RADCLIFF & RADCLIFF
[2020] FamCA 165
•20 March 2020
FAMILY COURT OF AUSTRALIA
| RADCLIFF & RADCLIFF | [2020] FamCA 165 |
| FAMILY LAW – PROPERTY – Where the husband received share rights as an employment-related benefit – Where shares have not yet vested – Where the wife contends that unvested shares are property and not financial resources – Where the vesting of the shares is contingent on conditions being met – Where the company board has a broad discretion in respect to vesting – Where the Court determines that the unvested shares are not property but a financial resource. FAMILY LAW – PROPERTY – Settlement in relation to marriage – Where the parties seek orders for an adjustment of the matrimonial property – Where the wife asserts that the husband is capable of earning a greater income – Where the husband previously earned a significant income throughout the marriage – Where the husband is focusing on a start-up business and has not returned to paid workforce after redundancy – Where the children reside with the husband – Where the husband is now the children’s primary carer – Where the Court determines that the husband is entitled to continue role as parent – Where the Court determines that the husband’s post-separation care of the children is greater than the wife’s – Where the wife has not paid child support to the husband – Adjustment made in favour of the husband. |
| Evidence Act 1995 (Cth) s 76(1) Family Law Act 1975 (Cth) ss 4(1), 75(2), 79, 79(4), 80, 80(1), 117 |
| Antmann & Antmann (1980) FLC 90-908 Johnston & Johnston [2003] FamCA 747 Mallet v Mallet (1984) 156 CLR 605 Nielson & Nielson [2012] FamCA 70 Ogilvie v Adams [1981] VR 1041 Paskin & Laurence [2018] FamCA 554 Petruski & Balewa [2013] FamCAFC 15 Shakir & Shakir [2014] FamCA 796 Shaw & Shaw (1989) FLC 92-030 |
| APPLICANT: | Ms Radcliff |
| RESPONDENT: | Mr Radcliff |
| FILE NUMBER: | WOC | 977 | of | 2016 |
| DATE DELIVERED: | 20 March 2020 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Wollongong |
| JUDGMENT OF: | McClelland DCJ |
| HEARING DATE: | 29 July 2019; 30 July 2019; 31 July 2019 and 25 October 2019 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Fowler |
| SOLICITOR FOR THE APPLICANT: | Rebecca Bailey & Associates |
| COUNSEL FOR THE RESPONDENT: | Dr Behrens and Mr Maurice |
| SOLICITOR FOR THE RESPONDENT: | Hosking Legal |
Orders
That within 14 days the husband pay to the wife or at her direction the sum of $988,020.
That within 14 days the parties do all acts and things and sign all documents necessary to close the D Bank offset account number …4-7 and the funds in this account at the date of closure shall be distributed to the wife in partial satisfaction of the sum payable pursuant to Order 1.
That unless otherwise specified in these Orders, each party shall be solely legally and beneficially entitled to all other assets and financial resources in their sole name, possession or control, and will indemnify the other and keep them indemnified in respect of any liabilities in their sole name, and any liabilities associated with any asset which they are to retain pursuant to these Orders.
That the wife shall retain all her superannuation entitlements and the husband shall forego any claim that he may have on the superannuation benefits belonging to or earned by the wife.
That the husband shall retain all his superannuation entitlements and the wife shall forego any claim that she may have on the superannuation benefits belonging to or earned by the husband.
That pursuant to s 106A of the Family Law Act 1975 (Cth), the Registrar of the Federal Circuit Court at Wollongong is appointed to execute any documents required to be completed to give effect to these Orders in the event either party fails, refuses or neglects to comply with any Order herein.
The parties have liberty to apply in respect to the question of costs.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Radcliff & Radcliff has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: WOC 977 of 2016
| Ms Radcliff |
Applicant
And
| Mr Radcliff |
Respondent
REASONS FOR JUDGMENT
Introduction
This decision relates to an Application brought by Ms Radcliff (“the wife”) for final property orders relating to the property of herself and Mr Radcliff (“the husband”).
The parties are in agreement that, other than in respect to an inheritance that was received by the husband during the course of the parties’ relationship, the parties’ contributions up until the point of separation are approximately equal.
In the period following the parties’ separation, up until 23 September 2017, the wife continued her role as the primary carer of the parties’ two (2) children, X born … 2004 and Y born … 2007 (collectively referred to as “the children”), and the husband continued to be the predominant income earner. On or about 22 or 23 September 2017, the wife travelled to City B in Queensland to live with her new partner. After that time, the husband became the primary carer of the parties’ children.
A significant issue in the proceedings is the determination of whether the husband’s entitlement pursuant to an employee share scheme is property. The determination of that issue is significant as it pertains not only to the potential inclusion of the unvested shares in the balance sheet, but also to the orders sought by the wife for the shares, if and when received by the husband, to be divided between the parties on the basis of the respective proportions determined in these proceedings.
Other relevant issues relate to the appropriate adjustment pursuant to s 75(2) of the Family Law Act 1975 (Cth) (“the Act”). The wife contends that she is entitled to an adjustment in her favour as a result of the sacrifices she made in relocating on several occasions to accommodate the demands of the husband’s career path. The husband, on the other hand, contends that he is entitled to an adjustment as a result of the fact that he is now the primary carer of the parties’ children.
The parties and their respective advocates admirably attempted to reach agreement on as many items as possible on the balance sheet. However, there are some issues that need to be judicially determined, including whether an amount lost by the husband as a result of share trading activities should be added back to the property pool.
Background
On … 1969, the husband was born. He is currently aged 50 years.
On …. 1972, the wife was born. She is currently aged 47 years.
In July 1994, the wife opened her first business in City B, Queensland.
In 1995, the parties met.
In May 1995, the husband commenced employment with C Company and was based in Queensland.
The wife asserts the parties commenced cohabitation in July 1995. The husband contends this occurred in 1996. The difference is not material to my decision.
In 1996, the parties purchased two (2) blocks of land at E Street in City B, Queensland.
In October 1998, the husband moved to City F, Queensland to take up an employment opportunity with C Company. The wife remained in City B.
On … 1999, the parties married.
In October 1999, the wife moved to City F and the parties recommenced cohabitation.
In 1999, the parties purchased a block of four (4) units in G Street, City B.
In June 2001, the wife opened Business 2 in City F.
In February 2002, the husband moved to Brisbane to take up an employment opportunity with C Company.
In May 2002, the wife sold Business 2 for approximately $35,000.
In December 2002, the wife moved to Brisbane and the parties recommenced cohabitation.
In late 2003, the parties moved to City B.
In 2004, the parties purchased a house in H Street, City B for $305,000.
On … 2004, X was born. She is currently aged 15 years.
On … 2007, Y was born. He is currently aged 12 years.
In June or July 2007, the family moved from City B to J Town in Western Australia to facilitate the husband taking up employment with K Company.
During 2007, the parties sold the property at H Street, City B and purchased a property at L Street, M Town, Western Australia.
Between November 2010 and January 2011, the parties temporarily separated.
On … 2011, the husband’s mother regrettably passed away. The husband inherited an amount of money between $160,000 and $167,008.
In October 2013, the wife opened a business in M Town called Business 3.
In 2014, the parties sold the property in L Street, M Town for $570,600. The parties began to build a property at N Street, M Town in Western Australia.
In June 2015, the wife sold Business 3 for approximately $70,000.
In December 2015, the parties sold the property at N Street, M Town for $1,000,000 and the net proceeds of the sale, totalling $273,297, were deposited into a joint D Bank account.
In December 2015, the parties and their children moved from Western Australia to City O to enable the husband to take up an employment opportunity with K Company.
On 3 May 2016, the parties separated and remained living together.
On 23 May 2016, the wife received $10,000 transferred by the husband from the parties’ joint bank account to enable the wife to move into and furnish a separate property, located in Suburb P, at which address she was to live with the children. The wife asserts that she moved out of the marital property on 23 May 2016. The husband asserts the wife moved out of the marital home in July 2016. That difference in the parties’ contentions has not been relevant to my decision.
On 26 May 2016, the wife commenced a relationship with her current partner, Mr Q.
In July 2016, the parties each received $10,000 from the joint bank account.
On 8 September 2016, the husband received an incentive payment of $247,977 from his employer, K Company.
On 19 September 2016, the husband filed an Initiating Application in the Wollongong Registry of the Family Court seeking interim and final parenting orders.
In October 2016, the husband commenced a relationship with his current partner, Ms R.
On 24 October 2016, the husband filed an Application in a Case seeking that the wife be restrained from relocating the children to outside of the City O area.
In December 2016, the husband and wife each received $30,000 from their joint bank account.
On 17 January 2017, the husband filed an Application in a Case seeking a recovery order for the children.
On 31 January 2017, Judge Altobelli made interim Orders in respect to, inter alia, the parenting of the parties’ children. Specifically, his Honour made Orders providing for the parties to have equal shared parental responsibility for the children and for the children to live in City O.
In March 2017, the wife began to rent a property in S Town, NSW.
On 5 April 2017, the parties signed a Heads of Agreement following a financial mediation.
On 18 April 2017, the wife withdrew $3,050 from the parties’ joint bank account. The husband asserts that this was without his consent.
On 20 April 2017, the child support payments made from the husband to the wife reduced from $2,100 per week to $674 per week. This was subsequently increased to $723 per week.
On 3 May 2017, the husband states that he asked the wife to return the $3,050 she had withdrawn from the joint account on 18 April 2017. The husband states the wife subsequently withdrew a further $59,000 from the joint account. The wife contends that this withdrawal was made due to financial hardship.
In May 2017, the husband purchased 200,000 shares in T Ltd (“the T Ltd shares”).
On 21 July 2017, the husband ceased to be the Vice President of K Company but continued to work for K Company.
On 25 July 2017, the Family Report by Dr U was released.
The parties agree that, by 23 August 2017, the husband had received three (3) share awards from V Ltd, allocated in August and September 2016 and August 2017. The husband states that the gross total value of these share grants was $601,783.
On 25 August 2017, the husband received an allocation of 98,992 shares. The shares arose from share rights granted on 16 November 2015.
On 7 September 2017, the husband received an employment incentive payment from K Company of $127,925.
In September 2017, the husband and Ms R commenced cohabitation.
On 15 September 2017, the wife traded in her Motor Vehicle 1 for $23,000 in order to purchase a Motor Vehicle 2, which was registered in the name of her partner, Mr Q. During the final hearing, the wife acknowledged the balance sheet should reflect this transaction but there was a dispute regarding value.
On 22 or 23 September 2017, the wife relocated to City B and commenced cohabitation in City B with Mr Q. The children remained living in the City O area with the husband. The parties agree the husband became the primary carer of the children from this date.
On 13 November 2017, parenting Orders were made by consent allowing for the children to live with the husband in City O and the children to spend time with the wife for half of the school holidays, one (1) weekend per school term and no more than seven (7) consecutive days every three (3) months provided that the wife is in City O during this time.
In November 2017, the wife states she commenced part-time work in City B at W Business.
On 21 February 2018, the husband was made redundant from K Company and received a severance package.
In May 2018, the wife ceased to be employed, at W Business. She states this was due to financial hardship experienced by the business owners.
On 23 May 2018, the wife commenced work from her home.
In June 2018, the husband commenced his own business, CC Business.
On 4 June 2018, interim Orders were made by consent for the payment of $118,500 from the parties’ joint account to the wife’s solicitor’s trust account by way of interim property settlement.
On 2 July 2018, the wife commenced casual employment at DD Business City B.
On 30 July 2018, the husband states he received advice that he was required to file amended tax returns for the 2015 and 2017 financial years.
