SELBY & ROBILLIARD
[2018] FamCA 214
•9 April 2018
FAMILY COURT OF AUSTRALIA
| SELBY & ROBILLIARD | [2018] FamCA 214 |
| FAMILY LAW – PROPERTY – Where the majority of assets are the business interests valued on a net asset backing basis – where there is an initial contribution to consider. How to assess the relevance of that initial contribution. FAMILY LAW – CHILD SUPPORT – departure – not just and equitable to make the order. |
| Child Support (Assessment) Act 1989 (Cth) Family Law Act 1975 (Cth) Income Tax Assessment Act 1997 (Cth) |
| Agius & Agius [2010] FamCAFC 143 Brodie & Brodie [2009] FamCAFC 6 C and C (2005) FLC 93-220 Cabbell & Cabbell [2009] FamCAFC 205 Fields and Smith (2015) FLC 93,638 Gould and Gould (1996) FLC 92-657 GWH & PGH [2005] FamCA 388 Lovine and Connor and Anor (2012) FLC 93-515 Norbis and Norbis (1986) FLC 91-712 Petruski & Balewa [2013] FamCAFC 15 Robb and Robb (1995) FLC 92-555 Spiteri and Spiteri (2005 ) FLC 93-214 Stanford v Stanford (2012) FLC 93-518 Steinbrenner & Steinbrenner [2008] FamCAFC 193 Townsend and Townsend (1995) FLC 92-569 Trask and Westlake (2015) FLC 93-662 Turner & Turner and Anor [2016] FamCAFC 121 Wah & Golay [2016] FamCAFC 67 Wallis and Manning (2017) FLC 93-759 Williams & Williams [2007] FamCA 313 |
| APPLICANT: | Mr Selby |
| RESPONDENT: | Ms Robilliard |
INDEPENDENT CHILDREN’S LAWYER
| FILE NUMBER: | MLC | 7778 | of | 2015 |
| DATE DELIVERED: | 9 April 2018 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Cronin J |
| HEARING DATE: | 19, 20, 21 February 2018 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Puckey |
| SOLICITOR FOR THE APPLICANT: | Mills Oakley Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr North SC |
| SOLICITOR FOR THE RESPONDENT: | RNG Lawyers |
| COUNSEL FOR THE INDEPENDENT CHILDREN’S LAWYER: | Mr Glass |
| SOLICITOR FOR THE INDEPENDENT CHILDREN’S LAWYER: | Victoria Legal Aid |
Orders
The parties forthwith do all things necessary to place the property at B Street, Suburb C on the market for sale.
Both parties are jointly responsible for the sale including:
(a) The appointment of the selling agents;
(b) The fixing of sales commissions;
(c) The appointment of conveyancers;
(d) The fixing of any reserve price; and
(e) The determination of the level of other sale-associated expenses.
In default of any agreement as to any issues associated with the sale, the parties have leave to apply to the court by applications supported by affidavit on short notice.
Upon the settlement of the sale of the Suburb C property, the proceeds be paid to the respondent and that amount be substituted for the amount referred to in paragraph [68] of the reasons for judgment this day.
By 27 July 2018 or one month after the settlement of the sale of the Suburb C home, or such other time as is agreed, (“the due date”) the husband pay to the wife an amount equal to 42.5 per cent of the adjusted total in paragraph [68] of the said reasons (“the payment”).
If the husband defaults in respect of the payment by the due date, interest shall commence to run from that date at the rate fixed under the relevant rules of court and the wife shall have liberty to apply to bring such enforcement action as she is so advised.
In respect of the D Self-Managed Superannuation Fund, of the interest of the applicant, the respondent is entitled to one-third of each splittable payment as it becomes payable and the applicant’s entitlement to those splittable payments is correspondingly reduced.
To the extent that the trustee of the D Self-Managed Superannuation Fund considers that it has not had adequate notice of these orders, and considers that it has thereby be denied natural justice, it has leave to apply to set aside the relevant order providing an application supported by an affidavit is filed by 4.00pm on 8 May 2018.
The solicitors for the applicant forthwith give notice to the trustee of this order and the operative time for its implementation is seven days after the expiration of the notice provision just referred to.
Save as to costs, enforcement and the potential intervention by the trustees of the said superannuation fund, all applications are otherwise dismissed.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Selby & Robilliard has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLC 7778 of 2015
| Mr Selby |
Applicant
And
| Ms Robilliard |
Respondent
Independent Children’s Lawyer
REASONS FOR JUDGMENT
There are six main issues for determination in the property and child support proceedings between Mr Selby (“the applicant”) and Ms Robilliard (“the respondent”). Generally, they are:
(a)how to factor in, and thereby determine, the entitlement of the respondent to a cash payment, where the majority of the value of the parties’ assets lie in the applicant’s business interests which involve third parties who were not joined to the proceedings?
(b)what to allow, if anything, for the prospect of a sale or disposal of the interests of the applicant in the various businesses to satisfy orders which would give rise to taxation liabilities (capital gains tax) about which there was no evidence?
(c)how to treat the applicant’s actions in increasing the mortgage debt subsequent to a court injunction restraining any such increase?
(d)how to recognise the applicant’s initial contributions of specific assets still in existence and which have underpinned the parties’ lifestyles?
(e)what adjustment if any, should be made in favour of the respondent because of the matters set out in s 90SM(4)(e) of the Family Law Act 1975 (Cth) (“the Act”)?; and
(f)whether there should be departure from the applicant’s administrative assessment of child support between the present day and when the parties’ house is ultimately sold to take into account the ongoing obligations of the applicant under the order of the court that he pay the house mortgage.
Each of these questions is interwoven with the others and in respect of the property matters, all affect the determination of what is just and equitable. The question of justice and equity underpins the child support issue as well because that also affects the parties’ children. In respect of all issues therefore a mathematical approach still has to reflect a fair outcome for both parties.
Background
The applicant and the respondent lived together in a de facto relationship from 2004 until August 2015 when the respondent left the home where the parties lived with their two children. Those children are now aged nine years and seven years respectively. In addition to the two children, the respondent has an 18 year old son who is, and always was, a member of the parties’ household. He too left the home in August 2015.
It was uncontroversial that for a considerable period of time prior to August 2015, the parties’ relationship had been strained. Immediately after the respondent left the home, she applied for an intervention order the effect of which seems to have been that the applicant then left the property and the respondent returned with the children. She remained there. It is now common ground that the home which is in the name of the applicant alone, is to be sold and after payment of the mortgage encumbrance, the balance anticipated to be $595,000 should be paid to the respondent. That gives rise to the argument about whether that is (as the applicant would have it) a sufficient adjustment in favour of the respondent to satisfy the test that any alteration of property interest must be just and equitable.
From the respondent’s perspective, because of the values of the agreed assets not only would such an order be unjust and inequitable, it would also be an appellable error in the exercise of discretion.
The children
The parties began what was to become a three day hearing in which there was a significant dispute over the applicant’s time with the children. Upon the conclusion of the applicant’s case, agreement was reached that the children’s time should be divided on a fortnightly basis as to eight nights with the respondent (their mother) and six nights with the applicant (their father). That agreement has an impact on child support but also on the issue of how, if at all, to make an adjustment in favour of the respondent under s 90SM(4)(e).
In respect of the parenting proceedings, the court had the benefit of the assistance of an Independent Children’s Lawyer who had always advocated that there had to be an increase in the applicant’s time with the children and that the ultimate agreement was in the best interests of the two children.
The litigation
After the separation in 2005, the applicant began proceedings in the Federal Circuit Court. The first hearing appears to have been on 15 September 2015. Having regard to the fact that separation had only occurred in August, it is self-evident that the matter had moved quickly.
