PEABODY & PEABODY
[2013] FCCA 1980
•28 November 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| PEABODY & PEABODY | [2013] FCCA 1980 |
| Catchwords: FAMILY LAW – Property – 26 year marriage – credit issues – weight to be given to Husband’s initial contributions – partial property distribution added back – premature distribution of assets by Wife otherwise addressed under contributions – post-separation inheritance a financial resource – no adjustment for leave entitlements. |
| Legislation: Family Law Act 1975 (Cth), ss.75, 79 |
| AJO & GRO (2005) FLC 93-218 Bevan & Bevan [2013] FamCAFC 116 Beatson & Beatson [2013] FamCA 655 Bonnici & Bonnici (1991) FLC 92 - 272 Burke & Burke (1993) FLC 92 – 356 Cabbell & Cabbell [2009] FamCAFC 205 C & C [1998] FamCA 143 CKC & RRC [2006] FamCA 1290 C & C (2000) FLC 93 - 220 Essex & Essex [2009] FamCAFC 236 Field & Basson [2013] FamCAFC 32 Gollings & Scott (2007) FLC 93-319 Hickey & Hickey & Attorney General for the Commonwealth of Australia (2003) FLC 93-143 In the Marriage of Burke (1981) FLC 91-055 Jarrott & Jarrott (No 2) [2012] FamCAFC 72 JEL & DDF (2001) FLC 93,075 Kowaliw & Kowaliw (1981) FLC 91-092 Kowalski and Kowalski (1993) FLC 92-342 NHC & RCH [2004] FamCA 633 Norbis and Norbis (1986) 161 CLR 513 Pierce & Pierce (1999) FLC 92-844 Stanford & Stanford [2012] HCA 52 Sippel & Sippel [2004] FamCA 201 Townsend & Townsend (1995) FLC 92-569 Trauman & Trauman [2013] FamCA 765 Wall & Wall (2002) FLC 93-110 Watson & Ling [2013] FamCA 57 Williams & Williams [2007] FamCA 313 | ||
| Applicant: | MS PEABODY | |
| Respondent: | MR PEABODY |
| File Number: | SYC 3947 of 2011 |
| Judgment of: | Judge Sexton |
| Hearing dates: | 22, 23, 24 April 2013 |
| Date of Last Submission: | 24 April 2013 |
| Delivered at: | Sydney |
| Delivered on: | 28 November 2013 |
REPRESENTATION
| Counsel for the Applicant: | Mr Paul Sansom |
| Solicitors for the Applicant: | Newnhams Solicitors |
| Counsel for the Respondent: | Mr Julian Millar |
| Solicitors for the Respondent: | Diamond Conway |
THE COURT ORDERS THAT:
Orders made on 22 October 2012 be discharged.
By no later than 31 January 2014:
(a)The Husband do all acts and things and sign all documents necessary to discharge the loans to the (omitted) Bank secured by way of mortgage on the property known as Property V in the State of New South Wales, being Folio Identifier (omitted) (the Property V property) being account numbers (omitted), (omitted) and (omitted) and otherwise indemnify and keep the Wife indemnified in relation to any liability arising as a result of those loans.
(b)The Declaration of Trust dated 2 May 2008, entered into between the parties in respect of the Property V property, be set aside.
The Wife retain all her right, title and interest in the Property V property to the exclusion of the Husband.
The Husband retain all his right, title and interest in the property known as Property G, being Folio Identifier (omitted) (the Property G property) to the exclusion of the Wife.
Simultaneously with Order (2) the Husband pay to the Wife by way of property settlement the sum of $371,568.60.
The Wife retain all her right, title and interest in the following, to the exclusion of the Husband:
(a)Shareholdings in (omitted), (omitted), and (omitted);
(b)Lexus (model omitted) motor vehicle (registration number (omitted));
(c)Proceeds of bank accounts in her name;
(d)Interest in Ms Peabody (omitted) business;
(e)Member entitlement in the Property V Superannuation Fund.
The Husband retain all his right, title and interest in the following, to the exclusion of the Wife:
(a)Jaguar motor vehicle (registration number (omitted));
(b)(omitted) Motor Bike;
(c)The Leveraged Equities share portfolio;
(d)Shares in (omitted) Pty Ltd;
(e)Shares in (omitted) Pty Ltd;
(f)Interest in (omitted) business;
(g)His interest in his late Mother's Estate;
(h)His employment entitlements;
(i)Proceeds of bank accounts in his name;
(j)Member entitlements in the Mr Peabody Superannuation Fund;
(k)Member entitlements in the Peabody Superannuation Fund.
Within 14 days, the parties, as Trustees of the Peabody Superannuation Fund do all such acts and things and sign all documents necessary to transfer to the Wife all her member entitlements in the Peabody Superannuation Fund, being a base amount of $938,358 so determined as at 28 February 2013.
Within a further 7 days of the Trustees' compliance with Order (8), the Wife request the Superannuation Trustees to rollover the withdrawal benefit from the Wife's member spouse interest to a regulated superannuation fund, or an approved deposit fund, specified in the request, to be held for the benefit of the Wife and upon receiving such request the superannuation Trustee do all acts and sign all documents necessary to comply with the request.
Upon compliance with Order (9), the Wife do all acts and things and sign all documents so as to remove herself as Trustee of the Peabody Superannuation Fund provided that the Husband hereby indemnifies the Wife and keeps her indemnified from any liability she may have now or in the future arising from her being a Trustee of the Peabody Superannuation Fund.
It is noted that for the purpose of Notice to the Trustee pursuant to these Orders, both the Husband and the Wife are the Trustees of the Peabody Superannuation Fund and acknowledge having received the requisite notice.
Except as otherwise provided in these orders, the Husband and the Wife be solely entitled to the exclusion of the other to all other property and chattels of whatsoever nature and kind in the possession of each of the parties as at the date of these Orders.
Except as otherwise provided in these orders, the Husband and the Wife remain liable for any debts, howsoever arising, in their own name at the date of these Orders and in this respect shall indemnify, keep indemnified and hold harmless the other from any liability in relation thereto.
In the event the Husband or the Wife refuses or neglects to comply with any of the Orders herein, the Registrar of this Court at its Sydney Registry be appointed pursuant to section 106A of the Act to execute, in the name of the Husband or the Wife as the case may be, all deeds and instruments necessary to give effect to the orders herein, or any of them, and do all acts and things necessary to give validity and operation to the said deeds and instruments.
IT IS NOTED that publication of this judgment under the pseudonym Peabody & Peabody is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYC 3947 of 2011
| MS PEABODY |
Applicant
And
| MR PEABODY |
Respondent
REASONS FOR JUDGMENT
Introduction
These are property proceedings between the Applicant Wife and the Respondent Husband. Each party seeks orders for the alteration of their property interests. Both parties were represented by counsel at the hearing. Mr Sansom appeared for the Wife and Mr Millar for the Husband.
The parties separated in July 2008 after a marriage of almost 26 years. The Wife left the former matrimonial home in Property G and moved to a property in Property V, purchased by the parties in her name, subject to a Declaration of Trust in favour of the Husband, just prior to their separation. The Husband continues to live in the former matrimonial home, held in his sole name.
A significant issue in this case arises from the parties’ very different approaches to money and the accumulation of wealth. The Husband has concentrated on building the family's assets by working full time in his profession of (omitted), accumulating real estate interests and establishing a substantial share portfolio for each party and for the parties’ self managed superannuation fund, with consistent and skilful management. The Wife does not dispute that the Husband has been a capable and conscientious breadwinner and manager of the family's finances. However, she has not shared the Husband's interest in financial matters or his attitude to wealth accumulation. The Wife has chosen to spend freely, particularly since the parties separated. The Wife believes her use of assets after separation to meet expenditure for herself and the parties’ three adult children, has at all times been reasonable. The Husband believes the Wife has been extravagant and wasteful.
The parties have existing assets of substantial value. However the value would be greater had the Wife not sold significant numbers of her shares after separation, borrowed funds against her remaining shares, withdrawn funds from the Peabody Superannuation Fund, and spent the proceeds on herself and the adult children. The Husband contends that to achieve justice and equity between the parties, the funds obtained by the Wife in this way, should be added back to the property available for distribution between the parties.
Orders sought
The Wife's counsel, Mr Sansom, submits that apart from the Husband's post-separation inheritance, the Court should assess the parties' contributions as equal. Mr Sansom submits that if the Court treats the Husband's inheritance as a financial resource and not an asset, there should be a 5-10% adjustment to the Wife for s.75(2) factors, with the Wife to receive a 55-60% overall entitlement of the non-superannuation assets. If the Court treats the Husband’s inheritance as an asset, the Wife's s.75(2) adjustment should be reduced to 2.5% and the Wife's overall entitlement reduced to 52.5%. Mr Sansom says that by way of addbacks, the property pool should include only the Wife's paid legal fees. Mr Sansom submits that the Wife's entitlement to the aggregated superannuation entitlements of the parties, should be between 40% and 50%.
The Husband's counsel, Mr Millar, submits that the Husband should receive 65% by way of contributions, (including superannuation assets), with a 5% adjustment to the Wife for s.75(2) factors, an entitlement of 60% to the Husband overall. However, Mr Millar submits that these percentages should only apply if the property available for division includes the Wife’s paid legal fees as well as the assets reduced or disposed of by the Wife after separation.
Previous orders
On 23 February 2012, the Court made orders, by consent, for the Husband to pay the arrears on the loan secured by way of mortgage on the property at Property V, and to pay $1,500 a month towards the loan repayments, pending further Order of this Court.
On 22 October 2012, the Court made orders, by consent, restraining the Husband and the Wife from dealing with their respective interests in the Property V and Property G properties, and restraining the Husband from dealing in the share portfolios in his name or under his control, other than to reinvest funds so realised into shares or other securities purchased in the name of the Husband or (omitted) Pty Ltd with Leveraged Equities Pty Ltd.
On 13 November 2012, the Court ordered the Husband to pay the sum of $127,000 (in three instalments), by way of a partial property order, for the Wife’s legal fees.
At the conclusion of the hearing on 24 April 2013, with the consent of the Wife, the order of 22 October 2012 was varied to allow the Husband to realise shares to a value of $100,000 to meet legal costs and disbursements. In addition, an order was made by consent for the Husband to make available to the Wife a list of items in the possession of the Husband.
Background Facts
The parties started living together at the date of their marriage on (omitted) 1982 in a unit purchased by the Wife in May 1982. Both were employed as (omitted) at the same firm in Sydney. They have three children. X was born on (omitted) 1987; Y was born on (omitted) 1989 and Z was born on (omitted) 1990. The parties separated on 26 July 2008. Their divorce became final in March 2012.
At the date of hearing, Y and Z were living with the Wife. Y was working full time and saving to travel overseas. Z was in his second year of a full time university degree. Having studied in (country omitted) during her tertiary years, X was living and working in (country omitted) but was planning to return to live in Australia with her partner within months.
The Wife, aged 56 years at the date of hearing, has a (omitted qualifications). She was in full time employment until the birth of X, though had a short period out of the work force following the stillbirth of the parties’ first child, A, in (omitted) 1985. The Wife subsequently worked part-time and is now operating her own (omitted) business.
The Husband, aged 64 years at the date of hearing, is a (occupation omitted) and a (omitted). He is a fellow of the (omitted) of (omitted) and a member of the (omitted). The Husband has been employed full time since he completed his qualifications in 1974. The Husband is currently an employed (omitted), and also has his own (omitted) practice. Until 2011, the Husband managed the parties' share portfolios, held both personally and in the parties' self-managed superannuation fund known as the Peabody Superannuation Fund. He continues to manage the shares under his control. The Husband says he proposes to retire when he attains 65 years and has been running down his private practice over time. He says he may continue to engage in share trading at a reduced level after retirement.
In June 2011 the Wife commenced these proceedings in the Family Court of Australia. The proceedings were later transferred and first listed in this Court in February 2012.
