been included as liabilities of the husband (paras 69-73 and 87);
4.The value of the family business (paras 66, 74-82, 95-99);
5.Whether the value of the parties’ superannuation should have been included in the pool (ground 2);
6.Whether there had been a failure to adequately disclose financial matters by the husband (paras 67, 68, 69 and 85) (ground 1);
7.Whether the arguments of the wife that sums should be “added back” to the pool ought to have been accepted (paras 93 and 94); and
8.The calculation of the pool including the mortgage over the Q house (ground 3).
The Federal Magistrate did refer to the evidence about each of these topics in the judgment the relevant parts being as follows:
STEP ONE – ASSETS AND LIABILITIES
57.The document marked A in the exhibit list was an agreement as to some of the assets and liabilities, being: the [Q] House $495,000.00; the [L] Avenue house $395,000.00; [the family] business $21,500.00 (subject to what I say below); husband’s [foreign] bank savings $6400.00; wife’s savings $500.00; husband’s superannuation $13,000.00; wife’s superannuation $13,000.00; liabilities (mortgage) $96,000.00 – the net assets totalling $848,400.00.
58.I was required to determine whether three assets or resources were part of the pool being a taxation return, money associated with a business account and the “real” value of the [family] business.
59.A refund from the Australian Taxation Office in the amount of $6,161.00, payable as at 19 February 2008, was disclosed by the husband the day before the trial.
60.The evidence was both the admission and a tax credit printout obtained from a tax office internet portal, in the names of the husband and wife.
61.The business had been run in partnership, but the husband took over as a sole trader on 31 January 2007.
62.The husband did not explain why the tax credit existed and he did not disclose the credit in time for the wife’s lawyers to make enquiry of it. The document on its face refers to taxation transactions from June 2004 to 19 February 2008, the day before the trial.
63.The case of Hickey states that assets are (usually) assessed at the date of trial. If the money was the husband’s post-separation, then he would have given the Court an explanation. I therefore find that it is part of the marital assets.
64.I was also required to determine whether money, $83,437.67 in a Bank of Queensland … account … in the name of Mr [Monroe] (the husband), was his business account and part of the business or a joint asset.
65.The existence of bank accounts was identified in the parties’ material. When the parties were together, they operated two ANZ accounts wherein money earned was paid into one account and distributed from there. The wife gave evidence that the account … a cash management account, was used as the savings account and it contained $134,000.00 on 22 June 2006. She said when the business needed funds, the husband transferred money to [a different] account … . The husband gave an explanation as to payments he made from the joint monies. When the husband filed a Financial Statement on 10 April 2007, he said there was $40,000.00 in his Bank of Queensland account (I note he did not identify an account number). When he filed his Financial Statement on 23 January 2008, he said there was $111,482.00 in the account (I note he identified an account number).
66.The business itself was valued at only $21,500.00 by chartered accountant [Mr W] of [V], a valuation firm.
67.The wife’s case, in short, was that the husband had hidden money and assets. She could not particularise her claims, but, by inference, was saying that after being involved in the business and seeing profitable years of operation, there could be no other explanation as to the state of the husband’s financial documents and for that reason she kept asking for disclosure of business records.
68.The husband refuted the claim. He said he disclosed all documents but I will state that he did so only after he was ordered to and very late, so late that the wife said her solicitors did not have enough time to examine the documents. I accept that.
69.Of the money in the business account, in fresh oral evidence-in-chief, the husband said debts amounted to $40,000.00 (the exact figure being $44,024.86) and that was why there was $83,437.67 in the account. The original figure was stated in his financial statement filed a month before the trial. The evidence of these debts, he said, was a copy of invoices he generated and what appeared to be handwritten notes. As this was a serious allegation, what I required were the original bills/invoices from the people/businesses claiming payment. He produced no evidence to corroborate the debts. The manner he admitted taking $20,000.00 for his legal fees was another indication that he was not being forthright. He said he had taken money as his draw down but said the money was not in his “pocket”. When he finally answered as to the location of the $20,000.00, he said it was in his solicitor’s trust account for legal fees. The husband asked me to find, not only that the debts he asserted existed, but that monies were set aside for capital or drawings not drawn down and if that was the case, the amount of only $1,851.81 would be left.
70.There are several considerations as to whether this account ought be considered joint property:
a)The business was run as a partnership and so the wife made a contribution to the business until January 2007;
b)In opposing the incorporation of this amount into the joint pool, clear financial figures were required to determine what amounts were for debt, what was profit and what was received post-separation for contributions made to the business by the wife prior to separation, because of the partnership arrangement.
71.In fact, the husband portrayed himself as being a careful account manager and that he organised the paperwork of the business upon which cash flow depended.
72.He gave evidence of how he would write up, cost and check accounts and chase outstanding debtors, however, he employed a bookkeeper, [Mr S], to construct and send out accounts.
73.I gather from the evidence that [Mr S], who the husband failed to provide for cross-examination upon request, was employed after separation, because the wife said she had done some bookkeeping. Notice was given to produce the bookkeeper because of the very late disclosure of documents. The husband refused to supply evidence from his bookkeeper and was then in the position of making statements to the effect that he did not know the answers to questions and the bookkeeper would have to be asked. The onus was on the husband to produce the bookkeeper.
74.[Mr W] came to his valuation of the business, $21,500.00, as he explained in cross-examination, by examining income figures and expense figures, being brief figures from tax returns for 2005 and 2006.
75.He was not supplied with a full set of accounts prepared by an accountant which he said would show a higher degree of reliability and so his projection of maintainable earnings and the goodwill of the business could only be assessed on the tax returns.
76.He also said on the financial information supplied it was not possible to say whether the business may increase, decrease or stay at the same value, because he did not know what financial information, if any, was missing. When pressed, he was prepared to say the financial statements provided to him were less than the quality he would want and he was prepared to state that because there was no balance sheet, there was evidence missing and he could not say whether that overstated or understated business.
77.The husband was questioned about a document showing a list of serialised invoice numbers over an eight month period, of invoices and credit notes. He accepted the figures were constructed from his documents.
