Mulligan & Clovis
[2025] FedCFamC2F 306
•11 March 2025
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Mulligan & Clovis [2025] FedCFamC2F 306
File number(s): NCC 966 of 2022 Judgment of: JUDGE BETTS Date of judgment: 11 March 2025 Catchwords: FAMILY LAW – Property settlement proceedings – 20‑year relationship – complex entities – add-back arguments – just and equitable outcome. Legislation: Evidence Act 1995 (Cth)
Family Law Act 1975 (Cth)
Family Law (Superannuation) Regulations 2001
Federal Circuit & Family Court of Australia (Family Law) Rules 2021
Cases cited: Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1980) 146 CLR 336
Kowaliw & Kowaliw (1981) FLC 91-092
Mallet & Mallet (1984) 156 CLR 605
Nettler & Nettler [2009] FamCAFC 185
Ramsay & Ramsay (1997) FLC 92-742
Division: Division 2 Family Law Number of paragraphs: 258 Date of last submission/s: 29 August 2024 Date of hearing: 11-14 June 2024 & 28-29 August 2024 Place: Newcastle Counsel for the Applicant: Mr Tregilgas Solicitor for the Applicant: Mullane & Lindsay Counsel for the Respondent: Mr Levick Solicitors for the Respondent: Tonkin Drysdale Partners ORDERS
NCC 966 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: MR MULLIGAN
Applicant
AND: MS CLOVIS
Respondent
ORDER MADE BY:
JUDGE BETTS
DATE OF ORDER:
11 MARCH 2025
Amended pursuant to rule 10.13(1)(f) of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) on 2 April 2025
THE COURT ORDERS THAT:
1.Within three (3) days, the partes shall do all things and sign all documents to authorise the funds standing to their credit on the trust/controlled moneys accounts of Tonkin Drysdale Partners (but not the funds standing to the credit of the Mulligan Clovis Self-Managed Superfund) to be disbursed to the Husband as to $458,807 plus 52% of any additional interest accruing since the hearing date, and $630,818 to the Wife plus 48% of any additional interest accruing since the hearing date.
2.Within twenty-eight (28) days, the parties shall do all things and sign all documents to cause any and all loans owing by the Respondent Wife to the Mulligan Clovis Family Trust to be transferred into the name of the Applicant Husband. The Applicant Husband hereby indemnifies and shall keep indemnified the Respondent Wife with respect to any such loan accounts and any other liabilities associated with the Mulligan Clovis Family Trust save for tax liabilities of the Wife arising from the past distribution to her of income from the Mulligan Clovis Family Trust.
3.The Wife shall indemnify the Husband and the Mulligan Clovis Family Trust in respect of any liability of whatsoever nature and kind arising from offices held or in respect of income tax payable as a consequence of having been a shareholder or director of the company or in respect of any loan or asset transferred to, or income declared or payable to the Husband and/or the Mulligan Clovis Family Trust.
4.Within twenty-eight (28) days, the Applicant Husband, in his capacity as director of the corporate trustee of Mulligan-Clovis Pty Ltd, shall do all things and sign all documents to transfer to the Wife, or to such entity as the Respondent Wife may direct, the Mulligan Clovis Family Trust’s shareholding in B Pty Ltd and resign from any office he may hold in such entity.
5.Upon the compliance with orders 2 and 3 hereof, the Respondent Wife shall within seven (7) days of a written request to do so sign all documents in order to allocate to the Applicant Husband all her right title and interest in the Mulligan Clovis family Trust or its corporate trustee.
6.The Respondent Wife is hereby declared the sole legal and beneficial owner of the parties’ valuables collection and the Applicant Husband shall forthwith do all things and sign all documents as may be requested of him by the Respondent Wife in order to give effect to this order.
7.Within twenty-eight (28) days and with respect to the Mulligan Clovis Self-managed Superfund (“the Fund”), the parties shall do all things and sign all documents in their capacity as directors of C Pty Ltd (“the corporate trustee”) in order to give effect to the following:
(a)Within seven (7) days, do all things and sign all documents to instruct the Fund’s accountants to calculate the net membership entitlements of the Applicant Husband and Respondent Wife respectively in the Fund;
(b)Immediately following compliance with Order 7(a):
(i)Pursuant to paragraph 90XT(1)(a) of the Family Law Act 1975, whenever a splitable payment becomes payable to the Applicant Husband from his interest in the Fund, the Respondent Wife is entitled to be paid the base sum of $89,022 out of the Applicant Husband’s member amount in the Fund;
(ii)The payment at Order 7(b)(i) hereof shall consist of an in specie transfer of the principal and interest contained within Tonkin Drysdale Partners controlled moneys account …89; and
(iii)The Applicant Husband’s entitlement (or the entitlement of such other person to whom a splitable payment may be made out of the Applicant Husband’s interest) in the Fund, is correspondingly reduced.
(c)Immediately upon compliance with Order 7(b), the parties in their respective capacities as directors of the corporate trustee shall cause it to do all such acts and things and sign all such documents as may be necessary to:
(i)Calculate in accordance with the Family Law Act 1975 and the Family Law (Superannuation) Regulations 2001, the entitlement for the Respondent Wife created by this order; and
(ii)Pay the entitlement whenever the corporate trustee makes a splittable payment out of the Applicant Husband’s interest in the Fund.
(d)Immediately prior to the trustees complying with Order 7(c), the parties in their respective capacities as directors of the corporate trustee shall cause a meeting of the corporate trustee to be held in accordance with the Rules of the Fund’s Trust Deed and in that meeting shall cause it to:
(i)Calculate the amount of transferrable benefits;
(ii)Authorise the transfer of the transferrable benefits to the Respondent Wife; and
(iii)Authorise the consolidation of the Respondent Wife’s interest in the Fund.
(e)Order 7(b) has effect from the operative time and the operative time is one (1) minute following the Trustee’s compliance with Order 7(c).
(f)Before the close of the meeting of the Trustees as contemplated by Order 7(d) hereof, the Respondent Wife shall do all such acts and things and sign all such documents prepared by the Applicant Husband as may be necessary to:
(i)Resign her membership of the Fund;
(ii)Resign as director of the corporate trustee,
(iii)Transfer her share in the corporate trustee to the Applicant Husband or as he may direct; and
(iv)Transfer and assign to the Applicant Husband all her right title and interest in any loan account that she has with the corporate trustee.
(v)Rollover her superannuation interest (inclusive of her super-split entitlement pursuant to these Orders) to a complying superannuation fund and, for the avoidance of doubt, such rollover shall be in the form of the Fund’s cash on deposit held on Tonkin Drysdale Partners Trust Account arising from the Fund’s sale of D Street, Town E, NSW.
(g)The Trustee of the Fund, having been granted procedural fairness, is bound by Order 7.
(h)Pending compliance with Order 7 herein, the Applicant Husband be restrained from:
(i)Giving to a trustee a binding death nomination in favour of an person which would have the effect of reducing the value to the Respondent Wife of the splitting order made in order 7(b) hereof; and
(ii)Making any application to the trustee to withdraw any monies or property from her member account in the Fund or to roll out of the Fund his member account in it.
(i)The Applicant Husband shall thereafter be solely responsible for the Fund and shall indemnify the Respondent Wife in relation to the Fund for all liabilities of whatsoever nature and kind;
(j)The Applicant Husband and Respondent Wife shall personally, and in their capacities as shareholders and directors of the corporate trustee, comply with all legal requirements, including under the Superannuation and Taxation Law, to properly and expeditiously implement the provisions of this order.
8.Unless specified in these orders and save for the purposes of enforcing any moneys due under these or any subsequent orders, pursuant to section 78 of the Family Law Act 1975 each party:
(a)Shall be solely entitled to the exclusion of the order, to all property (including choses-in-action) in the name of the possession of such party as at the date of these orders and for that purpose, bank accounts are deemed to be in the possession of the person named as account holder;
(b)Shall be solely responsible for and shall indemnify the other against, any and all debts attaching, encumbering or relating to the property in their respective possession and any items of property to which that party is entitled pursuant to these orders, and any debts in their respective sole names; and
(c)Forgoes any claim they may have to any superannuation benefits belonging to or earned by the other except as dealt with in these orders.
9.Pursuant to section 106A of the Family Law Act 1975, in the event that a party neglects or refuses to sign any deed or instrument necessary to give effect to these orders within five (5) days of a written request to do so by the other party, then upon the filing of an Affidavit evidencing such neglect or refusal a Judicial Registrar of the Newcastle Federal Circuit and Family Court of Australia (Division 2) or such other Court Officer appointed in his or her stead, is empowered to:
(a)Execute such deed or instrument in lieu of the defaulting party and do all acts and things necessary to give validity and operation to such deed or instrument; and
(b)Make such order as it considers just as to the payment of costs and expenses of and incidental to the preparation of such deed or instrument and its execution.
10.If either party seeks a costs order, that party is to file and serve an Application in a Proceeding, supporting Affidavit and written submissions within twenty-eight (28) days.
11.If neither party brings a costs application pursuant to these orders, the proceedings will otherwise be removed from the list of Active Pending Cases.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Part XIVB of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish an account of proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym has been approved pursuant to subsection 114Q(2) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
JUDGE BETTS
OVERVIEW:
These are property settlement proceedings arising from the breakdown of a lengthy marriage.
The applicant husband is Mr Mulligan. The respondent wife is Ms Clovis. Both are experienced medical professionals, the husband being 52 years old and the wife 51.
Both parties were born in Country F, commencing a relationship there in 1999 before migrating to Country G where they lived for several years and had two (2) children, Mr H born in 2005 and X born in 2007. In 2008 the family migrated to Australia, settling in Region K where they went on to establish, and work in, various medical practices. They finally separated on or about 3 November 2019 with the husband moving out of the home shortly afterwards.
The parties’ son Mr H is now 19 and lives in City L where he is studying. Their daughter X is 17 and in Year 12 at M School. Both children have become estranged from the husband since separation; it has been a few years since either of them have spent time with him.
The husband cohabits with his fiancé Ms N and their daughter, O, born in 2022. The wife remains single.
The husband seeks 55% of the net non-superannuation assets with each party to retain their own superannuation – meaning that he would keep 60%. The wife seeks 57.5% of the net non-superannuation assets and a 50% superannuation splitting order.
To complicate matters, the competing Balance Sheets are poles apart. In large part this is due to the parties’ financial conduct post-separation; both spent significant matrimonial funds, the wife more so than the husband. The husband contends that the wife’s level of expenditure was at wasteful levels so as to warrant such moneys being notionally added-back as assets on her side of the ledger. He also contends that certain unpaid liabilities of hers should be excluded from the Balance Sheet on the basis that she has had sufficient access to funds to pay them out.
The wife contends that her post-separation expenditure was reasonable, that the husband’s own level of expenditure shows him to be a hypocrite and that he in fact set out to make her life as financially difficult as possible including by denying her access to funds.
At the hearing, each party tendered various schedules containing detailed calculations of expenditure down to the cent. To some extent their schedules passed ‘like ships in the night’ with each party emphasising their own calculations as to:
·what expenditure was joint or otherwise for the benefit of the family -v- what expenditure was for their individual benefit;
·what expenditure was reasonable -v- what expenditure was unreasonable or wasteful.
This was a lengthy marriage in which the parties each made substantial contributions both during the marriage and post-separation. Not every contribution was a financial one – for instance homemaking and parenting contributions which cannot be under-valued: Mallet & Mallet (1984) 156 CLR 605.
Mathematical calculations have their limitations. To begin with, they give an incomplete picture. The fact that the wife spent more money post-separation than the husband did is not by and of itself probative of anything relevant to the Balance Sheet. The Court needs to consider and weigh up many competing factors, including the parties’ respective incomes at relevant times; the manner in which the parties had historically conducted their banking arrangements including that the wife primarily managed the accounts and had unfettered access to joint credit cards, a joint bank account and moneys held by their various matrimonial entities. The Court must be mindful of the parties’ self-support needs and what is reasonable must to some extent turn upon the high standard of living to which each had become accustomed which, on the evidence, neither was keen to relinquish post-separation. Of particular significance, the Court must be mindful of the parties’ mutual obligation to clothe, house and feed the children who remained living with the wife in the former matrimonial home.
