Pfenning & Snow
[2016] FamCA 29
•27 January 2016
FAMILY COURT OF AUSTRALIA
| PFENNING & SNOW | [2016] FamCA 29 |
| FAMILY LAW – PROPERTY ADJUSTMENT ORDERS – Significant asset pool – Marriage of approximately 21 years and two children of the marriage – Husband seeking 70 per cent/30 per cent division of asset pool reduced by substantial contingencies for notional capital gains tax; sale costs and potential tax on dividends to extract funds from private company – Consideration of Rosati v Rosati (1998) FLC 92-804 – Whether contingencies contended for by husband to be deducted in determining value or relevant as a s 75(2) factor – Husband contending that his “contribution” includes work experience and skills acquired over decades prior to marriage – Husband contending that 40 per cent disparity results given this “contribution” and what it produced financially during early years of marriage as the reason substantial wealth created – Capital contributed to marriage – Initial capital – Gifts and inheritance –– Consideration of meaning of “contribution” for the purposes of s 79(4)(a), (b) and (c) – Approach to assessment of contribution based entitlements over entirety of relevant period – Orders to achieve just and equitable outcome – Order providing for contingency as to taxation on dividends – Determined 55 per cent/45 per cent division in favour of husband. |
| Family Law Act 1975 (Cth) Income Tax Assessment Act 1936 (Cth) |
| Beneke v Beneke (1996) FLC 92-698. Waters & Waters (1981) FLC 91-019. |
| APPLICANT: | Ms Pfenning |
| RESPONDENT: | Mr Snow |
| FILE NUMBER: | BRC | 8784 | of | 2013 |
| DATE DELIVERED: | 27 January 2016 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Kent J |
| HEARING DATE: | 23 and 24 September 2014 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Kearney SC |
| SOLICITOR FOR THE APPLICANT: | Barry.Nilsson. Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Kirk QC |
| SOLICITOR FOR THE RESPONDENT: | Phillips Family Law |
Orders
IT IS ORDERED THAT:
Within twenty-one (21) days from the date of delivery of these Reasons for Judgment the parties are to provide to the Court:
(a) An agreed form of Orders giving effect to these Reasons; or, failing agreement;
(b) Advice that the matter must be re-listed for the purpose of the Court determining the terms of final Orders giving effect to these Reasons for Judgment.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Pfenning & Snow has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT BRISBANE |
FILE NUMBER: BRC 8784 of 2013
| Ms Pfenning |
Applicant
And
| Mr Snow |
Respondent
REASONS FOR JUDGMENT
Determination
For reasons which will become apparent, it will be necessary to afford the parties an opportunity to formulate orders to give effect to these Reasons. If that agreement to a form of orders cannot be achieved, it will be necessary for the matter to be re-listed for the purpose of the Court determining the precise form of orders to be made.
My consideration of, and conclusions about, the issues in this case and its outcome are detailed in the reasons which follow.
I have determined that whilst orders will need to be made for the sale of property to achieve property settlement; and thus the value of that property will be determined by sale (as will actual amounts for realisation costs and capital gains tax (“CGT”)); using the expert evidence as a guide for these matters, the net value of the property of the parties is $17,446,936.
I have determined that there ought be an overall division of the parties’ property interests of 55 per cent/45 per cent in favour of the husband.
By reason of that determination and despite the parties’ agreement that orders be made for the wife to receive or retain property with a net worth (as I find) of $3,766,074, there will nevertheless need to be a substantial cash sum paid by the husband to the wife to realise her entitlement.
Again, using the expert evidence as a guide when sale will determine the actual figures, 45 per cent of the notional pool of $17,446,936 is $7,851,121.20. On this estimation a cash sum of $4,085,047.20 would be required to be paid by the husband to the wife to achieve settlement.
I am satisfied that the husband has the capacity to raise $500,000 of the cash sum required to be paid to the wife without reliance upon any sale, and that he can pay that sum within thirty (30) days of orders, and an order to that effect will be made.
Otherwise, orders will be made to effect the sale of the property at 1 and 2 B Street, Suburb C (“the Suburb C property”) owned by the husband’s company Pfenning-Snow Pty Ltd. I have accepted the wife’s position in that event as to:
a)The wife’s involvement (by order) in the method or mechanism of sale adopted and the sale process itself on equal terms with the husband; (this is one aspect giving rise to the need for the parties to have the opportunity to agree upon the form of orders or, failing agreement, to be heard upon the terms of orders made);
b)A “rise and fall” provision in the sense that the final orders not provide for any fixed cash sum payment amount to the wife with sale determining each of value of that asset; actual selling costs; and CGT payable; and thus the overall net value of the pool.
To the extent, but only to this extent, that the husband causes Pfenning-Snow Pty Ltd to declare fully franked dividends to himself, derived from the net proceeds of sale of the Suburb C property, in order to pay the balance of the wife’s entitlement; the parties are to be responsible in the proportions of 55 per cent (the husband) and 45 per cent (the wife) for the tax payable by the husband (after franking credits) on such dividends; with the settlement amount to be paid to the wife adjusted accordingly.
The orders will need to provide for the husband to pay the balance of the wife’s entitlement upon settlement of the sale of the Suburb C property.
Orders will need to be made to effect the sale of the parties’ jointly held publicly listed shares. Again, sale will determine actual value, net of any realisation costs and any taxation effect to be deducted from the proceeds; with the net proceeds to be paid to the wife upon sale in partial satisfaction of her entitlement.
There may be a need for machinery orders, for example to provide for an expert to calculate GST when sale of the Suburb C property occurs, to be incorporated in final orders giving effect to this determination and the parties will have the opportunity of agreeing upon them, or the Court will determine them.
The parties will have twenty-one (21) days from the date of delivery of these Reasons to provide to the Court:
a)An agreed form of Orders giving effect to these Reasons; or, failing agreement;
b)Advice that the matter must be re-listed for the purpose of the Court determining the terms of final orders giving effect to these Reasons.
Central issues at trial
Mr Snow then aged 42 years and Ms Pfenning then aged 31 years commenced cohabitation upon their marriage in 1991.[1] They separated under the same roof a little over 21 years later in March 2013 but both continued to live in the former matrimonial home until the husband left that home in February 2014, then ending a period of cohabitation of about 22 years.
[1] The husband has contended that the date of marriage/cohabitation is … 1991 but the wife’s version is likely to be accurate and nothing turns on the difference in any event.
Their marriage produced two children, a daughter, D, born in 1997, and a son, E, born in 1999.
As at physical separation of the parties in February 2014 their daughter was 17 years of age and their son was aged 15 years. The parties negotiated parenting arrangements thereafter culminating in their children spending substantial time with each parent.
The parties are in dispute as to the appropriate and just and equitable orders to be made[2] altering their interests in property in order to end their financial relationships.
[2] Pursuant to s 79 of the Family Law Act 1975 (Cth) (“the Act”).
The parties have accumulated substantial property. On the husband’s case, the combined net worth of the parties is approximately $14 million. On the wife’s case, the combined net worth totals approximately $18.6 million.
The primary, albeit not sole, reason for that difference is that the private company Pfenning-Snow Pty Ltd owned by the husband and which both parties agree the husband ought retain, owns three commercial real properties. Those properties have, on the expert evidence accepted by both parties, a combined total value of $9.5 million.
However, the husband contends (and the wife disputes) that from that total combined value must be deducted contingencies comprising:
a)Estimated sale costs of selling all three properties totalling $285,000.
b)Estimated CGT totalling $1,535,155 calculated on all three properties being sold at prices equal to their respective assessed valuations.
c)Estimated taxation of $2,270,300 on dividends sufficient to extract in full the estimated amount of net sale proceeds of such sales (after costs of sale and CGT), a total of $7,679,845, from Pfenning-Snow Pty Ltd via dividends.
The husband further contends (and the wife disputes) that from the $979,271 value of the PS Trust (a trust the husband controls and the parties agree he is to retain) is to be deducted notional CGT and sale costs totalling $591,875 referrable to the sale costs and CGT that would be payable if the underlying asset, a store in F Town, in which that trust holds an interest is sold at its valuation amount.
The parties also disagree as to the assessment of their respective entitlements pursuant to s 79(4) of the Act.
The husband contends for a 70 per cent/30 per cent division in his favour (of the net property pool worth approximately $14 million for which he contends) as the appropriate outcome of such an assessment with no further adjustment in favour of either party being made for s 75(2) matters.
This is qualified to the extent that whilst the husband’s primary position is that the contingencies be deducted in full to arrive at a value of the property interests, his alternative contentions are that these be accounted for “under s 75(2) or s 79(2)”.
I interpolate here that it seemed from paragraph 3.1 of the husband’s affidavit filed on 3 February 2014 that the 70 per cent/30 per cent division the husband contended for did not include the wife’s interests in two real properties (conveniently referred to as G Street and H Street respectively worth a combined $1,184,000). However, as at trial and in the husband’s final written submissions those interests and their values were incorporated.
The wife contends for an overall 55 per cent/45 per cent division in her favour of the net property pool worth approximately $18.6 million for which she contends. That 55 per cent is comprised of 53 per cent as the wife’s contributions based entitlement and a 2 per cent adjustment in the wife’s favour for s 75(2) matters, primarily referrable to the two properties or property interests held by the wife as a result of gifts to her by her family.
The parties agree, and orders will be made to achieve, that the wife receive or retain as part of her property settlement, at the following agreed values, the following assets and liabilities (including the notional adjustment for paid legal fees):
Item
Value
($)
(a) Former matrimonial home at I Street, J Town
2,150,000
(b) Wife’s interest in G Street, K Town
134,000
(c) Wife’s interest in H Street, L Town
1,050,000
(d) Bank accounts
53,086
(e) Shares
5,030
(f) Motor vehicle
20,000
(g) Paid legal fees
95,763
(h) Superannuation interests
264,205
(i) Credit card debts
(6,010)
TOTAL
$3,766,074
For reasons which shortly will be discussed, I have not deducted the wife’s debit beneficiary loan account in her own family’s trust nor have I included the shares which the parties own jointly, in the items to be received or retained by the wife.
The parties agree that the husband ought receive or retain the other property interests.
Summary of husband’s case
As already noted the husband contends for an overall 70 per cent/30 per cent division of the net property interests for which he contends (after deducting the contingencies referred to) in his favour. The essence of the husband’s case giving rise to the resultant 40 per cent disparity between the parties is:
a)His claim to an initial disparity between the parties of capital contributed to the marriage.
b)More particularly the husband’s claim to have brought to the marriage, his having “laid down a base of qualifications and experience” in the decades preceding the marriage, a business and skill set he utilised during the course of the marriage to produce substantial income and consequent wealth.
c)That it cannot be concluded in the circumstances of this case that what was produced by the husband and his business, particularly in the early years of marriage, was the product of mutual efforts or joint contribution of the husband and wife.