78.He could not explain why there were 54 invoice numbers missing periodically from the serialised list. [Mr W] said there could be five possible explanations being: invoices not processed through accounts; an understatement of income; a job commenced but not proceeded with; a long term job which was not completed or, in re-examination, a clerical error.
79.Of the later missing numbers, he said it would be a reasonable explanation that jobs had not been processed. Of the earlier missing numbers, he said it would be an unlikely conclusion that, given it was a [trade] business, it was a long term job that had not been processed and recognised as income.
80. So the expert accountant, [Mr W], could not determine:
a)what the balance sheets would look like and so he could not value work in progress;
b)the current debtors, that is the amounts owed;
c)sales or gross profit figures;
d)why there was a fall in gross profit after separation.
81.Counsel for the wife submitted that the business was not audited by [Mr W], it was reviewed. I accept that submission
82.In re-examination [Mr W] said his figures and assessment was reliable, based on the figures supplied.
83.This became an issue of credit and both counsel gave submissions as to credit.
84.For completeness, two issues of credit arose in the trial. Early, I indicated that the wife’s material should not have made serious allegations that the solicitor for the husband assisted him with fraud or to be deceitful without proof. That is a matter now for the husband’s solicitor.
85.But credit issues of relevance to property and this part of the property in particular (whether the business account is part of the pool) must be considered in light of evidence that:
a)The husband said he falsely claimed to American Express that his income was $80,000.00 per year in an application for an Amex credit card. I accept counsel for the wife’s submission that in effect he was not lying to American Express because it was close to his average income over four years, about $73,000.00. I accept the husband was attempting to convey his income was lower.
b)His failure to produce the bookkeeper [Mr S];
c)The lack of disclosure of a [foreign] bank account until late in proceedings (he said he always kept a card for the account in his wallet);
d)His disclosure of a tax credit the day before the hearing;
e)His assertion the separation occurred a year after the wife asserted separation, yet he was seeking legal advice within six months of the January 2006 date given by the wife;
f)The taking of $20,000.00 for his legal fees from the business account, and most importantly,
g)The evidence of [Mr W].
h)I have also kept in mind that there was no or little evidence that the amount in the business account was built up only in the period since separation, and
i)The offer of settlement to the wife where the husband stated the [Q] home was overvalued by $100,000.00 and the [L] Avenue home was undervalued by the same amount, when the husband had valuations. Taken in isolation such an offer was nothing more than “playing hard” and such conduct is within the realms of negotiations. However, in view of the lack of disclosure of proper financial information regarding the business, late disclosure to prevent scrutiny of the business, failure to produce [Mr S], failure to disclose the [foreign] account and similar acts, it appears to be part of a pattern of behaviour adopted by the husband to not give relevant information in his possession or control in relation to the marital property.
86.I was also asked to draw an inference that late disclosure of bundles of financial documents made it “difficult to grasp or glean” the true financial position of the business.
87.I have to make a decision on the business account on the basis that the manner in which the husband’s evidence was presented amounts to a lack of disclosure by him. The decision is one to be made on the balance of probability.
88.I should also state that the husband, in cross-examination, gave evidence for the first time of a blank cheque butt found by the bookkeeper, out of order with other cheques used. He said the wife took several thousand dollars or about $1500.00. He never raised this with his solicitors. Given his evidence of being able to look after money matters and his ability to refer in his evidence to various amounts going to pay debts and that he controlled the collection of monies, I find that I could not accept this allegation. It was stated I think to cast doubt on the wife’s claims that he hid money.
(emphasis added)
In relation to the issue surrounding lack of disclosure by the husband, the Federal Magistrate referred to Weir and Weir (1992) FLC 92-287 and Whiterod and Taylor (2006) FLC 93-266. After referring to the evidence he made the following findings:
91.The financial information the husband presents for his taxation returns is his business, but the purpose of this proceeding is to determine the extent of the business interest which was part of the property pool. He cannot complain that he could not supply the figures, because he had an overriding duty to supply to the wife and the Court figures from which a proper evaluation of the business interests could be determined, given all of the considerations required under s.79 of the Act. [Mr W] gave his professional opinion that there was information missing. His evidence was not broken down in cross-examination. Given that and that the wife was relying on disclosure so her lawyers could obtain advice on the documents, I find then there has been a lack of disclosure on the part of the husband and it is difficult to grasp or glean the true position of the business.
92.Keeping in mind there was no clear way to determine when the money was built up in the business account, I find the business account is part of the marital property and I cannot determine the husband’s individual contribution to it post-separation.
93.Counsel for the wife said then there should be add-backs to the pool.
94.He calculated this as $111,482.00, being the money stated to be in the account in the husband’s affidavit filed 5 February 2008 and in his financial statement, which includes the balance at the date of trial being $83,437.67 plus the debtors he asserted plus the legal fees of $20,000.00 which he placed in his solicitors trust account. As this was part of the pool for the reasons given, there will be an add-back in the sum of $111,482.00.
95.The third issue I was asked to determine was that the business was worth about $120,000.00.
96.Counsel for the wife submitted that it was open to find on the evidence, by inference, that the true earning potential of the business was up to about $120,000.00 per annum, compared with the trial valuation of $21,500.00. The husband supported the trial valuation.
97.Counsel based this on the evidence and submissions about wages to an employee.
98.While I accept counsel’s calculations given at paragraph 88 of his written submissions could amount to a higher valuation, I do not think I should go further than to hold that the husband said he has cut his hours of work as a lifestyle choice. I do not accept the husband’s evidence that there was a downturn in work because he did not produce relevant evidence for the assertion. To decide a valuation other than that decided by [Mr W] would be, in this case, too artificial an exercise in my opinion. If I was incorrect in my assessment of the evidence, the husband may be left in a position where his business could not survive and the purpose of the Act is to effect a just and equitable alteration of interests.
99.I think the best I can do on the figures is determine that the value of the business was $21,500.00 as determined on the figures and information supplied to [Mr W] and determine that the husband has capacity to earn more than $80,000.00. It is a s75(2) factor.
