O’Brien and O’Brien
[2013] FamCA 944
•4 December 2013
FAMILY COURT OF AUSTRALIA
| O’BRIEN & O’BRIEN | [2013] FamCA 944 |
| FAMILY LAW – PROPERTY – Significant contributions by the wife – Whether there should be two separate asset pools in light of wife’s significant contribution to pool of business assets – Whether there should be an adjustment in respect of disparity in parties’ earning capacity – Whether there should be an adjustment in respect of post separation contributions – Discrete issues as to whether certain assets and liabilities should be included in the asset pool |
| Family Law Act 1975 (Cth) ss 75, 79 |
| Bevan & Bevan [2013] FamCAFC 116 Harris & Harris (1991) FLC 92-254 Kessey & Kessey (1994) FLC 92-495 |
| Stanford v Stanford (2012) 247 CLR 108 |
| APPLICANT: | Mr O’Brien |
| RESPONDENT: | Ms O’Brien |
| FILE NUMBER: | PAC | 3667 | of | 2012 |
| DATE DELIVERED: | 4 December 2013 |
| PLACE DELIVERED: | Parramatta |
| PLACE HEARD: | Parramatta |
| JUDGMENT OF: | Foster J |
| HEARING DATE: | 12, 13 and 14 November 2013 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Lethbridge SC |
| SOLICITOR FOR THE APPLICANT: | Sarah Bevan Family Lawyers |
| COUNSEL FOR THE RESPONDENT: | Ms Druitt |
| SOLICITOR FOR THE RESPONDENT: | Anderson Boemi Lawyers |
Orders
That within two (2) months from the date of these Orders the wife do all necessary things and sign all necessary documents so as to transfer her interest in the property at B Street, Suburb C (Folio Identifier …) to the husband and concurrently with such transfer the wife do all things necessary and pay all necessary monies so as to procure a discharge of the mortgage encumbrance presently secured against that property.
That within two (2) months from the date of these Orders the wife do all necessary things and sign all necessary documents so as to transfer any interest she has in the motor vehicle 1 (registration …) and the Boat and trailer presently in the husband’s possession to the husband.
That within fourteen (14) days from the date of these Orders the wife do all things necessary and sign all necessary documents so as to transfer to the husband her right, title and interest in the husband’s business known as “D Pty Ltd” and that the husband indemnify and keep the wife indemnified in respect of any liability, howsoever arising, in relation to the trading affairs of the said business, including any liability or prospective liability to the Australian Taxation Office.
That the wife pay to the husband the sum of $74,464 by instalments as follows:
(a) $20,000 within one (1) month from the date of these Orders;
(b) $20,000 within three (3) months from the date of these Orders;
(c) $34,464 within six (6) months from the date of these Orders.
That within one (1) month from the date of these Orders the husband sign all necessary documents as provided to him by the wife so as to transfer or assign to the wife all his right, title and interest in the following entities and to remove himself as a director and/or secretary of the following entities as applicable:
(a) The O’Brien Family Trust;
(b) D Pty Ltd (ACN135662430);
(c) F Pty Ltd (ACN72102909384); and
(d) The G Partnership
and that the wife indemnify and keep the husband indemnified in respect of any liability, howsoever arising, in relation to the trading affairs of the said entities, including any liability or prospective liability to the Australian Taxation Office.
That otherwise the Court declares that the parties have the sole right, title and interest in any other property which is at the date of these Orders in their respective possession, entitlement, control or name and they shall be solely liable for and indemnify the other party against any liability arising in respect of such property.
That the parties have liberty to apply as to implementation or enforcement of these Orders.
That all outstanding applications and cross-applications are dismissed.
IT IS NOTED that publication of this judgment by this Court under the pseudonym O’Brien & O’Brien has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT PARRAMATTA |
FILE NUMBER: PAC 3667 of 2012
| Mr O’Brien |
Applicant
And
| Ms O’Brien |
Respondent
REASONS FOR JUDGMENT
The Proceedings
These are proceedings for property settlement orders as between the Applicant husband and the Respondent wife.
Orders sought
In his Amended Initiating Application filed on 16 October 2013 the husband sought orders as to property that in summary provided as follows:
a)That the wife pay to the husband the sum of $480,000;
b)That concurrently with the payment of the said sum the husband transfer to the wife his interest in the property at B Street, Suburb C and the wife do all things necessary to procure a discharge of the present mortgage encumbrance secured over the said property in favour of the Commonwealth Bank of Australia;
c)That the husband and wife as directors of E Pty Ltd cause the said company to transfer to the husband its interest in the lease in respect to the premises H Street, Suburb I and Commonwealth Bank BSB …, account number … and that thereafter the husband do all things necessary to resign as a director of the said company and transfer his shareholding in the said company to the wife.
In her Amended Response filed on 16 October 2013 the wife, in summary, sought the following orders:
a)That the wife do all things necessary to discharge the mortgage encumbrance presently secured over the property at B Street, Suburb C and that concurrently with the said discharge transfer her interest in that property to the husband;
b)That the husband be declared the sole owner of the motor vehicle 1 (registration …), the Boat and the trailer;
c)That the wife transfer to the husband her interest in the entity known as “D Pty Ltd” and that thereafter the husband indemnify the wife in respect of any liability or claim in relation to the said entity;
d)That the wife pay to the husband the sum of $60,000 by three equal instalments of $20,000 with the first instalment within six months from the date of orders, the second instalment payable six months thereafter and the third instalment payable six months thereafter; and
e)That the husband transfer to the wife his interest in the O’Brien Family Trust, E Group Pty Ltd, F Pty Ltd (“F”) and the G partnership, and that the husband do all things necessary to remove himself as a director and/or secretary of the said entities.
