Nettler & Nettler
[2007] FamCA 1374
•23 November 2007
FAMILY COURT OF AUSTRALIA
| NETTLER & NETTLER | [2007] FamCA 1374 |
| FAMILY LAW – PROPERTY SETTLEMENT – FAMILY COMPANY – VALUE – EXPERT EVIDENCE – Value of family company found to be the higher of asserted valuations by two experts, consistent with “highest and best use” principle – B & B [2006] FamCA 896 and Spencer v Commonwealth (1907) 5 CLR 418 discussed. Significance of existence of “market” in which the company’s “loan book” could be sold considered. FAMILY LAW – PROPERTY SETTLEMENT – UNIT TRUST – VALUE – EXPERT EVIDENCE – Valuation of parties’ interests through loan accounts in unit trust provided by expert witness accepted – Not established that the trust constituted a financial resource for wife by virtue of restraints of trust deed and fiduciary obligations imposed on family company as corporate trustee and wife as director of such company. FAMILY LAW – PROPERTY SETTLEMENT – CONTRIBUTIONS – PRE-SEPARATION – Asset by asset approach utilised in assessing contributions of the parties – Norbis v Norbis (1986) 161 CLR 513 followed – Found that wife made greater contribution to assets not related to family company by virtue of greater initial capital contribution, partly offset by husband’s contributions relating to two children of wife of previous relationship – Held that parties contributed equally to family company in pre-separation period. FAMILY LAW – PROPERTY SETTLEMENT – CONTRIBUTIONS – POST-SEPARATION – No alteration to contributions made by virtue of circumstances in post-separation period. FAMILY LAW – PROPERTY SETTLEMENT – SECTION 75(2) FACTORS – Adjustment of 1 per cent in favour of wife made by virtue of her greater obligation to care for child of marriage. FAMILY LAW – PROPERTY SETTLEMENT – JUST AND EQUITABLE – Pursuant to s 79(2) Family Law Act 1975 (Cth) the Court made specific orders to overcome unfairness were the wife to receive assets entirely tied up in family company and the husband to receive tangible, risk-free assets – Elsey v Elsey (1997) FLC 92-727 cited – Wife ordered to discharge husband’s obligations by instalment payments with interests to accrue on deferred payments. |
| Family Law Act 1975 (Cth) ss 75(2), 79(2) Jones v Dunkel (1959) 101 CLR 298 |
| APPLICANT: | Mr Nettler |
| RESPONDENT: | Ms Nettler |
| FILE NUMBER: | PAF | 1206 | of | 2005 |
| DATE DELIVERED: | 23 November 2007 |
| PLACE DELIVERED: | Parramatta |
| JUDGMENT OF: | Coleman J |
| HEARING DATE: | 6, 7 & 8 November 2007 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Ms Judge |
| SOLICITOR FOR THE APPLICANT: | Goldrick Farrell Mullan Solicitors |
| COUNSEL FOR THE RESPONDENT: | Mr Gould |
| SOLICITOR FOR THE RESPONDENT: | Aitken Lawyers |
Orders
That the parties do all acts and things and execute all documents necessary to cause to be transferred to the husband:
(a)The sum of $33 018 representing the proceeds of sale of the property known as and situate at M (“the [M] property”);
(b) The sum of $3062 in the joint St George bank account;
(c) The parties’ “horse gear” (worth $1000); and
(d)The parties’ interest in property known as and situate at R (“the [R] property”);
That the husband retain as his property absolutely and beneficially:
(a) His Commonwealth Bank account with a balance of $200; and
(b) His AMP shares worth $7713.83.
That the husband indemnify the wife and forever keep her indemnified with respect to all outgoings, including capital gains taxation, with respect to the interest of the parties in the R property to which the husband shall be entitled pursuant to these Orders.
That each party pay 50 per cent of any capital gains taxation with respect to the sale of the M property as and when notice of assessment of such liability is issued by the Australian Taxation Office.
That the husband transfer to the wife his shareholding in YG Pty Limited together with all other interests, if any, which the husband has in YG Pty Ltd whether arising from the husband’s shareholding in YG Pty Ltd, his former employment by YG Pty Ltd, or otherwise.
That the wife indemnify the husband and forever keep him indemnified with respect to his loan account to YG Pty Ltd, the current balance of which is approximately $60 096.
That the husband assign to the wife absolutely and beneficially his interest in the debt owed to the parties by the Nettler Unit Trust in the sum of $23 664.56.
That within 90 days of this date the wife pay to the husband the sum of $100 000 whereupon the husband shall do all acts and things and execute all deeds, documents, instruments and writings necessary to cause to be transferred to the wife the whole of his right, title and interest in the property known as and situate at G Street, P, and the wife shall thereafter indemnify the husband and forever keep him indemnified with respect to all liabilities and outgoings with respect to the said property.
That on or before 1 February 2009, the wife pay to the husband the sum of $66 000 together with interest accrued thereon from 1 February 2008 at a rate calculated as one per cent in excess of the rate determined from time to time by the Reserve Bank of Australia as the prime interest rate.
That, in the event of the wife failing to make payment of $100 000 in accordance with the terms of these Orders, the whole of the sum of $166 000 payable to the husband by the wife pursuant to these Orders shall become due and payable and the husband shall be at liberty to apply for orders to enforce payment to him of such monies.
That, other than to the extent provided by these Orders, each party retain as his or her property absolutely and beneficially all monies owed to each of the parties.
That costs be reserved.
IT IS NOTED that publication of this judgment under the pseudonym Nettler & Nettler is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT PARRAMATTA |
FILE NUMBER: PAF 1206 of 2005
| MR NETTLER |
Applicant
And
| MS NETTLER |
Respondent
REASONS FOR JUDGMENT
By an Application for Final Orders filed 25 July 2005, Mr Nettler (“the husband”) sought orders for settlement of property in proceedings between himself and Ms Nettler (“the wife”) under Family Law Act 1975 (Cth) (“the Act”).
Both parties sought that title to certain real property of the parties be transferred to the wife, that the wife receive the parties’ mortgage brokering business and its corporate owner, that the husband thereby be discharged from all liability with respect to such assets, and that the wife pay to the husband a sum of money. The husband sought that such sum be $700 000 while the wife sought that it be $31 600. (Application for Final Orders filed 25 July 2005 and Amended Response to an Application for Final Orders filed 19 July 2006). The parties’ claims are thus widely divergent, particularly as the net asset pool, at its highest, is worth less than $1 million.
Credit
Credit does not assume decisive or even prominent significance in the determination of this case. The husband impressed as an honest witness who gave his evidence in a straightforward fashion. Significantly, and to his credit, the husband could not accurately recall details of the assets he had at the commencement of cohabitation, save for a sum of approximately $12 000 realised by the sale of an interest in a boat, which interest he held prior to commencement of cohabitation. The evidence of the husband is otherwise generally able to be accepted.
Although not indicative of any absence of veracity on her part, the Court cannot ignore the wife’s repeated reluctance in cross-examination to give credit to the husband where it was clearly appropriate to do so. The most significant example of that reticence was in relation to the husband’s contributions to the welfare of the wife’s two children of a prior relationship. Those children lived with the parties during their minorities for ten and twelve years respectively. On any view of the evidence, the husband’s contributions to their welfare, of a non-financial, and to a lesser extent financial character must have been significant. This is not ultimately a matter of great significance in the proceedings, although the Court prefers the husband’s evidence to that of the wife in that regard.
The wife’s inability to acknowledge the husband’s undoubted contributions in relation to her children of a prior relationship, and attempts to generally downplay the husband’s contributions did not reflect well on her. On balance, the truth in relation to disputed contentious issues probably lies closer to the husband’s version of events than to that of the wife, albeit by no means overwhelmingly so.