100.With an asterisk marking the agreed values, the assets and liabilities then are:
ASSETS Item Description Value [Q property] - Court Expert* $ 495,000.00 [L property] - Court Expert* $ 395,000.00 Valuation of [family business]- Court Expert $ 21,500.00 ATO money owed to parties* $ 6,147.00 Add-back monies by the husband including $83,437.67 in business account $ 111,482.00 Add-back creditors paid from marital funds $ 30,940.00 [Foreign accounts]* $ 6,400.00 Wife's Savings Account* $ 500.00 Wife’s [vehicle]* $ 10,000.00 Husband’s two vehicles* $ 6000.00 TOTAL $ 1,082,969.00 LIABILITIES Mortgage on [Q] $ 96,000.00 Balance Liabilities $ 96,000.00 Net Assets $ 986,969.00
SUPERANNUATION
Husband's Super $ 13,000.00 Wife's Super $ 13,000.00 TOTAL
$ 26,000.00
101.That is Step One completed of the Hickey test.
(emphasis added)
After considering the parties contributions and concluding that largely their contributions were equal, with the exception of the wife’s contribution during the later years of the marriage to the children leading to a 5 percent adjustment, the Federal Magistrate then considered other matters:
STEP THREE – OTHER CONSIDERATIONS
128.Given that I have found the contributions over 22 years to be 55-45 percent in favour of the wife, further alteration of interests will depend on weighing all of the other circumstances set out in s.79 of the Act and, as I am asked, considering whether there was non-disclosure of assets.
129. There are relevant s75(2) factors.
130.Re s75(2)(a): The husband is aged 45 years. He says he in good health and can continue in his trade … . The wife is aged 47. She has health problems in her former trade …, being allergic to chemicals. She is now [in a different profession]. That is low paying employment.
131.Re s75(2)(b) and s79(4)(d): The husband runs the business. He will have resources from the property settlement. He is also the resource as to his earning of money. He gave evidence that he has made a lifestyle decision not to work, he said 60 to 70 hours a week, and he employs [another tradesman]. He did not produce corroborating evidence of working such long hours and that is the type of claim which should be corroborated when considering s75(2) factors. He has the mental capacity to stay in business. His income is I find, after the way in which he disclosed material and the finding on [Mr W’s] evidence, more than $80,000.00 a year.
The Federal Magistrate then considered the submissions on behalf of the husband in relation to capital gains tax (ground 8):
132.It was always the case that the husband sought orders for the [L] residence. His orders in that regard reflected the wife’s case.
133.In submissions, not in evidence, I was asked to make a s75(2) adjustment to him because the house was property for investment purposes and capital gains tax would be payable when it was sold, although the wife’s residence would be free of capital gains tax.
134.Mr Leotta for the husband referred me to In the Marriage of Rosati (1998) FLC 92-804 and asked me to make an adjustment under the s.75(2) considerations. But a close reading of Rosati is required before doing that. The Full Court stated:
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.
135.A potential capital gains tax liability was never part of the husband’s case and there was no application to reopen evidence. There was no indication that he intended selling the property and I understood his case to be that he intended to live in the property as he has done since separation. I do not think he has shown any special circumstances in relation to considering the issue.
(emphasis added)
The Federal Magistrate then returned to a consideration of the parties current and future financial positions including child support (ground 7):
136.The wife has part-time work …, 16 hours a week. She gave unchallenged evidence that such work entails short hours and there are few full-time positions. She has her name “down” for more hours and can work those if offered. She earns significantly less money than the husband. Her income is $16,000.00. I find it very unlikely that she can markedly increase her wage, while I find the husband has capacity to earn a comfortable income. He will be able to pay for the upkeep of a property and run a vehicle whereas the wife will struggle.
137.Re s75(2)(c): The wife has care and control of two teenaged boys. There will be a significant cost impact on her providing for the care and all of those extra and unexpected expenses which need to be made for teenage children. They will spend time with the father on occasions.
138.Re s75(2)(d): The mother will undertake a major burden in raising the children. There is a need to protect, the word used at s75(2)(l), her role as a parent and I think the use of the word “protect” as used in the legislation means that I must give adequate consideration to the role of the parent and consider the circumstances in which the role is to be protected. The childrens order I have come to, based on the husband’s attitudes, means he does not have the care and control of the children on a daily basis nor is there a need to protect his role as there is for the mother’s role. The parties had an agreement for child support, $300 per week or as assessed by the Child Support Agency, whichever was the largest figure. The wife fears the husband will pay less child support because he says he is earning less money. The answer to that of course will lie in the assessment of the Child Support Agency but he says his wages are reduced so it is a factor I need to consider in protecting the wife’s role as a parent.
(emphasis added)
In relation to ground two the Federal Magistrate said:
139.Re s75(2)(f): Both parties have small superannuation schemes. It is a resource not available to them at present. I was not told when it would be available. They both sought orders to keep their respective superannuation schemes.
(emphasis added)
Returning to s 75(2) matters:
141.Re s75(2)(ha): Part of the husband’s case was that the money in the business account was to pay debts. He did not give credible evidence of those debts and he has a reasonable income out of his business. The accumulation of monies in the business account evidences that and that amount is a major consideration.
142.Re s75(2)(k): In 22 years of marriage, the wife does have a case the length of time has impacted on her which affects her earning capacity. She had to withdraw from [the beauty industry] because she was allergic to chemicals. She went into the family business. Part of its success was her contribution. She retrained [in a different profession], a calling which does not pay a great deal of money. It is a consideration.
143.Leaving aside lack of disclosure, on considering the other factors, the responsibility for the children is going to cause the wife to spend money far beyond any means she has in her current employment … earning $16,000.00 per annum. Where possible, I must consider the standard of living. That compares with the husband’s position, who, I accept the submission of the wife’s counsel, has the capacity to earn a higher wage at a minimum of $80,000.00 per year. It would be appropriate that she receive 65 percent of the property.