At trial the wife sought orders that in summary provided for:
a)Her to discharge the present mortgage encumbrances over the family home at Suburb C of about $316,687 and transfer of that property to the husband;
b)That in the event that his property entitlement was determined by the Court to require a further cash payment that she be permitted to make such payment by instalments;
c)That the husband retain his motor vehicle, boat, superannuation and his business “D Pty Ltd”; and
d)That the wife retain the O’Brien Family Trust, the trustee company E Pty Ltd, her interest in the J partnership, her interest in F and her superannuation.
The relationship
The wife is presently 38 years of age and is a manager. The husband presently 45 years of age and is a professional.
The actual date of cohabitation is in issue between the parties. The husband contends that the parties commenced cohabitation in about 1998 upon the return from overseas travel. The wife contends that cohabitation commenced in 2000. In terms of the issues for the Court’s determination, nothing turns on the actual date of commencement of cohabitation.
The evidence is that for a period prior to marriage the wife spent significant time with the husband, living in his father’s investment property at Suburb P, although she spent some nights at her parents’ home at Suburb T.
For the present purposes, the Court is satisfied that cohabitation between the parties commenced in or about late 1998.
The parties married in 2002 and separated on 2 September 2011. The parties’ divorce took effect on 16 November 2012.
There are two children of the parties’ marriage, presently aged nearly eight and six and a half. The children have been in a shared care arrangement with each of the parties substantially since separation.
At cohabitation
At cohabitation the wife was in employment and in the year 2000 taxation year the wife’s income from all sources was just over $57,000 and after deductions her taxable income was $24,389. At that time she had completed a Bachelor of Arts degree and a Master of Arts (Psychology) and in addition to her full-time employment was completing her psychology internship.
At cohabitation the husband conducted a business known as D Pty Ltd. He continued to conduct this business throughout cohabitation.
At cohabitation the wife had the following assets and liabilities:
a)A motor vehicle subject to an outstanding personal loan to the Commonwealth Bank of Australia;
b)Some items of jewellery;
c)Some personalty; and
d)A Commonwealth Bank account.
At cohabitation the husband had the following assets and liabilities:
a)Studio equipment for the purposes of his business including guitars, mixing consoles, speakers, recording equipment, microphones and computers;
b)400 Telstra shares;
c)Some personalty; and
d)An outstanding debt to his father of about $67,500 for the purchase of business equipment, other business expenses and the husband’s overseas travel.
Husband’s business
Throughout cohabitation the husband continued to operate his business D Pty Ltd. Initially the business operated from a studio in rented premises at Camperdown.
Prior to marriage the wife’s father assisted the husband in the fit out of that studio for the purposes of the husband’s business. After purchase of the family home at Suburb C the husband usually left the home at about 1.00 pm and would not return to the home until about 9.00 pm. On the occasions that the husband had clients in the studio, he would not return until the early hours of the morning.
In April 2006 the husband’s father wrote off the unpaid balance of a debt owed to him by the husband of $79,118. The monies advanced from 1993 included expenses for the husband’s business, including equipment costs and unpaid rent and some holiday expenses.
In 2009 the husband relocated his studio to the family home at Suburb C following the expiration of the lease of his rented studio premises.
The husband has subsequently obtained alternate premises and expended monies as a consequence of the relocation. The lease of his current premises is held in the name of E Pty Ltd.
Over the period of cohabitation and to date of trial the husband has traded up or traded down equipment in his business. The equipment remaining in the business is similar to the equipment that he had at the commencement of cohabitation, although only about a third of the equipment is original.
Subsequent to the parties’ separation the husband’s father has recommenced advancing monies by way of loan to the husband. Funds have been advanced on an interest-free basis and are repayable when the husband is able to do so. The husband is presently indebted to his father for the sum of just over $200,000.
Of those funds in excess of $69,622 have been spent on legal fees and valuations, $4335 for the husband’s accounting fees, $30,477 for the husband’s general expenses, $72,814 for the husband’s business rent, with the balance applied to business telephone expenses, business leasehold improvements, electricity expenses and miscellaneous equipment purchases for the business.
Somewhat optimistically the husband looks to his business for his future financial support, notwithstanding the historical circumstances of the business and what has been significant underpinning of the husband’s activities through his father’s loans.
The husband has no formal qualifications except his practical experience in the sound recording and music industry.
Wife’s employment history
In 1999 the wife became a registered psychologist and commenced employment as a psychologist/rehabilitation consultant. In late 2000 the wife obtained employment in a project management role for the L Bank. Thereafter, in September 2001 she commenced employment in a managerial role for M Pty Ltd until September 2003 when she returned to work with the L Bank at that time. She also obtained a contract employment with the New South Wales Premier’s office.
Prior to his death, the wife’s father had established F Pty Ltd at Suburb U. Following the death of her father in December 2003 the wife commenced to work at this centre.
In January 2004 the wife commenced employment at the N Pty Ltd which at that time was owned by her mother. The wife was employed as a centre director on a salary of $90,000 per annum.
She continued to work at both centres until 2009.
J Partnership (J)
In March 2009 the husband and wife established the company E Pty Ltd; they were equal shareholders in this company. The company is the trustee of the O’Brien Family Trust. The trust is a discretionary trust with the husband and wife as primary beneficiaries.
In May 2009 the business J was purchased in partnership with the O Trust. The principal of the O Trust was Ms O who was the then centre manager at F Pty Ltd.
In the period from 2006 to 2009 the wife made overpayments in relation to the mortgage secured over the family home at Suburb C in the sum of about $150,000. She had access to those funds as a consequence of a redraw facility attached to the mortgage.
In early 2009 the wife advanced to the husband about $50,000 from this redraw facility for the purposes of a business investment by the parties in the purchase and resale of an item of musical equipment. The ultimate sale proceeds repaid the loan from the redraw facility and provided to the parties a further $43,481 that was applied to the purchase of J.