The Wife's credit
I accept the Husband's counsel's submission that the Wife's evidence was not always reliable. In particular:
a)The Wife was wrong when she deposed to receiving a cheque in the sum of $78,000 from a personal injuries award in 1986, in her affidavit sworn in June 2012.[1] In her later affidavit sworn in March 2013, she gave the correct figure of $54,621. Mr Millar says the Wife should be criticised for giving a figure of $78,000 as though that figure was never in doubt, rather than acknowledging the possibility she may have an inaccurate recollection after such a long time. In cross examination, the Wife acknowledged the error, but says she had done her best to recollect accurately from a long time ago. I accept her evidence. I am not satisfied the error in this figure reflects adversely on the Wife's credit.
b)The Wife was mistaken in her June 2012 Affidavit, when she deposed to an external balcony being included in the renovation works carried out at the former matrimonial home in 1987 by the builder, Mr K. In her Affidavit sworn in March 2013, the Wife corrected the error by excluding the external balcony in the list of works carried out. Mr K was on affidavit and was cross examined at trial. He made exactly the same error as the Wife. In a letter dated June 2012 Mr K said he had constructed an external balcony as part of the renovations in 1987.[2] However, in his Affidavit sworn in February 2013, he omitted the balcony from the list of works carried out. The Wife denied discussing the contents of Mr K’s affidavit with him. In cross examination, Mr K also denied discussing the contents of his Affidavit with the Wife before it was sworn. However, he also said the job was so long ago, it was very difficult to recall the detail. I am not satisfied that the change in Mr K's position about the external balcony was simply an extraordinary coincidence and find his evidence on this issue unreliable. I find it likely that the Wife discussed the mistake she had made with Mr K before he finalised his Affidavit. There are two issues here. The first is the error in the list of works carried out in the 1987 renovations, which I find inconsequential. The second is the Wife's denial of any discussion with Mr K about it, which I find impacts adversely on the Wife's credit.
c)The Wife did not provide her taxation return for the 2012 financial year nor did she provide any verification of her income in the 2013 financial year, both without adequate explanation. The Wife was also unable to clearly explain how she calculated her weekly income in her Financial Statements sworn in 2012 and in March 2013. While I find this aspect of the Wife's evidence inadequate, I am not persuaded it affects the Wife's credit.
d)The Wife gave an inconsistent account of the source of funds used to purchase her unit at Property O(1), in May 1982. In her affidavit of March 2013, the Wife said she contributed savings of $25,000 to the purchase and that her father provided a guarantee on the loan funds used to purchase the unit.[3] In cross examination however, the Wife said she was earning approximately $18,000 per annum at the time of purchase of the unit, and that she might have had $1,000 in savings at that time. In his first affidavit, the Husband said he had contributed approximately $3,000 to the purchase, but in his second affidavit, he said it must have been $20,000. In cross examination, the Husband said that he changed his position when he became aware of the figure for the sums borrowed. When it was put to the Wife in cross examination, that the Husband's belief that he had contributed approximately $20,000 to the purchase, was likely to be accurate, the Wife introduced the possibility that her father might have given her the funds. In light of the Wife's specific evidence about her father's assistance with the purchase, I find this possibility unlikely. The Husband had a clear recollection that he had contributed to the purchase price, but did not have a clear recollection of the quantum of the funds he contributed. Mr Millar submits that the Court should find that the Husband contributed approximately $20,000, given there is no other plausible option before the Court. I agree with this submission and find accordingly. However, I am not persuaded this finding affects the Wife’s credit.
[1] Wife’s Affidavit sworn 8 June 2012 at paragraph 45
[2] Exhibit 11 (Letter from Mr K dated 1 June 2012)
[3] Wife’s Affidavit sworn 6 March 2013 at paragraph 36
While, as noted, I do not accept the whole of the Wife's evidence, I am satisfied that the Wife, for the most part, endeavoured to recall details accurately. I do not accept Mr Millar's submission that where the parties have different positions on any issue material to the outcome of the case, the Husband's evidence should necessarily be preferred over the Wife.
The Husband’s credit
There are a number of examples, which are particularised here, of the Husband's failure to fully and frankly disclose his financial position during the course of this litigation. The Husband claims to have overlooked certain items, but also acknowledges a deliberate attempt to withhold particular financial information from the Wife, and from the Court, which may have been successful had the matter proceeded to trial when originally listed for hearing in July 2012.
a)In an affidavit sworn in October 2012,[4] the Husband acknowledges that he failed to disclose an (omitted) Bank account with a value of approximately $50,800, in his August 2011 Financial Statement. He later says the omission was an innocent mistake.
b)Until cross examined at trial, the Husband did not disclose the existence of an internet account he currently holds with (omitted) Bank with a current balance of $17,877. It was not included in his latest Financial Statement. He claims to have forgotten he had it.[5] The existence of this account came to the attention of the Wife when she inspected documents produced on subpoena by the (omitted) Bank. I accept Mr Sansom's submission that it would not otherwise have come to light.
c)The Husband did not disclose his interest in two tax schemes known as (omitted) and (omitted), because he says they are worthless.[6] The Husband says he invested $10,000 into each scheme in or about 2002, and otherwise the only expense involved related to compulsory insurance of about $100-$200 a year. In cross examination, he conceded the insurances were at times closer to $2,000 a year, but sought to excuse his failure to disclose his interest in these schemes by telling the court both schemes are now in the hands of official managers.[7]
d)In February 2012, the Husband established the Peabody Family Trust with the principal beneficiaries being the parties' three children. He says it was a more tax efficient way to distribute income to them. The Trustee of the Trust is (omitted) Pty Ltd of which the Husband is the sole Director and shareholder. The Husband transferred shares from the Leveraged Equities Account by way of an off market transfer to (omitted) Pty Ltd. Without informing the Wife, the Husband arranged the transfer of shares from the parties' Leveraged Equities Portfolio into the Trust on three occasions: shares with a value of $101,760 on 16 February 2012, with a value of $100,750 on 17 February 2012 and with a value of $28,500 on 10 April 2012.[8] In his Financial Statement and his Affidavit both sworn on 11 June 2012, (in readiness for the hearing listed in July 2012), the Husband failed to disclose that he owned a company known as (omitted) Pty Ltd or that he had established a Family Trust. In cross examination, the Husband admitted that the omission was deliberate and designed to conceal the existence of the Family Trust. He said that he did not want his Wife or the Court to know about the Trust because he believed the Wife would object to it. The Husband denied failing to comply with his obligations to fully and frankly disclose his financial position as a result of his secrecy about the Trust, because he says he had disclosed the existence and value of the assets held in the Trust.[9]
[4] Husband’s Affidavit filed 19 October 2012 at paragraph R35
[5] Transcript of proceedings, 23 April 2013 at page 177
[6] Transcript of proceedings, 23 April 2013 at page 179
[7] Transcript of proceedings, 23 April 2013 at page 173
[8] Transcript of proceedings, 23 April 2013 at page 172
[9] Transcript of proceedings, 23 April 2013 at page 173
Mr Millar submits that the Husband did nothing to suggest he was dishonest, though acknowledged that the Husband should have disclosed the existence of the Family Trust and of the (omitted) Bank account. Counsel submits that when considering the issue of the Husband's credit, the Court should have regard to the Husband's conduct in cross examination, but in particular, to the Husband's complimentary remarks about the Wife's parenting in his Affidavit,[10] and to the concessions the Husband made in favour of the Wife when answering questions about the Wife's parenting contributions, something Mr Millar submits is not often seen in this Court. I find that counsel has conflated two entirely unrelated issues in an attempt to minimise the seriousness of the Husband's non-disclosure, and I do not accept counsel's submissions. The Husband is a meticulous financial record keeper and I find it improbable that he forgot he had bank accounts or had entered into tax schemes. I find it more likely that he decided they were not so significant as to warrant disclosure. The Husband's deliberate failure to disclose the existence of the Family Trust is serious, even though he disclosed the value of the shares transferred to the Family Trust. The Husband was aware of his legal obligations to the Wife and to this Court to frankly disclose his financial position and, given he was represented at all stages of these proceedings, should have been aware that such non-disclosure was a serious breach of those obligations with potentially significant consequences. Mr Sansom has already foreshadowed the likelihood of a costs application by the Wife as a result of the additional legal costs incurred by her in identifying the Husband's financial position accurately.
[10] Husband’s Affidavit sworn14 March 2013 at paragraph 136
While these credit findings against the Husband are serious and more significant than those against the Wife, I found the Husband a generally reliable witness. I do not therefore conclude that whenever there is a factual difference between the parties, the Wife’s evidence should be preferred over that of the Husband.
Legal principles
Section 79 of the Family Law Act 1975 (Cth) gives the Court power to alter the interests of the parties to a marriage in the property of the parties to that marriage. Prior to the High Court’s decision of Stanford & Stanford [2012] HCA 52 it was generally accepted that the approach to the determination of an application under s.79 involved a “4 step process:” identification of the pool of assets, an assessment of contributions, both direct and indirect, an assessment of s.75(2) factors, and consideration as to whether the actual orders are, in all the circumstances, just and equitable.[11] This trial was conducted substantially in accordance with this 4 step process and neither counsel submitted that the Court’s approach should change as a result of Stanford.
[11] Hickey & Hickey & Attorney General for the Commonwealth of Australia (2003) FLC 93 - 143
Since the hearing, the Full Court has delivered its decision in Bevan & Bevan [2013] FamCAFC 116 in which it discussed the impact of the High Court’s decision in Stanford on this settled 4 step approach. The Full Court said that Stanford will serve as a reminder that the 4 step process “merely illuminates the path to the ultimate result”… “it is no more than a shorthand distillation of the words of a statute which has but one ultimate requirement, namely not to make an order unless it is just and equitable to do so.”[12]
[12] Bevan & Bevan [2013] FamCAFC 116 at paragraphs 71 & 72
The Full Court in Bevan emphasised that the pre-condition to making any order is a finding that it is just and equitable to do so in accordance with s.79(2) which provides:
The Court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.[13]
[13] Family Law Act 1975 (Cth), s.79(2)
The Full Court said that the three “fundamental propositions” laid down by the High Court “will provide useful guidance to trial judges in approaching the task under s79” and summarised them as:
a) Determination of a just and equitable outcome of an application for property settlement begins with the identification of existing property interests (as determined by common law and equity);
b) The discretion conferred by the statute must be exercised in accordance with legal principles and must not proceed on an assumption that the parties’ interests in the property are or should be different from those determined by common law and equity;
c) A determination that a party has a right to a division of property fixed by reference only to the matters in s 79(4) and without separate consideration of s 79(2), would erroneously conflate what are distinct statutory requirements.[14]
[14] Bevan at paragraph 73
The first step therefore requires identification of the property in which the parties have a legal or equitable interest.[15] The second requires consideration of whether it is just and equitable to make any order to alter the parties’ property interests. If the Court decides it is just and equitable to make an order, the Court must then determine what orders are just and equitable by applying s.79(4) of the Act. The Court may make such orders “as it considers appropriate” and shall not make the order unless it is “just and equitable” to make the order.[16]
[15] Bevan at paragraph 77
[16] Family Law Act 1975 (Cth), ss.79(1) & (2)
The High Court explained the meaning of “just and equitable” as follows:
The expression “just and equitable” is a qualitative description of a conclusion reached after examination of a range of potentially competing considerations. It does not admit of exhaustive definition. It is not possible to chart its metes and bounds.[17]
(Footnotes omitted)
[17] Stanford & Stanford [2012] HCA 52 at paragraph 36
In relation to the parties' superannuation interests, the Court has a discretion as to whether to treat superannuation interests as a separate pool of assets, or as part of one asset list. The majority of the Full Court in C & C [18] said there is no binding principle as to the exercise of the Court’s discretion in deciding whether a one list or two list approach should be adopted. While the Wife's counsel marginally favoured the two list approach, Mr Sansom submits either approach would be appropriate in this case. Mr Millar made no submissions on this issue. As I am satisfied the parties’ superannuation interests were accumulated during the marriage and after separation, as were other assets, I find no basis in this case for addressing superannuation entitlements as a separate pool.
[18] (2000) FLC 93-220
Existing property interests of the parties
The parties agree on the items of property and their values held by each of them at the date of hearing, with the exception of the Husband’s personal loan from the (omitted) Bank and the Husband’s post separation inheritance.
Husband's (omitted) Bank personal loan
Exhibit 9 discloses an account of the Husband held with the (omitted) Bank described as "(omitted) Legal fees loan". The debit balance on the account as at April 2013 is $100,000. The Husband says that this liability should be included in the Balance Sheet, along with the other liabilities of each party. The Wife's counsel asserts that a lesser figure of $77,000 should be substituted. Mr Sansom says that because only $77,000 of the loan sum was used to meet the partial property order of November 2012, and as the Husband has not explained how the balance of $23,000 of the loan was applied, the Wife should only be required to share in the liability of $77,000. I do not accept this submission. The Husband owes the (omitted) Bank $100,000 in the same way as each party owes money on their credit card, the Wife has a tax debt and a car loan, all of which are included in the agreed Balance Sheet. The Husband's liability to the (omitted) Bank will be included at its total value of $100,000.