At the September 2015 hearing, both parties were represented by counsel. There was no necessity for the intervention by the court because the parties reached an interim agreement. That is not to say that there was overall agreement which can be seen from the fact that the proceedings were adjourned to 10 February 2016 for what was described as an interim hearing. The interim agreement was converted to orders of the court which included such things as the applicant’s time with the children and the attendance on a psychologist for the preparation of a family report. However, in respect of financial matters, and relevant to the matters now under consideration, the following orders were made:
[7]The proceedings be adjourned to a date to be nominated by the court for the determination of the interim property, spousal maintenance, litigation funding Order and interim parenting Orders.
…
[10]The Applicant Father pay all instalments pursuant to the mortgage to National Australia Bank Limited, and all rates, taxes and like apportionable outgoings of the property at ([Suburb C]) as and when they fall due.
…
[11]The applicant father pay the registration, service, petrol and lease payments on the … motor vehicle (registration number).
…
[13]The Respondent Mother is solely entitled to exclusively occupy the property at ([Suburb C]).
…
[15]That until further order the Applicant Father be restrained by himself, his servants and/or agents from further encumbering, disposing of or otherwise dealing with his interest in the following:
…
15.11(the [Suburb C] property).
…
without the prior written consent of the Respondent Mother or Court Order except in the normal course of business.
The orders contained some notations but none of them were directed to financial matters.
The respondent’s application before the court that day also included a request for litigation funding but she did not press it nor did she press it thereafter.
The matter came back before the Federal Circuit Court on 10 February 2016 and again, the parties were each represented by counsel and compromised their respective positions. The children’s issues were addressed again and injunctions in relation to their behaviour viz a viz each other were also made.
Indicative of the fact that the financial issues were still unresolved (both as to final arrangements and those of an interim nature) the following order was agreed:
[9]These proceedings are otherwise transferred to the Family Court of Australia for:
…
9.2Interim hearing of financial arrangements on a date to be allocated by the Family Court of Australia.
Attached to these particular orders was a number of notations the most significant of which was that the parties had agreed that the applicant was at liberty to convert mortgage payments on what was described as “the former matrimonial home” to “interest only”. The significance in that agreement is that there was a recognition by both parties, but specifically the respondent, that there was a problem with the applicant’s payment of the mortgage. Until that time, the mortgage account had been used as an offset account into which the applicant’s income stream was deposited and from which living expenses including the mortgage were paid. But it is important to acknowledge that despite whatever the parties’ arrangement had been prior to their separation, the injunction (paragraph [15]) from September 2015 was not changed. Thus, the applicant was entitled to ameliorate his financial expenditure but he was not permitted to increase the indebtedness.
The applicant and respondent each confirmed in evidence the arrangements that had been in place prior to separation and counsel for the applicant in final address described the applicant’s conduct in increasing the indebtedness significantly after the September 2015 orders as “innocent”. That submission was made on the basis that both parties had agreed that the methodology they had used prior to separation was to allow the offset account to fluctuate. The applicant maintained that he had nowhere else to go and had not fully understood the significance of the injunction. I reject that position. The applicant was represented by counsel in September 2015. A number of injunctions were made that day all of which were clearly identified. It beggars belief that the home mortgage was overlooked.
A second problem is that in February 2016, the notation to the orders confirming the agreement to alter the mortgage payments to “interest only” makes it clear that the applicant could tinker with the payments but not change the debt.
The third position however is more disconcerting. Disclosure by the applicant of the details of his drawdowns that increased the mortgage, and the use to which they were put, was not adequately explained until the hearing. He had a number of opportunities including through orders of the court in 2017 for comprehensive disclosure. I find that for whatever reason, the respondent was not told about this increased indebtedness as she should have been, and the failure to make proper disclosure can only rest with the applicant.
The increase in the mortgage totalled $485,143. The present debt is $1.58 million. On a house which has an agreed value of $2.175 million, $485,000 cannot be ignored.
The explanation for the use of the money now seems clear. It went towards the interest only payments on the mortgage, legal fees and child support. To ignore that sum or any portion of it, would effectively mean that the orders of 2015 in relation to the applicant’s obligation to pay the mortgage are ignored. To ignore it would also mean that the respondent was significantly if not entirely, paying the child support for the children. Counsel for the applicant conceded that $193,000 of that sum had to be “added back” because it went to legal fees. I do not stay to consider the question of how the lawyers who were the recipients of those funds on a regular basis did not question their receipt in circumstances where they were also preparing financial statements. It was not an issue raised by the parties and thus not a problem requiring any further attention.
Suffice to say, I consider the critical question is whether or not the income stream of the applicant ought to have been sufficient to enable him to satisfy his own living expenses together with the obligations that he had consented to in the orders of September 2015. For the reasons that follow, I find he had sufficient income to meet his obligation.
The applicant’s income situation
The applicant’s income position is blurred by an examination of the total period from separation until now. To some extent, it is not appropriate to examine what was happening in 2015 into 2016 in the light of the applicant’s evidence about his current financial position. However, I have inferred that his consent in 2015 to taking on the responsibility of the mortgage, which consent was not altered on the parties’ second appearance at court in 2016, must mean that he thought that either he could afford to pay or alternatively, accepted that the court would have ordered him to pay on the basis of information he had at his fingertips.
In my view, the only way that this case can properly be examined is by looking at the respective financial years.
In final address, counsel for the applicant produced a table which was said to explain his incapacity to pay the mortgage. His weekly figures were:
Salary $1769
Rent income received 1125
(plus 2017 income tax return extra 800)
Total $2894
EXPENSES
Tax 926
Rent 405
Child support 430
Insurance 88
Weekly expenses 450
Mortgage 1400
Rates 80
Total $3779
It will readily be seen that on the basis of counsel’s analysis, there was insufficient funds to enable the applicant to pay the mortgage.
The $1769 and the $1125 were taken from the applicant’s financial statement affirmed only weeks prior to when the final hearing began. Extrapolated, those figures indicate a gross income of $150,000. It is apparent that in 2017, the income tax return was said to show a gross income of $192,000 which is where the extra $800 per week comes in. In cross-examination, the applicant conceded that that was his income.
In the context of the issue about the child support departure application, it was only in final address that the assessment was produced (it not having been filed as required by the Family Law Rules 2004) but for 2017, the agency had noted the applicant’s “provisional” taxable income at $159,727. The extra $800 per week declared in the 2017 year was for the period 1 July 2016 until 30 June 2017. The controversial drawdowns on the mortgage occurred in March 2016, October 2016 and May 2017. Thus, two of those drawdowns were in the relevant income period.
If it is accepted that the applicant’s income was $192,000 gross, it is $3692 per week. Using the analysis by the applicant’s counsel, he had weekly tax of $926. The financial statement filed 9 February 2018 showed he had committed himself to pay rent at $810 per week, but he conceded that it was a large home, the occupants of which were his wife whom he married very recently, and her 18 year old daughter. Whilst the daughter had no income, the applicant’s wife earned an estimate of $1923 per week. In my view therefore it would be unreasonable to allow him to deduct $810 per week. Counsel sensibly acknowledged that but then divided the rental expense in half. Having regard to the age of his step-daughter and the fact that her mother was in significant employment, that is unjustified. But, even allowing for that and also insurance, the figures do not reflect well for the applicant. In his financial statement, the applicant claimed a weekly allowance for food, utilities, clothing, holidays and the like of $875 per week but he conceded that that was the household bill. For the same philosophical reasoning as just indicated, there is no justification for him paying the expenses of the household entirely in circumstances where his now wife was earning what she was. Thus, one should therefore divide that expense by three or thereabouts.
The court does not expect parties to live in suspended animation after separation until the conclusion of their financial dispute but it does expect them to cut their cloth particularly where there are children involved.
In my view, and looking at this annually, the appropriate amount of justifiable annual expense in the 2016-2017 year for the applicant was $91,728. If the mortgage and child support are then added, his expenditure comes to $172,899 or thereabouts. That does not take into account the payment of his lawyers and the valuers associated with this litigation. Leaving those aside for a moment, if his income was $192,000, he was in surplus.
