Perrelli & Atkinson
[2022] FedCFamC1F 824
Federal Circuit and Family Court of Australia
(DIVISION 1)
Perrelli & Atkinson [2022] FedCFamC1F 824
File number(s): MLC 10061 of 2020 Judgment of: MCGUIRE J Date of judgment: 27 October 2022 Catchwords: FAMILY LAW – PROPERTY – Application by husband for a property settlement – add-backs – two children of the marriage – contributions - taxation liabilities – section 75(2) factors – superior earing capacity - orders that husband receive 62.5 per cent of the net property pool and the wife receive 37.5 per cent
FAMILY LAW - COSTS – Order that wife pay husband’s costs fixed in the sum of $9,000
Legislation: Family Law Act 1975 (Cth) ss 75(2), 79(1),(2), (4)(d) – (g) and s 117 Cases cited: Best v Best (1993) FLC 92-418
Chorn v Hopkins (2004) FLC 93-204
Clauson & Clauson (1995) FLC 92-595
Fielding & Nichol [2014] FCWA 77
Hickey & Hickey & Attorney-General for the Commonwealth of Australia (2003) FLC 93-143
In the marriage of DJM & JLM (1998) FLC 92 – 816
Jones v Dunkel [1959] HCA 8
Kessey & Kessey (1994) FLC 92-495
Mallett & Mallett (1984) FLC 91-507
R v Watson; Ex parte Armstrong (1976) 136 CLR 248
Stanford & Stanford (2012) 247 CLR 108
Trevi & Trevi [2018] FamCAFC 173
Waters & Jurek (1995) FLC 92 – 635
Division: Division 1 First Instance Number of paragraphs: 70 Date of hearing: 1 and 2 September 2022 Place: Melbourne Delivered Hobart Counsel for the Applicant: Ms Smallwood SC Solicitor for the Applicant: Coote Family Lawyers Counsel for the Respondent: Mr Glezakos Solicitor for the Respondent: Barkus Doolan Winning ORDERS
MLC 2006 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR PERRELLI
Applicant
AND: MS ATKINSON
Respondent
order made by:
MCGUIRE J
DATE OF ORDER:
27 October 2022
THE COURT ORDERS THAT:
1.Within 30 days from the date of these Orders the wife, Ms Atkinson, pay to the husband, Mr Perrelli, the sum of $340,430.
2.Within 30 days from the date of these Orders the wife shall transfer to the husband all her right title and interest in C Street, Suburb E in Victoria.
3.Contemporaneously with the transfer in Order 2 herein the wife shall transfer to the husband all that her right, title and interest, if any, in:
(a)his superannuation interests;
(b)his Westpac and R Trading share portfolios;
(c)his cryptocurrency holdings;
(d)the funds in his Westpac Bank accounts ending in # …77 and #...46;
(e)his 2016 Motor Vehicle 1;
(f)all personalty and chattels in the possession or control of the husband as at the date of these Orders; and
(g)all artworks in his possession.
to the intent that he be the sole and absolute legal owner thereof.
4.The husband be solely responsible for and indemnify the wife in respect of the following:
(a)the Westpac Investment Loan Account ending in #...92 and provide the wife with a discharge contemporaneously with the transfer of the property situate at C Street, Suburb E in Victoria;
(b)any and all liabilities attaching to any of the assets retained by the husband pursuant to these Orders;
(c)any and all liabilities incurred by the husband since separation in either joint names or his name alone.
5.Contemporaneously with the transfer in Order 2 herein the husband shall transfer to the wife all his right, title and interest, if any, in:
(a)her superannuation entitlements;
(b)the property at H Street, Suburb S;
(c)her shareholding portfolio including with B Company;
(d)the funds in her personal bank accounts;
(e)the 2021 Motor Vehicle 2;
(f)all personalty and chattels in the possession or control of the wife as at the date of these Orders; and
(g)her jewellery and handbags.
6.The wife be solely responsible for and indemnify the husband in respect of the following liabilities:
(a)any and all liabilities attaching to any of the assets retained by the wife pursuant to these Orders;
(b)any and all liabilities incurred by the wife since separation in either joint names or in the her name alone; and
(c)the wife’s taxation liabilities.
7.Unless otherwise provided for in these Orders and save for the purposes of enforcing any monies due under any subsequent orders:
(a)Each party shall be solely entitled to the exclusion of the other to all property (including choses-in-action) in their own name or in their possession as at the date of these Orders.
(b)Insurance policies remain the sole property of the owner named thereon.
(c)Each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to these Orders.
(d)Monies standing to the credit of the party in any bank accounts are to be retained by the party in whose name the account is held.
(e)Any joint tenancy of the parties in any real or personal estate to be expressly severed.
8.Within 28 days of the date of these Orders the wife provide documentary evidence to the husband’s solicitors of Capital Gains Tax prepaid by her to the Inland Revenue Department (United Kingdom) in respect of the sale of shares and further prudently complete all United Kingdom taxation returns and further advise the husband within 28 days of assessment struck in relation to such GST liability whereupon any variation between such assessment and tax pre-paid be reconciled between the parties in accordance with the percentage distribution of assets pursuant to these Orders and Reasons.
BY CONSENT THAT:
9.Paragraphs 9 to 14 of these Orders are binding upon J Pty Limited (“the Trustee”), being the Trustee of the J Super Fund (“the Fund”), member number …37.
10.The Court allocate, pursuant to s 90XT(4) of the Family Law Act 1975 (Cth), a base amount of $105,585.00 to the husband out of the wife’s interest in the J Super Fund, member number …37.
11.In accordance with s 90XT(1)(a) of the Family Law Act 1975 (Cth):
(a)the husband is entitled to be paid from the wife’s interest in the Fund, using the base amount, the amount calculated in accordance with Part 6 of the Family Law (Superannuation) Regulations 2001 (Cth) and
(b)the wife’s entitlement in the Fund is correspondingly reduced.
