Reua & Reua and Anor
[2008] FamCA 1038
•4 September 2008
FAMILY COURT OF AUSTRALIA
| REUA & REUA AND ANOR | [2008] FamCA 1038 |
| FAMILY LAW – PROPERTY SETTLEMENT – Bankruptcy of one party |
| APPLICANT: | Ms Reua |
| FIRST RESPONDENT: | Mr Reua |
| SECOND RESPONDENT: | Mr Roper |
| FILE NUMBER: | PAF | 950 | of | 2006 |
| DATE DELIVERED: | 4 September 2008 |
| PLACE DELIVERED: | Parramatta |
| PLACE HEARD: | Parramatta |
| JUDGMENT OF: | STEVENSON J |
| HEARING DATE: | 30 June 2008, 1 July 2008 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Jamieson |
| SOLICITOR FOR THE APPLICANT: | Thomas Booler & Co |
| COUNSEL FOR THE FIRST RESPONDENT: | Mr Schroder |
| SOLICITOR FOR THE FIRST RESPONDENT: | Coleman & Greig |
| COUNSEL FOR THE SECOND RESPONDENT: | Ms Rees |
| SOLICITOR FOR THE SECOND RESPONDENT: | Farrer Gesini & Dunn |
Orders
That the Trustee and the wife forthwith do all things necessary to effect and complete the sale of the following properties:
C Street
T Street
G Street
in the State of New South Wales
That the Trustee and the wife cause the net proceeds of such sales, after payment out of secured debts and selling costs to be distributed:
2.1as to 50% to the Trustee and
2.2the balance to the wife
That the Trustee and the wife do all things necessary to cause any money held on trust, pending the completion of these proceedings, to be paid as to 50% to the Trustee and the balance to the wife.
That the wife pay to the husband the sum of $118,892 within 28 days of receipt by her of all money due to her pursuant to order 2.
IT IS NOTED that publication of this judgment under the pseudonym Reua & Reua and Anor is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT PARRAMATTA |
FILE NUMBER: PAF 950 of 2006
| MS REUA |
Applicant
And
| MR REUA |
First Respondent
| MR ROPER |
Second Respondent
REASONS FOR JUDGMENT
THE PROCEEDINGS
These proceedings are for settlement of property. The applicant is the wife, Ms Reua. The respondents are the husband, Mr Reua and his trustee in bankruptcy, Mr Roper (‘the Trustee’).
It was agreed that the Trustee and the wife each hold property to the value of $319,692. Further, it was common ground that unsecured creditors in the bankrupt estate of the husband are owed approximately $233,860, with contingent unsecured creditors asserting claims totalling $847,380.
The wife sought orders to the effect that she retain all the property which she holds and that she take all assets which are currently vested in the Trustee. The result would be that the wife would take all available property. The husband and the Trustee would receive nothing, which would mean that none of the unsecured debts would be paid.
In final submissions, counsel for the husband indicated that he sought orders for an equal division of the non-vested property between himself and the wife. The Trustee would attend to payment of the unsecured creditors from the property vested in him. The Trustee sought orders to the effect that he and the wife each retain the property which is currently vested in them. In either of these two scenarios, the unsecured creditors would receive payment.
The husband sought leave to make submissions, pursuant to section 79(12), concerning the vested bankruptcy property. This application was not opposed by either the wife or the Trustee. Nevertheless, section 79(12) obliges the court not to grant this leave unless satisfied that “exceptional circumstances” exist.
For a number of reasons, I am satisfied that there are “exceptional circumstances”. Firstly, there was no opposition to the granting of leave from the other two parties. Secondly, the husband pursues relief in respect of the non-vested property, so he is a participant in the proceedings in any event. Thirdly, he has knowledge of the circumstances in which a large number of the unsecured debts were incurred.
Background
The husband, who is 41, and the wife, who is 38, married and commenced cohabitation in November 1988. According to the wife they separated on 21 December 2005 and the husband left the former matrimonial home on 8 January 2006. The husband maintained that separation occurred on 27 January 2006.
There are three children of the marriage:
J born in January 1990 (18)
N born in April 1991 (17) and
V born in April 1993 (15)
J has lived with his father since the separation. N and V have remained with their mother.