J was purchased for the sum of $400,000 and the partners contributed equally. The partners also contributed additional funds towards working capital. At the time of purchase the wife’s mother advanced to her the sum of $20,000 by way of interest-free loan, which has subsequently been repaid some months later.
After the purchase of J, the husband for first few months attended at the premises to undertake some improvements, repairs and maintenance. Thereafter the husband would attend at the premises occasionally for the purposes of undertaking minor maintenance to the premises.
Subsequent to the purchase of J the wife ceased working at the N Pty Ltd and continued to work at J and F and undertook some outside consulting work.
The wife is the approved childcare provider for J and works at the centre about three days per week. She receives a wage each week and ultimately 50 per cent of the partnership profits are paid to the O’Brien Family Trust.
The J lease
At the time of purchase of J the commercial lease on the premises had about 12 months of a five-year lease period left to run. The lease transferred to the partnership on purchase contained two options for renewal of five years each and it was in the expectation of all concerned that the business would have secure tenure at the premises from which it traded for about 11 years after purchase.
The period within which notice of exercise of the option to renew for the first period of five years was from September 2009 to December 2009. Each option period was subject to a market rent review and in the event that any rent increase was excessive consideration would have been given to the option not being exercised.
It should be noted that the necessary approvals for child care centres attach to the underlying premises and not to the business conducted thereon.
Regrettably the J partnership members did not in a timely fashion exercise the option contained in the initial lease at the time of purchase of the business. During the course of evidence the husband through cross-examination of the wife and her witnesses sought to ascribe some form of blame to the wife or her partner in the partnership for the non-exercise of the lease option. The husband’s evidence is that he was present when the solicitor at the time of purchase explained the lease and thereafter he did not turn his mind to the question of the exercise of the option notwithstanding that he at all relevant times was a director of the trustee company that on behalf of the family trust held the partnership interest in J.
On the evidence, the Court is satisfied that the non-exercise of the option was a regrettable oversight by all concerned that had some impact on the value of the business not only for the parties to these proceedings but to the third party interests in the J partnership.
Thereafter, following protracted negotiations with the landlord through the partnership’s solicitors, the partnership was granted a lease for a term of three years expiring on 30 June 2015 with some limited prospect of holding over on a month-to-month basis thereafter. The current term represents a term equivalent to what would have been available if the partnership had exercised the option for the first additional five-year period.
F Pty Ltd (“F”)
In March 2003 the wife’s father established F at Suburb U. He died suddenly on 23 December 2003, and subsequent to his death, the wife and her sister commenced to run F. Until 2009 the wife also worked three days per week at her mother’s centre at N.
F traded from purpose-built premises at Suburb U owned by the wife’s father. The land and building and the business conducted thereon were inherited by the wife and her sister from their late father’s estate.
The real estate property at Suburb U was encumbered by a mortgage of about $900,000 and when the wife and her sister took over the business it was making only a nominal profit.
Subsequent to the death of the wife’s father the husband’s father provided some advice and assistance to the wife and her sister in relation to the ongoing viability of F.
The husband in the first few months after the death of the wife’s father attended at the premises to assist with some improvements, repairs and maintenance to the premises. Otherwise the husband worked from time to time at F to assist and was either paid by the Centre or received an “income split” from the wife’s salary.
The wife and her sister run the centre through F in respect of which they are the two directors and equal shareholders. The wife presently manages the centre and works at the centre about three days per week drawing a wage and being paid director’s fees.
In the financial year ended 30 June 2012 F paid a management fee to the wife and her sister of $190,000. That payment reduced the net profit of F accordingly but increased the revenue to the partnership conducted by the wife and her sister.
In the financial year ended 30 June 2013 no management fee was paid by F to the wife’s partnership with a partial consequence being that retained profits in F increased from $253,613 in 2012 to $406,508 as at 30 June 2013. The wife acknowledged that subject to business exigencies retained profits in F were available for distribution to herself and her sister by way of franked dividend depending on their respective personal needs.
The home at Suburb C
In mid-2004 the parties left the husband’s father’s home at Suburb P and commenced to occupy a rental property at Suburb Q.
In January 2005 the parties purchased the matrimonial home at B Street, Suburb C. The property was purchased for the sum of $685,000 and the purchase price was financed substantially by a mortgage advance from the Commonwealth Bank in the sum of $548,000. The balance of the funds was provided by way of a gift in the sum of $100,000 from the husband’s father, a contribution from the wife’s mother in the sum of $26,000 and the balance from savings substantially generated from the wife’s income.
Subsequent to the purchase of the property the wife’s mother advanced by way of interest-free loan monies to the parties to assist with mortgage payments and to be applied toward the cost of renovations. Those monies have been repaid to her mother by the wife without contribution by the husband.
During cohabitation the wife from her income also provided significant funds for renovations and improvements to the Suburb C property without financial contribution from the husband. The overall cost of renovations over a period of years was about $120,000. Both parties undertook some physical work in relation to the renovations.
Subsequent to the purchase the wife made all payments in relation to the mortgage and household and utility expenses from her income up to separation in September 2011 when the wife vacated the property. In addition, the wife met significant expenses, including child care, for the children without contribution from the husband.
In December 2010 the husband’s parents gave to the parties $10,000 as a Christmas gift. $5000 of this was paid into the husband’s business account and the balance was applied by the wife to the mortgage secured over the Suburb C property.
Thereafter until July 2013 the wife continued to make mortgage payments in the sum of $1050 per week whilst the husband remained in occupation of the home. In July 2013 the wife ceased making mortgage payments on the home until October 2013 at which time they commenced at the lesser rate of $525 per week. The wife has paid subsequent to separation approximately $110,000 in mortgage payments on the mortgage with no contribution thereto from the husband.
The parties’ finances during cohabitation
Prior to purchase of the Suburb C home the parties kept separate accounts. After purchase of the Suburb C home the parties opened a joint account with the Commonwealth Bank. The wife deposited funds into that account on a regular basis with those funds to be applied to the mortgage payments, property outgoings and utilities and general living expenses. Otherwise the parties maintained separate finances.