12.Paragraph 11 has effect from the operative time and the operative time is four business days from the date of service of a sealed copy of these Orders on the Trustee.
13.The Trustee shall do all such acts and things and sign all such documents as may be necessary to:
(a)calculate, in accordance with the requirements of the Family Law Act 1975 (Cth), the entitlement created in paragraph 11 of these Orders; and
(b)pay the entitlement whenever a splittable payment becomes payable from the wife’s interest.
14.After service of the payment split notice in accordance with the Superannuation Industry (Supervision) Regulations 1994 (Cth) (‘the SIS Regulations’), the Wife shall do all such things and sign all such documents as may be necessary, including but not limited to exercising the Husband’s request in accordance with the SIS Regulations, for the rollover or transfer of the non-member spouse interest to a complying superannuation fund of the Husband’s choosing in accordance with the SIS Regulations.
THE COURT ORDERS THAT:
15.Pursuant to s 81 of the Family Law Act 1975 (Cth) the parties intend that these Orders shall as far as practicable finally determine the financial relationship between them and avoid further proceedings between them.
16.Within 30 days from the date of these Orders the wife pay to the husband’s costs fixed in the sum of $9,000.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym of Perrelli & Atkinson has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
MCGUIRE J
APPLICATIONS
The husband, Mr Perrelli, is the applicant in proceedings for a property settlement where the parties have recently agreed an equal time parenting arrangement for their children X (aged 16 years) and Y (aged 12 years).
The husband seeks an order that he receive 70 per cent of the net tangible assets of the parties. Where the parties commenced cohabitation as long ago as either 2000 or 2003, he claims a loading on account of a contribution of an equity of then some $380,000 in a Suburb T property. Primarily, however, he argues for a substantial adjustment on account of relevant matters under s 75(2) of the Family Law Act 1975 (Cth) where in broad terms the evidence is of a significant current and potential income discrepancy between he and the wife, Ms Atkinson.
The husband and the wife agree that there should be an equalising of their superannuation entitlements and where I am asked to make a consent order accordingly.
The wife's counsel in opening flagged an argument for distribution of the net tangible property pool with a 5 per cent adjustment to the husband on the basis of relevant s 75(2) factors but without any concession as to other than equal contributions where the wife acknowledges the husband's equity in the Suburb T property. However, the wife says that this should not be cause for an adjustment given the length of the relationship, the advent of a myriad of subsequent contributions of direct financial, non–financial, parenting and homemaker type and where specifically the wife says that the parties benefited by a $250,000 injection of funds from her father in about 2006 and for the purposes of renovating a property.
By the time of final addresses, counsel for the wife had compromised her position whereby she now concedes a 10 per cent adjustment to the husband on account of the s 75(2) considerations on an acknowledged differential of income.
BACKGROUND
The husband is 52 years of age. He is a professional and although currently unemployed he concedes a capacity for employment where he says he has historical and potential income of approximately $150,000 per annum. There is no evidence that the husband has re-partnered.
The wife is 48 years of age. She is employed by B Company (‘B Company’) as an executive. Between April 2016 and April 2022 the wife was employed by B Company United Kingdom and resided in England. Her employment with B Company has now transferred to B Company Australia relevant from 31 May 2022. She has returned to live in Australia and shares care of the two children on a week about basis with the husband.
During her time in the United Kingdom the children remained resident with the husband in Australia. The wife at times travelled to Australia and at other times the children travelled to the United Kingdom. The thrust of the evidence is that the wife's move to the United Kingdom was a joint decision by the husband and the wife and perhaps with anticipation that at some stage the family unit would also relocate.
There was significant evidence, much contradictory, and cross-examination as to the wife's income which clearly is derived from a combination of a substantial salary, bonuses and share issues based on performance criteria and discretionary in B Company but where the wife has historically received such stock which substantially remains unvested for a period apparently as a motivation for the employee to remain with B Company. The wife's own evidence is that she would “potentially” earn approximately $1 million dollars per annum from her employment and from all sources. The salary component in the United Kingdom has been as high as $600,000 per annum but on her current contract may be something less than $500,000 per annum.
There is some evidence that the wife has re-partnered. I have no affidavit from that person and given the wife's circumstances I do not consider that person’s financial circumstances to be relevant and nor was such argued before me save and except for some relatively minor financial advancements made by the wife to that person both prior to and after separation.
There is some dispute between the parties as to the date of their separation. The husband says the parties separated on 30 September 2018 “on a final basis”. The wife's preferred date of separation is 25 December 2017. Nothing turns on this discrepancy where, in their final submissions, counsel for each of the parties made it clear that I am not required to make a finding of fact in respect of this issue.
On or about 1 November 2019 the husband withdrew an amount of $387,576.98 from a joint bank account and deposited it into an account in his sole name. He returned those monies in full to the joint account on 6 November 2019. His evidence in court is that the transactions were carried out as a trial to determine whether he would be able to make unilateral withdrawals in such a quantum by way of Internet banking.
On 19 February 2020 the husband unilaterally withdrew an amount of $350,000 from the joint bank account and deposited those monies into an account in his sole name.
On 5 July 2022 the wife sold $4,836,306 vested B Company shares and received US $1,257,440.06 (£1,029,916.50). At around that time the wife prepaid an estimated capital gains tax liability (“CGT’) on the sale of vested shares of £107,431.37p (and according to her evidence in court, a further £6,000E) where such an amount was estimated by her English tax advisor, but where the CGT has not yet been struck and will not be until the wife lodges her next United Kingdom tax return.
On returning to Australia in mid-2022 the wife purchased a property at H Street, Suburb S for $3,250,000 with the assistance of a mortgage loan of $2,200,000 and the balance paid from the proceeds of sale of the B Company shares.
ISSUES
There is an issue as to whether or not there should be any adjustment to the husband on account of asserted superior initial financial contributions.