The husband contends that on the basis that he will retain the company
Pfenning -Snow Pty Ltd which holds substantial assets; extracting funds from that company, potentially including for the purpose of the wife being paid a cash sum to achieve property settlement, will potentially involve the sale of one or more of the real properties owned by the company with consequent costs of sale and CGT liabilities being incurred; and taxation on dividends being incurred to extract funds from the company.
The husband contends that those “liabilities”[3] need to be brought to account either in determining the value of the existing property interests by deducting these amounts (his primary position); or by taking account of them “…under S75(2) or S79(2) in a quantifiable way that allows the parties to understand what has been done”.[4]
[3] These are described as liabilities in the husband’s written submissions.
[4] Husband’s written submissions at 2.2 on page 6.
The husband contends that any case the wife might otherwise have had for a s 75(2) adjustment in her favour, whether by reason of wealth disparity produced by a 70 per cent/30 per cent outcome, or otherwise, is answered by reference to the wife’s expectations regarding her own family’s trust (in which she is a beneficiary) and the prospect that the wife will benefit from a substantial inheritance from her mother who is contended to be exceedingly wealthy with assets worth in the order of approximately $30 million.
It is part of the husband’s case that whilst he acknowledges that “formal” separation occurred in March 2013, he contends in his evidence and written submissions to the effect that “…the parties lived separate lives albeit under the same roof from around 2003-4”. He thus contends that the assessment of the parties’ respective contributions is characterised by that context.
Some emphasis was placed by the husband upon the feature that whilst cohabitation commenced upon marriage in 1991, the wife’s homemaking and parenting contribution is to be considered in circumstances where the parties’ first child was born in 1997; and by January 2001 the husband reduced his work commitments as a consequence of sale of the business and the parties’ relocation from Sydney to Brisbane. In that context, the husband advances the proposition that the wife’s primary parenting role was undertaken between the birth of their first child in 1997 and early 2001 when the husband contends on his case that he thereafter participated equally with the wife in parenting of the children.
Summary of the wife’s case
The wife contends for an overall 55 per cent/45 per cent division of the net property interests for which she contends (without deduction for the contingencies advanced by the husband) in her favour.
The essence of the wife’s case giving rise to the resulting 10 per cent disparity is that whilst the parties’ contributions over the course of some 22 years of marriage, whilst differing and disparate, are nevertheless properly assessed as being equal; save only in respect of gifts the wife received from her family to be treated as her sole contribution.
Such gifts include the wife’s interests in two real properties conveniently referred to as the G Street property and the H Street property, interests with a combined total value of $1,184,000.
The wife thus contends that the parties’ contribution based entitlements are appropriately assessed at 53 per cent/47 per cent in the wife’s favour having regard to the gifts referred to.
The wife further contends that consideration of relevant s 75(2) matters ought result in a 2 per cent adjustment in the wife’s favour having regard in particular to:
a)The husband’s capacity to access his superannuation, a capacity she does not have.
b)The husband’s access to and use of funds post-separation.
c)The wife’s potential liability for CGT in respect of the G Street property and the H Street property.
The wife joins issue with the husband’s contentions concerning his claimed initial contribution of capital, or at least that the disparity in contributed capital is as contended for by the husband or reflects in the ultimate percentage terms for which the husband contends.
More fundamentally, the wife challenges the notion that the husband’s earning capacity per se, as it existed at the outset of the marriage, is to be treated as a contribution solely by the husband by reference to the product of the exercise of that capacity during the marriage.
To the extent that the three real properties owned by the company Pfenning-Snow Pty Ltd (or any of them) are not actually required to be sold for the purpose of realising the wife’s entitlement/cash payment to the wife; the wife disputes that sale costs and estimated CGT referrable to such items if sold is to be deducted from the value of these assets in arriving at a value for them; or that these contingencies are a relevant s 75(2) matter or s 79(2) consideration.
The wife also disputes that estimated taxation on fully franked dividends paid from the company Pfenning-Snow Pty Ltd to extract funds from that company are to be brought to account either in valuing the property interests or as a s 79(2) or s 75(2) matter.
The essence of the wife’s case in these respects is that historically the husband has been a holder or accumulator of property and will do what he can to retain the current assets within Pfenning-Snow Pty Ltd if history is any guide. Moreover, the wife suggests other possibilities may exist for her entitlement to be met, for example, by the husband borrowing funds against assets in discharging any obligation he has to pay a cash sum to the wife.
Dispute re: contingencies
The significance of the dispute between the parties concerning the issue of potential sale costs; CGT; and taxation on fully franked dividends to extract funds from the company Pfenning-Snow Pty Ltd; is illustrated by reference to Exhibit 14, being a series of schedules produced jointly by the parties’ respective expert accountants.
In summary, Pfenning-Snow Pty Ltd owns three commercial real properties which were valued by an expert and those values are not in issue. Those three properties are assessed to have a combined value, on the expert evidence, of $9,500,000. It is estimated by the expert accountants that if all three properties were sold at prices equal to their respective valuation amounts, selling costs of $285,000 would be incurred; and CGT totalling $1,535,155 would be payable. Thus, on this basis property valued at $9,500,000 would convert in real terms to $7,679,845 in proceeds held by the company net of sale costs and CGT.
The accountants further provide evidence (Exhibit 14) that if that full amount of $7,679,845 were extracted from the company via fully franked dividends, taxation of $2,270,300 would accrue (or $2,155,293 if the husband’s director’s loan of $383,359 was paid).
This is the basis for the husband’s overall contention that the value of $9,500,000 within Pfenning-Snow Pty Ltd reduces to about $5,400,000 in net terms if that amount in full were to be extracted via franked dividends from the company following sales of the properties.
Queen’s Counsel for the husband sought to emphasise the significance of an Australian Taxation Office (“ATO”) ruling (TR 2014/5) released on 31 July 2014 in relation to the deemed dividend provisions in Division 7A (ss 109B to 109ZE) of the Income Tax Assessment Act 1936 (Cth) (“ITAA”).
In summary, under Division 7A a private company may be deemed to have paid a dividend or assessable distribution to the recipient where the company makes a loan to; or makes a payment to; or transfers property to; a shareholder or associate of a shareholder (as defined in the ITAA).
The ruling confirms the approach of the ATO that where an order is made under s 79 of the Act requiring a company to pay money or transfer property to a shareholder of the company, the payment or transfer is treated as a dividend/assessable income of the shareholder under s 44 of the ITAA. That is, the deemed dividend provisions in Division 7A are not avoided by the fact that the payment is made pursuant to an order made by a Court pursuant to s 79 of the Act.
Whilst Queen’s Counsel for the husband described the ruling as
“game-changing” Senior Counsel for the wife pointed out (correctly in my view) that there had been no change or amendment to the underlying legislation and that the ruling was confirmatory of its proper interpretation.
It was submitted on behalf of the husband that meeting the criteria in s 109N of the ITAA of entering into a commercial loan agreement at the minimum prescribed rate and for the maximum allowable term, so as to avoid any payment or receipt being deemed a taxable dividend pursuant to the relevant provisions, is “commercially unattractive”.
I interpolate here that this submission was made absent direct evidence from the husband that he saw that option as commercially unattractive or indeed any evidence at all to that effect. That is, the husband did not provide evidence that this option of advancing complicit Division 7A loans from the company was one he positively excluded on the basis that it was commercially unattractive; and no other evidence in the husband’s case supports this submission.
Form of orders sought by each party
As already noted, both parties sought orders for the wife to receive/retain each of the former matrimonial home; her interests in the G Street property and the H Street property; and other property in her name or possession and otherwise both parties sought orders for the wife to be paid a fixed cash sum to achieve her entitlement.
That is, neither party’s primary position, in terms of orders sought, contemplated the sale of property and a “rise and fall” or percentage approach with respect to any such sale, but Senior Counsel for the wife directed final submissions to this aspect.
Of course the husband’s contentions in this respect were predicated upon the outcome he seeks of a 30 per cent entitlement to the wife of the pool for which he contends which deducts in total the contingencies referred to.
Senior Counsel for the wife, in final submissions, placed some emphasis on the feature that the husband did not actually seek any orders for the sale of any assets, and in particular any sale of any of the three properties held by the company.
Whilst the husband’s primary position, in terms of orders sought, was likewise that the cash payment necessary to effect the wife’s entitlement be ordered within 90 days of order (which was a position common with that of the wife), that was likewise predicated upon a 30 per cent overall outcome to the wife of a pool of assets reduced by the contingencies referred to.
In the event that it was necessary for real property of Pfenning-Snow Pty Ltd to be sold in order for the husband to meet the wife’s entitlement, the husband disputed his capacity to meet payment to the wife within the 90 day timeframe having regard to the prospective time it may take to achieve sales.
Whilst the husband did not seek any formal orders for any sales, oral evidence was led from the husband in his evidence-in-chief on the topic of any preferences he had as to the order of priority of sales of the three subject properties, depending upon the extent to which such sale or sales were necessary to fund the amount determined by the Court to be paid to the wife. The husband gave evidence that it would be his preference for the property at 1 and 2 B Street, Suburb C (assessed value: $6,000,000) to be the first sold; followed by the property at M Street, N Town (assessed value: $2,100,000) and finally the property at O Street, P Town(assessed value: $1,400,000).[5]
[5] Transcript of Proceedings dated 23 September 2014 at page 72.
In cross-examination the husband gave evidence to the effect that he would consider other avenues (other than selling the subject properties or any of them) in order to pay the wife but depending upon the amount of the payment.[6] The avenue the husband confirmed in evidence that he had considered was borrowing either on the security of the subject properties or potentially on what has been referred to as the F Town property (discussed below), albeit that with respect to the latter, the husband expressed the view that he had borrowed the maximum he could on that interest. The husband confirmed that he had not actually explored that option, that is, borrowing on the F Town property.[7]
[6] Transcript of Proceedings dated 23 September 2014 at pages 72 and 73.
[7] Transcript of Proceedings dated 23 September 2014 at page 73.
Remarkably as it seems to me, the husband confirmed in cross-examination that the extent of his enquiries about borrowing were via a finance broker, but that he had not received any response to his question of how much he would be able to borrow. He was unable to state how much he would be able to borrow before it became necessary to look at the sale of properties.[8]
[8] Transcript of Proceedings dated 23 September 2014 at page 73.