On 17 August 2018, the parties’ daughter, X, was placed on a GP Mental Health Care Plan and began attending a psychologist.
On 24 August 2018, the husband’s share rights to K Company shares, which had been awarded on 16 November 2015, vested.
On 17 September 2018, the wife’s amended Initiating Application filed 13 July 2018 was heard by Judge Henderson, as she then was. The matter was transferred from the Federal Circuit Court to the Family Court.
On 5 October 2018, the husband sold 521,570 K Company shares, receiving $2,217,341.
On or after 18 December 2018, the wife and Mr Q moved into a property purchased by Mr Q at BB Town. The wife commenced a business at this property.
On 22 February 2019, the husband’s business, CC Business, was incorporated as a private company.
On 1 May 2019, the parties’ reached interim consent Orders by which the husband paid $100,000 to the wife’s solicitor’s trust account.
On 3 June 2019, CC Business signed a contract for App Development.
On 29 July 2019, the final hearing in relation to property matters commenced before McClelland DCJ for three (3) days. On 31 July 2019, the matter was listed for further hearing on 25 October 2019.
In August 2019, subsequent to evidence being concluded, one (1) parcel of unvested securities to which the husband was entitled, pursuant to his employer’s Equity Incentive Plan (“EIP”), vested. This constituted 186,260 shares which related to the performance criteria set out in K Company’s EIP for the financial year ending 2016.
On 25 October 2019, judgment was reserved.
Applications
Orders sought by the wife
The wife seeks that orders be made in accordance with her Minute of Final Orders, provided to the Court on 25 October 2019, set out as follows:
1. That within seven days the Husband pay to the wife the sum of $1,249,333 (the “payment”).
2. That pending the making of the payment by the husband to the wife, the husband be restrained from withdrawing or transferring any money out of his ANZ cash investment account number …56 which would have the effect of reducing the balance in the account below $1,300,000, and from creating any charge or security against that account.
3. That the Husband:
a. Do all acts and things he is capable of doing to ensure that his unvested share rights in K Company vest at the earliest possible time.
b. Refrain from doing any act or thing which may cause his unvested share rights not to vest.
c. Pending the vesting of each of the Husband’s unvested share rights in K Company, send to the Wife by email all communications received by him in relation to those unvested share rights, within 24 hours of receipt.
d. Within seven (14) days of the date of vesting of any of his share rights in K Company:
i. sell 55% of the shares that vest (“sale”);
ii. pay to the wife the whole of the proceeds of the sale less an amount calculated by Mr EE accountant, or such other accountant as agreed by the parties, (the “accountant”) to be the tax properly payable by the husband as a consequence of the vesting and sale (”tax retention”);
iii. obtain from the accountant a calculation of the tax estimated to be properly payable by the husband as a consequence of the vesting and sale and provide that calculation, certified by the accountant as being correct on the basis of the information available to the accountant (“accountant’s estimate tax retention”), to the wife, and such calculation shall be prima facie the amount of the tax retention;
iv. deposit the amount of the tax retention into the parties’ joint D Bank account number …4-7 and provide to the wife a copy of the deposit receipt.
4. That the husband lodge with the ATO his personal Income Tax Return for each financial year during which any currently unvested K Company share rights vest in him (“relevant financial year”) by no later than 31 July next following the end of the relevant financial year, and provide to the wife a full copy of that Income Tax Return within 7 days of it being submitted to the ATO.
5. That within seven (7) days of the date on which the Husband receives his Notice of Assessment from the ATO for a relevant financial year the husband shall provide a copy of that Notice of Assessment to the wife together with a letter from the accountant advising of the amount of tax payable by the husband on account of the vesting and sale of 55% of the K Company shares (“accountant’s advice”) , and within a further thirty (30) days the wife shall advise the husband in writing if she agrees with the accountant’s advice.
6. If the wife agrees with the accountant’s advice the parties will within a further seven (7) days do all things necessary to pay to the husband from the tax retention the amount of the tax as per the accountant’s advice.
7. If the wife does not agree with the accountant’s advice the parties will within a further seven (7) days do all things necessary to retain an independent accountant, agreed to by them, to determine the amount of the tax properly payable by the husband as a consequence of the vesting and sale of the 55% of the shares and the advice of that accountant shall be binding on the parties and they shall, within seven (7) days of receiving that advice do all things necessary to pay to the husband from the tax retention the amount of the tax as per the independent accountant’s advice.
8. That pending the sale of any K Company shares pursuant to order 3 d.:
a. the Husband shall pay to the Wife 55% of the amount of any dividends and/or benefits, if any, received by him for the unvested share rights, within seven (7) days of receipt of the dividend and/or benefit being received by the Husband, less any proportionate amount of tax properly payable by the husband on receipt of the dividends and/or benefits and at that time shall provide to the Wife a copy of all documents showing the dividend or benefit received by the Husband.
b. The Husband shall provide to the Wife a copy of correspondence and details of all communications received by the Husband in relation to the shares, equities or rights.
c. The Husband is restrained from transferring, charging or otherwise dealing with his interest in the whole of the K Company shares and share rights or from doing, or refraining from doing, any act or thing which would prevent the shares or share rights vesting on the earliest possible date.
9. That in accordance with Paragraph 90XT(1)(a) of the Family Law Act 1975, whenever a splittable payment becomes payable in respect of the superannuation interest of Mr Radcliff from his interest in Super Fund 1, Ms Radcliff is entitled to be paid an amount calculated in accordance with Part 6 of the Family Law (Superannuation) Regulations 2001, using a base amount of $262,705 and there is a corresponding reduction in entitlement of the person to whom the splittable payment would have been made but for these Orders.
10. That having been accorded procedural fairness in relation to the making of this Order, this Order binds the Trustee of Super Fund 5.
11. That Order 9 has effect from the operative time.
12. That the operative time for this Order is 4 business days after the date of service of this Order upon the Trustees.
13. That in the event that either party refuses or neglects to execute any document or instrument necessary to give effect to these Orders, the Registrars of the Family Court of Australia are appointed pursuant to Section 106A of the Family Law Act to execute such documents or instruments in the name of the said party and do all acts and things necessary to give validity and operation to the documents or instruments upon the Registrar being provided with verification of such refusal or failure by way of affidavit.
14. Leave to the parties to apply on 48 hours’ notice in relation to the implementation of these Orders.
Orders sought by the husband
The husband seeks that orders be made in accordance with the Appendix “1” annexed to his Written Submissions filed on 25 October 2019, set out as follows:
1. That within 14 days the Respondent Husband pay the Applicant Wife the sum of $360,000.
2. That within 14 days the parties do all acts and things and sign all documents necessary to close the D Bank offset account number …4-7 and the funds in this account at the date of closure shall be distributed to the Applicant Wife in partial satisfaction of the sum payable pursuant to Order 1.
3. That a base amount of $66,000 be allocated, as required by section 90XT(4) of the Family Law Act 1975, to the Wife out of the Husband's interest in the Super Fund 2 (member number …26).
4. That in accordance with section 90XT(1)(a) of the Family Law Act 1975, the Wife is entitled to be paid the amount calculated in accordance with Part 6 of the Family Law (Superannuation) Regulations 2001 and the Husband's entitlement is correspondingly reduced.
5. That the Trustee of the Super Fund 2 ("the Trustee") shall do all acts and things and sign all documents as may be necessary to:
a. Calculate, in accordance with the requirements of the Family Law Act 1975 and the Family Law (Superannuation) Regulations 2001, the entitlement created for the Wife by Order 5 of these Orders; and
b. Pay the entitlement whenever the Trustee makes a splittable payment out of Mr Radcliff's interest in the Fund.
6. That these Orders shall bind the Trustee and take effect from the operative time and the operative time is four business days after service of these sealed Orders on the Trustee.
7. That the Wife shall retain all her superannuation entitlements and the Husband shall forego any claim that he may have on the superannuation benefits belonging to or earned by the Wife.
8. That the Husband shall otherwise retain all his superannuation entitlements and the Wife shall forego any claim that she may have on the superannuation benefits belonging to or earned by the Husband.
9. That pursuant to section 106A of the Family Law Act 1975 the Registrar of the Federal Circuit Court at Wollongong is appointed to execute any documents required to be completed to give effect to these Orders in the event either party fails, refuses or neglects to comply with any Order herein.
10. That unless otherwise specified in these Orders, each party shall retain all other assets, debts and financial resources in their sole name, possession or control and will indemnify the other and keep them indemnified in respect of any liabilities in their sole name, and any liabilities associated with any asset which they are to retain pursuant to these Orders.
11. That the parties do all acts and things and sign all documents as may be necessary to fully implement these orders.
12. That the wife pay the husband's costs of and incidental to these proceedings.
13. That the wife pay the Husband's costs of and associated with these proceedings.
14. That the Court notes that the wife has received interim distributions totalling $330,550 during the course of these proceedings.
Evidence
The wife relied on the following documents:
a)Affidavit of the wife filed 1 July 2019;
b)Financial Statement of the wife filed 1 July 2019;
c)Affidavit of Mr FF filed 1 July 2019;
d)Affidavit of Mr HH filed 1 July 2019;
e)Joint statement of Mr HH and Mr EE July 2019; and
f)Written submissions of the wife provided to the Court on 25 October 2019.
The husband relied on the following documents:
a)Affidavit of the husband filed 1 July 2019;
b)“Equity Incentive Plan Rules” (“the EIP Rules”) which were annexed as ‘Mr Radcliff’ to the Affidavit of the husband sworn on 4 October 2019 (marked ‘Exhibit H’ in the proceedings)
c)Financial Statement of the husband filed 1 July 2019;
d)Affidavit of Ms R filed 1 July 2019;
e)Affidavit of Mr EE filed 1 July 2019; and
f)Written submissions of the husband provided to the Court on 25 October 2019.
The following exhibits were relied upon:
a)Tender bundle of annexures to the Affidavit of the wife (‘Exhibit A’);
b)Case outline of the wife (‘Exhibit B’);
c)Balance sheet of the wife (‘Exhibit C’);
d)Joint chronology of the parties (‘Exhibit D’);
e)Joint expert report of Mr HH and Mr EE (‘Exhibit E’);
f)Letter to the husband dated 29 August 2018 (‘Exhibit F’);
g)Costs notice for the husband (‘Exhibit G’);
h)Tender bundle of annexures to the Affidavit of the husband (‘Exhibit H’);
i)Costs notice of the wife (‘Exhibit I’);
j)Case outline of the husband (‘Exhibit J’);
k)Receipt and photograph of car repair (‘Exhibit K’);
l)Child support assessment (‘Exhibit L’);
m)Documents from K Company to the husband relating to the husband’s employment (‘Exhibit M’);
n)Husband’s employment contract with V Ltd (‘Exhibit N’);
o)Chart of expenses (‘Exhibit O’);
p)Interim and special share distribution document (‘Exhibit P’);
q)Table of legal fees paid by the wife (‘Exhibit Q’);
r)Document showing history of K Company share price (‘Exhibit R’);
s)Letters between the parties’ legal representatives (‘Exhibit S’);
t)Wife’s financial statement (‘Exhibit T’);
u)Taxation estimate regarding the wife (‘Exhibit U’); and
v)Letter from Super Fund 2 regarding the husband’s superannuation dated 30 July 2019 (‘Exhibit V’).
The law – concepts and principles
Relevantly, s 79 of the Act sets out the following:
(1) In property settlement proceedings, the court may make such order as it considers appropriate:
(a) in the case of proceedings with respect to the property of the parties to the marriage or either of them--altering the interests of the parties to the marriage in the property; or
…
(c) an order for a settlement of property in substitution for any interest in the property; and
(d) an order requiring:
(i) either or both of the parties to the marriage; or
…
to make, for the benefit of either or both of the parties to the marriage or a child of the marriage, such settlement or transfer of property as the court determines.