The husband separately criticises the wife’s conduct of some business entities, suggesting that the associated losses should be borne solely by her. She denies conducting such businesses in a negligent, reckless or wanton manner; her case is that she has done her best in what were challenging circumstances to which the husband himself contributed.
In arriving at a decision, the Court has had to grapple with these - and the other – arguments advanced by the parties. But at the outset I make clear that the Court is not going to ‘freeze’ the parties’ financial circumstances as at the separation date and thereafter engage in a strict accounting exercise which effectively treats one or both parties as a trustee in respect of all moneys spent thereafter either on living expenses or in the parties’ business enterprises. Just because these well-resourced parties chose to litigate in this manner does not mean that the Court is obliged to follow. Indeed if the Court were to notionally add-back into the Balance Sheet all the money contended for, it is practically certain to fall into error by double-counting the same money somewhere along the way. Add-backs should ordinarily be the exception, not the rule.
Against that backdrop, and for the reasons which follow, the Court has arrived at a property division which it considers to be just & equitable in all the circumstances of this case.
HEARING & MATERIAL RELIED UPON:
Mr Tregilgas of counsel appeared for the husband and Mr Levick of counsel appeared for the wife.
The husband relied upon: a Case Outline Document filed 06/06/24; the husband’s Affidavit filed 28/05/24; the husband’s Financial Statement filed 09/06/24; the Affidavit of the husband’s fiancé Ms N filed 05/06/24; the Affidavit of Ms Q (chartered accountant) filed 06/06/24; the Affidavit of Mr P (accountant) filed 29/03/23; and the Affidavit of the husband’s brother Mr R filed 12/06/24.
The wife relied upon: a Case Outline Document filed 07/06/24; the wife’s Affidavit filed 30/05/24; the wife’s Financial Statement filed 05/06/24; the Affidavit of the wife’s sister Ms S filed 03/06/24; and the interim property orders of SJR Clarke of 13/04/23.
The affidavit material was lengthy as were the associated objections. The original hearing estimate of four days provided to the Court was hopelessly optimistic; it ultimately took six.
The parties tendered numerous exhibits which will be referred to as relevant, including their various financial schedules pursuant to s 50 of the Evidence Act 1995 (Cwlth).
I have had the benefit of seeing and hearing both parties give their evidence. Both were essentially honest witnesses and no serious ‘credit’ issues arise. There was however obvious acrimony between them which likely explains the somewhat mendacious nature of some of the arguments that they made, as well as colouring their respective recollections of past events.
THE LAW:
These proceedings are governed by the provisions of Part VIII of the Family Law Act 1975 (Cth) (“the Act”).
The Court can only make a property settlement that is ‘just and equitable’: s 79(2) of the Act. The ‘just and equitable’ requirement goes initially to the making of any order, and then to the substance of any order the Court intends to make.
Here the parties agree (and the Court accepts) that it would be just and equitable to make an order. The ‘live’ question for the Court is - what is the order that would be just and equitable?
In answering this question, the Court will:
(a)identify and value the property, liabilities, and financial resources of the parties (the ‘Balance Sheet’);
(b)identify and assess the parties’ respective contributions-based entitlements pursuant to s 79(4)(a), (b) & (c) of the Act;
(c)consider whether any adjustment should be made to the parties’ respective contributions-based entitlements on account of the relevant ‘future factors’ set out in s 79(4)(d) – s 79(4)(g) of the Act, and in s 75(2) of the Act;
(d)consider the overall effect of the Court’s findings and proposed orders so as to be satisfied that any proposed property settlement order is ‘just and equitable’.
IDENTIFYING THE VARIOUS MATRIMONIAL ENTITIES:
Before turning to the Balance Sheet in detail, it is helpful to give an overview of the various matrimonial entities established by the parties for the purposes of investment, asset protection and tax-effective income distribution. Some are ongoing and some are now defunct.
Mulligan-Clovis Superannuation Fund (‘SMSF’):
This is a self-managed superannuation fund. The parties are the only members; they established a corporate trustee [1] of which the parties are directors and equal shareholders.
Mulligan-Clovis Family Trust (‘MCFT’):
The MCFT is a family discretionary trust of which both parties are Appointors and the husband is the sole director of the corporate trustee.[2] It is the primary or overarching entity in that it holds various business interests of the parties and receives income on their behalf.
Historically the wife has transferred income and cash from the MCFT into the parties’ joint personal account which she has then used to meet family expenses. For tax purposes, the husband signed the formal trust income distributions each financial year. As discussed later, these things became somewhat contentious towards the end of the relationship and particularly post-separation.
‘T Pty Ltd’ (‘T Pty Ltd’):
The husband (and his two original business partners) founded this general medical practice in 2013. They incorporated T Pty Ltd as the vehicle to conduct the business, with each of the partners owning a third of the company shares; the husband’s shares were held in the MCFT. There was an associated unit trust with each partner holding a third of the units.
In early 2014, T Pty Ltd was restructured. The husband’s business partners retired with the new shareholding being divided into five (5) equal parts – the shareholders being the husband, the wife, Dr U, Dr V and Dr W. The parties’ collective 40% shareholding was held in the MCFT.
The directors/shareholders of T Pty Ltd went on to establish a number of related entities for the purposes of various business ventures.
In late 2021 the wife’s interest in T Pty Ltd (and in the other T Pty Ltd-related entities) was compulsorily acquired by the husband and his business partners. The circumstances surrounding that acquisition will be discussed later as they feed into some of the arguments about contributions and alleged waste.
T PTY LTD-RELATED ENTITIES AT Y STREET ESTABLISHED DURING THE RELATIONSHIP
In 2017 T Pty Ltd moved into a building at Y Street. The building consisted of several strata‑titled suites, some of which the directors of T Pty Ltd went on to purchase or lease for the purpose of conducting various non-competing businesses. To that end they[3] established a number of related entities.
Z Pty Ltd as trustee for the Z Unit Trust; AA Pty Ltd trading as ‘AA Company’; BB Trust; CC Unit Trust trading as ‘CC Centre’:
In 2017 the directors of T Pty Ltd decided to purchase a second suite. To that end, they incorporated Z Pty Ltd to act as trustee of a new unit trust, the Z Unit Trust. The parties’ units in the Z Unit Trust were held in the MCFT.
Initially, this suite was leased to AA Pty Ltd, trading as AA Clinic. This was a business established by T Pty Ltd’s directors and practice manager.
In the meantime, the husband, three of T Pty Ltd’s directors and T Pty Ltd’s practice manager decided to purchase a third suite using a new entity which they established – BB Trust. The husband’s 20% share of the units were held in the MCFT.
AA then began renting the third suite and T Pty Ltd began renting the second suite.
T Pty Ltd’s directors and practice manager also established another ‘offshoot’ business known as ‘CC Centre’ which conducted business out of the same premises. A company was incorporated to run the business, of which the husband was a director. There was an associated trust known as the CC Unit Trust; the MCFT held the husband’s units.
THE WIFE’S BUSINESS
‘B Pty Ltd’:
In 2017, the wife became an accredited medical practitioner. To that end she established ‘B Pty Ltd’ (‘B Company’) which initially operated from a fourth suite and traded as the ‘DD Centre’. The wife was the sole director and the company shares were held in the MCFT.
Post-separation, the wife had no practical alternative but to relinquish this suite as discussed later. B Pty Ltd has all but ceased to trade and has a $NIL value. In its place the wife has established the ‘EE Centre’.
POST-SEPARATION ENTITIES
FF Pty Ltd trading as ‘EE Centre’ / Clovis Family Trust
‘EE Centre’ is a medical practice established by the wife and her business partner Mr GG. It provides a range of services. FF Pty Ltd owns the business, being a company which the wife and Mr GG established and in which they are equal shareholders. The wife’s shares are held in a new entity she established, the Clovis Family Trust.
HH Unit Trust:
After B Company vacated the suite, in early 2022 the unit holders of the Z Unit Trust (being the husband, Dr V, Dr W, Dr U and their practice manager Ms JJ) decided to purchase that suite. To that end, they established the HH Unit Trust and incorporated HH Pty Ltd to act as trustee.
They purchased this suite for just over $1,000,000, later leasing it to LL Limited trading as ‘MM Clinic, as discussed later.
HH Unit Trust @ Y Street:
At or about the same time as purchasing the fourth suite, the HH Unit Trust also purchased a fifth suite for $150,000.
THE BALANCE SHEET:
Various different Balance Sheets were tendered in the course of the hearing. The husband’s ultimate version was tendered as exhibit 3A and the wife’s as exhibit 3B. Given the husband’s approach to notional add-backs, the spectre of double-counting loomed large over his version.
Having carefully considered the evidence, the Court has arrived at the Balance Sheet set out below. Disputed items have been asterisked and the Court’s reasons will follow.