The parties differ as to the percentage adjustment to the husband by reason of the wife's superior current and potential financial circumstances pursuant to s 75(2) of the Family Law Act 1975 (Cth) (‘the Act’).
Whilst the parties essentially agree the contents of the property pool and values there remain some specific issues being:
(i)The wife has a quantity of jewellery and handbags. The wife attributed a value of $20,000. The husband asserts a value of $150,000. Neither party has provided expert evidence. Neither has provided even an inventory;
(ii)In respect of the above-mentioned purchase by the wife of the property at 12 H Street, Suburb S made only in recent weeks, the husband argues that the payment by her of stamp duty struck at $191,250 is an unnecessary benefit to the wife to which he should not be required to contribute. As I understand the husband's argument, the wife may have deliberately put herself in a financially advantageous position by making and completing the purchase of the property prior to this trial where, should the purchase have been made after the trial, then the payment of stamp duty would be her sole responsibility and in essence the net proceeds of sale of the B Company shares (AUS $1.8 millionE) would have been available and apparent in the property pool;
(iii)The wife is to receive a Performance Bonus from her employer in September 2022 with an agreed gross value of $92,600. The husband includes this gross figure in his balance sheet. The wife says that the monies will be taxed as income.
(iv)The husband argues that the wife's prepayment of CGT on the sale of shares in the sum of AUS $182,519 (£113,000E) was unnecessary given that the tax has not yet been struck and is an estimate only where the wife's residential circumstances have changed and there is no evidence as to what, if any, taxation liability will be imposed in the United Kingdom or Australia. During final submissions, however, counsel agreed it may be that where there are such contingencies, then it is available for the Court to make an order compelling the wife to prudently lodge her United Kingdom tax return thereby causing the CGT to be crystallised and that any consequent adjustment be made proportionately between the parties in accordance with the percentage distribution of the property pool;
(v)There is a dispute between the parties as to whether paid legal costs by the husband in a quantum of $232,359 should be “added back” to the pool where the wife argues that the husband has paid those costs from capital whereas she says her own legal costs have been paid from her ongoing income; and
(vi)Finally there is an outstanding costs issue between the parties, and from before me assuming carriage of this matter. In May 2022 the husband brought an Interlocutory Application seeking specific discovery from the wife and supported by an Affidavit. It does not seem disputed that the wife filed neither Response nor Affidavit. It seems that the matters raised in the Application settled “at the Court door” but where an Application for Costs by the husband was noted by her Honour Justice Hartnett, reserved for hearing at the Trial, and with the quantum of costs set at $9,000. The husband now pursues that Costs Application. The wife opposes the Application.
THE EVIDENCE
The husband relied upon two Affidavits filed 8 August and 22 August 2022 and his Financial Statement of 8 August 2022. He did not present with good historical recall in cross-examination. His answers were often vague and uncertain and he seemed naïve as to the relevant legal principles. Overall, however, I found the husband to be an honest witness perhaps still emotionally impacted by his separation from the wife.
The husband adduced evidence from Mr K who is a Forensic Consulting Specialist. He provided an affidavit sworn 25 August 2022 which annexes a forensic accounting report prepared on instructions from the husband's solicitors to provide an opinion in respect of the wife’s income and expenditure. Mr K was not required for cross-examination. Although extremely comprehensive in its detail and analysis, I was not greatly assisted by Mr K’s evidence in circumstances where it is conceded that the wife enjoyed a significant income. I did not understand that the husband mounted any case of wanton expenditure or wastage by the wife save and except that she perhaps enjoyed a lifestyle commensurate with her income but where it is conceded that she also provided substantial direct financial support for the family unit of the husband and the children remaining in Australia while she was employed in the United Kingdom.
The wife relied on her Affidavit and Financial Statement both filed 15 August 2022. She presented as a more confident, assertive and informed witness than did the husband and one with better historical recall. She was subjected to vigorous cross-examination but was calm, consistent and explanatory in her responses.
The wife adduced evidence from Mr L who provided an Affidavit filed 17 August 2022. He gave evidence by Microsoft TEAMS from London. Mr L is a tax advisor who has previously given such advice to the wife. Mr L gave evidence specifically as to CGT prepaid by the wife in the United Kingdom on her sale of B Company shares received and vested during her employment. Mr L or his firm had provided an assessment of £107,431 plus a further £6,000E which for the purposes of the matter before me the parties agree at AUS $182,519. Mr L gave evidence that the tax will be assessed in the United Kingdom as the monies were received into a United Kingdom bank account. He concedes that his assessment is an estimate only with a final assessment to be conducted by the Inland Revenue Bureau. Mr L indicated that the CGT liability would not fall due until January 2024.
THE RELEVANT LAW
Section 79 of the Act provides for alteration of the property interests where subsection (1) states:
(1)In property settlement proceedings, the court may make such order as it considers appropriate:
(a)in the case of proceedings with respect to the property of the parties to the marriage or either of them - altering the interests of the parties to the marriage in the property;
This apparent broad discretion must, however, be within the statutory limitations. In R v Watson; Ex parte Armstrong[1] the High Court noted:
…The judge called upon to decide proceedings of that kind is not entitled to do what has been described as “palm tree justice”. No doubt he is given a wide discretion, but he must exercise it in accordance with legal principles, including the principles which the Act itself lays down…
[1] (1976) 136 CLR 248 at 257.
The relatively recent and notable decision of the High Court in Stanford & Stanford[2] has brought emphasis back to s 79 (2) which importantly provides:
(2)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.
[2] (2012) 247 CLR 108.
Prior to Stanford there had evolved a practice for trial judges strictly following a structured “four step approach”[3] of consideration and determination where the Court would determine the property pool and attribute value before then moving to consider and assess the contributions by and on behalf of the those parties pursuant to that pool. The Court would then move to consider whether there would be any further adjustment to either of the parties on consideration of the factors at s 79(4), and in particular, s 75(2) of the Act and then sometimes known as the as “needs factors”. Finally, but arguably, the Court would then “stand back” and consider whether the proposed orders themselves emanating from the above structured three-steps would give justice and equity.