…
(2) The court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.
In exercising that discretion, the Court is required to take into account the matters set out in s 79(4) of the Act, as follows:
(4) In considering what order (if any) should be made under this section in property settlement proceedings, the court shall take into account:
(a) the financial contribution made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(b) the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(c) the contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent; and
(d) the effect of any proposed order upon the earning capacity of either party to the marriage; and
(e) the matters referred to in subsection 75(2) so far as they are relevant; and
(f) any other order made under this Act affecting a party to the marriage or a child of the marriage; and
(g) any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.
Since the decision of the High Court in Stanford v Stanford (2012) 247 CLR 108 (“Stanford”), there has been some debate as to the approach that should be taken by the Court in the exercise of its discretion pursuant to s 79 of the Act.
Prior to Stanford (supra) the Family Court had established principles for determining what kind of order is just and equitable under s 79(2) of the Act. In the leading case of In theMarriage of Hickey (2003) 30 Fam LR 355, 370 at [39] (“Hickey”), it was held that the preferred approach was to adhere to the following four steps:
a)identify and determine the asset pool of the parties as at the date of the hearing (this necessarily involves identifying both the assets and liabilities).
b)identify and determine each of the parties’ financial and other contributions to the date of the hearing (this can include the financial contributions made before, during and after the marriage).
c)assess how future and other events may have a financial impact on either of the parties, such as their age, state of health, income and property or financial resources (known as the s 75(2) factors).
d)step back and examine this formula-based reasoning against the history of the marriage, intangible considerations and other contingencies so as to consider whether the outcome represents a just and equitable result.
That approach had been endorsed many times,[1] however, as the High Court noted in Stanford (supra), s 79(2) of the Act provides that the Court shall not make an order altering the interests of the parties to the matrimonial property, unless it is satisfied that “in all the circumstances, it is just and equitable to make the order”. Accordingly, since Stanford (supra), it has generally been the practice of the Family Court to determine, as an initial issue, whether it is just and equitable to make an adjustment of marital property.
[1]See for example Manolis & Manolis (No 2) [2011] FamCAFC 105, [63] (Coleman, May and Ainslie-Wallace JJ); Kildea v Kildea (2007) 38 Fam LR 347, 365 [104] (Finn, May and Boland JJ); Coghlan & Coghlan (2005) FLC 93-220, 79,639 [22] (Bryant CJ, Finn and Coleman JJ), 79,655 [142] (O’Ryan J).
More generally in Petruski & Balewa [2013] FamCAFC 15 at [49], the Full Court said:
The task of assessing contributions under s 79 of the Act is an holistic one; what is required is to evaluate the extent of the contributions of all types made by each of the parties in the context of their particular relationship (Dickons & Dickons [2012] FamCAFC 154). As was also said by the Full Court in Lovine & Connor and Anor [2012] FamCAFC 168, at paragraphs 40 and 41 such an evaluation “inevitably involves value judgments and matters of impression”, and accordingly it cannot be treated as “a mathematical exercise.”[2]
[2]See also Dickons v Dickons (2012) 50 Fam LR 244 at 249.
Further to considerations under s 79 of the Act, s 79(4)(e) requires the Court to have regard to the matters referred to in s 75(2) of the Act so far as they are relevant. I will subsequently discuss those provisions in undertaking the third step referred to in Hickey (supra) at 370 [39].
Consideration
Is it just and equitable to make a property adjustment?
Both parties sought an adjustment of their property interests pursuant to s 79 of the Act. In that regard, in Stanford (supra) at [42], the High Court said:
In many cases where an application is made for a property settlement order, the just and equitable requirement is readily satisfied by observing that, as the result of a choice made by one or both of the parties, the husband and wife are no longer living in a marital relationship. It will be just and equitable to make a property settlement order in such a case because there is not and will not thereafter be the common use of property by the husband and wife. No less importantly, the express and implicit assumptions that underpinned the existing property arrangements have been brought to an end by the voluntary severance of the mutuality of the marital relationship. That is, any express or implicit assumption that the parties may have made to the effect that existing arrangements of marital property interests were sufficient or appropriate during the continuance of their marital relationship is brought to an end with the ending of the marital relationship. And the assumption that any adjustment to those interests could be effected consensually as needed or desired is also brought to an end. Hence it will be just and equitable that the court make a property settlement order. What order, if any, should then be made is determined by applying s 79(4).
This is a case where the just and equitable requirement set out in s 79(2) of the Act is readily satisfied. The parties have separated after a long marriage, during which they acquired various items of property, including real estate, both jointly and individually. Both have now re-partnered and wish to pursue their independent lives with their respective new partners. An adjustment of the common property that they acquired and/or had the use of during the course of their relationship is required to enable the parties to move on with their lives.
What is the property of the marriage?
The parties helpfully agreed to a joint balance sheet setting out their respective contentions in respect to each of the parties’ property, liabilities and superannuation as well as their quantification of the asset and/or liability. That joint balance sheet is as follows:
| ASSETS | ||||
| Ownership | Description | Wife’s value | Husband’s value | |
| 1 | Husband | Motor Vehicle 3 | 20,000 | 20,000 |
| 2 | Husband | Household Contents | 20,000 | NIL |
| 3 | Wife | Household Contents | 2,000 | NIL |
| 4 | Wife | Jewellery | 5,000 | 20,000 |
| 5 | Husband | ANZ …09 | 6,672 | 10,838 |
| 6 | Wife | ANZ …18 | 280 | 280 |
| 7 | Wife | ANZ …05 (Closed) | NIL | NIL |
| 8 | Joint | D Bank Mortgage Offset …4-7 | 26 | 26 |
| 9 | Husband | ANZ Share Trading …56 | 1,642,692 | 1,608,163 |
| 9A | Wife | Release to wife from ANZ Share Trading Account on 11.09.2019 | 50,000 | 50,000 |
| 10 | Husband | V Ltd Shares (6402 shares) | 197,245 | 197,245 |
| 11 | Husband | JJ Company Shares (3596 Shares) | 9,224 | 9,224 |
| 12 | Husband | T Ltd Shares (200,000) | NIL | NIL |
| 13 | Husband | CC Business | 12,758 | 12,758 |
| 14 | Wife | Business Ms Radcliff | 200 | 10,000 |
| 15 | Joint | ANZ …15 (Closed) | 0 | NIL |
| 16 | Husband | D Bank account #…56 | Included in [13] | |
| 17 | Husband | K Company FY16 MSP Performance shares (186,260) | 477,757 | 477,757 |
| 18 | Husband | K Company FY17 MSP Performance share rights (81,891) | 187,498 | |
| 19 | Husband | K Company FY17Sign-On MSP Performance share rights (39,104) | 89,533 | |
| 20 | Husband | K Company FY18 MSP Performance share rights (19,883) | 37,937 | |
| 20A | Husband | Funds in solicitor’s trust account | 71,305 | 34,529 |
| 20B | Husband | CC Business loan account | 62,916 | NIL |
| Total | $ 2,893,043 | $ 2,450,820 | ||
| ADDBACKS | ||||
| Ownership | Description | Wife’s value | Husband’s value | |
| 21 | Husband | Family report fee | NIL | 15,400 |
| 22 | Husband | Family report writer court attendance fee | NIL | 3,498 |
| 23 | Wife | Funds withdrawn without consent | NIL | 62,050 |
| 24 | Wife | Partial property settlement | NIL | 118,500 |
| 25 | Wife | Partial property settlement | NIL | 100,000 |
| 25A | Wife | Partial property settlement | Included in [9A] | Included in [9A] |
| 26 | Wife | Motor Vehicle 1 Disposal | 23,000 | 39,100 |
| 27 | Husband | Money had and used by the husband since 28/02/2018 for the benefit of Ms R and her children | 161,357 | N/A |
| Total | $ 181,357 | $ 338,548 | ||
| LIABILITIES | ||||
| Ownership | Description | Wife’s value | Husband’s value | |
| 33 | Husband | Tax Bills for FY19 ATO Tax Assessments | 54,712 | 11,876 |
| 34 | Husband | Tax Accrued for FY20 Capital Gain on V Ltd Shares (if these were sold) | NIL | 13,126 |
| 34A | Husband | Tax on receipt of K Company shares in August 2019- amended Annual Tax Statement for FY2018 | 289,856 | 289,856 |
| 34B | Husband | “Capital Gains Tax” payable on sale of K Company shares in October 2018 | Included in [33] | 114,712 |
| 35 | Husband | Outstanding Court Hearing Fees | NIL | NIL |
| 36 | Wife | Loan from Ms KK | NIL | |
| 36A | Husband | Less FY19 Tax Instalments | Included in [33] | (60,000) |
| Total | $ 344,568 | $ 369,570 | ||
| SUPERANNUATION | |||||
| Member | Name of Fund | Type of Interest | Wife’s value | Husband’s value | |
| 37 | Wife | 95. Super Fund 6 | 96. Accumulation | 15,460 | 15,460 |
| 38 | Wife | 97. Super Fund 3 | 98. Accumulation | 318,890 | 318,890 |
| 39 | Husband | 99. Super Fund 3 | 100. Accumulation | 859,759 | 859,759 |
| 40 | Husband | 101. Super Fund 4 | 102. Used for life insurance only | NIL | NIL |
| Total | $ 1,194,109 | $ 1,194,109 | |||
Consideration of assets other than unvested share rights
As a result of discussions during the course of the final hearing, the parties agreed that a nil amount would be assigned to item 34 on the balance sheet.
Insofar as the parties were unable to agree to items 2, 3 and 4, counsel for the wife contended that items 3 and 4, being the wife’s household contents and jewellery, were identified in the wife’s Financial Statements and were a concession against interests. However, it nonetheless remains the case that the wife’s assertion as to the value of those matters is not admitted. To the contrary, in the case of the wife’s jewellery, the husband contends that the value is $20,000 and not $5,000 as asserted by the wife.
As these are proceedings under Part VIII of the Act, the rules of evidence apply. This includes the opinion rule as set out in s 76(1) of the Evidence Act 1995 (Cth) which provides that, in the absence of the application of a relevant exemption, “evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed”. It was not asserted that a relevant exemption applies in this case. There is, therefore, no admissible evidence before the Court in respect to the value of the following items:
·item 2 – husband’s household contents;
·item 3 - wife’s household contents; and
·item 4 – wife’s jewellery.
Items 2 and 3 will, therefore, be removed from the balance sheet. In respect to item 4, however, as the wife has conceded, against her interests, that her jewellery is worth $5,000, I find that the balance sheet should note that value against item 4.
For similar reasons, while I determine that there is no admissible evidence before the Court regarding the value of the wife’s business, which is included at item 14 on the balance sheet, the wife has, nonetheless, conceded that the business is worth $200. Accordingly, that item will be included on the balance sheet at that reduced value.
In respect to item 5, the husband has, contrary to his interest, sought to update the amount in his ANZ account …09. However, I respectfully agree with the submission of counsel for the wife that, in the absence of evidence, the Court should accept the figure as agreed between the parties at the close of evidence, being the sum asserted by the wife as $6,672.