Non-superannuation assets:
Item
Description
Value (Husband)
Value (Wife)
Value adopted
1
Trust account funds held by Tonkin Drysdale [Joint]
$1,089,625
$1,089,625
$1,089,625 [4]
2*
Mulligan-Clovis Family Trust (‘MCFT’) [Husband]
$ 664,158
$ 779,339
$ 762,483
3
Valuables [Joint but in wife’s possession]
$ 10,000
$ 10,000
$ 10,000 [5]
4
NN Street, Town OO [Husband & Ms N]
$ exclude
$ exclude
$ exclude
5
Loan to T Pty Ltd – clearing account [Husband]
$ 4,272
$ 4,272
$ 4,272
6
Motor Vehicle 1 [Husband]
$ exclude
$ exclude
$ exclude
7
NAB account #...02 [Husband]
$ 27,778
$ 27,778
$ 27,778
8
NAB account #...98 [Husband]
$ 7,848
$ 7,848
$ 7,848
9
Trust account funds held by Mullane & Lindsay [Husband]
$ 14,183
$ 14,183
$ 14,183
10
NAB Offset account #...42 [Husband]
$ 7,854
$ 7,854
$ 7,854
11
Country G Bank account #...00 ($1,002)
[Husband holds on trust for X]
$ exclude
$ exclude
$ exclude
12*
Cash [Wife]
$ unknown
$ 3,060
$ 3,060
13
Motor Vehicle 2 [Wife]
$ exclude
$ exclude
$ exclude
14
PP Street, Town E [Wife]
$2,200,000
$2,200,000
$2,200,000
15
Clovis Family Trust [Wife]
$ nil
$ nil
$ nil
16
Loan to Clovis Family Trust [Wife]
$ 100
$ 100
$ 100
17
NAB account #...89 [Wife]
$ 3,969
$ 3,969
$ 3,969
18
NAB account #...62 [Wife]
$ 7
$ 7
$ 7
19
NAB account #...83 [Wife]
$ 807
$ 807
$ 807
20
CBA Govt Bond / Term deposit #...32 [Wife]
$ 14,000
$ 14,000
$ 14,000
21*
Loan to FF Pty Ltd– clearing account [Wife]
$ 17,453
$ nil
$ nil
22*
Shareholders loan to FF Pty Ltd Care [Wife]
$ 45,176
$ nil
$ 45,176
23*
Loan to ‘B Company’ [Wife]
$ 300,877
$ nil
$ nil
SUB-TOTAL ASSETS:
$4,191,162
‘Notional assets’ sought to be added-back to the Balance Sheet:
Item
Description
Value (H)
Value (W)
Value adopted
24*
Pre-paid legal fees [Husband]
$ 418,480
$ 17,300
$ 418,480
25*
Pre-paid legal fees – expert costs [Husband]
$ included in above figure
$ 17,930
$ included in above figure
26
Pre-paid legal fees [Wife]
$ 119,957
$ 119,957
$ 119,957
27*
Sale proceeds Motor Vehicle 3 [Husband]
$ exclude
$ 25,000
$ exclude
28*
Waste: lost interest on joint trust funds [Husband]
$ exclude
$ 31,408
$ 31,408
29*
Waste: ATO interest charge on income tax debt from 18/09/23 [Wife]
$ 11,062
$ exclude
$ exclude
30*
Waste: drawdown from joint account post-separation [Wife]
$ 394,134
$ exclude
$ exclude
31*
Sale proceeds of QQ Street property [Wife]
$ 347,365
$ exclude
$ exclude
32*
Motor Vehicle 4 gifted to Mr H [Wife]
$ 10,000
$ exclude
$ exclude
SUB-TOTAL ADD-BACKS:
$ 569,845
TOTAL ASSETS INCL. ADD-BACKS:
$4,761,007
Liabilities:
Item
Description
Value (H)
Value (W)
Value adopted
33
Mortgage – NN Street, Town OO [Husband & Ms N]
$ exclude
$ exclude
$ exclude
34
Mortgage – PP Street, Town E [Wife]
$1,404,359
$1,404,359
$1,404,359
35
KK Finance – Motor Vehicle 1 [Husband]
$ exclude
$ exclude
$ exclude
36
AE Finance – Motor Vehicle 2 [Wife]
$ exclude
$ exclude
$ exclude
37
Personal loan from Ms S Clovis [Wife]
$ 9,300
$ 9,300
$ 9,300
38*
Personal loan from Mr R [Husband]
$ 50,000
$ exclude
$ 50,000
39
Loan from MCFT [Wife]
$ 7,235
$ 7,235
$ 7,235
40
Loan from MCFT [Husband]
$ 141,780
$ 141,780
$ 141,780
41*
Tax liability FY 2021 & FY 2022 [Wife]
$ exclude
$ 222,835
$ 222,835
42
CGT liability in relation to MCFT for FY 2022 [Husband]
$ 41,822
$ 41,822
$ 41,822
SUB-TOTAL LIABILITIES:
$1,877,331
NET ASSETS INCL. ADD-BACKS
$2,883,676
Superannuation:
Item
Description
Value (H)
Value (W)
Value adopted
43
SMSF [Husband’s member a/c]
$ 531,968
$ 531,968
$ 531,968
44
SMSF [Wife’s member a/c]
$ 341,495
$ 341,495
$ 341,495
45*
Interest generated on TDP controlled money account #...89 [Joint]
$ not included
$ 7,618
$ 7,618
46
Super Fund 1 [Wife]
$ 12,428
$ 12,428
$ 12,428
TOTAL SUPERANNUATION:
$ 893,509
Item 2 – the MCFT:
In his single expert valuation report of 6 June 2024, Mr RR (chartered accountant) valued the MCFT as at 30 June 2023 in the net amount of $649,711 using an assets-based approach.
The husband contends for a value of $664,158 and the wife $779,339. How are they so far apart and why does neither adopt Mr RR’s figure?
The relevant difference concerns the value of the fourth suite, beneficially owned by the HH Unit Trust, of which the MCFT holds the husband’s 20% interest. In relation to this suite, Mr RR adopted the opinion of the single expert real estate valuer, Mr SS, who valued it at $970,000. Because the liabilities of the HH Unit Trust were $1,039,233, Mr SS gave the HH Unit Trust an overall value of $NIL. [6]
Everything turns on Mr SS’s valuation which was vigorously challenged by Mr Levick when he was in the witness box, the upshot of which was that Mr SS conceded a valuation of up to $1.1M. The husband adopted that figure, thereby increasing Mr RR’s MCFT valuation to $664,158. The wife says that Mr SS’s revised figure is still too low, that the suite is in fact worth $1,773,750 which in turn increases the MCFT’s value to $779,339. [7]
The suite itself comprises two suites, described in the evidence as suites A & B. Suite A consists of a waiting room, two consulting rooms and a multi-purpose room which are leased to MM Clinic. Suite B is approximately the same size and comprises a conference room, staff room, kitchenette and office. It is leased by T Pty Ltd-related entities, with MM Clinic being entitled to use the kitchenette. The valuation debate revolves around the highly favourable terms upon which suite A is leased to MM Clinic and the extent to which this impacts (or perhaps distorts) the value of the suite as a whole.
By way of background, T Pty Ltd and MM Clinic have historically had a mutually beneficial business relationship. T Pty Ltd’s patients require health services and MM Clinic can provide those services; a win-win for all concerned. MM Clinic has continually leased space within the AA Company health precinct ever since 2013 and, from 2017 onwards, MM Clinic have been tenants of the Y Street Building, either renting from T Pty Ltd or from T Pty Ltd-related entities.
MM Clinic initially leased the second suite. But in 2022 they took out a five (5) year lease for suite A, expiring in late 2027, with two (2) x five (5) year options to renew. Pursuant to the lease, MM Clinic pay premium rental which is well above normal commercial rates. But there is a ‘Medicare Australia Refusal Clause’ empowering Medicare to terminate the lease on three (3) months’ notice.
The crux of the valuation argument is how to appropriately account for the future premium rental returns given the potentially dampening effect of the Medicare Australia Refusal Clause. What is the appropriate way to capitalise those rental returns and should the Court consider the valuation on a ‘value to owner’ basis?
In relation to these matters it is necessary to explore both Mr SS’s written reports and his oral evidence.
Valuation Report as at 04/01/23 - $1.1M (exhibit 2A):
This was Mr SS’s first valuation report.
The report noted that ‘market value’ was defined as:
the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgably, prudently and without compulsion.
Mr SS’s stated methodology was to:
[rely] upon the Direct Comparison method of valuation supported by the capitalisation method of valuation based upon analysis of comparable commercial sales and leases which have taken place in recent times as well as consideration of similar properties which have been adapted for professional consulting room use.
On a ‘direct comparison’ analysis of comparable sales, Mr SS considered the sales range to be $10,000 - $12,000 / sqm. Given the size of the fourth suite, this produced a valuation between $970,000 and $1.16M of which Mr SS adopted $1.1M as an approximate mid-point.
For capitalisation purposes, Mr SS:
·considered that suite A offered a strong locational advantage for a healthcare business such as MM Clinic. On that basis, he assessed suite A had a market value of $940 / sqm or $45,120 per annum;
·considered that suite B has a market value of $470/sqm or $23,030 per annum;
·being a total market value of $68,150 per annum for this suite as a whole.
Mr SS noted that MM Clinic were paying rent for suite A of $227,630 per annum inclusive of GST and outgoings. He calculated this as $4,162.50 / sqm, being $3,222.50 / sqm more than its market value – this difference being the ‘profit rent’. In contrast, Mr SS noted that CC Centre (a T Pty Ltd-related entity) were paying rent of $23,030 per annum for suite B.
The report adopted a capitalisation range of 6% - 6.5%, settling on 6.25% as the mid-point. Mr SS’s calculations are set out below:
Capitalisation NLA/sqm Market rent/sqm
Assessed market rental p/a – LL Limited 48 $940 $45,120
Assessed market rental p/a – T Pty Ltd 49 $470 $23,030
Net Rental Return $68,150
Capitalisation
Net Yield 6% 6.25% 6.5%
$1,135,833 $1,090,400 $1,048,462
Add 3 months profit rent $ 38,910
$1,129,310
Adopt $1,100,000
As can be seen, Mr SS’s capitalisation figure of $1.1M corroborated his ‘direct comparison’ figure. But his capitalisation calculations are problematic in that:
(a)he miscalculated the amount of ‘profit rent’. He admitted in the witness box that he should have used an annual rental figure of $4,742 / sqm for MM Clinic, resulting in a true ‘profit rent’ of $3,802 / sqm rather than $3,222.50;
but more significantly
(b)why did he allow just three (3) months profit rent? This was the absolute minimum timeframe during which profit rent would be payable under the MM Clinic lease. It effectively assumed that Medicare Australia was not only terminating the lease, but doing so immediately.
Addendum Report - $1.86M (exhibit 2B):
Pursuant to the Federal Circuit & Family Court of Australia (Family Law) Rules, the wife’s solicitors asked Mr SS to undertake a fresh ‘capitalisation’ calculation as if Medicare Australia would not terminate the lease. In response, he prepared an addendum report which made the following calculations:
Capitalisation NLA/sqm Market rent/sqm
Assessed market rental p/a – LL Limited 48 $940 $45,120
Assessed market rental p/a – T Pty Ltd 49 $470 $23,030
Net Rental Return $68,150
Capitalisation
Net Yield 6% 6.25% 6.5%
$1,135,833 $1,090,400 $1,048,462
Add 5 years profit rent $12,890 x 60 $ 773,400
$1,863,800
Adopt $1,860,000
To be clear, Mr SS expressly disavowed these calculations for valuation purposes, observing in the addendum report that the $1.86M figure was:
…not considered reflective of the market value of the real estate and reflects a value based upon a highly inflated above market lease agreement which is more in connection with the business arrangement between the entities. The value of this agreement may be more appropriately reflected in a business valuation based on the overall business performance having regard to the risk that the lease can be terminated with three months’ notice.
I interpose here that, had Mr SS used the correct ‘profit rent’ figure of $3,802 / sqm, then the 5 years ‘profit rent’ figure would have been $912,480 thereby increasing the valuation to $2,002,880 – which would be logically rounded down to $2M.
Valuation Report as at 30/06/23 - $970,000 (exhibit 2):
This was the updated valuation specifically prepared by Mr SS for the hearing.
The report noted that the demand for commercial property had become more “subdued”, with inflation and rising interest rates dampening consumer spending. On a ‘direct comparison’ basis, Mr SS considered that the sales range had decreased to a range of $9,500 - $10,500 / sqm. Given the size of the fourth suite, the valuation range was therefore $920,000 - $1,020,000 of which he adopted $970,000 as the mid-point.
Mr SS again noted the relevant leases for suites A ($227,630 per annum) and suite B (which had increased to $38,015 per annum). But this time, Mr SS adopted a market rental value of $550 / sqm across the whole suite rather than $940 for suite A and $470 for suite B. This reduced the annual market value across the whole suite from $68,150 to $53,350.
On the basis of some slightly adjusted rental figures[8] Mr SS calculated ‘profit rent’ for the suite at $208,101 per annum. He then arrived at a capitalised value for the suite as follows:
Assessed market rental (net $ p.a.) $53,350
$53,350
$53,350
Rent per sqm p.a. $550
$550
$550
Total net rental (net $ p.a.)
$53,350
Cap range (%) 6.0%
6.25%
6.5%
Capital value range $889,167
$853,600
$820,769
Capital value (fully leased basis) $890,000
$855,000
$820,000
Profit Rent (6 months’ - allowance)
$104,050
$959,050
GLA (sqm) 315 Adopt:
$960,000
$7,762 ($/sqm) building area
Mr SS’s oral evidence:
Mr Levick challenged Mr SS as to why he decided in the June 2023 report to adopt a market rental value of $550 / sqm across the whole of the fourth suite. Mr SS reasoned that this was a “more simplistic approach”. This may be true but in practical terms it also reduced the baseline capitalised value to which ‘profit rent’ then needed to be added.In the course of cross-examination, Mr SS’s evidence eventually devolved into the following propositions:
·$550 is “a lot more supportable across the whole suite”; but
·the $940 / $470 figures are “fairer” and more appropriate as the $940 figure for suite A “possibly better suits the situation”; and
·ultimately “the best rental figures are definitely figures somewhere between the two reports”.