[3] Hickey & Hickey & Attorney-General for the Commonwealth of Australia (2003) FLC 93-143.
The High Court in Stanford (supra), however, emphasised that the consideration at s 79(2) of whether it be just and equitable to make any order required an independent determination on the particular circumstances of each case but importantly where that consideration is not one to be simply conflated with the considerations of contributions and other factors at s 79(4).
The High Court assisted trial judges by setting out three fundamental propositions that should not be obscured:
[37]First, it is necessary to begin consideration of whether it is just and equitable to make a property settlement order by identifying, according to ordinary common law and equitable principles, the existing (emphasis added) legal and equitable interests of the parties in the property. So much follows from the text of s 79(1)(a) itself, which refers to “altering the interests of the parties to the marriage in the property” (original emphasis). The question posed by s 79(2) is thus whether, having regard to those existing (emphasis added) interests, the court is satisfied that it is just and equitable to make a property settlement order.
[38]Second, although s 79 confers a broad power on a court exercising jurisdiction under the Act to make a property settlement order, it is not a power that is to be exercised according to an unguided judicial discretion. …
…
[40]Third, whether making a property settlement order is “just and equitable” is not to be answered by beginning from the assumption that one or other party has the right to have the property of the parties divided between them or has the right to an interest in marital property which is fixed by reference to the various matters (including financial and other contributions) set out in s 79(4). The power to make a property settlement order must be exercised “in accordance with legal principles, including the principles which the Act itself lays down”. To conclude that making an order is “just and equitable” only because of and by reference to various matters in s 79(4), without a separate consideration of s 79(2), would be to conflate the statutory requirements and ignore the principles laid down by the Act.
There has followed much judicial consideration and debate in respect of the process set out in Stanford. In Fielding & Nichol[4] Thackray CJ sitting at first instance opined that a trial judge in addressing the s 79(2) question may consider matters arising under s 79(4) but where such considerations are not of themselves determinative as to the “just and equitable” test at s 79(2). I respectfully agree that this is a sensible and practical understanding of the “warning” in Stanford (supra) and that where the previous “stages” may still be a guidance as to the process, the consideration must operate with greater flexibility. Firstly, the Court is to identify the existing legal and equitable interests in the property of the parties or either of them and then attribute value to the elements of the property pool and hence the pool itself. It is usually considered appropriate to identify and value the property pool as at the date of the Trial. “Property” includes both assets and liabilities and superannuation is “to be treated as property”.
[4] [2014] FCWA 77.
The Court is then to undertake the consideration and make a determination pursuant to the question at s 79(2) within the context of the particular circumstances of the case being whether it is appropriate, just and equitable to make any orders altering property interests.
If it is deemed to be appropriate then the Court is to identify and give weight to the various contributions of the parties, or those made on their behalf, to the acquisition, maintenance, and improvement of the elements of the property pool. Contributions may be of a direct or indirect financial type or may be non-–financial contributions including as homemaker and parent.
The Court is then to identify and give weight to the considerations under s 79(4)(d) – (g) including any relevant factors in s 75(2) of the Act and determine whether any further adjustment to either party is just and equitable.
The entire process of consideration is permeated with the necessary understanding of justice and equity.
THE PROPERTY POOL
The parties, to their credit, had significantly agreed the contents of the property pool and values prior to the commencement of the Trial and further agreement was reached during the course of the Trial. Nevertheless, some matters remain for my determination but where I should comment that the evidence was often lacking and proper preparation for a Trial should involve the giving or adducing of evidence in proper form rather than, as for instance in this case, the equally unqualified evidence of each of the parties as to the value of items such as “handbags and jewellery” in the possession of the wife where the husband attributes a value of $150,000 and the wife a value of $20,000. Certainly, to leave a determination of the Court in such state of evidentiary dilatoriness is inappropriate and unprofessional and particularly so when the Court is apprised of the monies spent by each of these parties in preparing their cases for Court. The following issues remain in respect of the property:
(i)The wife has recently purchased a residence at H Street, Suburb S which has an agreed value of $3,250,000. There is a mortgage secured in a quantum of $2,200,000. The wife says that the home and mortgage with equity of $1,050,000 together with residual savings in a bank account should therefore be included in the pool given the general rule of assessing the property pool as at the date of the Trial. The husband argues that the wife unilaterally sold her B Company shares reaping some AUS $1.8 million. He argues that by purchasing the home at Suburb S the wife has incurred a stamp duty bill of $191,250 not evident in the value of the property. Consequently, I see the argument as being whether the purchase by the wife of the property at Suburb S was a “reasonable expenditure” from the funds obtained from the sale of her shares?;
(ii)Similarly, the husband argues that the gross proceeds of sale of the B Company shares should be included in the property pool where the wife has also pre-paid CGT of £113,000E (AUS $182,519E). Again, the question is whether the prepayment of this taxation, which is yet to be a formally assessed, was reasonable and appropriate?;
(iii)There is a question as to the status of the husband's paid legal costs in the quantum of $232,359. The wife asserts that this amount should be “added back” to the property pool as it was met from capital whereas she has paid her own legal costs from ongoing income. The husband says that his paid costs should not be “added back” where the wife's paid legal costs are not added back and in circumstances where the wife has had a far superior income than the husband but where the husband has also enjoyed an income of $150,000 and the source of payment for his legal costs is therefore ambiguous; and
(iv)The value of jewellery and designer handbags in the possession of the wife together with artworks in the possession of the husband.