For similar reasons, I accept the submission of counsel for the wife in respect to the next disputed item in the balance sheet, being item 9 concerning the husband’s ANZ share trading account. The item should be quantified at the amount as agreed by the parties at close of evidence save that, in the period subsequent to the close of evidence and the date of final submissions, a consent Order was made which had the effect of releasing $50,000 from that same ANZ share trading account to the wife. The release of that funds is reflected as an agreed item in item 9A. Accordingly, in those circumstances and in respect to the disputed amount in item 9, I will take the figure as agreed between the parties at the close of evidence less the sum of $50,000. This results in the amount being included in the balance sheet as proposed by the wife, which is the sum of $1,642,692.
In accepting that figure of $1,642,692 proposed by the wife, I acknowledge that the husband argued that, in circumstances where the parties agreed that the amount of $50,000, released to the wife on 11 September 2019, should be taken into account, similarly, the Court should have regard to the fact that, in the period since close of evidence, he has paid the amount of $34,529 to his lawyers. The husband contends this amount should be included in item 20A as the funds are held in the solicitor’s trust account. By doing so, he contends, the Court would conclude that the appropriate amount to include in item 9 is the sum proposed by the husband, which is the sum of $1,608,163.
On this point, as noted, I accept that it is appropriate to deduct the sum of $50,000 from the original figure specified in the balance sheet as the amount in the husband’s ANZ Share Trading Account, because that amount was paid to the wife in accordance with a consent Order made on 11 September 2019. That consent Order is a matter of public record. That is not the case, however, in respect to the additional deduction proposed by the husband for the amount of $34,529, which he contends has been paid to his lawyers in the period since the close of evidence. In other words, in the absence of evidence regarding that asserted payment of $34,529 by the husband to his lawyers in the period since evidence closed, I will not have regard to that amount. I will therefore take the sum proposed by the wife as $1,642,692 as being the appropriate amount to include in item 9 of the balance sheet.
The next disputed items are items 18, 19 and 20, which are in respect to the husband’s unvested share rights. I will subsequently set out my reasons for not including those items in the balance sheet.
In respect to disputed item 20A, counsel for the wife submitted that, while the amount specified in item 20A was not included in ‘Exhibit C’ in the proceedings, the Court should nonetheless have regard to the evidence of the husband, given during the course of the proceedings, that he had the amount of $71,305 sitting in his solicitor’s trust account. I accept that was the evidence before the Court and, accordingly, I will include that amount of $71,305 as against item 20A.
Similarly, while the amount specified in item 20B was not contained in ‘Exhibit C’ in the proceedings, counsel for the wife contends that the Court should have regard to the evidence presented by the husband during the course of the proceedings, being annexure R49 in ‘Exhibit H’ in the proceedings. On that basis, counsel for the wife submits that the Court should include as an item on the balance sheet the “CC Business loan account,” which is a loan made by the husband to the husband’s business CC Business in the sum of $62,916.
Counsel for the husband contended that, in circumstances where the husband is the sole proprietor of CC Business and it is a fledgling business, the Court should find that “at this stage at least” the loan is not recoverable by the husband.
At this point in my decision, consistent with the decision of the High Court in Stanford (supra), I am identifying the property of the parties. As noted by Fullagar J in Ogilvie v Adams [1981] VR 1041, Fullagar J said (at 1043):
The common law has always regarded the fact of indebtedness as a continuing detention by the debtor of the creditor’s money, and this whether the creditor brought an action of debt or an action in indebitatis [sic] assumpsit. Therefore if A lends money to B, then instantly B is detaining A’s money.
In this case, CC Business is a company with a separate legal personality to the husband. The husband has provided money, by way of a loan, to the company. The parties have agreed that the value of CC Business is less than the amount lent by the husband to CC Business. Nevertheless, the husband has a right of recovery of the money he has lent to the company. His right to do so is not barred by statute or otherwise limited. It is clear that such a chose in action is property as that term is defined in s 4 of the Act. There is no evidence that satisfies me that the right of recovery is merely speculative, as was found to be the case in Griffin & Griffin [2010] FMCAfam 1275 at [25]. Indeed, the evidence presented by the husband satisfies me that he has put a great deal of thought and effort into establishing CC Business and there is every prospect that it will be a successful business. I will, therefore, include the CC Business loan in item 20B on the balance sheet.
The husband’s unvested share rights
The wife contends that the husband’s remaining three (3) parcels of unvested South32 share rights should be treated as property for the exercise of the Court’s powers under s 79 of the Act. The three (3) parcels are identified at paragraph 2.5 of the Joint Expert Statement, being the statement of Mr HH and Mr EE (exhibit E). Those parcels are identified at items 6, 7 and 8 of a table set out in that paragraph 2.5 of the joint statement to which I have referred. Items 6 and 7 of the experts’ table are the share rights that are due to vest in August 2020. Those rights are reflected in items 18 and 19 on the balance sheet. The third parcel is set out in item 8 of the experts’ table. Those rights under the company’s EIP are due to vest in August 2021 and are set out in item 20 of the balance sheet.
The husband contends, however, that the unvested share rights are not property but rather should be treated as a financial resource of the husband. As previously noted, the wife seeks an apportionment of the husband’s unvested share rights that will apply in the future. This is proposed to be equivalent to what the Court determines is a just and equitable adjustment of the parties’ matrimonial property.
Both parties are in agreement that, unless a finding is made that the unvested share rights constitute property, the Court lacks power under s 80 of the Act to make the orders sought by the wife.
Section 4(1) of the Act defines property as:
(a) in relation to the parties to a marriage or either of them—means property to which those party are, or that party is, as the case may be, entitled, whether in possession or reversion.
In Marchant & Marchant (2012) FLC 93-520 (“Marchant”), at 86,669 to 86,670, the Full Court, in respect to that definition, said:
This definition is self-evidently a limited or partial definition in terms of identifying specifically the kinds of interests or entitlements that constitute “property” for the purpose of the Act. The jurisprudence that has developed in this Court as to whether a particular right or entitlement can or should be characterised as property for the purposes of s 79 reflects the statutory definition being a partial one, and that the kinds of rights or entitlements that are “property” for s 79 purposes are referenced to that jurisprudence.
As the Full Court (Nicholson CJ, Fogarty and Purvis JJ) observed in Perrett & Perrett (1990) FLC 92-101 (“Perrett”) at p 77,659:
The question of whether a particular right or entitlement can or should be characterised as property has been one of continual difficulty which has troubled courts on many occasions both under the Family Law Act and its predecessor and otherwise.
In order to determine the question, we think it necessary in each case to first examine and carefully identify the precise nature of the particular entitlement in question.
[Emphasis added]
The Full Court, further, said at 86,670:
The term “property” has been generally given a wide meaning. Lord Langdale MR in Jones v Skinner (1835) 5 LJ Ch 87 at page 90 stated that it is:
…the most comprehensive of all terms which can be used in as much as it is indication and description of every possible interest which the party can have.
This quote was cited with approval by the Full Court of this Court in Duff and Duff (1977) FLC 90-217 (“Duff”), where it was held that at p 76,131:
…the Act is to be read and construed widely and liberally with words and expressions being given their ordinary meaning…
The Full Court in that case identified that “property” included real and personal property as well as choses in action, and specifically held that shares in a family company could constitute property within the meaning of the Act.
It follows from Duff that there is no doubt that “property” includes both real and personal property and that a chose in possession or a chose in action, including both an equitable and a legal chose in action, can be “property” for the purpose of s 79. In Duff, shares in a limited liability company were held to be property.
In Duff, the meaning of the words, “…whether in possession or reversion”, was held to be an expression of an adverbial phrase which qualifies the verb, “…entitled…” and that it is not intended to limit the kind of property with which the Act can deal. The Court held at p 76,133:
The phrase means that the entitlement to the property may be either in possession or reversion, i.e. the phrase is descriptive of the entitlement and not of the property and it removes any fetter upon the Court in dealing with property under this Act by limiting the nature of the entitlement thereto to entitlement in possession.
Cases subsequent to Duff have confirmed many types of rights or entitlements as “property” within the meaning of the Act. For example, an interest in a partnership (Cordell & Cordell (1977) FLC 90-322); moneys due under a verdict (In the Marriage of Debs (1978) 4 Fam LN 48); a vested interest in an estate, even though postponed during a life estate (In the Marriage of White (1979) FLC 90-682); an interest under contract (In the Marriage of Nelson (1977) 30 FLR 573); and the interest of a beneficiary in a deceased estate (In the Marriage of Rickaby (1995) FLC 92-642 at 82,481).
The wife refers to a number of decisions where unvested conditional share rights or unvested conditional share options were treated as property. Those cases include the following:
a. Johnston & Johnston [2003] FamCA 747, per Moore J (unvested conditional share options)
b. Nielson & Nielson [2012] FamCA 70, per Loughnan J (share options exercisable on a future date and unvested conditional share rights)
c. Shakir & Shakir [2014] FamCA 796, per Watts, J (unvested conditional employee share rights)
d. Paskin & Laurence [2018] FamCA 554, per Loughnan J (unvested conditional employee share options)
However, the question as to whether the husband’s unvested share rights are property is not simply a question of law – it is a question of mixed law and fact. As noted in Marchant (supra), in order to determine the issue it is necessary to “first examine and carefully identify the precise nature of the particular entitlement in question”. [Emphasis added]
The experts who have provided an opinion in respect to the value of the husband’s unvested share rights relied on offer documents which summarised the “Equity Incentive Plan Rules” for the K Company incentive security scheme pursuant to which the husband potentially received share entitlements. That approach was, with respect, less than adequate. Fortunately, at the final hearing, the parties agreed for the Court to receive into evidence the actual the EIP Rules which were annexed as ‘Mr Radcliff’ to the Affidavit of the husband sworn on 4 October 2019.
In that respect, the first point to note is, as acknowledged by the experts who gave evidence in these proceedings, the K Company Equity Incentive Plan is an employee incentive plan intended to motivate employees and to encourage them to remain with the business.
Secondly, the EIP Rules make it clear that the husband’s entitlement to receive an allocation of shares from his employer is dependent upon certain events occurring as well as certain disqualifying events not occurring. In that respect, the Plan Rules are relevantly outlined in the following paragraphs.
The introduction to the plan rules states, “The purpose of this Equity Incentive Plan (EIP) is to allow the Board to make Offers to Eligible Employees to acquire securities in K Company (the Company) and to otherwise incentivise employees.”
Rule 1.1 provides that:
(a) The Board may from time to time, in its absolute discretion, invite Eligible Employees to participate in a grant of Incentive Securities, which may comprise any one or more of:
· Rights;
· Options; and
· Restricted Shares.
(b) Offers will be made on the terms set out in the EIP and/or on any additional or alternative terms as the Board determines, as specified in the terms of an Offer.
Rules 1.3(a) and (b) relevantly provide that:
(a) Acceptance of an Offer must be made by the Eligible Employee in accordance with the instructions that accompany the Offer, or in any other way the Board determines.
(b) The Board may, at its discretion, refuse to allow the participation of an Eligible Employee where that Eligible Employee ceases to be an Eligible Employee, or ceases to satisfy any other conditions imposed by the Board, before the grant is made.
Rule 2.1(a) relevantly provides that:
(a) Where an Eligible Employee has accepted an Offer to participate in a grant of Rights in accordance with rule 1.3(a), the board will, subject to its discretion under rule 1.3(b), grant Rights to the Eligible Employee.
Rules 2.2(a) and (d) relevantly provide:
(a) Subject to any express rule to the contrary, a Right will only vest where each Vesting Condition, and all other relevant conditions advised to the Participant by the Board pursuant to rule 1.2, have been satisfied or otherwise waived by the Board.
…
(d) The Board may determine that the vesting of a Right will be satisfied by the Company making a cash payment in lieu of an allocation of Shares pursuant to rule 2.4. For the avoidance of doubt, the Board may determine that some or all of the Participant’s Rights will be settled in this way.