Mr Levick challenged the ‘profit rent’ allowances in both valuation reports as being far too conservative. He tried to persuade Mr SS to accept the much higher valuation figures in his addendum report on the basis that Medicare would not be terminating the lease. Mr Levick pointed to the fact that the June 2023 valuation report had in fact been prepared by Mr SS on a retrospective basis in April 2024 by which time some 10 months profit rent had already been paid. So why did he only allow 6 months’ worth? Mr Levick also pointed to the fact that the payment of profit rent was still ongoing at the hearing date and that there was no evidence that any MM Clinic lease with T Pty Ltd (or any related party) from 2013 onwards had ever been the subject of any termination or proposed termination pursuant to the Medicare clause.
Mr SS was unmoved by these matters, reasoning that the allowance for profit rent was an inherently discretionary aspect of valuation practice and that that valuers need to adopt a conservative approach which considers not just profits but also risks. It did not matter to him that hindsight now showed his profit rent allowances to have been too low; he had to exercise his professional judgment based on what would have been known to a valuer as at 30 June 2023. Mr SS maintained that his approach to ‘profit rent’ was appropriate. He reasoned that from the perspective of a lending institution the Medicare clause was “a get-out clause” which could be activated at any time, meaning that a conservative approach to valuation was appropriate.
Mr Levick suggested that the suite had a greater ‘value to owner’ than Mr SS’s valuation figure. Mr Levick pointed to the fact that the original purchase price for the suite was just over $1M, which Mr SS himself described as a “very strong out of line sale”, and that the purchasers had essentially paid a premium for it. This was consistent with Mr SS’s observation in both valuation reports that:
In this market owner occupiers are paying a premium for property over and above standard commercial returns. This can be attributed to pride of ownership, flexibility of use and also many properties at this price point are being purchased in superannuation funds by business owners where benefits other than investment returns are accrued to the entity.
Mr Levick suggested to Mr SS that the hypothetical calculations in the addendum report best reflected the value to owner. Mr SS firmly disagreed, saying those figures were “not realistic to the owner”. He reasoned that the higher the amount of profit rent, the more it distorted things because a valuer also has to consider the value of the underlying real estate (the ‘direct comparison’ method). He said that the larger the discrepancy between the capitalised figure and the ‘real estate’ figure, the more the question of profit rent needed to be taken up as part of a business valuation of the entity that owns suite 3, rather than in a land valuation. Alternatively, if substantial profit rent was to be factored into a land valuation, then the capitalisation rate may need to be reduced.[9]
Ultimately Mr SS conceded to Mr Levick that, upon further reflection, the more reliable valuation figure as at 30 June 2023 was his $1.1M figure from the January report.
Mr Tregilgas cross-examined Mr SS in an endeavour to ‘firm up’ that $1.1M figure and thereby limit the risk of the Court arriving at a higher figure. Mr Tregilgas had Mr SS confirm that he had understood that the object of the exercise was a valuation for family law purposes, not lending purposes, and that Mr SS had taken into account all relevant comparative sales and leases. He had Mr SS reiterate that the addendum report was not a valuation, but a response to specific questions which did not reflect the true market value of the suite but rather a highly inflated, above-market value lease arrangement between commercial entities.
Competing valuation arguments:
Mr Levick contended that Mr SS’s approach was far too conservative and that a ‘value to owner’ approach was warranted particularly where the most likely purchaser of the MCFT’s interest would be a fellow unit holder. He submitted that there was no suggestion the Medicare clause was going to be triggered and that the true measure of value for the fourth suite was the income stream it would generate over the term of the lease. He submitted that Mr SS’s $1.1M figure “failed the pub test” – pointing to the fact that MM Clinic would pay rental income of over $1M after just 4 years of the lease, ie. by late 2026. Mr Levick contended that a ‘value to owner’ approach was warranted, one which acknowledged the reality that the most likely purchaser of the MCFT’s 20% interest would be a fellow unit-holder in the HH Unit Trust. As noted at [50] above, Mr Levick contended that suite 3 be valued at $1,773,750. In broad terms this is the $1.86M figure from the addendum report less an approximate 5% discount. Mr Levick submitted that if the profit rent was not taken into account in the valuation exercise, then it needed to be considered in the context of s 75(2); profit rent cannot simply be allowed to “fall through the cracks”.
Mr Tregilgas submitted that the $1.1M valuation figure was reliable. Adverting to Mr SS’s evidence about the interplay between land values and business values, Mr Tregilgas emphasised that the suite was owned by various entities; that the husband only had a minority 20% share via the HH Unit Trust; that in FY 2023 the HH Unit Trust incurred substantial interest expenses of $61,713 related to its borrowings for the purchase.[10] Just as Mr Levick did not want profit rent to “fall through the cracks”, equally Mr Tregilgas did not want it to be double-counted both in the Balance Sheet and again under s 75(2).
Consideration & conclusion as to value:
Any valuation figure adopted by the Court must be the one that is most likely to do justice and equity as between the parties.
In Nettler & Nettler [2009] FamCAFC 185, the Full Court (Faulks DCJ, Thackray & Ryan JJ) considered an appeal which turned on valuation evidence of the wife’s business which she was going to retain and continue as a going concern. Each party had commissioned competing business valuations. The wife’s valuer had valued the business on a future maintainable earnings (‘FME’) basis; the husband’s valuer had valued it on a disposal of assets basis which was higher. The trial Judge accepted the evidence of the husband’s valuer.
The wife appealed on various grounds. One was that, as she planned to continue running the business rather than selling it, the business should have been given the lower FME value. Their Honours rejected this, observing that:
28.…[T]he guiding principle for determining land value is found in Spencer v Commonwealth (1907) 5 CLR 418. Summarised this involves determination of the fair price which a hypothetical prudent purchaser would pay a not over anxious vendor who “desired to purchase it for the most advantageous purpose for which it was adapted”. His Honour correctly stated that the Spencer test has been applied to a wide range of assets other than land. The appropriate method of valuation of a business therefore cannot depend upon the subjective intentions of one of the parties to the proceedings. A party may wish (or say they wish) to retain and operate a business that has substantial tangible assets, but little or no income. It cannot be right in principle that a party wishing to hold onto a business can then insist on the business being valued on its future maintainable earnings in circumstances where the business, or its underlying assets, could be sold immediately for a substantially greater sum. To conclude otherwise would be inconsistent with Spencer.
The Full Court went on to cite the decision of Mason J (as he then was) in Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1980) 146 CLR 336 wherein his Honour said at p.381:
As with the assessment of damages, especially in personal injury cases, the valuation of property by a court has many of the characteristics of a discretionary judgment. Valuation is a matter of estimation, not of precise mathematical calculation. It certainly involves the making of a value judgment in the metaphorical as well as the literal sense.
In Ramsay & Ramsay (1997) FLC 92-742, Warnick J had to consider the value of a minority shareholding. His Honour observed that a ‘realistic’ value was sometimes conflated with the ‘value to the shareholder’ but that they may not always be the same thing:
It seems arguable however that what is “realistic” (literally taken) may not be the same as the value to the shareholder. The latter is often not the value that can be achieved on sale and often takes account of a number of assumptions about the receipt of benefits (often not attaching to the shareholding “per se”). Thus it has a strong “notional” aspect, in contrast to the reality of the market. It seems arguable that the concept of “realistic” value to the shareholder ought include a recognition of what can be achieved on sale. Alternatively, such recognition ought to be granted some other place in the decision-making process.
It is in this area of tension, between what I suggest is realism and what might be as the value to the shareholder, that the failure to identify factors pertinent to the valuation exercise being undertaken and in particular the failure to identify those factors, the import of which ought be left to the discretion of the court, causes particular difficulty.
There clearly exists a market for the MCFT’s minority interest in the HH Unit Trust. The Court accepts Mr Levick’s submission that the most likely purchaser would be a fellow unit-holder, which is consistent with the terms of the relevant Trust Deed. [11] There is an additional ‘value to owner’ for the suite above and beyond Mr SS’s valuation amount which has not adequately taken into consideration the associated business relationships.
With respect, Mr SS’s valuation has not adequately allowed for the ‘profit rent’. But he ought not necessarily be blamed for this. Rather than considering the valuation (including profit rent) from the perspective of a Court charged with making a just and equitable property division between divorced spouses, Mr SS essentially approached the task from the perspective of banks lending money at scale and needing to limit commercial risks.
It is relevant that the MM Clinic lease has in fact continued since the valuation date of 30 June 2023. Ordinarily, events post-dating the valuation date should be disregarded. But here the allowance for profit rent which formed part of the valuation was entirely notional - so how can this Court disregard the actual position which has only become apparent in the fullness of time? To disregard it would be to give the husband a ‘windfall gain’ which seems incompatible with the overarching requirement to make an order that is just and equitable.
It is equally important not to over-value the suite and the Court is also mindful of Mr SS’s observation that at a certain point the profit rent becomes not so much a matter of land valuation as a matter of business valuation of the underlying entity, ie. the HH Unit Trust.
Ultimately the Court considers Mr SS’s $1.1M figure to be too low, but Mr Levick’s figure of $1,773,750 too high as it does not sufficiently account for the risk of the lease potentially being terminated. In the Court’s view an appropriate value can be arrived at by applying a 10% discount to the $1.86M figure in the addendum report, which for convenience would be rounded up to $1.675M.
Because of the complicated way in which the assets are held, it is necessary to apply Mr RR’s methodology as set out in exhibit 1A which for transparency is set out below:
·the net assets of HH Unit Trust come to $623,177;
·after applying Mr RR’s 5% discount for lack of liquidity, the value of Z Unit Trust’s units in HH Unit Trust comes to $473,613 and the overall net assets of Z Unit Trust come to $1,889,525;
·as MCFT holds 11,463 of Z Unit Trust’s 45,852 units, the value of MCFT’s units in Z Unit Trust is $472,381;
·after applying Mr RR’s 10% discount for lack of liquidity, the overall value of MCFT’s interest in the Z Unit Trust is $425,143;
·the net assets of MCFT therefore come to $762,483.
Item 12 – Wife’s remaining cash
In mid-2022, the wife withdrew $100,000 in cash from the net proceeds of sale of a unit at ‘QQ Street’ as discussed later. The Court accepts the wife’s schedule accounting for her expenditure of those moneys and corroborating the small amount which remains and which is included in the Balance Sheet. [12] The wife overwhelmingly spent the cash on meeting her financial obligations, including her reasonable living expenses. To add-back also risks double-counting. In summary, an add-back is neither warranted nor appropriate. The matter will instead be taken up as part of the Court’s contributions assessment.
Item 21 – Wife’s clearing account loan to FF Pty Ltd
The Court accepts the wife’s evidence that she caused the company to repay the loan in FY 2024. The loan having been repaid, it follows that those moneys form part of her present financial position; to notionally add-back the loan would be double-counting.
Item 22 – Wife’s shareholder loan to FF Pty Ltd
The wife made a shareholder’s loan in the sum of $45,176 as recorded in the company accounts. Mr Tregilgas wants to include the loan as an asset of the wife, on the basis that it will be repaid, or if not repaid will constitute ‘waste’ on her part. Pointing to the infancy of ‘EE Centre’, Mr Levick resists the loan’s inclusion. In short he contends that it is not realistic to expect the loan to be repaid, nor is it fair to characterise the loan as ‘waste’ given that the loan was necessary at the time and that the company provides the wife with her income stream.
Mr RR valued the company on an FME basis at $NIL, a point which Mr Levick emphasised. Mr RR considered that it had modest future maintainable earnings of $50,000 per annum; that the relevant multiplier was 3.0 – 3.5 and thus its gross value is $150,000 - $175,000. His $NIL value arises because its debts are $340,000 including this shareholder loan.
Notwithstanding Mr RR’s valuation, the loan will be included as an asset of the wife. This is because she is a hardworking and determined person who will do what she can to see that the loan is repaid – even if it takes some years. The point is illustrated by the repayment of her clearing account loan. Moreover, the wife is presently taking just 60% of her billings as income whereas the employed contractor staff take 60% - 70% of their billings and in that sense she is positioning the company in the longer term to be financially healthy and able to repay its debts. She is determined that it succeeds.