Thus the husband was unable to state or specify in his evidence the amount he would be able to pay without selling one or more of the subject properties. He also confirmed that he had not considered the possibility of selling the F Town property; that he did not intend selling the F Town property and that he would hope not to have to sell that property.[9]
[9] Transcript of Proceedings dated 23 September 2014 at page 74.
It may be observed of the husband’s evidence that whilst he plainly acknowledged that he had considered borrowing against assets, rather than their sale, in order to meet the wife’s entitlement; the evidence he gave as to his enquiries or investigations about borrowing demonstrated them to be exceedingly limited.
In final submissions Senior Counsel for the wife acknowledged that if real property owned by Pfenning-Snow Pty Ltd had to be sold in order for the wife to receive her entitlement (and some sale being acknowledged by Senior Counsel as seemingly inevitable if the wife’s entitlement was determined by the Court to be as contended for by the wife), then it was acknowledged that the consequences of sale, the CGT and cost of sale consequences, would need to be accounted for.[10] Senior Counsel for the wife emphasised the difference between the “possible” or notional impost of CGT and its actual impost.[11]
[10] Transcript of Proceedings dated 24 September 2014 at page 20.
[11] Transcript of Proceedings dated 24 September 2014 at page 22.
Importantly, whilst Senior Counsel for the wife acknowledged in his final submissions the “inevitability to some degree” of sale of one or more of the subject real properties if the wife’s entitlement was determined to be as contended for by the wife, Senior Counsel emphasised that the wife’s interests needed to be protected in that circumstance. That is, Senior Counsel referred to the need for orders enabling the wife to be involved in the mechanism or method of sale and, most importantly, for there to be a “rise and fall” provision as to the actual price achieved rather than maintaining the valuation figure for the relevant property. It was also contended that the wife ought receive interest on her proper entitlement to the extent that delay in effecting a sale or sales of one or more of these properties delayed her entitlement being met.[12]
[12] Transcript of Proceedings dated 24 September 2014 at page 18.
I interpolate here that authority directs that if in fact one or more of the three commercial properties are to be sold to enable the wife to receive her entitlement, it is likely to produce injustice to fix, by order, a fixed cash payment amount rather than a percentage. Here, the subject property or three properties have a combined total value of $9.5 million and it is obvious that even relatively modest percentage fluctuations between assessed value and actual sale prices achieved if property is sold, could reflect substantial differences in overall real money terms. The first property nominated by the husband as his preference for sale is valued at $6 million.
It is recognised in a number of authorities that there is likely to be a miscarriage of the s 79 discretion to order one party to receive a fixed payment amount calculated by reference to the value of an asset which in fact is to be sold.[13]
[13] See Noetel v Quealey (2005) FLC 93-230 and the authorities therein discussed; Waters & Waters (1981) FLC 91-019; Little & Little (1990) FLC 92-147; and Jarrott & Jarrott [2012] FamCAFC 29.
It bears emphasising that the husband did not advance the position that orders ought be made, even in the alternative to his primary position, concerning the sale of the subject properties or any of them. That is, the orders the husband proposed were predicated only upon the percentage outcome he contended for (70 per cent/30 per cent in his favour) on a pool from which was deducted in full the potential estimated contingencies earlier referred to with respect to all three properties owned by the company. The husband’s primary position was for the wife to receive a fixed cash sum adjustment rather than any percentage to allow for any rise or fall in sale proceeds of property, yet offered no meaningful evidence of a capacity to borrow any particular amount.
Thus whilst acknowledging the likely need to sell one or more of the subject properties to meet the wife’s entitlement, if that was determined to be as contended for by the wife, the husband did not agitate for alternative orders governing any such sales, or nominate any order of priority for such sales to be effected in orders he proposed. Nor did the husband contend for orders effecting sales and crystallisation of any of the contingencies as liabilities, but nevertheless sought that these be brought to account in full.
In submissions it was accepted on behalf of the husband that he would probably not need the entire net proceeds of sale of the three commercial properties referred to, after deduction of the contingencies, amounting to $5.4 million, to meet the wife’s entitlement. Moreover it was acknowledged that the husband could pay the amount owing to him by the company on his loan account ($383,359) without a tax consequence. However the husband emphasised the total of these contingencies for the purpose of attempting to demonstrate that the value to him of the company Pfenning-Snow Pty Ltd is substantially less than the value of its net assets.
Parties’ existing legal and equitable property interests – Joint Balance Sheet
The Joint Balance Sheet as referred to, amended only in some minor respects as discussed during the course of submissions, including the accompanying “notes” as to each party’s position, was admitted and marked as Exhibit 16 and is as follows:[14]
[14] Errors as in original.
[SNOW v PFENNING]
JOINT BALANCE SHEET AT SEPTEMBER 2014
HUSBAND VALUES ($)
WIFE VALUES ($)
1. Realty
(a) [I Street, J Town] (J)
2,150,000
2,150,000
(b) [Q Street, J Town] (H)
920,000
920,000
(c) [G Street, K Town] (W 40 per cent)
134,000
134,000
(d) [H Street, L Town] (W 50 per cent)
1,050,000
1,050,000
2. Corporate/Trust Interests
(a) [Pfenning-Snow Pty Ltd]
12,177,992
11,794,633
Assets:
· Loan [PS Trust] –
$2,404,009/$2,404,009
· [M Street, N Town] –
$2,100,000/$2,100,000
· [O Street, P Town]–
$1,400,000/$1,400,000
· [1 & 2 B Street, Suburb C] –
$6,000,000/$6,000,000
· NAB Account … –
$229,174/$229,174
· [Motor vehicle 1] – E$66,500/$66,500
· [Motor Vehicle 2] – E$34,000/$34,000
· Tools – Nominal/Nominal
· Trailer - E$750/$750
· Future Income Tax Benefit –
$99,267/$99,267
Liabilities:
· GST Payable control account
($16,278)/($16,278)
· PAYG Instalments
($29,281)/($29,281)
· Taxation
($60,428)/($60,428)
· Amounts withheld from salary and wages
($7,800)/($7,800)
· Land Tax
($41,922)/($41,922)
· Husband’s Loan Account (Nil/$383,359)
(b) [P.S.] [F Town] Trust ([Snow F Town Pty Ltd] ATF)
979,271
979,271
Assets:
· Cash at bank - $279,750/$279,750
· Investment in [F Town] Partnership –
$10,783,530/$10,783,530
Liabilities:
· CBA Commercial Bill –
$6,580,000/$6,580,000
· [U Holdings] - $1,300,000/$1,300,000
· [Pfenning Snow Pty Ltd] –
$2,204,009/$2,204,009
3. Bank Accounts/Shares/Other Assets
(a) Bank Accounts
– Macquarie Cash Management
(J) 8956
32,498
32,498
– NAB (W) 1159
2,000
2,000
– NAB (W) 5904
51,086
51,086
– NAB (J) 3251
Nil
Nil
– NAB (H) 6813
7,650
7,650
(b) Shares & Units (Husband)
701 IAG
4,279
4,279
1,066 Telstra
6,028
6,028
4,000 NIB
13,680
13,680
34,674,496 Australia Unity Property Trust
11,136
11,136
50,000 Real Property Direct Property Trust (Wound up)
Nil
Nil
(c) Shares (Jointly held)
71 Wesfarmers
3,119
3,119
2,000 David Jones (Sold – paid to Macquarie 01/08/14)
8,000
8,000
827 Westpac
28,506
28,506
977 Treasury Wine
4,846
4,846
(d) Shares (Wife)
824 IAG
5,030
5,030
(e) Motor Vehicle (Wife)
[Motor vehicle 3]
20,000
20,000
(f) Beneficiary Loan Account –Pfenning Family Trust (Husband sourced from 2013 financial accounts/Wife 2014)
?
(19,996)
(g) Beneficiary Loan Account – (Nil/$383,359)
–
383,359
(h) Husband’s Tax Refund
7,644
7,644
(i) Furniture (Wife)
Nil
Nil
(j) Furniture (Husband)
10,000
10,000
4. Superannuation
(a) [Mr Snow] Superannuation Fund (H)
1,071,008
1,071,008
· Cash at bank – $477,755 at 30/06/14 / $477,755
· [V Street, W Town] - $600,000/$600,000
· Future income tax benefit – $10,166
· Tax and GST ($16,913)
(b) One Path Superannuation (W)
215,100
215,100
(c) Colonial First State Superannuation (W)
49,105
49,105
18,961,978
18,941,982
5. Liabilities
(a) Loan – AFSH Nominees (for Q Street)
(682,750)
(682,750)
(b) Credit Card debts – Husband (NAB)
(2,040)
(2,040)
– Wife (ANZ, CBA & David Jones)
(6,010)
(6,010)
(c) CGT and sale costs on property sales within
[Pfenning-Snow Pty Ltd] to raise funds necessary for dividend to pay out Wife and for Husband’s future use without the constraints of Division 7A (Note 3)
(1,820,155)
See note
(d) Tax on Dividends from [Pfenning-Snow Pty Ltd] in order to extract funds to pay out Wife and for Husband’s future use without the constraints of Division 7A (Note 3)
(2,270,300)
See note
Net Actual Pool
14,180,723
18,251,182
6. Notional Adjustments
(a) Legals paid by Husband
280,529
280,530
(b) Legals paid by Wife
95,763
95,763
(c) Notional CGT/Sale Costs on [Store, F Town] (Sale costs $322,500 (50 per cent) + CGT $269,375)
(591,875)
?
(d) Division 7A tax for Husband to access company funds for personal use
(e) Partial settlement to Wife – June 2014 ($70,000) (Accounted for in item 3(a) 5904)
(f) Partial settlement to Husband – January 2014 ($228,800) (Accounted for in item 1(b))
Nil
Nil
(g) Other
Net Notional Pool
13,965,140
18,627,475
7. Financial Resources of Wife
(a) Beneficiary of [Pfenning Family Trust]
?
Nil
Net Notional Pool and Financial Resources
13,965,140
18,627,475
Note 1 Balance Date Used
Husband: We have used the balances for bank accounts, loan accounts in the companies and otherwise at 30 June 2014 to ensure that there is no double-counting.
Wife: Wife contends that all relevant and current financial information has been disclosed. Wife has adopted 30 June 2014 as the ‘rule off date’ for the various entities and accounts, but brings the publicly-listed shares to the close price as at 19 September 2014.
Note 2Property to be received/retained by the Wife
$
$
(i)
[I Street, J Towns]
2,150,000
2,150,000
(ii)
[G Street, K Town]
134,000
134,000
(iii)
[H Street, L Town]
1,050,000
1,050,000
(iv)
Bank Accounts
53,086
53,086
(v)
Shares – Wife
5,030
5,030
– Joint
44,471
44,471
(vi)
Motor Vehicle
20,000
20,000
(vii)
Beneficiary Loan Account
?
