NORWOOD & LUCK

[2018] FamCA 141

FAMILY COURT OF AUSTRALIA

NORWOOD & LUCK [2018] FamCA 141

FAMILY LAW – PROPERTY – INJUNCTIONS – Where orders are made for the disposition of funds from a company operated by the husband and the wife pursuant to s 114 of the Family Law Act 1975 (Cth) – Where restraints are placed on the husband from diverting any business or income away from the company – Where each party is to receive a specified sum each month from the income of the company.

FAMILY LAW – PRACTICE AND PROCEDURE – APPLICATION TO RE-OPEN – Where the husband filed an application for the interim proceedings to be re-opened – Where the application was not opposed – Where the wife had withdrawn funds from the company without notice to the husband – Where the wife used the funds to pay her tax liabilities and other joint expenses – Where the wife is not required to refund the amounts used by her.

Family Law Act 1975 (Cth) s 114

APPLICANT: Ms Norwood

RESPONDENT: Mr Luck

FILE NUMBER: SYC 1490 of 2017

DATE DELIVERED: 8 March 2018

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Rees J

HEARING DATES: 21 February 2018 and 7 March 2018

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Othen on 21 February 2018 and Mr Gould on 7 March 2018

SOLICITOR FOR THE APPLICANT: Quinn Legal Advisory

COUNSEL FOR THE RESPONDENT: Mr Lethbridge SC on 21 February 2018 and Mr Harper on 7 March 2018

SOLICITOR FOR THE RESPONDENT: Michelle Lowy & Associates

Orders

Pending further order

1. That pursuant to s 114 of the Family Law Act 1975 (Cth) the husband and the wife shall direct B Pty Limited (“the Company”) as trustee of the B Family Trust to make the following payments on the 25^th day of every month in the following manner and priority:

   (a)In payment of the properly incurred monthly overheads of the Company including but not limited to taxes, rent, utilities, mobile phones and staff costs.

   (b)In payment of the mortgages currently secured over the property at D Street, Suburb G (“the home”).

   (c)In payment of the council, rates, water rates, building and contents insurance, back to base alarm and gas relating to the home.

   (d)In payment of health insurance premiums for the family.

   (e)In payment of the costs of supervision pursuant to the current parenting orders.

   (f)In payment of $5,000 to each of the husband and the wife.

2. That any funds remaining in the accounts of the Company after the payments in Order 1 be retained in those accounts and not dispersed unless by agreement between the parties.

3. That within 28 days the husband file and serve an affidavit which sets out the manner in which all funds, which were transferred by him from the business account ending …33, to any other account were spent.

4. That the husband is restrained from diverting away, approaching or soliciting the existing business of the Company to any other person or entity.

5. That the husband is restrained from engaging in business transactions other than through the Company.

Note: The form of the order is subject to the entry of the order in the Court’s records.

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

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC 1490  of 2017

Ms Norwood

Applicant

And

Mr Luck

Respondent

REASONS FOR JUDGMENT

1. Ms Norwood (“the wife”) and Mr Luck (“the husband”), commenced cohabitation in 2003, married in 2005 and separated on 25 July 2016. 

2. They have three children, twins aged ten and a younger child aged five years. The children live with the wife in the former matrimonial home at Suburb G. The husband lives with his mother.

3. The husband and the wife are joint and equal shareholders and directors of B Pty Limited which is the trustee of the B Family Trust (“BFT”) .

4. BFT operates a business. It was the wife who originally operated the business and the husband joined her in the business. After the twins were born, the wife became their primary carer and the husband ran the business.

5. Commissions are paid to the business by the P group.

6. The application before the Court is primarily an application by way of injunction requiring the husband to distribute the income of the BFT equally between the wife and the husband. 

7. The wife, in summary, seeks orders that the husband apply the income of the BFT in the following manner:

   ·To pay business expenses incurred by the BFT  in the ordinary course;

   ·To pay the mortgage on the former matrimonial home;

   ·To pay $8,000 per month to the wife;

   ·To pay $8,000 per month to the husband.

8. She seeks further and ancillary orders which would:

   ·Require the BFT to pay an outstanding tax liability of the wife in the sum of $11,378;

   ·Restrain the payment of any other funds from the BFT;

   ·Require the husband to repay to the BFT all money paid to him by the BFT since 23 March 2017;

   ·Alternately, require the husband to file an affidavit setting out the disposition of those funds;

   ·Restrain the husband from diverting business from the BFT.

   ·Restrain the husband from using a company recently incorporated by him, T Pty Limited, for any business activities.

9. The husband opposes all applications.

10. On behalf of the husband, Senior Counsel submitted that there was no evidence that any action of the husband in relation to the BFT had disadvantaged the wife and, therefore, no injunction could be made.

