Rowland & Rowland
[2024] FedCFamC2F 7
•31 January 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Rowland & Rowland [2024] FedCFamC2F 7
File number(s): SYC 1539 of 2022 Judgment of: JUDGE BECKHOUSE Date of judgment: 31 January 2024 Catchwords: FAMILY LAW – PROPERTY – Value of property – Addbacks – Whether the husband reduced or minimised value of property pool – Whether the husband acted recklessly, negligently, or wantonly with assets to reduce their value – Whether the husband dissipated assets prematurely to his benefit Legislation: Evidence Act 1995 (Cth) s 140
Family Law Act 1975 (Cth) ss 75, 78, 79
Cases cited: AJO & GRO (2005) FLC 93-218
Chancellor & McCoy (2016) FLC 93-752
Hickey & Hickey & Attorney-General of the Commonwealth (Intervenor) (2003) FLC 93-143
Kowaliw & Kowaliw (1981) FLC 91-092
M & M [1998] FamCA 42
Rodgers & Rodgers (2016) FLC 93-703
Rosati & Rosati (1998) FLC 92-804
Stanford v Stanford (2012) 247 CLR 108
Townsend & Townsend (1994) 18 Fam LR 505
Trevi & Trevi (2018) FLC 93-858
Division: Division 2 Family Law Number of paragraphs: 130 Date of last submission/s: 25 October 2023 Date of hearing: 24 and 25 October 2023 Place: Sydney Counsel for the Applicant: Mr Hartwell Solicitor for the Applicant: Castle Lawyers Counsel for the Respondent: Mr Brickwood Solicitor for the Respondent: SK Law
Table of Corrections 6 May 2024 In Order 6, any reference to Order “5” has been replaced with “4”. 6 May 2024 In Order 6, the words “her compliance” has been replaced with “the Husband’s failure to comply”. 6 May 2024 Order 19 has been added to the Final Orders to reflect the amendment made to Order 6 pursuant to the Slip Rule in accordance with r 10.13 of the Federal Circuit and Family Cour of Australia (Family Law) Rules 2021. ORDERS
SYC 1539 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: MS ROWLAND
Applicant
AND: MR ROWLAND
Respondent
ORDER MADE BY:
JUDGE BECKHOUSE
DATE OF ORDER:
31 JANUARY 2024
ON A FINAL BASIS THE COURT ORDERS THAT:
1.Within sixty (60) days of the date of these Orders (“the settlement date”):
(a)The Wife shall transfer all of her right, title and interest in the property situated at B Street, Suburb C, NSW (folio identifier …) (“the Suburb C property”) to the Husband.
(b)The Husband shall be solely responsible for the PEXA and legal costs associated with the transfer of and discharge of the Commonwealth Bank of Australia mortgage over the Suburb C property.
(c)Simultaneously with the Wife’s compliance, the Husband shall:
(i)refinance the mortgage secured over the Suburb C property into his sole name; and
(ii)pay the Wife a sum of $142,439.
2.In the event the Husband fails to comply with Order 1 herein, then within seven (7) days of notice of his intention not to comply (“the non-compliance date”) or within seven (7) days of the settlement date (whichever date is earlier), the parties shall sign all documents and do all acts and things necessary to appoint a real estate agent (“the agent”) and a solicitor to list the Suburb C property for sale by public auction.
3.In accordance with Order 2 herein and upon settlement of the sale of the Suburb C property, the parties shall sign all documents and do all acts and things necessary to discharge the Commonwealth Bank mortgage against the Suburb C property.
4.For the purpose of Order 2 herein, within seven (7) days of the non-compliance date or settlement date (whichever date is earlier), the Wife shall:
(a)Nominate three (3) agents to the Husband, and the Husband to select one (1) of the Wife’s nominated agents within a further seven (7) days.
(b)Nominate to the Husband three (3) solicitors to act on the sale and the Husband select one (1) of the Wife’s nominated solicitors within a further seven (7) days.
5.The parties shall reach agreement as to the reserve price for auction and if an agreement cannot be reached, they will instruct Mr E at F Company to undertake an updated valuation of the Suburb C property and the cost shall be shared equally between the parties.
6.If the Husband fails to comply with Order
54 herein, then following 24 hours afterher compliancethe Husband’s failure to comply with Order54, the Wife shall be appointed as Trustee on the sale of the Chifley property by public auction or private treaty.
7.In carrying out her role as Trustee on the sale, the Wife shall inform the Husband in writing, and keep him informed in writing, of:
(a)The identity of the agent engaged for the sale;
(b)The identity of the solicitor instructed to act on the sale; and
(c)The process and progress of the sale including but not limited to:
(i)the mechanism for sale;
(ii)the sale or reserve price that is set;
(iii)the date of the listing of the Suburb C property on the market and/or the date set for any auction.
8.Upon the Wife’s selection of an agent, the Husband shall co-operate in every way with the agent including (without limiting the generality of the foregoing):
(a)Making the key available to the agent;
(b)Allowing inspection of the Suburb C property at all reasonable times requested by the agent;
(c)Doing or saying anything to hinder or prevent a sale being effected; and
(d)Ensuring the Suburb C property is in a neat and clean condition at the time of inspection by the agent and prospective purchasers.
9.In the event the Husband fails to comply with Order 8 herein, the Wife shall be at liberty to cause the Husband to be evicted from the Suburb C property.
10.Upon the settlement of the sale of the Suburb C property, the sale proceeds shall be disbursed in the following manner and priority:
(a)In payment to discharge the mortgage to the Commonwealth Bank of Australia;
(b)In payment of the agent’s commission and auction expenses;
(c)In payment of legal and all other proper costs of the sale;
(d)The sum of $142,439 to the Wife; and
(e)The balance remaining to the Husband.