What the court now knows is that he spent $140,000 on lawyers in that financial year out of a total of $193,000 that he has paid since the separation. In addition, he paid $45,000 towards the valuation expenses albeit over the entire journey, the figure was much higher. It is clear that he could not have paid the legal fees and the valuation expenses in that financial year together with the expenses to which I have just referred. Accordingly, he should have approached the respondent to find a resolution but he did not do so.
Legal fees create an unusual problem in that s 117 of the Act requires that each party to the proceedings pay their own costs unless there are circumstances to justify a departure from that principle. To draw down the mortgage here and ignore the fact that it was eating into the equity, would mean that the respondent was contributing to the applicant’s legal fees. Counsel for the applicant quite properly made that concession consistent with the authority of Chorn and Hopkins (2004) FLC 93-204 but here, the applicant paid his legal fees without the consent or knowledge of the respondent in circumstances where she had originally applied for litigation funding but had withdrawn that request. As I understand her position, she now has significant outstanding legal fees that are going to have to be paid from whatever cash she receives in the forthcoming settlement. According to her financial statement, as at August 2017, she owed $90,000 and there has been substantial work since then.
Ultimately, it remains unclear why there was a necessity in 2016-2017 for the applicant to draw down on the mortgage in the light of the circumstances that then prevailed. He was living with his now wife. The house in which they are living has been rented for the last 18 months which covers most of the relevant period under examination. The fact that he did not approach the respondent is perplexing. But equally perplexing, if it is accepted that the $485,000 of mortgage drawdown was used as he described it in his schedule (Exhibit R3), what then happened to the income that he earned during that year?
It was the applicant’s evidence that at times he was down to little or no money and that he had no choice but to dip into the mortgage. I reject that for the reasons as set out in the above analysis. As Mr North of senior counsel observed in his final address, this issue was not the respondent’s focus for the purposes of any punitive action but rather, to bolster an argument that the respondent should have orders that least expose her to risk in circumstances where it is practically impossible to devise orders which satisfy an arm’s length transaction. That problem arises because of the involvement of the applicant’s commercial partners. It was submitted that the applicant was dishonest in his presentation of information to the respondent which justified an argument that a fixed sum should be determined and that the applicant be left to his own devices as to how that was raised. Mr North stressed that his client was not encouraging punitive action but simply calling on the court to be mindful of the complexity of the arrangements compelling the satisfaction of the respondent’s entitlement. That becomes difficult when one looks at both the potential capital gains tax liability arising from any disposal of assets but also the interwoven nature of the applicant’s interests with his commercial partners which his counsel described as the reality of the situation.
Here, counsel for the applicant submitted that the adding back of the $193,000 legal fees could be justified but the other payments were not “premature distributions” in the sense recognised by various authorities of this court (see Townsend v Townsend (1995) FLC 92-569).
I find in the circumstances that these were premature distributions, innocent or otherwise, because they were unnecessary on the analysis that I have done thereby putting beyond the respondent’s reach, equities she should have otherwise been entitled to consider protected as a result of the injunction. I also reject the applicant’s evidence that he had no choice; that argument cannot be justified on the analysis.
In my view, the answer to the question raised in paragraph 1(c) is that the amount of $485,000 has to be brought to account even acknowledging that it is now gone because the bank is not likely to reduce its demand for mortgage repayment.
The initial contributions
There was no dispute in this case that it was just and equitable to make an order to alter property interests (Stanford v Stanford (2012) FLC 93-518). After identifying the property in which either or both of the parties has an interest, an assessment must be undertaken of their respective contributions. Whilst all contributions have to be considered, in this case, there was a focus on the initial contribution of the applicant.
In 2004, the applicant had commercial and real property interests which have now been identified and valued. He argued that these were to be assessed as significant. The respondent accepts there is a justification for that recognition but disputes the extent of the assessment.
The applicant’s outline of case document asserted that “the current asset pool is derived directly from the Applicant’s assets as the commencement of the relationship” and his “business interests now form the bulk of the current asset pool”. The outline went on to submit that the applicant “owned significant assets outside those business interests, which were the source of the purchase of the first family home and ultimately the [Suburb C] home.” The last assertion is a little mystifying because it is not supported by evidence; it seems clear that the applicant’s source of income came from the business interests and whilst he had other assets, they were soon taken by the settlement of his first wife.
Assessment of contributions is an holistic exercise and it is unhelpful to isolate financial contributions if other contributions including those of a non-financial nature are ignored. When assessing all of the parties’ contributions, the initial financial contributions have to be taken into consideration. They also have to be viewed in the context of what happened to them to show how the parties lived and what is now in existence to divide. The first exercise is to see what the applicant had and to contemplate that against his written submission that the current assets were “derived directly” from his assets. As the assessment is not confined to a discrete calculation of money contributed, it is important to consider what other value or to what use, those were put in so far as they affect the assessment and determination. The parties also contributed as individuals to a relationship where each understood that their respective roles would be different and each knew that one of them not only had more money than the other but also that they were to have a family with children. The various contributions are matters to be taken into account in determining what is a just and equitable outcome.
In 2006 so two years after the relationship began, the applicant settled with his former wife providing her with their former matrimonial home and a capital payment of $50,000 which he said that he thought was funded by business cash reserves.
I have the evidence of Ms E that the applicant’s commercial interests in 2004 amounted to $252,000 but from that, presumably, the “business cash reserves” to which the applicant referred, funded part of the amount that he paid his former wife.
The applicant’s outline went on to say that the “far greater initial contributions” of the applicant enabled the parties to purchase real properties including the Suburb C property which is now to be sold.
Mr North for the respondent acknowledged the issue of the applicant’s initial contribution in final address and urged that a differential of between 15 to 20 per cent on the basis of contribution was justified.
In his affidavit, and focussing on this initial contribution, the applicant said that he owned an equal share in F Pty Ltd (FPL) and that when it commenced, it was “highly profitable”. He said that for the last 28 years, he and his partner Mr G had “grown [FPL]”. Poignantly he then said:
[213]However this business has suffered a down turn in the last three financial years as a result of a poor investment in Sydney and market changes in product distribution.
The applicant then set out at [215] and [216] a list of the assets that he had and those that the respondent had. Having regard to the concession by the respondent that there is a justification for accepting the applicant’s contribution was greater, it only remains for me to analyse the extent of that disparity.
The expert’s valuation of the applicant’s initial interest
The parties engaged Ms E to undertake a retrospective valuation of these business interests and in an affidavit filed 16 February 2018, Ms E said that on her analysis the “value of the interest held by (the applicant) in the Group of entities as at 30 June 2004” was $252,000. That was made up of two significant sums. The first was the family trust of $86,000 and the second was H Pty Ltd of $166,000. I am unable to say what impact was there in 2006 when the applicant’s former wife was paid $50,000.
The partnership between the applicant and Mr G was also valued as at 2004 and Ms E identified the applicant’s net equity as $650,000. Adding to the complexity of the assessment is the fact that 14 years later, that same partnership value has dropped to $602,000.
The assets of the parties
Essentially the assets of the parties can be described as the home in which they had lived in Suburb C and the various interests in the FPL business. There had been a dispute over chattels but that was resolved during the hearing and there are 12 items referred to in Exhibit A2 that the respondent has agreed to hand to the applicant. I shall make a general order in respect of that without specifying a time for the items to be delivered and therefore, the parties should presume that they are to be delivered forthwith.
Returning then to the other property, it is agreed that the Suburb C property is worth $2,175,000 and is encumbered by a mortgage to the National Australia Bank of $1,580,000. The applicant is the legal owner and the sole mortgagor. That property is to be sold and orders should be made accordingly. It is common ground that the net proceeds will be paid to the respondent in part settlement of any entitlement.
In respect of the business, the parties did not dispute the evidence of Ms E. Thus, those assets are described as:
The Family Trust $1,614,000
Less debt 459,000
Net $1,155,000
H Pty Ltd 991,00
The first partnership 602,000
The second partnership 408,000
Sub total $3,156,000
The family trust
Ms E valued the trust on a net asset backing basis because the trust’s function was limited to an investment facility.