Notwithstanding what appeared to be the thrust of the submissions of Counsel for the husband, the wife’s evidence in relation to her financial and non-financial relationship with Mr K, the father of an infant conceived by her well after the parties separated, does not give rise to suspicion or adverse findings, there being no basis for rejecting the wife’s evidence in that regard. Nor, as was hinted at during cross-examination of the wife, does any Jones v Dunkel (1959) 101 CLR 298 inference arise from the failure to call Mr K as a witness, or to explain his failure to give evidence.
As will be seen, to the extent that there are controversial issues of fact, determining those matters is ultimately not difficult. In terms of initial financial contributions, the issue becomes one of onus and standard of proof rather than one involving credibility. In that regard, as will be seen, the husband has established on the balance of probabilities, capital contributions at or about the time of commencement of cohabitation of approximately $12 000, whilst the wife has established capital contributions at that time of approximately $80 000.
Material Facts
Some material facts provide background to the dispute. The husband was born in January 1960 and is accordingly 47 years old. The wife was born in June 1963 and is now aged 44.
The parties first met in 1984, commenced cohabitation in April 1992 and subsequently married in September 1992.
The wife has two children from a previous relationship, N born in April 1986 and M born in November 1987, now aged 21 and 20 respectively. Child support payments have been received in respect of these children at all material times, and at an appropriate level.
There are two children of the marriage, L born in May 1993 and B born in March 1998. The children are now respectively aged 14 and 9 years.
The wife also has a child of a subsequent relationship, S K, born in August 2006 and aged one year. S has significant and enduring health problems. The wife receives appropriate child support payments in respect of S.
The parties purchased the former matrimonial home in P in 1992 for $168 000. The wife contributed substantially to this purchase by reason of her pre-marriage savings. Between $80 000 and $100 000 was borrowed to complete the purchase.
In October 2001 the parties acquired a second property in P which was subsequently sold in July 2002. A property in M purchased in December 2002 was subsequently sold by the parties in July 2005. The parties purchased a half share in a second property in R in 2003. A unit trust holds commercial property in P which was purchased in January 2003.
Both parties have been engaged in employment at all material times, save for leave taken by the wife around the times of the births of their children.
In August 1998 the parties established the family business, YG Pty Limited. The wife is and has been the sole director and secretary of this corporation at all material times. The husband was engaged in employment in the corporation between January 2000 and July 2005.
The parties separated sometime between September 2004 and March 2005. The husband left the former matrimonial home in April 2005, where the wife and children resided until April 2007 at which time L moved into the home of the husband. The other children remain with the wife in the former matrimonial home.
The Property of the Parties
The parties are joint registered proprietors of P property, which has an agreed value of $530 000.
The parties own a half share as tenants in common with a third party in premises at R, which interest has an agreed value of $725 000.
There is held in trust as consequence of the sale of the property at M, a sum of $33 018. That sum is subject to payment of capital gains taxation which has yet to be quantified.
The husband has a Commonwealth Bank Account with $200 in it and he holds AMP shares with an agreed value of $7713.83.
Both parties suggest values for furniture in their respective possessions. There is no agreement in that regard and no expert evidence which advances the topic. Neither party has qualifications to found expert opinion evidence in relation to the topic. Whatever the realities of the situation, the Court includes no sum in the property of the parties with respect to furniture possessed by either party.
The wife has a St George Freedom account with an agreed balance of $2429. The parties have a St George account with an agreed value of $3062. The wife has a Westpac Banking Corporation account has an agreed value of $1220.79. The wife’s share of an account held with her accountant Ms W is worth $571.
The wife has an account which is styled “ATF” for her child, S, in which between $4000 and $7000 is held. The wife avers that she holds that sum on trust for S. There being no cross-examination or other evidence which would provide a basis for concluding otherwise, the Court accepts that these moneys are held on trust for S and ought not further be referred to, either as an asset or a financial resource of the wife.
There is “horse gear” agreed to be worth $1000. It is less than clear who has such horse gear.
The other assets to be considered are the value of the family business, YG Pty Ltd and the holder of commercial premises at P, the Nettler Unit Trust (“the unit trust”).
The valuation of YG Pty Limited
The most substantial issue requiring determination in this case relates to the value to be ascribed to YG Pty Ltd. YG Pty Ltd is the vehicle through which the parties, and since separation the wife, have conducted a mortgage broking business.
The wife is the sole director of YG Pty Ltd and has been at all material times. The shareholding in YG Pty Ltd is and has at all material times been (see Annexure A, Affidavit of the wife filed 6 April 2006):
·The wife 10 DVR; 450 ORD
·The husband 10 DVR; 450 ORD
·The child L 20 DVR
·The child B 20 DVR
·The wife’s daughter M 20 DVR
·The wife’s son N 20 DVR
The case has been conducted by Counsel for the parties on the basis that the husband and wife hold the equity shares in YG Pty Ltd and that, whatever the rights attaching to DVR shares might be, they do not give the holders of those shares the power to influence the control of YG Pty Ltd by the husband and wife through their equity shareholdings. The Court has not seen any documentation revealing the true position.
In addition to being the vehicle through which the mortgage broking business is conducted, YG Pty Ltd fulfils another role, as trustee of the unit trust which was created by deed of settlement dated 29 October 2002. The corporation utilises only one bank account in the discharge of its dual roles. That ultimately, thanks to the evidence of the corporation’s accountant, Ms W, does not create difficulty. The approach which the Court should take to the unit trust is controversial, and will be dealt with immediately after considering the value of the mortgage broking business which YG Pty Ltd conducts. This section of the Court’s reasons is confined to the value of the business of YG Pty Ltd.
On behalf of the wife Mr G gave expert opinion evidence that the value of YG Pty Ltd was $322 981. On behalf of the husband Mr TH gave expert opinion evidence that the value of YG Pty Ltd was $965 382. Mr G and Mr TH (both Chartered Accountants) were well qualified to give expert opinion evidence in relation to the value of YG Pty Ltd. No issue arises in relation to the expertise of either witness.
Pursuant to the Court’s direction, the valuers conferred at considerable length and produced a comprehensive and helpful joint statement which became Exhibit A4 in the proceedings. Unsurprisingly, the joint statement of the experts both clarified and refined matters in dispute with a consequential very substantial limiting of cross-examination of each of the experts.
Having conferred, Mr TH reduced his original valuation by approximately 30 per cent, or $300 000. Mr G did not materially alter the figure he provided in his original report.
The experts agreed that the net tangible assets of YG Pty Ltd at 30 June 2007 totalled $313 000. It ought to be noted that, as Counsel for both parties ultimately appeared to confirm, the figure of $313 000 encompassed the sum of $97 341.81 owed to YG Pty Ltd by the unit trust. As will be seen, that reality assumes potential significance when attention is focused on the unit trust.
Although somewhat of an oversimplification, the crux of the conceptual differences between Mr TH and Mr G related to how what is described as YG Pty Ltd’s “loan book”, the existence and nature of which is not in doubt, should be treated. In essence, Mr TH contended that the true value of YG Pty Ltd is derived by adding to the agreed net tangible assets of the corporation ($313 000) the value of the corporation’s loan book (originally suggested by Mr TH to be $670 000, reduced after consultation with Mr G to $344 587). Mr TH contended that the loan book should be seen as a separate and distinct asset of the corporation, able to be sold at and for that price, albeit (at least inferentially conceded) subject to capital gains taxation. Mr G contended that the loan book has no additional value to the corporation, and is integral to the conduct of its business, and properly reflected in his valuation of YG Pty Ltd of $322 981.