THE RELEVANT LAW – ADD-BACKS/POST – SEPARATION EXPENDITURE
Jurisprudence in respect of “add-backs” was recently revisited by the Full Court in Trevi & Trevi[5] and following the important decision of the High Court in Stanford (supra). At [27] and following under the heading “Guidelines for adding back to property available at trial” the Full Court in Trevi said:
[27]The Full Court held in Omacini and Omacini[6] that addbacks fall into “three clear categories”: where the parties have expended money on legal fees; where there has been a premature distribution of matrimonial assets; and “waste” or wanton, negligent, or reckless dissipation of assets.[7]
[28]However, the Full Court also made it clear that an addback does not necessarily occur whenever “a party has expended money realised from the disposition of assets that existed as at the date of separation”, the Full Court describing such a proposition as “unduly simplistic”.[8] An earlier Full Court made the same point, saying that adding back is “the exception rather than the rule”.[9]
[29]The fundamental precept that addbacks are exceptional, reflected in the decisions just referred to, also mirrors what has been said in earlier decisions of the Full Court that, for example, “the Family Court must take the property of a party to the marriage as it finds it”[10] at trial. An important parallel proposition is that the parties do not “go into a state of suspended economic animation” after separation.[11] Thus, reasonably incurred expenditure does not usually come within accepted categories of addback.
[30] Two fundamental premises emerge from Omacini and the authorities preceding it. First, “adding back” is a discretionary exercise. When the discretion is exercised in favour of adding back, it reflects a decision that, exceptionally, in the particular circumstances of a case, justice and equity requires it. The second premise is its corollary: in cases that are not “exceptional” justice and equity can be achieved, not by adding back, but by the exercise of a different discretion – usually by taking up the same as a relevant s 75(2) factor. Indeed, it has been said that the latter is “a course which is, perhaps, technically more correct” than adding back to the list of existing interests in property.[12]
[5] [2018] FamCAFC 173, (2018) FLC 93 – 858.
[6] (2005) FLC 93-218 (“Omacini”).
[7] Footnote omitted.
[8] Ibid.
[9] Cerini & Cerini sub nom C & C [1998] FamCA 143 (“Cerini”) at [46].
[10] Footnote omitted.
[11] Ibid.
[12] Ibid.
Whilst the Court retains a discretion, the normal approach seems to be that legal costs paid from joint funds or the crystallising of an asset of the parties should be treated as being a notional part of the property pool and therefore added back. The rationale is connected to the broad principle at s 117(1) of the Act that each party be responsible for his or her own legal costs and consequently where legal costs have been sourced from parties’ joint assets then a failure to regard them as a notional asset would require an analysis under s 117.[13]
[13] In the marriage of DJM & JLM (1998) FLC 92 – 816, Chorn v Hopkins (2004) FLC 93-204.
Firstly, the wife here argues that the husband's paid legal costs in a quantum of $232,359 should be added back to the pool as being paid from a joint asset namely a lump sum removed unilaterally by the husband from a joint account into his own account. The husband's counsel in final submissions argues that the source of the husband's paid legal costs is ambiguous given that he too was in employment during the relevant period of the litigation and in circumstances where the wife claims that her own paid legal costs have come from income received post – separation. Certainly, this argument has some merit where the wife received a considerable income and in the relevant post separation period when working in the United Kingdom whereas the husband remained in Australia with primary care of the children and has more recently become unemployed. Notably, however, the wife contributed significantly to the support of the husband and the children. Nevertheless, the husband's own affidavit material proves fatal to his own argument where he firstly at [34] of his trial affidavit concedes having unilaterally transferred the sum of $350,000 – $354,000 from a joint account into his sole name on 19 February 2020. Then at [50] of the same affidavit the husband deposes:
Whilst [the wife] has had her substantial income at her disposal and has not contributed anything towards the day to day living expenses of the children since November 2019, I have had no alternative but to rely on capital (emphasis added) to meet any short fall of expenses for me and the children. I also note that I have been required to meet my legal fees from capital (emphasis added), whereas [the wife] has been able to utilise her income to meet legal expenses in these proceedings
In circumstances where the husband has been employed for some periods and where he concedes removing $350,000E from a joint account but where the wife does not argue the “reasonableness” of his expenditure of these monies ($100,000E) save and except for paid legal fees but where the husband concedes that his legal costs were paid from this capital then I am of the view that it is appropriate to exercise my discretion in adding back the paid legal fees to the pool and in a quantum of $232,359.
Secondly, the husband argues generally that the wife’s prepayment of CGT yet to be assessed and her purchase of the Suburb S property (with emphasis on the payment of the $191,000E) stamp duty from the sale of vested B Company shares were not "reasonable” expenditures in the sense anticipated by Omacini (supra). The husband argues that the wife has put herself in a financially advantageous position primarily by purchasing the Suburb S property incurring the payment of stamp duty of $191,250 which is, of course, not evident in the valuation. Where that purchase was made only weeks ago, the husband argues that should the wife have delayed the purchase of a property in Australia until after this trial then effectively there would have been an extra $191,250 in the pool.
Similarly, the husband argues that the prepayment of the wife's CGT on the sale of vested B Company shares was not necessary at the time and given that such tax would not be struck until January 2024 and that the wife’s circumstances may then be relevant to the quantum of tax payable given her now return to Australia. In her final submissions, however, counsel for the husband conceded that the Court could simply construct an order in respect of any variations on the taxation struck in 2024 as to that now assessed and prepaid by the wife thereby eliminating any prejudice to either of the parties.
The question of the wife's purchase of a home in Suburb S upon her return to Australia is, of course, circumstantial as to its reasonableness. The wife had lived the England for the past four or so years. The parties had separated during that period with the children residing primarily with the husband in Australia. The wife determined to relocate permanently back to Australia and consent orders indicated that the parties have assumed an equal time and shared care arrangement and responsibility for the children. She required adequate and settled accommodation for the children. The husband remained in the former matrimonial home. In those circumstances I am persuaded that it was appropriate and reasonable for the wife to purchase a residence suitable to accommodate the children and where notably she did so in an area proximate to the children's schools. The payment of stamp duty is a necessary contingency of making such a purchase and whilst perhaps not currently evident in the valuation of the property given its recent purchase, it is not for the Court to conduct a detailed audit of these parties’ finances. Contextually, the husband will retain another property jointly owned by the parties at C Street, Suburb E which was purchased during the relationship but would have incurred stamp duty at the time.