144. That is Step Three completed.
(emphasis added)
The following parts of the judgment relate to ground 6 of the appeal, that his Honour “failed to adequately consider the effect of his findings and consider what order is just and equitable in all of the circumstances of the case” and in part ground 7 in relation to post-separation contributions:
STEP FOUR – JUSTICE AND EQUITY
145.In examining the justice and equity, the Step Four consideration, counsel for the wife, among other things, submitted that I should consider the manner in which disclosure occurred about business assets (my description) and the comparative disadvantage of the wife in the workplace and that she needs a capital sum to provide for her future needs. He submitted then the range should go to 70 to 75 percent of the assets in the wife’s favour.
146.Although I made a decision to include the business account in the pool of assets because of lack of disclosure and a decision as to the husband’s capacity to earn an income greater than $80,000.00, I must be careful not to carry that into every aspect of the decision, or “double dip” on the figures. Whatever order I make for the wife, the property still has a mortgage of $96,000.00, one which she will not be able to carry with her extremely limited income.
147.I accept that the husband made post-separation contributions by paying the mortgage, but the wife has had to raise three teenage children in circumstances where they were affected by the discord according to the evidence of [the family report writer] and the husband reduced money to the wife. Putting aside child support which is a matter of law, that is a reduction in their living standards and it caused the wife to make a larger than expected non-financial contribution of having to deal with their distress. Comments by one of the children such as the house was peaceful after the father left indicates the amount of pressure the wife had to deal with and to contribute her efforts to their welfare, that is, to her role as a parent in difficult circumstances.
148.I accept that the husband controlled the finances. The evidence over money kept locked in a safe allegedly for safety, as well as the unexplained amount of money in the business account, satisfied me of that. However, the lack of disclosure on the part of the husband is highlighted by the existence of a 16 percent share in a race horse…. Apparently it does not do very well. Although he values his share at only $1000.00, racehorses cost money. There are all those costs associated with care and agistment, training and transport of a race horse which are not before the Court.
149.The husband had not bothered to protect the joint interests in insuring the [Q] house which indicates a degree of callousness with regard to the wife’s share in the joint assets and is an attitude towards the wife without regard to her contributions in competently raising three children and contributing to the joint assets. He did not pay the rates after June 2007, when no decision had been made as to an alteration of interests. He was in a better and capable financial position to protect marital assets compared with the wife’s position.
150.For all of those reasons the wife should get another five percent of the total pool as a just and equitable decision.
151.I should also consider the mix of the assets because there is a superannuation component here and two properties, one with a mortgage. Both parties wish to retain their superannuation and I will make that order and have calculated the pool on the tangible assets and liabilities.
(emphasis added)
In relation to ground three and the calculations by the Federal Magistrate including allowing for the mortgage on the home the following paragraphs explain his method:
152.I will make the alteration of the interests in the manner on the division of 70 percent of the total pool (assets and liabilities) to the wife, the rest to the husband. That effectively means that the wife will retain the [Q] home, her vehicle and bank account, valued at $505,500.00 and her superannuation. As the total pool, excluding superannuation is $1,082,969.00, 70 percent of that is $758,078.00. She therefore requires a top up of $252,578.00, which will ensure the $96,000.00 mortgage is paid out.
153.The husband will keep the rest of the property and liabilities. Because of what was stated in Weir, I can be generous in assessment of property and I do not think the just and equitable assessment is a case double dipping, it is taking the facts to a logical end. He will have the [L] property and cash at his disposal in the business account and himself as the resource to generate income.
154.To ensure the wife’s viability considering the s75(2) needs, the husband will pay to her within 14 days the sum of $20,000.00 and the rest within 30 days. However, there needs to be in place a mechanism to ensure the wife is paid, so if the husband does not comply with these orders, the [L] residence will be sold and after statutory charges and costs are deducted, the amount of $252,578.00 paid to the wife, the rest going to the husband. I intend providing an enabling order to allow the [L] residence to be sold if the husband does not comply with the order, although that will be implemented only after an application to me.
(emphasis added)
In ground 10 of the appeal it is said that there was an error in the approach to how the costs of the experts were to be met. In the relevant paragraph from the judgment his Honour said:
155.The costs of the valuation and the attendance of [Mr W] to give evidence should be borne by the husband. The rules state that unless otherwise ordered, the parties bear the costs of expert witnesses at court and it is usual practice to share equally the costs of experts, since they are needed to assess the value of assets. Had the husband disclosed in a timely manner and disclosed all that would assist the Court, settlement may well have occurred. He was never going to settle and he disclosed financial information in a manner designed to cause problems in discovering the full circumstances of the business.
SUBMISSIONS
At the commencement of the written submissions on behalf of the husband, counsel correctly observed that this is an appeal from a discretionary judgment. Reference was made to the well known principles extracted from House v The King (1936) 55 CLR 499 and Gronow v Gronow (1979) 144 CLR 499.
It is helpful in this case to repeat what was said in House v The King at 504-505 that:
It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance.
In the written submissions, it was conceded by counsel for the wife that an error had been made in not including the value of the superannuation in the property pool. The husband and wife each had superannuation valued at the same figure of $13,000.
In addition, it was conceded that to arrive at an appropriate calculation of the money payable to the wife the amount owing on the mortgage should have been deducted to reach a net figure.
Reference has already been made to paragraph 152 of the reasons where the Federal Magistrate proposed that the wife receive 70 percent of the pool as described by him. The Federal Magistrate then said that the total pool (excluding superannuation) was $1,082,969 and applied the percentage to that amount reaching a figure of $758,078. The sum ordered to be paid by the husband was achieved as follows:
$
·Q property 495,000.00
·Motor vehicle 10,000.00
·Bank savings 500.00
·Payment by husband as ordered 252,578.00
Total $758,078.00
The difficulty with this approach is that the liability was not deducted. The wife remained liable for the mortgage debt of $96,000 secured on the title of the Q property which meant that she in fact received net property interests of $662,078. This may have been the intention of the Federal Magistrate but it did not provide the wife with 70 percent of the net assets.