11. I do not accept that submission.

12. It is necessary to set out, shortly, the background facts which are not in dispute.

13. Up until separation, the husband worked in the business and the funds generated by the business were paid into the BFT and used for the joint benefit of the husband, the wife and their family.

14. The husband continued for a time to operate the business and the BFT as he had in the past and the wife had access to the income of the BFT.

15. That situation subsequently changed. In March 2017, without notice to the husband, the wife drew down $200,000 from the mortgage account and placed those funds in her own account. At about the same time, the wife stopped paying the income which she earned from a coaching business into the BFT. 

16. The wife’s Initiating Application was filed on 9 March 2017. On 28 March 2017, orders were made for the husband’s time with the children to be supervised. Also on 28 March 2017, the husband withdrew the balance of $110,000 available on the mortgage and placed those funds in an account in his name.

17. The husband deposed:

    On the 25^th of each month, P Group pays into the business account the commissions and other income earned by [B Pty Ltd] for the previous month. Until around April 2017, my usual approach was to leave those payments in the business account and apply money as and when needed for business and other expenses for myself, [Ms Norwood] and the children. In April 2017, I commenced immediately transferring almost all the business income from the business account to my account each month on receipt. I did this when I discovered that [Ms Norwood] had, without notice to me in March 2017, removed $200,000 from one of our home loan accounts. It was necessary to take this action to ensure that there would be sufficient money to cover all the usual business and family expenses that I had been paying since separation, (sic) had never suggested I would not continue to pay and for the most part continue to pay to date.

18. On the husband’s own evidence, he instituted a process that diverted the whole of the income of the BFT to himself and away from the wife so that he had the sole control of the disposition of the funds.  

19. Senior Counsel for the husband submitted that the husband was entitled at law to take the actions he did. I do not accept that submission.

20. Firstly, it was submitted that the wife is a beneficiary of the BFT by virtue of her being a spouse of the husband. If he were to institute proceedings and divorce the wife, she would no longer be a beneficiary. That is undoubtedly so. However, at the present time there are no proceedings seeking a divorce order and the wife is still a beneficiary. In the event that the parties were divorced, no doubt the Court’s powers in relation to spousal maintenance would be invoked by the wife.

21. Secondly it was submitted that the husband, as appointor, controls the BFT and, I infer, can do whatever he likes with its funds. I accept that the husband could appoint a new trustee. However, such an action would undoubtedly be met with an application to set aside that disposition and, in any event, B Pty Ltd remains the trustee of the BFT and the husband is not entitled to make decisions about the operation of B Pty Ltd without the consent of the wife who is a co-director and equal shareholder.

22. The husband has taken steps in relation to the jointly owned property of the parties which have the effect of diminishing the control of the wife and her access to funds.

23. The income of B Pty Ltd, which the husband has diverted to himself, is considerable. In the 2016 financial year B Pty Ltd’s income was $379,996 and in 2017 it was expected to be $475,493. The wife, by reference to the bank statements, calculated that between 28 March 2017 and 25 January 2018, the husband has withdrawn $373,645 from the B Pty Ltd account ending in 33. That assertion did not appear to be disputed. In addition, the husband has drawn a further $147,800 from other joint accounts. I am conscious that the wife drew $200,000 from the mortgage account but I do not accept that this action on her part justified the husband’s subsequent conduct.

24. The husband filed an affidavit in which he set out the manner in which some of those funds have been dispersed. The husband’s table commences on 25 July 2016, at separation, so there can be no direct comparison with the wife’s calculations. It is, however, notable that since separation the husband has spent $166,781 on his own credit card debts. I accept that he uses his credit cards both for personal and business expenses but he made no effort to differentiate between those expenses. None of the funds were spent on paying the wife’s credit cards. The funds of B Pty Ltd have also been used to pay the costs of the supervisor who conducts the husband’s time with the children. The wife was not consulted about that expenditure.  

25. The husband is not entitled to use the funds generated by the business owned by the BFT at his whim and orders will be made which ensure that both parties have control of those funds.

26. The net profit of the BFT in the financial year ended 30 June 2017 is anticipated in draft accounts tendered to be $312,444 after the payment of the operating expenses of the business. It was not suggested that the business is not doing as well now than it did in 2017. Accordingly, the amount available for distribution between the parties, after paying the operating costs, is about $26,000 each month.

27. The parties were asked to agree what expenses of a personal nature should be paid before any further distribution. Although it was the husband’s case that no order should be made, there appeared to be general agreement that the mortgage payments, council and water rates, home and contents insurance, back to base alarm costs and private health insurance should be paid.

28. I do not have evidence of the amount of each of those payments.

29. The husband estimated that mortgage payments are $3,132 per month; health insurance $441; council rates $233; gas $901 and the costs of supervision $991. There is no agreement that the costs of supervision should be paid “off the top” but I propose to allow it for the purpose of this application. The wife requires the supervision. There is only one source of funds.