At the time of the marriage the husband was a licensed tradesman. He traded through a company known as Reua Pty Limited, of which he and his father were directors and shareholders. He later obtained qualifications as a licensed builder. The wife was a student at the Australian National University.
At the commencement of cohabitation the husband owned a house at F in the ACT. Prior to the marriage he had purchased this property for $110,000, which came from a bank loan of $80,000 and savings. The wife had only her personal effects at the time of the marriage.
In 1989 the husband and his father built a house on land which they owned at L in the ACT. They sold this property in the mid-1990’s then purchased vacant land at N in the ACT. The husband and wife borrowed funds and built a house on this land. They sold the property in 1996 and used the net proceeds of about $5,000 to meet living expenses.
The company Reua Pty Limited was liquidated in 1997. During this process the wife borrowed $10,000 from her parents to reduce an overdraft. It was agreed that this money has never been repaid.
In 1997 the husband and wife purchased land at W for $250,000. The purchase money came from borrowings and a personal injury compensation payment to the wife. She received a net amount of $54,000 or $43,000 in respect of an accident which she suffered before the marriage.
The husband and wife constructed a house on the land at W, which was their matrimonial home between 1999 and 2001. They sold the property for $788,000 in 2001.
In 2000 the husband and his father purchased vacant land at E for $140,000. They subdivided the property and built two duplexes. The husband and wife lived in one of these homes and the other allotment was sold. They then paid $130,000 for land at T Street, where the husband constructed a house. He carried out most of the building work, except for the gyprocking, bricklaying, electrical and tiling components.
During the next few years the husband and wife purchased, developed and sold various properties in the Bay area. Some of these projects were joint ventures with other investors. The husband incorporated a company known as RProjects Pty Limited, of which he was the sole director. The name of the company was later changed to Reua Construction Group Pty Limited.
In 2004 the husband and wife and three other people incorporated a company known as G Developments Pty Limited. This company purchased and developed various properties in the Bay area.
In 2005 the husband and wife and his parents purchased a property at G Street for $960,000. The land was subdivided and each couple took one allotment. The husband and wife commenced construction of a home on their lot but the building work was incomplete when they separated.
In February 2005 the wife purchased a financial services business, known as S Finance Pty Limited. The purchase money of $40,000 came from the account of Reua Construction Group Pty Limited.
The husband and wife and Ms H, his brother’s ex-wife, jointly undertook the subdivision and development of a property at C Street. To secure her investment, Ms H became a registered proprietor of all three resulting allotments.
The husband and wife took up occupation of a home on the allotment known as 1 C Street. They are the registered proprietors of this property with Ms H, as tenants-in-common in equal shares. A second allotment was sold off the plan during the development.
The third allotment in the C Street development is known as 3 C Street. Late in 2005 Mr H and Ms P purchased an interest in this property. Consequently the husband and wife, Ms H, Ms P and Mr H each hold a one-quarter share in the property as tenants-in-common. The unchallenged evidence of the Trustee was that there is no net equity in this property and it is likely that the mortgagee bank will exercise its power of sale.
In February 2005 the husband and wife entered into a contract to purchase an apartment at Y. They paid a deposit of $65,000. The vendor defaulted on a term of the agreement and the wife and the Trustee then rescinded the contract. The refunded deposit of $65,000, less “costs” of $1,950, has been divided equally between the wife and the Trustee.
Late in 2005 the husband began work on the construction of four units at O, trading through the company Reua Construction Group Pty Ltd. There was a dispute between the husband and wife as to the contract price and the circumstances in which Reua Construction Group Pty Limited and the owner of the property, LN Pty Limited, entered into a written agreement.
The husband maintained that he submitted a written quotation for $1,100,000, on behalf of the company. He signed a document dated 5 August 2005, which bears this contract price. On this understanding he moved to O, engaged subcontractors and commenced the construction work. He claimed that he never signed any other document and always understood the contract price to be $1,100,100.
According to the husband he noticed a shortfall in progress payments as the construction work proceeded. He said that he was living in O and relied on the wife to organise progress payments. The wife conceded that she would have organised any progress payments which were made.