The mistake of the Federal Magistrate was either failing to apply the percentage to the net assets or, if he meant to achieve the result in the paragraph to which we have referred, failing to explain why this was appropriate.
In any event, we were told that the husband has paid out the mortgage. The net pool must be amended because of these subsequent events. The wife should share in the liability of the mortgage in the same proportion as the assets.
We will deal with the submissions about the other grounds of appeal under headings which largely accord with how the appeal was argued.
Property pool issues – Grounds 2, 3 & 4
As ground 2 (superannuation) and ground 3 (the deduction of the mortgage) were conceded it is not necessary to refer to these matters further other than to observe that this would inevitably lead to the appeal being allowed.
However, the main issue argued in the appeal was whether the Federal Magistrate should have included the sum of $111,482 in the pool. It was submitted that this was the wrong figure for several reasons including that:
a)The account balance in the Bank of Queensland account was $83,437.67 at the date of trial, not the figure of $111,482; and
b)The business liabilities as claimed by the husband in paragraph 22 of his affidavit filed 5 February 2009 should have been allowed and deducted.
It was conceded by the solicitor for the husband that there were two amounts which could have been included in the asset pool, $9,174 being the husband’s share of money’s retained and moneys set aside for capital equipment in the sum of $10,880.
It was conceded by counsel for the wife during oral submissions that the figure could have been approximately $103,000, made up of $83,437.67 from the bank account and $20,000 paid from the account by the husband to his lawyers. The submissions on behalf of the wife otherwise did not resile from the concept of “add backs” being included in the pool.
Part of the issue about the business, its liabilities and the bank account was the question of tax liability and the payment to the solicitor for the husband to which we now refer.
Legal Fees
The Federal Magistrate included in the pool of property $20,000 from the business account for the payment by the husband to his solicitors for legal fees. The money was paid out of the account by cheque on 18 February 2008.
The husband submitted that these monies were generated by the business as income post-separation and that he was entitled to use them for his legal fees and should not be brought into account. We include under this topic some of the cross examination by counsel for the applicant wife at trial. It is also revealing, we think, in relation to the husband’s attitude to frank disclosure (T/script, 20/02/08, p.75):
[MR GUNN]: Now can you tell us what the last cheque on page 2, the statement dated 18/02/08 is for?---That’s my drawings.
Okay, so whose name is written on that cheque?---Cash I would think.
What did you spend---?---Or [Mr Monroe].
--- the 20,000 on [Mr Monroe]?---I haven’t spent it, it’s my drawings.
So where is the 20,000 today?---Well it is not in my pocket.
FEDERAL MAGISTRATE: Well where is it?
MR GUNN: I didn’t ask where it’s not [Mr Monroe]---?---Okay.
--- I said “where is it”? --- Some of it is being kept for my legal fees.
FEDERAL MAGISTRATE: Well where is that kept at?---With my lawyer.
Right, in trust?---Yes.
Yes, all right.
MR GUNN: Would you like to tell the Court how much is being kept in trust for your legal fees, just to the nearest 20,000 will do?---Yes near that.
Had the moneys not been placed with the solicitors, it would have remained in the husband’s bank account and been eligible for inclusion in the parties’ assets at the date of trial. We are of the opinion that the Federal Magistrate was correct in including this sum in the pool of assets.
Tax Liability (Ground 4)
The ground of appeal is that:
4.The Learned Federal Magistrate erred in treating the income tax credit held with the ATO for the [family] business operated by the parties as a joint matrimonial property, where:
(a)There was a tax debt to the ATO as the income of the business exceeded $35,990.00;
(b)The actual debt had not been quantified at the date of trial but it was common ground the income of the business exceeded the amount of $35,990.00;
(c)The husband was ordered to indemnify the wife for the tax debt of the parties in operation of the [family business].
Both parties provided the Federal Magistrate with written submissions in relation to the quantification of the property pool including income tax liability. The husband contended that the tax liability amounted to $37,661 (Written submissions of the husband, 20/3/08, p.8) and that it was to be paid from the business account. However, the husband did not provide any evidence of moneys owing to the Australian Taxation Office other than his assertions in affidavits.
The issue in relation to tax in the appeal is really twofold. First whether the sum of $6147, being a refund from the Australian Taxation Office, should be included in the pool and secondly, whether personal and business tax liabilities should have been taken into account. In relation to the first question we are of the view that in the circumstances of this case it was open to the Federal Magistrate to add the refund to the pool. In relation to the second issue, after the hearing of the appeal, at our request a letter was written by the Appeals Registrar dated 23 February 2009 seeking further submissions as follows:
The discrete topic is in relation to the claim by the husband that the Federal Magistrate should have deducted from the pool a sum representing income tax payable by the husband.
This claims relates to Ground 4 and in part to Grounds 5 and 6.
The inquiry of the judges is whether, should they be satisfied that appellable error has occurred in relation to the treatment of taxation, a remedy may be provided by order that taxation payable or paid in respect of the years in question be met, or the payer reimbursed, in the same proportions by which the net property pool is divided or some other formulaic order.
The response on behalf of the parties which we will set out in full, was as follows:
The Submissions on behalf of the husband
(a)The including of income tax liability in the Pool of Assets
1.The [family] business was included in the pool of assets of the marriage and valued by the Federal Magistrate at $21,500.00.
2.The Federal magistrate was obliged to take into account income tax liability of the business as:-
(a)He had included the Husband’s business account of $83,437.67 as part of the add backs of $111,482.00; and
(b)The income tax liability of the business was to be paid from the business account of $83,437.67.
3.It was common ground that the [family] business was profitable and had earned income.
The Husband’s income was held by the learned Federal Magistrate to be $80,000.00 per annum which means that there is income tax payable thereupon as a matter of law.
(b)Apportionment of income tax liability between the parties
4.In the event the Court does not accept the Husband’s estimate of income tax in the sum of $18,000.00 then the learned Federal Magistrate should have made Orders that the Wife contribute, in the same proportion as the property was apportioned, to the payment of the income tax of the business from 1 July 2007 until the date of trial, being 20 February 2008.