Item 23 – Loan to ‘B Pty Ltd’ (‘B Company’)
As noted in [39] & [40] above, B Company was a company established by the wife in late 2017 and it traded as ‘DD Centre’. It has all but ceased to trade and the moneys are not going to be recoverable. Notwithstanding, the husband now seeks to add-back, as a notional asset of the wife, all of the moneys which she loaned to it. The wife opposes this.
In total the wife loaned B Company the sum of $300,877, being approximately $182,300 during the relationship and $18,577 post-separation. To understand the add-back argument it is necessary to explore the relevant financial history of B Company, including its post-separation demise to which the husband himself contributed.
The business was initially established in the fourth suite. To undertake the necessary fit-out, the wife took out a loan from ‘UU Finance’ of $70,475. [13] The wife thereafter worked for both B Company and T Pty Ltd simultaneously. Because it was a new business, the wife was re‑investing her modest income from B Company back into the business rather than paying it into the parties’ joint account.
The husband was initially supportive of B Company, even obtaining his own related qualifications and briefly working for B Company himself. But he had reservations as to its long-term viability which he increasingly began to express to the wife in no uncertain terms, particularly as the relationship spiralled downhill in 2019 when he began to increasingly resent the business and the associated ‘drain’ that it was having on the family finances. The wife was similarly resentful of him for not being more supportive.
The husband claims that he was unaware of the full extent of the wife’s transfers from the joint account to B Company. The bulk of the money transferred from the joint account could be traced back to his income. He later calculated that during the period from 19 February 2019 to 30 October 2019, some $201,100 of his income had been transferred into the parties’ joint account compared to the wife’s $22,400. [14]
The Court accepts that the husband was not aware of the exact dollar transfers at the time. However, the information was ‘hiding in plain sight’ as he had full access to the joint account and at any time could have tallied the figures for himself. The wife was not concealing them, but nor was she giving him all the details given that B Company had become a source of conflict, the marital relationship was deteriorating and, historically, she had always handled the family’s banking arrangements without demur. The husband was broadly aware that B Company’s financial circumstances were modest, that the wife was using joint funds to prop it up, including to make the UU Finance loan repayments. The husband was not ignorant; on the contrary the financial circumstances of B Company were an ongoing source of marital tension.
The husband was himself using joint funds for various purposes. For example, in 2019 he transferred approximately $50,000 into BB Trust seemingly to cover his share of a deposit and some stamp duty. In August 2019 he also transferred $10,000 from the joint account to his brother and $10,000 to his mother. The wife did not object.
In late 2019, things came to a head in relation to B Company. T Pty Ltd’s business partners accused the wife of breaching T Pty Ltd shareholder’s agreement by devoting more than 50% of her clinical time to B Company. They also alleged that B Company was no longer complementary but a competitor. They called a special shareholders’ meeting.
The husband resigned as a contractor for B Company. There is no doubt that by this stage both the marital relationship and the business relationships at T Pty Ltd had become fractured - with the wife on one side and the husband and their other business partners on the other. The husband even told Dr V that the wife had been stealing joint money to put into B Company. [15]
In late 2019, the special shareholder’s meeting took place between representatives of T Pty Ltd, AA Pty Ltd and B Company. Although the husband says he remained quiet for the most part of the meeting, he was no ally of hers. The wife did not accept that B Company was competing but in practical terms she was outnumbered. The Minutes of Meeting [16] record that the other directors all agreed that there was competition occurring at least in relation to allied health services; that the wife acknowledged that B Company needed to continue providing such services and that if B Company could not do so then she would need to relocate its business elsewhere. In the meantime she said she would continue working at T Pty Ltd.
The Court accepts that after this meeting the wife did in practical terms have to wind down B Company’s business operations and find some new premises; the latter being just a question of timing. Though the husband would not himself concede that the wife had to relocate the B Company business, how could he reasonably have expected her continue to run B Company given what had transpired at the special shareholder’s meeting? Whether or not B Company was in fact competing with T Pty Ltd and its related entities, he was part of the majority that decided it was.
The Court also rejects the husband’s evidence that running the B Company business was not made more difficult by the wife having to find alternative premises. Within days of the meeting, the parties had finally separated. They had a lot on their plate. There were children to care for, a household to run and both were still working for T Pty Ltd, in the wife’s case for 2 days per week, while now having to find alternative premises for B Company.
In March 2020 the Covid lockdowns began, obviously adding another layer of difficulty. The wife and the other directors of T Pty Ltd also began arguing about T Pty Ltd’s masking practices. When the wife emailed the children’s school suggesting that they enter a Covid lockdown, this led to further dispute between she and the other directors because she had sent the email from her T Pty Ltd email address without their permission. (She accepted she should not have done so.)
On 9 June 2020, T Pty Ltd’s solicitors sent the wife a ‘default notice’ accusing her of breaching the T Pty Ltd shareholders agreement. Her solicitors responded denying it but those business relationships were clearly drawing to a close.
By August 2020 the wife had sourced some suitable premises for B Company at Suburb VV but by then the business was no longer trading in any meaningful way and, given its ongoing expenses (including the UU Finance loan of $61,646), it had essentially failed. In its place the wife and Mr GG incorporated FF Pty Ltd trading as ‘EE Centre’ referred to at [41].
In early 2021 the wife stopped working for T Pty Ltd and thereafter she devoted her energy to this new business.
Should the loans to B Company be added-back?
It is not the law that merely because a ‘matrimonial’ business fails then the party who ran it should be solely liable for any resultant losses. As Baker J observed in the celebrated case of Kowaliw & Kowaliw (1981) FLC 91-092:
Marriage is for most couples an economic partnership. Married couples live together and work together with the ultimate object of paying off a home, acquiring other assets with the overall object of attaining a higher standard of living. The reported decisions in respect of applications for settlement of property under sec. 79 of the Act are unanimous that both parties should share the economic fruits of a marriage, having regard to the provisions of sec. 79(4) and sec. 75(2), although not necessarily equally.
Is not, however, the converse equally sustainable? In other words, should not financial losses incurred by parties to a marriage or either of them, whether incurred jointly or severally, be shared by them in the same manner as the financial gains?
As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a)where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets; or
(b)where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the effect of which has reduced or minimised their value. [17]
Though driven by the wife, B Company was nonetheless a ‘joint venture’. The business was not without prospects; the Court accepts the wife’s evidence that she was invited to speak on health care at various conferences and that the business was starting to develop a reputation. The husband would not have gained his own related qualifications or worked for B Company if he thought it a hopeless venture.
In short, B Company was essentially a fledgling business which failed due to the marriage breakdown and the combination of factors set out at [102] – [108] above. The wife did her best to make the business a success in very difficult circumstances. The wife’s conduct of the business, including making the loans to B Company, did not fall into any of the categories of ‘waste’ referred to by Baker J. After B Company all but ceased to trade, the wife had no option but to continue meeting B Company’s liabilities. [18]
It would be unjust to add-back any of the moneys loaned to B Company. Instead the Court will take the loans into account in the context of contributions.
Item 24 – pre-paid legal fees
The wife’s Balance Sheet had a much lower figure of $17,930 but she additionally sought to add-back various other specific sums of money taken by the husband after separation to which the Court will refer later.
In closing submissions, Mr Tregilgas conceded that the total add-back for legal fees should be $418,480. Mr Levick in turn adopted the husband’s figure and abandoned the individual add‑back arguments even their aggregate was greater. The matter will otherwise be taken up by the Court when assessing contributions.
Item 25 – Expert fees paid by husband
These fees are already included in Item 24.
Item 27 – Sale proceeds of Motor Vehicle 3
Post-separation, the husband sold his Motor Vehicle 3 for $25,000. He has never accounted for the sale proceeds. Both parties have spent substantial moneys post-separation and the Court finds that this money has also been spent, in all likelihood on living and associated expenses. It is not appropriate to now notionally add those moneys back. The expenditure will instead be considered in the context of contributions.
Item 28 – lost interest on trust funds
Upon sale of the former matrimonial home at Suburb WW (discussed later), the net proceeds were paid into the wife’s solicitor’s trust account. The wife’s solicitors later wrote to the husband’s former solicitors seeking his consent to invest them in a ‘controlled moneys’ interest-bearing account. The husband would not agree. He seems not to have trusted the wife’s solicitor.
The notional add-back proposed by the wife is the lost interest income thereby arising. The husband does not dispute the amount, but he does dispute that it should be an add-back.
The husband’s refusal to invest the moneys was at best negligent and probably reckless or wanton. Any concerns he may have had about securing the moneys could have been assuaged by sensible legal advice. Indeed he subsequently did consent to investing the moneys. The lost income constitutes ‘waste’ in a Kowaliw sense and so those moneys will be added-back.
Item 30 – Wife’s drawdown of joint funds post-separation
The husband seeks to add-back every dollar that the wife withdrew from the joint account post‑separation on the basis that her expenditure was at wasteful levels. The wife opposes the add-back.
The Court reiterates its observations in [7], [8], [9], [11] & [13] herein. While the wife did draw down substantial moneys, she also had substantial financial obligations. To the extent that the wife arguably lived somewhat beyond her means, she was not alone. As will be seen, both parties ensured that they maintained a good standard of living post-separation.
It would be unjust to notionally add-back every dollar the wife withdrew. The wife’s drawdowns will however be taken up as part of the contributions assessment.
Item 41 – Wife’s tax liabilities
Item 29 - Interest on wife’s tax liabilities
The husband seeks to exclude the wife’s tax liabilities and to add-back the interest component thereof as an asset on her side of the ledger. Essentially he contends that the wife spent money at wasteful levels post-separation and she should have been able to pay out such liabilities.
The Court reiterates its observations in [7], [8], [9], [11] & [13] herein. The husband’s approach is unjust. The tax liabilities arise from a number of different matters including the conduct of both parties. While it is true for instance that the wife did not pay all of her tax liabilities, she did pay some of them. Moreover, the husband exacerbated those liabilities by making ‘paper’ income distributions to her from the MCFT without her consent as discussed later.
The wife accepted in the witness box that she had tax liabilities of $18,938 related to GST for the September 2023 quarter and $24,975 for income tax being a total of $43,913. These figures are not included in the wife’s figures. If they did in fact form part of the wife’s tax liabilities, the Court would have excluded them.
The tax liabilities (including interest) will otherwise be included in the Balance Sheet as liabilities; the interest will not be notionally added-back as an asset against the wife. These matters will however be taken up as part of the contributions assessment.
Item 31 – Wife’s use of QQ Street proceeds
Towards the end of the marriage the wife purchased an investment property, being a unit in an apartment complex known as ‘QQ Street’. The circumstances surrounding the purchase will be set out later. Post-separation the wife sold it and retained the net proceeds were $562,686.
Initially the husband sought to add-back the whole amount even though it resulted in obvious double-counting. For instance, the $100,000 ‘cash’ component is included in the Balance Sheet as Item 12. Some $115,000 of the net proceeds was applied towards the purchase of the wife’s current home at Town E which is included in the Balance Sheet at Item 14. Some $90,081 was spent on legal and expert fees which is included in the Balance Sheet as Item 26.
Ultimately, the husband advocated for a lower figure of $347,365. [19]
At the hearing the wife tendered a detailed schedule which accounted for her disbursement of the QQ Street proceeds: exhibit 20. The Court accepts it to be accurate. Putting aside the ‘double-counting’ items referred to in [129], the moneys were overwhelmingly applied towards mortgages, sale costs for the real properties and expenses for the children. The Court repeats what is said at [123]; the expenditure of the money will be taken up as part of the contributions assessment.
Item 32 – Motor Vehicle 4 gifted by the wife to Mr H
This rather petty dispute says more about the parties’ attitudes than anything else.