(19,996)
(viii)
Furniture
Nil
Nil
(ix)
Superannuation (both funds)
264,205
264,205
(x)
Credit Card Debts
(6,010)
(6,010)
(xi)
Legals paid by Wife
95,763
95,763
(xii)
Partial Settlement to Wife
Included
3,810,545
3,790,549
Cash payment to 30 per cent
?
$
Note 3 Division 7A/Capital Gains Taxes – To extract monies held within [Pfenning-Snow Pty Ltd]
Husband: The combined value of the 3 properties held in
[Pfenning-Snow Pty Ltd] of $9.5M represents the only available source of monies to both make a payment to the Wife and to provide funds for the Husband’s future use personally. If the Husband were to borrow funds from the company for either purpose, that borrowing would be a deemed dividend pursuant to Division 7A of ITAA and the only means of generating those funds will be to sell one or all of the properties. Consequently, as the evidence of Mr X and Ms Y demonstrates, the sale of $9.5M of property will only produce $5,409,544 in funds available to the Husband as set out below.
$
$
Gross Sale Proceeds of 3 Properties
· [M Street, N Town]
2,100,000
· [O Street, P Town]
1,400,000
· [B Street, Suburb C]
6,000,000
9,500,000
Deduct
· Costs of Sale
(285,000)
· Capital Gains Tax
(1,535,155)
7,679,845
Deduct
· Tax on fully franked dividends to Husband (imputation credits of $3,291,362) in 2015 year & Budget Repair Levy
(2,270,300)
Net Funds extracted from company
$5,409,545
Whilst it is accepted that the Husband will not need the entire $5.4M to pay out the Wife and will not need to sell all 3 properties for that purpose, this evidence demonstrates that the value of this company to the Husband is substantially less than the value of its net assets. The issue will probably be as to what portion of these liabilities ought be used to reduce the divisible pool and what portion ought be brought to account pursuant to S75(2) or S79(2). Whilst we understand the Wife’s draft orders seek a cash payment of $8.18M together with retaining what she currently holds of $3.8M that would represent an entitlement of $12.0M out of a pool of $14M or in percentage terms a 86/14 division in her favour, which is inconsistent with the 55 per cent sought in her Case Outline.
Wife: the above figures will need to be updated in accordance with (what it anticipated to be) the agreement of the 2 accountants. To the extent that the properties (or any of them) is not required to be sold for the purpose of realising any entitlement of the wife, the wife contends that it is inappropriate to include any liability for taxation on capital gain in the manner proposed by the husband. The asserted amounts ought be removed from the identified property and liabilities of the parties and formulaic provision made in any Orders for any necessary liability to borne when incurred in such proportion as the Court may determine.
In addition, and whilst relevant on the wife’s case only in the assessment of matters relevant to section 75(2), there are latent liabilities for such taxation in respect of the wife’s interests in the [G St] and [H Street] properties. These liabilities are again to be the subject of anticipated agreement between the accountants.
Note 4 Time to sell one or all of the real properties held by [Pfenning-Snow Pty Ltd]
Husband: The Husband will necessarily need time to pay consistent with the time required to sell one or more of the 3 properties at the values assessed. It would be inappropriate to grant an interest component and having regard to the uncertainty of the sale proceeds in the current environment, the pool ought be adjusted if those proceeds are greater/lesser than the values agreed.
Wife: In the event that the husband seeks both to sell realty to realise funds to meet any entitlement of the wife, and time in order to do so, interest ought run in accordance with the Rules on an any amount to be so paid, there being no proposal for the disposition of the net rental income and/or other benefits accruing to the properties during any such period.
(original emphasis)
Resolution of “pool” issues
Before dealing further with the contingencies advanced by the husband, it is convenient to deal with the other issues between the parties as to the identification and valuation of property interests.
Value of Pfenning-Snow Pty Ltd – item 2(a)
Whilst on the face of item 2(a) there appears a difference between the parties of $383,359, there is not in fact any difference beyond one as to approach when regard is had to item 3(g). The wife’s approach is to separate the husband’s beneficiary loan account as a discrete item whereas the husband includes that in the total.
Jointly held shares – item 3(c)
Whilst there is no disagreement between the parties as to their jointly held shares (as item 3(c) reflects), each party proceeded on the basis that the other ought retain the jointly held shares.
That is, neither party sought to receive or retain the jointly owned shares and each contended that the other party ought receive them.
In those circumstances the appropriate course is for the shares to be sold.
Whilst this is not a matter in issue, items 6(a) and 6(b) are the legal fees paid respectively by each party and are described under the heading “Notional Adjustments”. That is, it is not suggested that these items exist as assets, but rather are items to be considered in the adjustment process.
Wife’s beneficiary loan account – Pfenning Family Trust - item 3(f)
The wife seeks to include as a liability a debit balance in her beneficiary loan account in the Pfenning Family Trust at $19,996.
This issue is addressed in the affidavit of Ms Y[15] the accountant for the wife’s mother, Ms D Pfenning, and for, inter alia, the Pfenning Family Trust, a family trust controlled by the wife’s mother.
[15] Affidavit of Ms Y filed on 15 September 2014.
Whilst Ms Y was not required for cross-examination and her evidence then as to the calculation of the debit balance was not challenged, the wife’s mother, Ms D Pfenning, provided affidavit evidence and was cross-examined.
On this topic Ms D Pfenning expressed some doubts about the calculations and more particularly referred to the need for further investigations concerning the balance of the amount.[16]
[16] Transcript of Proceedings dated 23 September 2014 at page 67.
Whilst that cast some questions about the accuracy of the figure, there is a more particular reason for not deducting this as a liability.
Ms D Pfenning, the wife’s mother, has provided the wife with financial assistance and substantial financial gifts over a long period. I did not discern from her evidence any intention to insist upon repayment by the wife of this loan or that Ms D Pfenning would actually enforce this liability as against the wife.
On that basis, consistent with the guidelines expressed in Biltoft & Biltoft,[17] in my judgment this alleged liability is appropriately disregarded.
[17] (1995) FLC 92-614.
As to the wife’s interest as a beneficiary in this trust, it seems to be accepted (correctly) that the wife’s beneficiary interest is a financial resource rather than a property interest to be considered.
Contingencies
It can be seen from a number of authorities that CGT and issues similar to those raised by the husband in this case concerning tax on dividends have historically been considered, sometimes as an asset valuation issue (that is, to be determined in arriving at the proper value of an asset) or as a liability or cost issue to be accounted for, not necessarily in identifying the value of assets but as a s 75(2) factor; or disregarded. It can be seen that some authorities are not readily reconcilable with others. The following provides examples.
In Kelly & Kelly (No 2),[18] a case concerning, inter alia, potential income/company tax liabilities, the Full Court said (at page 76,801):
As regards the argument that liability for income tax should have been deducted, this argument is very hard to sustain. In the first place there was no evidence what, if anything, the husband's liability to income tax would have been. Secondly, the High Court has on several occasions declined to take liability to income tax or company tax into account in valuing a business since such liability is dependent on too many hypothetical factors: [citations omitted]
…
…where it is anticipated that specific items of property be sold and the proceeds divided amongst the parties, it is appropriate to make deductions for costs of sale. However, where as here the amount payable is quantified as a lump sum which the husband may raise through a variety of methods in whole or in part, including the apportioning of liquid assets, the sale of assets or by mortgage, costs of sale and realization are not relevant.
[18] (1981) FLC 91-108.
In Shaw & Shaw[19] the Full Court considered a case involving, inter alia, the valuation of a party’s art collection. That case is authority for the proposition that where it is apparent that realisation of the assets will incur costs, then it will be reasonable to take those costs into account when fixing a value for the item.
[19] (1989) FLC 92-010.
In Rothwell & Rothwell[20] (“Rothwell”) Holden J adopted a different course. His Honour considered the issue of notional CGT liability in the valuation of shares even though a sale of those shares was not contemplated. His Honour undertook a detailed discussion of authorities and differing approaches and concluded that notional CGT should be deducted even though sale of the asset was not contemplated.
[20] (1994) FLC 92-511.
In principle there is no apparent reason to distinguish between a liability for CGT as distinct from a liability from any other tax including taxation on dividends actually incurred or likely to be incurred as an economic consequence of an order made. The question has fallen for some consideration by the Full Court in In The Marriage of Bland[21] and in Harrison & Harrison.[22] In Carruthers & Carruthers[23] Nicholson CJ in referring to these authorities held that there is no authority for the view that CGT can only be calculated if an immediate sale is contemplated. The Chief Justice held that it was “…of real relevance to consider the issue of when or if the relevant property is likely to be sold…” His Honour referred to the changing nature of the tax, market fluctuations, and the possibility of reducing its incidence through tax minimisation schemes.
[21] 1994 Fam LR 325.
[22] (1996) FLC 92-682.
[23] (1996) FLC 92-707.
Nicholson CJ adopted the test propounded by Finlayson JA in McPherson v McPherson[24] as contained in the following statement in the judgment from Finlayson JA:
The cases appear to turn on their own facts and if I might hazard a broad distinction, an allowance should be made in the case where there is evidence that the disposition will involve a sale or transfer of property that attracts tax consequences, and it should not be made in the case where it is not clear when, if ever, a sale or transfer of property will be made and thus the tax consequences of such an occurrence are so speculative that they can be safely ignored.
[24] (1988) 13 RFL (3rd) 1 at 9.
In Rosati v Rosati[25] (“Rosati”) the Full Court (at page 85,043) stated the following general principles as emerging from the authorities:
(1) Whether the incidence of capital gains tax should be taken into account in valuing a particular asset varies according to the circumstances of the case, including the method of valuation applied to the particular asset, the likelihood or otherwise of that asset being realised in the foreseeable future, the circumstances of its acquisition and the evidence of the parties as to their intentions in relation to that asset.
(2) If the Court orders the sale of an asset, or is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings.
(3) If none of the circumstances referred to in (2) applies to a particular asset, but the Court is satisfied that there is a significant risk that the asset will have to be sold in the short to mid term,then the Court, whilst not making allowance for the capital gains tax payable on such a sale in determining the value of the asset, may take that risk into account as a relevant s 75(2) factor, the weight to be attributed to that factor varying according to the degree of the risk and the length of the period within which the sale may occur.
(4) There may be special circumstances in a particular case which, despite the absence of any certainty or even likelihood of a sale of an asset in the foreseeable future, make it appropriate to take the incidence of capital gains tax into account in valuing that asset. In such a case, it may be appropriate to take the capital gains tax into account at its full rate, or at some discounted rate, having regard to the degree of risk of a sale occurring and/or the length of time which is likely to elapse before that occurs. (original emphasis)
[25] (1998) FLC 92-804.