In all of the these circumstances, I am of the view that the wife's purchase of a property and prepayment of her taxation assessment were both prudent exercises in organising her financial position at a time of moving her employment from the United Kingdom to Australia and where she was to assume substantial and equal shared care for the children. As such, I intend to follow the general rule that the equity in the wife's property at Suburb S be included in the property pool given that it was purchased from “joint assets” namely the wife's sale vested shares in B Company. Similarly, I am satisfied it is proper that I construct an order whereby any variation in the taxation struck on or before January 2024 in relation to the wife's sold B Company shares be adjusted between the parties according to the general alteration of their property interest pursuant to these orders.
There remains a further issue in respect of the property pool. The wife receives regular Performance Bonuses. She is to receive one in September 2022 being the reserved period of this judgment. It is agreed that she will receive $92,600. It is submitted, and I accept, that she will pay “some tax on it”. I have no further or detailed evidence as to what the tax is to be and no details of whether such tax will be struck in the United Kingdom or Australia or a combination thereof. The best I can do, therefore, is to add the figure in its gross form to the property pool but noting for the purposes of s 75(2)(o) that the wife will eventually have to pay some tax in respect of that gross receipt.
The above-mentioned issue of “jewellery and handbags” held by the wife as well as a mention of “artworks” held by the husband, remains problematic given that I have neither expert evidence nor proper inventory. Again, it is not for me to formulate some valuation without full and proper expert evidence and certainly it would not be appropriate for me to simply extract items from the wife's bank statements and give a “value” on a cost – basis. In the circumstances, I will not include the handbags, jewellery or artwork in the asset pool but will take into consideration under s 75(2)(o) that the wife retains a valuable quantity of designer handbags and jewellery which were purchased at some substantial cost but where the husband apparently retains a number of the works of art of indeterminate quantity or value.
Finally, there remains an issue as to furniture and contents in the possession of each of the parties. The wife attributes household contents at $65,000 in the possession of the husband and $2,000 of value in her possession. The husband does not reference furniture and contents in his balance sheet. Again, I have neither valuation nor inventory and cannot properly, therefore, include furniture and contents at value in the property pool. I will again utilise s 75(2)(o) in respect of this issue and where I take notice of the fact that the husband has retained the former matrimonial home and, I assume, the majority of furniture and contents situate in that property whereas the wife has purchased a new home and will be required to re-establish it with furniture and contents.
Consequently, I find the property pool for the purposes of my consideration and determination to comprise of the following:
ASSETS DESCRIPTION VALUE 1 Husband C Street, Suburb E $2,850,000 2 Wife H Street, Suburb S $3,250,000 3 Husband Westpac Bank Account ending #...57 $0.00 4 Husband Westpac Bank Account ending #...46 $62,198 5 Wife G Bank Account ending #...68 $442,388 6 Wife F Bank Account ending #...53 $710 7 Wife F Bank (AUD) $2,067 8 Wife Westpac Bank Account ending #...53 $22,664 9 Wife Westpac Bank Account ending #...42 $0.00 10 Wife M Bank UK account ending #...68 $74 11 Husband Westpac and R Trading share portfolio $28,328 12 Husband Cryptocurrency $1,140 13 Husband 2017 Motor Vehicle 1 $30,000 14 Wife 2021 Motor Vehicle 2 $80,750 15 Husband Paid legal costs (add-back) $232,359 16 Wife Performance Bonus September 2022 (gross figure) $92,600 TOTAL $7,095,278
LIABILITIES DESCRIPTION QUANTUM 16 Husband Westpac Investment Loan Account ending #...92 $1,426,000 17 Wife Westpac Bank Account ending #...72 (mortgage Suburb S $2,200,000 18 Wife Loan from N Finance $79,750 TOTAL $3,705,750
NETT TOTAL ASSETS (excluding superannuation and financial resources) $3,389,528
SUPERANNUATION DESCRIPTION VALUE 19 Husband Super Fund 1 $528,029 20 Wife Super Fund 3 $513,661 21 Wife Super Fund 2 (United Kingdom pension plan) $225,538 TOTAL $1,267,228
FINANCIAL RESOURCES DESCRIPTION VALUE 24 Wife B Company Shares not vested $1,630,026 TOTAL $1,630,026 CONTRIBUTIONS
There is some ambiguity as to the length of the parties’ relationship or, more particularly, its status at certain times. It seems they commenced a relationship in 1996 and lived together for a period in the late 1990s. They are agreed, however, that they lived together from 2003 and married in 2004. There is also some dispute as to the date of separation but which does not impact to any degree on my determination. The wife indicates that separation took place on 25 December 2017 where the husband prefers September 2018 as the date of final separation.
The wife argues that contributions should be considered on an in globo form and overall be considered as equal in what was a reasonably long relationship.
The husband argues that he should be given some consideration and loading for a superior initial financial contribution wherein it is agreed that he purchased a property at D Street, Suburb T in November 2001 with an equity of some $360,000. Whilst the wife asserts some contribution herself to that property by way of her labours and other contribution to its improvement, she primarily points to the purchase by her of a property at Suburb O or Suburb P (there is some confusion in the affidavits) in June 2005 with a gift of $250,000 from her father for renovation costs. The husband does not deny the advancement by the wife's father. He does, however, challenge its status and suggests it was a “loan” to both of the parties. At [16] of his trial affidavit the husband deposes:
[The wife’s] father, [Mr U], funded the renovation costs of the [Suburb O] property of approximately $250,000. [The wife] has characterised this sum as a gift, however it was always agreed that [Mr U's] funding of the renovations was conditional upon us remaining married and that if we ever divorced, [Mr U] would require that the funds he had spent be repaid.