Rule 2.3(a) provides:
(a) Subject to rules 2.2(d) and 2.3(b), as soon as practicable following vesting of a Right, the Board must issue to the Participant, or procure the transfer to or the setting aside for the Participant of, the number of Shares in respect of which Rights have vested. No further action is required on the part of the Participant.
Rules 2.4(a) and (b) provide:
(a) Where the Board exercises its discretion under rule 2.2 (d) to make a cash payment to a Participant in lieu of an allocation of Shares, the Company must pay to the Participant an amount in Australian dollars (or any other currency determined by the Board in its absolute discretion) equivalent to the value of the Rights that have been vested and that the Board determines will be settled by a cash payment under rule 2.2(d).
(b) The amount of the cash payment referred to in rule 2.4(a) will be calculated by multiplying the number of Shares in respect of which Rights have vested by the Current Market Price.
Rule 2.5 provides:
A right will lapse upon the earliest to occur of:
(a) the Right lapsing in accordance with a provision of these Rules (including in accordance with a term of an Offer);
(b) failure to meet a Vesting Condition or any other condition applicable to the Right within the Vesting Period; or
(c) the receipt by the Company of a notice in writing from a Participant to the effect that the Participant has elected to surrender the Right.
Rule 7 deals with discretion not to vest and provides:
Notwithstanding that any Vesting Conditions and other conditions applicable to an Incentive Security (as advised to the Participant) have been satisfied, the Board may in its absolute discretion determine that, having regard to:
(a) the personal performance of a Participant;
(b) the performance of the division or function in which the Participant is employed or for which they have accountability, or which is relevant in relation to the Participant’s role;
(c) the performance of the Group; or
(d) any other factor which the Board reasonably determines is appropriate to take into account in relation to the Participant’s Incentive Securities,
vesting of some or all of the Participant’s Incentive Securities is not justifiable or supportable, in which case the Board may determine that all or some of the Participant’s Incentive Securities which would otherwise have vested will not vest and will instead lapse (or in the case of Restricted Shares, be forfeited).
Rule 9 deals with cessation of employment. Relevantly, rule 9(b) provides:
…
(b) The Board, in its discretion, may determine that some or all of a Participant’s unvested Incentive Securities, as applicable:
(1) lapse;
(2) are forfeited;
(3) vest (immediately or subject to conditions);
(4) are only exercisable for a prescribed period and will otherwise lapse; and/or
(5) are no longer subject to some of the restrictions (including any Vesting Condition) that previously applied,
as a result of the Participant ceasing to be an employee of the Group.
Rule 10 deals with post-cessation of employment discretion and provides:
Notwithstanding any other provision of these Rules, where:
(a) a Participant who has ceased to be employed by a Group company continues to hold Incentive Securities which are unvested; and
(b) the Board determines in good faith that:
(1) the Participant has breached a Post-Cessation Covenant;
(2) the Participant commences employment with a Competitor at any time prior to the Incentive Securities vesting; or
(3) a change in the Participant’s circumstances since he or she ceased to be employed by a Group Company mean it is no longer appropriate for the Participant to retain his or her unvested Incentive Securities,
the Board may in its absolute discretion determine that some or all of such unvested Incentive Securities will lapse or be forfeited (as applicable) with immediate effect.
Rule 17 deals with miscellaneous matters. Paragraphs (d) and (e) of rule 17.2 relevantly provide:
…
(d) The grant of Incentive Securities on a particular basis in any year does not create any right or expectation of the grant of Incentive Securities on the same basis, or at all, in any future year.
(e) No Participant has any right to compensation for any loss in relation to the EIP, including:
(1) any loss or reduction of any rights or expectations under the EIP in any circumstances or for any reason (including lawful or unlawful termination of employment or the employment relationship);
(2) any exercise of a discretion or a decision taken in relation to a grant of Incentive Securities or in relation to the EIP, or any failure to exercise a discretion under these Rules;
(3) the operation, suspension, termination or amendment of the EIP; or
(4) lapse or forfeiture (as applicable) of any Incentive Securities.Rule 17.3 deals with the power of the Board to administer the EIP. Rule 17.3(b) relevantly provides:
…
(b) Except as otherwise expressly provided in the EIP, the Board has absolute and unfettered discretion to act or refrain from acting under, or in connection with, the EIP and in the exercise of any power or discretion under the EIP.
Counsel for the husband submitted that rules 7 and 10 of the EIP Rules indicate the conditional nature of the possible vesting of shares under the EIP.
Counsel for the wife, on the other hand, contended that there is a doubt as to whether rule 7 applies to the husband in circumstances where rule 10 “is specifically aimed at employees no longer employed or participants no longer employed”. This is in circumstances where it is accepted that the husband is no longer employed by K Company. Having regard to that fact, it was submitted that rule 10 should be read in such a way “that [rule 10] would cover the field” in respect to the circumstances of the husband.
In response to a query from myself as to whether, if rule 7(a) did not apply, the balance of rule 7 did, counsel for the wife submitted that rule 7(b) could not apply because of the words “in which the participant is employed”. Again, I note that it is accepted that the husband is no longer an employee of K Company.
Counsel for the wife further submitted that, insofar as the rule refers to performance of a group, rule 7(c) would not apply either because, inferentially, paragraphs (a) and (b) relate to the performance of a participant or a division in which he is employed.
Having regard to those matters, counsel for the wife submitted that “if you’ve got a discretion not to vest that covers current and past employees, why 10 is necessary at all”.
In response to that discussion, counsel for the husband submitted that the construction of rule 10 advanced by counsel for the wife ignores the fact that rule 10 is specified to apply “notwithstanding any other provisions of these rules”. On that basis, counsel for the husband contended that both rules 7 and 10 applied to the circumstances of the husband.
It is, with respect, unnecessary to determine which of the arguments presented by the learned and experience counsel is correct. This is because of the broad power bestowed upon the Board by paragraph (d) of rule 7. Ignoring the other paragraphs, that rule provides:
Notwithstanding any Vesting Conditions and other conditions applicable to an Incentive Security (as advised to the Participant) have been satisfied, the Board may in its absolute discretion determine that, having regard to:
…
(d) any other factor which the Board reasonably determines is appropriate to take into account in relation to the Participants Incentive Securities,
Vesting of some or all of the Participant’s Incentive Securities is not justifiable or supportable, in which case the Board may determine that all or some of the Participant’s Incentive Securities which would otherwise have vested will not vest and will instead lapse (or in the case of Restricted Shares, be forfeited).
I accept that, as contended by counsel for the wife, it is arguable that paragraphs (a), (b) and, inferentially, paragraph (c), of rule 7, apply in circumstances where a “Participant” of the EIP is employed by K Company. That possible construction does not, however, reasonably apply to paragraph (d) which refers to a “Participant” who may be a participant other than someone who is employed by the company. This is made clear by the definition of participant which is set out in part D of the EIP Rules. In that part, “Participant” is defined as “a person who has been allocated an Incentive Security or Share under the terms of this EIP from time to time”. This is distinguished from the definition of “Eligible Employee” which is relevantly defined as “an employee of the Group… or any other person who is declared by the Board to be eligible to receive a grant of Incentive Securities under the EIP”.
It is quite clear that, subject to the Board acting “reasonably”, paragraph (d) of rule 7 of the EIP Rules gives a broad power to the Board to determine that “vesting of some or all of the Participant’s Incentive Securities is not justifiable or supportable”. That broad power is not limited by time. That is, the power bestowed upon the Board pursuant to paragraph (d) is not restricted to the period during which the “Participant” is an employee.
Moreover, for completeness and in the event that I am wrong in that construction, it is clear that rule 9(b) of the EIP Rules, which I have set out above, confers upon the Board a discretion to determine whether “a Participant’s unvested Incentive Securities” vest upon the termination of employment of the Participant.
It may well be that, having regard to the broad discretion bestowed by those paragraphs of rules 7 and 9 to which I have referred, rule 10 is superfluous. Irrespective of whether drafters of the EIP Rules did or did not need to include rule 10, the fact is that it is in the EIP Rules and, as noted by counsel for the husband, essentially trumps all other rules insofar as the preamble to rule 10 reads “notwithstanding any other provision of these rules”. In other words, rule 10 gives the Board “absolute discretion” to determine whether “some or all of such unvested Incentive Securities will lapse or be forfeited” in the circumstances set out in that rule.
In considering whether the husband’s unvested share entitlement, pursuant to the EIP, is to be treated as his property, I have had regard to those relevant provisions of the EIP Rules to which I have referred. I have also had had regard to the opinions of Mr HH and Mr EE. Both Mr EE and Mr HH gave oral evidence on what is colloquially referred to as a “hot tub” basis. That is, they were both present in the witness box while each were respectively asked questions by counsels for the parties.
Both Mr HH and Mr EE noted that the performance targets set by K Company as a precondition to the share rights vesting have been partially satisfied in respect to the first two (2) parcels to which I have referred. That is not the case, however, in respect to the third parcel of 19,883 unvested shares.
The evidence of the experts in respect to the first two (2) parcels was accurately summarised in paragraph 61(b) of the wife’s written submissions as follows:
The future vesting of the share rights is conditional on performance criteria of [K Company] compared to known benchmark indices. Part of the relevant performance period in relation to each tranche of the unvested share rights has already run and a comparison of the TSR [Total Shareholder Return] of [K Company] to the TSR of the benchmark indices can, and has, been undertaken by the parties' experts. Those experts agree that:
i. Of the 186,260 unvested FY16 Performance Rights which were due to vest on 30/08/2019 " ... a high proportion if not all of these Share Rights are likely to vest." [Joint Experts Statement (“JES”)] [4.15]
ii. Of the 81,891 and 39,104 unvested FY17 Performance Rights which are due to vest on 30/08/2020 " ... a high proportion if not all of these Share Rights are likely to vest." JES [4.16]
Similarly, the evidence of the experts in respect to the third parcel of unvested shares was accurately summarised in paragraph 62 of the wife’s written submissions as follows:
The experts have, in relation to the 19,883 unvested FY18 Performance Rights which are due to vest on 30/08/2021, expressed the opinion that " ... there is a risk that not all of these Share Rights will vest" JES [4.17].
The experts further gave evidence that it should not be assumed that the Board of K Company would act capriciously or unreasonably in taking steps to prevent the husband receiving the unvested shares. On that basis, as noted, they both expressed their confidence that the shares due to vest in August 2020 (items 18 and 19 on the balance sheet) are likely to vest. They did not, however, express the same confidence in respect to the potential vesting of the third parcel of shares due to vest in August 2021 (item 20 on the balance sheet). As noted, this was because, at the time of giving evidence, they were unable to say with a sufficient degree of confidence that the relevant performance targets set by the company for the relevant year would be met.
I acknowledge that, generally speaking, past conduct can be a guide to predicting future conduct. However, the confidence of making the prediction will depend upon all circumstances relevant to the context in which the prediction is made. With respect to both Mr HH and Mr EE, they did not, in my view, pay sufficient regard to the terms of the EIP and, particularly, that the vesting of the husband’s share entitlements is subject to the conditions to which I have referred. Specifically, it is subject to powers of the Board of K Company to determine whether the shares should or should not vest and if so, whether a cash payment should be paid in lieu of the vesting of the shares.
Not only was this a failing in respect to their attempts to value the unvested share rights, but it was also a failing in their assessment as to whether the shares would, as a matter of probability, vest.