5.The contribution by each of the parties to the payment of income tax is to be in the same proportion as the apportionment of the net property, as had the tax been quantified at the date of trial, that liability would have been deducted from assets before apportionment.
6.The effect of that is that the parties would bear the burden of the tax liability in the same proportion as the assets are apportioned.
7.While the Husband submits that the appropriate proportion is 65/35, if the Court maintains the apportionment of 70/30 in the Wife’s favour, then the following orders could be made that the Wife reimburse the Husband for:
(a)70% of the income tax paid by the Husband for the [family business] for the financial year ending 30 June 2008;
(b)45% of the tax paid for the financial year ending 30 June 2009.
8.The reduction in percentage payable by the Wife to 45% for the financial year ending 30 June 2008 is due to:-
(a)There being 235 days period from 1 July 2007 – 20 February 2008;
(b)235 days of a total 366 days equates to 64.2%;
(c)When that figure 64.2% is multiplied by 70%, it yields a percentage of approximately 45%.
This figure, however, would be changed from 45% to 41.70% in the event that the Court holds that there is an apportionment of 65/35.
9.The draft orders proposed by the Husband are:
The Wife reimburse the Husband for:
(a)70% of the income tax paid by the Husband for the [family business] for the financial year ending 30 June 2008;
(b)45% of the tax paid by the husband for the [family business] for the financial year ending 30 June 2009.
The submissions on behalf of the wife
Q.Should the ‘pool’ have been reduced by the Husband’s income tax liability?
A.No
1.The Husband’s case before the Federal Magistrate and before the Full Court was that the ‘debt had not been quantified at the date of trial’ (Ground 4 Notice of Appeal, paragraphs 50-56 and 83-84 Appellant’s Outline).
2.The Husband dissolved the business partnership on 31 January 2007. All income generated thereafter by the business was received by the Husband solely. The Husband obtained the sole benefit; he should bear the debt solely.
3.As at the date of trial there was a tax credit that was appropriately included within the ‘pool’.
4.At no time has the Husband sought leave to either re-open the case before the Federal Magistrate, or to introduce fresh evidence before the Full Court. There was, and is, no evidence of any taxation liability of the Husband’s. Even if there were such evidence, the liability arises solely from the Husband’s receipt of income from the business in the period January 2007 until the date of the trial (20 February 2008).
5.It is respectfully submitted that any order that has the effect of either reducing the ‘pool’, or reimbursing the Husband, by the amount of any taxation paid by the Husband on income received subsequent to separation would have the consequence of unjustly enriching the recipient of the income – the Husband.
(original emphasis)
On 2 September 2009 the Appeals Registrar received a letter from the solicitor for the appellant informing us that a typographical error had been made in paragraphs seven and nine. The reference to the financial years should have been June 2007 and June 2008. The respondent’s solicitor indicated that they did not wish to make further submissions.
At trial the wife said that the parties separated under one roof on 1 January 2006. It was not controversial that the husband took over the business as his own on 20 January 2007 (reasons, paragraph 61). Apart from the question of substantiation it is difficult to see how the wife could be responsible for an alleged tax liability payable to 30 June 2007 and 30 June 2008.
Capital Gains Tax (Ground 8)
The question is whether capital gains tax potentially payable by the husband on a sale of the L property should have been taken into account. The property was purchased for investment purposes. It was not submitted that there should have been a deduction from the asset pool for this factor, indeed that would have been impossible as no figure was provided to the Federal Magistrate.
Instead, it was submitted that in some way the Federal Magistrate should have factored in this potential expense during a consideration of s 75(2). This submission was made to the Federal Magistrate. (Case outline of the husband, 13/2/08) The difficulty we see with this argument, apart from the absence of evidence including that the husband intended to sell the property as he is currently living in it, is uncertainty. There are so many possibilities, including that no capital gains tax will be payable. In this case we see no merit in this ground of appeal although we would observe that in certain circumstances it may be possible to take an unquantified capital gains tax liability into account as a factor pursuant to s 75(2)(o). In the absence of evidence, as in this case, it would not be possible to place any weight on such a consideration.
Non-Disclosure (Ground 1)
It can be seen from the judgment that the Federal Magistrate referred to this matter in his consideration of s 75(2) matters and in the fourth step.
The husband submits that the Federal Magistrate erred in finding that the husband engaged in a pattern of non-disclosure.
To some extent this ground overlaps with the question of what property or moneys should have been included in the pool and to that extent the discussion about this ground is included in this part of the judgment.
As we have observed, the Federal Magistrate was correct in including $20,000 provided by the husband to his solicitor and the full amount in the bank account without deduction. It is a separate question whether the sum of $111,482 should have been included and $30,940 for “Add-back creditors paid from marital funds”. We are content to adjust the first sum to $103,437.67 because the balance of $8045 was neither explained in the reasons nor seems clear to us. This sum includes the bank account of $83,437.67 and the $20,000 paid to the husband’s lawyers.
The Federal Magistrate correctly described the evidence of Mr W, a chartered accountant, including the most unsatisfactory nature of the accounts, culminating in his summary of the evidence at paragraphs 80 and 85. We also accept that the Federal Magistrate was correct in concluding that there had been a “lack of disclosure on the part of the husband and it is difficult to grasp or glean the true position of the business”. (Reasons, para 91)
The question then is what should the Federal Magistrate have done with this finding. Correctly, again in our opinion the Federal Magistrate rejected the submissions that the business must be worth more than the valuation. Secondly, the Federal Magistrate said:
99.I think the best I can do on the figures is determine that the value of the business was $21,500.00 as determined on the figures and information supplied to [Mr W] and determine that the husband has capacity to earn more than $80,000.00. It is a s75(2) factor.
It may be, in this case, that rather than dealing with the questions confronting the Federal Magistrate as lack of disclosure they might have been confined to adverse credit findings correctly made by the Federal Magistrate in paragraphs 83 and culminating in the key findings contained in paragraph 85.