The husband maintained that these difficulties with progress payments led him to make enquiries which revealed that the contract price was, in fact, $1,800,000 and not $1,100,000 as he had believed. It appears that the initials of the “builder” on the front page of at least one version of the contract were those of the wife and not the husband (annexure G to the affidavit of the husband sworn on 28 February 2008). The wife conceded in cross-examination that the signature on this document was hers.
The husband said that he could not afford to continue work on this project. There was litigation between Reua Construction Group Pty Limited and LN Pty Limited, which was settled on the basis that neither party received any payment from the other.
Contracts for sale of the property 1 C Street were exchanged in April 2008, at a price of $405,000. The net proceeds are expected to amount to approximately $41,000.
In May 2008 contracts for sale of the property T Street were exchanged at a price of $605,000. The St George Bank has agreed to accept $603,555 to discharge its mortgage, leaving a shortfall of approximately $11,420. This shortfall will become an additional unsecured debt.
In August 2006 the company Reua Construction Group Pty Limited was placed in liquidation. The unchallenged evidence of the Trustee was that there is no prospect that he will receive any funds from the liquidation.
APPROACH TO THESE PROCEEDINGS
Section 79(1)(b) empowers the court to alter the interests of a trustee in vested bankruptcy property and to order the transfer of part or all of such property to a non-bankrupt spouse. There is no power to order a transfer of property vested in a non-bankrupt spouse to a trustee.
Section 79(2) provides that the court shall not make an order under section 79, unless satisfied that it is just and equitable to do so in all of the circumstances. Nothing in the wording of section 79(2) suggests that this obligation is confined to considerations of justice and equity only as between spouses. The requirement thus applies to a trustee as well as the spouses.
Section 79(4)(e) requires the court to take into account the matters set out in section 75(2) which are relevant to the particular proceedings. Section 75(2) now includes subsection (ha) which provides:
section 75(2)(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;
and subsection (n) which provides:
section 75(2)(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;
The wording of section 75(2) affords no priority to the interests either of unsecured creditors or a non-bankrupt spouse. All relevant considerations set out in section 75(2), including subsections (ha) and (n), must be weighed in the usual manner.
A bankrupt spouse may make an application, pursuant to section 79, for alteration of a non-bankrupt spouse’s interest in property vested in him or her. Property vested in a trustee is beyond the scope of a bankrupt spouse’s application pursuant to section 79.
The helpful Outline of Case document prepared on behalf of the Trustee in these proceedings made reference to section 90AE(3)(b). This section is contained in Division 2 of Part VIIIA, which deals with the power of the court to make an order under section 79 which binds a third party. There was no such application before me, thus it is unnecessary that I have any further regard to section 90AE.
Otherwise these proceedings are to be approached in the manner prescribed by a series of leading decisions, which establish that the court is required to determine the following matters on the evidence:
·firstly, the assets, liabilities and financial resources of the parties to the marriage are to be determined
·secondly, all relevant contributions of each of the parties, within the meaning of paragraphs (a) to (c) of section 79(4) must be identified and weighed against each other
·thirdly, the matters in paragraphs (d) to (g) of section 79(4), particularly paragraph (e) which takes up by reference the provisions of section 75(2) must be considered and a determination made as to what, if any, alteration should be made to the entitlements of the parties earlier assessed on account of contribution
·finally, an order under section 79 must not be made unless the Court is satisfied that, in all the circumstances, it is just and equitable to make the order.
THE ASSETS, LIABILITIES AND FINANCIAL RESOURCES
The Assets
The only evidence in relation to the value of G Street was contained in the affidavit of the Trustee sworn on 13 December 2007. The trustee said that he instructed Messrs TWH to value the property in September 2007. They assessed the value of the property to be in the range of $600,000 to $650,000. No objection was taken to the inclusion of this material in the affidavit of the Trustee.
The balance sheets prepared on behalf of the husband and the Trustee included this property at a value of $625,000. The List of Assets and Outline of Case Document submitted on behalf of the wife respectively assigned values of $620,000 and $670,000 to this property, with no explanation for this inconsistency.
It seems to me that the best I can do is to adopt the value agreed by two out of three of the parties to the proceedings. I thus find the value of the property G Street to be $625,000.