Husband's post separation inheritance
The Wife's counsel submits that the Husband's interest in his late mother's estate is a vested interest and therefore an asset but did not refer to any authority for this proposition.
The Husband's counsel says:
it is an estate, it's not an expectancy, it's a question of administration. The beneficiaries have a right to secure the due administration of the estate if anybody is not doing what they should.[19]
[19] Transcript of proceedings, 24 April 2013 at page 55
Mr Millar submits the inheritance is a financial resource and should be addressed under s.75(2). Mr Millar gives three reasons in support of his contention: firstly, the Husband's mother died in April 2011, nearly three years after the parties' separation; secondly, the Wife made no contribution to the welfare of the Husband's mother during her lifetime; and thirdly, the Wife made no contribution to the building up of the estate itself. He relies on the authorities of Bonnici & Bonnici (1991) FLC 92 – 272, Burke & Burke (1993) FLC 92 – 356 and Wall & Wall (2002) FLC 93 – 110 in which the fact situations were similar. In Bonnici’s case,[20] the Husband received a substantial inheritance post separation, to which the Wife had made no contribution. The Full Court held that in those circumstances, where there were ample funds from which to make a just and equitable property order, the inheritance should not be brought into account.[21] In Burke’s case, the wife received an inheritance after separation which was property to which the husband had not contributed. The Court held that the inheritance should be excluded from the pool of property to which the equal contributions otherwise applied.[22] In Wall’s case the husband had received an inheritance between the date of the judgment of the Trial Judge and the hearing of the appeal.[23] In a re-exercise of the Trial Judge’s discretion, the Full Court held that the inheritance should not be included as an asset, but dealt with as a s.75(2) factor.[24] In the recent decision of Jarrott & Jarrott (No 2) [2012] FamCAFC 72 when an inheritance was received after the date of separation, and the Wife made no contribution to it, the Full Court took the same approach. The Full Court said:
In those circumstances, however viewed, and at whichever “step” it is considered, the significance of the inheritance ultimately turns on its impact as a financial resource of the husband pursuant to s 75(2) of the Act.[25]
[20] Bonnici & Bonnici (1991) FLC 92 – 272
[21] ibid
[22] Burke & Burke (1993) FLC 92 – 356
[23] Wall & Wall (2002) FLC 93 – 110
[24] ibid at paragraph 25
[25] Jarrott & Jarrott (No 2) (2012) FamCAFC 72 at paragraph 9
On the basis of the circumstances of this case and these authorities, the Husband’s inheritance is not included as an asset, but is taken into account later in these Reasons in the discussion of s.75(2) factors.
Existing property of the parties
The Court was provided with a Balance Sheet on the final day of hearing which was relied on during counsels' oral submissions. At the close of submissions, by consent, the Court then made an Order to enable the Husband to sell shares to a value of $100,000 to meet legal fees and disbursements. However, I have left the share value for the Husband as it was in the Balance Sheet relied on during submissions, rather than adding a new item for the Husband's paid legal fees at $100,000 and reducing the share value figure by the same amount. The Husband's legal fees paid from an asset are not therefore expressly included in the Balance Sheet because they are part of the Leveraged Equities portfolio in the Husband’s name.
I find the existing assets and liabilities of the parties as at the date of hearing as follows:
Assets and liabilities at the date of hearing
$
Property V (Wife) - subject to Declaration of Trust in favour of Husband
1,650,000
(omitted) shares (5,388) (Wife)
153,073
(omitted) shares (520) (Wife)
35,615
(omitted) shares (2,000) (Wife)
124,340
Lexus motor vehicle (Wife)
30,000
Furniture (Wife)
12,500
Jewellery (Wife)
13,500
(omitted) Business (Wife)
Nil
(omitted) Bank (Wife)
400
Funds held in Newnham’s Trust Account (Wife)
20,278
Share investment (omitted) Bank Account (Wife)
-170,500
Credit card debts (Wife)
-23,890
(omitted) Pty Ltd (car loan)(Wife)
-40,085
PAYG Tax debt (October/December 2012) (Wife)
-5,518
Peabody Superannuation Fund (Wife) as at 28 February 2013
938,358
Property V Superannuation Fund (Wife)
Nil
Total net assets held by Wife
2,738,071
Property G (Husband)
2,000,000
Funds held in (omitted) Bank Account (Husband)
10,000
(omitted) Bank Account proceeds (Husband)
1,469
(omitted) Bank Account (Husband)
17,877
Leveraged equities portfolio (as at 19 April 2013)(including $100,000 for paid legal fees)
2,258,912
(omitted) shares (18,000) (Husband)
51,300
Jaguar (Husband)
3,000
(omitted) Motor Bike (Husband)
2,100
(omitted) Pty Ltd – sole trader (Husband)
Nil
Shares in Trustee - (omitted) Pty Ltd (H) Peabody Family Trust – inclusive of accrued dividend payments
333,636
Household contents (Husband)
10,000
Loan secured by Property V (H) (guaranteed by W)
-458,000
Leveraged equity loan (Husband)
-1,264,989
(omitted) Credit card (Husband)
-7,444
(omitted) credit card (Husband)
-9,451
(omitted) Bank credit card (Husband)
-10
(omitted) Bank Credit card (Husband)
-7,520
(omitted) Bank loan (Husband)
-100,000
The Peabody Superannuation Fund (Husband) as at 28 February 2013
2,304,090
Peabody Super Fund (Husband) ( (omitted) super fund)
51,141
Total net assets held by Husband
5,196,111
TOTAL EXISTING NET ASSETS OF PARTIES
7,934,182
Is it just and equitable to make an order?
The Court was not asked to address the requirement created by s.79(2) of the Act as to whether any order should be made. The parties were married for a long time, their relationship has broken down and they both seek orders providing for an adjustment of property interests pursuant to s.79 of the Act. The Husband contends that the Wife wasted and/or prematurely distributed assets post separation, funds which he says should be added back to the balance sheet as notional assets attributable to the Wife. In Watson & Ling [2013] FamCA 57 the Court said that if it is satisfied that one of the parties has unilaterally acted to waste or prematurely distribute funds, it may be an important consideration in deciding whether any order should be made altering the existing interests of the parties.
During submissions, when invited to comment on the impact of Stanford in the circumstances of this case, the Wife's counsel, said "the decision of Stanford is not free of doubt as to the meaning of it." [26] However, Mr Sansom submits that whatever the interpretation of that case, it is not an issue between the parties that there should be a property adjustment order. Counsel submits that justice and equity requires the Court to make a property adjustment order including an order that the declaration of trust in favour of the Husband relating to the Wife's Property V property be set aside. An order must be made to enable the parties to finalise their financial relationship in accordance with s.81 of the Act.
[26] Transcript of proceedings, 24 April 2013 at page 66
The plurality of the High Court in Stanford said:
In many cases where an application is made for a property settlement order, the just and equitable requirement is readily satisfied by observing that, as the result of a choice made by one or both of the parties, the husband and wife are no longer living in a marital relationship. It will be just and equitable to make a property settlement order in such a case because there is not and will not thereafter be the common use of property by the husband and wife. No less importantly, the express and implicit assumptions that underpinned the existing property arrangements have been brought to an end by the voluntary severance of the mutuality of the marital relationship. That is, any express or implicit assumption that the parties may have made to the effect that existing arrangements of marital property interests were sufficient or appropriate during continuance of their marital relationship is brought to an end with the ending of the marital relationship. And the assumption that any adjustment to those interests could be effected consensually as needed or desired is also brought to an end. Hence it will be just and equitable that the Court make a property settlement order.[27]
[27] Stanford at paragraph 42
In Bevan the Full Court said:
In our experience, the circumstances described in the paragraph above encapsulate the vast majority of cases. Hence, the reminder in Stanford of the pivotal role of s 79(2) is unlikely to have any impact in most cases.[28]
[28] Bevan at paragraph 70
Justice Finn said in Bevan that the question as to whether it is just and equitable to alter the existing property interests:
…will be easily answered where both parties are seeking orders which alter their respective property interests.[29]
[29] Bevan at paragraph 165
In the circumstances of this case, I am satisfied that it is just and equitable for the Court to alter the parties’ existing property interests.
Addbacks
The Husband seeks to include in the Balance Sheet a number of notional assets (referred to as “addbacks”), specifically assets disposed of or reduced in value by the Wife after separation and the Wife's paid legal fees. The Wife's counsel agrees that the Wife's paid legal fees should be included in the Balance Sheet although there is no agreement between the parties on quantum. Specifically, the add backs sought by the Husband are:
a)$170,500, being the balance of the (omitted) Bank Loan, borrowed by the Wife against shares in her name.
b)$61,620, being the total of funds withdrawn by the Wife from the Peabody Superannuation Fund after separation.
c)$5,000, being an amount the Wife received from the net sale proceeds of Property O(1), in 2008.
d)$198,135, being the proceeds of sale of shares sold by the Wife after separation.
e)$106,722 being the portion of the amount paid by the Husband as a result of the Court's interim order for partial property settlement [the $127,000 ordered and paid, less an amount of $20,278 remaining in the Wife's solicitors' trust account, included as another item of the balance sheet];
Mr Millar calculates that the Wife has spent at least $435,255 from the sale and reduction of the parties' assets on living and lifestyle expenses, in addition to applying her income from her (omitted) business and her dividend income from shares to the same expenses. This figure does not include the Wife's expenses charged to the Husband's credit card after separation, or the payments the Husband has made towards the Property V loan. Mr Millar submits that the Husband has been significantly adversely affected by the Wife's unilateral decisions to prematurely dispose of or reduce the value of assets. Counsel submits that the Wife's conduct falls squarely within the principles in Townsend (1995) FLC 92-569, affirmed a number of times in later Full Court decisions.[30] Counsel submits that the Wife's expenditure has been so excessive that it could also be categorised as waste, in accordance with the principles in Kowaliw.[31] Counsel argues that there has been no reasonable restraint by the Wife on her spending on herself and/or the adult children since separation when considered in the context of the parties' circumstances. Mr Millar argues that if the Wife had been unable to meet her reasonable needs, reasonable in the circumstances of the case, and had been refused assistance by the Husband, she may have been eligible for spouse maintenance and/or adult child maintenance, subject to the capacity of the Husband to pay.[32] Mr Millar submits that given the Wife's disposition and reduction of assets, the Husband has been indirectly supporting the Wife in the absence of any determination that he had an obligation to do so,[33] and without any scrutiny. Mr Millar submits that it would be grossly unjust to the Husband, who was not consulted by the Wife about any of these financial decisions, to suffer the consequences of the substantial reduction in assets that has resulted from the Wife's conduct. The value of the assets disposed of and/or reduced should therefore be added back in full.
[30] Townsend & Townsend (1995) FLC 92-569; NHC & RCH [2004] FamCA 633; AJD & GRD [2005] FamCA 195; Van Der Linden & Kordell [2010] FamCAFC 15
[31] (1981) FLC 91-092
[32] Transcript of proceedings, 24 April 2013 at page 41
[33] Transcript of proceedings, 24 April 2013 at page 43
The Wife does not dispute the value of the reduction in assets which existed at separation, highlighted by Mr Millar. She agrees that since separation she has sold and reduced assets in her name for her own and the adult children's expenses and that she has also applied her business and share income to those expenses. The Wife says that when she left the former matrimonial home she was on an income of $40,000 a year, had no access to joint funds, had no access to her shares or her share dividend income, took no furniture with her, and had only $300 in the bank. She therefore needed financial support from the Husband to establish a home of an appropriate standard and to meet expenses for herself and the children. The Wife acknowledges that the Husband met expenses of over $37,000 that she incurred on his credit card after separation, met some of her other credit card debts, contributed to the loan repayments on the Property V property, met substantial expenses related to the children and assisted her financially in other ways. However, she says she needed more. The Wife's counsel does not agree that these funds the Wife obtained by way of reducing the value of the parties' assets, should be added back or that they should adversely impact in any way on the Wife's percentage entitlement by way of contributions or by way of s.75(2) factors. Counsel contends that the Wife’s expenditure was at all times reasonable in the context of the parties’ circumstances.