On occasions the parties were in dispute in relation to funds withdrawn from the joint account by the husband and applied for the purposes of his own business.
The home at Suburb C was purchased during the 2004/2005 financial year.
During the period from 1 July 2003 to 30 June 2013 the husband’s total taxable income from his business was $1938 excluding the 2005 financial year in respect of which no assessment is available.
During the same period the wife’s taxable income was $1,842,719.
During cohabitation the wife’s mother also assisted the parties financially with payment for general household expenses including groceries on a regular basis. The wife’s mother also provided funds to the parties for holidays and purchased items of furniture furnishings and clothing for the children of the marriage.
Also during cohabitation the wife’s sister advanced to the wife various sums of money interest-free that have since been repaid. Those funds were advanced when the wife was struggling to meet mortgage payments or on maternity leave.
Parenting and homemaking
The parties during cohabitation had disparate working hours. The wife was primarily engaged at the child care centres at which she was employed. The husband had a somewhat fluid arrangement in relation to his business, essentially attending to his business as and when demand required, often during the evenings and on occasions until the early hours of the morning.
Following the birth of the first child there was an informal agreement between the parties that the husband would be “a stay at home parent”. However by reason of the husband’s commitments to his business and the ready availability to the wife of appropriate childcare facilities this arrangement was very flexible, although the wife makes complaint as to the husband’s reliability from time to time.
During cross-examination each of the parties acknowledged that they put in place as best they could arrangements for the care of the children that were in the children’s best interests having regard to their particular obligations in relation to employment and otherwise.
Both children were in child care from a young age, with the wife at her place of employment or at her mother’s child care centre. These arrangements facilitated the wife returning to work about four weeks after the birth of each of the children.
The wife’s mother also assisted with the children on occasions in collecting them from child care or school or caring for the children as required by the parties.
On occasions the wife employed babysitters to assist with children’s care in the evening depending on the obligations of her and the husband. On occasions the father’s parents assisted with the children.
Following separation the parties have substantially implemented a shared care arrangement in relation to the children who are now both at school.
During the relationship, particularly after the birth of the first child, the parties attended to the homemaker tasks within the home having regard to their respective obligations for work. The wife from her income paid for a housekeeper on a weekly basis and a regular gardener who did the mailing and gardening.
Separation and the purchase of Suburb Q by the wife
Subsequent to separation the husband has remained in the matrimonial home at Suburb C. The wife has occupied rental properties until January 2013. Since separation and until the purchase by her of a property referred to below the wife estimates she has paid about $58,000 in mortgage payments in relation to the matrimonial home.
In January 2013 the wife purchased a residential property at R Street, Suburb Q for the sum of $1,305,000. The purchase moneys were provided by way of a first mortgage secured over the property in the sum of $1,040,000 and a second mortgage of $261,000. The second mortgage was also secured over one of the wife’s mother’s property as collateral security. These mortgages are interest only and interest payments since purchase have been about $6000 per month.
The wife’s mother advanced to the wife the sum of $28,480 to assist with the purchase in relation to the payment of stamp duty.
As a consequence of the wife’s financial commitment to the purchase of the Suburb Q property the wife ceased making payments to the Commonwealth Bank in relation to mortgage payments for the family home at Suburb C for the period from July 2013 to October 2013. In late October 2013 she resumed mortgage payments at the lesser rate of $525 per week.
For the financial years 2011, 2012 and 2013 the wife’s taxable income from all sources has averaged about $294,000 per annum. The wife’s representations as to her weekly income position as set out in her financial statement relied upon at trial was startlingly inaccurate.
The husband’s income from his “business” over the same period has been minimal, if not negative.
In September 2012 the husband made an application for a child support assessment as against the wife. That assessment as varied is presently $305 per week from 11 December 2013 to 10 March 2015. Following the completion of these proceedings it is anticipated that there will be some change to the child support assessment.
In the period from 11 September 2012 to 8 November 2013 the wife made child support payments totalling $11,487 to the husband.
On 11 April 2013 final parenting orders were made by consent. In summary, those Orders provide:
a)That the parties have equal shared parental responsibility for the children;
b)That the children will live with the mother each week from 9.00 am Wednesday to 6.00 pm Saturday, with such periods to continue during school holidays, and for a further six block periods during school holidays of up to 7 consecutive days as nominated by the mother;
c)The sharing of the Christmas festive period and Easter on an alternate yearly basis;
d)That the children live with the father each other week, with such periods to continue during school holidays, and also for a further six block periods during school holidays of up to 7 consecutive days as nominated by the father.
$40,000 in the safe
At about the time of separation the husband opened a safe at the family home at Suburb C. The husband counted the contents of the safe being cash in the sum of $40,000. The husband returned the cash to the safe and the following day when he returned to the safe the cash had been removed.
The husband offered no evidence as to the source of the cash funds.
The evidence of the wife and her sister is that the funds contained in the safe had been drawn from the F accounts to be held on account of salaries for staff in the event that there were any electronic banking difficulties. The funds were “journalled out” of the F accounts to the wife and her sister equally in 2007.
No source documents were provided to support this contention. The wife contends that one half of the sum be included in the asset pool for division as between herself and the husband. The Court is satisfied having regard to the evidence referred to above that such a course is appropriate.