In his affidavit sworn on 23 June 2008 the Trustee said that contracts for sale of the property 1 C Street were exchanged in April 2008, at a price of $405,000. I propose to assume that the contract price represents the current value of the property, which I thus find to be $405,000.
The Trustee also gave evidence of an exchange of contracts for sale of the property T Street in May 2008, for a price of $625,000. Again, I accept that the contract price is the current value of this property, which I find to be $625,000.
The wife and the Trustee received a refund of $65,000 when the contract for purchase of the Y property was rescinded. This money has now been divided equally between the wife and the Trustee, after deduction of “costs” of $1,950. I thus find that the wife and the Trustee each hold cash from this term deposit in the sum of $31,525.
The list of assets submitted on behalf of the wife sought to include the following:
“(1) Mitsubishi truck $12,000
(2) Boat $12,000
(3) Cobra motor vehicle $45,000
(4) [G] Developments (money taken
by [the husband]) $30,000
(5) Business tools of trade $40,000
(6) Wife’s business $ 8,702
(7) Furniture taken by husband $12,000
(8) Furniture taken by wife $ 5,000”
In my view there are a number of reasons why these items should not be included in the list of assets, either at the suggested values or at all. Firstly, there was no evidence whatsoever of the value of the truck, the boat, the Cobra motor vehicle, the tools or the furniture. As well, there was no evidentiary basis for the assertion that the wife’s business has a value of $8,702, when the purchase price in February 2005 was $40,000.
Further, I was satisfied that the husband gave convincing evidence as to the fate of the truck, the boat and the Cobra motor vehicle. He said that he had no income while working on the O project, as he received no progress payments. He was thus unable to pay a tradesman who worked with him on the project for eight months. The husband said that he owed this man $15,000, so he transferred the truck to him to extinguish the debt for unpaid wages. I accept this evidence and I find that the truck is no longer an asset of the parties, having been disposed of without payment by the husband to satisfy a legitimate debt.
The husband gave a similar explanation for the sale of the boat and his use of the proceeds in October 2006. He again pointed to his parlous financial situation, following the failure of the O project. He said, and I accept, that he sold the boat for $6,000 at a time when he had no income and that the proceeds were used for living expenses.
The wife alleged that the husband has embarked on a scheme to vest ownership of the Cobra vehicle in the parties’ son. She claimed that he breached an agreement made in 2006, whereby she would purchase his interest in the vehicle for $10,000.
The husband conceded that there had been a discussion to that effect but maintained that there was no final agreement, as he subsequently changed his mind. He claimed that he and the wife owed $20,000 to a Mr Z and that he transferred the Cobra to this gentleman to extinguish the debt. There was no corroborating evidence from Mr Z as to the existence of the alleged debt. On the other hand, there was nothing to support the wife’s contention that the husband is involved in a plot to vest ownership of the vehicle in the parties’ son. I prefer the evidence of the husband to the innuendo of the wife and I do not include the Cobra in the list of assets. As noted already, there was no evidence of its value in any event.
It seems that the husband removed $30,000 from a bank account of G Developments Pty Limited in March 2007. He said that his “financial situation was in absolute dire straights at this time” and that he used this money “to pay bills, rent and living expenses”. Further, the husband said that he had loaned $17,000 to three other directors of this company and that he recouped this money when he withdrew the sum of $30,000.
The wife alleged that there was an agreement that this money would remain in the company’s account, to service various mortgages. The husband said that he was not sure if there was any such agreement.
The husband had struggled with the financial consequences of the failure of the O project. There was nothing advanced in the case for the wife to suggest that he used this money for his own purposes, other than an innuendo about an overseas trip. He said, and I accept, that his parents paid for this holiday. In these circumstances I will not add back this sum of $30,000.
Each of the parties has a superannuation benefit. The three balance sheets indicate that the parties each hold $8,000 worth of superannuation. I will thus assume that there is an agreement in this regard and I find that the husband and wife each have a superannuation benefit of $8,000.