30. The husband’s estimate of monthly costs is $5,698 leaving a balance of some $20,000 available each month. Making some allowance for water rates and back to base alarm, I would reduce that amount to $19,500.

31. The wife in her Financial Statement sworn 30 November 2017, estimates that the expenses she actually pays (leaving aside those that are paid by B Pty Ltd) total $3,596.

32. The husband estimates that his personal expenses, calculated on the same basis, are $1,600. The husband’s estimates are clouded by the fact that he did not complete Part N of the Financial Statement.

33. In both cases, I have not included credit card payments as those payments can only be payments for expenses already taken into account or, in the husband’s case, for business expenses for which he will be reimbursed.

34. It is clear that the available income is not sufficient to meet the needs asserted by both parties.

35. On behalf of the husband, it was submitted that the Court would not, and should not, make any determination about the disposition of the funds of the BFT without firstly assigning a commercial salary to the husband and paying that sum to him before determining what was available to be distributed between the husband and the wife.

36. I do not accept that submission. From the inception of the trust until March 2017, that was not the way the parties conducted their affairs. The husband deposed:

    Historically, the Trust’s income which has been principally generated by me through the business, has been distributed through the Trust in the following way. First, [the wife] and I are each paid a salary by the business which in recent years has been $20,000.00 each per annum. Secondly, we have been allocated notional distributions from the Trust in almost equal shares in each year to account for the Trust’s income after expenses available for distribution. The distributions allocated by the Trust to [the wife] and me in recent financial years were as follows:

    (a)2015-2015     [The wife] $100,015  Me $102,600

    (b)2015-2016     [The wife] $77,575            Me $77,574

37. The position which was adopted by the parties before March 2017 did no more than recognise that the enterprise of their marriage had two core endeavours. One was the operation of the business and the other was the care and maintenance of their family and, particularly, their children. It is implicit in the husband’s submission that his contribution in running the business deserves quantified financial reward but that the wife’s contribution, as primary carer for the children and homemaker, does not.

38. This is not a maintenance application. I propose to make an order that each party receive a fixed sum every month from the income of the trust, after payment of fixed expenses, and that the balance be retained and not used for any purpose unless both parties agree. That will give them the opportunity to agree on payments of such expenses as tax, life insurance and superannuation if they are deemed appropriate by both of them.

39. The amount to be distributed to each party will be $5,000 and the balance of the income of the trust will be retained unless agreed. I am conscious that the wife will have, in addition, income generated by her coaching business of about $400 per week. However, although historically this income was paid into the BFT, the coaching business is not owned and operated by the BFT. I am also conscious of the fact that the wife has the financial obligations of the children’s day to day care.

40. It is appropriate that the husband file an affidavit in which he sets out how the funds which he diverted from the BFT were spent and he will be directed to do so.

41. It is also appropriate that the husband be restrained from diverting clients and income away from the business of the BFT, or from engaging in business transactions other than through B Pty Ltd, in circumstances where his actions to date have shown that he is willing to divert the income of the trust for his own benefit.

Husband’s application to reopen

1. Two days after the hearing of the wife’s Application in a Case, the wife, without notice to the husband, withdrew $28,000 from the business account and deposited those funds in her own account.

2. The husband then sought leave to re-open, seeking, inter alia, orders that the wife refund the sum of $28,000 to the business account and that he have the sole right to undertake the day to day management of the business and the affairs of BFT.

3. The application was not opposed.

4. The wife’s actions were directly relevant to the issue being determined and it was appropriate that the husband have leave to re-open.

5. The wife, in response, sought an order that the husband reimburse her for specified expenses which she had incurred since January 2017 in the sum of $43,486.

6. In an affidavit sworn 7 March 2018, the wife deposed that she had used the sum of $28,000 withdrawn from the business to pay her outstanding tax liability of $11,492.48, rates of $692.30 and home and contents insurance of $2,661.77 and that she had repaid the balance of $16,507.52 into the business account. There is no basis upon which the wife should be required to refund the amounts used by her.

7. I do not propose to make the balance of the orders sought by the husband which I consider to be disproportionate to the actions that brought the matter before the Court. The orders I will put in place will have the effect that both of the parties must agree about the disposition of the funds generated by the business and the BFT.

8. I do not propose to make the orders sought by the wife for the reimbursement of money expended. There is no fund from which such a payment can be made.

9. In the course of submissions, I asked Counsel how much the husband and the wife would be charged in legal fees in relation to the re-opening and the response. They have spent, between them, $18,000. I hope that they might both reflect on whether those funds could have been more usefully applied had they bother exercised a modicum of common sense and better judgement.

I certify that the preceding fifty (50) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Rees delivered on 8 March 2018.

Associate:     

Date:  8 March 2018