The wife’s income tax debt
At the time of purchase by the wife of the Suburb Q property she had an outstanding taxation liability for the financial year ended June 2011 of about $13,000. Her income for that year comprised substantially PAYE salary from the two child care centres at which she worked, together with a distribution from her partnership interest in the property from which F trades. The wife during the financial year had paid PAYG instalments totalling $12,798. The wife paid the outstanding taxation liability in May 2012
On 27 November 2012 a notice of assessment for the wife for the financial year ended 30 June 2012 was issued. The wife’s outstanding taxation liability was assessed at $148,068. The wife’s taxable income of $387,819 substantially comprised PAYG salary is from the two child care centres, a distribution from the F property partnership of $175,222, a distribution from the O’Brien Family Trust arising from J of $87,733. During the financial year the wife had paid PAYG instalments of only $35,119. As a consequence the notice of assessment required a payment of $81,952 by 21 March 2013
Subsequent to the issue of the 2012 tax assessment and in January 2013 the wife committed herself to the purchase of the Suburb Q property. As set out above all of her available cash funds and other available borrowings were used to purchase the property.
On 13 September 2013 a notice of assessment for the wife for the financial year ended 30 June 2013 was issued. The wife’s taxable income was $279,123. Her taxable income for the year comprised substantially PAYG salary from the two child care centres, a distribution from the F property partnership of $106,186 and a distribution from the O’Brien Family Trust arising from J of $85,378.
The wife’s tax liability for the year was assessed at about $100,000.
During the financial year the wife paid PAYG instalments totalling $94,289. As at 27 May 2013 the wife had an outstanding PAYG tax instalment of $31,430.
As a consequence of the significant PAYG instalments the wife received a tax refund of $25,627.11. This sum was applied by the ATO to the wife’s outstanding taxation liability arising from the 2012 assessment.
As a consequence of the credit of the wife’s taxation liability as at 10 September 2013 was $59,990 with that sum increasing to $60,844 as at 8 November 2013 with the imposition of general interest charges.
Otherwise the wife has an accumulating liability for PAYG instalments in relation to her prospective tax liability. On the 28 February 2013 a further sum of PAYG tax was assessed at $54,075 taking the wife’s total liability for PAYG instalments as at that date to $85,505.
This outstanding sum has continued to accrue general interest charges and has been the subject of some repayments by the wife totalling $15,000 as at 4 November 2013. As at 8 November 2013 her PAYG tax liability was $74,924.
The wife’s commitment in January 2013 to the purchase of the Suburb Q property has significantly hindered her capacity to meet taxation liabilities as they have fallen due and payable thereafter. She has had the benefit of her income post separation and notwithstanding payments made in relation to the mortgage on the matrimonial home and otherwise, it is not appropriate for the husband to bear any portion of her accumulated taxation liability.
Discussion
The approach to the determination of an application under s 79 of the Family Law Act 1975 (Cth) (“the Act”) is set out in Stanford & Stanford (2012) 247 CLR 108 and that decision was the subject of detailed consideration by the Full Court in Bevan & Bevan [2013] FamCAFC 116.
The Court should firstly identify the present assets, financial resources and liabilities of the parties.
The Court should then consider whether, having regard to the circumstances before it, it would be unjust and unfair not to make orders for alteration of the property interests of the parties in the light of the provisions of s 79(2) of the Act.
The Court can then proceed to consider the contributions by each of the parties as contemplated by s 79(4)(a) – (c) of the Act.
Having determined the contribution-based entitlements of the parties the Court can then consider the various factors set out in s 75(2) of the Act and whether any further adjustment to the parties’ contribution-based entitlements is appropriate.
Finally, the Court is required to consider the justice and equity of the proposed orders and whether in all the circumstances the orders to be made are appropriate.
Unjust or unfair not to make orders
The Court should determine whether it is just and equitable to make a property settlement order. If the Court concludes that it would be unjust or unfair, it must leave the present property rights intact.
In many cases this requirement is readily satisfied where the parties are no longer in a marital or de facto relationship and thus, for example, the common ownership or use of property by husband and wife will no longer be possible, or the express or implicit assumptions that underpinned existing property arrangements such as the accumulation of assets or financial resources by one for the benefit of both have been brought to an end with the relationship.
In particular, such a circumstance arises, as in this matter, where both parties seek adjustment orders but are unable to agree as to same.
In this matter over the period of the parties’ relationship, which was for some 13 years until physical separation, the parties accumulated property and financial resources. The strong inference being that such assets were accumulated for the common purpose of providing for their life into the future and in all probability ultimately for their adult children. As a consequence of the commencement of property settlement proceedings in which both parties seek disparate property adjustment orders, as identified earlier in these reasons, the Court is satisfied that it is just and equitable to make orders as to property adjustment under s 79 of the Act.
The property of the parties
The Court is firstly required, as a starting point, to identify the existing legal and equitable interests of the parties in the property, the liabilities and financial resources of the parties at the time of the hearing.
Admitted into evidence as Exhibit R was a working balance sheet prepared by the parties. There was substantial agreement during submissions in relation to many of the items to be included.
Items in respect to which there is a dispute as to value or whether they should be included in the pool for adjustment purposes are marked in the following list with an asterisk.
Assets:
Wife Interest in G partnership $1,350,409
Wife Interest in F $ 419,085
Wife Property at Suburb Q $1,305,000
Wife IAG shares $ 2,039
Wife Money in bank $ 2,341
Wife Accrued annual leave (J) $ 680*
Wife Accrued annual/long service leave F $ 10,821*
Wife Cash from safe $ 40,000*
Wife Insurance payout $ 15,300
Joint Family home at Suburb C $1,050,000
Joint E Pty Ltd $ 2
Joint O’Brien Family Trust (J) $ 145,353*
Husband Car, boat and trailer $ 30,500
Husband Telstra shares $ 3,952
Husband D Pty Ltd $ 105,572
Husband Money in bank $ 8,473
Liabilities:
Wife Suburb Q mortgage (CBA) $1,305,000
Wife ATO debt $ 136,030*
Wife American Express debt $ 2,200*
Wife CBA car loan $ 38,801
Wife Debt to F $ 1,738*
Wife Debt to N Pty Ltd $ 3,000*
Wife Debt to J $ 5,533*
Wife Debt to Ms O $ 4,153*
Wife Debt to F- loan account $ 75,770
Wife Debt to Ms S $ 28,480*
Joint Mortgage Suburb C property $ 316,687
Husband Loan from parents – business $ 119,481*
Husband Loan from parents – living expenses $ 12,979*
Husband Loan from parents – legal fees $ 69,622*
Superannuation:
Wife Australian Child Care Super $ 147,533
Wife AMP super $ 16,659
Husband Hesta super $ 3,939
Items in contention
Wife’s accumulated leave entitlements:
It was submitted by counsel for the husband, although not strongly, that these accrued entitlements should remain in the asset pool for adjustment purposes. Counsel for the wife submitted that such items should be omitted. In reality they simply represent an entitlement to paid leave accruing as a result of the wife’s application to her historical employment. In such circumstances these entitlements will be omitted from the pool for adjustment purposes but the Court will have regard to same in the context of section 75(2) considerations.