I cannot accept the husband's argument in circumstances where he had the wife's father available (in Court) to give evidence corroborating firstly, the status of the advancements as a “loan” and, secondly, that he required it to be repaid upon the parties’ divorce. The husband neither adduced such evidence nor gave explanation for not doing so. As such, an inference is available to me that the further evidence might not have assisted the husband’s case and I draw that inference in the circumstances also noting there to be no evidence of the terms of the asserted “loan” or its repayment and no evidence of any attempts by the wife’s father to enforce repayment. Equally, however, the wife did not call her father as to his intention at the time of its advancement and the same inference may well be drawn against the wife who had the availability of her father to give evidence even as an adverse witness. Whilst it is accepted that there has been a personal falling out between the wife and her father (evident by her father's apparent support of the husband in these proceedings), the fact remains that the advancement was made by the wife's father early in the relationship and that there is no evidence of him demanding or otherwise seeking repayment. Absent any evidence to the contrary from the wife's father, I am satisfied that the parties achieved this advancement by way of a gift and by reason of the wife's relationship with her father.[14]
[14] Jones v Dunkel [1959] HCA 8 and Kessy v Kessy (1994) FLC 92-495.
The parties otherwise agree that there were a myriad of contributions, both financial and non -financial, by each of the parties during the relationship. Certainly, the wife became the primary income earner but where the husband then assumed a far greater responsibility for the care of the children and particularly so when the wife was resident in the United Kingdom but where the wife then contributed financially towards the support of the husband and the children until such time that the husband unilaterally moved $350,000E into his personal bank account but where, notably, the wife argues and “add-back” in respect of the $252,000 used for payment of the husband’s legal costs.
There is no evidence of any other particular or extraordinary contributions which would cause adjustments to one or other of the parties.
In all of those circumstances and where the timing of the contributions of the husband's purchase of the Suburb T property and the wife's father's contribution towards the renovation of the Suburb P property are such that within the context of the length of the relationship and the many other contributions by each of them I am not persuaded that there should be an adjustment to either of the parties by way of contributions.
ANY FURTHER ADJUSTMENTS s 79(4)(d)-(g)
The Court now turns to consider whether there be any further adjustment to either of the parties by reason of the matters at s 79(4)(d) – (g) which provides:
(d)the effect of any proposed order upon the earning capacity of either party to the marriage; and
(e)the matters referred to in subsection 75(2) so far as they are relevant; and
(f)any other order made under this Act affecting a party to the marriage or a child of the marriage; and
(g)any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.
The matters under s 75(2) are many and varied and include considerations such as the age and state of health of each of the parties; the income, property and financial resources of each and their capacity for gainful employment; commitments of the parties to the support of others including children under the age of 18 years; the impact of the relationship on the earning capacity of the parties or more generally any fact or circumstance which, in the opinion of the Court, the justice of the case requires to be taken into account (s 75(2)(o).
As long ago as 1995 the Full Court in Clauson & Clauson (1995) FLC 92-595 referenced the nature of the discretion for the Court in respect of the these considerations where it said at 81-907:
In the earlier years of the Court it was sometimes referred to as the "needs factors". That was misleading and has long since been discouraged. The reference to those considerations which occurred here, namely, the reference to them as "maintenance factors", is not only misleading but will inevitably produce confusion between the exercise of discretion under sec 79 and the power to order maintenance under ss 72 and 74.
Importantly, and as is the case here, there is a significant discrepancy in the current and potential income capacity of the parties, the Court has warned against the use of s 75(2) as a tool for “equalising” the financial positions of the parties post – separation and post – litigation. In Waters & Jurek[15] the Full Court commented:
The connection between the s 75(2) factors and a just and equitable property order is more difficult since the criteria are expressed very broadly and are fundamentally prospective in their operation. The provision does not invite a process of social engineering (emphasis added).
[15] (1995) FLC 92 – 635 at p 82,376.
Similarly, Wilson J in the High Court in Mallet v Mallet[16] opined:
The objective of the section is not to equalise the financial strengths of the parties. It is to empower the Court, following a dissolution of a marriage, to effect a redistribution of the property of the parties if it be just and equitable to do so …
[16] (1984) FLC 91 – 507 at p79,127.
Any adjustment determined by exercises of the discretion at s 75(2) is usually expressed in percentage terms but where an eye should be attuned to the reality or practical effect of such an adjustment and particularly so in relation to the quantum of the property pool[17] where their Honours in Clauson & Clauson[18] noted:
There is, we think, at times a tendency to assess s. 75(2) factors in percentage terms without considering its real impact, and we think there is legitimacy in the views expressed in more recent times that the Court has tended to operate in this area within artificially delineated boundaries. That is, it appears almost to be inevitable that the s. 75(2) factors will be assessed in a range between 10% and 20%. A number of cases will justify an assessment outside those parameters and in any event it is the real impact in money terms which is ultimately the critical issue.
[17] (1995) FLC 92-595 at p 81,911.
[18] Ibid.
The property pool here, excluding superannuation, has net value of $3,389,528. The parties now share the care of two dependent children. The significant difference in the parties’ financial positions, currently and potentially, is that where the husband admits (and is not challenged) that he has an income capacity of around $150,000 per annum, the wife in cross-examination conceded that she had “potential” income level from all sources of around $1 million per year. She achieves that income from her employment as an executive with B Company. Her income is around $500,000 per annum. She receives discretionary bonuses but historically they come frequently and at some value evidenced by the $92,600 received in September. She receives considerable benefits from her employment including but not limited to a motor vehicle allowance of $30,000 per annum. She has a current financial resource of yet to be listed B Company shares with a gross value of $1,630,000. The drip – feeding of the vesting of these shares at 5 per cent of the quantity quarterly will inevitably add significantly to her “income” albeit that she will pay tax upon the vesting of the shares. The relevant context is that those shares have current value of around $250 each. This will be an ongoing valuable financial resource for the wife given that there is no indication that she intends to relinquish her employment. In practical terms she will, therefore, be in a more advantageous position than the husband to re-establish herself financially following separation and this litigation. The financial resource currently in a gross form and not yet in her hands is nevertheless of considerable potential value to the wife as are the ongoing potential benefits.