11.From the date of these Orders and until compliance with either Orders 2 or 10 herein, the Husband shall:
(a)Be solely responsible for and pay as and when they fall due all mortgage repayments over the Suburb C property, and the Husband shall indemnify and keep indemnified the Wife in respect of the payments of such liabilities;
(b)Be solely responsible for and pay for all outgoings, including but not limited to telephone, gas and electricity accounts, municipal and water rates, insurance and maintenance in relation to the Suburb C property;
(c)Be solely responsible for and pay for the building and contents insurance for the Suburb C property at its current level and pay for all necessary repairs; and
(d)Indemnify and keep indemnified the Wife in respect of the payment of all such liabilities in relation to the upkeep and maintenance of the Suburb C property.
12.Simultaneously with compliance of either Orders 2 or 10 herein, the parties shall do all things and sign all such documents as may be necessary to close any and all bank accounts held in their joint names and divide the balance of monies held therein equally between them.
13.The Husband shall retain to the exclusion of the Wife:
(a)the Suburb C property, subject to compliance with Order 1;
(b)the G Trust;
(c)the shares in H Pty Ltd;
(d)the shares in J Pty Ltd;
(e)the shares in D Pty Ltd;
(f)his superannuation entitlements;
(g)any furniture, household items and personal effects in his possession; and
(h)any funds held in any bank account in his sole name or the name of any company that he retains shares in pursuant to these Orders.
14.The Wife shall retain at the exclusion of the Husband:
(a)the shares in K Pty Ltd and any of its associated companies;
(b)the Rowland Family Trust;
(c)her superannuation entitlements;
(d)any furniture, household items and personal effects in her possession; and
(e)any funds held in any bank account in her sole name or the name of any company or trust that she retains pursuant to these Orders.
15.Other than as set out in these Orders, the parties each have the sole right, title and interest in any other property which is in their possession, title, custody or control at the date of these Orders.
16.Each party shall be solely liable for and indemnify the other against any liabilities in their sole name as at the date of these Orders.
17.The Husband indemnifies the Wife in respect to any claim arising from the sale of the shares in L Pty Ltd and from any restraint of trade between him and L Pty Ltd.
18.In default of either or both the Husband and Wife doing all such things and executing all such documents as may be needed to comply with these Orders within the time provided:
(a)A Registrar of the Court or such other person appointed by the Court be authorised to do all such acts and things and execute all such documents on behalf of either or both parties pursuant to section 106A of the Family Law Act 1975 (Cth); and
(b)If either party procures compliance with this Order by obtaining execution of documents pursuant to this Order, then the party procuring such execution of documents will be indemnified by the party for his or her costs and expenses incurred in obtaining such compliance.
19.These Orders have been amended pursuant to Rule 10.13 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
INTRODUCTION
These are property proceedings involving an 11-year marriage, where the parties have cohabited for 13 years and raised three children. The parties in this matter are the applicant wife, Ms Rowland (“the wife”) and the respondent husband, Mr Rowland (“the husband”).
The asset pool between them is a moderate one, consisting largely of the former matrimonial home, a family trust, their respective business interests and superannuation entitlements. However, determining the property pool has been complicated by the husband’s disposal of his interest in the company, L Pty Ltd, and his establishment of a new business which performs similar work, in the six-month period leading up to the final hearing. The wife argued that the husband has engaged in a course of conduct designed to reduce the asset pool. She further argued that the monies received by the husband when he disposed of his interest in L Pty Ltd should be added back into the overall property pool.
The parties agree that their financial, non-financial and homemaking contributions were, when weighed against each other, equal during their relationship, marriage and post-separation. The wife does, however, seek an adjustment of interests in property for her future needs. This was opposed by the husband.
ISSUES IN DISPUTE
If the Court finds it to be just and equitable to make a property settlement order, the issues in dispute are:
(a)What assets and liabilities should be included in the property pool available for distribution? In determining this question, the Court is required to determine the following matters:
(i)What value to allocate to the Rowland Family Trust.
(ii)Whether the value of the missing jewellery (allegedly valued and insured for $70,000 according to the wife) and artwork be treated as an asset in the husband’s possession.
(iii)Whether the consideration paid to the husband for the sale of his share in L Pty Ltd should be treated as a premature distribution of property and either “added back” or otherwise considered under sections 79(4) and 75(2)(o) of the Family Law Act 1975 (Cth) (“the Act”).
(iv)What is the value of the husband’s interest in J Pty Ltd and/or D Pty Ltd?
(v)Should the estimated capital gains tax (“CGT”) arising from the sale of the husband’s L Pty Ltd shares (“the L Pty Ltd share sale”) be added back?
(b)How should the contributions of the parties, both financial and non-financial, be assessed, and whether a further adjustment should be made due to both the future needs and financial resources of the parties.
EVIDENCE
Each of the parties filed Case Outline documents setting out the material they relied upon at the final hearing.
The wife relied upon:
(a)Amended Initiating Application filed 22 August 2023
(b)Financial Statement filed 21 August 2023
(c)Affidavit of Ms Rowland filed 21 August 2023
(d)Affidavit of Mr E (property valuer) filed 21 August 2023
(e)Affidavit of Mr M (business valuer) filed 6 February 2023 (“the Business Valuation Report”)
The husband relied upon:
(a)Amended Response to Initiating Application filed 21 August 2023
(b)Financial Statement filed 21 August 2023
(c)Affidavit of Mr Rowland filed 21 August 2023
I have also had regard to the material marked and tendered as exhibits.
The wife and husband were both legally represented.
The parties were each cross-examined. The single expert valuer, Mr M (“the single expert”), was also cross-examined.
Whilst I have not referred to every aspect of the evidence, I have taken it all into account and considered it.
There was very little contested evidence as the main issue in this matter is the application of the relevant law to the evidence. There were some factual matters in dispute that I have had to determine. Section 140 of the Evidence Act 1995 (Cth) sets out that the standard of proof in these proceedings is to a balance of probabilities and, in what follows, statements of fact constitute findings of fact.
RELEVANT FACTS AND PROCEDURAL BACKGROUND
Before considering the proposals of law, it is useful to capture the relevant facts.
The husband was born in 1973 and was 50 years old at the time of the final hearing.
The wife was born in 1982 and was 41 years old at the time of the final hearing.
The parties commenced a relationship in 2006 and began living together in 2008.