The value of the O’Brien Family Trust:
a)The single expert accountant valued the parties interest in the O’Brien Family Trust that comprises the partnership interest in J at $145,353. It is common ground that the partnership lease in respect to the child care premises from which the partnership presently trades will expire on 30 June 2015. The partnership operates from purpose-built premises at Suburb J. The location has a long established history of over 50 years operation and the centre licence (service provider approval) attaches specifically to the subject premises alone and not to the business operated therefrom.
b)The evaluation undertaken assumes that the lease to the partnership will not be renewed after 30 June 2015. As a consequence the single expert has valued J on a discounted cash flow methodology. The single expert was not required for cross-examination and neither party took issue with the valuation methodology applied or the internal adjustments made by the single expert during the evaluation process.
c)Counsel for the husband contended for a value of the partnership interest in J of $500,036. This value arises from the supplementary single expert report dated 7 November 2013. The single expert was asked to express an opinion as to the valuation of J on the assumption that the partnership’s lease on the subject premises continued to 30 June 2017. The single expert applied the discounted cash flow methodology as had been undertaken in the primary report. The assumptions applied by the single expert were identical to the assumptions for the purposes of the primary report the lease would continue to 30 June 2017. The resultant valuation valued the interest of the O’Brien Family Trust in the partnership business at $212,588.
d)However, the evidence before the Court is that the subject lease will not be renewed after 30 June 2015 and at best there may be a holding over for an indeterminate period of time. Thus, the valuation obtained is of hypothetical interest only.
e)The supplementary single expert report provides a further assumed a basis for valuation in that the subject partnership lease will continue to 30 June 2020. The underlying assumptions once again are the same as in the previous valuation exercises but that the partnership lease would continue to 30 June 2020 and not be renewed after that date. The single expert adopts a discounted cash flow methodology as had been previously adopted. Forecasted cash flows were adopted using the partnership financial returns for the year ended 30 June 2013. The resultant valuation valued the interest of the O’Brien Family Trust in the partnership business at $259,661.
f)Once again the evidence before the Court is that the subject lease will not be renewed after 30 June 2015 and, at best, there may be a holding over for an indeterminate period of time. Thus, this valuation too is of hypothetical interest only.
g)The supplementary single expert report provides a third basis for valuation of the J will partnership. The husband’s solicitors requested the single expert to value the partnership business on a future maintainable earnings basis with an underlying assumption that the partnership will have a lease on the premises until 30 June 2020. Otherwise underlying assumptions were generally as per the previous valuation.
h)The valuation on a future maintainable earnings basis resulted in a valuation for the J partnership of $1,078,781 resulting in the O’Brien Family Trust interest in the partnership being $472,982.
i)Again, this valuation has as its fundamental premise an ongoing commercial leasehold interest in the subject premises to 30 June 2020. The evidence before the Court does not support such a premise and the valuation thus obtained is only of hypothetical interest.
j)The Court is satisfied that the appropriate value to be ascribed to the O’Brien Family Trust and its underlying interest in the J partnership is $145,353. Nevertheless, the evidence before the Court is that there is some prospect of a holding over for an indeterminate period of time and in such circumstances will be considered by the Court in the context of s75(2) considerations.
Cash from the safe:
This issue has been considered above and for the reasons given the sum of $20,000 will be included in the asset pool for adjustment.
The wife’s ATO debt:
This issue has been considered above and for the reasons given this debt will be omitted from the pool for the purposes of adjustment. However the existence of the debt will be a section 75(2) consideration.
The husband’s debt to his father:
The circumstances relating to this debt have been considered in detail above. The matrimonial property of the parties did not benefit from the borrowing, indeed a significant portion was for the husband’s legal fees. It is inappropriate having regard to the history of the accumulation of the debt referred to above to include the debt in the matrimonial pool for adjustment to the effect that the wife would bear some responsibility for a portion thereof. However, it is appropriate to have regard to this debt in the context of s 75(2) considerations.
The wife’s AMEX credit card debt:
There is no evidence before the Court to support any contention that this debt should be in the pool for adjustment with the result that the husband would bear some portion of liability therefore. This debt will be omitted from the pool of assets for adjustment purposes.
The wife’s other debts:
a)F Pty Ltd: This is a debt not referred to in the single expert valuation, the inference being that the debt was incurred after the relevant period for valuation. As such in the absence of evidence to demonstrate that the husband should bear some portion of liability for the debt, this debt will be omitted from the balance sheet for adjustment purposes.
b)N Pty Ltd: It was conceded by counsel for the husband that this post separation debt should be omitted from the asset pool for adjustment.
c)J partnership: There is no evidence explaining why this debt should be included in the asset pool for the purposes of adjustment. Accordingly, the debt will be omitted.
d)Ms O: Counsel for the husband conceded that there was no evidence to support the inclusion of this debt in the asset pool for adjustment and accordingly it is omitted.
e)F Loan Account: Counsel for the husband conceded that this debt was incurred for the purposes of payment in part of the wife’s legal fees and accordingly should be omitted from the pool for adjustment.
f)Ms S: This debt was incurred as an advance to the wife to pay stamp duty on the purchase by her of the Suburb Q property. In light of additional concessions referred to below, this debt will be omitted from the pool for adjustment purposes.