In this case the husband’s shareholding in Pfenning-Snow Pty Ltd has not been valued. Rather, in circumstances where the husband is not simply the majority shareholder, but the sole shareholder, the assets of the company have been valued. Further, there is no evidence as to any CGT or other tax consequences if the husband were to cause the further issue of shares in the company or to sell all or part of his shareholding in the company.
It is readily apparent from Rosati that taking CGT into account in valuing an asset depends upon a number of circumstances including, importantly, consideration of the likelihood of sale in the “near future” or “immediate future”; or consideration whether an asset was acquired solely as an investment and with a view to its ultimate resale for a profit.
As point (3) in Rosati refers, the Court has a discretion as to whether or not CGT ought be taken into account as a relevant s 75(2) factor if the Court is satisfied that there is a significant risk that the asset will have to be sold “…in the short to mid term…” In that event the weight to be attributed to that factor varies according to the degree of the risk (of sale) and the length of the period within which the sale may occur.
It may also be noted that in Rosati, in discussing the obligation of a trial judge to have regard to the economic consequences of any proposed orders, reference was made (by Queen’s Counsel and the Court) to the New Zealand case of Hatrick v Commissioner of Inland Revenue.[26]
[26] [1963] NZLR 641.
At page 85,042 the Full Court observed of that case:
…That was a revenue case involving the valuation of shares in a company. Its only relevance, for present purposes, is that it was held by the New Zealand Court of Appeal, that if, in a given case, the value of the shares in a company is properly to be arrived at by the “assets-value method” (i.e. on a notional liquidation of assets basis), then allowance should be made for any dividend tax upon undistributed profits which would be payable upon such a liquidation.
It is instructive that in Jarrott & Jarrott[27] the Full Court found that an “all or nothing” approach of either including CGT or not including it but trying to take it into account under s 75(2), had the potential to visit an injustice upon one of the parties. There the Full Court found that in the circumstances of that case, the appropriate course would have been for the trial judge to make a contingent order which would operate if and when a CGT liability actually arose. The Full Court observed at [62] and [63]:
62.Her Honour was correct in finding…that in complying with the orders she would make there “could” give rise to a CGT liability of the husband. As such, an “all or nothing” approach of either including CGT or not including it but trying to take it into account under s 75(2) had the potential to visit an injustice upon one of the parties. If allowance were made for CGT, either in the balance sheet, or pursuant to s 75(2), and no CGT liability materialised, the wife would be disadvantaged. Although the risk was less, the husband could be disadvantaged if CGT of $80,000 - $90,000 materialised, and the trial Judge had discounted that figure significantly in her conclusion with respect to s 75(2) because its incidence was only a possibility.
63. The appropriate course would have been, although no one seems to have urged this upon her Honour, and we have not been referred to any submission in which it was, to have made a contingent order, which would operate if and when, a CGT liability arose, because it was not inevitable (see Rosati & Rosati (1998) FLC 92-804 and Brett-Hall & Brett-Hall (2006) FLC 93-276) that it would, and as the wife asserted, there were some unsatisfactory aspects of the company’s financial disclosures.
[27] [2012] FamCAFC 29.
In that case, in re-exercising the discretion the Full Court made an order for the parties to indemnify each other, in accordance with the percentage determinations, in the event that the husband incurred a CGT or other taxation liability as a consequence of his compliance with an order to pay the wife a cash sum.
It is to be noted in this context that in Rosati the Full Court observed (at [6.42]):
6.42In the course of argument of the appeal, it was put to counsel by a member of the bench that an appropriate way of dealing with this problem might be to make an allowance for capital gains tax in a specific amount in calculating the value of the property for the purpose of the proceedings, but with a provision in the orders that if the tax were not assessed as payable within a specified period (suggested as being two years), the husband should pay an appropriate adjustment to the wife…
In Noetel & Quealey[28] the trial judge had considered the potential tax on dividends which may be paid to the husband at some point in the future from his company. It was contended by the husband that estimated tax on dividends ought be deducted from the value of the asset. The wife disputed that to be so and agitated as to different ways in which money might be extracted from the company with differing tax consequences. The trial judge referred to a submission on behalf of the wife “…it is quite possible that the husband will retain the relevant real estate and public company shares until his death, whereupon the capital gains tax liability would be “rolled over” [to] the beneficiaries and would not be realised until their ultimate disposal of the shares…” It was also pointed out on behalf of the wife, as recorded by the trial judge, of the prospect of tax rates changing and generally as to the uncertainties associated with the tax. The trial judge accepted those submissions in not deducting the estimated potential tax on dividends.
[28] [2004] FamCA 790 at [58] to [60].
The discussion of this topic on the appeal appears at [119] to [121] in the judgment of the Full Court and the Full Court concluded at [122]:
122.We are satisfied that the course adopted by the trial Judge of disregarding the potential future tax liability of the husband was open to his Honour in the circumstances of this case particularly as there was no certainty such tax would be incurred by the husband withdrawing funds by way of dividend… (emphasis added)
In this case, Queen’s Counsel for the husband addresses the contingencies advanced at, inter alia, paragraph 2.2 of the husband’s written submissions with reference to authority as follows:
2.2…
In IABH & HRBH (2006) FamCA 379 the Full Court (@ para 79) in referring to the Wife’s submissions with apparent agreement said, in respect of the treatment of properties that were not intended to be sold:
“…the appropriate course would have been for the Trial Judge to have had regard to the possibility of those liabilities within the context of S75(2) or S79(2).”
Indeed that is what Watts J did in the second retrial IABH & HRBH (2010) FamCA 110 (in paras 358-366) where he allowed a 7.5 per cent [sic] for this under S75(2).
(original emphasis)
Application of these principles in this case
In my judgment applying these principles to the evidence here, the husband’s contention that notional CGT and sale costs on the Store F Town asset held in the PS Trust as a deduction from the value of the asset, is readily dismissed. Contrary to any suggestion of a sale of the asset in even the foreseeable future or the short to mid-term, even in circumstances of the need for property settlement to be effected, the husband’s evidence was of an intention to retain that asset at least until the current lease expires which will not occur until 2023. In my judgment there is no basis for deducting notional CGT and costs of sale with respect to this asset from its value nor indeed would it be appropriate to make allowance for that as a relevant s 75(2) factor.
Whilst the wife provided evidence of attempts by the interested parties to effect a sale of the G Street property those attempts apparently did not meet with success.[29] The evidence of Ms Y, accountant[30] includes an estimate of CGT payable via the wife of $18,807.72. The evidence of sale supports that this is, as agitated by the wife a relevant s 75(2) factor, as will be further referred to in addressing s 75(2) specifically.
[29] Paragraphs 137 to 140 of wife’s affidavit filed on 2 September 2014.
[30] Affidavit of Ms Y filed on 31 January 2014.
With respect to the wife’s interest in the H Street property, there is no evidence as to any plan to sell in even the short to medium term and I do not consider this a relevant s 75(2) factor as advanced by the wife.
I have expressed below reservations I have about the husband’s evidence generally which include, relevant to this topic, his evidence concerning his capacity to borrow any particular or specific amount. Those reservations aside, there is no basis for concluding on the available evidence that the husband has the capacity to borrow the sum needed to pay a cash settlement to the wife or can fund settlement without sale of any property.
Absent such evidence and in circumstances where I have, for the reasons detailed below, determined the wife’s entitlement overall to be 45 per cent, it is inevitable that property needs to be sold and as already noted the husband nominated the Suburb C property as his first option.
I have determined for reasons to be further discussed that orders for sale of the Suburb C property will need to be made for property settlement to be achieved.
On that basis, as already noted, sale will determine the actual price (value) that can be achieved as well as the amount of assessable CGT payable. In circumstances where orders for sale of this property are to be made, these items need to be deducted in arriving at a value for the Suburb C property, and hence the company Pfenning-Snow Pty Ltd.
Whilst the actual figures will be determined by sale, taken from Exhibit 14, the expert estimates referrable to the Suburb C property are:
Item
($)
Value
6,000,000
Estimated selling costs
(180,000)
Estimated CGT
(1,020,535)
Estimated net proceeds
$4,799,465
In my judgment the ordered sale of the Suburb C property renders it unlikely that the husband will sell either of the other two subject properties in the short or medium term; or that the evidence otherwise supports the deduction of the balance of the contingencies agitated by the husband as “liabilities” to be deducted in determining value.
The reasons for that conclusion are as follows:
a)In stark contrast to the case presented in IABH & HRBH[31], where an 83 year old husband presented evidence of a firm intention to realise assets in the near and foreseeable future, the husband here offers no such firm evidence of any intention on his part to sell any asset in any short or foreseeable timeframe, independent of the need to achieve property settlement.
[31] [2006] FamCA 379.
The highest point the husband’s evidence reaches on this topic appears at paragraphs 130, 132 and 133 of his affidavit filed on 3 February 2014. There the husband, in addressing the topic “Matters Relevant to Section 75(2)” deposes:
130. I am 64 years of age and I am in good health.
…
132.As I have deposed to above, I continue to be employed as a Director of [Pfenning-Snow Pty Ltd]. Despite my age I have no immediate plans to retire. Subject to my health, my plan is to continue in this role until I am 75.
133.[Mr Z] and I hope that the [Store] investment will be debt free by the end of the first term of the lease, which ends in 2023 and then we will be in a position to sell our interests either to each other or the investment as a whole. Depending on what property I am able to retain as part of my property settlement I may have to liquidate property to make the settlement and will certainly liquidate property towards my retirement.
The husband does not turn 75 years of age until October 2024. He does not in the affidavit referred to identify what “property” he plans to liquidate “towards my retirement”. It would seem that notwithstanding the date in 2023, the husband contemplates that he might then purchase his partner’s interest in the investment. Notably, the husband holds property (and cash) in his self-managed superannuation fund and has his current residence which can be sold without the incidence of CGT.
b)The evidence does not support a conclusion that the husband has a history of acquiring property with a view to re-selling for profit. As Senior Counsel for the wife described it, the husband’s history is that he accumulates and holds property. The evidence confirms that the husband has a history of investing in, and accumulating, properties which provide a rental return or income stream.