Mr TH’s valuation of YG Pty Ltd was based upon an adjusted net assets approach in which tangible and intangible assets of the corporation are re-valued to reflect a market value. Mr G valued YG Pty Ltd in reliance upon an earnings based methodology by reference to his assessment of the after taxation future maintainable earnings of the business. By way of cross-check, Mr G considered two other approaches, neither of which produced a significantly different outcome.
Mr G was of the opinion that his methodology was appropriate, for the reasons he provided, which included that the business is profitable, has positive cash flows, and is, in the absence of any information to the contrary, likely to continue as a going concern. He thus contended that this method “best reflects the value of the business to the principal” (Joint Statement of Expert Witnesses of 7 November 2007, par 10), after allowing a reasonable level of remuneration for the time, effort and skills that she puts into the business. Relative to the value Mr G determined for the business as a going concern, the level of remuneration of the principal was substantial.
In support of his approach to the valuation, Mr TH concluded that “in the absence of an economic return I formed the view that the capitalisation of future maintainable profits method was inappropriate in the circumstances and that the adjusted net assets method was the appropriate methods to apply” (Report of Mr TH of 5 November 2007, par 79).
During the course of his oral evidence, Mr TH confirmed that whilst one component of his net assets approach undoubtedly fitted that description (the net tangible asset figure of $313 000), his calculation of the valuation of the loan book involved predictions and calculations based upon the income generated by the loan book. Although not so expressed by Mr TH, his approach to the valuation issue was somewhat hybrid by comparison with that adopted by Mr G.
Although Mr TH confirmed in his oral evidence that he had no personal knowledge of the existence of a market in which loan books such as that owned by YG Pty Ltd were traded, or had sought to inquire in relation to such matters, he accepted that there was in fact a market in which loan books are traded. Mr G, it is clear from his written report (par 6.8.1) and his oral evidence, made some inquiries and gave evidence of some figures which were relevant in that regard.
Ironically, Mr G’s evidence of what happens in the market place provides some support both for Mr TH’s contention that YG Pty Ltd could sell the loan book and continue to trade, and for his contention that the sale of the loan book would be expected to generate a substantial sum. Perhaps even more ironic, Mr G’s calculations of the midpoint of the range for which he considered YG Pty Ltd’s loan book might be sold ($335 520) closely approximated the figure asserted by Mr TH to be the value of the loan book, albeit Mr G relied upon what his sources revealed to be more a “rule of thumb” than an empirical approach to the issue.
Closely analysed, the valuation dispute can be seen as more one of emphasis or focus than of essential disagreement. It does not seem to be disputed that the loan book could be sold. Albeit the conclusions are arrived at by quite different means, there is substantial agreement as to the theoretical value for which the loan book could be sold ($335 000 – 345 000).
It seems to be common ground, but is accepted if it is not, that sale of the loan book would have revenue implications for YG Pty Ltd. Mr G in his original report (see pars 6.19 – 6.20) quantified those likely implications. Mr G was of the opinion that “should the loan book value be unlocked by sale” there would likely be “an immediate impact on the level of remuneration derived by [the wife]”. Mr G suggested the further implications of YG Pty Ltd being liquidated. The evidence does not establish that the sale of the loan book would necessitate the liquidation of YG Pty Ltd, although YG Pty Ltd could clearly have to “start from scratch” if the loan book were to be sold.
Although Mr TH, correctly, suggested that the loan book could be sold, and the price for which that might be ultimately does not seem to be seriously disputed, Mr TH also identified adverse implications for YG Pty Ltd and/or the wife in the event of the loan book being sold. At least two particular factors were identified by Mr TH in that regard, the first being that the wife’s future income earning capacity may be impeded as a consequence of restraint of trade covenants being required of her as a condition of any sale of the loan book, the second being that, without the loan book, the wife would have to, in effect, start business again as a mortgage broker in the absence of an existing portfolio of clients which the wife identified to Mr TH as “one of the most important factors in the conduct of the business”. In support of his contention, Mr TH pointed to the fact that YG Pty Ltd commenced business without a loan book, albeit the evidence of the parties’ income from YG Pty Ltd suggests that the level of that income at that time was far less then that of recent times.
From the evidence of the experts a number of matters appear, although not necessarily conceded to be so, to emerge as common ground. They are:
a)that YG Pty Ltd could sell its loan book for something in the order of $335 000 - $345 000;
b)that such a sale would have taxation implications for YG Pty Ltd;
c)that, consequent upon any sale of the loan book, although YG Pty Ltd would have the net proceeds of sale available to it to generate investment income, YG Pty Ltd’s income from mortgage broking would be significantly curtailed, initially by the loss of commissions flowing from its ownership of the loan book. YG Pty Ltd would also have to “start again” as a mortgage broker without an existing portfolio of clients, and in the probable face of restraints on the ability of YG Pty Ltd and/or the wife to compete with the purchaser of the loan book for a defined period within a defined but unspecified geographical location (the extent of neither of which was suggested in evidence).
Whilst an oversimplification, conceptually, the difference is essentially between YG Pty Ltd being “cashed-up” (as a consequence of the sale of the loan book) with reduced revenue, or retaining the loan book and being substantially less “cashed-up”, but with its earnings base maintained.
It is relevant for a variety of purposes to refer to the evidence of the experts in relation to the level of remuneration which YG Pty Ltd provides to the wife. The experts disagreed in that regard. Mr TH suggested that a level of remuneration of approximately $175 000 per annum can be seen as available to the wife. Mr G suggested the lesser but still substantial figure of $135 000 per annum. The difference between the two experts appears largely referable to different understandings of whether or not there is another employee of YG Pty Ltd, or should be, on a salary of approximately $45 000 per annum.
In addition to the salary which the wife can derive from YG Pty Ltd, and appears to derive from the corporation having regard to her most recent Financial Statement of 5 November 2007, Mr TH said in oral evidence that the provision of a car (worth about $10 000 per annum), phone (worth about $1000 per annum) and superannuation contributions (worth about $12 000 - $15 000 per annum) were further emoluments which the wife receives from her employment by YG Pty Ltd.
The evidence does not permit the Court to find what, on balance, the wife’s income would be likely to be were the loan book to be sold, although it is a clear inference from the evidence of both experts that there would be a substantial reduction in the income which the wife would thus receive. Mr G considered that “there is likely to be an immediate impact on the level of remuneration derived by [the wife]” (Joint Statement of Expert Witnesses of 7 November 2007, par 13). Mr TH said that sale of the loan book “may adversely affect [the wife’s] future income earning capacity because it is possible that the sale agreement may place restrictions on her future conduct of a mortgage broking business” (Joint Statement of Expert Witnesses of 7 November 2007, par 17(a)). By how much the wife’s earnings would thus be likely to be reduced is not clear. The issue is complicated by the reality that, even after payment of tax, investment of the proceeds of sale of the loan book would offset to some extent the loss of income of the wife resulting from its realisation.
Cross-examination of Mr TH revealed that, when three errors were pointed out to him by Mr G during the course of their discussions, Mr TH was prompted to reduce by approximately $300 000 (30 per cent) the figure arrived at by him in his valuation report some days earlier. Having regard to the fact that Mr TH’s original valuation was $965 382, the reduction in the valuation is significant, particularly having regard to the recency of Mr TH’s report and its thoroughness. The Court does not understand Mr TH to suggest that any errors of his report were referable other than to errors which he had made.
By comparison, Mr G was not shown by cross-examination or otherwise to have made any errors arriving at his opinion of the value of YG Pty Ltd.