Other concessions as to the pool
During the course of submissions it was common ground that in the circumstances of the wife’s acquisition of the Suburb Q property, as referred to above, that that property and the debts relating thereto should be omitted from the asset pool for adjustment.
Further, it was common ground during submissions that it would be appropriate to omit from the pool for adjustment the wife’s post separation motor vehicle and the debt related thereto.
The pool of assets for adjustment
Accordingly, the Court finds that the appropriate pool for the purposes of adjustment between the parties is as follows:
Assets:
Wife Interest in G partnership $1,350,409
Wife Interest in F Pty Ltd $ 419,085
Wife IAG shares $ 2,039
Wife Money in bank $ 2,341
Wife Cash from safe $ 20,000
Wife Insurance payout $ 15,300
Joint Family home at Suburb C $1,050,000
Joint E Pty Ltd $ 2
Joint O’Brien Family Trust (J) $ 145,353
Husband Car, boat and trailer $ 30,500
Husband Telstra shares $ 3,952
Husband D Pty Ltd $ 105,572
Husband Money in bank $ 8,473
Subtotal $3,153,026
Liabilities:
Joint Mortgage Suburb C property $ 316,687
Net total $2,836,339
Superannuation
Wife Australian Childcare Super $ 147,533
Wife AMP super $ 16,659
Husband Hesta super $ 3,939
$ 168,131
Thus, the overall pool for adjustment purposes is $3,004,470.
One asset pool or two?
In Kessey and Kessey (1994) FLC 92-495 at 81,151 the Full Court made clear that ultimately all that is necessary is to evaluate the weight that should be given to each party’s contributions relative to the contributions of the other party:
... In many – indeed probably in most – property settlement cases the Court has to evaluate and assess contributions to property in the absence of precise valuations of the contributions in question. Indeed, where the contributions to property are indirect or non-financial, precise valuation is impossible, and even where the contributions are direct or financial so that a valuation might be provided, other factors (not capable of precise mathematical statement) may well have eroded the initial value of such contributions. In a case such as the present, it is not necessary to arrive at precise mathematical valuations of the parties’ contributions - all that is necessary is to evaluate the weight that should be given to each party’s contributions relative to the contributions of the other party.
In assessing contributions the Full Court in Harris & Harris (1991) FLC 92-254 observed at 78,705:
The task of the court in proceedings under section 79 is not akin to an accounting exercise. To borrow a phrase used by McLelland J in Davey v Lee (1990) DFC 95-084; (1990) 13 Fam LR 688 at 689 in relation to section 20 of the De Facto Relationships Act 1984 (NSW) ''the Court is required to make a holistic value judgment in the exercise of a discretionary power of a very general kind”.
It was submitted by counsel for the husband that it would be appropriate for the Court to adopt a one pool approach.
Counsel for the wife submits that the Court should adopt a two pools approach by reason of the differing contribution-based entitlements that would attach to the real estate partnership at Suburb U and F. Unfortunately, there is no evidence adduced by the wife as to the value of the underlying real estate in the partnership or F at the time of inheritance. Counsel for the wife submits that the husband’s contributions to the inherited assets are such that they would warrant separate consideration. That proposition ignores the fact that the assets have been within the marriage since late 2003 and that over the ensuing years the wife has applied her personal exertion efforts particularly in the context of F whilst the husband has been making contributions in other ways. Income derived from F was available to pay rent to the property partnership such as has facilitated a reduction in the mortgage debt secured over the property of about $535,000 over 10 years.
The Court is required to evaluate and assess contributions not only in the context of their asserted monetary value but also in the context of indirect contributions of a non-financial nature to the accumulation and preservation of assets.
The evidence is that F commenced operation only shortly before the wife and her sister took over the operation of the centre and it is the wife’s evidence that at that time the income from the centre was minimal. There is no evidence as to the value of F when acquired by the wife and her sister. There is no evidence before the Court as to the underlying value of the real estate property at Suburb U upon which the centre traded. However, the evidence is that the real estate including improvements has changed little since they were inherited by the wife and her sister in 2003.
F has, after acquisition by the wife and her sister, traded now for some 10 years, eight years of which has been during the cohabitation of the parties. The income generated by F has over the year’s facilitated payment of rent to the wife and her sister that has reduced the mortgage debt secured over the real estate from about $900,000 at the time of acquisition to the present figure of $365,000.
The real estate property for the purposes of valuing the wife’s interest in the partnership with her sister has an underlying present value of $2.9 million and is subject to a secured mortgage of $365,000.
Clearly the injection into the matrimonial pool of the real estate at Suburb U and the business that has provided a significant cash flow in this marriage is deserving of significant recognition. There is no reason why that cannot be achieved in the context of a single pool for adjustment purposes and the Court proposes to adopt a one pool approach for these reasons.
Contributions
The Court is next required to make a contribution-based assessment of the parties’ respective entitlements.
The wife introduced, by inheritance, into the matrimonial pool her partnership interest in the real estate and improvements thereon at Suburb U and F. The present-day value of the wife’s interest in the real estate partnership is about $1,267,500. The property has remained substantially as it was when acquired by the wife subject to minor improvements to the child care premises. Accordingly, the Court will have some regard to the present-day value of the property in determining the wife’s contribution-based entitlement. The wife’s interest in the Suburb U realty represents over 40 per cent of the present asset pool for adjustment.
Otherwise, F has provided a significant financial benefit to the parties during the marriage in terms of income. However, the wife has devoted her time and attention to F and indeed to J during cohabitation, during which the husband was making his contribution as to parenting and within the home and to a minor extent to F and J.