ANZ margin loan
After July 2011, the Wife borrowed $180,000 from the (omitted) Bank by way of a margin loan, secured against her share portfolio. She has drawn down the loan to a balance of $170,500. She used $12,428 of those funds for legal fees. Mr Millar submits the total liability of $170,500 should be included in the Balance Sheet on the basis that the Wife's paid legal fees are deducted from the amount if included in the Balance Sheet elsewhere. Mr Sansom submits that the $12,428 for paid legal fees could be added back, but that the balance of the debt does not fall within the categories of cases in which the Court might consider an add back, because at all times, the Wife’s expenditure has been appropriate and reasonable.
The Wife deposes to having drawn down the loan funds in five separate transactions and applied them as follows:[34]
a)On 27 February 2012, she withdrew $50,000 and applied the funds to pay tax, legal fees, rates and outgoings on Property V, car, medical, phone, food, chemist expenses, clothing for herself and the children, credit card debts for herself and Y, living expenses, travel to Melbourne for a wedding, and to pay for a (omitted) stereo ipod.
b)On 7 June 2012, the Wife withdrew a further $30,000 to meet a further taxation liability, Z’s medical bills, Court fees, cash payment to Z, living expenses, food, chemist, costs of attending an (omitted) conference, dental fees, car and toiletry expenses.
c)On 13 July 2012, the Wife withdrew $20,000 to pay another taxation liability, valuation expenses, a mortgage repayment, children's expenses, legal fees and food.
d)On 18 September 2012, the Wife withdrew another $5,000 and made a mortgage repayment, the Property V rates, a phone bill, food and pharmacy expenses.
e)On 19 November 2012, the Wife withdrew a further $60,000 to meet mortgage repayments, medical expenses, a taxation instalment, credit card bills, expenses for the children including gifts, mobile phone bills, travel, car and insurance expenses, living expenses and travel with the children.
[34] Wife’s Affidavit sworn 6 March 2013at paragraph 148
Mr Millar argues that the Husband will share responsibility for the full liability if it remains in the Balance Sheet without an offsetting add back of the same amount. Counsel submits that the Husband had no say as to whether or not to obtain the loan, and no say as to how the funds were spent. On the evidence of the Wife as to how the funds have been applied, the Husband's counsel says this:
..it just seems reckless in the financial circumstances in which she was at the time, without any seeming restraint and she was spending of course, borrowed funds - it's one thing to have the money and spend it, but this is borrowed money on which interest running, she says, at 7%".[35]
[35] Transcript of proceedings, 24 April 2013 at page 35
Mr Millar says that the Wife has used the funds for living expenses for herself and the children, yet in the 2011 financial year, the Wife also grossed $75,000 from her business. Mr Millar argues:
... this is about a back-door spouse maintenance order. There was no application pursued for spouse maintenance, so the court was never called upon to rule as to whether there should be some money changing hands from the husband to the wife...[36]
Mr Millar says that in addition, as the Wife used the funds, in part, to meet expenses for adult children, so the Husband has, in effect, been paying adult child maintenance, without any scrutiny as to whether such an order would have been appropriate. On the other hand, the Husband's expenditure on the children did not come from what would otherwise have been property of the parties for division between them. Counsel submits that whether categorised as a premature distribution of an asset, or as wastage, the liability should be added back. Counsel says that the circumstances of this case cannot be compared with cases in which a party spends from post-separation income, something to which the other party is not entitled. This expenditure of the Wife has a direct impact on the Husband because it is out of assets.[37]
[36] ibid at page 36
[37] Transcript of proceedings, 24 April 2013 at page 43
Drawings from the Peabody Superannuation Fund
The Husband and Wife are the sole trustees and members of the self managed superannuation fund known as the Peabody Superannuation Fund, established by the parties in 1991. The Husband has managed the Fund and contributed to the Fund on his own, and on the Wife’s account.
It is common ground that the Wife did not contribute to the Fund from her earnings as a (omitted) but that the Husband contributed dividends from her shares and proceeds of sale of her shares to the Fund on the Wife's behalf. The Wife's accountant notified the Husband on 15 July 2011 that the Wife had moved to 'transition to retirement'. The Wife then withdrew an amount of $61,620 between July 2011 and July 2012 by way of pension drawings and spent the funds.
The Wife deposes to applying $20,523 towards her legal fees but otherwise applying the majority of the drawings as follows:
a)On 27 July 2011, she withdrew $27,000 and paid the children's mobile phone bills, living expenses, travel costs to America for Z’s 21st birthday, children's clothing and gifts, linen, an air conditioner, kitchen appliances and storage fees for Property V, expenses for the children, personal expenses for herself.
b)On 11 October 2011, she withdrew an amount of $640 to pay Council rates, lawns, Z’s yoga and a cash payment to Z of $100.
c)On 14 October 2011, she withdrew $970 to meet a Telstra account, a (omitted) account, motor vehicle expenses and a cash payment to herself and to Z.
d)On 12 July 2012, she withdrew an amount of $26,000 from which she paid counsel's fees, Z’s pilates, food, living expenses and cash for the month.[38]
[38] Wife’s Affidavit sworn 6 March 2013 at paragraph 146
The Husband was at all times opposed to the Wife withdrawing funds from the Peabody Superannuation Fund, in which he had an interest. While in cross examination, the Husband did not suggest any of the categories of items on which she spent the funds were necessarily unreasonable in themselves, he did not support the Wife reducing the value of the Superannuation Fund to meet those expenses. Mr Sansom submits that the Wife had a legal right to her pension income from the Fund, as did the Husband, and suggests that it is hypocritical of the Husband to deny the Wife the use of her pension funds, when he has taken a pension from the Fund himself. Mr Millar submits that while the Husband drew a pension as he was legally required to do, he deposited the pension funds withdrawn back into the Fund, so did not reduce its capital value. The Wife on the other hand, reduced the value of the asset. Mr Millar submits that this was a clear example of the Wife unilaterally reducing the value of assets in which the Husband has a legitimate interest and the total of the drawings should be added back because it was a premature distribution of assets and/or because it was wastage.
Sale of Property O(1) in the sum of $5,000
The parties settled the sale of the unit at Property O(1) on 23 June 2008, approximately a month prior to the parties' separation. At settlement, the Wife directed a payment of $5,000 to her (omitted) Bank visa card account.[39] The Husband's counsel submits that how these funds were applied is not explained and the funds should therefore be included as a nominal asset.
[39] Wife’s Affidavit sworn 6 March 2013at annexure “A2”
Shares sold by Wife
Until 2011, the Husband managed each party's shareholdings, as well as the share portfolio in the Peabody Superannuation Fund. The Wife says she was unaware of the size of her shareholdings until after separation. In February 2011, the Wife transferred shareholdings in her name valued at $531,285 from the Leveraged Equities share portfolio in the Husband's name, to another share broking firm. The Wife did not give notice to the Husband that he would need to find other security for the margin loan secured in part by those shares. In April 2011, the Husband advised that he would no longer meet the mortgage payments on Property V, so the Wife says she had no option but to sell the shares. The Wife sold shares in her name with a total value of $198,138 in 10 separate transactions between 9 February 2011 and 28 November 2011. The Wife deposes to applying $40,739.77 to her legal fees.[40] In addition, she used the funds to meet taxation liabilities, mortgage repayments on Property V, accountants fees to set up the Property V Super Fund, utilities and other outgoings on Property V, credit card liabilities arising from Z’s medical expenses, Y and Z’s 21st birthday parties and overseas holidays, Z’s dog, Z’s university textbooks and subscriptions, children's mobile phone and internet bills, motor vehicle expenses, Z’s driving lessons, groceries and living expenses for herself and the children, the children's interstate trips for family weddings, clothing for herself and the children, her travel expenses for trip to (country omitted), medical expenses for X, Y and herself, notebook computer and office works stationery, an ipad, legal fees, Z’s weekly allowance, and her own personal expenditure. In addition, she says she went to (country omitted) in March 2011 for 12 days and had to pay the costs associated with the trip, including gifts for the children and herself.
[40] Wife’s Affidavit sworn 6 March 2013at paragraph 125
Mr Millar repeats his submission that this is another example of the Wife's excessive expenditure from the sale of assets accumulated through the marriage, which the Husband was entitled to share. Counsel submits that the whole of the sale proceeds should be added back because it is a "clear Townsend situation."[41]
[41] Transcript of proceedings, 24 April 2013 at page 43
Mr Sansom says that neither the principles in Townsend nor Kowaliw apply because the Wife's expenditure was reasonable in all the circumstances.
Paid legal fees
With the exception of the Husband's legal fees paid from the sale of shares after hearing (earlier referred to as included in the Balance Sheet in the Husband's share figure), the Wife accepts that the Husband has paid his legal fees from income earned since the date of separation and that his paid legal fees should not be included in the Balance Sheet.[42]
[42] Exhibit 6 (Cost Notice)
Mr Millar submits that the Wife's paid legal fees should be included, to the extent they were not paid from her post-separation income. Mr Sansom does not disagree in principle, but disagrees on the quantum of that figure. The Court made a partial property order in February 2013 in favour of the Wife in the sum of $127,000 to meet legal fees. By the time of hearing, the Wife had applied $106,722 of that sum towards her legal fees. [The figure provided in the Balance Sheet relied on by counsel was incorrectly calculated as $106,672]. The balance of $20,278 was held in her solicitors' trust account. Mr Millar says the partial property distribution of $127,000 should be included in the Balance Sheet. It is agreed that the Husband paid the Wife's partial property settlement from his (omitted) Bank loan account ($50,000 + $27,000) and from the Peabody Superannuation Fund ($50,000). The Wife’s counsel argues that the $77,000 should be included as a debt and $50,000 as an add back for the balance of the Wife's paid legal fees. However, counsel does not refer to the sum held in the Wife’s solicitors’ Trust Account or to legal fees paid from the sale or reduction in assets. I had some difficulty following counsel’s reasoning on this issue.
The Wife's Memorandum of Fees states that the Wife has paid an amount of $163,494 in legal fees.[43] The Memorandum states that the funds have come from the Wife's post separation income, the (omitted) Bank margin loan, partial property release, superannuation pension withdrawals and from the sale of shares. As noted, an amount of $106,722 has come from funds by way of partial property settlement. The Wife deposes to having paid $40,739 from the proceeds of the sale of shares, an amount of $20,523 from Superannuation Fund drawings and an amount of $12,428 from the (omitted) Bank margin loan. However, the sum of these figures ($180,412) well exceeds $163,494, the amount disclosed for paid legal fees in Exhibit 12. This inconsistency is not explained.
[43] Exhibit 12
Legal principles in relation to "addbacks"
The principles related to add backs have been comprehensively discussed in a number of Full Court decisions. The authorities confirm that it is a discretionary matter for the Trial Judge as to whether to include nominal assets in the Balance Sheet. However, the Full Court in AJO and GRO (2005) FLC 93-218 refers to three categories of cases where it is appropriate to notionally add back to the pool of assets.[44] They are:
[44] AJO & GRO (2005) FLC 93-218 at paragraph 29
(a) Where the parties have expended money on legal fees… [DJM and JLM (1998) FLC 92-816];
(b) Where there has been a premature distribution of matrimonial assets… [Townsend and Townsend (1995) FLC 92-569]; and
(c) In the circumstances outlined by Baker J in Kowaliw and Kowaliw (1981) FLC 91-092.
However, the Full Court set limits on when a Court would add back. In AJO and GRO, the Husband had accepted a redundancy package which was frozen by Court order, and had not been in paid employment since accepting the redundancy. The Husband “at least prima facie”[45] provided a full explanation and accounting as to how the money had been expended. The Full Court said:
Her Honour seems to be saying that the mere fact that a party has expended money realised from the disposition of assets that existed as at the date of separation, will result in that expenditure being added back “in the usual way” as a premature distribution of assets with nothing more. If that is what Her Honour is saying, in our view, she is being unduly simplistic. In our opinion, it was a necessary requirement for her Honour to examine and make some assessment of the reasonableness or otherwise of the expenditure….