The family trust had interests in another trust and a company. An examination of the balance sheets of those entities indicated very little equity but when the expert did a tracing exercise, it was established (and not challenged) that the major investment asset was in the FPL Unit Trust. In that entity’s books of account, the value was shown as $65,060 but that ignored the investment in J Pty Ltd. Ms E adjusted that asset by $4.509 million. That occurred because, on examination of J Pty Ltd, the balance sheet shows that the plant and equipment in the books of accounts was set at $4.6 million but the single expert witness, K Services, valued that same plant and equipment in December 2017 at $7.16 million. Other adjustments were also made to the non-current assets.
The single expert witness also allowed for a deferred tax liability of $594,000 relating to obligations arising out of employee entitlements, the write-off of leasehold improvements and the increase in value associated with the plant and equipment. Thus, the taxation effect of revaluation was considered by Ms E.
One of the two assets of this trust was the Three Unit Trust. Ms E gave consideration to the fact that the relevant Family Trust held a minority interest. She said:
In this instance, while neither of the unit holders has control, it is my considered opinion that a discount for the nature of the unit holding is not required. The activities of the trust are limited to investment, and, in my opinion, should the (applicant) wish to dispose of his ultimate interest in the trust, the most likely course would be for the units to be sold to the other unit holder or to someone related to the business endeavours of the Group, or for the ultimate business investments to be sold in their entirety. In this instance a minority discount would not be applied. As the objective of this valuation is to determine the value of the interest in the family trust, who it is assumed will continue to own the units, I am of the opinion that there is no minority or liquidity discount required.
Similarly in respect to the J Pty Ltd entity, Ms E raised the question of whether an internal loan would be likely to attract tax as a result of Division 7A of the Income Tax Assessment Act 1997 (Cth). She said she queried with the company accountant whether the treatment was correct and was informed that compliance was fine even though she doubted it. Accordingly, I do not intend to trouble myself further about that.
In respect of the plant and equipment, K Services valued it as a going concern. There is no evidence to suggest to me that it should be treated other than at its present value. That is, this business revolves around hiring out plant and equipment and there is nothing to indicate that the partners in the business will not continue with it.
The applicant’s partners have at all times been conscious of the proceedings and have been cooperative with Ms E in the production of documents for her valuation. No evidence indicated any concern by the partners about not only assisting the applicant, but also whether there would be an impact of orders upon them if the applicant had to find a larger sum of money than just the equity in the home to satisfy the respondent’s entitlements.
Ms E valued the enterprise on a net asset backing basis because the performance over the last four years showed that profit before tax fluctuated from $309,000 to a negative $495,000. The applicant explained the change as arising from competition and Ms E turned her mind to that problem. However, she noted that she had been provided with the revenue budget for the year ended 30 June 2018 which detailed a budgeted revenue of $10 million. That figure, albeit not achieved as at November 2017, was certainly higher than any of the actual sales for the four year period that Ms E considered. She said the budget forecast was based upon the business successfully bidding for work in a particular project but also the general increase in work.
Even absent any evidence of what the applicant’s business partners may do, I have inferred that they are aware of the significant revaluation of the plant and equipment in their balance sheet because that exercise was conducted independently of Ms E in 2017 culminating in a report provided to the parties in December 2017. Here, the major source of revenue is the hiring of equipment and there is no suggestion of any likely change. Indeed, as just mentioned, a successful bidding operation for work this current financial year has been undertaken.
Counsel for the applicant submitted that the court should be cautious not so much about the values but about how any order could be drafted because K Services, in valuing the plant and equipment, indicated that if there was a fire sale, the projected valuation figures would not be reached and, the potential recovery sum would be less than that shown in the current balance sheet. Absent some evidence to indicate that a sale is a possibility let alone likely here, I do not intend to contemplate that any further. It does not seem to me to be a realistic possibility absent evidence.
The other two major aspects of the applicant’s business interests lie in two partnerships. These partnerships have two real properties as investments and the legal interests in them are held by the partners. One of these properties was acquired prior to cohabitation but it would seem on the figures shown, the value was modest when the parties’ relationship began.
An examination of the first balance sheet, as shown by Ms E, indicates that the land is encumbered by a significant mortgage. The books of accounts show that the partners have no real interests of value. However, a revaluation of the real property altered that situation such that the balance sheet now would show that the applicant’s interest is $602,000. That of course would be affected by capital gains tax if a disposal occurred. Ms E at page 159 of her report made no provision for that because she was not aware of the intention to sell in either the short or medium term. I have to take that into account.
The first of the partnerships returned a profit of $119,000 to the partners in 2017. Ms E noted that the commercial property is used by J Pty Ltd as well as by the FPL Unit Trust. It is not my task to do any capital gains tax calculations but common sense dictates that in assessing any gain, one has to take out the cost base and it would appear from the balance sheet that the cost of acquisition substantially took up the value placed in the books of account. As such, any taxable gain on a disposal could only arise if it is accepted that the valuation undertaken by the independent valuer was correct. That would only be an issue if the property was sold or transferred.
There would be capital gains tax if the respondent’s entitlement to relief exceeded the value of the Suburb C home plus the value of the applicant’s interest in the first and second partnerships. Again, I am hamstrung because I do not have any evidence as to what the partners might do but I am entitled to infer that the business will be run from these premises and it would seem that at least for accounting purposes, the Taxation Office has accepted that the rental paid to the partners is at arm’s length. As such, there is much to be said for the prospect of what Ms E considered not only in respect of there being no indication of a sale but also no problems with any minority interest. Despite the absence of evidence about capital gains tax possibilities, I must conclude there will be some capital gains tax on a disposal even if only on the basis that the partners bought out the applicant.
It is also open for me to infer that it would be unlikely that the applicant would accept any assertion by his partners that the balances in the partnership accounts are correct as distinct from the revaluations having regard to the significant difference. If the partners decline to adopt these new valuations or decline to assist the applicant such as by buying him out, or assisting in the sale of the property, it would also seem folly for the applicant not to terminate the partnership. Whilst this would have the same effect of causing a sale and a consequent discharge of the mortgage, thereby giving rise to a capital gains tax event, it still seems to me that the amount of gain for the applicant would be modest. Much would also depend in which year the property sold.
The second partnership is in similar circumstances to the first. The revaluation of the particular real property has given rise to a reassessment of the balance sheet. Unlike the earlier property however, this one had a tenant other than the partnership business entities but that tenant left in June 2017. Ms E noted that J Pty Ltd relocated its operations to these premises after December 2017 and incurred improvements. All of that would tend to suggest that along with the business activities earlier mentioned, there is little prospect of the partners throwing up their hands and seeking to sell. Similarly, a threat by the applicant to terminate the partnership, would also seem unlikely. Even if it did occur, the valuation exercise undertaken in December, and the relocation of the business enterprise, would tend to suggest that this is not a house of cards which will collapse nor, are there impending dire consequences for the business and the applicant if he has to meet an amount more than he is submitting is just and equitable. In the circumstances, subject to the question of capital gains tax, it would seem that there is at least a further $1 million available to the applicant in the form of his equity in the two partnership real properties.
The assets of the parties
Accordingly I find that the assets are:
Suburb C – probable equity $595,000
The family trust 1,155,000
H Pty Ltd 991,000
The partnerships 1,010,000
The increased mortgage or the reduced
equity in Suburb C 485,000Net $4,236,000
I have left superannuation until later.
Assessing contributions
In Lovine and Connor and Anor (2012) FLC 93-515 the Full Court warned that the assessment of contributions was a discretionary one involving “many component parts, each mostly unamenable to precise computation”.
The contributions of the two parties here are starkly different. Perhaps oversimplifying it, the applicant worked hard and provided the financial resources for the family and, in respect of the respondent, after some years in the retail sector, she devoted her role to that of homemaker and parent including beyond the conclusion of the relationship. As such, the assessment of the parties’ contributions has to be seen through that prism.