The parties were married in 2010, and separated on a final basis on 24 April 2021.
There are three children of the marriage:
(a)Their daughters, X and Y, born in 2012, both 11 years old; and
(b)Z, born in 2015 and currently eight years old.
On 24 April 2021, the wife left the former matrimonial home situated at Suburb C NSW (folio identifier …) (“the Suburb C property”) with the children. The parties have lived separately and apart since this time. The parenting issues in this matter were finalised by consent on 13 June 2023, whereby the children live with the wife and spend four nights each fortnight and half of the school holiday periods with the husband.
In 2009, the wife established her business, P Pty Ltd, as a sole trader and working as a health care worker.
In early 2015, the husband became a shareholder of L Pty Ltd. His shareholding increased over time to 36.5 per cent. In 2016, G Pty Ltd became a shareholder in L Pty Ltd.
In 2016, the parties obtained accounting advice and established the following entities:
(a)P Pty Ltd, which is the trading entity through which the wife operated her business.
(b)N Pty Ltd, which is wholly owned by K Pty Ltd as trustee for the Rowland Family Trust.
(c)The Rowland Family Trust, which the parties and their accountant, Mr O are appointers.
(d)K Pty Ltd, which is the corporate trustee of the Rowland Family Trust and owns all the shares in N Pty Ltd. The wife is the sole director and shareholder of this entity.
(e)G Pty Ltd, which is the trustee of the G Trust, and of which the husband is the sole director and shareholder.
(f)G Trust, which the parties and Mr O are appointers.
In 2017, the husband suffered a serious injury. The husband received a compensation payment of around $36,000, which he placed in his own savings account.
In 2017, the parties purchased a mobile home for $20,000 from their joint savings.
In 2018, the parties purchased the Suburb C property for $1.7 million. The current balance of their joint mortgage is around $1,396,581. In July 2022, a valuation report was completed by Mr E, estimating the current market value of the Suburb C property to be $2,350,000.
On 10 March 2022, the husband filed an Initiating Application commencing these proceedings for both parenting and property orders.
In December 2022, the Business Valuation Report was completed by the single expert, valuing L Pty Ltd, G Pty Ltd, G Trust, H Pty Ltd, P Pty Ltd, N Pty Ltd, K Pty Ltd and the Rowland Family Trust, as at 20 June 2022.
Between early 2023 and mid-2023, the husband negotiated his sale of his shares with the other two shareholders of L Pty Ltd (“the L Pty Ltd partners”). In mid-2023, the husband accepted their offer to purchase his shares for $450,000.
In mid-2023, the husband started his new business, J Pty Ltd. He deposed that he is a 25 per cent shareholder with three other partners who also hold 25 per cent shares. J Pty Ltd later ceased trading due to a dispute about the name, and the husband then traded under another business name and structure, D Pty Ltd.
In July 2023, the wife deposed that the husband rolled over, from his superannuation fund into his life insurance policy, a sum of $13,830.62.
PROPOSALS
The wife’s proposal is as follows, that:
(a)The Suburb C property be sold, and after deducting sale costs and discharging the mortgage, that:
(i)The wife receive a payment of $70,000; and
(ii)The remaining balance be divided as to 60% to the wife and 40% to the husband.
(b)The wife relinquishes her right, title and interest in the G Trust.
(c)The husband relinquishes his right, title and interest in the Rowland Family Trust.
(d)The wife transfers her right, title and interest in her shareholding in H Pty Ltd to the husband.
(e)The parties otherwise retain their right, title and interest in any property under their sole name.
The husband’s proposal is as follows, that:
(a)The net property pool be divided equally between the parties, and to achieve this:
(i)The wife transfers her right, title and interest in the Suburb C property to the husband, provided that the husband refinance the mortgage under his sole name.
(ii)The husband retains, at the exclusion of the wife, the following:
(A)G Trust;
(B)the shares in H Pty Ltd;
(C)the shares in J Pty Ltd;
(D)his superannuation entitlements; and
(E)any property under his sole name.
(iii)The wife retains, at the exclusion of the husband, the following:
(A)the shares in K Pty Ltd and any of its associated companies;
(B)the Rowland Family Trust;
(C)her superannuation entitlements; and
(D)any property under her sole name.
The parties appear to agree on the following, that:
(a)At the exclusion of the wife, the husband retains his right, title and interest in the G Trust;
(b)At the exclusion of the husband, the wife retains her right, title and interest in the Rowland Family Trust; and
(c)The parties retain their individual superannuation entitlements.
THE LAW
In determining property matters, consideration must be had to Part VIII of the Act and, in particular, ss 75, 78 and 79.
A clear framework exists in determining a property division.
The first question that must be asked, as articulated by the High Court in Stanford v Stanford (2012) 247 CLR 108 (“Stanford”) at [37], is 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.
(As per the original)
If I conclude it would be, I must then consider the factors set out in sections 79(4) and 75(2) of the Act, so far as they are relevant.
A four-step process is then applied in accordance with the Full Court decision of Hickey & Hickey & Attorney-General of the Commonwealth (Intervenor) (2003) FLC 93-143 at [39], which can be summarised as follows:
(a)Identify and value, as at the date of hearing, the parties’ property, liabilities and financial resources.
(b)Identify and assess the parties’ contributions pursuant to section 79.
(c)Identify and assess the parties’ ongoing needs, taking into account the relevant factors under sections 79 and 75(2).
(d)Consider the effect of the above and resolve what order is just and equitable in all the circumstances of the case.
IS IT JUST AND EQUITABLE TO MAKE A PROPERTY SETTLEMENT ORDER?
This is a case where the just and equitable requirement set out in section 79(2) of the Act appears to be justified. The parties have separated after a long marriage, during which they acquired various items of property, including real estate. An adjustment of their interests in property is required to enable the parties to move on with their lives. Having made that determination, I will now determine how to proceed with the property division.
GLOBAL OR ASSET BY ASSET APPROACH/ONE OR MORE POOL APPROACH?