It was submitted by Mr George that in the assessment of the pool the Federal Magistrate’s finding of non-disclosure really played no part. (T/script, 19/02/09, p.43) It can be seen that it was really only in the fourth step where an extra five percent was added for the wife that it is apparent the non-disclosure had some impact. It is also apparent, quite correctly in our view, that there were other considerations.
Returning to the question of “add backs” there is no explanation in the judgment for the addition of $30,940. That amount of $30,940 should not have been included in our view. This figure came from a submission on behalf of the wife. (Submissions of the wife, 06/03/08, p.12) Certainly there is evidence of invoices and other business documents “missing” according to Mr W. There was no balance sheet for the financial years 2005 and 2006. The husband in his evidence was satisfied that his system provided for invoices for work which was checked weekly. (T/script, 20/02/08, p.74) The husband was not cross examined on the proposition that he had retained $30,940.
Mr W gave evidence about the possible explanation for missing documents (T/script, 20/02/08, p.113-114) but was not asked about the sum of $30,940.
The only evidence of the sum of $30,940 came from paragraph 92 of the husband’s affidavit filed 23 January 2008.
The husband explained that he operated the business in partnership with the wife until 31 January 2007. At that time there were debts outstanding and moneys owed to the business. In a relatively unsophisticated calculation the husband paid the wife a sum of money on 8 March 2007 apparently meant to represent her interest in the business. The calculation included the business debts at that time of $30,940. The details of both the identity of the debtors and the amounts owing were set out in the affidavit. (Affidavit of the husband, 23/01/08, p.10) The wife did not directly dispute these assertions in her affidavit nor was the husband cross-examined on this topic.
The Federal Magistrate followed the submissions of the wife in this respect. It seems that it was an error to “add back” this sum. We would also observe that it would be a doubtful approach to simply add back a figure for creditors or debtors of a business in the absence of evidence that moneys were improperly paid.
In Omancini and Omancini (2005) FLC 93-218 the Full Court identified three categories of cases where it would be appropriate to notionally add back assets, described in that judgment as property no longer existing. Those three categories were moneys spent on legal fees, moneys dispersed by way of premature distribution of matrimonial assets and moneys lost by one party either during or after the marriage as the result of a course of conduct which could be criticised, such conduct being the type described in Kowaliw and Kowaliw (1981) FLC 91-092.
To the extent that it is necessary, we deal with the remaining grounds of appeal.
Incorrect Findings (Ground 9)
There were no submissions made in relation to this ground which would persuade us that there is any merit in such an assertion. In particular, we are of the view that the findings made by the Federal Magistrate in relation to the husband’s credit were entirely correct.
Exercise of Discretion (Ground 10) - Costs of Expert Witnesses
No order was made by the Federal Magistrate in relation to the costs of Mr W. Reference was made in paragraph 155 of the judgment to the husband meeting the costs of the valuation and the attendance of Mr W. An order had been made by another Federal Magistrate, on 15 May 2007. (Order of Wilson FM, 15/5/07) That order, in paragraph 5, provided:
5. That the [family business] be valued and a valuation be carried out pursuant to Rule 15.09 of the Federal Magistrates Court Rules 2001 by [V]. The costs of such valuation shall in the first instance be born by the husband, but otherwise shall be determined at the trial of the property issues.
Rule 15.11 of the Federal Magistrates Court Rules 2001 provides as follows:
Unless the Court otherwise directs, the parties are jointly liable to pay the reasonable remuneration and expenses of the court expert for preparing a report.
In relation to cross-examination of a court expert Rule 15.10(4) provides as follows:
(4)A party wishing to cross-examine the court expert:
(a) must arrange for the attendance of the court expert; and
…(c)unless the Court otherwise directs, must pay the reasonable
expenses of the attendance.
There is some difficulty about this aspect of the appeal. As mentioned, there was no order in relation to either the cost of the valuation nor the appearance by Mr W to be cross-examined. However, the reasons, in effect leaving the previous orders in place, are sustainable in our view. The Federal Magistrate was aware that his judgment would depart from the rules and explained clearly why in his view the cost should be borne by the husband. A decision in relation to costs is always a discretionary matter and where adequate reasons are given, as in this case, we would see no reason to interfere with that decision. If such an order had been made consistent with the reasons, we would not see that there is any merit in ground 10(a) and (b).
As to ground 10(c) in relation to paying half of the cost of the expert who valued the real estate, previous orders were made by Federal Magistrate Wilson on 23 August 2007. It was ordered that the husband initially pay the cost of the valuation fees with the wife to reimburse the husband 50 percent of such valuation fees at final division and settlement of the property. As was required in that order, the valuations were carried out by M. There was no reference to the costs of this valuation by Federal Magistrate Coates and in our view the earlier order made on 23 August 2007 remains. There was no need for any further order in this respect.
The composition of the pool – Conclusions
In conclusion, the Federal Magistrate made some errors in dealing with the inclusions and calculation of the pool. We are of the view that correct calculations should include the $20,000 paid to the husband’s lawyers, the total sum in the husband’s business account but not adding to that any other sum representing creditors of the business nor deducting any sum for debts owing by the business. This would also ignore the drawings claimed by the husband and GST payable.
In coming to these conclusions we are conscious that the solicitor for the husband submitted at the appeal that the business had been valued as an ongoing business and that there must be a bank account to support the business. It was submitted that the Federal Magistrate in his reasons wrongly took account of the amount held within that account but did not account for the debts of the business. Further, Mr Rafty submitted that if the assets of the business were to be taken into account, so should the expenses and liabilities. (Affidavit of the husband, 05/02/08, p.3)
The husband at trial gave evidence and was cross examined with respect to the debts of the business. There was a real and effective challenge to his evidence. (See T/script, 20/02/08, p.89) Apart from the limitations of his own evidence, the other real difficulty for the husband in the appeal is the absence of evidence before the Federal Magistrate to which reference could be made in the appeal. There was no application before us to adduce further evidence.
In our view, common sense would lead to a conclusion that a business would have movement in the accounts as contended by the husband’s solicitor but in the absence of evidence, especially from Mr S, the bookkeeper, it was impossible for the Federal Magistrate (as it is for us) to draw any conclusions.