…the appellant husband had to meet expenditure from somewhere…[46]
[45] ibid at paragraph 39(a)
[46] ibid at paragraph 39
In Kowaliw, the Court held that financial losses incurred by the parties or either of them in the course of the marriage, whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a) where one of the parties embarked upon a course of conduct designed to reduce or minimise the effective value of worth of matrimonial assets, or
(b) where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
In Townsend, the Court found that the Husband had prematurely distributed a proportion of the matrimonial assets by selling a taxi licence, “an asset in which the Wife had a legitimate interest”. The husband used the sale proceeds of the taxi licence largely for his own purposes. The Full Court said in that case:
…it would be unjust in the extreme to simply treat such conduct by the husband as a matter to which regard should be had under s 75(2)…the husband has had the benefit of the moneys…the correct way in which to deal with the husband’s receipt of the moneys was to bring them into the pool of assets on a notional basis and make a distribution accordingly.
The Full Court in NHC & RCH [47] cited with approval a passage from the Full Court in C & C[48] which stated:
Whilst not seeking to place a fetter upon the exercise of discretion of a trial judge in individual cases, it seems to us that the concept of adding monies reasonably disposed of back into the pool ought to be the exception rather than the rule. The parties are entitled to reasonably conduct their affairs post-separation in a manner that is consistent with properly getting on with their lives. (C & C [1998] FamCA 143, 8 October 1998, per Nicholson CJ, Ellis, Kay JJ.)[49]
[47] [2004] FamCA 633 at paragraph 24
[48] [1998] FamCA 143
[49] NHC & RCH [2004] FamCA 633 at paragraph 24
In Gollings & Scott,[50] the Full Court said:
…it would not normally be appropriate some years after separation to require each of the parties to account for any monies they had spent post-separation so as to determine whether or not that expenditure was reasonably necessary for their own self-support, and to the extent that it was not, to determine whether it would be proper to add it back into the pool of assets available for division between the parties.
[50] (2007) FLC 93-319 at paragraph 68
In Essex & Essex,[51] the Full Court said:
Questions of how a Trial Judge should deal with so called “add backs” and/or premature distribution of assets, regularly arise in cases under s.79 and are often the subject of grounds of appeal. Often the amounts are minor when compared to the overall property in issue and the time taken and costs involved to agitate the claims both at first instance and on appeal, lack proportionality. Trial Judges are correct to deal with such claims robustly in the broad exercise of their discretion under s.79.
[51] [2009] FamCAFC 236 at paragraph 30
In NHC & RCH [2004] FamCA 633 the Full Court held [56-60] that:
56. …while the treatment of funds used to pay legal fees remains ultimately a matter for the discretion of the Trial Judge, in determining how to exercise that discretion, regard should be had to the source of funds.
57. If funds used existed at separation, and are such that both parties can be seen as having an interest in them.. then such funds should be added back as a notional asset of the party, who has had the benefit of them.
58. If funds used to pay legal fees have been generated by a party post-separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance), they would generally not be added back as a notional asset; nor would any borrowing undertaken by a party post-separation to pay legal fees be taken into account as a liability in the calculation of the net property of the parties. Funds generated from assets or businesses to which the other party had made a significant contribution or has an actual legal entitlement may need to be looked at differently from other post-separation income or acquisitions.
59. Outstanding legal fees themselves are generally not taken into account as a liability.
60. If in the exercise of the discretion, it is determined that legal fees already paid should be taken into account as a notional asset, then normally any liability associated with the acquisition of the monies used to pay the legal fees should also be taken into account.
In M & M [1998] FamCA 42 the Full Court said that the law did not require parties to go into a state of “suspended economic animation” after separation and pending resolution of their financial arrangements. The Court said:
There seems to be no appropriate basis for notionally adding back moneys that existed at separation but which have been subsequently spent on meeting reasonably incurred necessary living expenses…
Parties are entitled to continue to provide for their own support. Whether any expenditure so incurred is reasonable or extravagant is a matter that can be determined by the Trial Judge.[52]
[52] M & M [1998] FamCA 42 at paragraph 2.11
In Kouper & Kouper(No 3) [2009] FamCA 1080, His Honour Justice Murphy sought to summarise the Full Court authorities on the question of add backs, by reference to 5 questions. One of those questions was:
...is it alleged that the dissipation of property was in respect of things other than what, in the particular circumstances of this particular marriage, can be classified as ‘reasonable living expenses’.[53]
In Kouper, while the Court accepted that there had been a dissipation of a significant amount of money, this did not mean that it was justified to add it back to the pool, dollar for dollar.
[53] Kouper & Kouper(No 3) [2009] FamCA 1080 at paragraph 108
On the basis of these authorities, it is clear that the Court must carefully consider the nature of the relevant expenditure before deciding whether to include the value of an asset as an addback, and/or whether the issue should be taken into account when assessing contributions or when considering s.75(2) factors. However, addbacks will be the exception, not the rule.
Add backs after Stanford
The question of whether notional assets can ever be part of the existing legal or equitable interests of the parties, in light of the decision in Stanford, was addressed by the Court in Watson & Ling [2013] FamCA 57. His Honour Justice Murphy said that in cases where there has been waste or the premature distribution of an asset:
…legal and equitable title to the money or property will have passed. It could not be said that the money or property is part of the “existing legal or equitable interests” of a party or the parties. The notion that such money or property should be treated as a “notional asset” or “notional property” appears to run contrary to the thrust of the decision in Stanford…[54]
[54] Watson & Ling at paragraph 30
His Honour said that where the Court has determined that it is just and equitable to make orders for property adjustment, and the Court finds that one party has engaged in the conduct described, such that, but for that conduct, the value of the parties’ asset pool would have been significantly greater, “justice and equity may require recognition of the unfairness inherent in those circumstances in the terms of the orders to be made.”[55] His Honour suggested that it can be recognised pursuant to s.75(2)(o) of the Act or within the assessment of contributions. His Honour said:
…it might be argued that the “non-dissipating party” can be seen to have made a disproportionally greater indirect contribution to the existing legal and equitable interests (for example to their preservation) if it is established that, but for the other party’s unilateral dissipation, those existing legal and equitable interest would have been greater or had a greater value.[56]
[55] ibid at paragraph 32
[56] ibid at paragraph 33
As His Honour says,[57] “the assessment of the circumstance is, ultimately, a matter of discretion”, though according to the authorities, it will be ‘the exception rather than the rule’[58] that a direct dollar adjustment equivalent to the amount of the alleged dissipation of the pool is made to the otherwise entitlement of a party.” I agree with His Honour’s remarks in this case.
[57] ibid at paragraph 34
[58] C & C [1998] FamCA 143 at 46
In relation to the adding back of paid legal fees, in Watson & Ling, his Honour says:[59]
It may be that aspects of the erstwhile treatment of legal fees pre-Stanford (see for example, NHC & RCH [2004] FamCA 633; (2004) FLC 93-204 will require further consideration in an appropriate case.
[59] Watson & Ling at paragraph 34
As already noted, since the trial, the Full Court has handed down its decision in Bevan. The Full Court does not refer specifically to paid legal fees when commenting on the issue of “notional property”[60] although paid legal fees are clearly notional assets. The majority of the Full Court in Bevan made these obiter remarks on the add back issue:[61]
We observe that “notional property” which is sometimes “added back” to a list of assets to account for the unilateral disposal of assets, is unlikely to constitute “property of the parties to the marriage or either of them”, and thus is not amenable to alteration under s79. It is important to deal with such disposals carefully, recognising the assets no longer exist, but that the disposal of them forms part of the history of the marriage – and potentially an important part. As the question does not arise here, we need say nothing more on this topic, save to note that s79(4) and in particular s75(2)(o) gives ample scope to ensure a just and equitable outcome when dealing with the unilateral disposal of property.
[60] Bevan at paragraph 79
[61] ibid
Her Honour Justice Finn separately commented[62] that Stanford:
might also call into some question the current practices in relation to the treatment of property which is no longer in existence but which one party has had the use of (the so called “addbacks”…It may well be that these matters should more strictly be considered in making findings under s 79(4)(e) (i.e. s.75(2)), or in an extreme case, when considering the question under s 79(2) as to whether it is just and equitable to make any order under s 79...
[62] Bevan at paragraph 160
Neither party's counsel in this case tells the Court that the legal principles in relation to "addbacks" have or may have changed since the High Court's decision in Stanford. Judgment was reserved before the Full Court’s decision in Bevan. I considered relisting the matter to receive further submissions after the Bevan decision. However, given that both parties were represented by experienced counsel at the hearing and neither sought to relist the matter, I decided not to invite further submissions.
Since Bevan, there are examples of the Family Court adding back paid legal fees, in the exercise of its discretion. For example, in Beatson & Beatson[63] the Court added back an amount for both parties for paid legal fees. Fowler J said in that case:
Considering the comments made in Bevan, it is not in the Court’s view appropriate that it should embark on an attempt to divide non-existing assets, except to the very limited extent proposed by NHC & RCH in relation to paid legal fees which, it is noted, both parties seek to have added back against the other.[64]
However, in Trauman & Trauman[65] the Trial Court did not add back paid legal fees. In that case, the Wife received partial property settlement payments totalling $216,000 which were applied to meet her legal costs. The payment of legal costs by the Wife from that source were noted in the Court's consideration of matters under s.75(2).
[63] Beatson & Beatson [2013] FamCA 655
[64] ibid at paragraph 89
[65] Trauman & Trauman [2013] FamCA 765
Counsel's submissions in relation to add backs
The Wife's counsel submits that during the marriage, the Husband was the primary breadwinner and had a secondary role as homemaker and parent. The Wife was the primary homemaker and parent and had a secondary role as breadwinner. Mr Sansom submits that the Court must take into account that the Husband controlled the patrimony, that when the Wife left the former matrimonial home, she took no furniture for her new home in Property V, had only a modest income and no access to joint funds. Mr Sansom submits that the Wife's expenditure thereafter should be considered in that context and it was therefore reasonable for the Wife to re-house herself and to maintain a lifestyle for herself and the children in a manner reflected by the parties' overall asset base and their long marriage. Mr Sansom submits that there has been no course of conduct designed purposely to waste assets, nor any reckless, negligent or wanton behaviour in accordance with the Kowaliw principles. And this is not a case, says Mr Sansom, that should be compared to the factual situation in Townsend. Here, the Wife's use of assets was limited when compared with the overall asset pool, while in Townsend, the Husband sold and spent the proceeds of the only significant asset the parties owned. Mr Sansom argues that the Court should also take into account the Husband's conduct in obstructing the Wife's access to her pension entitlement from the Peabody Superannuation Fund when the Husband had access to his pension entitlement without interference. Mr Sansom submits that it is a very narrow band of cases which fits within the principles relating to addbacks, and the Court should adopt a cautious view, beyond adding back the Wife's paid legal fees.
As already noted, Mr Millar submits that in the circumstances of this case, when the Wife has unilaterally disposed of, and reduced capital sums held by the parties at and after separation, the value of those assets should be added back under the principles in Kowaliw or the principles in Townsend or a combination of both. Mr Millar submits that the question of reasonableness only applies when the question of “waste” is in issue, not when the question of “premature distributions” is in issue, but in any event, counsel submits that the Wife’s expenditure, in a cumulative sense, and in these parties’ circumstances, was unreasonable. Mr Millar notes that only a small component of the Wife’s expenses relate to the costs of setting up her home. In addition, Mr Millar submits that the Wife's paid legal fees should be included as a notional asset to the extent they were paid from the release of partial property settlement funds, or from the disposal of assets, rather than from post separation income.
Conclusion on addbacks
The authorities make clear that the question of whether or not to include a notional asset in the Balance Sheet is a discretionary one. Many authorities, including those cited above, emphasise that “not every dissipation by a party can be seen to involve an affront to justice and equity”;[66] the circumstances must be assessed in each case. The Full Court has held however, that notional adjustments have been the exception and not the rule and the Full Court has recently expressed its preferred approach that such issues be addressed under s.75(2)(o) or when assessing contributions.
[66] Watson & Ling at paragraph 35
In relation to the $5,000 paid to the Wife's (omitted) credit card account upon the sale of Property O(1), I give it no special treatment because the Wife received those funds just prior to separation. At that time she says she was using her credit card to meet day to day expenses for the family and I am not satisfied that the Wife had the benefit of those funds while the Husband did not.