The Court has a very broad discretion as to how property orders should be structured to achieve an appropriate division of the parties’ property overall. I find it would be artificial to distinguish between the Suburb C property, other assets, and superannuation interests. Given the length of the marriage, a global approach is appropriate, and, indeed, it is the approach that the parties agreed should be adopted.
WHAT IS THE PROPERTY OF THE MARRIAGE?
A joint balance sheet was prepared by the parties and tendered. The relevant parts of the joint balance sheet are reproduced below.
Ownership
Description
Applicants value
Respondents value
ASSETS
1
J
B, Suburb C NSW
$ 2,350,000
$ 2,350,000
2
H
G Pty Limited
$ 0
$ 0
3
J
G Trust
$ 0
$ 0
4
H
Shares in J Pty Ltd
$ NK
$ 0
5
W
K Pty Ltd
$ 0
$ 0
6
J
Rowland Family Trust
$ 1,298,180
$ 1,416,459
7
H
Household contents, artwork and jewellery
$ 70,000
$ 10,000
8
W
Household Contents
$ 20,000
$ 20,000
9
J
Mobile home
$ 5,000
$ 5,000
10
W
Savings
$ 19,654
$ 19,654
11
H
Savings Husband
$ 46,394
$ 46,394
12
H
Motor vehicle
$ 50,000
$ 50,000
13
H
D Pty Ltd 25% share
$ unknown
$ 40,000
Total
$ 3,859,228
$ 3,957,507
ADDBACKS
14
H
Value of L Pty Ltd
$ 882,876
$ 0
15
H
Difference between value and purchase price of motor vehicle from L Pty Ltd
$ 15,000
$ 0
16
W
Legal fees paid
$ 148,193
$ 148,193
17
H
Legal fees paid
$ 85,000
$ 85,000
Total
$ 1,131,069
$ 233,193
LIABILITIES
18
J
CBA Mortgage over B Street, Suburb C
$ 1,396,780
$ 1,396,581
19
W
Debt owed to K Pty Ltd
$ 214,087
$ 214,087
20
H
CGT on sale of shares in L Pty Ltd
$
$ 77,428
Total
$ 1,610,867
$ 1,688,096
SUPERANNUATION
Member
Name of Fund
Type of Interest
Applicants value
Respondents value
21
H
Super Fund 1
$ 94,130
$ 94,130
22
W
Super Fund 2
$ 53,883
$ 53,883
Total
$ 148,013
$ 148,013
To quantify the matrimonial property pool, some determinations need to be made.
The value of the husband’s interest in J Pty Ltd (item 4) and D Pty Ltd (item 13)
J Pty Ltd and D Pty Ltd were entities registered by the husband in mid-2023. Due to a dispute with L Pty Ltd over the use of that name, the husband deposed that all assets and liabilities of J Pty Ltd were rolled over to D Pty Ltd in July 2023.
The husband is a 25 per cent shareholder of D Pty Ltd with three partners who also each hold 25 per cent shares. Whilst the L Pty Ltd share sale involved a restraint on trade, the husband gave evidence that D Pty Ltd does the same work as L Pty Ltd and that he has applied the industry knowledge he has built up over his 25 years’ experience to the enterprise.
By the time of the final hearing, D Pty Ltd appeared to be a profitable enterprise, notwithstanding that it had been trading for less than six months. The husband was also drawing an income of $3,000 per week.
At the time of completing the Balance Sheet filed by the husband on 23 October 2023, D Pty Ltd had a bank balance of $157,322. Based on that bank balance, the husband estimated the value of his 25 per cent share in D Pty Ltd to be around $40,000.
The wife argued that D Pty Ltd was essentially a “phoenix company” that has taken over the business formerly conducted by L Pty Ltd. The wife asked the Court to also draw this inference having regard to the following:
(a)The husband’s own evidence that he was always responsible for the set-up, growth and day-to-day running of the L Pty Ltd operation in New South Wales, as the other shareholders live and work in Melbourne, Victoria.
(b)The new directors and shareholders of D Pty Ltd were subcontractors of L Pty Ltd.
(c)The wife has observed that L Pty Ltd clients are contracting D Pty Ltd to undertake jobs.
I am satisfied that, because of the husband’s industry experience and connections, D Pty Ltd has established a reliable client base in a relatively short period of time, many of whom are former clients of L Pty Ltd. There was sufficient evidence to satisfy me that D Pty Ltd is trading profitably.
However, there was no evidence to suggest that D Pty Ltd was a phoenix company for L Pty Ltd. The following considerations and factors led me to this conclusion:
(a)The directors and shareholders are different people (apart, of course, from the husband).
(b)The husband gave evidence that his relationship with the L Pty Ltd partners had deteriorated – a fact conceded to by the wife.
(c)The correspondence and negotiations entered into about the L Pty Ltd Share Sale were based on a formula set out in the L Pty Ltd Shareholder Agreement (“the Shareholder Agreement”), and they appeared to be arms-length negotiations arising from a breakdown of the relationship between shareholders.
(d)L Pty Ltd was a much larger enterprise and estimations of its equity value had regard to a pool of assets and liabilities that could not be applied to D Pty Ltd (for example, calculations of trade debtors, cash at bank, plant and equipment, and stock).
Understandably, perhaps, the wife also argued that the value of the husband’s share in D Pty Ltd far exceeds his claimed $40,000 estimate. She argued that the Court should adopt a value for D Pty Ltd based on the draft profit and loss statements for D Pty Ltd, although these were not tendered into evidence.
The wife also submitted that a value should be applied commensurate with the single expert’s valuation of L Pty Ltd and that the Court should take a “broad brush” approach in relation to its value.
The evidentiary onus was on the wife to establish that the value of D Pty Ltd exceeded the figure provided by the husband. There was no evidence before the Court that would allow the value of the husband’s interest in D Pty Ltd to be any different to the value proposed by the husband. The husband’s estimate that the value of his 25 per cent share in D Pty Ltd, that is, $40,000, must therefore be adopted.
The value of the Rowland Family Trust (item 6)
The parties adopted different values for the Rowland Family Trust.