In Petruski & Balewa [2013] FamCAFC 15, the Full Court noted that the assessment of contributions was an holistic one in which the extent of the contributions of all types in the context of the particular relationship were to be assessed.
In that same context, it is timely to remember what was said in Norbis and Norbis (1986) FLC 91-712 by Mason and Deane JJ that for ease of comparison and calculation, it may be convenient to assess the contributions of the respective parties either on a global basis or on an asset by asset basis. In this case, the parties entered into a type of joint venture well-knowing that their respective contributions were entirely different and that the choice to have children was one that would affect their financial circumstances. A global approach therefore is the most appropriate way of dealing with the assessment because it avoids comparing different contributions of differing complexities.
The unusual feature of this case arises from the way in which the applicant presented his argument. That raises the question of not so much the assessment but what those assessments mean when translated into orders. It is important to ensure that what is intended to reflect a just and equitable outcome, is in fact achieved (see Trask and Westlake (2015) FLC 93-662).
In my view, on any view of the comparisons of what the parties did in their respective roles, save for the applicant’s initial contribution, I could not distinguish between their contributions. Each fulfilled the task properly and appropriately in the joint venture that they had begun. Thus, save for the initial contribution of the applicant, their contributions over the 11 years they were together, and what happened after the conclusion of the relationship, were much the same. The respondent continued to care for the children who were still dependent and the nature of the parenting dispute indicated that her role was not easy. It must also not be forgotten that the applicant contributed his earnings for the support of the family albeit I have found against him in respect of what occurred with the mortgage but as that is now being “added back” to the assets, his contribution must then be so recognised. In addition, he continued his role continuing to work long hours in what seems to have been a competitive environment. The post-separation contributions ought not be separated out from the joint venture approach during the relationship and it is difficult to distinguish between the parties in that area.
The assessment
The main issue relates to the assessment of the applicant’s initial contributions.
Albeit subjective, the assessment of that initial contribution is informed by reference to comparable cases. Even if the cases are not entirely similar, the approach and indeed the language used, gives guidance (see Wallis and Manning (2017) FLC 93-759).
Focussing on some of the cases considered as authorities, is illuminating. In Brodie & Brodie [2009] FamCAFC 6 there was a pool of $4.6 million. When the parties began their 10 year relationship, the husband owned the home valued at between $300,000 and $350,000 and at the conclusion of the relationship, it had increased to $1.35 million. The wife brought in minimal assets. The trial judge assessed the husband’s entitlement at 60 per cent. Contemplating the husband’s initial contribution, the Full Court (at [88]) said:
His Honour failed to evaluate and give appropriate weight to the massive initial contribution of the husband’s assets, which assets largely formed the assets to be adjusted at trial.
It will be seen that that Full Court saw those numbers as significant enough to be described as “massive”. Unfortunately, the case was remitted for rehearing because of discovery issues so I am unaware of what happened subsequently.
In Agius & Agius [2010] FamCAFC 143, the Full Court contemplated a ten year relationship where a $450,000 Tattslotto prize was brought into the relationship by the wife and the husband had no significant assets. The Tattslotto winner also had two properties and there were other contributions along the way.
Of a “pool” of about $1 million, the trial judge assessed the husband’s contribution-based entitlements at 25 per cent. The Full Court analysed the actual numbers and noted that the present day value of the real estate brought in by the wife was approximately 72 per cent of the then net assets.
At [161] of the Full Court’s judgment, the court said:
In our view, it is therefore self-evident that consistently with what was said by the Full Court in Pierce, very considerable weight had to be given to the initial financial contribution by the wife.
The Full Court went on to look at the amounts involved as percentages of the whole. Ultimately, the various contributions along with the reference to s 75(2) of the Act led the Full Court to say that the outcome was “well within the range of discretion”. My focus is on the use of the words “very considerable weight”.
In Fields and Smith (2015) FLC 93,638, the Full Court was critical of the trial judge’s determination because of the lack of evidence “to connect the conservation of the property and the husband’s contributions”.
In the present case, the respondent’s position was that she knew nothing about the finances of the family let alone the applicant. There is an underlying assumption (and that is all it is) that the applicant’s business (in its various forms) has grown over the years. For example, one of the real properties upon which the main business operates was acquired in 2001, three years prior to cohabitation. The applicant said that one quarter of the capital contributed to the purchase came from he and the other partner and that sum is now reflected to the books of accounts as being attributed to the capital contribution. However, two years after cohabitation began, the applicant had to pay out his former wife (as he described it), from “business reserves”. That must be seen to have reduced the impact of his initial contribution in terms of the business. The land value of the real property has increased but the mortgage does not seem to have been significantly reduced. Thus, the applicant’s attribution to the increase in value as conservation of the property is more reflected in the market forces than anything done by the particular business partners.
Other evidence by the applicant shows the success of the various aspects of the business had fluctuated. For example, Balanced Technology was “parked” for a few years and competition “impacted heavily” on sales. In respect of the capacity to provide remuneration for the partners, the applicant noted that salaries were last “reviewed” ten years ago. Thus, lots of work has been done but the value of these aspects of the business lies in the increased values beyond those set out in the book values.
It is difficult to see how any conclusion could be drawn other than that the business has struggled along providing the owners with a reasonable salary. The major increase in their wealth arises from their persistence in continuing to run it and over time, property values, and indeed their own plant and equipment values, have risen.
In essence, and consistent with the evidence, the approach that should be adopted here was that set out in Williams & Williams [2007] FamCA 313. There, the Full Court said that a reference to the value of an item at the date of cohabitation without reference to its value to the parties at the time it was sold or at the time of trial, may not give adequate recognition to the importance of its contribution to the parties’ assets to be distributed. The Full Court went on to say (at [26]):
Thus where the pool of assets available for distribution between the parties consists of say an investment portfolio or a block of land or a painting that has risen significantly in value as a result of market forces, it is appropriate to give recognition to its value at the time of hearing or the time it was realised rather than simply pay attention to its initial value.
The Full Court went on to warn that other contributions in their various forms had to be taken into account as well.
In Spiteri and Spiteri (2005 ) FLC 93-214, the Full Court dealt with a relationship which was of nine years duration and which produced three children. At the time cohabitation occurred, the significant asset brought in by the husband was worth $189,000, $80,000 of which was income generating. At the time of separation, the assets had increased to $445,000 but there was a difficulty because of a finding of wastage by the wife of a significant sum of money.
At [34], the Full Court referred to the fact that the trial judge made no reference to “this relatively significant initial financial contribution by the husband”. The husband’s contribution was obviously not “massive” as it was in Brodie (supra) but it was sufficiently important to be recognised. The trial judge gave the husband 60 per cent which the Full Court considered inadequate. On the re-exercise of discretion, looking at all of the contributions, the Full Court said:
[51]So far as the parties’ contributions are concerned, we are of the view that on the evidence overall there would have been an assessment of equality were it not for the husband’s initial contribution which was in the order of $189,000 against the wife’s initial contribution which could only have been in the order of $10,000 and the wife’s wastage of at least some $150,000. Having regard to these matters we consider that an assessment of 80 per cent to 20 per cent in the husband favour as being appropritate.
In terms of comparable cases, one has to express caution with Spiteri because of the very significant wastage to which the Full Court referred.
In GWH & PGH [2005] FamCA 388 the trial judge had to deal with the husband bringing in a commercial property to which the parties made little or no contribution subsequent to their cohabitation. The value of that property at trial represented about one half of the total assets to be divided. Other assets brought into the marriage by the husband provided “a very significant springboard” from which the parties had been able to establish their wealth. The trial judge assessed the contributions as 70 per cent to the husband and 30 per cent to the wife. In the Full Court, it was noted that there had been a concession on the husband’s part that save for the introduction and conservation of the commercial property, the parties’ contributions should be regarded as equal.