In fairness to him, Mr TH readily acknowledged the errors which he had made, and did not attempt to rationalise them or shift responsibility for them to anyone else, for which he should be commended. The Court does not accept that Mr TH’s errors are indicative of “incompetence” as was submitted by Counsel for the wife. It must be recognised that the exercise which each of the amply qualified experts undertook in this case was not without complexity and one which permitted quite different but reasonably held opinions on the part of each of the experts. Valuation remains an inexact science.
In the absence of any demonstrated error by Mr G, the weight to be given to Mr TH’s expert opinion evidence must be seen as potentially reduced by reason of the magnitude of the errors in the latter’s original valuation. On the other hand, as noted earlier, Mr G’s evidence, which Mr TH could not and did not give, was that there is an actual market for loan books. Albeit perhaps coincidentally, Mr G’s midpoint figure based on the rule of thumb within the market place for the value of the loan book provides support for Mr TH’s opinion which would otherwise be absent.
The law governing valuation of interests in unlisted corporations is not seriously in doubt. How to apply the relevant principles in a case is less straightforward. In B & B [2006] FamCA 896 the Court said that (at pars 121 & 123):-
121. Whilst the exercise of valuation is necessarily somewhat theoretical, inherent in that exercise is reference to what the market, if one exists, suggests a willing but not anxious vendor and purchaser might conclude as the price at which something will change hands.
…
123. Where there is a market place, reliance upon comparable sales is a well established way of either testing a theoretically derived valuation, or, in some cases, establishing a market value for something. The learned author of Principles and Practice of Valuation, 5th ed, Commonwealth Institute of Valuers, 1973, Mr J F N Murray, suggests that ‘there is a distinct advantage conferred by reference to actual sales because such a process determines the market estimate of value’ (at 190).
In Spencer v Commonwealth (1907) 5 CLR 418 the High Court said (at 441):-
… the all important fact on that day is the opinion regarding the fair price of the land, which a hypothetical prudent purchaser would entertain, if he desired to purchase it for the most advantageous purpose for which it was adapted. … To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property.
That statement of principle has since been applied to a wide range of assets other than real estate.
As suggested to Counsel for the parties during the trial, although important, determining a theoretical value for YG Pty Ltd should not be all consuming. If the Court, albeit perhaps not for the reasons advanced by Mr TH for so doing, prefers the figure suggested by Mr TH for the value of YG Pty Ltd to that advanced by Mr G, it must be remembered that, although there is no evidence that the wife intends to do so, realising all or a substantial part of the value of YG Pty Ltd’s assets and generating a substantial capital sum can only be achieved by incurring significant ongoing financial and other practical detriments. Whether pursuant to s 75 or s 79(2) of the Act, regard would have to be had to those consequences.
Conversely, if, notwithstanding the reality that the loan book could be sold, and for a very substantial sum relative to the other assets revealed by the evidence in this case, Mr G’s valuation of YG Pty Ltd were preferred, the implications of the wife having, through YG Pty Ltd, an asset which she could liquidate for a substantial sum which she could then utilise in the form of the loan book, and the ability to derive very substantial remuneration and other benefits while she refrained from doing so would also have to be taken into account, particularly pursuant to s 75(2)(b) of the Act.
Whilst Mr TH’s valuation of YG Pty Ltd and that of Mr G are widely divergent, the probabilities are that, having regard to the complicating factors to which reference has briefly been made, the difference for the purposes of this case will ultimately be far less substantial than that divergence would imply.
Ultimately, the matter which assumes greatest significance in the Court’s mind with respect to this issue is the undisputed evidence of both experts that the loan book could be sold. The coincidence, which is all it might be, that both experts consider a figure of approximately $340 000 to be the kind of gross sum which might be realised on the sale of the loan book disinclines the Court to adopt what, in the light of all the evidence is a less realistic approach. This conclusion is notwithstanding that, from a methodological perspective, but for the reality of the marketplace, and substantial accord as to the likely price which could be attracted in the marketplace, Mr G’s expert opinion evidence would otherwise forensically be entitled to be preferred to that of Mr TH.
The principle of “highest and best use” is explained by the learned authors of Rost RO and Collins HG, Land Valuation and Compensation in Australia, 3rd ed, Australian Institute of Valuers, 1984 at 90 in the following terms:-
Recognition of the willing-selling-willing-buyer concept necessarily involves valuation for the highest and best use for which the land is adapted. The prudent and well-informed vendor (whose existence must be assumed) would not willingly part with his land for a price less than that appropriate to its highest and best use; and the well-informed buyer would not expect to be able to purchase it for less. (emphasis added).
The principle of highest and best use has been endorsed in numerous cases (see Brisbane City Council v Valuer-General for State of Queensland (1978) 140 CLR 41; Housing Commission of New South Wales v San Sebastian Pty Ltd & Others (1978) 140 CLR 196; Valuer-General v Fenton Nominees Pty Ltd (1982) 150 CLR 160; In the Marriage of Davies (1995) 19 Fam LR 761; and GWR v VAR (2006) 36 Fam LR 237). This principle is consistent with the approach in this case of accepting the higher valuation of YG Pty Ltd. To do otherwise is contrary to the logic underpinning “highest and best use” of an asset when its value is being determined, and to ignore the reality that the true value to the owner of the business is the higher figure revealed by the evidence.
Given that the value of the loan book could only be “unlocked” by a sale, it is necessary to consider whether the revenue implications of such sale as quantified by Mr G, require consideration. Although there may be no actual sale, it is to the Court’s mind illogical to have regard to a figure which can only be realised by a sale without having regard to what are not disputed to be the revenue implications of such a sale (see Brett-Hall & Brett-Hall (2006) FLC 93-276). This is particularly so as, having preferred the higher valuation contended for YG Pty Ltd, the Court should have regard to the realities which flow from so doing, which have been identified earlier. Conversely, if the Court’s orders do not render a sale of YG Pty Ltd’s loan book probable, the justification for taking revenue implications of a sale into account dissolves. This is an issue which assumes significance pursuant to s 75(2)(o) or, potentially, s 79(2) of the Act. It will be included in the property of the parties at this stage at $658 149.
The Unit Trust
Although it is ultimately less than entirely clear what Counsel for the husband submitted to be the benefit or benefits to the wife of the unit trust, the Court does not accept on the evidence that the parties’ “interests”, personally or through YG Pty Ltd, are greater than the evidence of YG Pty Ltd’s Chartered Accountant, Ms W, reveals (see Exhibit A3).
Ms W gave evidence and was cross-examined. Although a witness in the wife’s case, Ms W revealed a refreshing objectivity and impartiality. In the course of her cross-examination, much of which was not controversial in any event, Ms W revealed a professionalism and even-handedness which was impressive.
Ms W’s evidence is that the parties are owed $23 664.56 by the unit trust. It was submitted on behalf of the husband that the Court should regard the parties as being owed $135 793 by the unit trust. The evidence of Ms W, and to the extent that it impacts on this topic, of the experts Mr TH and Mr G, leaves no scope for doubt that such moneys the parties have provided to the unit trust through YG Pty Ltd are reflected in the figure of $97 341.87 to which Ms W referred in Exhibit A3, which sum is incorporated in the figure of $313 000 agreed by Mr TH and Mr G to be the net tangible asset value of YG Pty Ltd.
There is no scope on the evidence for considering the interests of the parties personally to be any greater than the figures provided by Ms W, $23 664.56. No separate item for the moneys owed by the unit trust to YG Pty Ltd is appropriate, the trust’s indebtedness to YG Pty Ltd being subsumed in the agreed net tangible asset value of YG Pty Ltd of $313 000. The $23 664.56 which the unit trust owes to the parties should be reflected as an asset of the parties.