In voicing that criticism of the approach taken by the experts, I note the concession made by Mr HH at paragraphs [24] to [30] of Appendix “4” of his written submissions that it is not possible with any mathematical certainty to apply a discount based on a prediction of what the Board of K Company might do by way of exercising their discretion in respect to the husband’s unvested share entitlements. That concession was appropriately made, particularly in the circumstances of this case where rule 17.2(d) of the EIP Rules relevantly provides that “the grant of Incentive Securities on a particular basis in any year does not create any right or expectation of the grant of Incentive Securities on the same basis, or at all, in any future year”.
In Marchant (supra), the Full Court stated at 86,670:
However, whereas at common law some future and contingent interests have been characterised as property, many cases decided with reference to the Act and s 79, particularly the so-called “superannuation cases” prior to the relevant amendments as to the treatment of superannuation interests, established that “property” for the purpose of the Act does not include contingent interests.
One of the most notable examples is the oft-quoted statement of Fogarty J in Crapp & Crapp (No 2) (1979) FLC 90-615 (“Crapp”) at 78,176 as follows:
An order can only be made… under s 79 where a party has a present or future interest in a particular item of property. Clearly where a party has a present interest no difficulties arise, and by “future interest” in the above sense, I take it to mean a situation where a party has an established interest in an item of property but the date of receipt is postponed to some future time. That is different from the case where a party may become entitled to an interest in property in the future, provided that certain events occur and/or that certain disqualifying events do not occur in the meantime...
Cases such as W & W (1980) FLC 90-872 (“W & W”) and Crapp have long settled the principle that an expectation of future income, however real or imminent, does not constitute property under the Act. In W & W, work in progress was held to not amount to property within the meaning of s 79(1)(a).
…
We also highlight that the opening words to the definitions in s 4, recorded above, are important. Section 79, by subsection (4)(e), cross-references subsection 75(2) of the Act. Section 75(2)(b) identifies, “the income, property and financial resources of each of the parties…” understood as meaning present and future income where, “…income…” is there referred to, it is difficult to see how, as a matter of statutory interpretation, prospective or contingent income could be capable of being treated as “property” for the purposes of s 79.
We therefore conclude that whilst the Federal Magistrate purported to exercise the s 79 and s 80(1)(h) power in making order (2), the terms of that order were beyond that power because the subject matter of the order is not “property” within the meaning of s 79, and the order does not alter the interests of the parties in “property”.
[Emphasis added]
I was also helpfully referred by counsel for the husband to the decision of Coleman J in Sand & Sand (2012) FLC 93-519 (“Sand”). One of the grounds of appeal before his Honour was that “the Honourable Federal Magistrate fell into error by treating the Appellant’s income yet to be earned as if it were property within the meaning of the Family Law Act 1975 (Cth)”. Relevantly, the learned Federal Magistrate had concluded that, in order to give effect to the adjustment of property that he had determined to be just and equitable pursuant to s 79 of the Act, he had the power to make an order pursuant to s 80(1)(a) and (b) of the Act to order the payment of a sum of money by way of instalments from the husband’s future income.
Coleman J in Sand (supra) held that s 80 of the Act is not, in itself, a source of jurisdiction for an order for the partial distribution of property to be made in the course of interim proceedings. Rather, that section is an “enabling provision”, which provides various ways in which the general power set out in s 79 may be exercised. In other words, a precondition to the making of an order pursuant to s 80, in that case, was that the order related to the “property” of the parties. Both parties are in agreement that the same precondition exists in this case. In other words, in order to make the orders sought by the wife for a future adjustment of the husband’s securities, once they vest, it must be determined that the unvested securities are property for the purposes of s 79 of the Act.
In that context, after considering several relevant authorities, Coleman J, in typically succinct language, stated at 86,657, “For a court to have jurisdiction to make orders pursuant to s 79 of the Act property must be in existence when the jurisdiction to do so is sought to be exercised.” By way of analogy, his Honour said:
It is improbable that an “expectation”, or right to “due administration” of a trust or estate which might in the future result in the vesting of “property” in a party to a marriage, in the absence of any legal entitlement by a party to facilitate such vesting could enliven the jurisdiction to make orders for settlement of property pursuant to s 79 of the Act.
In this matter, based on past experience, there is no question that the husband has an “expectation” that he will receive securities pursuant to the K Company EIP. The husband could also assume that there will be “due administration” of the EIP by the Board of K Company. That is, essentially, that the Board will act reasonably and not capriciously in exercising their broad discretion under the EIP to which I have referred. However, as I have explained, on the facts of this particular case, the vesting of securities under the EIP will only occur in the future upon the happening of further events and that certain disqualifying events do not occur in the meantime. This includes, as I have identified, the possible exercise by the Board of its broad discretion to determine that the security shall not vest.
For completeness, if I am wrong on the construction of the EIP which I have set out above, on the facts of this matter, the husband’s unvested share entitlements are, nonetheless, analogous to a contingent entitlement to future income. This is because rule 2.2(d) empowers K Company to make “a cash payment in lieu of an allocation of shares”.
As noted by the Full Court in Marchant (supra), prospective or contingent income should not be treated as “property” for the purposes of s 79. The decision of Coleman J in Sand (supra), to which I have referred, is to similar effect.
Having regard to all those matters, I determine that the husband’s entitlement to unvested shares pursuant to the EIP is not “property” for the purpose of s 79 of the Act. This is because the husband’s entitlement to receive shares is a contingent entitlement. That is, it is a right which he may receive provided that certain events occur and/or that certain disqualifying events do not occur in the meantime.
Accordingly, for these reasons, I do not include items 18, 19 and 20 in the balance sheet because I have determined that the husband’s unvested share rights are a financial resource and cannot be the subject of an order pursuant to s 79 or s 80 of the Act.
The issue of add backs
The rationale for “add backs” was described by the Full Court in Mayne & Mayne (2011) FLC 93-479 (“Mayne”) at 85,896 to 85,897 in the following terms:
Parties to proceedings about the division of property before the Family Court… frequently urge the Court to add-back assets or funds that have been applied by one party or another for allegedly his or her own purposes after separation. The rationale is that one party should not benefit from a premature distribution of the assets. An obvious example is withdrawing and using money from a bank account either joint or owned by one of the parties. …
The application of the funds removed… may have been for a personal purpose (for example, to pay legal fees) or it may have been applied in the sustenance of a party or the children of the parties.
If the former is the case this has generally been found to be a pre-emptive unilateral division of property. If the latter is the case then the principles enunciated in Marker v Marker [[1998] FamCA 42] and Chorn NH & Hopkins RC [(2004) FLC 93-204] apply. If the money was, or part of the money, was used to meet reasonable living expenses then that money, or that part of the money, is not “added-back” or regarded as a pre-emptive distribution.
[Emphasis added]
In Omacini & Omacini (2005) FLC 93-218 (“Omacini”) at 79,617, the Full Court, applying earlier authority, identified three categories where it may be appropriate to notionally add back an item of expenditure as follows:
(a) Where the parties have expended money on legal fees: DJM & JLM (1998) FLC 92-816 at 85,262
…
(b) Where there has been a premature distribution of matrimonial assets: Townsend & Townsend (1995) FLC 92-569 at 81,654
…
(c) In the circumstances outlined by Baker J in Kowaliw & Kowaliw (1981) FLC 91-092 at 76,644:
…
(a) “where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets”, or
(b) “where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value”.
Those principles have been applied in a number of cases where one party has prematurely obtained the benefit of the property of the relationship prior to a consideration of appropriate adjustment at final hearing.
The decision of the High Court in Stanford (supra) has created some uncertainty as to whether the approach of the Court in respect to add backs is correct. In Stanford (supra), the High Court said at [37] that the first step in respect to s 79 proceedings is:
… to begin consideration of whether it is just and equitable to make a property settlement order by identifying, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property.
(Emphasis in original)
In Mayne (supra), Faulks DCJ said at 85,897 that, in considering the existing legal and equitable interests of the parties to that appeal, “By definition it would seem that property which has been spent when the matter is before the Court is no longer there and is not property” [Emphasis in original].
However, more recently, in Trevi & Trevi (2018) FLC 93-858 (“Trevi”) at 78,454, the Full Court stated:
Two fundamental premises emerge from Omacini and the authorities preceding it. First, “adding back” is a discretionary exercise. When the discretion is exercised in favour of adding back, it reflects a decision that, exceptionally, in the particular circumstances of a case, justice and equity requires it. The second premise is its corollary: in cases that are not “exceptional” justice and equity can be achieved, not by adding back, but by the exercise of a different discretion – usually by taking up the same as a relevant s 75(2) factor. Indeed, it has been said that the latter is “a course which is, perhaps, technically more correct” than adding back to the list of existing interests in property.
(Footnotes omitted)
In Trevi (supra), their Honours expanded to helpfully clarify the appropriate approach to the treatment of add backs in the context of Stanford (supra) at 78,456, as follows:
In Stanford v Stanford, the High Court emphasised as fundamental that a consideration of whether it is just and equitable to make a property settlement order begins by “identifying, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property”.
The essence of a claim for addbacks is that the asserted sum/s should be added to the value of the existing property interests of the parties and, subsequent to the assessment of contributions, credited to the spending party as part of the value of their assessed entitlements. Doing so does not offend what was emphasised by the High Court. Adding back does not seek to create property interests that do not exist. Rather, doing so emphasises that satisfying the respective requirements of ss 79(2) and (4) of the Act to do justice and equity can require an “accounting” or “balance sheet” exercise for the purposes of s 79(2) and (4), so as to include the value of the dissipated property or expended sums within the total value of the parties’ existing interests in property, and to credit the value of same against the assessed entitlement of the dissipating or spending party.
[Emphasis in original] [Footnotes omitted]
The husband contended that the wife’s “under-utilisation of [her] working capacity” was analogous to that discussed in In the Marriage of Taguchi (1987) FLC 91-836, where the Full Court considered a case in which the wife had a capacity to work but chose not to, primarily, because she wished to be an artist.
I do not, with respect, accept the appropriateness of that analogy. The wife is entitled to live where she so chooses. She has, in the past, established successful businesses and, in my view, has the potential to do so in City B where she now lives. Nevertheless, in considering her earning capacity, I have had regard to the fact that the potential market for … services in City B may be more limited than more substantial towns and cities where the wife has lived. I have also had regard to the fact that the wife would take some time to build up clientele in a new business, and that the wife is now older than she was at the time that she was able to devote her more youthful energies to establishing successful businesses in the past.
In summary, I accept that, while the husband has a greater earning potential than the wife, the disparity in that earning potential is not as great as that contended by counsel for the wife. In circumstances where it is speculative as to whether both or one of either the husband’s business and/or the wife’s business will be successful, I do not intend to attempt to quantify that potential disparity in earning capacity. However, that disparity in earning capacity is a factor to which I have had regard in assessing whether there should be any adjustment pursuant to s 75(2) of the Act.
As an additional consideration in respect to s 75(2)(b), the wife submitted that, in the event of the Court determining that the husband’s unvested share rights are not property then they are a financial resource. I accept that to be the case. In Crapp & Crapp (1979) FLC 90-615 at 78,183, Fogarty J stated that the term “financial resource” was intended to be widely embracing and included “a means of supplying some want or deficiency; a stock or reserve upon which one can draw when necessary”.
That description by Fogarty J has been widely accepted as a correct statement of principle.
Also of relevance is the decision of the Full Court in Holland & Holland (2017) FLC 93-798. In that case, the Full Court said as to the meaning of “financial resource”:
The expression “financial resource” requires similar caution. It has been used by the court throughout the Act’s history in contradistinction to “property” to highlight a proposition central to the operation of s 79 of the Act. Orders pursuant to s 79 of the Act can alter interests in respect of “property”; “financial resources” cannot be the subject of such orders. However, those same financial resources can be important to the making of s 79 orders by reason of a consideration of them pursuant to s 79(4)(e) of the Act (i.e. the “s 75(2) factors”).