I thus find the assets to be as follows:
Non Superannuation Assets:
1. G Street $ 625,000
2. 1 C Street $ 405,000
3. T Street $ 625,000
4. Money from term deposit paid to the wife $ 31,525
5. Money from term deposit paid to Trustee $ 31,525
Total $1,718,050
Superannuation Assets
1. Husband’s superannuation $ 8,000
2. Wife’s superannuation $ 8,000
$16,000
The Liabilities
The Trustee set out the mortgage liabilities and debts to unsecured creditors in his affidavit sworn on 23 June 2008. This evidence was accepted by the husband and did not seem to be disputed by the wife.
The Trustee identified the liabilities as follows:
1.
Latrobe mortgage on 1 C Street
$350,000
2.
Costs and adjustments on sale of 1 C Street
$13,665
3.
GE Finance mortgage on G Street
$90,000
4.
St George Bank mortgage on T Street
$603,555
5.
Deficiency on sale of 3 C Street
$49,604
6.
Unsecured debt to St George Bank arising from shortfall on T Street mortgage
$11,420
7.
Unsecured creditors
$233,860
A document handed up in final submissions on behalf of the wife sought to include the following alleged liabilities:
“1.
Loan [wife’s parents]
$125,000
2.
Lease on Fuji copier
$9,000
3.
“Kitchen centre”
$4,000
4.
“Balance of cards"
$22,500
5.
MasterCard – [husband]
$10,381”
The only evidence of any loan to the wife from her parents was a bare assertion to that effect in her Financial Statement. There was no evidence from her parents to corroborate this claim. There was no evidence from the wife as to when or for what purposes she allegedly borrowed this money from her parents. For these reasons, I will not include this supposed liability in the balance sheet.
There was no mention whatsoever in the wife’s evidence, even so much as a bare assertion in her Financial Statement, of any alleged debts to “Fuji” or a “kitchen centre”. I will not include these supposed liabilities in the absence of any evidence as to their existence.
There only evidence of the wife’s credit card debts were the amounts set out in her Financial Statement sworn on 27 June 2008. She said that she had three credit card debts which totalled $24,000. A different figure of $22,500 was included in a balance sheet handed up, in final submissions on her behalf, only four days later. There was no evidence as to the time when these debts were incurred or for what purpose.
The evidence as to the wife’s credit card debts is thus unacceptable and insufficient to warrant their inclusion in the balance sheet. There was no indication of the basis of her assertion that the husband has a MasterCard debt of $10,381. In his Financial Statement sworn on 24 June 2008 he deposed that he has no credit card debts. Obviously, I will not include this supposed liability in the balance sheets.
The following list of unsecured creditors was annexed to the affidavit of the Trustee sworn on 23 June 2008:
Unsecured Creditors
Hardware (Mitre 10)
2,195.83
CBA MasterCard
11,449.63
Deputy Commissioner of Taxation – Super Levy
30.00
Tiling Company
17,139.00
St George Bank (Credit Corp)
9,565.96
Electrical Services Company
3,850
Bricklaying Company
35,000
Fuel Card company
2,849.69
Westpac – shortfall Mercedes lease
45,674.00
Westpac – shortfall Ford lease
27,703.79
Bricks Company
7,186.49
Y Hardware
3,442.34
Education Foundation
2,864.40
Plumbing company
46,648.26
Ms H (50%) claim 1
18,261.08
Deputy Commissioner of Taxation – Income Tax
NK
233,860.47
Contingent Unsecured Creditors
Ms H (50%) – claim 2
120,000.00
Mr H and Ms P claim
134,380.00
LN Pty Ltd
593,000.00
847,380.00
In his affidavit sworn on 31 December 2007 the husband gave evidence of the circumstances in which certain of the unsecured debts in the Trustee’s list were incurred. In summary he said that:
·the debt to the Brick company relates to the property G Street
·the two Westpac Bank debts are the shortfall on leasing contracts for a Mercedes car and a Ford utility, following their sale. The vehicles were owned by Reua Construction Group Pty Limited and the leases were subject to a personal guarantee by the husband as sole director.