Essentially, the husband spoke to Mr H about them jointly buying him a car. Before that could occur, the wife then gave Mr H her own Motor Vehicle 4. The vehicle remains in the wife’s name to save stamp duty and transfer costs and the wife continues to meet the associated vehicle expenses.
The gift of the car was unilateral; arguably it could be seen as ‘waste.’ But the Court accepts the wife’s evidence that she effectively holds it as a trustee for Mr H. Moreover, how could it be waste where the husband was willing to himself go halves with Mr H in a car? Overall the Court considers that the car was no more than a reasonable contribution by the wife towards Mr H’s ongoing maintenance and support. Its value will not be included in the Balance Sheet.
Item 38 – loan from Mr R
The husband borrowed $50,000 from his brother Mr R in order to pay legal fees. Though his brother is extremely wealthy, the Court accepts that the moneys were loaned rather than gifted. The liability will be included because the Court understands that the borrowed moneys form part of the husband’s paid legal fees at Item 24. If the borrowed moneys did not form part of Item 24 then the loan would have been excluded.
Item 45 – interest on controlled moneys account payable to SMSF
Post-separation the SMSF disposed of a real property; the net proceeds have been deposited into a controlled moneys account which earns interest. The husband’s Balance Sheet did not include this figure; the wife’s did although it was based on a maturity date of 24/10/24. The Court has adopted the wife’s figure as being the best evidence available.
IS IT ‘JUST & EQUITABLE’ TO MAKE A PROPERTY SETTLEMENT ORDER?
The parties were in a lengthy relationship and, following its breakdown, they are now unable to continue to mutually use and share in their matrimonial assets. It is plainly just and equitable to make a property settlement order and finally sever their financial relationship.
ASSESSMENT OF CONTRIBUTIONS:
Initial
When the parties started cohabiting in Country G in 1999, they had no substantial assets or liabilities.
Country G
Both parties obtained employment as medical professionals; within a matter of months they had purchased their first home. They sold it for a profit in 2003 and purchased another.
In 2005 the parties purchased an investment property; they sponsored the wife’s parents (who were separated) to move from Country F to Country G. The wife’s father later remarried and he and the wife’s stepmother lived in the investment property rent-free for a time.
The wife gave birth to Mr H that year. She initially took five months maternity leave before returning to work part-time. The husband took a few weeks off work before returning to work at somewhat reduced hours. The wife was primary carer of Mr H and primary homemaker.
In 2007 the wife gave birth to X. As with Mr H, she was X’s primary carer.
Australia
After holidaying here in 2007, the parties decided to relocate permanently to Australia, settling in Region K in 2008. They opened a joint bank account with the NAB although over the years each of them also had their own private savings accounts and credit cards (which were generally linked). The wife managed the day-to-day banking for the family, using moneys from the joint account to pay the bills.
The husband was the primary breadwinner, obtaining work at various local hospitals including after-hours shifts. Initially the wife focused on her role as primary parent before obtaining part-time work at a hospital.
As a general statement, throughout the relationship the wife was an active and involved parent in relation to all aspects of the children’s care and upbringing; the husband played an important supporting role. The parties engaged a cleaner for about five (5) hours per week for most of the relationship but the wife otherwise acted as primary homemaker and did most of the household tasks as well as managing the household finances and expenses. The husband trusted her to do so, including giving her his username/s and password/s for banking purposes. For most of the relationship they hired a person to do garden maintenance.
The parties initially rented a home and, after selling their real property in Country G they netted approximately $100,000 which they applied towards the purchase of their first home at Suburb XX in Region K for $912,000.
Around 2010/2011 the parties both started working as medical professionals at a local clinic. It was a ‘fee-for-service’ arrangement and the husband earned a greater income as he worked full-time whereas the wife worked for two (2) days per week.
In mid-2011 the parties established the MCFT and the SMSF referred to earlier. The MCFT was initially to protect the parties’ assets while allowing them to invest in the expansion of the local clinic. The expansion did not proceed and the trust ultimately lost around $50,000. The MCFT was utilised as an investment vehicle, and to receive and distribute income to the parties in the most tax-effective manner: see [27] & [28] above.
In 2012 the parties purchased a home at Suburb YY for somewhere between $1.2M and $1.275M and the family moved in there. The parties sponsored the wife’s father and stepmother to move to Australia. The parties paid for some housing for them and in turn they assisted the parties with childcare.
The parties sold the Suburb XX home for just over $980,000 and it was around this time that the husband and his then business partners went on to establish T Pty Ltd, which was subsequently restructured, as set out in [29] – [31] above. The Court accepts the husband’s evidence that it was a long and painstaking process to establish T Pty Ltd, involving government approvals, creation of a business plan, liaising with a local developer, an accountant and a lender. The husband oversaw the fit-out, he personally wrote the staff contracts, set up the IT system and did all necessary marketing. He did this work outside his normal practice hours at Suburb XX; his efforts were substantial.
Broadly T Pty Ltd’s business model was that each medical professional (which included the directors/shareholders, plus contractors), would provide medical services to patients. Each medical professional would be paid 70% of their patient billings, with T Pty Ltd receiving the other 30%. T Pty Ltd would then use this 30% to meet the costs associated with running the practice, including paying the rent and the wages for health care workers and administrative staff. Directors/shareholders of T Pty Ltd would also receive a ‘strategic planning payment’ equal to 10% of that director/shareholder’s net billings after deduction of overheads. The MCFT received the strategic planning payments on behalf of the husband. At the time T Pty Ltd was restructured in 2014, the parties borrowed $100,000 from the NAB to acquire the wife’s share following which her strategic planning payments were also paid into the MCFT.
The parties distributed the MCFT’s income (including the strategic planning payments) in the most tax-effective manner they could. As a general statement, they were ‘paper’ distributions only; no money changed hands. The wife’s father and stepmother agreed to be ‘beneficiaries’ of such income which thereby reduced the overall tax burden for the parties. [20]
In late 2014 the parties used the SMSF to purchase an investment property at D Street for $560,000.
In late 2015 the parties purchased an investment property at Suburb ZZ for $555,000. By agreement, the wife’s father and stepmother lived there rent-free and the parties paid the mortgage, rates, taxes and utilities. The wife’s father and stepmother maintained the home and invested some of their own funds into fittings. The quid pro quo was that the wife’s father and stepmother agreed to continue receiving ‘paper’ income distributions from the MCFT.
From 2016 onwards the husband started providing financial support to his mother in Country F to help with her support. The wife agreed to this arrangement.
In late 2016 or early 2017 the parties purchased the former matrimonial home at Suburb WW for just under $1.5M. It was an acreage property requiring substantial maintenance and held in the wife’s name only. The parties moved into that home and rented out the Suburb YY property.
In 2016 the directors of T Pty Ltd entered into discussions with the developer who went on to build the T Pty Ltd building. There were extensive consultations concerning design and fit-out which both parties were actively involved in. The parties went on to establish various other entities as set out in [33] and on. These included the B Company business referred to at [39] & [40].
In late 2017 the wife purchased the QQ Street apartment for just under $800,000. The husband did not want to purchase it but the wife used joint funds to pay the $80,000 deposit. She then obtained finance for the balance with the husband reluctantly acting as guarantor.
In early 2018 the parties sold their former home at Suburb YY for approximately $1.9M.
The relevant financial history leading to separation has been set out earlier and insofar as B Company is concerned the Court refers back to paragraphs [96] and on.
Assessment of contributions as at separation
Each party clearly made substantial s 79(4) contributions over the course of the relationship. The husband was the primary breadwinner, but also made significant homemaking and parenting contributions. The wife was the primary homemaker and parent but also made significant income contributions. Each party worked hard in their respective spheres and each provided financial support to extended family members.
Overall, the Court would assess the parties’ contributions as equal in respect of both the superannuation and non-superannuation property.
Post-separation contributions
The post-separation actions of the parties were obviously a major focus. Against the backdrop of [7] – [13] above, the Court will do its best to isolate and weigh the respective contributions of the parties while still being mindful of the overall picture. In relation to the various cash withdrawals of the parties, the Court remains acutely aware of the risk of double-counting.
At separation there was approximately $370,000 in the joint account. On 4 November 2019, the husband withdrew $100,000 with the intention of preserving it and making sure that, to use his words, the money was “not dissipated”.
The wife and children remained in occupation of the Suburb WW home and retained the furniture. The husband moved into a furnished rental property nearby. The rent was $830 per week which he paid from his income. The children initially spent about two (2) nights per week with him.
The wife continued to manage most of the joint banking. While the husband was not paying specific child support or spousal maintenance to the wife, she was continuing to use the joint account to meet the Suburb WW mortgage and property outgoings, the mortgage, rates, taxes and utilities for the Suburb ZZ property, and to financially support herself and the children including meeting the family’s day-to-day expenses.The wife was under substantial stress; the Court has already set out the unhappy history concerning the B Company business and its winding down.
At that stage the joint account had a healthy balance and the parties were able to maintain a good lifestyle.
The purchase of the QQ Street property settled just after separation and for settlement purposes the wife drew $5,500 from the joint account. She had intended to rent it out on a commercial basis but chose not to do so. Instead she initially used the apartment herself and otherwise made it available to family and friends. She met the mortgage and property outgoings from her own income, claiming the associated ‘losses’ for income tax purposes.
In 2020 the husband resigned as a director of CC Centre and the MCFT sold its interest therein for a net amount of $35,497 which was paid to the trust account of AC Law Firm. [21]
On 1 April 2020 the wife transferred $33,102 from Country B accounts into the joint account and these moneys were later spent.
On 27 June 2020 the husband deposited $6,711 into the joint account seemingly in error. On 27 July 2020 he withdrew $24,070, using that money to reimburse himself for his rent payments. Around the same time the wife’s father and stepmother advised the husband that they no longer consented to receiving ‘paper’ income distributions from the MCFT. The husband was unhappy about that, as they were still living rent-free at Suburb ZZ and their receipt of that ‘paper’ income was part of the agreed arrangement in that respect.
The husband was unhappy about the distribution of MCFT funds in general. He calculated that in FY 2020 income attributable to him of $24,715 had been paid into the trust of which he had drawn down just $8,800 while the MCFT income attributable to the wife was only $9,259 and she had withdrawn $41,600. [22]
In late 2020 the husband started dating Ms N, who was at that time working full-time hours as a health care worker.
By late 2020 B Company was all but finished and the wife was in the process of establishing a new health care business, FF Pty Ltd / EE Centre (‘EE Centre). In late 2020 she entered into an arms’ length commercial arrangement with her new business partner Mr GG whereby he was provided with free use of QQ Street in return for his financial support. Specifically, Mr GG secured a loan from his father-in-law to FF Pty Ltd of $108,000 as recorded in the company accounts.
Annoyed about the husband about withdrawing $24,070 to reimburse his rent, on 8 November 2020 the wife withdrew $13,000 to reimburse herself for her principal repayments towards the QQ Street mortgage.
In 2020 wife ceased working for T Pty Ltd and thereafter devoted her energy to FF Pty Ltd / EE Centre. Covid was still impacting businesses and it needed some ‘propping up’, especially in the early stages. The wife initially re-invested income into it and both she and Mr GG loaned it money.
By that stage the joint account had been substantially depleted; both parties were aware. The husband decided to bring things to a head. On 24 April 2021 he withdrew $29,880 from the joint account, again describing it as ‘rent’ although it was really a reimbursement. He told the wife about it and she was very upset as the withdrawal had left just a few hundred dollars in the joint account. The husband then deposited $50,000 back into the account.
Within days, the husband had cancelled the parties’ joint credit card, removed the wife from his health insurance policy, and told her she had to personally pay the Suburb WW home insurance from then on as well as the electricity account and streaming bills.