The husband would have to pay tax on his income. The difficulty is that he did not provide the necessary information to the Federal Magistrate nor to us, only an estimate.
Reconstructing the pool we are of the view that the following result should have been the conclusion reached by the Federal Magistrate:
Q
$495,000
L
$395,000
Family business
$21,500
Husband’s motor vehicles
$6,000
Foreign accounts
$6,400
Wife’s savings account
$500
Wife’s motor vehicle
$10,000
Husband’s superannuation
$13,000
Wife’s superannuation
$13,000
and in relation to the controversial sums
ATO refund
$6,147
Moneys in business account at date of trial
$83,437.67
Fees paid by husband to his solicitor
$20,000
$1,069,984.67
and
To be deducted since the judgment
Less Mortgage on Q (paid solely by the husband)
$96,000
Net
$973,984.67
Having determined the divisible assets and liabilities we will refer only briefly to those grounds of appeal related to the percentage of the property to be received by the parties.
Application of the process defined in Hickey (Grounds 5 & 6)
In essence, the submission is that the approach of the Federal Magistrate to the decision was in error and the adjustment in favour of the wife was outside the possible range, especially the further five percent added at the fourth step.
The solicitor for the husband referred to the facts that the children in this case are teenagers, that the husband pays child support and contended that the Federal Magistrate appeared to regard the support paid by the husband as irrelevant. (Reasons, para 147)
The assessment of 55/45 percent for contribution to the date of separation is challenged but it is the further percentages allowed to the wife at stages three and four, resulting in the wife receiving 70 percent of the assets, about which there was the most complaint.
It was submitted that a proper exercise of discretion would have resulted in the division being in the range of 60 to 65 percent in the wife’s favour. In particular, it was submitted that even on the pool as found by the Federal Magistrate, had the order provided that the wife receive 65 percent she would have received an unencumbered house, a car and some cash being an order that was just and equitable.
Before coming to any conclusions on these grounds we refer to what we have said in relation to non-disclosure (ground one) and to the other discrete ground, being ground seven. They need to be considered together with the other grounds to determine whether the approach of the Federal Magistrate reveals an error and if the decision made by him at each stage and ultimately was outside the range of discretion.
Post Separation Contributions (Ground 7)
It is submitted that child support payments, together with the rates and mortgage with respect to the former matrimonial home in which the wife resided, paid by the husband post separation were not given sufficient weight. Reference to the judgment does not support this submission. The Federal Magistrate understood these facts and weighed those considerations with all the others. The question of weight is one that requires overall examination.
conclusion
The appeal must be allowed and the property pool adjusted in accordance with paragraph 76 of these reasons. The next question is whether the percentages allocated to the parties remain the same as that found by the Federal Magistrate on a re-exercise of discretion which is necessary in this case.
First we will summarise just what the Federal Magistrate did and then consider for our own purposes what percentage should be applied pursuant to s 79. The decision to allocate the wife 70 percent of the assets was arrived at after the following steps:
·To the date of separation, equal contributions except for 5 percent added to the wife’s share by reason of her care of the children late in the marriage (para 126);
·By reason of s 75(2) matters and what was described as “other considerations” the wife was to receive 65 percent (para 143)
We note that in the beginning of this section headed “Step Three – Other Considerations” the Federal Magistrate included “non-disclosure” but specifically excluded it in paragraph 143;
·The just and equitable considerations, including the failure to disclose by the husband – a further 5 percent. (para 145 and 150)
The particular concern we have in relation to the last percentage increase is whether matters already taken into account to reach 65 percent had been repeated. We do not think that there is repetition in the element of contributions made with respect to the children because clearly this aspect covered in paragraph 147 is post separation. The only question is whether there has been “doubling up” in relation to the impact of the finding about non-disclosure. The Federal Magistrate was clearly mindful of this when he made direct reference to this concern in paragraphs 146 and 153. A careful examination of the relevant paragraphs reveals there was not.
In addition, we are of the view that the Federal Magistrate did not make an error overall in the exercise of discretion such that it could be said to be outside the range.
A significant factor is that the parties’ present incomes are $16,000 for the wife and, as found by the Federal Magistrate, approximately $80,000 for the husband. The Federal Magistrate was correct to emphasise the considerable contribution to be made by the wife to the children, even taking into account the child support payable by the husband.
In concluding that the appeal in relation to the percentage to be received by the husband and wife should not succeed, we are mindful that the pool of property has been amended by us. The net value of the pool now is $957,984.60. The process of re-exercising is somewhat complicated as can be seen in the discussion in G and G [2002] FamCA 766 and Hunt and Zuryn (2005) FLC
93-2268. The extent to which a detailed re-exercise is necessary where the appeal has succeeded on grounds relating to the composition and value of the pool must, we would observe, depend on the magnitude of the alteration of the value of the property pool. Given the relatively modest alteration in this case, we consider it necessary only to make mathematical adjustments after limited observations in relation to the percentage division.
It is our view that taking into account the contributions of the parties and the relevant s 79(4) factors, the property as now described should be divided as to 70 percent to the wife and 30 percent to the husband. The wife will receive the same assets as contemplated by the orders of the Federal Magistrate, having a value of $518,500. We are mindful that since the orders the husband has paid from his own resources the sum of $96,000 in relation to the Q property so that the sum now payable by him will be reduced by that factor.
The orders will vary the cash payment payable by him to $163,289 representing the difference between the assets to be retained by the wife and 70 percent of the net pool. This calculation is set out in the following table:
Assets to be received by the wife Q property 495,000 Wife’s savings account 500 Wife’s motor vehicle 10,000 Wife’s superannuation 13,000 Total 518,500 70% net pool of $973,984 681,789 Value of assets received by the wife (518,500) Payment by the husband 163,289
COSTS
At the conclusion of the hearing of the appeal counsel asked for the opportunity to provide written submissions after the judgment is delivered. In the circumstances, we think this the appropriate course. Directions will be made to allow each party to provide those submissions.
I certify that the preceding ninety-two (92) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court.
Associate:
Date:
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