Although perhaps not strictly falling within the exercise of identifying and quantifying the property of the parties, it is convenient to deal at this stage with the submission on behalf of the husband that the unit trust represents a financial resource in the hands of the wife. The Court rejects such contention. The unit trust deed is in evidence. It speaks for itself in terms of both the entitlements and protections afforded to the four unit holders in the trust (the two children of the parties and two older children of the wife of a prior relationship) and the duties and obligations of YG Pty Ltd as trustee of the unit trust. The trust deed does not purport to oust the fiduciary duties imposed upon the trustee, and its director, by well settled equitable principles.
There are, within the deed of settlement which created the unit trust, particularly when combined with the law relating to fiduciary duties, clear obligations and constraints on the wife, as the controller of the trustee, which preclude the wife from in any way directly or indirectly benefiting herself to the detriment of the beneficiaries of the unit trust.
The evidence does not reveal that the wife has in any way, whether in breach of fiduciary duties or otherwise, acted to her advantage at the expense of the beneficiaries of the unit trust. There is no rational basis on the evidence for suggesting that the wife would seek to do so in the future.
The evidence of Ms W, which the Court accepts, is that there has not been any dealing involving the unit trust which has been to the financial detriment of the holders of units in such trust. It is to be remembered that YG Pty Ltd occupies premises owned by the unit trust, for which it pays rental and other outgoings. Ms W gave evidence, which the Court accepts, that she has ensured during the time in which she has advised YG Pty Ltd, that appropriate commercial arrangements for YG Pty Ltd’s occupancy for the unit trust’s property are at all times maintained. There is no evidence before the Court that, contrary to Ms W’s assertions in that regard, anything but objectively commercially justified and reasonable terms and conditions have applied to the dealings between YG Pty Ltd in its capacity as an operating corporation and the unit trust. Nor is there any evidence that YG Pty Ltd has been in conflict of its fiduciary duties as trustee of the unit trust by virtue of any arrangements which the wife has caused it to enter into involving assets of the unit trust.
There is accordingly no basis for concluding, contrary to the submissions of Counsel for the husband, either that the interest of the parties in the unit trust should be seen as greater than the experts and Ms W have identified, or that the wife at any time in the future could derive a financial or other advantage from the unit trust by virtue of her position as the controller of the corporate trustee.
Liabilities of the Parties
The assets of the parties accordingly approximate $1 986 028.18 {$530 000 + $725 000 + $33 018 + $3062 + $658 149 + $23 664.56 + $200 + $7713.83 + $2429 + $1220.79 + $571 + $1000 = $1 986 028.18}.
A number of liabilities are not in contest. The wife has a debit loan account in YG Pty Ltd in respect of which she owes $53 339. The husband’s loan account in YG Pty Ltd is in debit in the sum of $60 096. The net tangible assets of YG Pty Ltd having been determined on the basis that these loan accounts would be repaid, it is appropriate that these debts be included as personal liabilities of the parties. So doing produces a net value after repayment of loan accounts in YG Pty Ltd of $544 714 {$658 149 - $53 339 - $60 096 = $544 714}.
Secured over the former matrimonial home at G Street, P are four loans from St George. It is necessary and constructive only to note that the sum of $100 000 secured over the former matrimonial home and on-lent to the unit trust which in turn applied such funds for the purchase of its H Street, P property, is reflected as an asset of the parties through its inclusion in the net tangible assets of YG Pty Ltd. The sum having been thus included in the assets of the parties, it is sensible, and seemingly uncontroversial, that the liability to St George, which is real, which gave rise to the asset be included as a liability of the parties. To do otherwise would be to inflate the balance sheet unjustifiably by $100 000.
The debts secured on the former matrimonial home at G Street, P ($145 583, $100 026, $39 938.06 and $184 776) total $470 323.06. That figure results in equity in the property of $59 676.94.
The parties owe $531 420 by way of mortgage over their interest in the R property. It is agreed that capital gains taxation of $16 964 will be payable in total by the parties in the event of that interest being realised for that sum. Ms W (see Exhibit A3) provided that figure and it is not controversial. It appears that Counsel for the husband does not concede the probability of the realisation of the interest in the R property. Having regard to the Court’s preference for the higher valuation of YG Pty Ltd and its impact on the quantum of the net asset pool, there is a high probability that R property will be sold in order to satisfy the husband’s entitlement as determined by this Court. That being so, it is appropriate to take into account the capital gains liability which Ms W has calculated (see Brett-Hall & Brett-Hall (2006) FLC 93-276). If the husband elects to retain that interest, thereby obviating a capital gains taxation liability, he will benefit by as much as $16 964.
The liabilities of the parties thus approximate $1 132 142.06 {$470 323.06 + $531 420 + $16 964 + $60 096 + $53 339 = $1 132 142.06}.
The net assets of the parties are accordingly $853 886.12.
These figures are set out graphically below.
Nettler: Asset Pool
Assets Liabilities G Street, P property 530000.00 P property M/gage 470323.06 R property 725000.00 R property M/gage 531420.00 Proceeds of M property Sale* 33018.00 CGT on property sale 16964.00 CBA a/c 200.00 Non-YG TOTAL 1018707.06 AMP shares 7713.83 St George Freedom a/c 2429.00 YG Pty Ltd: loan a/c H 60096.00 St George a/c 3062.00 YG Pty Ltd: loan a/c W 53339.00 Westpac a/c 1220.79 YG Pty Ltd TOTAL 113435.00 A/c held with Ms W 571.00 Horse Gear 1000.00 TOTAL LIABILITIES 1132142.06 Unit Trust Debt 23664.56 Non-YG Pty Ltd TOTAL 1327879.18 YG Pty Ltd 658149 TOTAL ASSETS 1986028.18 Net assets 853886.12 Net non-YG assets 309172.12 Net YG Pty Ltd assets 544714.00 *subject to unquantified capital gains taxation
Superannuation
Both parties have a superannuation interest. The husband’s superannuation interests in ING Superannuation and the Commonwealth Bank of Australia approximate $64 054. The wife’s superannuation interest in ING Superannuation approximates $51 930.
It is unclear how those sums were calculated, but as neither party seeks a splitting order pursuant to the legislation, it is unnecessary to inquire further about them. Whether the superannuation interests are treated as property of the parties or financial resources will have little impact on the determination of this case given that the interests of each party are not significantly divergent in value. The vesting of both interests is comparatively remote. On balance, the Court prefers to have regard to superannuation interests of the parties at Stage 3, when s 75(2) factors are considered. So doing will not materially impact upon the parties’ entitlements.
Contributions
Contributions Prior to Separation
Contributions require evaluation by the Court. It is less than entirely clear whether Counsel for the husband advocated that a global or an asset by asset approach be adopted by the Court in relation to the evaluation of the parties’ contributions. Counsel for the wife submitted that a global approach was preferable. Beyond so asserting, little was advanced by Counsel for the wife in support of that proposition.
In Norbis v Norbis (1986) 161 CLR 513 Brennan J said (at 541):-
The global approach is no more than a procedure for determining the exercise of the discretion. It is a procedure which tends to shorten the hearing so as to avoid sapping the finances of the parties and engendering further ill-feeling between them. The primary judge's adoption of the asset by asset approach in lieu of the global approach was not an error affecting the validity of the order which he made. There is no logical foundation for concluding that one approach should produce, at the end of the day, an order different from, or preferable to, the order which the other approach would produce. Either approach is capable of producing a just and equitable order. To intervene merely on the ground that the primary judge did not adopt the global approach would be to require primary judges to follow a single procedure when more than one procedure is consistent with the provisions of the Act.