·the Fuel Card Company debt is for a fuel card used by both himself and the wife
·the Commonwealth Bank and St George Bank credit card debts were incurred prior to separation, for the purchase of items for the family
·the Electrical Services debt is for work done on the G Street property prior to separation
·the debt to the Education Foundation relates to the children’s school fees
·the debts to Mitre 10 and Y Hardware arose from the operation of business accounts
·the debt to the Bricklaying Company is for work done on the G Street property
·the debt to the Tiling Company is for work done on the W and G Street properties
In cross-examination the wife conceded that the debt to the Tiling Company was for work done on the W and G Street properties. She conceded, further, that certain invoices from Y Hardware, Mitre 10 and the Electrical Services Company related to the G Street project. She also conceded that the debt to the Brick Company was a jointly operated “trade account”. It seems obvious that the debt to the Plumbing Company arose during the course of the O project.
The wife also conceded that the Fuel Card company debt related to an account for petrol and motor vehicle services. She agreed that she signed documents to open this account and said that she is currently paying the debt.
As to the debt to the Education Foundation, the wife conceded that she and the husband both signed the enrolment forms and agreed to be responsible for the children’s school fees. She said that she has paid 50% of these fees.
Neither party gave evidence as to the debt to Y Hardware but it seems reasonable to infer that it related to the husband’s work and/or the development projects in the Bay area. The unchallenged evidence of the Trustee was that he received a proof of debt addressed jointly to the husband and the wife from Y Hardware.
Principally, these liabilities are thus pre-separation debts or amounts spent on the construction of various properties. I see no reason to exclude any of these unsecured debts in the calculation of the value of the net pool of property. I thus find the liabilities to be as follows:
1.
Latrobe mortgage on 1 C Street
$350,000
2.
GE Finance mortgage on G Street
$90,000
3.
St George Bank mortgage on T Street
$603,555
4.
Shortfall on St George Bank mortgage on T Street
$11,420
5.
Unsecured creditors
$233,860
$1,301,237
The Contributions of the Parties
It seemed to be submitted on behalf of the wife that there should be a finding as to contribution of 70% in her favour as at the date of trial. Her case emphasised her compensation payment of $54,000 or $43,000; a loan of $10,000 from her parents and a $10,000 insurance payout for her car. These contributions were conceded in the case for the husband.
The wife’s unchallenged evidence was that she discharged a $41,000 Diners Club debt after the separation. She said, and I accept, that this credit card was used for both business and personal expenses. There was no evidence as to the source of the money used to pay the debt.
The wife also gave unchallenged evidence that she borrowed $35,500 from her parents to pay out a hire purchase agreement for a Holden Caprice motor vehicle. She was the guarantor of the lease agreement for the car, which was used by the husband and his mother. Her evidence, which I accept, was that her parents took out a mortgage to provide these funds. Clearly, this arrangement was a contribution on her behalf. I have not included a debt of $35,500 in the list of liabilities because there was no evidence of any requirement for repayment by the wife’s parents.
The husband worked throughout the marriage as a tradesman builder and property developer. It was the wife’s case that she played a significant role in all of the husband’s business undertakings. I accept that she was largely responsible for all of the bookwork for Reua Construction Group Pty Limited, the partnership “G & M [Reua]” and also the parties’ superannuation fund.
There is no doubt that the wife was the primary carer for the parties’ children and that she was responsible for most of the household tasks. On at least three occasions during the marriage, the husband’s work took him away from home for periods of some months. Since the separation the wife has had the care of the parties’ daughters N and V. The parties’ son J has lived with the husband.
Part of the wife’s case was that the husband wasted or failed to preserve assets, apparently in the sense contemplated in Kowaliw and Kowaliw [1981] FLC 91-092. Insofar as can be gleaned from the Outline of Case and oral submissions on her behalf, the particulars of this contention seemed to be as follows:
·The husband “removed $137,000 from the [O project] job and put the money into an account of himself and his son”
·he “breached an agreement” that $30,000 in the bank account of G Developments Pty Limited was to be used to meet mortgage repayments and used this money for an overseas trip
·he sold a boat and retained the proceeds for his own benefit
·he disposed of a truck and a Cobra motor vehicle for no payment
·he “merely washed his hands of the debts whereas [the wife] preserved matters as best she could”
There was no evidence that the husband “removed $137,000 from the [O project] job and put the money into an account of himself and his son”. This material in the wife’s affidavit was property objected to and struck out. The bank account/s allegedly connected to “the [O project] job” were never identified. No bank statements were tendered in the wife’s case to substantiate any such withdrawals or deposits. These matters were not put to the husband in cross-examination. This aspect of the “waste” argument on behalf of the wife is thus untenable.