The wife adopted the value attributed to the Rowland Family Trust by the single expert, being $1,298,180. The husband submitted that the value of the underlying asset of the Rowland Family Trust, that is, K Pty Ltd, had changed. He therefore asked the Court to adopt a higher figure of $1,416,459 by having regard to that valuation and then adding on the increased cash in bank. Evidence tendered to support this argument was the most recent Commonwealth Bank of Australia business transaction account showing a balance of $326,407 on 30 September 2023.
Notably, whilst the single expert gave evidence and was questioned about the financial statements for K Pty Ltd, this proposition was not put to him. As the single expert valuer of the business entities, the single expert was best placed to comment on whether this would lead him to update his valuation or opinion. Furthermore, both parties adopted the $214,087 figure provided in the Business Valuation Report for the wife’s loan to K Pty Ltd and did not seek to dispute the value of this loan or have it updated.
In these circumstances, the single expert’s value, as adopted by the wife, is accepted.
The value of household contents, artwork, and jewellery (items 7 and 8)
The wife alleged that, during the marriage, the parties purchased artwork for a total of approximately $15,000. The wife asserted that she left a set of three pieces of artwork valued at a total of $10,000 for the set, and three sculptures valued at $5,000 at the Suburb C property. The husband gave evidence that he was unaware of the art pieces but there was artwork in the Suburb C property which he described as “relics” and “bits and pieces” that were collected during the relationship.
The husband agreed that artwork had been purchased and he also accepted that he and the wife had purchased jewellery during the relationship. He further agreed that he had purchased watches and that they were still in his possession. However, he could give no account of where the artwork or jewellery had gone except to say that the wife had access to the Suburb C property and could have removed them before he had changed the locks.
The wife gave evidence in a forthright manner. She consistently argued that the husband did not allow her access to these items. Whilst her evidence was challenged by the husband, he provided no plausible alternative. I am left with two different accounts and need to prefer one version over the other. On this issue, I prefer the wife’s evidence. Consequently, a value of $70,000 is attributed to the household contents, artwork and jewellery at the Suburb C property. At the same time, a value of $20,000 is attributed to the contents of the wife’s home (item 8).
CGT arising from the L Pty Ltd Share Sale (item 20)
In the husband’s Balance Sheet filed on 23 October 2023, he included an estimate of the CGT on the L Pty Ltd Share Sale and attributed an amount of $77,428. His estimate was based on a letter from his accountant anticipating the liability. This accountant was not on affidavit.
The single expert was asked about whether a CGT event arose from the L Pty Ltd Share Sale. He said that it was outside of his expertise and an accountant could give more accurate evidence. However, the single expert agreed as a general proposition that a CGT liability may arise, but the quantum would depend on how the payment was structured.
I am satisfied that there are CGT implications associated with the L Pty Ltd Share Sale which should be considered. This is clear from a line of authorities including the “general principles” to be applied from the case of Rosati & Rosati (1998) FLC 92-804 at [6.36]. In other cases, such as Rodgers & Rodgers (2016) FLC 93-703 (“Rodgers”), a potential CGT liability has been considered by reference to section 79(4)(e) of the Act. The Full Court in Rodgers found that including a liability in the pool is not a “binding rule of law” and stated, at [40], that:
the manner in which a particular liability should be treated is, ultimately, dependent upon the nature of the liability, the circumstances surrounding the liability and the dictates of justice and equity shaped by each.
I am not persuaded that CGT will crystallise in line with the accountant’s estimate or that the estimated liability would then flow to the husband. The Share Sale Deed was between L Pty Ltd and G Pty Ltd. While the primary beneficiary of the Discretionary Trust Deed for G Trust appears to be the husband, there was no evidence that it was distributed to the husband entirely or that it was included in his 2023 income tax return.
The husband is an astute businessperson. In the past, he has structured his finances in a manner that best minimises his taxable income. The single expert gave evidence that the CGT liability might be minimised, for example, through superannuation payments. I am therefore not confident that the amount estimated by the accountant should be treated as a liability. I therefore propose to treat the prospective future CGT liabilities as a matter to be considered by reference to section 79(4)(e) of the Act.
Addbacks (items 14 to 17)
The parties seek a range of addbacks. They agree that legal fees paid (items 16 and 17) will be added back into the Joint Balance Sheet. Additionally, the wife seeks to add back the following:
(a)The difference between the valuation of the husband’s share in L Pty Ltd according to the Business Valuation Report and the amount his share was sold for. She cited the amount of $882,876, although it is not clear how she arrived at this figure.
(b)The difference between the value and purchase price of the motor vehicle from L Pty Ltd. The wife cited the amount of $15,000, although, again, it is not clear how she arrived at this figure.
The adding back of funds is generally considered an exception to the earlier stated principle in Stanford (see Trevi & Trevi (2018) FLC 93-858 at [47]). As the authorities have identified (see AJO & GRO (2005) FLC 93-218), it may be appropriate to add property back into the pool if:
(a)A finding is made that the husband embarked on a course of conduct to reduce or minimise the value of the asset pool or acted recklessly, negligently, or wantonly with the assets with the effect of reducing their value (see Kowaliw & Kowaliw (1981) FLC 91-092); or
(b)A finding is made that an amount of money has been dissipated by the husband prematurely to his benefit (see Townsend & Townsend (1994) 18 Fam LR 505).
The L Pty Ltd Share Sale (item 14)
To determine the value of the L Pty Ltd Share Sale, some background is necessary.
In December 2022, valuations for the business entities owned by the parties were obtained (the Business Valuation Report). The single expert estimated that the equity value of L Pty Ltd as at 30 June 2022 was $2,243,889. Accordingly, the husband’s 36.5 per cent interest in L Pty Ltd was valued at $819,019.
In early 2023, some two months later, the husband deposed that his relationship with the L Pty Ltd partners had broken down and he was struggling in his role and with his mental health. He informed the L Pty Ltd partners that he was unable to continue to work for the company.
In early 2023, the L Pty Ltd partners essentially terminated the husband’s employment. He was walked off the premises and locked out of the business.