Also in that case, Mason and Deane JJ said (at 523):-
For ease of comparison and calculation it will be convenient in assessing the overall contributions of the parties at some stage to place the two types of contribution on the same basis, i.e. on a global or, alternatively, on an "asset-by-asset" basis. Which of the two approaches is the more convenient will depend on the circumstances of the particular case. However, there is much to be said for the view that in most cases the global approach is the more convenient. It follows that the Full Court is quite entitled to prescribe that approach as a guideline in order to promote uniformity of approach within the Court. In saying this we are not to be understood as denying the legitimacy of the trial judge's ascertainment in the first instance of the financial contributions of the parties by reference to particular assets. It is difficult to conceive how the trial judge in many cases could otherwise take account of such contributions as he is required to by s. 79(4)(a) of the Act. In this respect we agree with the comment of Nygh J. in G. and G. that, although mathematical precision is certainly not required, there is ordinarily a need to know the circumstances in which assets were acquired and the general extent of each party's contribution to them. (footnotes omitted).
In this case, the Court is comfortably satisfied that an asset by asset approach to the evaluation of contributions is substantially more likely to produce a just and equitable outcome than would be likely to result from a global approach. There are various reasons why that is so. In no particular order of significance, the factors which influence the Court’s thinking are the following:
a)The history of acquisition, conservation and improvement of assets which are today represented by the parties’ interest in the former matrimonial home and the R property, and to a lesser extent the proceeds of sale of the M property, necessitate careful consideration of the initial contributions of the parties, as well as the husband’s contributions to the welfare of the wife’s children of a prior relationship.
b)Contributions to YG Pty Ltd, which arose much later in the cohabitation, are somewhat different from those relating to the real estate interests, or proceeds of sale of real estate of the parties.
c)To consider globally what are clearly tangible available assets, such as equity in real estate and/or proceeds of sale of real estate with less tangible assets, such as YG Pty Ltd’s loan book, is not to compare “apples with apples”. As noted above in relation to the valuation of YG Pty Ltd, although the Court is satisfied that the figure of $658 149 should be regarded as the gross hypothetical value of YG Pty Ltd, the realisation of the loan book for $335 000 - $345 000 would have significant implications. Albeit those can be better accommodated within the terms of s 75(2) than within the terms of s 79(4), it is preferable to consider YG Pty Ltd in a separate pool to the real estate assets and interests.
In terms of the non-YG assets, as they might for convenience be described, the evidence reveals that both parties applied themselves diligently during their years together. The picture which emerges is of two people giving of their best in all relevant financial and non-financial respects. It is not productive, and not possible in any event, to meaningfully descend into the detail of the relativities of who did what at any particular time.
As the agreed schedule of their earnings reveals, the parties contributed approximately equal amounts from employment during their cohabitation. It is clear beyond doubt that both parties made relevant non-financial contributions, including contributions as homemaker and parent.
But for two matters to which reference needs to be made, the Court would be comfortably satisfied that, to the date of separation, the parties contributed equally to their non-YG assets. The two exceptions of significance involve the initial capital contributions of the parties and the husband’s contributions to the welfare of the wife’s two children of a prior relationship. Necessarily evaluating those two quite different contributions involves exercising a broad discretion.
So far as the wife’s initial capital contribution is concerned, more significant than its magnitude relative to that of the husband’s initial capital contribution, is the use that was made of it. The wife’s pre-cohabitation funds constituted a very substantial proportion of the cost of the first matrimonial home (approximately 45% of the purchase price). Although there is no clear evidence in that regard, it can safely be inferred that the parties’ financial position was materially assisted by that initial capital contribution and that such contribution was, effectively, ongoing in nature.
Counteracting that contribution, albeit in the Court’s view not to the extent of offsetting it, are the husband’s contributions to the welfare of the wife’s two children of a prior relationship. As noted earlier the children, on the wife’s own evidence, had respectively ten and twelve years under the roof of the parties prior to each attaining 18 years of age. Appropriate child support was paid for those children. There is no clear evidence as to the financial burden on the husband of the children being members of his household.
To regard the wife as having contributed 60 per cent and the husband 40 per cent to the acquisition, conservation and improvement of the non-YG assets would in the circumstances be reasonable. The disparity of entitlements resulting from such decision, approximating $60 000, broadly accommodates the net effect of the two countervailing aspects of contributions to which reference has been made.
Contributions to YG Pty Ltd should also be considered broadly. Failure to do so is likely to distort, unfairly to the husband, the true nature and quality of the contributions of the parties to the acquisition, conservation and improvement of YG Pty Ltd. Superficially, the wife made the greater direct contributions to the development, improvement and maintenance of YG Pty Ltd’s business. Having regard to the various provisions of s 79(4), to conclude that the wife’s contributions cumulatively should be seen as greater than those of the husband to the date of separation would be to ignore the indirect contributions of the husband as detailed in his evidence and substantially accepted by the Court. Those indirect contributions have the effect, in the Court’s view, of counterbalancing the wife’s greater direct contributions to YG Pty Ltd to the date of separation. Remembering the caveat that the Court expressed earlier in these Reasons in the context of the valuation of YG Pty Ltd, the Court concludes that the contribution entitlements of the parties to YG Pty Ltd to the date of separation should be considered to be equal.
Although not strictly related to YG Pty Ltd, it is convenient at this point to deal with a submission made by Counsel for the husband, that the husband’s contribution based entitlement should be enhanced by virtue of his contributions to the unit trust. This contention can be simply disposed of by reference to the initial funding of the unit trust’s acquisition of its only asset (see Affidavit of the wife filed 13 August 2007, pars 141f). The trust’s property was 100% financed, albeit in part by security over the matrimonial home of the parties (for which the trust in turn became indebted to the parties and/or YG Pty Ltd). The trust has been paid no more and no less by YG Pty Ltd with respect to the corporation’s occupancy of the trust’s real estate than was commercially appropriate, as Ms W’s evidence confirms. For present purposes, the unit trust cannot be seen to have been treated advantageously, or in any material sense differently, from an arm’s length entity. Conversely, if the unit trust has been benefited by the parties in some way which has eluded the Court’s awareness, there is no rational basis for suggesting that the contributions should be seen as other than having been jointly made by both parties.
Contributions in the Post-separation Period
It is necessary to consider whether the post-separation period impacts upon the contribution entitlements of the parties as at the date of separation. During this period the wife has occupied the former matrimonial home and paid outgoings with respect to it. The husband has occupied other accommodation on the terms which appear in his material. The wife has had the greater financial and non-financial burden of caring for the children of the marriage during this period.
The wife has had the primary obligation to house and accommodate the children of the marriage in the post-separation period. Whilst the wife accumulated not insignificant arrears of child support earlier this year, and remedied those arrears by a payment which one could be forgiven for thinking was to some extent influenced by the commencement date of the trial of these proceedings, the fact is that there are no current arrears of child support and the wife can be seen to have paid what the relevant authority considered her obligation to be.
Ms W’s evidence in relation to how school fees were treated in the loan accounts suggests a sensible and pragmatic approach to an indissoluble problem, the effect of which is that both parties contributed equally to the children’s school fees in the post-separation period by their loan accounts in YG Pty Ltd. It is difficult to see how either party is either more advantaged or disadvantaged than the other as a consequence of Ms W’s treatment of school fees in the post-separation period.
In the post-separation period the wife has, having dismissed the husband from his employment with YG Pty Ltd in July 2005, undertaken the great bulk of YG Pty Ltd’s work. There is no doubt that the wife has done this diligently. On the other hand, the wife has been very substantially remunerated for her efforts. The evidence does not establish that the wife has been over or under-remunerated for her efforts during the post-separation period. The husband’s income is less than half that which the wife has derived during this period, ample compensation for her undoubtedly greater efforts in her conversation and improvement, if there was improvement, of YG Pty Ltd.