On 11 May 2021 the husband withdrew $40,000 from the joint account leaving a balance of just over $4,000. At or about the same time, he redirected MCFT’s income to his own bank account/s so that the wife no longer had access to such income save for the $1,500 or so per month that was notionally her share of the income from the Z Unit Trust. (Up until then the wife had had unfettered access to the MCFT moneys and income which she had been transferring into the joint account.)
On 24 May 2021 the husband’s solicitors wrote to the wife’s solicitors suggesting that if she could not meet the outgoings for the real properties, then they should be put on the market. [23]
The children, particularly X, began spending significantly less time with the husband.
The husband tendered a s 50 schedule showing that between December 2019 and 10 May 2021, he had used his credit card to meet $7,465 in personal expenditure and $19,698 for the benefit of the family. [24] The wife tendered her own schedule showing that over that period the husband spent a total of $46,958 on his credit cards to her $54,515. [25] The Court reiterates what is set at [9] above; the schedules pass ‘like ships in the night.’ All that can reasonably be drawn from them in the absence of detailed submissions and accounting is that the expenses of the wife and children exceeded those of the husband. Moreover, the husband incurred credit card bills for furniture, homewares and appliances, vehicles, hotels, restaurants etc. Both parties were maintaining a high post-separation standard of living.
Mr Levick submitted that the husband had essentially set out to make the wife’s financial life as difficult as possible by depriving her of access to joint funds knowing she would then be unable to meet her liabilities on her income alone. There is some force in this submission given that she had to meet the outgoings for Suburb WW, Suburb ZZ and QQ Street all while supporting the children and meeting living expenses. The monthly mortgage repayments alone were $5,800 for Suburb WW, $2,500 for Suburb ZZ and $3,100 for QQ Street, with rates and other major outgoings being additional. Moreover, the wife had to feed and clothe herself and the children, as well as paying for their pets and all other living expenses. Her own income, while still significant, was plainly not enough to enable her to meet all these expenses. In FY 2020 the wife’s business income was $156,000 to the husband’s $213,000 and in FY 2021 her business income was $139,636 (with a net income of $107,976) to the husband’s $198,727. [26]
The husband complains that the wife insisted on staying in the Suburb WW property with the children. This is true, but it was their home. Like the husband, the wife and children needed to live somewhere.
To be fair to him, the husband did himself contribute $3,200 per month for school fees, $250 for the children’s private health as well as meeting various one-off expenses for them. But he also withdrew $32,000 from the joint account to reimburse school fees he had paid, as well as $5,000 to cover his utility bill in his rented home. He also made 2 x part-payments towards the Suburb ZZ property mortgage totalling $2,552.12, together with tax of $7,458 in respect of ‘paper’ distributions from the MCFT to the wife’s father and stepmother.
The Court considers that the husband’s own withdrawals and reimbursements from the joint account, made at times when he was in a stronger week-to-week financial position than the wife, accelerated the depletion of the joint account. Both parties contributed to this problem.
The wife soon had to borrow money from her family and from Mr GG to make ends meet. By August 2021 the parties’ banking arrangements were briefly ‘overdrawn’. The wife sought the husband’s consent to the Suburb WW mortgage repayments reverting to interest-only. He refused. Only the month prior he had sold his Motor Vehicle 3 (being Item 27 of the Balance Sheet) and taken out a 5 year lease on Motor Vehicle 1 with associated repayments in the order of $2,000 per month. Clearly he was not troubled about his own financial liquidity.
In late 2021 the wife’s interest in T Pty Ltd (and in the other T Pty Ltd-related entities) was compulsorily acquired by the husband and his business partners. The wife’s share was valued at $389,499 which was initially paid into the trust account of the husband’s former solicitors.
The wife decided it was time to sell the Suburb WW, Suburb ZZ and QQ Street properties.
Between July and November 2021, the wife had accessed MCFT income of around $8,600 which was paid to various accounts. [27] She also accessed $5,500 from a CC Centre distribution into the MCFT which she applied towards the living expenses and children’s costs. Money was somewhat strained; she borrowed $15,000 from her sister of which she later repaid $5,700 in cash ($3,000) and by giving her a household appliances ($2,700).
In November 2021 the husband set up a new bank account for the MCFT which the wife could not access. He thereby stopped the wife from accessing her ‘half’ of the modest ongoing Z Unit Trust income stream of around $1,500 per month.
That same month, the QQ Street property was sold for $1,280,000 and the net proceeds of $562,686 were retained by the wife and subsequently spent by her as set out in exhibit 12 and referred to at [129] & [131] above. To illustrate the wife’s seemingly strained financial position, it is noted that she applied $106,614 of that money towards the Suburb WW mortgage and rates bills; she spent $34,423 cleaning up the Suburb WW property, including yard work, staging work and general preparatory work for sale. She also applied $8,190 towards the mortgage and cleanup work for Suburb ZZ.
Like the husband, the wife also decided to acquire a new car. She therefore applied $10,000 of the QQ Street proceeds towards the purchase of Motor Vehicle 2, giving Mr H her Motor Vehicle 4 as discussed earlier.
In late 2021, the husband’s lease expired at which time he and Ms N started living together in her apartment at Suburb AB. By agreement, he started paying her $1,000 per week to meet expenses.
In 2022 the husband and Ms N became engaged. The husband spent $26,300 on the engagement ring. Shortly afterwards, Ms N started IVF as she and the husband were anxious to have a child together and Ms N had some fertility difficulties.
The husband instructed his former solicitors to disburse to him the wife’s T Pty Ltd moneys that they held in trust and which they had undertaken to the wife not to release. They did as he asked, on 1 February 2022 disbursing $100,000 to him.
In early 2022 the Suburb ZZ property was sold and the net sale proceeds of $427,045 were paid into trust. The parties each incurred a CGT liability as a result of the sale and the husband paid his CGT liability of $51,230 using the T Pty Ltd funds referred to in [193]. The wife did not pay her CGT liability. It forms part of her overall tax liabilities to which the Court will turn a little later.
Upon sale of Suburb ZZ in early 2022, the wife’s parents moved into the Suburb WW property.
In 2022, Ms N fell pregnant. She experienced numerous medical complications throughout and ultimately had to stop work. In a practical sense she became financially reliant upon the husband. He began paying her $2,000 per week instead of $1,000.
In April 2022 the husband commenced these proceedings. In April he and Ms N purchased Motor Vehicle 5 for $32,000.
The wife was cross-examined about her first Financial Statement of 9 May 2022, filed at a time when she was self-represented. She deposed therein to a weekly income of $4,000 and expenses of $3,350. But in suggesting she could meet her living costs the form was plainly wrong as it did not include any allowance for the weekly ‘Part N’ expenses.
In mid-2022, the wife’s father and stepmother moved out of Suburb WW and into their own rental home. The wife began contributing $600 per month towards their rent and they continued providing her with practical assistance including with X.
In mid-2022 the wife inspected - and promptly decided to buy - the PP Street property. She had been informally pre-approved to borrow $1.3M and was confident she could borrow at least $1M. Anxious not to lose the opportunity to purchase the home, she entered into a Deed of Call Option with the vendors for a total purchase price of $2.2M. Pursuant to the Option, she paid an initial deposit of $5,500.
In 2022, Ms N gave birth to O who was premature. O was immediately placed into the neo‑natal intensive care unit (NICU). After taking some time off work, the husband then had to juggle his work commitments at T Pty Ltd (and related entities) with the need to travel to and from Sydney to care for O and support Ms N.
In September 2022 the wife paid the next $50,000 deposit instalment pursuant to the Option, using moneys she had set aside from the QQ Street proceeds originally intended to be used to pay the associated CGT on sale.
At that time the wife suddenly incurred a significant income tax liability relating to FY 2021. By way of background:
(a)in FY 2021, the MCFT received dividends of $35,140, franking credits of $12,346, a distribution from Z Pty Ltd of $53,104, a distribution from CC Unit Trust of $18,965 and strategic planning payments of $42,720 being a total of $162,275;
(b)as at 30 June 2021 there does not appear to have been a ‘Distribution Minute’ in place, meaning that the corporate trustee had to pay tax at the highest marginal rate of 30% resulting in a tax liability of $60,240. Usually, the tax would be paid and each party would receive a franked distribution from the trust with a further modest tax liability. But for FY 2021, the husband generated a Distribution Minute which assigned all of the MCFT’s taxable income in FY 2021 to the wife – some $153,571; [28]
(c)in consequence, the wife incurred an income tax liability of $68,071 which, with franking credits, reduced to $55,725.
The husband’s decision to distribute all the income to the wife ignored the fact that at least some of the money that the wife transferred from the MCFT to the joint account would have been for the husband’s direct or indirect benefit in terms of meeting joint liabilities and supporting the children.
Returning to the chronology, on 23 September 2022 the husband’s former solicitors disbursed another $100,000 to him from the wife’s T Pty Ltd moneys.
The wife was cross-examined about her Financial Statement filed 27 October 2022, by which time she had solicitors. Her stated income therein was $4,000 per week and her expenses $4,746. It confirmed that she held $102,752 in a bank account being from the QQ Street proceeds and her total bank account balances came to $140,236. She also had $100,000 in “cash” – also from the QQ Street sale (being the moneys referred to at Item 12 of the Balance Sheet.)
Notwithstanding her bank balances and cash, the wife was in a challenging financial position. She had a substantial tax bill which was accruing interest and she also needed to fulfil her ongoing financial obligations pursuant to the Town E contract. Specifically, she was obligated to pay the remaining $55,000 of the deposit by 14 March 2023 otherwise the Call Option expired and the deposit was forfeited. She wanted to sell Suburb WW - which given its size had become something of a burden anyway – and access the sale proceeds to fund the new purchase. She needed the husband’s cooperation.
The husband was agreeable to the sale but unwilling to release the moneys to her; he wanted the sale proceeds retained in trust.
In October 2022 the wife filed an Application in a Proceeding seeking the sale and that $1.2M of the proceeds be released to her. The husband filed a Response opposing release of the funds.
In 2022 O left the NICU and was transferred to a special care nursery at AD Hospital where she remained until for a month before going home. By this stage X’s relationship with the husband seems to have been completely broken down. X was no longer staying at his home.
On 13 December 2022 the husband’s former solicitors disbursed to him the remaining $220,963 which they held in trust, comprising the balance of the wife’s remaining T Pty Ltd moneys together with the proceeds of a joint Country B bank account the parties had previously held.
In the meantime the wife had listed Suburb WW for sale, only telling the husband after contracts had been exchanged at a price of $2.775M with settlement due in early 2023. Under pressure as a result of outstanding mortgage repayments, the wife requested an early release of the $64,000 deposit for Suburb WW. That money was quickly depleted; $22,000 was applied to the mortgages. The wife also tidied up the Suburb WW property for sale, including removing property which the husband had left there and declined to collect despite her requests. The wife arranged skip bins and otherwise sold, donated or disposed of that property for modest sums of money which were then applied towards living expenses. (The costs of cleaning up Suburb WW and readying it for sale are set out in [193] above.)
In early 2023 the husband and Ms N exchanged contracts for the purchase of their own property at NN Street, Town OO at a purchase price of $2.45M. They borrowed the entire amount, plus stamp duty and other costs – a total of $2.57M. In support of his finance application, the husband disclosed holding $216,385 in the bank which was part of the $220,693 referred to above. [29]
It is noteworthy that the husband did not himself seek to access any of the Suburb WW proceeds for the purchase, even though the release of some funds would have limited the amount he had to borrow and thereby reduced his repayments – which were substantial. The husband was cross-examined about his finance application and accepted that he had told the bank that he had a monthly after-tax income of $26,575 being an annual amount of $318,900. He accepted that the mortgage payments were initially $13,500 per month, later increasing to $16,000 per month. He accepted that the repayments were up-to-date (although he and Ms N had sold Motor Vehicle 5 for $30,000 and applied the proceeds towards the mortgage). He also accepted that he had used some of the wife’s T Pty Ltd money to meet repayments.
In early 2023 the husband also started providing financial support to his father.