The husband had equipment and business assets at cohabitation and those items as they now are will remain with him.
The husband’s father at the time of the purchase of Suburb C provided $100,000 towards the purchase price. The property was purchased for $685,000 with the funds provided by the husband’s father equating to about 15 per cent of the value of the property. The property has a present value of $1,050,000, although it has been improved by the parties since purchase.
The husband’s parents have also provided smaller capital sums at times during the parties’ marriage.
Regrettably, the husband’s endeavours in relation to self-employment have seen no real benefit to the marriage or to the accumulation of assets. Indeed, the husband’s endeavours in his “business” have only continued to the present day, it appears, by reason of the largess of his father.
The income imbalance during the relationship favouring the wife is deserving of significant recognition.
Otherwise, for the reasons set out above, the Court is satisfied that no adjustment as between the parties in relation to their respective contributions to parenting and homemaking obligations is justified and that such contributions should be regarded in all their different hues as equal.
Counsel for the husband submitted that overall contributions to the date of separation should be regarded as equal. Such a contention cannot be supported on the evidence. Otherwise, counsel for the husband contended that post separation contributions should be regarded as equal, although if the wife’s tax debt was ignored, as it has been, that such contributions would possibly favour the wife by a further adjustment of 2.5 per cent, resulting in an overall finding as to contributions favouring the wife as to 52.5 per cent and the husband 47.5 per cent.
Counsel for the wife contended for a two pools approach with F and the wife Suburb U partnership interest forming one pool and contributions favouring the wife as to 95 per cent. As to the second pool it was submitted by counsel for the wife that contributions should favour the wife by up to 10 per cent to date of separation, with a further small adjustment in favour of the wife for post separation contributions recognising her mortgage payments, the husband’s occupation of the home and the shared care of the children resulting in overall contributions favouring the wife 58 per cent to the husband 42 per cent.
The Court has rejected the two pools approach for the reasons set out above.
Counsel for the wife contended that in the event of a one pool approach being adopted then contributions should favour the wife 75 per cent to the husband’s 25 per cent. This would create a disparity between the parties of about $1,500,000.
The Court finds that overall contributions as at separation are assessed as favouring the wife as to 62.5 per cent and as to the husband 37.5 per cent. This creates a disparity between the parties of about $750,000.
Post separation, the husband has remained in the home for some 2 years with the wife making all the mortgage and other payments over that time of over $110,000. These contributions favour the wife by a further 2.5 per cent.
To the date of hearing contributions favour the wife 65 per cent to the husband 35 per cent.
Section 75(2) considerations
The Court has had regard to all of the factors set out in this section of the Act.
Counsel for the husband contends that a significant adjustment in favour of the husband is called for by reason of ongoing substantially shared care of the children, the significant income disparity between the husband and wife and modest child support presently being paid by the wife.
The child support assessment will be the subject of further consideration following transfer of the home to the husband as the wife will no longer be paying the mortgage payments.
The husband’s income capacity is unclear. His business is simply not a viable proposition being underpinned by his father’s ongoing generosity. The Court is satisfied that the husband could obtain some form of employment. He is unqualified but experienced in his current field of endeavour. Any other such work may well be of a manual or unskilled nature. Regardless, his capacity to earn is only modest when compared to the wife’s income capacity.
The husband will retain his indebtedness to his parents and the wife her taxation debt and her other liabilities.
Otherwise, the husband’s counsel submits that the Court should have regard under s75(2)(o) to:
a)The prospect of there being a holding over in relation to the J premises thus providing additional benefit to the wife by way of income over and above the valuation figure. This is a relevant contention.
b)The availability of further retained profits in F for dividend purposes. This is a relevant contention.
c)The diminution in value of the J partnership by reason of the failure to exercise the option for a further lease term in a timely way. This issue has been dealt with above and the submission is rejected.
Counsel for the wife contends for an adjustment in favour of the husband of 10 per cent in relation to pool one and 10 per cent in relation to pool two. In the event that the Court determined a one pool approach appropriate the wife contends for an overall s75(2) adjustment of 10 per cent in favour of the husband. Such an adjustment would create a disparity between the parties of about $300,000. This contention was made in the context of an asserted contribution finding of 75 per cent to 25 per cent favouring the wife.
Counsel for the husband contended for an adjustment of 10 per cent in favour of the husband but that was in the context of a contribution finding of 52 to 53 per cent in favour of the wife.
In considering the matters set out above, there will be an adjustment of 7.5 per cent (or about $225,000) in favour of the husband. Such an adjustment will create a disparity between the parties of about $450,000.
Overall
Overall the pool of assets is to be divided as to 57.5 per cent to the wife and 42.5 per cent to the husband.
The husband’s 42.5 per cent is equal to $1,276,900. The husband has assets in his possession as follows:
Car, boat and trailer $ 30,500
Telstra shares $ 3,952
D Pty Ltd $ 105,572
Money in bank $ 8,473
Hesta superannuation entitlements $ 3,939
$ 152,436
It is common ground that, subject to the Court’s findings, the husband should retain the home at Suburb C unencumbered. The wife should have a reasonable time to affect a refinance.
That home has a value of $1,050,000. The wife will be required to make an adjusting payment of $74,464. This can be paid be instalments over a reasonable period. The wife sought 18 months to make the payments. The wife has a financial resource available in terms of retained profits in F that could be available to fund such payments. The Court finds therefore that a shorter period is more equitable.
The Court considers that orders to give effect to this result are just and equitable and appropriate.
The Court will make orders accordingly.
I certify that the preceding one hundred and sixty (160) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Foster delivered on 4 December 2013.
Associate:
Date: 4 December 2013
Key Legal Topics
Areas of Law
-
Family Law
-
Equity & Trusts
Legal Concepts
-
Remedies
-
Costs
-
Jurisdiction
-
Res Judicata
0
2
1