It should be recognised immediately that the expression “financial resource” has sometimes been used to describe a situation where property the subject of an inheritance has been assessed within an “asset by asset” or “separate pool” approach. However, with respect to those who have used that expression in that context, we would seek to reiterate what was said by the Full Court in Bonnici and Bonnici, referred to by her Honour:
The expression “resource” [or, we would respectfully add, “financial resource”] is and should be confined to those interests which do not fall into the definition of property as such to which the parties have a present entitlement”.
Such an approach is supported by the recent statement by the High Court in Stanford earlier referred to.
Thus, despite an apparent pedigree of sorts, we consider it important to state that there is no doubt that her Honour erred in referring to the husband’s vested interest in the Property W as a “financial resource”. It was, with respect, not a financial resource; it was property of the husband. It is property to which the parties are, or a party is, presently entitled – see the definition of “property” in s 4 of the Act and the recent discussion in Calvin.
(References omitted)
For reasons that I have previously set out I have found that the husband’s unvested share entitlements are not property. They are nonetheless a significant financial resource that must be taken into consideration in determining what order would effect is a just and equitable adjustment of the parties’ matrimonial property.
The wife contended, that having regard to the evidence of the experts, the husband’s unvested share entitlements would have a value of between $167,000 and $213,000. It was submitted that, in light of such a substantial future benefit, the Court should make an adjustment pursuant to s 75(2) in favour of the wife of eight per cent (8%).On the basis of my findings in respect to the parties’ property pool, such an adjustment would be equivalent to approximately $280,000. That is, such an adjustment would be in excess of the amount that the experts opined was the maximum amount of the value of the unvested share rights.
The husband, on the other hand, did not accept the value of the unvested share rights as opined by the experts. That position by the husband is, in my view, entirely understandable. The experts confirmed that, in their valuation of the unvested share rights, they did not apply a discount in respect to the possibility of the Board exercising their broad discretion in accordance with the terms of the EIP Rules to which I have referred. The reality is, as further noted by Mr HH, one cannot, with any mathematical certainty, apply a discount to predict what the Board might do in respect to the husband’s unvested share rights.
In Shaw & Shaw (1989) FLC 92-030 at 77,420, the Full Court said there was “a degree of artificiality about attempting to assign a monetary value” to a financial resource in circumstances where it was not possible to identify future events or decisions that would result in the financial resource being accessed by the party.
A similar view was expressed by Aldridge J in Raine & Creed [2013] FamCA 362 at [33]. His Honour said that in such circumstances “it is of limited assistance to seek to capitalise such a future entitlement by trying to derive a present value of them”.
Accordingly, in this matter, I do not intend to attempt to place a value on the husband’s unvested share entitlements. There would be a degree of artificiality in attempting to do so. I accept however, that the unvested share entitlements are a potential financial resource that may become available to the husband and due consideration should be given to that potential in assessing whether there should be an adjustment to either of the parties in respect to the s 75(2) factors.
(c) whether either party has the care or control of a child of the marriage who has not attained the age of 18 years
A significant consideration in this matter is the fact that the husband has the care and control of the children of the marriage who have not yet attained the age of 18 years. X is 15 years old and Y is 12 years old. In assessing the parties’ contributions in the period between 22 September 2017 and the date of hearing, I have set out why I have determined that the husband has made a greater contribution in terms of s 79(4). In so doing I have set out the manner in which the husband is discharging his responsibilities as the primary carer of the parties’ two (2) children. The husband will continue to have those responsibilities until X reaches 18 in three (3) years’ time and Y reaches 18 in six (6) years’ time.
Those responsibilities will involve demands in terms of the physical, emotional and intellectual needs of the children. This includes educational expenses in circumstances where it is intended that both children remain in private school. It is also of some significance that the husband will be required to continue to support X in addressing the mental health challenges that she has experienced since the parties’ separation.
(d) commitments of each of the parties that are necessary to enable the party to support: (i) himself or herself; and (ii) a child or another person that the party has a duty to maintain; and (e) the responsibilities of either party to support any other person
Both parties have a commitment to support themselves, and their two (2) children, X and Y. The wife contends, however, that the husband has no “duty to maintain” Ms R or her two (2) children, T and D.
I accept that the husband may currently have no legal responsibility to support Ms R or her children and, in that sense, it could not be said that the husband has a duty to support either Ms R or her children in terms of s 75(2)(d). However, s 75(2)(e) refers to a “responsibility” to support “any other person”. There is nothing in the Act to suggest that responsibility must be one imposed by law as opposed to one which is voluntarily assumed as a moral responsibility.
On the facts of this matter, I respectfully accept and agree with the submission of counsel for the husband that the husband “has assumed a proper obligation to support his new family unit”.
The reality is that the husband has voluntarily taken on the responsibility with his new partner, Ms R, of mutually supporting both themselves and all four (4) children of their blended family. This is in circumstances where it is not a one-way street. That is, the evidence of both the husband and Ms R, who was forthright in her response to questions in cross-examination, satisfies me that both the husband and Ms R mutually support each other and each of their children.
It would be a perverse instruction of s 75(2)(e) if the Court could not have regard to the demands on a party as a result of their voluntary assumption of responsibility to support members of their new blended family as they move on with their lives following the breakdown of the marriage which is the subject of consideration by the Court. In that respect, it has been acknowledged that, in Lutzke & Lutzke (1979) FLC 90-714 at 78,836 and Aroney & Aroney (1979) FLC 90-709 at 78,784, the Court held that “the responsibility of a party to support another person, referred to in s75(2)(e) can extend to a moral obligation”.
Even if I am wrong in adopting that construction, for completeness, I can indicate that, pursuant to the provisions of s 75(2)(o), I would have had regard to the fact that the husband has taken on the responsibility of supporting Ms R and her two (2) children and that responsibility is reciprocated by Ms R. In that respect, I note that in Zubcic & Zubcic (2019) FLC ¶93-918 at 79,223:
Section 75(2)(o) is expressed in the widest terms and forms part of a suite of provisions that recognises more than merely financial matters.
(f) the eligibility of either party for a pension, allowance or benefit under: (i) any law of the Commonwealth, of a State or Territory or of another country; or (ii) any superannuation fund or scheme, whether the fund or scheme was established, or operates, within or outside Australia; and the rate of any such pension, allowance or benefit being paid to either party
It has not been suggested that either party has received or made an application for a government pension, allowance or other benefit. I have earlier set out each of the parties’ respective superannuation entitlements.
(g) where the parties have separated or divorced, a standard of living that in all the circumstances is reasonable
The parties, during the period of their intact marriage, enjoyed a very comfortable standard of living commensurate with the high income earned by the husband.
The husband and his current partner, Ms R, have given evidence regarding the current living arrangements of the husband, X and Y, as well as Ms R and her two (2) children. I am satisfied that those living arrangements are comfortable and that the husband, jointly with Ms R, will have the capacity to sustain that.
I respectfully agree with the submission of counsel for the husband that an unsatisfactory aspect of the wife’s case was her failure to call evidence from her current partner despite the fact that he was present in Court during the entirety of the proceedings. In those circumstances, I am left without a full appreciation of the wife’s current living arrangements and the standard of living which she enjoys. In that respect, I note that the wife lives with her new partner in a property owned by him. However, I do not know the level of indebtedness in respect to any mortgage on the property, nor the other resources or commitments that the wife and her new partner may have that may, in turn, impact upon the standard of living that they enjoy living together as a couple.
(h) the extent to which the payment of maintenance to the party whose maintenance is under consideration would increase the earning capacity of that party by enabling that party to undertake a course of education or training or to establish himself or herself in a business or otherwise to obtain an adequate income
The wife has not suggested that she requires funds in order to undertake additional training that may increase her earning capacity. I note, however, that the wife is endeavouring to establish herself in a business and the lump sum distribution of matrimonial property that she receives as a result of these proceedings may provide some assistance in her endeavours to develop that business.
(ha) the effect of any proposed order on the ability of a creditor of a party to recover the creditor's debt, so far as that effect is relevant
This is not a relevant consideration.
(j) the extent to which the party whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other party
The parties cohabited for a period of approximately 21 years. I accept that, during that period, the wife has made a significant contribution to the husband’s career development and, hence, his income and earning capacity. As noted in the wife’s written submissions at paragraph 107:
107. During their marriage, so that the husband could take up new and progressively better employment positions in the resources industry, the parties moved their place of residence as follows:
a. 1999-City B to City F
b. 2002-City F to Brisbane
c. 2003- Brisbane to City B
d. 2007-City B to J Town, W.A.
e. December 2015-J Town to City O
The husband, frankly and appropriately, acknowledged that, had it not been for the wife fulfilling her role as homemaker and parent, he would not have been able to devote the amount of time that he has to the development of what has been a very successful career.
In summary, I accept that the wife has made a significant contribution to the husband’s career and his capacity to earn a substantial salary. Accordingly, this is also a significant s 75(2) consideration to which I have had regard.
(k) the duration of the marriage and the extent to which it has affected the earning capacity of the party whose maintenance is under consideration
It is significant that, as a consequence of the moves to which I have referred immediately above, the wife sold the following businesses she had established:
a. 1999-"Business 1", in City B, for $15,000.
b. 2002-"Business 2" in City F, for $35,000.
c. 2015-"Business 3" in M Town. W.A., for $70,000.
In more recent years, up until 22 September 2017, the wife has focused upon her responsibilities as homemaker and primary carer for the children.
In summary, it is significant that, in assisting the husband to develop his career, the wife has sacrificed her own career prospects.
(l) the need to protect a party who wishes to continue that party's role as a parent.
I have previously addressed this contribution in recognising the appropriateness of the husband’s decision to pursue a change of direction in his career by focusing upon developing CC Business rather than seeking employment in the resources industry where he was previously employed at a senior level.
(m) if either party is cohabiting with another person—the financial circumstances relating to the cohabitation
At paragraph 17 of his Financial Statement filed 1 July 2019, the husband states that his current partner, Ms R, earns approximately $1,226 per week. I am satisfied that both the husband and Ms R contribute to the running costs of the household where they live with each of their children.
At paragraph 17 of her Financial Statement filed 1 July 2019, the wife states that her partner, Mr Q earns $2,019 per week. I know little else about the financial circumstances of Mr Q.
(n) The terms of any order made or proposed to be made under section 79 in relation to: (i) the property of the parties; or (ii) vested bankruptcy property in relation to a bankrupt party
I have previously set out the adjustment I intend to make in respect to the matrimonial property of the parties, having regard to those considerations set out in s 79(4) of the Act.
(na) any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.
It is significant that the wife has not paid child support in respect to the parties’ two (2) children. The husband contends that, as a result of her failure to do so, the Court should infer that she will fail to make such payments in the future.
While generally finding the wife to be a witness of truth, her evidence in respect to failing to pay child support was less than convincing. In giving evidence, the wife contended that she has failed to pay child support because she did not understand the documents sent to her by the Child Support Agency.
An unsatisfactory aspect of the wife’s evidence was that, after stating that her lack of understanding was the reason for the non-payment of child support, she then stated the reason she failed to pay child support was an incapacity to do so.
Having regard to the unsatisfactory nature of the wife’s inconsistent evidence in respect to this issue, the Court cannot have confidence that the wife will, in the future, meet her child support obligations.