It is notable that the M Street, N Town property was acquired in 1996; the O Street, P Town property in 2000; and the Suburb C property in 2003 and obviously all have been retained since. Moreover, review of property dealings generally on the evidence does not reveal any history of “buying and selling” or trading in real property. The evidence supports an opposite conclusion, namely that it is unlikely the husband will sell any income producing property in the foreseeable future.
c)As can be seen from Exhibit 14, by those estimates in net (after estimated sale costs and CGT) terms the net sale proceeds of the Suburb C property represents about 62.5 per cent of all three properties. Moreover, its sale will eliminate any imperative to sell other property to achieve property settlement. There is thus no legitimacy in deducting the full amount of contingencies for tax on dividends as a valuation issue. Reference has already been made to making a contingent order regarding dividends if paid from the proceeds of Suburb C to meet the wife’s entitlement to that extent.
d)It would be inconsistent with the guidelines in Rosati to deduct, at the valuation stage, notional taxation on dividends that may never be paid; or not paid until many years hence from liquidated property; or paid at different rates; or avoided altogether or minimised by other tax minimisation measures, whilst in the meantime the subject property increases in value.
In my judgment the same reasoning in the circumstances of this case results in the conclusion that after that which is accounted for with respect to the Suburb C property, there is no basis of treating the other contingencies as a s 75(2) factor.
Conclusion on the identity and value of the parties’ property interests
To avoid unnecessary replication of the Joint Balance Sheet, my findings are that, taking the figures in the wife’s column the necessary adjustments are:
a)Reducing the value for Pfenning-Snow Pty Ltd (item 2(a)) from $11,794,633 to $10,594,098 to allow for estimated sale costs ($180,000) and estimated CGT ($1,020,535) with respect to the sale of the Suburb C property;
b)Removing item 3(f), the wife’s beneficiary loan account debit in Pfenning Family Trust, as a liability.
That results in a total net position of $17,446,936.
I reiterate that this is a notional value to the extent that sale of the Suburb C property will determine actual figures; and likewise sale of the parties’ jointly owned publicly listed shares.
As earlier noted at [27] of these Reasons the wife already holds or is to receive or retain the benefit of $3,766,074 of this total.
Just and equitable requirement
Having regard to the parties’ existing property interests as a starting point; the feature that the parties’ final separation was a matter of choice; that each party seeks orders for property adjustment pursuant to s 79 of the Act; and that the parties’ choice to finally separate brought an end to common use of property and any pre-existing assumptions implicit when their relationship was intact; there is no issue that circumstances exist of the kind discussed in Stanford & Stanford[32] (“Stanford’s case”) at [42] to render the conclusion that it would be just and equitable, within the meaning of s 79(2), for property adjustment orders to be made.
[32] (2012) FLC 93-518.
As discussed by the Full Court following Stanford’s case[33] the just and equitable requirement permeates the s 79 process. That is, apart from circumstances existing rendering it just and equitable for property adjustment orders to be made; there is the fundamental requirement that the orders determined be just and equitable within the meaning of s 79(2) and “appropriate” within the meaning of s 79(1) of the Act.
[33] Bevan & Bevan (2013) FLC 93-545 at [62], citing Martin & Newton (2011) FLC 93-490.
Assessment of contributions
By way of overview of the parties as witnesses, whilst I did not note at the time of the husband giving his evidence under cross-examination stark examples which I would characterise as obvious untruths or deliberate obfuscation, I did note examples where it appeared that the husband’s determination to advance his case may have prevented or limited him from making some seemingly obvious concessions; or providing more balanced evidence on some aspects.
I record that in circumstances of my unfortunate and regrettable delay in delivering these Reasons, for which I record my unreserved apology to both parties, the following observations were noted by me contemporaneously when the evidence was given. That is, whilst I have since reviewed the transcript of evidence, that has allowed me to include transcript references to the evidence and notes about the evidence I made at the time of trial.
I record that I found it more than passing strange, given the husband’s business experience and facing as he knew the extent of the wife’s claim in these proceedings; that the husband was seemingly unable to provide any meaningful evidence about his borrowing capacity. Possibly, the husband sought to be vague for fear of the Court adopting a figure he advanced. Possibly he may actually have known or had a reasonably good idea of his capacity but was unwilling to disclose that. Whilst both of these possibilities are entirely speculative, either appear more likely to be true than that which the husband advanced in evidence as already referred to.
It appeared that the husband was determined to maintain a position, in the context of his having contended in affidavit evidence to the effect that the parties led separate lives from about 2003/2004, a “separateness” (my term) about the way each party conducted their affairs thereafter, including their financial affairs.
The husband claimed in evidence not to have known at the time about the wife’s interest in the H Street property, gifted to her by her family in May 2000, despite his having witnessed the wife’s signature to the relevant contract. Thus, the husband claimed ignorance about the subsequent enhancement of the value of the wife’s interest (as part owner) in the subsequent development of that property funded by her mother at a cost of about $1 million, until these proceedings were on foot.[34]
[34] Transcript of Proceedings dated 23 September 2014 at pages 75 to 80.
I do not accept that the husband had “forgotten about it”, that is, that he had witnessed the wife’s signature on the acquisition contract.
The husband gave seemingly inconsistent answers, or at least subsequently qualified earlier answers he gave under cross-examination, as to whether or not both parties had participated in important financial decisions such as the acquisition of investment properties; and that both parties had committed to a “plan” to devote income to acquire investment properties. After initially agreeing in oral evidence with propositions to the effect that these were joint decisions and the parties jointly pursued them; the husband appeared to substantially qualify that.[35]
[35] Transcript of Proceedings dated 23 September 2014 at page 82 at line 10 to page 84.
With respect to the wife’s interest in the G Street property acquired in 1998, in circumstances where the husband also witnessed the wife’s signature to that acquisition contract; and he acknowledged that to a large degree he was responsible for the financial management of the parties’ relationship; I cannot accept the husband’s evidence to the effect that he did not know at the time whether or not the wife was paying to acquire that interest (she did not) and that this was not even discussed between them.[36]
[36] Transcript of Proceedings dated 23 September 2014 at pages 84 and 85.
To similar effect, I do not accept the husband’s portrayal of his complete ignorance at the time about the wife’s receipt in 1996 of $127,000 in net sale proceeds of the sale of her house property at AA Street, Suburb BB, Queensland; or how those funds were applied.[37] It was in the context of giving that evidence that the husband reverted to evidence to the effect of it being his own individual plan, rather than a joint plan with the wife, for income to be used for investment for the future.
[37] Transcript of Proceedings dated 23 September 2014 at page 86.
In my judgment, the husband’s determination to advance his case about the independent, rather than mutual, conduct of the parties explains his apparent unwillingness under cross-examination to make ready acknowledgements or concessions about the wife’s application of her income or funds available to her from time to time for joint purposes.[38] The implicit corollary that the wife used income or funds available to her for her own individual purposes or pursuits, and not for the mutual benefit of the parties and/or the family, was not particularised in any respect by the husband.
[38] Transcript of Proceedings dated 23 September 2014 at pages 87 to 89.
One example of the husband initially agreeing with propositions about the mutuality of the parties’ endeavours and his then seemingly attempting to resile from that appears in the following exchanges when the husband was being cross-examined in the context of questions concerning the wife’s application of her income to the relationship:[39]
[39] Quoted Transcript of Proceedings from Auscript contains errors as in original.
MR KEARNEY SC: Can I try it this way, sir? Your wife, up until she resigned from her employment around the time [D] was pregnant, do you accept, worked?
HUSBAND: Sorry?
MR KEARNEY SC: You accept your wife worked?
HUSBAND: Yes.
MR KEARNEY SC: She earned an income?
HUSBAND: Yes.
MR KEARNEY SC: You’re not critical in any way of her in relation to that, are you?
HUSBAND: No.
MR KEARNEY SC: She did her best?
HUSBAND: Yes.
MR KEARNEY SC: Audibly, please, I’m sorry?
HUSBAND: Yes. Sorry.
MR KEARNEY SC: She moved from Brisbane to Sydney so the two of you could establish a life together?
HUSBAND: Yes.
MR KEARNEY SC: All right. And in those circumstances, amongst others, she obtained employment?
HUSBAND: Yes.
MR KEARNEY SC: and applied her income, didn’t she, to the expenses of each of you?
HUSBAND: Yes, but she
MR KEARNEY SC: As you did yours?
HUSBAND: Yes.
MR KEARNEY SC: And after you had each applied your income to the expenses of each of you what was left was that which the business was earning?
HUSBAND: Yes.
MR KEARNEY SC: And that which the business was earning, to the extent it wasn’t paid out to meet those expenses, was applied to, firstly, the expansion of the business?
HUSBAND: Yes.
MR KEARNEY SC: secondly, the acquisition of your investment properties?
HUSBAND: Yes.
MR KEARNEY SC: and that was possible, at least in part, because of your wife’s earnings along with your own?
HUSBAND: Yes, it could. Yes. It was a collective thing.
MR KEARNEY SC: Well, that’s the very point. You both did your best and off we went on this venture of developing life financially together, didn’t we?
HUSBAND: No. It didn’t work out like that.
MR KEARNEY SC: I shouldn’t have asked the last question. Go on, please, sir?
HUSBAND: [Ms S Pfenning] was always, from the time that she did move to Sydney, was always asking me when we were moving back to Brisbane.
MR KEARNEY SC: Yes. And two of you did?
HUSBAND: Yes, I know, but
MR KEARNEY SC: Nothing I’ve said to you is undermined by that proposition, is it, sir?
HUSBAND: Sorry?
MR KEARNEY QC: Until you did move to Brisbane?
HUSBAND: Yes.
MR KEARNEY QC: you both contributed to the best of your ability to meeting expenses?
HUSBAND: Yes. Sorry.
MR KEARNEY QC: to the acquisition of investment properties?
HUSBAND: That was more – like, I was still working to the plan that I had, sort of, configured in the back of my head.
In his affidavit evidence[40] the husband provides an entirely positive description of the role he played within CC Pty Ltd, the employment he undertook over some ten years prior to commencing his self-employment and establishment of the business conducted via DD Pty Ltd. Obviously enough the impression the husband intends to convey is the integral role he played in the successful operation of the CC Pty Ltd business. In his affidavit evidence he asserts that his employment with CC Pty Ltd only ended when the business was sold with the consequence that he was made redundant.
[40] Husband’s affidavit filed on 3 February 2014 at paragraphs 31 to 35.
However, under cross-examination the husband acknowledged that he was “sacked” from that employment because, as the husband put it, “they thought I had done something wrong”.
Whilst it may well be that the husband played an integral and important role in the business of CC Pty Ltd, it seemed to me that the omission in his evidence-in-chief about how that employment ended (and his characterisation of that to contrary effect in his affidavit) provides an example of the husband being selective, rather than entirely balanced, in his evidence.