On the same day, the husband advised the wife through legal correspondence that he was negotiating to sell his share in L Pty Ltd “per the shareholder agreement”.
In March 2023, the husband received a letter from the L Pty Ltd partners containing a proposal to buy out his shares in L Pty Ltd. For the purposes of negotiations, reference was made, and reliance placed on the “court valuation”.
In March 2023, the legal representative for the wife wrote to the legal representative for the husband, advising:
Our client does not consent to your client’s unilateral disposal of his business and requires full disclosure of the proposed sale together with the shareholder agreement referenced by you.
Our client will rely on the greater of the business valuation or proposed sale price of the business for a property adjustment between the parties in the event that the sale is consented to.
(As per the original)
In March 2023, the legal representative for the husband provided the wife with a copy of the Shareholder’s Agreement and the letter dated March 2023 from the L Pty Ltd partners containing a buy out proposal. The legal representative for the husband stated in that letter:
My client is focused on getting the best price he can for the shares and to that end his accountant is verifying the calculation before a counteroffer is made by my client. Your client is invited to assist in any way to ensure the best price is achieved.
(As per the original)
In early 2023, the husband received his last pay from L Pty Ltd in accordance with his employment termination and the Shareholder’s Agreement.
Negotiations between the husband and the L Pty Ltd partners continued.
In May 2023, the legal representative for the husband wrote to the legal representative for the wife reminding them that the wife was invited to make any contribution she wished to the negotiations around the sale of the shares and had not done so. The legal representative for the husband confirmed that:
the sale is for fair value and based on the formulae in the shareholders agreement.
To keep you updated, my client has not accepted the offer and is trying to negotiate the best price possible.
…
Once the final payout figure for the shares is determined I will send through an updated balance sheet…
(As per the original)
In June 2023, the husband entered into a share sale deed for his L Pty Ltd shares (“the Deed”) with L Pty Ltd for consideration of $450,000. In June 2023, the L Pty Ltd Share Sale was completed. Full disclosure of this Sale appears to have been provided to the wife in June 2023.
Did the Husband embark on a course of conduct to reduce or minimise the value of the assets pool, or act recklessly, negligently, or wantonly with the assets with the L Pty Ltd shares with the effect of reducing their value?
The wife argues that:
(a)The L Pty Ltd Share Sale was solely the choice of the husband, and it was a premature distribution of the assets of the parties.
(b)She advised the husband that she did not consent to him selling his share, yet he proceeded to, nonetheless.
(c)In doing so, he knowingly sold the shares undervalue. She asked the Court to find that:
the true value of the shares as of June 2023 would have been approximately $882,876 in accordance with the Business Valuation Report [12/2022, p. 8]”.
(As per the original)
However, when the single expert gave oral evidence, he accepted that the proportional value of the husband’s shareholding was in fact $818,938.
(d)The single expert based his valuation on three and a half times earnings before interest and taxes (“EBIT”) but for the purposes of the negotiations, the husband’s share value was calculated at a capitalisation rate of two and a half per cent, which was under value. The single expert noted that it also ignored the enterprise value of around $677,000.
The husband argued that:
(a)There was a buyer mechanism for the L Pty Ltd partners to purchase his shares, and he sold his shares in accordance with the Shareholder’s Agreement.
(b)He held a minority interest in the entity and that limited his ability to sell his shares for a higher price because he was obliged to sell the shares to the majority shareholders under the Shareholder’s Agreement.
(c)The wife was provided with advance notice of the proposed L Pty Ltd Share Sale. She was offered the opportunity to participate in the negotiation process. The details of the proposed and ultimate sale were both disclosed to her in writing. At no time did she take any steps to stop the L Pty Ltd Share Sale from occurring. In fact, she acquiesced to it.
Conclusion
It was agreed that the husband had a falling out with the L Pty Ltd partners. Whilst the wife argued that the Shareholder’s Agreement did not mandate the husband to sell his shares, his position, at that point in time, appeared to have been untenable. He had no income and had been locked out of the business.
The wife was given three months’ notice of the L Pty Ltd Share Sale. Although she did advise the husband that she did not agree to it, her resistance was passive. She took no meaningful steps to take action to stop the sale proceeding, nor did she take steps to have the sale proceeds quarantined.
I am satisfied that the correspondence between the legal representative for the husband and the L Pty Ltd partners indicates that the negotiations were undertaken in good faith and were bona fide. The negotiations had regard for both the terms of the Shareholder’s Agreement and referred to the Business Valuation Report.
When asked for his opinion of the consideration received for the L Pty Ltd Share Sale, the single expert ultimately concluded that, whilst there were some “red flags” for him (such as omitting the enterprise value), he did not have enough information to verify either way. He concluded:
The price will be determined from negotiations and the leverage of the parties, which can be different to value. It doesn’t make the value wrong, because the market value is – is hypothetical buyers and sellers…
(Transcript Day 1, page 76)
Under cross-examination, the single expert conceded that his valuation did not apply a discount for the husband’s minority shareholding, but it would be reasonable to do so because of the lack of control he was able to exert, especially where the shareholders were not “blood-related” parties. This was perhaps highlighted by the negotiation process he engaged in.
The evidentiary onus was on the wife to satisfy the Court that the husband either sold the shares under value, or that he engaged in a course of conduct that was designed to reduce the value of the L Pty Ltd Share Sale.
I am unable to conclude that the husband embarked upon a course of conduct designed to reduce or minimise the effective value or worth of the matrimonial assets. Nor am I satisfied that in selling his share, the husband acted recklessly, negligently, or wantonly.
Has the husband dissipated an amount of money prematurely to his benefit?
I am unable to conclude that the husband disposed of his shares prematurely and for his benefit. However, I also must consider whether the husband dissipated all or some of the $450,000 proceeds of the L Pty Ltd Share Sale prematurely to his benefit.
The proceeds of the L Pty Ltd Share Sale were paid as follows:
(a)$225,233 was retained as a set-off against the husband’s director’s loans, the value of the Motor Vehicle 1 (“the L Pty Ltd motor vehicle”) retained by the husband ($50,000), and the part payment of $50,000 received in April 2023.