On balance, and recognising that so doing involves the exercise of an undoubtedly broad discretion, the Court does not conclude that the post-separation period should, in all the circumstances, result in an alteration to the contribution based entitlements of the parties to the date of separation.
Conclusion with respect to Contributions
For the reasons which the Court has articulated, the Court concludes that the wife should be entitled to 60 per cent of the non-YG assets and the husband to 40 per cent of such assets. That translates in monetary terms as $185 503.27 to the wife and $123 668.85 to the husband {Net non-YG assets total $1 327 879.18 - $1 018 707.06 = $309 172.12}.
The Court concludes that the parties are equally entitled on a contribution basis to YG Pty Ltd. This translates as $272 357 to each party {Net YG assets total $658 149 - $60 096 - $53 339 = $544 714}.
Overall, the husband is thus entitled to $396 025.85 {$123 668.85 + $272 357 = $396 025.85} and the wife to $457 860.27 {$185 503.27 + $272 357 = $457 860.27}, which represents 46.4 per cent and 53.6 per cent respectively of the total net asset pool.
Section 75(2)
Section 75(2) was relied upon to some extent by each party, albeit, unsurprisingly, with different emphases.
On behalf of the husband it was submitted that the wife would “continue to have the benefit of the business built up by the parties during the marriage and its ongoing trailer income” (Case Outline Document of Husband, page 4, par 3). It was also submitted that the wife would have the benefit of motor vehicles owned by the business (Case Outline Document of Husband, page 4, par 4). The difficulty with this submission, as was foreshadowed earlier in these Reasons, is that the wife’s ability to derive the benefits to which Counsel for the husband refers, involve the wife not “unlocking” any part of YG Pty Ltd. More significantly, the wife retaining these benefits involves her not “unlocking” YG Pty Ltd’s loan book which represents more than one third of the total net assets of the parties. That significance is not lessened by reality that another one third of the net assets of the parties are represented by the net tangible assets of YG Pty Ltd, the realisation of which is not suggested to be likely or commercially prudent.
Although it is hopefully conceptually justifiable, there is a degree of unreality in having, as the Court has, included YG Pty Ltd on a highest and best use basis at the figure it has. To adjust under s 75(2) by way of disparity of earnings in favour of the husband by reason of the wife’s retention of that asset would be potentially compound that unreality and be unfair to the wife as her greater earning ability is dependent upon her not realising any of the assets of YG Pty Ltd.
Had the Court opted for the lower valuation, which for reasons it has given the Court has considered inappropriate, there would undoubtedly need to be a significant adjustment under s 75(2) by virtue of the disparity of earning capacity of the parties, the wife’s current earnings being more than double those of the husband, and potentially continuing to be so into the future.
Ultimately the Court prefers to address this dilemma pursuant to s 75(2)(o). It could, in the alternative, perhaps be addressed by s 79(2), but the Court struggles to understand what residual power s 79(2) might repose in the Court after the provisions of s 75(2) have been exhausted. Whatever the reality, the Court prefers to approach this issue via s 75(2)(o).
The husband relies upon the fact that he has in his care a child of the marriage. The wife also has a child of the marriage in her care. Significantly, the child in the wife’s care has potentially five more years of dependency than does the child in the husband’s care. An adjustment of modest proportions in the wife’s favour by virtue of that reality would seem appropriate.
The Court has earlier referred to the superannuation interests of the parties. Having regard to the relative sums, and the remoteness of their probable vesting, no s 75(2) adjustment would in the circumstances be appropriate.
Counsel for the husband complained that the wife had “not paid regular child support as assessed and the evidence [would] reveal that the wife is not likely to prioritise the payment of child support” in the future (Case Outline Document of Husband, page 5, par 11). Whilst, whatever her reasons, the wife’s failure to promptly pay child support until virtually the eve of the trial of these proceedings does not reflect well on her, there is insufficient evidence to found a conclusion that the wife will in the future fail to meet her child support obligations. It seems common ground that the wife’s income (for so long as she retains YG Pty Ltd) will exceed that of the husband. No adjustment for child support, either past, present or future, would, in the Court’s view, be appropriate. To the extent that incomes may vary, or the children might cease to reside where they currently do, those are matters well able to be accommodated by the appropriate tribunal pursuant to the provisions of the child support legislation.
As noted earlier, the Court does not accept that any “financial and emotional support” provided to the wife by Mr K should in the circumstances of this case advance the husband’s cause. With respect to Counsel for the husband, the submissions made on his behalf (see Case Outline Document of Husband, page 5, par 13) conveniently overlook the unchallenged medical evidence which makes clear the serious and ongoing health problems which, regrettably, the wife’s youngest child S suffers and will continue to suffer in the future.
That leads into the question of the significance within s 75(2) of the wife’s child S. Whilst the Court has considerable sympathy for the wife, and Mr K, by reason of S’s state of health and likely future state of health, those are not matters which should result in any positive adjustment to the wife’s entitlement as against the husband in these proceedings. The Court does not understand that any adjustment was thereby sought, but rather that the Court temper its assessment of the wife’s future earning capacity by reason of the demands which may be placed upon her, and restrictions on her ability to work arising from them, by reason of S’s state of health.
The issue that this submission raises is not without complexity. In a reductionist sense, any diminution in the wife’s earning capacity cannot be said to be referable to, or the fault of, the husband in these proceedings. On the other hand, a wide array of the vicissitudes of life can, and often are, taken into account when the Court seeks to assess the likely course of a party’s future earning capacity. Commonsense suggests that the child S’s health may well in future impact upon the wife’s capacity to work to the extent that she has in the past and appears to at present. When that might occur, and the quantum of its impact cannot be suggested. In those circumstances, any adjustment must be purely arbitrary. That is not a sound or sufficient basis for an adjustment. That, for reasons which follow, is not ultimately a difficulty.
As hopefully is apparent from the Court’s Reasons, the valuation which the Court has determined for YG Pty Ltd has significance beyond what is often called Stage 1 or Step 1 in the proceedings: the identification and quantification of the property of the parties. Without wishing to restate what, hopefully, has been adequately articulated earlier, to fail to in any way differentiate between tangible, available assets, or money as it will be when received by the husband, and assets which are inextricably linked to and “tied up” in a business venture which is ongoing is to ignore reality. This is particularly so when the latter are worth so much more than the former and provide the basis for a party’s income. In the circumstances of this case, and particularly having regard to the realities of YG Pty Ltd, and the implications of accepting the higher valuation of YG Pty Ltd, a s 75(2) adjustment, very largely in reliance upon those factors, could possibly be made in the wife’s favour.
If no s 75(2) adjustment were made to the contribution based entitlements of the parties, to satisfy his entitlement ($396 025.85), the husband would receive the totality of the net proceeds of sale of the interest in the R property {$725 000 - $531 420 - $16 964 = $176 616} and the proceeds of sale of the M property {$33 018} and, assuming that the wife were able to do so, the remaining equity in P property of $59 676.94 together with the sum of $114 766.08 {$396 025.85 - $176 616 - $33 018 - $59 676.94 - $7713.83 – $200 - $3062 - $1000 = $114 766.08}. The wife’s ability to borrow 100 per cent of the value of P property from St George must be problematic, but even if she could, the wife would still have to raise an additional $114 766.08. How, without the benefit of equity in real estate, the wife could expect to borrow such moneys is unclear.
Whilst, on the evidence before this Court, YG Pty Ltd’s loan book could be sold, and a gross pre-CGT sum of $335 000 - $345 000 realised, the evidence suggests that YG Pty Ltd’s income, and in turn that of the wife would thereby be significantly reduced. The wife’s ability to service the already substantial borrowings over P property would thus be adversely impacted.