Warning that the exercise of assessment was not “a strict accounting exercise”, the Full Court considered that the assessment of 30 per cent in favour of the wife was not outside the reasonable range of discretion “particularly having regard to the myriad of contributions” made by each of the parties over their cohabitation in a relationship that extended for over 18 years. That has to be seen in the context of the concession by the husband that save for the initial contribution which still existed, the parties had contributed equally.
In Cabbell & Cabbell [2009] FamCAFC 205 the husband brought in his equity in a legal firm which was later the subject of mergers. The Full Court noted that the husband’s ability to generate profits arose from his equity in the partnership which had commenced prior to cohabitation. Again, there was a finding that save for the initial contribution, the contributions over a 25 year marriage were equal. There was an $8 million “pool” of assets and on a reassessment, the Full Court divided the assets 55 per cent to the husband and 45 per cent to the wife. It can thus be seen that even where the initial contribution was significant, one has to also contemplate the importance of it is it was the genesis of the stream of income.
In Wah & Golay [2016] FamCAFC 67, the Full Court had to deal with contributions of an overall assessment nature rather than just those at the beginning. The observations of Murphy J with whom Ryan and Aldridge JJ agreed at [11] were:
(The trial judge) assessed contributions in the portion 87.5 per cent to the husband and 12.5 per cent to the wife. That is, (the trial judge) assessed that the contributions of all types made by both parties should see a disparity between them represented by approximately $2.9 million or 75 per cent of the total value of the pool. In arriving at that conclusion, (the trial judge) found that the wife’s direct capital contributions at the outset of the relationship were “not more than $280,000”. The husband’s capital contribution amounted to about $2.4 million.
Murphy J contemplated those numbers noting that in the husband’s case, he contributed about 89 per cent of the parties’ then interest in property. Ultimately, the Full Court found that the trial judge had failed to consider relevant matters and that discretion had miscarried. The assessment analysis was then undertaken by the Full Court and the wife’s entitlement was increased to 20 per cent. In his analysis as to why that was so, Murphy J noted that the future economic circumstances of the parties justified an adjustment of 7.5 per cent in favour of the wife having determined that there was otherwise no basis to alter the findings of the trial judge. All of this indicates the subjective nature of the whole assessment process.
Conclusion
Ignoring the applicant’s initial contribution of superannuation because I shall deal with that below, he brought in $252,000 much of which contributed to his earning capacity. It is helpful to consider that, unlike the lawyer who brought in the skill that generated the income, the valuation by Ms E has been done entirely on a net asset backing basis. There is no goodwill in this business and accordingly, the fact that the assets were brought in enabling the generation of income, is a relatively modest thing because the applicant still had to go to work and compete with other businesses.
It is also superficially attractive to see that the business was operated from premises in which the applicant had a legal interest but that too is artificial without some evidence of what a commercial rent would have been and whether it would have made a difference. Both of the real properties were significantly encumbered by debt which no doubt meant that a significant portion of the income was used to meet obligations and, in turn, the business had the benefit of being able to have the rental arrangement deducted for tax purposes whilst the partners gained the capital value which was not recognised in the balance sheet until the December valuation was undertaken. As such, I find the income earning nature of this asset to be modest.
Similarly, the value of the assets brought in has increased mostly because of market forces and whilst the Full Court has cautioned about ignoring that as a contribution, those properties could only be of value if the applicant and his partners continued to go to work in a competitive environment to pursue their profits based upon the structure that they had set up. That is, the applicant’s contribution was mostly during the relationship and the initial assets have only become important because of increased property values.
The initial contribution must be acknowledged but it is not “massive” nor in my view, “relatively significant”. The contributions enabled the parties to gain the home that they lived in as part of their joint venture in which each made significant contributions in their respective roles.
After about 12 years, the net value of the parties’ interests in property (excluding superannuation) is about $4.236 million and therefore the initial contribution as recognised by Ms E in all of the interests of the applicant, is only about 6 per cent. That too has to be contemplated in the circumstances where after the cohabitation, the applicant paid out his former wife.
In Steinbrenner & Steinbrenner [2008] FamCAFC 193, Coleman J sitting as a single judge on appeal observed the following:
[10]The property of the parties was found, uncontroversially for present purposes, to approximate $555 775, the great bulk of which the husband had acquired prior to marriage or was referrable to assets which the husband held prior to the parties’ marriage.
[11]In the post separation period the wife has had the primary care of the child and lived with the child in rented accommodation, receiving minimal child support. Since the parties separated, the husband has occupied the former matrimonial home and received the benefit of the net rental from an investment property. The husband has paid all expenses and outgoings with respect to both properties during the post separation period.
The gravamen of the appeal can be seen when Coleman J turned to what was asserted as the error of the trial judge. His Honour said:
[219]Ground 19 provided:
His Honour’s discretion miscarried when he concluded that the Wife’s contribution based entitlement was 10% of the pool of property of the parties in that his conclusion was unreasonable and/or unjust and that he failed to give reasons in his judgment as to how he reached the figure of 10%.
[220]In lieu of the contribution based entitlement determined by the learned Federal Magistrate (10 percent or $55 000), it was submitted by learned Counsel for the husband that his Honour should have found an entitlement of 5 percent ($27 500).
Coleman J observed at [231] that in the course of the Federal Magistrate’s reasons, he had addressed the issue of contributions by reference to three periods of time. They were, the commencement of cohabitation, the period of cohabitation, and the period subsequent to the determination of cohabitation. Coleman J noted that save for the contributions during and after cohabitation, the Federal Magistrate had found the direct and indirect financial contributions were “overwhelmingly”, made by the husband.
Coleman J then turned to the question of the appropriate approach to an assessment of that sort of evidence. His Honour said, and with respect, I adopt:
[234]Given that the evaluation of contribution based entitlements inevitably moves from qualitative evaluation of contributions to a quantitative reflection of such evaluation, there will inevitably be a “leap” from words to figures. That is the nature of the exercise of discretion…
Bearing in mind this was an appeal and therefore the court was constrained by principles relating to the exercise of discretion, Coleman J adopted language such as “the husband’s contributions vastly outweighed those of the wife” but still only asked whether the ultimate relief granted was outside of what was reasonable in all the circumstances. His Honour acknowledged that the Federal Magistrate had “recognised” what the contribution aspect was all about and effectively where these various assets had come from.
It is important then to recognise what the nature and extent of the contributions were to satisfy the “qualitative evaluation” but there is little guidance that can be obtained from authority or comparable cases to assist in moving to the “qualitative evaluation”.
Before tackling that exercise, there are some other aspects of the parties’ various contributions that need to be considered even though it seemed that the parties had focused primarily on the issue of the applicant’s initial contribution.
Support for Mr L
Despite the fact that there was an impression, and perhaps not a concession, from the applicant that the parties’ respective contributions during the relationship were much the same, his counsel in final address observed that significant contribution had been made towards the support of Mr L over the entire life of the relationship. Mr L was a young child when the parties commenced their cohabitation.
The unchallenged evidence of the applicant is that he assisted in the early teenage years of Mr L by collecting him from rugby training two nights per week and was “an active father figure” in Mr L’s life. Mr L is now 18 years of age and the antipathy towards the applicant is readily apparent. Mr L saw little of his biological father and was treated as part of the applicant’s household. The applicant paid for private schooling for a number of years and as there was no other source of income for the family, the only conclusion is that Mr L benefitted from his step-father’s efforts as did the rest of the family.
I find that contribution by the applicant was important. In Robb and Robb (1995) FLC 92-555, it was made clear that in a marriage situation, s 79(4) of the Act referred to the contributions to the family constituted by the parties to the marriage and any children of that marriage. Section 90SM(4) refers similarly to children of the de facto relationship and accordingly, I see no reason to distinguish the Robb situation here. This was a contribution by the applicant to a child who was not his legal responsibility but indeed, the responsibility of the respondent. As the only income for the family came from the applicant, and Mr L was part of the family right from the outset of the relationship, both parties accepted that he was their responsibility. Having regard to s 90SM(4)(c), the financial and non-financial support for Mr L must be seen as important. It is part of the mix of the assessment.