In relation to the husband’s evidence to the effect that the parties lived separate lives from 2003/2004, whilst as the wife herself refers to undoubted difficulties in the marriage and a gradual deterioration in the marriage over some years leading up to their formal separation in 2013, the wife’s evidence detailing the extent of the parties’ mutual involvement; including in the taking of family holidays and the like over each of the relevant years renders the conclusion, in my judgment, that the husband has grossly overstated this aspect or issue. In this respect I accept the wife’s evidence in paragraphs 54 to 68 of the wife’s affidavit filed on 2 September 2014.
A final example is the husband’s evidence concerning the wife’s removal as a director and shareholder of Pfenning-Snow Pty Ltd. It is clear, I find, that the husband acted unilaterally to cause that to occur without the wife’s knowledge and consent. The husband’s attempts in oral evidence under cross-examination to characterise his conduct otherwise are rejected and these did him no credit.
I reiterate that I do not identify the foregoing as a foundation for disbelieving the husband’s evidence wholly or in substantial part. These matters are raised to explain why I consider that the husband’s evidence on some central themes must be approached with significant caution and cannot be met with unquestioning acceptance.
As I was not left with the same or similar impression by the wife as a witness, I generally prefer her evidence to that of the husband where there is a clear issue of disputed fact between the parties.
An overview of the parties’ marriage and contributions
The husband was born in 1949 and was 42 years of age when the parties married and commenced cohabitation in 1991. The wife, born in 1960, was then aged 31 years.
In my judgment, it is consistent with Full Court authority[63] that as I have earlier observed at [204] pre-marriage acquired skills, experience or training of a party can only be relevant to evaluating contributions made during the marriage rather than in and of themselves comprising a contribution of a relevant kind.
[63] See, for example, Ferraro & Ferraro (supra).
I have already noted that the particular focus invited by and on behalf of the husband on the financial performance of the business from the outset of cohabitation in 1991 until the 1996 financial year; and/or until the business was sold in 2000; has the potential to divert proper attention being paid to the holistic process of assessing contributions under s 79(4).
In Hoffman & Hoffman[64] the Full Court undertook a detailed examination of authority particularly concerning the notion of “special contributions” and whether or not there was any binding rule or legitimate guideline of “special contributions”.
[64] (2014) FLC 93-591.
At [61] the Full Court said:
61.We consider that the true position is, with respect, put correctly and succinctly by O’Ryan J in D & D [2005] FamCA 1462 at [271]: “…the notion of special contribution has all been a terrible mistake … what I have to do is identify and assess the contributions made by each of the parties without any presumption of entitlement” (emphasis in original). The task is to make findings as to the nature, form, characteristics and duration of each and all of the contributions made by each of the parties referenced to s 79(4), without adjectival qualification. Thereafter the court must undertake the exquisitely difficult task of assessing how those respective contributions, often of differing types (a task which his Honour referred to below as a comparison of apples and carrots (at [42])), find expression in qualitative assessments. In the context of a case such as the present one, the duration of the marriage has an important influence upon what evidence is relevant in respect of contributions. There is no need to conduct a minute forensic examination of the details of contributions over many years with each party extolling their own efforts and attempting to diminish the other’s. (footnotes omitted)
In Bolger & Headon[65] the Full Court discussed the flawed approach of attempting to attribute percentage figures to identified or discreet components of contribution. The Full Court said:
[65] (2014) FLC 93-575.
23.This Court said some 20 years ago in Aleksovski v Aleksovski (1996) FLC 92-705, per Baker and Rowlands JJ at 83,437:
It is therefore necessary that trial Judges weigh and assess the contributions of all kinds and from all sources made by each of the parties throughout the period of their cohabitation and then translate such assessment into a percentage of the overall property of the parties or provide for a transfer of property in specie in accordance with that assessment.
It really comes down to questions of weight. Whilst weight would and must be given to a contribution which a party makes shortly before the separation, less weight may be given to a contribution made by one of the parties to a marriage early in the cohabitation period of a long marriage, particularly in circumstances where the contribution has gone into the parties’ assets or been used up in the payment of family expenses.
24. Kay J held at 83,443:
What is important is to somehow give a reasonable value to all of the elements that go to making up the entirety of the marriage relationship. Just as early capital contribution is diminished by subsequent events during the marriage, late capital contribution which leads to an accelerated improvement in the value of the assets of the parties may also be given something less than directly proportional weight because of those other elements.
25.Of considerable significance to the approach of the trial Judge, this Court said in Dickons & Dickons [2012] FamCAFC 154:
23.We wish also to refer to the approach of the Federal Magistrate in attributing percentages to differing periods within the relationship, or types of contribution made. There is in our view little to be gained, and much to be said against, approaching the task of assessing contributions by attaching percentages to components of it. (The same, it might be said, applies to attributing a percentage to each of the relevant s 75(2) factors).
24.There can be little doubt that the classification of contributions by reference to terms such as “initial contributions”, “contributions during the relationship”, and “post-separation contributions” can be helpful as a convenient means of giving coherent expression to the evidence in a s 79 case and to giving coherence to the nature, form and extent of the parties’ respective contributions. However, the task of assessing contributions is holistic and but part of a yet further holistic determination of what orders, if any, represent justice and equity in the particular circumstances of this particular relationship. So much is clear from the terms of s 79 itself and, in particular, s 79(2). The essential task is to assess the nature, form and extent of the contributions of all types made by each of the parties within the context of an analysis of their particular relationship.
26.In passages which resonate with the arguments in this appeal and the trial Judge’s reasons to which they relate, this Court went on to say:
25.Doing so is also consistent with the demands of authority that the ultimate assessment of contributions should be made without “…giving over-zealous attention to the ascertainment of the parties’ contributions…” (Norbis v Norbis (1986) 161 CLR 513 at 524) and the well-established recognition in the authorities (acknowledged specifically by her Honour in this case) that the process required of the Court by s 79 is the exercise of a wide discretion, not the performance of a mathematical or accounting exercise.
26.The necessarily imprecise “wide discretion” inherent in what is required by the section is made no more precise or coherent by attributing percentage figures to arbitrary time frames or categorisations of contributions within the relationship. Indeed, we consider that doing so is contrary to the holistic analysis required by the section and, in the usual course of events, should be avoided.
27.In the same year, in Lovine & Connor and Anor (2012) FLC
93-515, this Court said:42.As part of the process of ultimately determining just and equitable orders under s 79 there is included a complex of discretionary assessments and judgments of many components of contribution, only some of which are capable of measurement in money terms and then often only in historical, rather than present, money terms. Any dictate to the effect that in the course of assessment each disparate component part or kind of contribution must be assigned a discrete and identifiable value or percentage is antithetical to the nature of the discretion involved.
28.We seek to respectfully repeat and emphasise the reference in Lovine to such an approach being “antithetical to the nature of the discretion involved” and the reference in Dickons to such an approach being avoided in the usual course of events. Doing so, we repeat, is not consistent with a holistic assessment of the parties’ contributions which is what s 79(4) requires.
Various aspects relevant to the assessment of the husband’s contributions during marriage have already been discussed and I do not intend to repeat that discussion.
By way of summary, I am satisfied with respect to the husband that his contributions can be taken to include:
a)His initial capital and inheritance as discussed.
b)His contribution to the generation of substantial income from the business he first established some two years prior to cohabitation.
c)His pursuit of financial success via the business and property investment.
d)That from the time of the parties’ relocation to Brisbane from Sydney in early 2001, when the children were aged four years and two years respectively, that he participated in the care of the children and involvement with parenting in a manner which did not previously exist. Whilst I am satisfied that there was significant participation I accept the wife’s evidence, and the detail of it, in concluding that the wife remained the primary carer and homemaker whilst with respect to the pursuits of the company the husband remained the primary actor.
e)The husband pursued investments and also the management of those investments via the company and continued to play a significant role in the manner he describes in managing the investment portfolio from time to time but with assistance from, and participation by the wife.
f)In the latter years of the marriage the husband brought about the position of limiting the wife’s involvement in the affairs of the company, and in that context the husband conducted them primarily as between the parties.
g)Post-separation that position continued in that the husband remained primarily responsible, but also had the benefit of income streams of the company in a manner and extent not available to the wife.
Various aspects relevant to the assessment of the wife’s contributions during marriage have already been discussed and I do not intend to repeat that discussion.
I am satisfied and find that:
a)The wife’s contribution of capital via each of her capital contribution and gifts from her family as earlier discussed.
b)The wife’s contribution of her earnings from employment in the range of $42,000 to $46,000 per annum from the outset of the marriage up until October 1996, when the wife ceased external employment at an advanced stage of her pregnancy with the parties’ first child, enhanced the capacity for earnings from the DD Pty Ltd business to be retained, (rather than being applied to the parties’ expenses), for investment purposes. So much was acknowledged by the husband in the course of his cross-examination.[66]
[66] Transcript of Proceedings dated 23 September 2014 at pages 103 and 104.
c)Both parties agreed to a plan or strategy, and committed themselves to that plan or strategy, of investing in commercial real estate. Both participated in decision making. As earlier discussed, I do not accept the husband’s qualifications or reservations in his evidence implying some reservation or lack of commitment on behalf of the wife in this respect.
d)The wife’s family and her late father in particular played a significant and important role in assisting the parties in carrying out their strategy in investing in commercial property. That is appropriately considered as a contribution by or on behalf of the wife.
One reality of this case is that the financial success of the business, whilst highly successful and productive whilst it subsisted, took place only over a portion of the relationship from the early 1990s and obviously ended with the effective sale of the business in 2000. Whilst earnings derived from the business effectively enabled property to be acquired, the income producing nature of those properties acquired enabled their retention subsequent to the parties deriving any earnings from the business beyond the sale of the business in 2000. That which exists now, in terms of value, reflects the retention and further acquisition of commercial property more than a decade after the business ceased to be operated by the parties.
e)The wife provided the husband with emotional and other support (as he did her) throughout the years from marriage/cohabitation in 1991 until 2000 when the business was sold. To compartmentalise each party’s role ignores that each party supported the other.
f)The wife, in addition to her employment, undertook the primary homemaking role over the years between marriage and the birth of the parties’ first child in February 1997; and thereafter the primary homemaking and parenting role for the children.
In this context it is significant in considering the wife’s contribution that fertility issues for both parties having been identified, in 1995 the wife commenced undergoing IVF treatment in order for the parties to achieve their ambition of having a child. As the wife deposes to in her affidavit,[67] this required the wife to undergo significant medical treatment. Undoubtedly, these issues and the IVF treatment itself imposed some burden upon both parties,[68] but as the husband acknowledged in cross-examination it put more strain on the wife than on the husband.[69]
[67] Wife’s affidavit filed on 31 January 2014 at paragraphs 33 and 35.