In relation to the sale of shares and the (omitted) Bank margin loan, and the drawings from the Peabody Superannuation Fund, on the basis of the authorities to which I have referred, I do not accept Mr Millar’s submission that the question of reasonableness only applies when “waste” not “premature distribution” is the issue. The question of reasonableness in the circumstances of the case will always be relevant. I accept Mr Sansom’s submission that the Wife left the marriage with very little and was earning only a modest income. I accept that the Wife took very little from the former matrimonial home and needed to rehouse herself. I accept that the parties were not communicating about how they should best organise their financial affairs pending final resolution of their financial arrangements, which may have made her financial position initially difficult. However, in circumstances in which the Wife was earning a good income and received substantial financial assistance from the Husband for a considerable period after separation, I do not accept the Wife's counsel's submissions that the Wife’s expenditure from assets was at all times reasonable and should not be taken into account in any way.
I am satisfied that the Wife prematurely distributed those assets, assets in which the Husband had a legitimate interest. I find that the Wife had the benefit of the funds and used them for her own purposes and those of the adult children, and while some of the expenses may have been reasonable, I find that the Wife spent money without any indication of exercising restraint. She appeared to give no consideration to the Husband’s attempts to diligently build family assets over this period. She was focussed solely on her own needs and wants and what she perceived to be the needs and wants of her children. I find her actions amounted to financial irresponsibility, and that justice and equity requires the consequences of her conduct to be taken into account in some way. I have given careful consideration as to whether to approach the issue by "adding back" the value of each asset (as urged by Mr Millar) or in my assessment of each party's contributions or under s.75(2)(o) (as suggested by the Court in Watson & Ling and by the Full Court in Bevan).
In Townsend, the Full Court found it necessary to make deductions for certain expenditures from the asset prematurely distributed,[67] which were regarded as appropriate, including but not limited to a payment of a debt and the purchase of a car which was brought to account as part of the asset pool. In the present case, I am not asked to examine each and every dollar spent by the Wife from the assets she prematurely distributed to herself, for the purpose of determining whether the expense was appropriate or otherwise, and the authorities make clear that a mathematical audit of the Wife’s expenditure is not required. I am satisfied that some of the Wife’s expenditure is likely to have been appropriate and reasonable, given her circumstances at the time of separation, her primary role as homemaker and parent during the marriage, and the overall financial position of the parties.
[67] Townsend & Townsend (1995) FLC 92-569 at page 81,655
As already noted, the Full Court has recently questioned whether notional assets should ever be amenable to adjustment under s.79 and did not differentiate between categories of add backs highlighted in AJO & GRO. In the present case, I am not persuaded that justice would be served by the value of each asset prematurely distributed by the Wife, being added back. I have decided to adopt one of the approaches suggested by the Full Court in Bevan. I have considered the Wife’s post separation expenditure in my assessment of each party's contributions.
I add here a note about the Wife's drawings from the Peabody Superannuation Fund. Although the Wife was legally entitled to pension payments from the Fund, the pension payments are underpinned by the asset. A drawing down of the pension reduces the cumulative value of the asset and therefore falls into the category of a premature distribution of an asset.
In relation to paid legal fees, I have included the partial property sum of $127,000 in the Balance Sheet as funds held in the Wife’s solicitors Trust Account and legal fees paid. These funds were paid to the Wife by way of an interim property distribution, and, as agreed by the Wife's counsel in that interim hearing, were paid on the basis that they would be included in the Wife's assets at final hearing. I have not included the balance of the Wife's paid legal fees in the Balance Sheet for two reasons. Firstly, on the Wife's evidence, it is not possible to quantify the precise amount she has paid because her affidavit evidence on legal fees paid is inconsistent with Exhibit 12, her Memorandum of Fees[68] which discloses paid legal fees of $163,494.[69] Secondly, I am satisfied the balance of the Wife's legal fees has been paid from the assets she has sold or reduced in value since separation, and I therefore take them into account when addressing the Wife’s post separation expenditure in my consideration of each party’s contributions.
[68] Exhibit 12 (which states the Wife has paid $163,494 in legal fees);
[69] The Wife deposes to having paid $106,722 from the partial property settlement, $20,523 from the Peabody Superannuation Fund (Wife’s Affidavit sworn 6 March 2013 at paragraph 146), $40,739 from the sale of shares (Wife’s Affidavit sworn 6 March 2013 at paragraph 125) and $12,428 from the (omitted) Bank Loan (Wife’s Affidavit sworn 6 March 2013 at paragraph 148) which totals $180,412.
Conclusion on property interests of the parties
I find the property available for division between the parties is as set out in the Table in paragraph 35 with the addition of $106,722, the balance of the partial property distribution. The value of the total net assets available for division is therefore $8,040,904 inclusive of superannuation interests.
Contributions
In accordance with s.79(4) the court must consider all the contributions, both financial and non-financial to the acquisition, conservation and improvement of the parties’ assets as well as to the welfare of the family during cohabitation and after separation. The court must consider the contributions in an overall sense.[70] The Full Court has held that it is not necessary for the Court to justify its decision in property cases by reference to precise mathematical calculations, but rather a broad approach is preferred.[71] The Court is nevertheless required to undertake an evaluation of each party’s respective contributions.[72] I agree with Mr Millar that Stanford makes clear that the Court has an obligation to examine what contributions were made by each party, even when there is a long marriage. The Court must examine what actually happened, not make assumptions about what happened. It is not sufficiently rigorous to assume that what one party did is equal to what the other party did and conclude there is no distinction to be made in relation to each party's contributions.
[70] Norman & Norman [2010] FamCAFC 66; Hickey & Hickey & Attorney General for the Commonwealth of Australia (2003) FLC 93-143; Kowalski and Kowalski (1993) FLC 92-342; G & G [2000] FamCA 1075
[71] In the Marriage of Burke (1981) FLC 91-055
[72] JEL & DDF (2001) FLC 93,075
Neither counsel asked me to deal with this matter on an asset by asset basis. Given the length of the marriage, I have adopted the global approach. In Norbis and Norbis,[73] the High Court held that either approach is legitimate but also said:
…there is much to be said for the view that in most cases the global approach is the more convenient.
[73] (1986) 161 CLR 513
Although the parties had been separated for almost 5 years by the time of hearing, there is no requirement on the Court to separately assess matters occurring after separation in arriving at an assessment of contributions.[74] Given the parties continued to mesh their financial affairs well after the date of separation, I have assessed each party's contributions overall. As already noted, I am also satisfied it is appropriate in this case to adopt an integrated approach to the superannuation and non-superannuation assets of the parties.
Section 79(4) contributions
[74] Sippel & Sippel [2004] FamCA 201
Although both parties were working as (omitted) when they met, the Husband was always the main breadwinner in the family and largely took responsibility for the family's finances during the marriage and for a period after separation. The Wife agrees that the Husband was the financial advisor in the marriage and says she trusted his judgment. As already noted, it is not disputed that the Husband was a careful and diligent financial manager who worked hard to accumulate assets for the parties and their children. He earned a significantly higher income than the Wife, established and managed both a substantial share portfolio for each party and a self managed superannuation fund for the parties. While it is apparent that the Husband was not always satisfied with the division of roles in the marriage, he does not dispute the role each party played. Counsel for the Wife asked: Whether it was by design or otherwise, that's the way it was, wasn't it? The Husband replied: Well, yes, I suppose it was.[75]
[75] Transcript of proceedings, 23 April 2013 at page 200
The Husband worked as a (omitted) and was a (position omitted) with (employer omitted) from 1988 and then with (omitted) when it took over (omitted) in 1991. Profits from the (position omitted) were distributed to the Husband and to the Wife to minimise tax. The Husband recollects about $20,000 was paid to the Wife each year[102] from his profit share though he could independently verify that the Wife received two payments from his profit share distribution in the 1991 financial year amounting to $28,160. Those funds were deposited to the Wife's bank account held in her name. In 1992, (employer omitted) terminated the Husband's (position omitted) and the Husband moved to his present employer, (omitted) Pty Ltd in (omitted) 1992 where his employment continues. It is common ground that the Husband always earned an income well in excess of that of the Wife and applied his income to the expenses of the parties and their three children, and to the acquisition, conservation and improvement of the parties' assets.
[102] Husband’s Affidavit sworn 14 March 2013 at paragraph 80
The Husband had a taxable income of approximately $276,441 in the 2012 financial year made up of his earnings as an (omitted) and share dividends.[103] The Husband also receives an additional 10% of his salary by way of superannuation from his employer.
[103] Exhibit 7 (Husband’s 2011-2012 Tax Return not lodged) Transcript of proceedings, 23 April 2013 at page 168
After the parties married, the Husband provided the Wife with supplementary credit cards to meet her own and the children's day to day needs including clothing and household purchases, and expenses such as air tickets. The Wife operated those cards for a few months after separation. The Husband paid the credit card accounts each month from his income. The Wife also had her own credit cards including (omitted) Card, (omitted) Credit and (omitted) Credit which she usually paid herself.
The Husband says that from approximately the year 2000, he believed the Wife's expenditure was excessive and beyond what they could afford. By then, the parties had three children at private schools, involving school fees (although Z won a scholarship in his secondary school year), and expenses for significant extracurricular activities and excursions. The Husband says it was his yardstick not to spend more than his take home pay and until 2000, the excess of expenditure over his income was not significant, balanced by dividends, rental income or his (omitted) income. He says from 2000 onwards, the Wife's monthly expenditure on her supplementary credit cards exceeded the Husband's take home pay. He says the Wife used to say when he questioned her about buying groceries at (omitted) or asked her to limit her expenditure:
I'm not interested in money. That's your responsibility.
The Husband says he often gave the Wife money but does not know how it was spent or how she spent her earnings and he did not question her about it.[104] For example, when she needed car in October 2000 he says he bought her a car for $10,000, and in 2006 he bought her another one for $20,000, without asking whether she could afford a car from her own income. The Husband says when the Wife retained sale proceeds of shares in her name or dividend income, he does not know how the funds were applied. The Husband found the Wife secretive about her finances and disinterested in what he was doing for the family financially. He says he never knew what she had in her bank account as she would not show him the bank statements. He says "whenever I have inquired of her finances she would not disclose anything to me."[105]The Wife gave him limited information with which to prepare her taxation return each year, excluding her bank account statements, cheque books and credit card statements. He says:[106]
Ms Peabody showed no interest in what I told her nor did she ask any questions. Whenever financing any of the loan facilities, I gave the loan documents to Ms Peabody. I do not know whether she read them or otherwise....
[104] Husband’s Affidavit sworn 14 March 2013 at paragraph 105
[105] Transcript of proceedings, 23 April 2013 at page 218
[106] Husband’s Affidavit sworn 14 March 2013 at paragraph 99
The Husband says he paid the whole of the Wife's tax each year, all outgoings and maintenance on the home, expenses for the children and their educational expenses including private school fees and all associated costs with attendance at a private school. The Husband paid for the family to travel overseas for 6 weeks in 2004, and for the parties to visit X overseas in 2005. In 2007 he paid for the parties to holiday in (omitted) for two weeks. In 2006, the Husband paid for Wife to undergo cosmetic surgery.
The Wife says she had to use credit cards to pay expenses as the Husband would not give her cash allowances. She felt this was a way he could keep track of her expenses. She said that generally the Husband did not discuss financial matters with her, unless they were major financial decisions, and that she had limited knowledge of their financial affairs. However, in cross examination, she acknowledged being aware of their financial position generally when she consulted Eleanor Murphy, Solicitor, in 2004.[107]
[107] Exhibit 3 (Statement – Eleanor Murphy & Company Solicitors dated 15 November 2004)
Wife's expenditure after separation
The Wife has spent an amount in excess of $430,000 since separation from the sale of shares, borrowings against shares and drawings from the Peabody Superannuation Fund. In addition, she has had an income in excess of $80,000 per annum from her (omitted) business and share dividends. The Wife says that she had tried to live within her means since separation, but says her living expenses for herself and the two children living with her, remained approximately the same as before separation. As already noted, the Wife deposes in detail as to how she has applied the majority of the funds disposed of and was cross examined at length on her expenditure.