How to treat the applicant’s accrued leave
It was not disputed that the applicant also has undrawn and accrued leave entitlements calculated by Ms E at $194,408. Indicative of the fact that no-one seemed very clear about how to treat them, senior counsel for the respondent placed them under the heading of “financial resources”.
In Gould and Gould (1996) FLC 92-657, the Full Court looked at the issue of the treatment of long service leave. In the assessment of what was just and equitable, the issue of the ability of the employee to take time off work but still be paid a normal salary was seen as possibly constituting a financial resource in some circumstances. Where that leave is found most likely to be artificial or notional, as I find it is here because of the very limited prospect that the applicant could be away for any significant period of time, one must approach the entitlement cautiously. In Gould, the Full Court said that where there was an economic advantage, such as by obtaining other employment during that leave period, that is an advantage that the other party may not have had and it could be used to advance that particular employee’s financial position whilst the other party had no prospect of that occurring. It would therefore be inappropriate here to simply ignore the leave on the basis that it is unlikely to be used for the purposes contemplated in Gould.
I find that it is a significant sum of money because on the basis that the applicant now concedes he is earning $190,000 per year, it is the equivalent of one year’s salary albeit I find it is unlikely that he would be able to convert it into cash because of the historical incapacity of the business to pay increased salaries and as I understand it, this has accrued because the applicant has not taken leave. It is in the books of accounts and it has been valued by Ms E so I see no reason why it should not be taken into account for the purposes of s 90SM(4)(e). However, I find it is not an asset.
Conclusion as to an assessment
In final address, Mr North SC for the respondent said that the assessment justified a difference of 15 to 20 per cent. That is, if all was otherwise equal, the contribution assessment would be about 57.5 per cent to 60 per cent in favour of the applicant. I accept that submission in the context of what I have said above.
With the significance of the family contribution just mentioned but adjusted by the accrued leave and the initial contribution, I also agree with Mr Puckey that the submission of Mr North was at “the low end of the range”. In my view the appropriate differential is closer to 25 per cent.
Superannuation
The applicant is aged 52 years and the respondent 46 years. As such, neither has the prospect of immediate retirement or of that situation arising in the immediate foreseeable future. There was also no evidence to indicate that any known health situation is such that it would trigger retirement. I have concluded therefore that neither party is in a position to access superannuation at the moment.
It was common ground that the applicant’s superannuation entitlements which are currently held in a self-managed superannuation fund total $513,687 whilst those of the respondent total $20,290.
The applicant proposed an order that there be a superannuation splitting order of his interest such that one half of his entitlements be split in favour of the respondent which, if added to her superannuation interest, would mean that she would have about 52 per cent of the superannuation. Although it was not clear from the outline of argument, I understand the applicant to be saying that he was agreeing to that splitting order on the basis that his main non-superannuation proposal was accepted. The applicant brought into the relationship an undisputed $160,000 of superannuation such that if the proposal was being put as it was in relation to non-superannuation assets, an equal division of the superannuation might be justified, but in my view, not otherwise.
The respondent’s position was simply to seek 50 per cent of the applicant’s self-managed superannuation fund interest. Despite the similar wording of the proposed orders, there is in fact no consensus.
In C and C (2005) FLC 93-220, the Full Court examined what was then new legislation in relation to the alteration of superannuation interests by splitting orders.
The Full Court at [58] said that because of the obligation to make a just and equitable order, wherever there is a superannuation interest, the court should apply the provisions of s 79(4)(a) to (g) whether or not a splitting order is sought. The provisions of the Act relating to married couples and the alteration of property interests is exactly the same as it is for couples coming out of a de facto relationship. Ultimately, the Full Court said that the preferred approach to the determination of property settlement cases was to prepare a separate list of superannuation interests which had to be valued according to the regulations. That is what the parties have done here.
The Full Court said that the application of the relevant factors to which I have already referred would then need to be considered and any alteration to a superannuation interest be based on those considerations The parties’ future superannuation prospects, be they in capital or income form, would also need to be considered and then finally, the overall justice and equity of the ultimate award would be considered.
The applicant’s initial contribution is equivalent to one third of what now exists. That cannot be ignored.
I am conscious therefore that although it was not apparent until the final address that the applicant was not agreeing to an equal division of his superannuation unless he got what he otherwise wanted, the court is at large to determine the matter on the principles just outlined.
Recognizing the greater contribution by the applicant, I would accordingly assess the contributions as to two thirds to the applicant and one third to the respondent. Because neither party is near retirement, I would make no further adjustment for the reasons I will apply in respect of s 90SF(3). I consider that because there is no indication of how each will benefit from the future circumstances, any adjustment cannot be justified. For example, whilst there is a strong likelihood of an income disparity, I do not know whether the applicant’s income will change as a result of the orders and how that may impact on contributions to his superannuation fund. Similarly, I do not know whether the respondent will deposit a portion of the proposed order into her superannuation entitlements. Accordingly, I would leave the respondent’s superannuation with her and otherwise divide the applicant’s superannuation as to two thirds to him and one third to the respondent.
Adjustment for s 90SM(3)
The assessment just undertaken arises out of the provisions of s 90SM(1) which provides that the court may make such order as it considers appropriate altering the interests of the parties in their property. Section 90SM(3) provides that the court must not make an order unless it is satisfied that, in all the circumstances, it is just and equitable to do so.
Section 90SM(4) requires the court to take into account the various contributions described in that section. However, s 90SM(4)(e) requires that the court is obliged to look at the matters referred to in s 90SF(3) insofar as they are relevant.
Counsel for the applicant said that there were really only two matters that justified such attention as would warrant an alteration to any assessment based entirely on contribution. He referred to the disparity of earning capacity of the parties but then also the child support assessment. I am not convinced that the two matters are all that needs to be taken into account here.
The evidence which is now not controversial shows that there is a substantial disparity between the income of each of the parties but there is also a disparity between what property each will have as a consequence of the orders that I propose to make.
Section 90SF(3)(m) also obliges the court to take into account the financial circumstances of the applicant’s wife. Her earnings are approximately $100,000 per annum but against that, she has an 18 year old daughter who appears to be still dependent on the basis that no income is declared for her and no questions were asked about that situation. However, when her income is added to the income of the applicant, the obvious conclusion is that his financial circumstances (as a household) are much more comfortable than those of the respondent whose income apart from what is provided by the applicant, revolves around her entitlement to Centrelink payments. What impact a lump sum would have on the respondent’s Centrelink entitlements remains unclear and as I am not asked to exercise the powers under s 90SE, it is not necessary for me to disregard those Centrelink benefits.
What is apparent in relation to the financial circumstances of the parties can be seen in the duration of the de facto relationship and how it has affected earning capacity. The applicant has had no discernible change and that can only be as a result of the respondent’s approach to taking on the responsibilities of homemaker and parent. The respondent has been out of the workforce and even when she was so engaged, it was in retail. She is currently retraining and for that purpose, hopes to be qualified later in 2018 but on any view of the evidence, she is still expecting to earn substantially less than what the applicant could possibly earn.
Even allowing for the problems anticipated by counsel for the applicant in satisfying any order, the applicant still has an advantage over the respondent by virtue of having a business and an earning capacity much greater than hers. Ameliorating that however is the fact that the applicant will now have the responsibility for the children on six nights per fortnight which will no doubt increase his living costs but as against that, his child support is said now likely to be reduced to $20,000 per annum according to the formula. That of course depends entirely upon his income as disclosed in his tax return.
The applicant has the disadvantage of having his assets tied up in the business but at least, with the assistance of his commercial partners, he can control his taxation commitments to some degree and improve his financial circumstances. The respondent on the other hand will have some capital but no income to derive therefrom if she puts it into the acquisition of a home which is necessary for the sake of settling the children. Of the two parties, the prospects of improvement lie much better with the applicant than the respondent.
The applicant will be able to complete her teacher’s aide course and return to the workforce providing she can obtain employment and there is no evidence to indicate that there is any certainty about that at this stage.