In 2023 Mr H stopped staying at the husband’s home; like X he had become estranged from the husband.
In March 2023 the wife filed an Amended Application in a Proceeding seeking release of the lesser amount of $900,000. The husband still opposed it. She also sought to access $216,000 to pay her tax liabilities, but the husband opposed that too. In the meantime the wife paid another $50,000 towards the deposit moneys for Town E, again using cash reserves from QQ Street.
Following an interim hearing, SJR Clarke ordered that $800,000 be released to the wife to enable her to complete the Town E purchase. (There had been insufficient time to hear the wife’s application in relation to releasing funds to pay the wife’s tax liabilities.)
By the time the wife filed her Financial Statement of 3 April 2023, her stated income was $3,800 and her expenses $3,890. Most significantly, her bank balances had been depleted to a mere $2,255.
During FY 2023 the husband deposited $40,090 to the MCFT and drew down $20,580. He distributed ‘paper’ income to the wife of $9,000 even though she had not received anything and had asked him not to do so. He distributed the rest to Ms N, to her father and O.
Upon the application of the wife, in August 2023 the CSA administratively assessed the husband to pay child support of $1,375 per month, soon after increased to $2,001 per month on account of X’s private school fees. The husband pays the amounts assessed.
On 1 December 2023, the wife’s tax liabilities increased from $72,224 to $214,525 as a result of her lodging her FY 2022 income tax return. [30] MCFT ‘paper’ income distributions of $76,190 resulted in a tax liability of $35,809 which with franking credits reduced to $28,031. (She had in fact only accessed a small fraction of that $76,090 figure in the period between July and November 2021.) Her tax liabilities also included CGT for QQ Street of $91,690 and $40,901 for Suburb ZZ. Her total income tax liability for FY 2022 was $142,301. The wife began paying $750 per month towards those tax liabilities. [31]
To recap, the tax liabilities have been included in the Balance Sheet. By way of further explanation, the QQ Street property made a profit and the capital gain has assisted the parties financially. The Court consider that the corresponding CGT liability should be allowed for in all the circumstances of this case, including that the wife drew on the moneys set aside for CGT to pay for Town E which is included in the Balance Sheet. Likewise, the Suburb ZZ CGT is included noting that the husband paid his CGT bill by using joint funds. [32]
Presently, the wife is going backwards in relation to the tax debts. She pays $1,000 to the ATO each month but the interest is $2,200.
Both parties have continued to work as medical professionals and make substantial mortgage repayments. The husband admits initially using some of the wife’s T Pty Ltd disposal moneys to do so. He and Ms N have also repaired their property at a cost of around $12,000 of which the husband paid $8,645.
For completeness, the Court records that post-separation the SMSF disposed of a real property for $1M and the net sale proceeds of $684,544 remain an asset of the fund.
What is the impact of the post-separation contributions?
There is no doubt that post-separation both parties continued to make substantial contributions.
The wife could be criticised for living somewhat beyond her means, but she also faced difficult circumstances in that she had to relocate (and ultimately wind down) the B Company business, establish a new business in its place, all while managing a busy household and making the bulk, and ultimately the overwhelming bulk, of the parenting contributions. She tried hard to make her business ventures a success, and obviously had to meet the ongoing liabilities and commitments of B Company including the UU Finance debt which she was able to pay out.
She could have paid some more tax liabilities instead of buying such an expensive home at Town E. She could have asked her father and stepmother to contribute to the mortgage expenses and outgoings for Suburb ZZ between mid-2020 (when they were removed as MCFT beneficiaries) and early 2021 when the home was sold.
The husband did not need to take the amounts of money he took from the joint account; he was financially quite comfortable at the time. He could have released trust moneys to pay the wife’s tax.
Between November 2019 and April 2024, the husband made net withdrawals from the joint account totalling $171,017. The wife withdrew $401,277 over much the same period. [33]
Both parties wanted to continue to live a reasonably affluent lifestyle post-separation and both succeeded. It came at a cost. But the husband did do more overall to preserve the assets. He paid his significant tax debts in full. He deposited $69,551 into the MCFT and $35,074 into the SMSF to ensure their ongoing liquidity. Though some of his actions might be viewed as ‘mean’ he was nonetheless the more fiscally responsible of the two parties in terms of preserving the joint property.
Weighing all of these matters, including the wife’s parenting contributions, the Court assesses contributions towards the non-superannuation property as equal and contributions towards the non-superannuation property as favouring the husband 52% - 48%.
FUTURE FACTORS:
The husband was born in 1973 and is 52. Between 2021 and 2023 he suffered significant medical conditions and had to work reduced hours and with various ergonomic supports. He underwent surgery in 2021 but this was unsuccessful and in 2023 he underwent further surgery. He presently works 15 hours per week at T Pty Ltd 3 days per week as well as undertaking health care visits for 2 hours one day per week.
The husband nonetheless earns a healthy income notwithstanding his medical condition. When he applied for finance to purchase the NN Street property with Ms N, he told the bank that his monthly income was $26,575. [34] But it is even higher than that. According to his Financial Statement, his weekly income is $10,666 and his expenses are $11,100 although that figure includes the full amount of the mortgage repayments for the NN Street Street property of $3,860 and voluntary superannuation contributions of $519. He also pays Ms N $1,500 per week which she uses, together with her own modest income, to meet the household expenses.
O is on a wait list for TT School and the husband expects that if she does attend there he will be able to meet the fees. Notwithstanding his medical difficulties, the husband’s work is essentially sedentary in nature and, given his past work history and his ongoing financial obligations particularly with respect to Ms N and O, the Court considers that he will continue to work for as long as he reasonably can.
Ms N is a qualified health care worker who is 39 years of age but, given her care commitments for O, she will only be able to earn a modest income for the foreseeable future and possibly into the longer term given O’s needs. Ms N’s income has dropped drastically. In FY 2021 her taxable income was $162,000 and in FY 2022 it was $121,000. She is now financially dependent on the husband. Although she rents out her apartment, she does so presently at a loss. Aside from the NN Street property, her net non-superannuation assets come to just under $500,000 and she has superannuation of $115,000.
The husband has the benefit of controlling the passive income of the matrimonial entities. Ms N, her father and O are all now beneficiaries of the MCFT and have already received ‘paper’ distributions. In FY 2023, the MCFT assigned income of $16,852 to Ms N, $39,323 to her father and $416 to O. [35]
The wife was born in 1974 and is 51 years old. She and Mr GG own and operate DD Centre which now employs medical and allied health staff, administrative staff as well as some onsite medical services that sub-leases space from them.
The wife earns her income as a contractor for DD Centre and her income is based on her fortnightly billings less her share of overheads. She prioritises X’s education as much as she can. As a shareholder of FF Pty Ltd, the wife may receive future dividends but has not yet done so. The wife also sporadically receives small amounts of income from health care presentations.
The wife’s income is approximately $5,000 per week from DD Centre. Essentially, she works around 52 hours per week and charges fees of $8,000 - $8,500 of which she retains 60% being $4,800 - $5,100 per week. The husband pays her child support of $461 per week. Her expenses are $5,682 per week, of which her mortgage is $1,978.
In a practical sense, the wife is presently living week-to-week albeit obviously in a nice home.
X is in Year 12 and turns 18 shortly. Until then, subject to any further administrative reviews, the husband will be paying child support for X in the order of $2,001 per month. The parties pay her school fees equally. The wife is otherwise responsible for X’s financial support and will likely continue supporting X for the foreseeable future when she goes to University as she plans.
Both parties enjoy a more-than-reasonable standard of living commensurate with their incomes and have done so for years.
Though each party has significant liabilities, each still provides financial support to their parents.
Overall the wife contends that there should be a 5% adjustment of the non-superannuation assets in her favour. The husband contends that there should be a 2.5% adjustment of the non‑superannuation assets in his favour.
To recap:
(a)in respect of the superannuation property, each party has a contributions-based entitlement of $446,754.50, which includes the interest that had accrued on the SMSF moneys held in the TDP controlled money account as at the hearing date (Item 45 of the Balance Sheet);
(b)in respect of the net non-superannuation property, the husband’s contributions-based entitlement is 52% or $1,499,511 and the wife’s is 48% or $1,384,165.
The superannuation can be equalised by way of a splitting order.
In relation to the net non-superannuation property, the husband presently holds (or will otherwise retain) property valued at $1,040,704. The wife presently holds (or will otherwise retain) property valued at $753,347. There is $1,089,625 jointly held in trust. Absent any adjustment for future needs, the money would be divided as to $458,807 to the husband and $630,818 to the wife.
In each case the parties’ liabilities will potentially be able to be substantially paid down.
Weighing up all of the above matters, and noting the husband’s obligation to support O, no further adjustment is warranted.
CONCLUSION & ORDERS:
On the basis of the above, the Court considers that each party should retain the assets and liabilities identified as theirs in the Balance Sheet (with the wife to retain the jointly-owned valuables collection). The $1,089,625 jointly held in trust should be paid as to $458,807 to the husband and $630,818 to the wife. Any additional interest on those moneys should be paid as to 52% to the husband and 48% to the wife.
The superannuation should be equalised. The Court has been provided with a detailed splitting order to give effect to that division and any additional interest accrued on the SMSF in the meantime, which will be modest in any event, can be retained by the husband.
The Court will make orders as set out at the commencement herein.
I certify that the preceding two hundred and fifty-eight (258) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Betts. Associate:
Dated: 11 March 2025
[1] Mulligan & Clovis Medical Pty Ltd.
[2] Mulligan-Clovis Pty Ltd.
[3] To be clear, the beneficial ownership of each entity did not always accord with T Pty Ltd’s shareholding but they substantially correlate and relevantly ‘related’.
[4] These are the remaining sale proceeds of the former matrimonial home at Suburb WW and the investment property at Suburb ZZ. The figure includes interest.
[5] The valuables collection are in the wife’s possession.
[6] The HH Unit Trust has other modest assets and liabilities which for present purposes are immaterial.
[7] Exhibit 1A.
[8] See the calculations under the heading “Financial Summary”.
[9] Mr SS also floated the possible use of a ‘discounted cash flow’ methodology, although he then accepted Mr Levick’s proposition that the CPI rent increases under the MM Clinic lease would potentially offset any relevant ‘discount’. The Court therefore puts aside that potential methodology.
[10] Exhibit 1, page 122 (annexure 21).
[11] See exhibit 1, paras 13.1 – 13.4.3
[12] Exhibit 20
[13] ‘UU Finance’ is a business which provides finance to medical professionals.
[14] Exhibit 4. See also para 151 of the husband’s Affidavit.
[15] The Court accepts the wife’s evidence that the husband admitted to her that he had done so.
[16] Exhibit 8.
[17] At pp. 76,643 – 76,644
[18] B Company still earns very small amounts of income sporadically as and when the wife undertakes presentations; the amounts are de minimis and less than the expenses. See the figures in exhibit 1, page 109.
[19] The exact breakdown of that figure is not apparent but in the result it does not matter.
[20] The tax was payable by Mulligan-Clovis Pty Ltd as trustee. The husband was the sole director and would arrange for the company to pay the tax on behalf of the wife’s father and stepmother.
[21] The gross proceeds were $38,452 but there was a payment to a law firm of $3,300 which was a reasonable expense associated with the sale.
[22] To clarify, the wife first transferred the money to the joint account and then had withdrawn it. See exhibit 5; see also paras 154, 157 & 174 of the husband’s Affidavit.
[23] Exhibit 10
[24] Exhibit 7
[25] Exhibit 11
[26] Exhibit 14
[27] Exhibit 5
[28] Exhibit 19
[29] Exhibit 23
[30] Exhibit 16
[31] See exhibits 16 & 17
[32] Namely the T Pty Ltd moneys held in his former solicitor’s trust account.,
[33] Exhibit 6
[34] Exhibit 23
[35] Exhibit 19
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