As submitted on behalf of the husband, he accounted properly for the money which he withdrew from the account of G Developments Pty Limited. As noted already, he said that he used this money to “pay bills, rent and living expenses”. I have indicated above my views in relation to the husband’s use of this money. I accept his evidence that there was a total of approximately $36,000 in this account, from which he removed $28,000 to $30,000 and the wife withdrew the balance of $6,000 to $8,000.
Similarly, I have already indicated the view which I take in relation to the husband’s dealings with the truck, the boat and the Cobra motor vehicle. In my opinion there was no evidence to support the wife’s allegation that he dealt improperly or dishonestly with these assets.
I accept that the wife did what she could to deal with the parties’ unenviable financial situation after their separation and the failure of the O project. The husband properly conceded that she deserves credit for her efforts. No submission was put as to what the husband should have done, in circumstances where he received no progress payments but incurred debts for the purchase of materials and work done by sub-contractors. It was not put to him that he could or should have taken any particular steps to alleviate his financial position.
I am not satisfied that the husband engaged in any conduct which was designed to minimise the effective value or worth of the parties’ matrimonial assets. On the contrary, he seems to have been a consistently hard worker whose aim always was to increase the value of the family’s asset base.
I reject any suggestion that the husband’s bankruptcy was the result of reckless, negligent or wanton behaviour on his part in relation to the parties’ assets. I accept his evidence that the wife was responsible for organising the progress payments for the O project, which were not forthcoming. This evidence is consistent with her contention that she played an active administrative role in the parties’ business activities. As noted already, the wife admitted that she would have organised any progress payments which may have been made.
It seems likely to me that the O project ran into difficulty, at least in part, because of communication problems between the husband and the wife in the course of the breakdown of their relationship. They had previously managed their business and family finances successfully. It does not seem to me that a finding is open that the husband became bankrupt as a consequence of any reckless, negligent or wanton act on his part.
If the O project had been a financial success the wife could reasonably expect to share in the profits, on the distribution of the parties’ matrimonial property. For the above reasons, she and the husband should now share in the financial consequences of its failure.
All of these considerations lead me to conclude that the wife’s early contributions, and her attempts to meet the matrimonial debts after separation, warrant a finding as to contribution in her favour. I thus assess the contributions of the parties at 55% to the wife and 45% to the husband and I find accordingly.
SECTION 75(2) FACTORS
I will refer only to those factors set out in section 75(2) which appear to me to be relevant to the present proceedings.
section 75(2)(a): the age and state of health of each of the parties;
The husband is 41 and the wife is 38 years old. They are both in good health.
section 75(2)(b): the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment;
The husband became bankrupt on 1 August 2007. Currently he earns $600 gross per week as a contract tradesman. He is employed by a company known as PB Pty Limited. This company was incorporated in August 2006, with the husband’s mother as the sole director and shareholder.
On behalf of the wife it was submitted that this arrangement “raises a substantial credit issue” in relation to the husband. I did not understand this contention. It seemed to me that the husband is simply engaging in gainful employment, within the legal limitations of his bankruptcy. He would probably have been criticised if he failed to carry out paid work.
The wife owns a financial serivces business, which trades through a company known as S Finance Pty Limited. In her Financial Statement sworn on 27 June 2008 she deposed that she receives a nil income from this business and has recurring expenses of $996 per week. She said in cross-examination that she has a revolving line of credit of $125,000, which she uses to meet her expenses.
The wife was served with a subpoena to produce various documents relating to the financial affairs of her business, including profit and loss statements. She made no attempt to produce such statements until confronted with the subpoena during cross-examination. She then arranged for these documents to be produced during the afternoon of the first day of the hearing.
The profit and loss statement of the business for the period July 2007 to March 2008 showed a trading income of $112,219 and total expenses of $79,726, leaving a net operating profit of $32,494. The list of business expenses included properly tax deductible items which do not, in fact, involve actual payments. An example is depreciation. The wife works from home and claims a portion of her rent, telephone, electricity and motor vehicle costs as business expenses.