[68] The husband acknowledged in cross-examination that the wife met at least some of the expenses for her IVF treatment from her earnings from employment.
[69] Transcript of Proceedings dated 23 September 2014 at page 106.
Also relevant in this context is that as at the parties’ marriage the wife had then been working for some ten years as a journalist with a major newspaper in Brisbane. Shortly before marriage she declined a promotion/editorship with that employer because she had acceded to the husband’s wish that the parties live in Sydney so that the husband could pursue the DD Pty Ltd business.[70]
[70] Wife’s affidavit filed on 31 January 2014 at paragraph 29.
Having then subsequently successfully pursued employment (and employment promotions) in Sydney, the wife’s pregnancy with the parties’ first child dictated with the husband’s urging[71] that she leave her then employment as a chief sub-editor with a major media group.
It can thus be seen that marriage (and its initial relocation) and child birth heralded interruptions to the wife’s career not confronted by the husband.
g)In addition to her primary homemaking and parenting role, from leaving her external employment in October 1996, the wife worked in the DD Pty Ltd business[72] albeit that such involvement reduced with the birth of the parties’ second child.
h)
Between ceasing her external employment in October 1996 and until the sale of the business in 2000, the wife performed roles and work within the business in addition to her primary homemaking and parenting role, as was acknowledged by the husband in the course of his
cross-examination.[73]
i)The wife’s participation in the business also involved her in participating in the identification of potential investment properties as also conceded by the husband in the course of his cross-examination.[74]
j)I am satisfied on the wife’s evidence, which I accept, that whilst the husband played a dramatically increased role in parenting from the time of the parties’ relocation to Brisbane in 2001, the wife continued to undertake primary responsibility for homemaking and parenting.
[71] Wife’s affidavit filed on 31 January 2014 at paragraph 36.
[72] Wife’s affidavit filed on 31 January 2014 at paragraphs 37 to 41.
[73] Transcript of Proceedings dated 23 September 2014 at page 108.
[74] Transcript of Proceedings dated 23 September 2014 at page 109.
Post-separation contribution
Whilst the wife continued to have some access to joint funds post-separation, I accept her evidence to the effect that increasingly these were insufficient to meet needs beyond those of her children and increasingly she relied upon both the income she derived from working for her mother and an apportionment of the income received from the H Street property.
Whilst some of this is included in the notional adjustment components of the pool to be considered, it is clear that the husband has had access to lump sums or the capacity to access lump sums from the company in ways not available to the wife.
Credit for the husband continuing to manage the affairs of the company
post-separation is tempered by the feature that the husband essentially brought that about with the removal of the wife as a director and shareholder of the company in the latter part of the marriage, and his determination to pursue matters thereafter more independently of the wife and ultimately, it would seem, completely independently as at separation.
These matters noted, it does not seem to me that there is any evidentiary basis or reason for concluding that there is relevant disparity between the parties in terms of their contribution in the post-separation period. As earlier noted, and having regard to the ages of the children at the time of separation, they achieved more or less equivalent parenting roles on and from the time of their separation.
Conclusion on contribution based entitlements
As at marriage the husband had identified the niche market and had established his business and company to pursue that market and was in fact pursuing it.
From the outset of marriage the husband’s earnings-based financial contributions exceeded those of the wife by a significant margin and that was increasingly so within a short period of marriage and that disparity endured whilst the business was operated.
It is obvious that income provided via the business provided in substantial part the foundation for subsequent property investments engaged in by the parties in their own right and via the company.
By way of illustration, in 1994 the company purchased commercial property at S Street, Suburb HH, New South Wales for $516,000. The company borrowed $300,000 from the bank on mortgaged security to fund that purchase. That mortgage was paid out in 1996, thus within a timeframe of about two years.[75]
[75] Wife’s affidavit at paragraph 61(a) and husband’s affidavit at paragraphs 89 and 90.
In 1995 the company purchased commercial premises at V Street, W Town, Queensland for $558,919 again using bank borrowings of about $300,000. However, that liability was discharged within about three years, in 1998.[76]
[76] Wife’s affidavit at paragraph 62 and husband’s affidavit at paragraph 90.
Of course, to illustrate the countervailing factors, it is the case that when in June 1992 the parties had purchased their first home at JJ Street, Suburb KK, New South Wales for $325,000 on the wife’s evidence, which I accept, approximately $100,000 of that was sourced to the wife’s pre-cohabitation savings; about $80,000 came from the business account and about $135,000 was borrowed from a bank.[77]
[77] Wife’s affidavit at paragraphs 58(c) and 60.
Nevertheless, substantial property investments and servicing of loans was only possible primarily because of the husband’s successful business operation.
I have also earlier referred to the wife’s contribution during the latter years of the 1990s in terms of her parenting freeing the husband to pursue business interests.
In my judgment in the holistic assessment of contributions of all relevant kinds of these parties over an approximate 21 year marriage producing two children; and notwithstanding the many and varied counterbalancing or countervailing factors in favour of the wife to which reference has been made; the characteristics referrable to the husband’s contributions in respect of the business, in terms of also contribution to the acquisition of property, has a distinguishing character resulting, overall, in a weighting in the husband’s favour; albeit not to the extent contended for by the husband.
In my judgment, only an undue and narrowly focused emphasis upon the early years of this marriage, and upon direct financial contribution without proper consideration of all relevant contributions (by both parties) pursuant to s 79(4)(a), (b) and (c) could result in the extent of disparity contended for by the husband.
In my judgment, a 55 per cent/45 per cent outcome in the husband’s favour is the appropriate reflection of each party’s contribution based entitlement. That 10 per cent disparity on an estimated net pool of $17,446,936 produces a disparity in favour of the husband, in round terms, of $1.745 million.
Relevant s 75(2) matters
On a 55 per cent/45 per cent division in the husband’s favour of the notional or estimated value of the property interests at $17,446,936, the husband will receive or retain $9,595,814.80 and the wife $7,851,121.20.
This is of course subject to the actuality as to what the sale of the Suburb C property achieves together with the sale of the jointly owned publicly listed shares; and the contingency for taxation on dividends.
Orders are to be made for the sale of the Suburb C property. Having regard to, without repeating it, the above discussion concerning the contingencies advanced by the husband in these circumstances, I do not consider that any further adjustment is called for with respect to any such contingencies pursuant to s 75(2).
A contingent order will be made with respect to the payment of dividends sourced from the sale proceeds of the Suburb C property. With respect to the husband’s superannuation, a matter advanced by the wife as a s 75(2) matter in her favour, it is true that at his age the husband can access his superannuation whilst the wife cannot access hers; and his self-managed superannuation fund now holds the V Street, W Town property with an agreed value of $600,000 plus cash at bank of $477,755.
It may be that the husband will elect to access superannuation for the purpose of meeting the wife’s entitlement or the $500,000 initial payment to be ordered as earlier referred to, in a tax effective manner.
As to the order for the $500,000 payment, the husband can draw $383,359 from his beneficiary loan account, and I am satisfied that the husband has the resources to meet the cash payment of $500,000, without prescription by order as to the means by which he achieves that.
Reference has already been made to the relevant matters under the subsection advanced by the wife.
Reference has also been made to the evidence about active attempts to sell the G Street property in which the wife holds an interest giving rise to an estimated CGT liability of the wife of $18,807.72 which, given the evidence as to sale, is a relevant s 75(2) matter.
In the circumstances of this case and having regard to the overall quantum of property; the outcome including consideration of the disparity of 10 per cent in outcome, I do not consider that combined with any of the factors advanced by the wife these properly inform a conclusion that there ought be some adjustment in the wife’s favour.
Specifically, I do not consider the fact that the husband, at his age, can access his superannuation whilst the wife cannot access hers is a matter calling for adjustment. Indeed it may be that the husband in fact accesses his superannuation, at least the cash component, as a method of meeting the wife’s entitlement in part.
Each of the other matters raised on behalf of the wife, have been considered in the assessment of contribution. That is, I have dealt with the gifts the wife received from her family including the interests she retains in each of the G Street property and the H Street property in the assessment of contribution. Likewise, the husband’s ability to have the post-separation benefit of access to the resources and earnings of the company.
There is thus no basis for any adjustment in favour of the wife under s 75(2).
I only need add that even if there existed some basis for a s 75(2) adjustment in favour of the wife otherwise, I accept the contentions in the husband’s case that the history of benefits the wife has received from her family; the fact that she continues to be a beneficiary in her own family’s trust, and the reasonable prospect of enjoying benefits from this source in future either generally or potentially via an inheritance operate in combination, as the husband advances, as a “defence” of any claim for adjustment that might otherwise be supportable.[78]
[78] See paragraph 5.3 of husband’s written submissions and the authorities therein referred to.
Reference has already been made to the history of gifts received by the wife from her family. The wife’s mother, Ms D Pfenning, confirmed in her evidence that since the death of her husband in 2000 she has, in financial terms, treated both of her children (the wife and her brother) equally.[79]
[79] Transcript of Proceedings dated 23 September 2014 at page 65.
Ms D Pfenning accepted that property owned by her or by entities controlled by her had a value in the range of $28 million to $30 million.[80]
[80] Transcript of Proceedings dated 23 September 2014 at page 66.
Ms D Pfenning also confirmed in her evidence an intention, via her will, to provide benefits to both of her children (the wife and her brother) and her grandchildren.[81]
[81] Transcript of Proceedings dated 23 September 2014 at page 66.
Just and equitable orders
I am satisfied that orders giving effect to the determinations expressed at the outset of these Reasons produces an outcome which is just and equitable to both parties.
As earlier referred to, I am satisfied that the husband has ample capacity to make the initial payment of $500,000 to the wife independent of sale of the Suburb C property. I am satisfied that it is just and equitable to make a contingent order in the form earlier expressed with respect to taxation on dividends attributable to accessing the sale proceeds of the Suburb C property to the extent necessary. It may well be that the husband elects to access his superannuation in a manner as he may be advised by experts in minimising the incidence of taxation, but it seems to me to be just and equitable to both parties that if some dividends have to be extracted in order for settlement to be achieved, both parties should share in the relevant proportions that burden.
Given the orders proposed to be made, I do not consider that there is a basis, or that it would be just and equitable, to incorporate an interest component with respect to the payment the wife is to receive to achieve overall settlement.
For these reasons I make the order for the parties to attempt agreement about the precise form of orders made to give effect to these conclusions, or failing agreement, for the form of final Orders to be determined by the Court.
I certify that the preceding two hundred and eighty-four (284) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Kent delivered on 27 January 2016.
Associate:
Date: 27 January 2016
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