The Wife deposes to earning $1,660 a week and to weekly expenses at $3,205 a week, in her Financial Statement sworn 10 October 2012, [108] a shortfall of $1,545 a week. In cross examination the Wife concedes using her (omitted) Bank margin loan to meet the shortfall at an interest rate of 7%.[109] She started by borrowing 20,000 or 50,000 and the debt increased to $170,500 over an approximately 2 year period. She says she also used her two (omitted) cards and a (omitted) card and occasionally a (omitted) credit card to meet the shortfall between income and expenses. The Wife says she was paying approximately 18% interest on those credit cards. As already noted, the Wife also sold public company shares held in her name to a value of $198,000 and drew down on her account in the superannuation fund. In answer to questions about the wisdom of these financial decisions, the Wife said "I had to live"..."So did the children."[110] The Wife says she rejected the idea of reducing her expenditure because "someone has to buy my son's clothes" and "feed him".[111] The Wife says she had to meet her son's medical costs of up to $770 a week, at times. In her March 2013 Financial Statement, the Wife deposes to a shortfall of $894 a week including expenses of $635 a week for the children.
[108] Exhibit 5
[109] Transcript of proceedings, 22 April 2013 at page 82
[110] Transcript of proceedings, 22 April 2013 at page 86
[111] Transcript of proceedings, 22 April 2013 at page 89
I have earlier set out the Wife's evidence as to the categories of her expenditure from the proceeds of the (omitted) Bank margin loan, the sale of shares and the withdrawals from her superannuation account. In C & C [1998] FamCA 143 the Full Court held that:
parties are entitled to reasonably conduct their affairs post-separation in a manner that is consistent with properly getting on with their lives. Providing modest support for their adult children and not taking inappropriate holidays for themselves seems to fit comfortably within that description.[112]
[112] C & C [1998] FamCA 143 at paragraph 46
The Wife was cross examined about the Husband's schedule of her expenditure on interstate and overseas travel between July 2008 and March 2012, taken from the Wife's credit cards for that period.[113] Though there were minor errors in the schedule, the Wife acknowledged spending approximately $130,000 on travel in the three and half years following separation,[114] including $9,050 on overseas holidays for Z and Y’s 21st birthdays. Between February and November 2011, the Wife spent over $8,000 on her own and the children's mobile phones and internet expenses, and over $11,000 on clothing for herself and the children. During this period, the youngest child has worked casually, and two of the three children have been working full time.
[113] Husband’s Affidavit sworn 14 March 2013 at Annexure “DBP-46”
[114] Transcript of proceedings, 22 April 2013 at page 78
The Husband's unchallenged evidence is that he paid expenses for the Wife and children after separation, including interest and capital loan repayments on Property V, $37,697 incurred by the Wife on his credit card for groceries, clothes, medical expenses, phone accounts, catering for X’s 21st birthday,[115] $5,000 in September 2008; $25,000 towards the Property V loan in September 2008; $10,000 to buy household furniture; $4,500 in 2010 for the Wife's furniture; $23,849 towards the Wife's tax liability in the 2010 financial year. Until July 2011, the Husband says the interest on the Property V loan was paid from dividends generated from shares which the Husband had purchased in the Wife's name. It was supplemented by the Husband's earnings and dividends from shares in his name. The Husband calculates that he paid $81,459 from resources in his own name in 2009, $71,331 in 2010 and $975 in 2011.[116] Since July 2011, the Husband has paid a further $23,000 towards interest payments on the Property V property. In October 2010, the Husband agreed to extend the loan on Property V by $48,000 at the request of the Wife to carry out repairs at Property V. The Wife says she was advised she could delay the repairs so used the funds for furniture and household items and household expenses. Since February 2012, the Husband has paid $1500 a month towards the Property V loan after a consent order was made to this effect. In addition, the Husband has paid Z’s private health insurance and expenses for the children in an amount of $170,666 for clothing, parties, education, holidays, medical and dental expenses, health funds, car insurance and registration, toll tags, pocket money and pilates classes. The Husband has met the debit entries on a (omitted) Bank overdraft account used by X while she has been living and working overseas.[117]
[115] Wife’s Affidavit sworn 6 March 2013 at paragraph 93
[116] Husband’s Affidavit sworn 14 March 2013 at paragraph 175
[117] Husband’s Affidavit sworn 14 March 2013 at paragraph 208
The children are young adults. X is working full time, yet the Wife sends her money and buys her clothes and other items. Y is working as an (omitted) on an income of $55,045, yet she contributes $50 a week for vegetarian sourced groceries, and nothing for board. Z works part time and studies and is largely supported by the Wife.
In all the circumstances, as already noted in my discussion of “addbacks” I find that the Wife has behaved as though there were no limits on what she could spend. I find that she has shown no sense of restraint about what might be reasonable in the parties’ circumstances. I am satisfied that she meets each of her adult children's wants and needs without apparent concern as to whether or not she can afford to meet them. Her affidavit reads as though she did not consider any limits on expenditure. She would find the money somewhere, whatever the impact on the Husband, and without accountability.
Non-financial contributions
The Husband prepared the Wife's taxation returns from the 1982 financial year until the year ending June 2010 and carried out the accounting work for both parties. He continued to do so post-separation until the Wife took over management of her own shares.
The Wife has referred the Husband a number of clients in the legal profession to his private practice, as a result of her contacts through her (omitted) business. The parties together talked to at least one (omitted) firm when the Husband was considering starting his own (omitted) practice in 1992, after leaving (employer omitted).
While the Husband said the Wife's involvement in the maintenance of the investment properties was minimal, and was highly critical of the standard of her management of the block of units at Property O(1) and O(2), I am satisfied that each party made ongoing contributions to the management and maintenance of their investment properties, including Property O(1) and O(2), Property L, and Property I. The Wife was Secretary of the Body Corporate of the Property O(1) and O(2) unit block from 1989 - 2008. She attended meetings, prepared accounts for the strata corporation, paid accounts and collected money. In addition, she organised routine painting and replacement of carpets and organised tradesmen as needed. The Wife would from time to time, locate and organise tradesmen at the Property L and Property I properties,[118] and helped with painting and repairs. I accept the Wife's statement "my best friend painted Property L." I accept the Wife's evidence that the Husband largely managed the financial side while she largely managed the maintenance side.
[118] Wife’s Affidavit sworn 6 March 2013 at paragraph 112
The Husband managed the conveyance when Property O(2) was sold by the Public Trustee. The Wife largely managed Property O(1) because the rent was paid to Wife's account and the home loan paid through her bank account.
In relation to the Property G renovations, the Husband did not accept the Wife's evidence that she was the one who mainly liaised with the builder, Mr K when the parties carried out renovations in 1987, though he agreed the parties would together inspect the property on weekends. The Wife says that she was responsible for liaising with tradespeople, attending to daily telephone calls, attending the site and reporting to the Husband while he was at work. She selected tiles, bathroom equipment, appliances, chose paint and finishes, at short notice when required. Mr K confirmed that he would see the Wife 2-3 times each week, though says he did meet the Husband on occasions. The Husband says he stayed overnight in a locked off bedroom and showered at the local squash courts when he was staying there 2-3 nights a week. Mr K denied the Husband stayed overnight at Property G to oversee the work. Mr K says the property was uninhabitable once the demolition was complete. I am satisfied the Wife was actively involved in dealing with the builder and the tradesmen during those renovations, particularly in relation to selection and purchase of items for the home, as needed day to day. I am also satisfied the Husband stayed at the site overnight on occasions, and that he did liaise with Mr K. I am not persuaded that Mr K has a reliable recollection of what happened in 1987, as he acknowledged himself.
In 2000 I find that both parties were involved in the additional improvements at Property G. In 2006, the parties carried out further renovations to the home. The Husband says the Wife took little interest in the planning, arranging or supervising of that work and I am satisfied the Husband took the major responsibility for the 2006 improvements.
The Husband took the steps required to set up the Peabody Superannuation Fund. He acquired the relevant Trust Deed for the Fund, arranged for the necessary documents to be executed, established accounts with stockbrokers, set up the accounting process and appointed an auditor to audit the Fund. It is common ground that the Husband managed the Fund, including managing the share portfolio held in the Fund, without any direct assistance from the Wife.
Contributions to welfare of family including as homemaker or parent
Apart from a short period in mid 1985, when the parties’ first child, A, was stillborn, the Wife worked full time until the time of X’s birth. She took a few months off after the birth of the three children and commenced part-time work as a (omitted) in 1991, by then being the primary carer of three young children. The parties employed two babysitters over a period of 14 years to care for the children when the Wife was working. The Wife did not recommence working 4-5 days a week, until approximately 6 months before separation.
The Wife took the primary caring role for the children during the marriage, particularly when they were young involving all the usual day to day tasks associated with their care. While the Husband says the Wife was not enthusiastic about cooking or housework, I am satisfied she undertook the multitude of tasks involved in the children's care and in the running of a busy household day to day. While the Husband compliments the Wife's skills as a mother, (she dressed the children, showered them with affection, took care of them whenever they suffered from any ailments and generally spoilt them…).[119] I find that the Husband generally understates the Wife contributions in the domestic sphere. I am not persuaded that having a cleaner once a fortnight significantly reduces the tasks of a homemaker/parent. Nor am I persuaded that a meal not being prepared each night for the Husband, is indicative of poor domestic management.
[119] Husband’s Affidavit sworn 14 March 2013 at paragraph 136
I accept the Husband's evidence that he also contributed to domestic tasks by cooking on the barbecue, ironing, washing and helping with cleaning and other domestic tasks, but that the Wife took the major responsibility for these tasks. The parties agree that the Husband rarely brought work home and was actively involved in family life outside his working hours and on weekends.
The parties employed a gardener at times to mow the lawns, but otherwise the parties were responsible for the garden.
The parties were keenly involved in the children's schools, their sports and extracurricular activities. I am satisfied that both parties attended school functions, performances involving the children, parent/teacher events, at times involving three different private schools, but that the Wife was also an office holder on various school committees for many years. I accept that both parties were involved in transporting the children to and from their various commitments, though I find the Wife is likely to have had more involvement during the school week. I accept the Husband's evidence that Z was a talented rugby player and the Husband attended every game he played at school and for the (omitted). I find both parties were involved in Nippers for all the children for many years. I find that both parties assisted the children with their homework, the Husband helping X in later years with mathematics.
For much of the period since separation and as at the date of hearing, Y and Z were living with the Wife and X was living and working overseas. I am satisfied that the Wife has provided most of the children’s emotional support since separation.
Submissions on Contributions
The Wife’s counsel submits that the significant factors in relation to contributions are the long length of the marriage and the parties' respective roles during the marriage. He submits that it would be unreasonable to expect the Wife to adjust quickly, after a 26 year marriage, to a more frugal lifestyle and that it was reasonable for the Wife to spend money to furnish and establish a home at a standard comparable to the standard she was used to. Mr Sansom submits that it would be unfair for the Court to conclude that the Husband's post separation contributions are much greater than those of the Wife. Counsel submits that it was the Wife's indirect contributions through the marriage that put the Husband in his superior post-separation financial position. Mr Sansom says that given the length of the marriage and the parties' other respective contributions, the Court should place no particular weight on the Husband's initial contributions. He does not refer to any initial contributions made by the Wife. In relation to the Wife’s post separation conduct in prematurely distributing assets, counsel submits that the Wife’s actions were at all times reasonable without differentiating the Wife’s expenditure from the sale or reduction of assets from her expenditure from income. Counsel concludes that the parties' contributions should be assessed as equal, if the Husband's inheritance is excluded from the pool of assets. While, at the commencement of the trial, Mr Sansom submits that the Wife should receive 40-50% of the superannuation assets, he did not press any difference in approach to the superannuation and non-superannuation assets in closing submissions.
Mr Millar submits that the Husband's contributions should be significantly ahead of the Wife, leaving aside the initial contributions and the special contributions made by the Wife in regard to her personal injury claim and inheritance, and from the Husband in the form of unpaid profits and termination payments in the early 90's. Mr Millar submits that while the Husband worked as an (omitted) and contributed to homemaking and parenting, and the Wife was a homemaker and parent and worked part-time, the Husband did much more. The Husband established, managed and maintained a portfolio of shares that became a very substantial component of the parties' asset pool, both inside and outside the parties' Superannuation Fund. And he continued to manage and grow the value of those assets well after separation. Counsel submits that in addition, the Husband's initial contributions generated hundreds of thousands of dollars for the parties which ultimately forms part of the pool of property available for distribution. Mr Millar also highlights the Husband's payments towards the purchase of Property V, his substantial contributions towards the loan repayments on Property V the expenses he paid for the Wife on his credit card, and payments to the Wife to help her buy furniture. Mr Millar submits that overall the Husband's contributions should be assessed at 65%, on the basis that addbacks of $435,000 are included in the Balance Sheet. Mr Millar does not nominate a percentage figure if the add backs are not included.