On the first day of the hearing the wife also produced Business Activity (“BAS”) Statements. These documents show that her business generated total gross income of $184,132 between August 2007 and May 2008. The net income for this period was $81,457.
The profit and loss and BAS statements for the wife’s business thus demonstrate that she does not receive a “nil” income, as she deposed in her Financial Statement. Her own evidence in cross-examination was that, “at the moment, the business does not produce significant income but in future it will.”
In general terms I am satisfied that each of the parties has the capacity to earn a reasonable level of income. They have both demonstrated a propensity to work hard in the past and, in my view, it is highly that they will both do so again in the future.
section 75(2)(c): whether either party has the care or control of a child of the marriage who has not attained the age of 18 years;
The wife has the responsibility to care for the parties’ daughters N, who is 17, and V, who is 15. Their son J is now over 18 years of age and is an apprentice tradesman. He shares a home with the husband but leads a relatively independent life.
section 75(2)(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;
The orders sought by the wife would mean that no unsecured creditor could recover its debt. She sought to retain the property which she holds and to take all of the property vested in the Trustee. There would thus be no funds available to the Trustee from which he could pay any of the creditors.
The orders sought by the husband would mean that the unsecured creditors would be paid.The orders sought by the Trustee would permit him to discharge the debts to the unsecured creditors, from the property presented vested in him.
section 75(2)(m): if either party is cohabiting with another person – the financial circumstances relating to the cohabitation;
The wife lives with Mr I, who she described in her Financial Statement as a “boyfriend”. He makes no contribution to the expenses of her household as, in her words, she “choose[s] not to ask him”. The wife did not explain why she elects to contribute indirectly to the financial support of Mr I. She included no information about his income in her Financial Statement and did not explain her failure to do so.
section 75(2)(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;
As noted, the orders sought by the wife would mean that the Trustee would be left with no funds to pay the unsecured creditors. The orders sought by the Trustee would leave him with approximately $319,692 with which to pay creditors. The orders sought by the husband would mean that the creditors would be paid from the property vested in the Trustee. The property vested in the wife would be divided equally between the parties.
section 75(2)(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
There was a dispute as to payment of child support by the husband. The evidence on this issue was scant and unsatisfactory. It may be that the hsuband was correct in his assertion that his assessment was “nil” until recently, on the basis of his lack of income and care of the parties’ son. He admitted however that he last paid child support in March 2008.
It seems to me that there should be no adjustment, pursuant to section 75(2), which would prevent payment of the unsecured creditors. On the other hand, I am of the view that these factors favour the wife. Primarily, I reach this conclusion because she has the care of the parties’ two daughters and does not receive child support, insofar as I can tell.
Balanced against these considerations is the fact that the wife chooses to provide Mr I with cost-free accommodation. There may be good reasons but, if so, I was not informed.
The husband appears to have the support of his family in the process of his financial re-establishment. He lives with his son in a house owned by the Reua Family Trust, for which he pays rent of $300 per week. As noted, he does contract trade work for a company in which his mother is sole director and shareholder.
All of these considerations lead me to conclude that an adjustment of 10% of the net non-superannuation property, in favour of the wife, is warranted. I am here referring to the property vested in her and not to the assets vested in the Trustee, which are required to pay the unsecured creditors.
Conclusion and Result
If the Trustee retains all of the property vested in him he will be in a position to pay the debts of the unsecured creditors. It then remains for the property vested in the wife to be divided as to 65% to her and 35% to the husband.
The agreed net value of the property vested in the wife is $319,692, 65% of which amounts to $207,800 and 35% equals $118,892. The differential is approximately $88,908.
An outcome which results in payment of the unsecured creditors; a reflection of the wife’s greater contributions and an adjustment in her favour pursuant to section 75(2) seems to me to be just and equitable.
This result can be achieved by an order that the wife pay to the husband a sum of $118,892. Otherwise, I will make the orders sought by the Trustee to ensure that he receives half of the net proceeds of sale of the three remaining parcels of real estate.
I certify that the preceding one hundred and eight (108) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Stevenson
Associate:
Date: 4 September 2008
Key Legal Topics
Areas of Law
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Equity & Trusts
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Family Law
Legal Concepts
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Remedies
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Costs
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