The wife’s income potential is also indicated by the luxury goods in the form of jewellery and handbags in her possession. Similarly the husband retains artworks purchased during the marriage. The best evidence is that the wife will have to re-establish herself and the children in her Suburb S home where the husband by remaining in the former matrimonial home will not have this expense. I note that the wife will have to, in all likelihood, pay tax on her $92,600 bonus. I take all of these matters into account under s 75(2)(o) of the Act.
Emphasising that this is not to an exercise in social – engineering or “equalising”, the more relevant s 75(2) factor is obviously the discrepancy in the parties’ incomes both currently and potentially. This must be seen within the context of the value of the property pool and the length of the relationship. The husband is not destitute. He concedes an income potential of $150,000 per annum. It is trite to observe that income potential is often the most beneficial “asset” to take out of a marriage.[19] Where the income discrepancy is substantial and a pool of relatively limited value, I am of the view that an adjustment of 12.5 per cent of the property pool to the husband would be appropriate in bringing a realistic eye to the practical results where an adjustment of 12.5 per cent of the net tangible assets would equate to $423,691 this of course amounts to a 25 per cent discrepancy in that the wife would be receiving 37.5 per cent of the pool as against the husband 62.5 per cent. This must, however, be seen within the context of the wife's relatively high income as against the value of the property pool. I also factor into consideration the other contingencies such of the jewellery and designer items in the possession of the wife although the only evidence I have is to “value” is their purchase price. I also factor in the husband’s retention of the majority of the furniture and contents including artworks and the wife’s financial resources as considerable potential value relative to the value of the tangible property pool but together with likely tax obligations.
[19] Best v Best (1993) FLC 92-418.
The husband retains assets and liabilities of a net value of $1,778,025. Sixty two and a half per cent of the net property pool entitles him to $2,118,455. I calculate therefor a cash adjustment to the husband of $340,430.
COSTS APPLICATION
I assumed carriage of the trial of this matter only at the “Court door” given the unavailability of Justice Hartnett who previously had carriage of the matter. There has been a history (also agitated before me) of the husband asserting that the wife had not made full and proper disclosure during the procedural aspects of these proceedings. Consequently he brought an interlocutory application before her Honour listed for 11 May 2022 and seeking full and proper discovery. The Application was supported by an Affidavit. I accept the Application was properly served. I am told and accept that no Response was filed by the wife. I am told and accept that the matter resolved by way of concessions from the wife at the Court on 11 May 2022. On that day an Application for the costs of and incidental to the Interlocutory Application was made and reserved by her Honour to the Trial Judge. Her Honour noted the costs at $9,000. I am now asked to determine that Application.
The husband's argument is a simple one. He says that he is entitled to the benefit of full and proper disclosure and that, despite the numerous requests in writing, the wife had not complied. He says that the application was therefore necessary. He says that no Response or responsive affidavits were filed and that the matter resolved only at the court door by way of concessions from the wife. The implication of the husband's argument is that if the documents had been provided prudently and even upon receipt of the Application then the preparation for the Interlocutory Hearing would not have been necessary.
The wife in her trial affidavit addresses these issues briefly at [215] and [216] where she says:
[215]… I deny that I have withheld the documents. I have provided all documents within my custody, control, and possession to the [husband].
[216]… I dispute [the husband] is entitled to costs in respect of his application. The document which I provided are the same documents which I have previously provided.
Matters of costs are dealt with pursuant to s 117 of the Act which provides a general rule that each party to the litigation be responsible for his or her own legal costs. That general rule, however, is subject to a discretion being enlivened in the Court to make an award for costs if there are “justifying circumstances” to do so. It is well-established that the term “justifying” is not to be read the as synonymous with “extraordinary”. In determining whether there are justifying circumstances and whether to exercise the discretion to make an award for costs, the Court is mandated to consider the matters set out at s 117(2A) of the Act.
This is not a matter where the financial circumstances of either of the parties is relevant in the sense that the wife would be unable to meet an order for costs. Neither party is in receipt of a grant of legal aid. It is the conduct of the wife to the litigation that is the thrust of the husband's application. Arguably the husband obtained the desired successful result from his application by the concessions apparently made by the wife at the Court door thereby resolving the matter. This is not a matter in which offers of settlement would be relevant.
On the limited the evidence before me, I am satisfied that the husband's solicitors had made numerous written requests for disclosure and specifically in respect of the wife's employment and in relation to accounts held at the United Kingdom banks. The consent provided by the wife on 11 May 2022 was in terms as follows:
… Within seven days [the wife] would provide signed authorities to B Company UK, Q Finance and G Bank (husband the trial affidavit [43]).
Consequently, I am generally satisfied that the husband brought the Application out of necessity to obtain relevant documents from the wife. I am satisfied that he had not obtained these documents by repeated written request from his solicitors to wife's solicitors. I am satisfied that he received the concession from the wife only at the court door. As such, I am satisfied that the husband's Application was necessary and that it therefore incurred him costs. I am satisfied, therefore, that there are justifying circumstances for me to exercise my discretion in making an award of costs to the husband. No argument was taken before me as to the quantum of costs sought and noted by her Honour on 11 May 2022. Accordingly, I make an order for costs fixed in the sum of $9,000. They will be paid contemporaneously with the cash adjustment for the property settlement.
I certify that the preceding seventy (70) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McGuire. Associate:
Dated: 27 October 2022
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