Assessment of Contributions
During a long marriage, the parties raised three children together. I am satisfied that the Wife made the greater non-financial contributions and the Husband the greater financial contributions to the acquisition, conservation and improvement of the parties' property. While Mr Sansom submits that (if the Husband's inheritance is excluded) these factors should result in an equal division of property by way of contributions, I find this broad contention fails to adequately take into account what each party actually contributed, as mandated by s.79(4).
I agree with Mr Millar that the Husband's contributions are greater than those of the Wife because of the use made of his initial real estate contributions which provided a springboard for the creation of a substantial proportion of the parties' current assets, and because of the shares and share trading skills he brought to the marriage and used to establish and grow the parties' share portfolios both inside and outside the parties' superannuation funds, now a substantial component of the existing assets. In addition, I am satisfied that the Husband has made a significantly greater contribution to the acquisition and conservation of the assets of the parties in the period since separation. The Husband has conserved or increased the value of assets which existed at separation, while the Wife has either disposed of or reduced the value of the assets which existed at separation as a result of her excessive expenditure. I find that the Wife's unilateral decision to prematurely distribute the parties’ assets, with a value equivalent to approximately 5% of the existing property of the parties, has had a significant impact on the net assets now available for division between the parties, both because the funds realised have been spent on living and lifestyle expenses and because the shares were not left to accumulate and increase in value, as the existing assets have increased in value, had the portfolios been left intact.
I assess the contributions of the parties as 66% to the Husband and 34% to the Wife.
The effect, if any, of any proposed order upon the earning capacity of each party
This is not a relevant factor.
Relevant Section 75(2) Factors
The age and state of health of each of the parties.
At the date of hearing, the Wife was 56 years and the Husband 64 years of age. The Husband's counsel submits that the consequences of this age difference should not be overlooked. Mr Millar submits that the Wife has a greater opportunity than the Husband to continue to generate income and therefore acquire assets, borrow to invest and to contribute to superannuation. Counsel refers to the Full Court's decision in CKC & RRC [2006] FamCA 1290 where it was said that the Trial Judge did not discuss inferences that might have been drawn about the working life of either party. The Husband says he plans to retire in late 2013, when he is 65 years of age. He says he has been running down his private (omitted) practice over the last few years, declining to take on new clients or do additional work for existing clients. He says it is quite stressful work and he is getting on in age. The Husband said he would continue to invest in the share market post retirement "at a much reduced level"[120] but he wishes to retire from his employment as an (omitted) and to gradually wind down his private practice.
[120] Transcript of proceedings, 23 April 2013 at page 203
The Wife's counsel contends that the Husband is likely to continue to derive a good income from share trading and from his private practice, even after retirement, at least at the level of the Wife's income. Counsel submits that the Husband provides no objective evidence that he has notified his employer of his plans to retire. Counsel submits that because the Husband has not always been truthful in relation to his financial affairs, the Court should be cautious in accepting his evidence in relation to his future plans.
I find it likely the Husband will retire before too long, given his age and circumstances. I find it likely that the Husband will continue to earn some income from his private practice and share trading after he retires from his employment. I accept Mr Millar's submission that the Wife will have the opportunity to continue in employment and therefore to generate at least her current level of business income into the future. For reasons outlined below, I am satisfied that the Husband's working life will be longer than it would otherwise have been, because of his leave entitlements.
While the Wife adduces evidence of suffering back pain from an accident in 1983, and to having back surgery in 2002, there is no evidence before me as to a current health condition which may impact on her financial circumstances.
The Husband deposes to suffering from prostate enlargement which is monitored. He takes medication for high blood pressure, high cholesterol and for gastro reflux. He has difficulty walking and plans to have a knee reconstruction. However, the Husband adduces no evidence as to how these health issues might impact on his earning capacity or financial position.
The income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment
As already noted, the Wife is self employed as a (omitted), working almost full time and earning approximately $80,000 a year from that source. I accept the Wife's evidence that she does not intend to work as an (omitted) and is unlikely to significantly increase her income in the future.
There is no dispute that the Husband earns a significantly higher income than the Wife. The Husband currently earns approximately $180,000 a year from his employment and additional income from his private practice as an (omitted) and from share dividends. His taxation return for the 2012 financial year,[121] not yet lodged and to be slightly varied, discloses a taxable income for the Husband of $276,441.
[121] Exhibit 7
As earlier noted, the Husband received an inheritance almost 3 years after separation with an agreed value of $750,000. It is common ground that the Wife made no contribution to the welfare of the Husband's mother during her lifetime and made no contribution to the building up of the estate itself. However, I agree with both parties' counsel that this is a factor to be taken into account in the overall assessment of s.75(2) factors.
The Husband has an agreed gross entitlement from his employer upon retirement in the sum of $204,163.[122] It is not an identifiable component of funds held by the Husband at this time (as was the case in Burke and Burke (1993) FLC 92-356). Neither party adduces any evidence of the quantum of the taxation liability attaching to that entitlement. Nor is there any evidence before the Court as to how the Husband is likely to receive that entitlement. He might take it as a lump sum, or by way of periodic payments after he ceases going to work, which, as Mr Millar submits, would extend his working life to the extent of the entitlement.
[122] Exhibit 13
The responsibilities of either party to support any other person.
Neither party has dependents for whom they have a legal obligation to support.
The eligibility of either party for a pension or benefit under any superannuation fund or scheme and the rate being paid to either party.
As far as the Court is aware, neither party is eligible for a pension, allowance or benefit under any law of the Commonwealth or State. Each party is eligible for a pension from superannuation entitlements.
A standard of living that in all the circumstances is reasonable.
These parties enjoyed a relatively high standard of living during their marriage. The orders which the Court will make will provide the parties with a standard of living that is reasonable in all the circumstances.
Any fact or circumstance which, in the opinion of the Court, the justice of the case requires to be taken into account.
Mr Millar submits that if the Court orders the Husband to make a payment of money to the Wife, it is likely the Husband will have to realise shares to make the payment, given shares can be liquidated quickly. It is not possible to quantify the likely Capital Gains Tax payable on such a sale (if any), because there may be capital losses to offset any capital gains, it might be paid out of pension income from the Superannuation Fund, or from another source altogether. However, Mr Millar submits that the Court should include an order providing for the parties to share equally in any Capital Gains Tax liability in the event such tax is payable, upon the Wife being given an opportunity to check the basis of any calculation. Mr Sansom disagrees with this submission. The Wife's counsel contends that it would be unfair to the Wife if the Husband is left with the option to incur Capital Gains Tax liability when there are other options available to him. Counsel is critical of the Husband for not bringing evidence of any potential CGT liability. Mr Sansom argues that the Court should leave the Husband to organise his finances to meet any order, without involving the Wife. I address this issue when considering the justice and equity of the actual orders which would result from my assessment of contributions and s.75(2) factors.
I gave consideration as to whether the Husband’s failure to disclose his financial position warranted an adjustment in the Wife’s favour under s.75(2)(o). However, given Mr Sansom did not seek any adjustment for the Husband’s non-disclosure, when invited by the Court to do so, I have made no adjustment for this factor.
Assessment of section 75(2) factors
The Court must weigh all the s.75(2) factors together and then make one adjustment.[123]
[123] Tomasetti & Tomasetti [2000] FamCA 314
Mr Sansom submits that the Wife should be entitled to a 5-10% adjustment in her favour if the Court decides that the Husband's inheritance is a financial resource, not an asset.
Mr Millar submits that if the Court includes the notional assets in the Balance Sheet for which he argues, and if the Court accepts his contention that the Husband's contributions should be assessed at 65%, there should be a 5% adjustment to the Wife. Counsel submits that these percentages should be varied if the Court does not include the add backs proposed and/or does not assess the Husband's contributions at 65%.
On a weighing of the factors to which I have referred under s.75(2), I have decided the Wife will receive an adjustment of 6%. This means the net assets of the parties will be divided as to 60% to the Husband and 40% to the Wife.
Is the result just and equitable?
The Court must be satisfied that the actual orders provide for a just and equitable distribution of the property of the parties.[124]
[124] Family Law Act 1975 (Cth), s.79(2)
The parties own property with a net value of $8,040,904 inclusive of superannuation. On the basis of a 40/60 split, the Wife would receive assets with a value of $3,216,361.60 which would include her payment by way of partial property settlement The Husband would receive 60% of the assets with a value of $4,824,542.40.
The Wife will have assets with a value of $2,844,793 if she receives her home in Property V, unencumbered, her partial property settlement, her superannuation entitlement, other items in her possession and if she takes responsibility for debts in her name. She needs another $371,568.60 to receive her entitlement. The Husband will have assets with a value of $5,196,111 if he receives Property G, discharges the debt on the Property V property, receives his leveraged equities share portfolio subject to the margin loan, his other shares, superannuation entitlements and other items in his possession, and takes responsibility for debts in his name. This is in excess of his entitlement by an amount of $371,568.60 which he will pay to the Wife.
As already noted, the Husband may choose to sell shares in his name outside the superannuation funds to meet his liability to the Wife, which may attract a capital gains taxation liability. On the other hand, he may choose to organise his financial affairs in a different way. There is no evidence before the Court as to what any capital gains taxation liability might be and as Mr Millar submits, until the shares are sold, it is not possible to speculate as to the capital gains which would be payable. I am not persuaded that the evidence supports a finding that the Husband is likely to sell shares outside the superannuation fund to meet any liability to the Wife. The Husband will have a number of options. In these circumstances, I am not satisfied that justice and equity would be served by an order requiring the Wife to meet half any capital gains taxation liability which might arise as a result of the Husband's compliance with the orders I propose to make.
The Wife sought a number of items from the former matrimonial home in her application. Neither party gave evidence about any of these items and neither party was cross examined about them. At the end of the hearing, the Court invited counsel for each party to try to resolve the issue. The Husband agreed to give the Wife some of the items sought in her application, not others. At the end of the hearing, an order was made by consent, to reflect that agreement. In the absence of any evidence, the Court is unable to take that issue further.
The Wife will have assets and liabilities set out in the following table:
| Assets to be retained by Wife | $ |
| Property V | 1,650,000 |
| (omitted) shares | 153,073 |
| (omitted) shares | 35,615 |
| (omitted) shares | 124,340 |
| (omitted) Bank | 400 |
| Lexus motor vehicle | 30,000 |
| Household contents | 12,500 |
| Jewellery | 13,500 |
| Balance of partial property funds held in trust | 20,278 |
| Legal fees paid from partial property funds | 106,722 |
| Ms Peabody (omitted) Business | Nil |
| Credit card debts | (23,890) |
| (omitted) Bank Loan | (170,500) |
| (omitted) Pty Ltd (car loan) | (40,085) |
| PAYG tax (October/December 2012) | (5,518) |
| Peabody Superannuation Fund | 938,358 |
| Property V Superannuation Fund | Nil |
| Payment from the Husband | 371,568.60 |
| TOTAL | 3,216,361.60 |
The Husband will have the assets and liabilities set out in the following table:
| Assets to be retained by Husband | $ |
| Property G | 2,000,000 |
| Leveraged equities portfolio | 2,258,912 |
| (omitted) shares | 51,300 |
| Household contents | 10,000 |
| Jaguar (model omitted) | 3,000 |
| Motor Bike (model omitted) | 2,100 |
| (omitted) Bank | 10,000 |
| (omitted) Bank | 1,469 |
| (omitted) Bank | 17,877 |
| (omitted) business | Nil |
| Funds transferred to (omitted) Pty Ltd | 333,636 |
| Margin call loan | (1,264,989) |
| Mortgage loan on Property V (Wife guarantor) | (458,000) |
| (omitted) credit card | (7,444) |
| (omitted) card | (9,451) |
| (omitted) Bank card | (10) |
| (omitted) Bank credit card | (7,520) |
| (omitted) Bank credit card | Nil |
| Personal loan (omitted) Bank | (100,000) |
| Payment to the Wife | (371,568.60) |
| Peabody Superannuation Fund | 2,304,090 |
| Mr Peabody Superannuation Fund | 51,141 |
| TOTAL | 4,824,542.40 |
Having regard to all the circumstances of this case, I am satisfied that the orders set out at the beginning of these Reasons are just and equitable.
I certify that the preceding one hundred and eighty-five (185) paragraphs are a true copy of the reasons for judgment of Judge Sexton
Date: 28 November 2013
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