Any adjustment in relation to these matters still has to be part of the justice and equity assessment overall. In my view there is a justification for a minor additional amount favouring the respondent to the extent of 5 per cent or a differential of 10 per cent and accordingly I would find that overall, there should be an adjustment of the assets in favour of the applicant as to 57.5 per cent and 42.5 per cent to the respondent. That assessment however is subject to an examination of what to do about the parties’ superannuation interests to which I turn now.
The framing of the orders
Senior counsel for the respondent submitted that this was a case in which a lump sum should be fixed in favour of the respondent in addition to the net proceeds of the sale of the Suburb C home. That was predicated on a finding of the conduct of the applicant to which I have already referred. It was submitted that the applicant’s dealing with the respondent were far from transparent and his reluctance to share information was obvious. It was submitted that he was willing to decide things contrary to the respondent’s interests, acted contrary to orders, and had made representations which were at least misleading. These were the circumstances it was submitted that framed the order and in particular, required a lump sum to be fixed. Such a course would place the risk on the applicant rather than the respondent in circumstances where she would have no control over how the enforcement of her entitlement occurred.
One obvious problem here is what to do about what the applicant claims was a payment of $109,815 as a litigation disbursement. This was the money that went towards valuers and experts but the evidence is sufficiently vague and was not proffered in any corroborative sense by the applicant until being cross-examined. I could only conclude that he somehow used either the mortgage facility or what he described as “loans” from the business which do not appear in any of the books of accounts. However, if the add-back of the mortgage monies occurs and there is no reference to those “loans” in the books of accounts of the business, I consider it is fair to presume that the money has been accounted for in both the adding back of the mortgage money and also the valuation of the businesses.
The framing of the orders therefore must take into account that the valuation expenses should have been borne jointly by the parties. Exhibit R3 provides some assistance and I am satisfied that approximately $80,000 or thereabouts went through the hands of the applicant to cover those expenses and there is no reason in my view why the respondent should not make an equal contribution to that sum. I therefore intend to reduce her entitlement in the overall assessment.
The applicant’s counsel put a more complicated submission. He submitted that if one looked at the reality of what has occurred here, J is the primary trading entity and all of the other assets are interconnected. There is a superficial attraction to that argument but I have sufficiently covered that earlier to indicate that I am satisfied these are stand-alone entities and the applicant’s assets can be attached to satisfy orders.
It was submitted that all of this was simply a house of cards and that without the two properties in the partnerships against which liabilities rested to prop up the business, the relative entities were simply their net assets. That is not entirely accurate because the assets generate income reflected in the $190,000 per annum that the applicant now receives but he also has the benefit of reducing tax and expense by the relevant ownership of the land. Loss of that asset or those properties simply means the business pays commercial rent rather than notional sent to the owners.
It was submitted that the problem of capital gains tax arises if there is no ready source funding. Excluding the superannuation, the net proceeds of the sale of the home may ultimately be only about 14 per cent of the non-superannuation assets. I agree with senior counsel for the respondent that such an order would not be just and equitable having regard to all of the matters that I have already discussed.
Nothing was presented to the court to show what the possible consequences might be if the respondent’s position was accepted. The applicant must have known that the respondent was seeking a substantial sum more than that which he was intending to offer. Her outline of case document indicated that she was seeking in excess of $2 million. Despite that, no endeavour was made to indicate not just what would happen if that sort of order was made but how the sale of real property interests would trigger capital gains tax consequences even to the extent of the maximum equity of the applicant in those assets.
Counsel for the applicant pointed to the decision of Turner & Turner and Anor [2016] FamCAFC 121. There, the trial judge dealt with a substantial asset pool but where the husband had refused to participate. He had the control of the assets but interests were held by his family. Where there was an obvious requirement to provide a substantial sum of money, no reasonable inference was held to be open other than that there would necessarily be a sale of property. Such a sale had to trigger capital gains liability.
The Full Court held that the trial judge was in error in not allowing for the potential for those expenses and observed that if orders had been fashioned on a net percentage basis, the issue would have been avoided. In essence, that is the submission of the applicant here.
The respondent’s submission was that if that occurred, the applicant could not be trusted and could manipulate the outcome but I consider that can be ameliorated by orders for sale in respect of those properties with both parties involved.
Thus, although I am confident that the values provided by Ms E are a true reflection of the interest in property held by the applicant, I have no concept or understanding of what the consequences for both sale costs, borrowing costs, capital gains tax or goods and services tax may be on that value if a disposal occurs. Here, I must accept that on the figures provided by Ms E and her very clear analysis, there is a significant probability that assets will have to be sold. Even if that is not the case and there is a transfer of property to one of the partners in return for cash, that too would presumably be seen as a disposal affected by tax. In the circumstances, I see no choice but to make the order in respect of the balance of the monies to which the respondent is entitled being determined on a percentage basis with the relevant protections to which I have referred.
Because of the need to give the husband an opportunity to raise wheat I expect will be in excess of $1 million, and the need to approach the precise figures on a percentage basis, I consider the just and equitable way to achieve an appropriate outcome is to give the husband time now, knowing the approximate figure he will need to raise and by the time Suburb C sells, that should be in place. If it is not and the husband takes no steps to fulfil his obligations, the wife will need to take enforcement action that may result in the disposal of or transfer of the partnership interests and the winding up of the trust.
Child Support
The orders that the applicant sought were that the court apply the provisions of s 116 of the Child Support (Assessment) Act 1989 (Cth) that there be a departure from the administrative assessment for the two children such that he pay child support as assessed until the sale of the Suburb C property as well as the entirety of their education expenses and ancillary expenses. He sought an order that the payment of the mortgage and those expenses be offset against 100 per cent of his obligation.
When the case began, the child support assessment had not been filed and even at the conclusion, it was conceded that the child support registrar had not been served. I agree with counsel for the applicant that the absence of service is not fatal. I would be surprised if the registrar was interested in intervening.
Section 116 of the relevant Act provides that an application can be made for an order in the special circumstances of the case if the parents are parties to an application pending in a court having jurisdiction under the Act and the court is satisfied that it would be in the interests of the parents to consider whether an order should be made.
Before an order can be made however, the provisions of s 117 have to be satisfied. The court has to be satisfied that one or more grounds for departure exist and that it would be just and equitable as regards the child, the parents and otherwise proper to make it.
The grounds for departure are set out in the Act but nothing in the applicant’s application or in the submissions of his counsel indicate what ground he was relying upon. That too is not fatal but to the extent that the applicant relies upon his capacity being significantly reduced because of his duty to maintain himself or some other person, that could not apply here based upon the facts as I have found them above particularly having regard to the combined incomes of both he and his new wife.
Another ground for departure is that the costs of maintaining a child are significantly affected because of the cost associated with caring for that child or children. That cannot apply here.
A third possibility is that the administrative assessment would result in an unjust and inequitable determination of the level of financial support to be provided by, in this case, the applicant because of the income, property and financial resources of the other parent. Similarly consideration would have to be given to the earning capacity of the other parent and none of that applies here.
Section 117 requires the court when contemplating whether it would be just and equitable to have regard to the nature of the duty to maintain a child, the proper needs of that child, the various resources of the child, the income, property and financial resources of each parent and so forth. None of that was addressed in this case. The evidence of the applicants was limited to a statement that in addition to the existing obligations under the orders of 15 September 2015, he has these child support obligations which he said “added significantly to the financial obligations I have carried since our separation”.
Having regard to the earlier findings, that evidence cannot be accepted.
In the circumstances there is no evidence that would justify a conclusion that there was some special circumstance here. There is no evidence to justify a conclusion that it would be just and equitable to alter the child support assessment having regard to the matters that I earlier referred to in the legislation.
Absent some further evidence and it was not proffered, the application for a departure must fail.
I certify that the preceding one hundred and fifty-eight (158) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 9 April 2018.
Associate:
Date: 9 April 2018
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