(b)$50,000 was retained and held, subject to the husband complying with the restraint part of the Deed, which ended in September 2023. Presumably, this amount was paid and reflected in the husband’s Financial Statement as savings.
(c)A cash payment of the balance of $174,766.20.
The husband deposed that the cash payment of $174,766.20 has been spent as follows:
(a)$45,000 towards his legal fees for these proceedings.
(b)$10,000 towards his legal fees for the shareholder dispute.
(c)$50,000 towards setting up his new business; and
(d)Balance remaining of $69,766.
The husband was not challenged on his evidence of how the proceeds of the L Pty Ltd Share Sale had been disbursed.
It was reasonable for the wife to expect that the proceeds of L Pty Ltd Share Sale should have been preserved and available for distribution through the proper process. This did not eventuate and her argument, that some or all the proceeds of the L Pty Ltd Share Sale that have been disbursed should be added back in, is a valid one.
However, addbacks are exceptional and discretionary. Authorities confirm that parties are not required to “go into a state of suspended economic animation” after separation (see M & M [1998] FamCA 42 at [2.11]). For this reason, reasonably incurred expenditure does not usually come within accepted categories of addbacks.
To determine whether a discretion will be exercised, and money added back into the Joint Balance Sheet, it is necessary to look at the way the husband applied the sale proceeds.
Addback of $225,233 for the Director’s loan repayment, the L Pty Ltd motor vehicle and $50,000 early release
The wife argued that the money withheld for the director’s loans should be added back in because, in the last 12-month period (that is, from May 2022 to May 2023), the husband’s director’s loan account had increased by $160,000. The general ledger for L Pty Ltd for the period from January 2017 to March 2023 was tendered. The husband’s drawings out of the business did increase over that period but primarily because of the drawings for legal fees and child support payments.
Were there any other expenses drawn from the director’s loan account that were unusual in nature or would lead me to add them back in?
Over the same period, I note that the wife also continued to draw down on her director’s loan account with K Pty Ltd. Her current liability of $214,000 remains included in the Joint Balance Sheet. Counsel for the husband argued that the wife’s loan account was accrued over five years and that she paid for family expenses from her business drawings, as opposed to the husband, whose loan account represented a more discretionary spend.
The parties have already agreed to an addback for the legal fees they have expended. Similarly, the L Pty Ltd motor vehicle appears on the Joint Balance Sheet (item 15). To add back these amounts would lead to double counting.
The onus was on the wife to satisfy me of this. To do so, there would need to have been persuasive evidence and analysis undertaken of the parties’ use of their respective director’s loan accounts. The wife failed to meet this evidentiary burden. Therefore, the director’s loan repayment will not be added back in.
Addback of the cash payments totalling $224,767
I would be in error to add back the entire cash payment of $224,767 because at least $141,394 has been included in the Joint Balance Sheet:
(a)Item 13 - the value of D Pty Ltd $40,000
(b)Item 17 - legal fees paid by the husband $55,000
(c)Item 11 - the husband’s savings $46,394
The husband has failed to account for the outstanding $83,373, except to claim in his affidavit that it was used to “cover the mortgage, my regular bills and living expenses”. Whilst this amount may represent a premature distribution of the husband’s share, I cannot discount that it may also partly represent the reasonable living expenses of the husband. It will therefore not be added back but rather form part of the consideration pursuant to ss 79(4) and 75(2)(o).
Addback arising from the L Pty Ltd motor vehicle (item 15)
As part of the negotiations for the L Pty Ltd Share Sale, the husband retained the L Pty Ltd motor vehicle.
The wife argued that the husband had previously agreed that the L Pty Ltd motor vehicle was valued at $65,000.
The wife argued that, as well as attributing a value of $50,000 to that motor vehicle, the Court should also add back in $15,000, being the difference between the value as agreed and the actual transfer price.
The value of the L Pty Ltd motor vehicle formed part of the negotiations for the L Pty Ltd Share Sale. In March 2023, the husband proposed that the value of $65,000 be adopted for this vehicle. This was rejected by the L Pty Ltd partners on the basis that it did not reflect the retail valuation.
In the absence of any other evidence on this issue, this addback is not allowed.
Conclusions
I find that the property pool consists of property, superannuation, and liabilities with a net value of $2,669,567 and being made up of the following:
Item
Ownership
Description
Court Determination
ASSETS
1
Joint
B Street, Suburb C NSW
$ 2,350,000
2
Husband
G Pty Ltd
$ -
3
Joint
G Trust
$ -
4
Husband
Shares in J Pty Ltd
$ -
5
Wife
K Pty Ltd
$ -
6
Joint
Rowland Family Trust
$ 1,298,180
7
Husband
Household contents, artwork and jewellery
$ 70,000
8
Wife
Household contents
$ 20,000
9
Joint
Mobile home
$ 5,000
10
Wife
Savings
$ 19,654
11
Husband
Savings
$ 46,394
12
Husband
Motor vehicle 1
$ 50,000
13
Husband
D Pty Ltd 25% share
$ 40,000
TOTAL:
$ 3,899,228
ADDBACKS
16
Wife
Legal fees paid
$ 148,193
17
Husband
Legal fees paid
$ 85,000
TOTAL:
$ 233,193
LIABILITIES
18
Joint
CBA mortgage over B Street, Suburb C
$ 1,396,780
19
Wife
Debt owed to K Pty Ltd
$ 214,087
20
Husband
CGT on sale of shares in L Pty Ltd
$ -
TOTAL:
$ 1,610,867
SUPERANNUATION
21
Husband
Super Fund 1
$ 94,130
22
Wife
Super Fund 2
$ 53,883
TOTAL:
$ 148,013
TOTAL NET PROPERTY:
$ 2,521,554
TOTAL NET PROPERTY & SUPERANNUATION:
$ 2,669,567
Contributions
In determining what orders are to be made pursuant to s 79(4) of the Act, I am required to evaluate the parties’ respective contributions, and weigh them with all the other relevant contributions.