(o) any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account
As earlier noted, the wife contended that the Court should have regard to the fact that, as a result of a decision that the husband made to purchase the T Ltd shares in May 2017, without the wife’s consent, the husband has ultimately lost the sum of $108,500.
The approach adopted by the Court in respect to the issue of waste is generally that as set out in the decision by Baker J in In the Marriage of Kowaliw (1981) FLC 91-092 (“Kowaliw”) at 76,644:
As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a) where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
(b) where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
The Full Court has described this approach as a “well accepted guideline”.[14] While Kowaliw (supra) is referred to as the foundational case in considering the issue of waste, it is to be noted that, in that case, Baker J found that the losses were caused in the husband’s attempt to improve the family wealth and not to reduce it. In those circumstances, his Honour determined that it was appropriate for those losses to be shared.
[14] Browne & Green (1999) 25 Fam LR 482, 496 [44] (Lindenmayer, Finn and Holden JJ); cited with approval in Omacini (supra), 79,618 [31] (Holden, Warnick and Le Poer Trench JJ).
In a further example, in Bulleen v Bulleen (2010) 43 Fam LR 489, the wife asserted that, like the case at hand, the husband had incurred unnecessary expenses in respect to property renovations without her consent. The wife, in that case, therefore contended that the husband should be solely responsible for meeting the costs of those renovations.
In rejecting that argument, Cronin J, at 512–513, relied upon the decision of the Full Court in Browne & Green (1999) 25 Fam LR 482 at 500 where it was stated that:
[P]arties generally expect to share the economic profits of a marriage, which, in our view, requires that there should be good and substantial reasons for departing from the principle that where there are economic losses incurred in a marriage, those losses should be shared, absent any negligence, recklessness or deliberate dissipation of assets by one party.
Cronin J found, in that case, that it was not uncommon for the husband, in the particular marriage under consideration, to make decisions of that nature and his Honour concluded at 513 that the expenses had not been “undertaken negligently, recklessly or with a mind to deliberately dissipate the assets”. Accordingly, his Honour did not take the renovation costs into account in assessing the appropriate adjustment of the parties’ property.
In this matter, I am satisfied that the husband regularly engaged in acquiring and selling shares. While not made with the wife’s consent, the wife has not presented evidence that satisfies me that the decision by the husband to invest in T Ltd was undertaken “negligently, recklessly or with a mind to deliberately dissipate the assets” of the parties. Accordingly, I do not have regard to the funds lost in the failed investment in T Ltd in determining whether there should be an adjustment pursuant to s 75(2) of the Act.
Summary of s 75(2) considerations
Having regard to the totality of the s 75(2) factors to which I have referred, I have determined that it is appropriate for there to be an adjustment in favour of the husband of five per cent (5%).
In arriving at that conclusion, I have determined that, in the absence of other factors, a parent left with the primary care of the parties’ two (2) children for the majority of the year and without child support contributions from the other parent, as in the circumstances of the husband, would be entitled to a distribution in the order of 10%.
However, in reducing the s 75(2) adjustment to five per cent (5%), I have had regard to the husband’s superior earning capacity and the possibility of him receiving securities pursuant to his previous employer’s EIP. I have also had regard to the fact that the wife has made a significant contribution to the development of the husband’s career and, as a consequence, her career prospects have been diminished.
Superannuation
In Coghlan & Coghlan (2005) FLC 93-220 (“Coghlan”), the majority of the Full Court (Bryant CJ, Coleman and Finn JJ) said at 79,644:
Superannuation interests [which have not vested in possession] are but another species of asset (in addition to property as defined in s 4(1)) in relation to which orders can be made in proceedings between parties to a marriage.
It is commonly the case that the Court will take a two-pool approach in considering whether an adjustment should be made in respect to the parties’ non-superannuation assets and the parties’ superannuation assets. In that respect, in Coghlan (supra) the Full Court confirmed that superannuation can be treated differently from the non-superannuation property pool as the points of distinction relate to the particular characteristics of superannuation. Most relevantly, with superannuation, there is usually a lack of access to the funds until the identified retirement or withdrawal date.
The wife contended that a 50-50 division of the parties’ superannuation entitlement is appropriate. When asked to explain the basis upon which that proposal was submitted to the Court, counsel for the wife stated:
Your Honour, each party is some considerable years away from retirement when they will receive their superannuation, firstly. Secondly – yes, probably nothing more I can say about that, your Honour. It just seemed, in terms of this case, to my mind, a fair way of doing it.[15]
[15]Transcript 25 October 2019, p.35.
The husband contended that there should be an adjustment to the wife in respect to superannuation that broadly reflects the adjustment that the husband advocated in respect to the non-superannuation property. In that respect, the husband contended that an adjustment of the parties’ superannuation entitlement in the sum of $66,000 in favour of the wife would result in the wife receiving approximately 33.5% of the superannuation pool of $1,194,109. This broadly reflects the adjustment that the husband contends should be made in respect to the parties’ non-superannuation property.[16]
[16]Written submissions of the husband, 3.
In Drewett & Drewett [2012] FamCA 320, Cronin J at [184] referred to Coghlan (supra) as providing the preferred approach to the treatment of superannuation wherein the majority of the Full Court said:
We consider the preferred approach to the determination of property settlement cases must be to prepare, in addition to the list of items of property which would clearly fall within the definition of that term in s 4(1), a separate list containing any superannuation, interest or interests valued according to the regulations if a splitting order is sought in any application before the court or if no such order is sought that either according to the regulations or otherwise.
In further discussing Coghlan (supra), Cronin J said at [185] to [188]:
185. Their Honours said that whether or not a splitting order was sought on either party's application, their contributions to both the property as defined in s 4(1) and also the superannuation interests should be assessed. The other factors in s 79(4)(d), (e), (f) and (g) would then need to be considered. The s 75(2) factors would then be considered.
186. Similarly, the parties' future superannuation prospects, be they in capital or income form, would also need to be considered. The overall justice and equity of the ultimate award, including any proposed splitting order or the need for such an order, would then be considered. The Full Court then went on to set out how that pathway was to be followed. Their Honours then said:
In the context of the consideration of the matters referred to in subparagraphs (b) and (c) of a preceding paragraph in which they referred to the pathway the following matters may be relevant: the relationship between years of fund membership and cohabitation; actual contributions made by the fund member at the commencement of the cohabitation (if applicable) at separation and at the date of hearing; preserved and non-preserved resignation entitlements at those times; and any factors peculiar to the fund or to the spouse's present and/or future entitlements under the fund.
187. Their Honours then said:
If this approach is adopted whereby superannuation interests are dealt with separately from properties defined in s 4, but are subject to the considerations in s 79(4) then not only will any contributions both direct and indirect by either party to such superannuation interests be more likely to be given proper recognition, but the real nature of the superannuation interests in question can also be taken into account both in consideration of the s 75(2) matters and in the final assessment of whether the ultimate order is just and equitable.
I note that the husband’s superannuation entitlement has increased from approximately $711,213 at the date of separation to the agreed value on the balance sheet of $859,759. This is an increase of approximately 20%. I further note that the husband’s superannuation entitlement represents approximately 72% of the parties’ combined superannuation entitlement. However, in this case, I was not addressed by the parties in respect to those matters referred to by the Full Court in Coghlan (supra). That is, no evidence was presented and no submissions were made in respect to:
a)the relationship between years of fund membership and cohabitation. save to the extent that it was agreed that the parties cohabited for a period of approximately 21 years;
b)actual contributions made by the fund member at the commencement of the cohabitation, at separation and at the date of hearing; and
c)any factors peculiar to the fund or to the spouse's present and/or future entitlements under the fund.
In those circumstances, I do not propose to treat the parties’ superannuation entitlements separately from the parties’ non-superannuation assets. This is because:
a)I have not been provided with information that would enable me to make the sort of assessment contemplated by the Full Court in Coghlan (supra);
b)The husband advocates that the adjustment of the parties’ superannuation should be comparable to the adjustment that the Court makes to the parties’ non-superannuation assets; and
c)The wife has, with respect, failed to present more than a superficial case as to why there should be a differential treatment of superannuation from the parties’ non-superannuation assets.
As the parties’ property can be adjusted in accordance with the percentage split which I propose to make in this matter, without disturbing their existing superannuation entitlements, I do not propose to make a superannuation splitting order. I will, however, take into consideration their existing superannuation entitlements as an existing asset that they each have on their respective sides of the balance sheet.
Holistic overview of orders
I have found that there should be an adjustment in the parties’ property in favour of the husband of nine per cent (9%) as a result of those matters set out in s 79(4) of the Act, including, by reference in s 79(4), s 75(2) of the Act. This gives a total difference in favour of the husband of 18%.
As noted, I have calculated that the net value of the parties’ property (including any add back and superannuation) available for distribution is $3,416,740. This means, that there should be a distribution to the husband in the sum of $2,015,877 and a distribution to the wife of $1,400,863.
The husband currently has the following property:
·Motor Vehicle 3 – $20,000;
·ANZ account ending …09 – $6,672;
·ANZ share trading account ending …56 – $1,642,692;
·V Ltd shares – $197,245;
·JJ Company shares – $9,224;
·CC Business – $12,758;
·K Company FY16 MSP performance shares – $477,757;
·Funds in solicitor’s trust account – $71,305;
·CC Business loan account – $62,916;
·Super Fund 3 …04 – $859,759; and
·50% of the D Bank mortgage offset account – $13.
The total value of the husband’s property is therefore $3,360,341.
The wife currently has the following property (including notional property of which she has already benefited):
·The jewellery - $5,000;
·ANZ account ending …18 – $280;
·Amount released to the wife from the husband’s ANZ share trading account as result of consent Orders – $50,000;
·The … business – $200;
·The proceeds of Motor Vehicle 1 disposal – $23,000;
·Super Fund 6 – $15,460;
·Super Fund 3 – $318,890; and
·50% of D Bank mortgage offset account – $13.
The total value of the wife’s property is therefore $412,843.
To effect the adjustment of the parties’ property interests that I have determined to be appropriate, just and equitable, therefore, requires a payment to be made to the wife of $988,020.
Together with the payment of that amount, the husband will be responsible for meeting the taxation liability in the sum of $356,444.
Combining the amount of $991,088 and the husband’s outstanding taxation liabilities of $356,444 will result in the husband’s cash reserves being depleted by $1,347,532. He will, however, also have the additional funds and capital available to him as I have identified above.
Furthermore, as against the current depletion of the husband’s cash reserves, there is a real prospect that the husband will receive, in August of this year, the first two (2) parcels of unvested securities pursuant to his previous employer’s EIP. There is a further prospect of the husband receiving an additional parcel in respect to unvested securities, pursuant to that same EIP, in August 2021.
The husband will also be left with a significant superannuation benefit in the sum of $859,759.
The wife will receive a significant lump sum of money, however the amount so transferred to her needs to be seen in the context of monies that the husband is yet to potentially receive. The adjustment I have proposed also recognises the role the wife played in respect to the development of the husband’s career and the role she has played in the period prior to 22 September 2017 as homemaker and the primary carer of the parties’ children, which enabled the husband to earn a significant income and which, in turn, enabled the husband to make substantially greater contributions to his superannuation and to potentially receive the other emoluments of his previous employment to which I have referred.
Accordingly, I am satisfied that the adjustment of the parties’ matrimonial property, as set out in this decision, is appropriate and just and equitable in terms of s 79(2) and (4) of the Act and I make the orders as set out at the commencement of these reasons for judgment.
I certify that the preceding three hundred and sixty (360) paragraphs are a true copy of the reasons for judgment of the Honourable Deputy Chief Justice McClelland delivered on 20 March 2020.
Associate:
Date: 20 March 2020
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