There is an essential unfairness in equating $396 025.85 of tangible risk-free assets in the hands of the husband with $457 860.27 in the hands of the wife when the totality of those assets are tied up in the entity through which she derives her income, less a further sum of over $100 000 to be borrowed to enable the wife to pay the husband his entitlement.
Conversely, the Court having concluded as it has in relation to the value of YG Pty Ltd and determined the contribution based entitlements of the parties, the husband is entitled to oppose his entitlement being determined by what the wife can afford to pay to him without materially altering her position.
Complicating the wife’s position is the improbability of her being able to borrow almost $60 000 to pay to the husband in partial satisfaction of his entitlement on the security of P property given that so doing, if St George were agreeable, and there is no evidence that St George is agreeable, would represent a borrowing of 100 per cent of the value of P property. It is tempting to think that St George would be very unlikely to do that, but in the absence of evidence the Court refrains from speculation.
Although the husband may not see it so, it is potentially as much in the husband’s interest that the wife and YG Pty Ltd remain intact and commercially viable as it is in the wife’s interest that this occur. If the husband’s entitlement can only be met by the wife causing YG Pty Ltd to sell its loan book then a not insignificant s 75(2) adjustment in favour of the wife would be appropriate having regard to the evidence of both Mr TH and Mr G in relation to the implications for YG Pty Ltd, and hence the wife, in terms of income consequent upon the “unlocking” of YG Pty Ltd’s loan book. Just how that would be calculated is difficult to know, notwithstanding the assistance gained from the evidence of both experts, and particularly from the evidence of Mr G.
On balance, the Court concludes that the appropriate approach is to make a minimal adjustment by virtue of s 75(2) in favour of the wife. To adjust, pursuant to s 75(2), only by reason of the wife having the future obligation to provide and care for the younger of the two children of the marriage, that being for potentially five years longer than may be the case of the husband, would be appropriate. An adjustment of one per cent would in the circumstances be appropriate. The Court does not otherwise propose making a s 75(2) adjustment.
To the extent that the husband might seek such an adjustment on the basis that the wife earns approximately twice what he does, the inclusion of the asset which generates that income in the asset pool at its highest and best use valuation, reflecting as it does 63.8 per cent {$554 714 / $853 886.12} of the total assets militates against so doing. In broad terms, to ignore the reality that, only by being unable to realise YG Pty Ltd, or its loan book, can the wife continue to earn as she does, an adjustment in favour of the husband is unjustified.
Section 79(2)
By virtue of s 79(2) of the Act the Court must not make an order unless it is just and equitable to do so. The justice and equity of the proposed division of the assets of the parties being 54.6 per cent to the wife and 45.4 per cent to the husband must therefore be considered. The Court has previously endeavoured to address the difficult issues which arise from the nature and value of the parties’ assets.
As noted earlier, on the evidence before the Court, it is improbable that the wife could satisfy the husband’s entitlement of $387 664.30 {45.4% of $853 886.12 = $387 664.30} within the near future. Were she obliged to do so, the probabilities are that the wife would have to sell P property and YG Pty Ltd’s loan book, thereby leaving her to find alternate accommodation, albeit not necessarily accommodation which she owns, at a time when her income is likely to be substantially reduced. The husband on the other hand would then have substantial liquid funds with which to rebuild his future and a secure and not insubstantial income. Such an outcome would not in this Court’s view constitute justice or equity. The husband’s entitlement would need to be reduced if it were to be realised by the sale of YG Pty Ltd’s loan book to the extent that the proceeds of its sale would incur a taxation liability.
As noted earlier, the difficulty in this Court is striking an appropriate balance between the husband receiving his just entitlement as determined by the Court, and the wife satisfying that entitlement without being potentially gravely disadvantaged, both financially and otherwise.
In Elsey v Elsey (1997) FLC 92-727 the Full Court (Ellis, Baker and Coleman JJ) said, per Baker JJ (at 83,799):-
In my opinion, trial judges must consider the economic consequences which flow from their orders before making them. Otherwise, the result achieved may not be just and equitable, as s 79 requires. Indeed, the provisions of s 79 clearly require trial judges to consider the effect of any proposed order upon the earning capacity of the parties before consideration is given to the s 75(2) factors.
If the husband is to receive the proceeds of sale of M property ($33 018, subject to each party paying 50 per cent of the capital gains taxation relating to that realisation as and when that is determined), the joint St George account ($3062), his Commonwealth Bank account ($200), his AMP shares ($7713.83), the horse gear ($1000) and the entitlement to receive the equity in or net proceeds of sale of R property, after capital gains taxation, (approximately $176 616), the husband would be entitled to receive a further $166 054.47 {$387 664.30 - $33 018 – $3062 - $200 - $7713.83 - $1000 - $176 616 = $166 054.47}.
The wife should, within 90 days of this date, pay to the husband $100 000 of such sum. The balance of $66 000, together with interest calculated at a rate one per cent in excess of the rate from time to time determined by the Reserve Bank of Australia as the prime rate should be paid on or before 1 February 2009.
To the extent that the husband is “kept out of his capital” by such a scheme of orders, the Court does not accept that he could complain. The husband’s entitlement will have not been discounted, notwithstanding the nature of the assets which the wife will retain, and he will be paid interest at a rate equal to or potentially better than that he might obtain were he to invest $66 000 of his entitlement. Having not reduced the gross value of YG Pty Ltd’s loan book by reason of a potential capital gains taxation liability, there is a fairness to both parties in making orders which reduce the likelihood of its sale.
On the other hand, the wife will thereby have the opportunity to retain or realise the former matrimonial home in which she and the younger child of the marriage live and YG Pty Ltd, or at least its loan book, and, should she choose or be forced to realise either or both of those assets, have a reasonable time within which to do so.
Although less than a perfect solution, for the Court does not perceive there to be one which is fair to both parties, the Court considers the proposed orders the least unjust or inequitable which could in the unusual circumstances of this case be applied. The effect of the Court’s conclusions is shown graphically below.
| Husband’s Entitlement | Wife Entitlement | |||
| Asset | Value ($) | Asset | Value ($) | |
| Proceeds of sale of M property* | 33 018 | |||
| Joint St George bank a/c | 3062 | |||
| Horse gear | 1000 | |||
| Commonwealth bank a/c | 200 | |||
| AMP shares | 7713.83 | |||
| St George Freedom bank a/c | 2429 | |||
| Westpac bank a/c | 1220.79 | |||
| Share in bank a/c held with Ms W | 571 | |||
| Debt owed to parties by Nettler Unit Trust | 23 664.56 | |||
| Parties’ interest in R property§ | 725 000 (531 420) | Indemnity with respect to R property | ||
| Indemnity with respect to P property | Parties’ interest in P property | 530 000 (470 323.06) | ||
| Indemnity with respect to husband’s loan a/c with YG Pty Limited | (60 096) | YG Pty Ltd, including husband’s shareholding and any other interests in same | 658 149 | |
| Sum payable by wife within 90 days | 100 000 | Sum payable to husband within 90 days | (100 000) | |
| Sum payable by wife on or before 1 February 2009 | 66 000 + interest | Sum payable to husband on or before 1 February 2009 | (66 000 + interest) | |
| * each party to pay 50% capital gains taxation with respect to the sale of M property § capital gains taxation of approximately $16 964 will be payable by husband if the R property is sold | ||||
I certify that the preceding one hundred and thirty (130) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Coleman.
Associate:
Date: 23 November 2007
Key Legal Topics
Areas of Law
-
Family Law
-
Equity & Trusts
Legal Concepts
-
Expert Evidence
-
Remedies
-
Costs
7
12