By closing submissions, both parties agreed that their financial, non-financial, and homemaking contributions were, when weighed against each other, equal during their relationship, marriage, and post-separation. The position they have adopted is consistent with the evidence. It is therefore unnecessary to assess or provide any analysis of their contributions.
As a starting point, the parties therefore agree, on a contribution basis, to a division of 50 per cent to the wife and a division of 50 per cent to the husband of the matrimonial asset pool.
IS THERE ANY ADJUSTMENT TO BE MADE BETWEEN THE PARTIES FOR RELEVANT MATTERS UNDER S 75(2)?
The husband argued that when all the s 75(2) factors are weighed against each other, the only just and equitable outcome is for there to be no adjustment under s 75(2). The wife, on the other hand, sought an adjustment of 10 percent in her favour.
The wife is 41 years of age and in good health. She has not re-partnered since the parties separated.
The husband is 50 years of age and appears to be in good health. The husband had a serious medical incident in 2017 following an accident. He argued that, as a result, he suffers from medical issues. No medical evidence was led about this nor its potential impact long term on the husband.
The wife is a health care worker with an income of $180,000 per annum. During cross-examination, the wife accepted that some of her personal expenses, such as travel, mediation fees, and parking fees to attend Court, were being claimed as business expenses. Having regard to this, her income could be as high as $215,000 per annum.
Ultimately, it is difficult to make findings about the husband’s income, property, and financial resources. He operates a successful business, drawing an income of $3,000 per week (or $156,000 per annum before tax). This is a remarkable financial position to be in considering that his new company has been trading for less than six months. He is confident enough of the ongoing financial viability of the business to seek an order that the Suburb C property be transferred to him, subject to the mortgage of $1,396,780 (however, he does seek a cash payment from the wife of $113,793). Although, because of my earlier finding, he will have a capital gains tax liability, of up to $77,428 arising from the L Pty Ltd Share Sale, which I now have regard for.
The parties have final parenting orders which provide for the children to live with the wife and spend substantial and significant time with the husband (four nights per fortnight, and 50 per cent of each school holidays).
The wife is responsible for homeschooling her children. She arranges a carer for the children so that she can manage both working full-time in her business and homeschooling their three children. There is a contention between the parties as to how long the homeschooling of the children will continue. The husband expects the children to attend a traditional high school, but the wife did not make this concession.
The wife has the care and control of the three children, and this is perhaps more relevant in the context of their homeschooling, although this does not seem to have curtailed the earning capacity of the wife so far. I also note that the choice to homeschool the children appears to be a personal decision not based on financial needs or in relation to the special needs of the children.
Conclusion
While the husband is nine years older than the wife, the evidence suggests that his business and earnings will continue to grow into the future. Similarly, the wife has a well-established business which she concedes will continue to provide her with a high income and other financial benefits.
I am satisfied that they will both continue to enjoy a standard of living which in all the circumstances is reasonable. However, the wife will need to re-establish herself by purchasing a home for herself and the children, as she is currently renting a property in Suburb Q.
I am also asked by the wife that, if the L Pty Ltd Share Sale is not considered elsewhere, it ought, at least, be considered pursuant to s 75(2)(o) of the Act. Whilst I have concluded that the husband’s L Pty Ltd Share Sale was a bona fide transaction, the way he has disbursed his share is relevant. Notably, he did not adequately account for how he has applied at least $83,373 of the L Pty Ltd Share Sale. This however is weighed against a potential CGT liability (that has not yet crystallised), but is estimated, by his accountant, to be $77,428.
Having regard to all these matters, I have concluded that the wife’s future needs are greater than the husband’s future needs because of her responsibility to care for and school the three children, as well as the superior financial position of the husband when the potential financial benefits that will flow to the husband from his interest in D Pty Ltd are considered.
A just and equitable outcome is for the overall division to see the wife receive 55 per cent of the net pool of assets and superannuation, and the husband to receive 45 per cent.
CONCLUSION
The parties currently have the following assets, liabilities and superannuation entitlements:
Wife
Husband
ASSETS & ADDBACKS
B Street, Suburb C NSW
$ 2,350,000
Rowland Family Trust
$ 1,298,180
Household contents, artwork and jewellery
$ 70,000
Household Contents
$ 20,000
Mobile home
$5,000
Savings
$ 19,654
$ 46,394
Motor vehicle 1
$50,000
D Pty Ltd Pty Ltd 25% share
$ 40,000
Legal fees paid
$ 148,193
$ 85,000
TOTAL:
$ 1,486,027
$ 2,646,394
SUPERANNUATION
Super Fund 1
$ 94,130
Super Fund 2
$ 53,883
TOTAL:
(Superannuation & property)
$ 1,539,910
$ 2,740,524
LIABILITIES
CBA mortgage over Suburb C property
$ 1,396,780
Debt owed to K Pty Ltd
$ 214,087
TOTAL LIABILITIES:
$ 214,087
$ 1,396,780
NET POSITION:
$ 1,325,823
$ 1,343,744
COMBINED POOL:
$ 2,669,567
The wife already has in her possession assets and superannuation with a net value of $1,325,823.
A 55:45 per cent division in favour of the wife requires her to receive assets totalling $1,468,261.85.
This leaves the wife with a shortfall of $142,438.85 (“the shortfall amount”).
I have reflected holistically upon the overall effect of my findings and determinations, and I am satisfied that this is a just and equitable division of the matrimonial asset pool.
The husband will have 60 days to pay the wife the shortfall amount and refinance the mortgage over the Suburb C property into his sole name, whereupon the wife will transfer her interest in Suburb C to him. In the event that he fails to do so, the Suburb C property will be placed on the market for sale in accordance with the Orders made.
Finally, I will make orders providing that each party retains as their sole property in law and in equity as between that party and the other party, any property not otherwise dealt with specifically in these Orders.
Accordingly, I make the Orders set out at the start of these reasons.
I certify that the preceding one hundred and thirty (130) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Beckhouse. Associate:
Dated: 31 January 2024
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